Beames v Rigby

[2001] FMCA 29

FEDERAL MAGISTRATES COURT OF AUSTRALIA

Name: Beames v Rigby                File No: BZ 3/01

Citation No:  [2001] FMCA 29

Catchwords:  BANKRUPTCY – Application to set aside
  Notice – abuse of power – counterclaim
Set off on cross-demand – s40(1)(g); s41(7)
  Of Bankruptcy Act 1966

THOMAS V ST GEORGE BANK LTD (1999) FCA 166, BRUNNINGTON V GALVANIES (1998) FCA 230

Applicant:DOUGLAS MACLEOD BEAMES

Respondent:  GEOFFREY IAN RIGBY

File No:BZ 3/01

Delivered on:  23 May 2001

Delivered at:  Brisbane

Hearing Date:  19 April 2001

Judgment of:  Baumann FM

REPRESENTATION:

Solicitors for the Applicant:           Mr Beames, Solicitor, of Chris Reeve & Co., Solicitors of Tewantin in the state of Queensland.

Counsel for the Respondent:        Mr C Wilson

Solicitors for the Respondent:      Cartwright Richardson & Stringer, Solicitors, of Noosa Heads, in the state of Queensland
ORDERS:

1.The application is dismissed.

2.The applicant shall pay the respondent’s costs of these proceedings as agreed and failing agreement as taxed.

IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BRISBANE REGISTRY

No BZ 3of 2001

DOUGLAS MACLEOD BEAMES

Applicant

And

GEOFFREY IAN RIGBY

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. The applicant filed an application in this Court on 4 January 2001 for an order that the respondent’s Bankruptcy notice 869/2000 issued and dated 23 November 2000 (“the bankruptcy notice”) be set aside or in the alternative, an order that the applicant has a counter-claim, set off or cross demand pursuant to section 40(1)(g) of the Bankruptcy Act.

2.    At the hearing on 20 April 20001, the applicant no longer sought to rely upon certain alleged defects in the bankruptcy notice as a basis for setting it aside.

3.    The issue for determination then became:-

(a)whether the time for compliance with the said bankruptcy notice has been extended either by operation of section 41(7) of the Act or by direction of the Court, and;

(b)whether the filing of the bankruptcy notice should be regarded as an abuse of process.

PROCEDURAL BACKGROUND

4.    The respondent issued the said bankruptcy notice, based on a judgment for costs against the applicant made by Muir J in the Supreme Court of Queensland on 19 June 2000.  The judgment is not the subject of any present appeal.  The applicant said the order for costs was made in his absence whilst the respondent says the applicant was represented by a Solicitor.  The applicant said the Solicitor who did appear did not have his instructions to do so, and is the subject of a claim for professional negligence.

5. The bankruptcy notice was served on 15 December 2000 and the applicant filed the current application on 4 January 2001. The application was returnable before the Registrar on 9 February 2001. The application was supported by an affidavit of the applicant sworn on 4 January 2001. The affidavit does not assert or provide any evidence to support an allegation that the applicant had a counter-claim set-off or cross demand of the kind referred to in section 40(1)(g) of the Act.

6.    The affidavit gives some history in respect of proceedings in the Supreme Court of Queensland no. 7742/99 where apparently the applicant is defendant to an action commenced by the State of Queensland relating to the delineation of a boundary and the effect of accretions to land.  The affidavit asserts that the bankruptcy notice was an abuse of process.

7.    On 7 February 2001, Registrar Ramsay made directions for the hearing of the application on 19 April 2001.  No application to extend time for compliance was made and I am satisfied that no order to extend time for compliance was made by the Registrar.  In those circumstances it seems that the applicant proceeded throughout on the footing that either:-

(a)there was or was not effective invocation of section 41(7) of the Bankruptcy Act 1966, or;

(b)a presumption on his part that there would be no point in setting a date for hearing “of an application to set aside a bankruptcy notice in respect of which the time for compliance had expired or an act of bankruptcy had already been established through non-compliance with the bankruptcy notice”.

8.    On 12 April 2001, Solicitors for the applicant tendered a cheque for $7863.81, payable to the trust account of the solicitors for the respondent expressed to be “in full payment of the debt claimed by Geoffrey Ian Rigby” the creditor referred to in the bankruptcy notice QN 869/2000”.

9.    The respondent is now the plaintiff (as trustee) in respect of Supreme Court proceedings no. 1591/97 against the applicant.  A copy of the statement of claim for those proceedings is exhibited to the affidavit of Geoffrey Rigby filed 22 March 2001.  The proceedings seek a declaration of entitlement to possession of certain land and also injunctive relief.  These proceedings have been defended by the applicant.

10. The claim to possession arises under the terms of a registered mortgage now held by the plaintiff (as trustee acting on behalf of a number of contributors) over land registered in the name of the applicant.  The respondent alleges the applicant is in default under the mortgage with a balance owing by the applicant under the security of not less than $552,000.00.  The applicant in his affidavit filed 21 February 2001 does not deny the existence of the debt under the mortgage.  It does not appear as if any proceedings for recovery of monies under the personal covenants in the mortgage have been commenced against the applicant.

ISSUE OF WHETHER A COUNTER-CLAIM EXISTS

11. The applicant bears the onus of establishing that a counter-claim, set -off or cross-claim within the meaning of paragraph 40(1)(g) exists.  If such an allegation is made in an application, then the application is to be supported by an affidavit in compliance with Federal Court Rules Order 77 sub rule 13(2) and (3).  No such affidavit has been filed.

12. Before the benefit of the extension of time provided by section 41(7) of the Bankruptcy Act can be activated “more than the mere filling of an application which meets the literal terms of the subsection” is required. (see THOMAS V ST GEORGE BANK LTD (1999) FCA 166 per Lindgren J). That is all that has been asserted by the applicant and it is insufficient. He ahs not established that any counter-claim, set-off or cross-demand against the respondent is likely to secure a monetary award exists. (see JAMES V ABRAHAMS (1981) 34 ALR 657 at 665 per Deane & Lockhart JJ). In these circumstances I am not satisfied that the applicant has a counter-claim, set-off or demand.

SHOULD THE TIME FOR COMPLIANCE OR OTHERWISE BE EXTENDED

13. There is no evidence that the time for compliance with the bankruptcy notice was extended by the Registrar. No formal application was ever made. It would seem the applicant is relying on section 41(7).

14. It was a clear premise of the applicants case, that the filing of the bankruptcy notice was an abuse of the process.  This was identified in his initial supporting affidavit where he says at paragraph 4 that:-

“the creditor has an ulterior and improper purpose behind the issue and service of the subject bankruptcy notice at this particular time.  That ulterior purpose is solely to force me to pay the said sum of $7863.81 by threat of detriment.  The detriment that I suffer if the said sum is not paid, is the loss of my standing to defend the Supreme Court proceedings no.7742 of 1999 aforesaid.  Therefore, the purpose of the said bankruptcy notice is not to invoke the Court’s jurisdiction in relation to insolvency”.

15. The original affidavit also particularised alleged defects in the bankruptcy notice, which ultimately were not asserted at the hearing.

16. It is within the power of the Court to set aside a bankruptcy notice even of the time for compliance has expired.  In circumstances where no application to extend time for compliance was made in the application or orally I believe it would not be proper to do so now.

ABUSE OF PROCESS

17. I was referred to decisions of the Federal Court of Australia including RE: STERLING; EX PARTE ESANDA PTY LTD (1980) 44 FLR 125 and RE: LENTINI V CSR LIMITED (1991) 29 FCR 363 as to the inherent power of the Court to set aside a bankruptcy notice as an abuse of process and as succinctly observed by Emmett J in BRUNNINGHAUSEN V GLAVANIES (1998) 230 FCA, 3 March 1998, I also take it to be undisputed that:-

“if it is apparent that the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court’s jurisdiction in relation to insolvency, then the filing of a bankruptcy notice is an abuse of process”.

18. The applicant relies upon the following evidence or inferences (he asks me to draw) to support his claim of abuse of process.  The time to judge abuse of process is the time that the bankruptcy notice is issued.

(a)Acknowledgment by Creditor

The respondent (creditor) in his affidavit filed 22 February 2001 at paragraph 4 says:-

“…the purpose of the bankruptcy notice is to seek to recover the unpaid principal interest and costs due by the Beames who borrowed the sum of $384,000.00 by two instalments the last being on 14 September 1995…”

The applicant relies upon this sworn statement as clear evidence of the ulterior purpose.  The respondent further says, in response to claims by the applicant that:-

“There is no ulterior motive or improper purpose behind the issue and service of the bankruptcy notice at this time but rather the purpose is to collect monies due”

and then by an affidavit sworn on the same day the respondent seeks to clarify the meaning of the purpose by saying what:-

“was intended to mean through sequestration of Beames’ estate and realisation of whatever assets are available and payment of dividends to creditors”

The applicant says the affidavits of the respondent confirmed the ulterior motive and are contradicted by the later assertion on the respondent at paragraph 5 of his affidavit filed 22 March 2001 that:-

“the purpose of the issue of bankruptcy notice was to support bankruptcy proceedings against the said applicant which has made no attempt to pay the judgment debt nor has he any assets encumbered or otherwise which would meet the judgement debt”

(b)Lack Of Demand For Payment

The applicant claims at paragraph 5 of his affidavit that:-

“the creditor did not give notice of the judgment to me nor did he make any demand for payment.  The bankruptcy notice is the only demand for payment of this sum that has been made”

This is not challenged.  The assessment of the costs order resulted in an order of Deputy Registrar Figg made 19 October 2000.  The respondent says in submissions that the applicant appeared at the assessment.  I am able to infer that the applicant knew of the judgment before he was served with the bankruptcy notice on 15 December 2000.

(c)Preventing Him From Defending Proceedings 7742/99

The applicant alleges the pursuit of him to sequestration is designed to hinder or prevent him from continuing to defend the proceedings instituted against him by the state of Queensland.  The collateral or ulterior benefit which the respondent will achieve according to the applicant, is that there would not be exposure of:-

“the conspiracy of the Registrar of Titles, the respondent and the present registered owner of Lot 28 to defraud”

The respondent rejects such an assertion claiming that he has no concerns and is under no “legal prohibition whether by way of caveat or otherwise from a effecting a sale of Lot 29”.

I infer, as a result, the Creditor rejects a suggestion he was under such a prohibition in selling Lot 28 which could found the allegation of fraud or “conspiracy”.

CONCLUSION

19. I infer that as a result of the long standing controversy between the parties arising from the mortgage transaction and subsequent Supreme Court proceedings no. 1591/97, the respondent would have knowledge of the applicant’s financial position.

20. The respondent says the applicant has no assets encumbered or otherwise which would meet the judgement debt.  The applicant did not challenge or deny that statement.

21. Whilst I am not required to make any determination as to solvency, it was open to the applicant to establish that the judgment debt, which he has subsequently caused to be paid by a third party, could have been met from another source at the time of the notice.  The applicant has obviously been aware of the detriment that he says would flow from ultimate sequestration.

22. In circumstances where he has no counter-claim to the debt and made not offer to pay the debt between the time of judgment in June 2000 and issue of the notice, what avenue of recovery was the respondent expected to pursue?

23. This case is quire different from the facts which arise before Emmett J in Brunninghausen where the debtor had made reasonable offers to secure payment of a debt of $300,000.00 pending an appeal.

24. I am not satisfied in all the circumstances, that the dominant purpose for the issue of the bankruptcy notice was for the ulterior motives alleged by the applicant, or either of them.  The applicant must therefore fail in his application.

25. Costs should follow the event.

26. The application is dismissed.

27. The applicant shall pay the respondent’s costs of these proceedings as agreed and failing agreement as taxed.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Baumann FM

Associate:

Date:  23 May 2001