Bradbrook, D.H. v Farrow Mortgage Services P/L (In Liq)
[1994] FCA 80
•09 FEBRUARY 1994
DARENCE HAMLET BRADBROOK AND CORRENE TASMA BRADBROOK v FARROW MORTGAGE
SERVICES PTY LIMITED (in liquidation)
No. SN420 of 1993
FED No. 80/94
Number of pages - 5
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
GENERAL DIVISION
VON DOUSSA J
CATCHWORDS
Bankruptcy - whether a counter claim, set off or cross-demand of the kind referred to in s.40(1)(g) of the Bankruptcy Act - bankruptcy notice founded on orders for costs made in interlocutory proceedings in a Supreme Court action between the parties - alleged counter claim set off or cross-demand already pleaded as defence and counter claim in the Supreme Court - whether the counter claim, set off or cross-demand could have been set up in the action in which the order for costs was obtained.
Bankruptcy Act 1966, s.40(1)(g), 40(3)(b)
Re Brink; ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135
Re Gould; ex parte Skinner (1983) 72 FLR 393
Chesson v Smith (1992) 35 FCR 594
Pollnow v Bay Road Properties Pty Ltd and Others (unreported) Burchett J, 22 December 1993
HEARING
ADELAIDE, 9 February 1994
#DATE 9:2:1994
The debtors appeared in person
Counsel for the creditor: Mr D Howard with
Mr N Manetta
Solicitor for the creditor: Kelly and Co.
ORDER
THE COURT ORDERS THAT:
1. Declaration that the judgment debtors have a counter claim, set off or cross-demand equal to or exceeding the amount of the sum payable under the final order on which the bankruptcy notice is founded which the judgment debtors could not have set up in the action or proceeding in which the order was obtained.
2. Judgment creditor to pay the judgment debtors' costs fixed at
$150.00.
Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.
JUDGE1
VON DOUSSA J This is a reference to the Court under r.10 of the Bankruptcy Rules to determine whether the judgment debtors, Mr and Mrs Bradbrook, have a counter claim, set off or cross-demand of the kind referred to in s.40(1)(g) of the Bankruptcy Act 1966 in answer to a bankruptcy notice which has been served on them. The bankruptcy notice is based upon an allocatur in the Supreme Court of South Australia dated 8 March 1993. That allocatur certified the taxation of costs against Mr and Mrs Bradbrook in the sum of $10,239.41.
The allocatur reflects several orders for costs that were made over a period of time in proceedings in the Supreme Court of South Australia in Actions numbered 2670 and 2671 of 1990. Those proceedings were commenced in December 1990 by the judgment creditor. The judgment creditor sought to recover possession of several properties pursuant to certain memoranda of mortgage. As the proceedings advanced and pleadings were filed, a claim was also included to recover in the alternative a money sum. That sum, allowing for interest in the meantime, is now in the order of $450,000. The proceedings are still working their way to trial in the Supreme Court.
When the Supreme Court proceedings were served, the defendants therein, who include Mr and Mrs Bradbrook, sought to file defences and counter claims. They were at the time unrepresented. On the limited information before this Court it appears that their efforts to do so were not in accordance with the rules of court. Applications were made by the judgment creditor to strike out the defences and counter claims. Initially those applications, and others of an interlocutory nature brought by the judgment creditor, were successful, hence the orders for costs against the judgment debtors.
In November 1992 the judgment debtors were able to obtain legal advice. At that time a defence and counter claim in proper form was filed in the Supreme Court proceedings. The counter claim asserts that there was an oral agreement reached between the judgment debtors and the judgment creditor, or rather the agent of the predecessor in title of the judgment creditor, which was collateral to the terms of the mortgages. The agreement provided, so it is alleged, for partial repayments of the amount advanced under the mortgages and for partial discharges of the mortgages in respect of particular properties as they were developed and sold.
It is alleged in the Supreme Court counter claim that a demand by the judgment creditor for payment of the full proceeds of sale of a property was improperly made, in the sense that it was in breach of the terms of the oral agreement, and that upon non-payment of the full amount of the proceeds, certain events followed which led to the calling up of the whole of the amount advanced. The alleged breach of the oral agreement, it is said, brought about the cancellation of a builder's licence and a land agent's licence held by the judgment debtors, or one of them, and the loss of commercial profits on the development of several properties. The precise quantification of the judgment debtors' claim is still outstanding, but it is said to be in the order of $700,000.
This r.10 reference has been argued on the basis that the counter claim filed in the Supreme Court proceedings is for an amount which exceeds the monetary amount of the claim in the bankruptcy notice. The judgment debtors have resisted the bankruptcy notice on the ground that they have a counter claim against the judgment creditor in the sum of $700,000 or thereabouts, being the counter claim that they are seeking to enforce before the Supreme Court. They argue in their supporting affidavits that the counter claim is not one of the kind referred to in s.40(1)(g) of the Bankruptcy Act because it could not have been set up in answer to the orders for costs made on the interlocutory applications in the Supreme Court proceedings.
Counsel for the judgment creditor argues that the counter claim is one of the kind referred to in s.40(1)(g). There are two limbs to that argument. The one most earnestly pressed is that the judgment debtors have not demonstrated on the information before this Court that there is merit in the substance of the counter claim. The other limb is that the alleged counter claim not only could be, but has been set up in the Supreme Court proceedings. Whilst not conceding the second point counsel has not argued it in detail because authority is clearly against him.
On the first limb of the argument, it is usually incumbent on the judgment debtors to show that they have a prima facie case; the Court must be satisfied that the debtor has a fair chance of success: Re Brink; ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 at 140-141. In the present instance the first thing to be noted is that the affidavit in reply to the judgment debtors' affidavits does not raise any challenge to the merit of the alleged counter claim. The affidavit in reply is one filed by Mr R L Kennett, sworn on 16 December 1993. The point then raised by Mr Kennett on the judgment creditor's behalf was very precisely put in para.6 of the affidavit. I read the relevant sentence:
"I say that the Counter claim sought to be raised by the debtors
in paragraph 7 of the Bradbrook affidavit are (sic) able to be and indeed have been raised by the debtors in the action in which the
creditor's judgment was obtained."
That assertion impliedly accepts that the counter claim is one of sufficient merit to be worthy of determination by a court. The first challenge made in these proceedings to the merits of the alleged counter claim occurred in the course of argument today. In my view, by the terms of the affidavit material filed by the judgment creditor on this reference, the merit of the alleged counter claim had already been conceded. That in itself is sufficient in my view to dispose of the first limb of the arguments advanced by counsel for the judgment creditor.
Notwithstanding this view, I shall look briefly at the nature of the alleged counter claim. The Supreme Court defence and counter claim, which are the only detailed documents relating to the Supreme Court proceedings before this Court, are sufficient to show that if the facts alleged are made out there is in law a defence and a counter claim of substance. In a general way, the judgment debtors by their affidavits verify the facts alleged. There are real and substantial issues of fact raised by the pleadings which require to be determined, in particular whether there was an oral agreement and if so the effect of it.
Had the merits of the factual allegations on which the counter claim is based been put in issue by Mr Kennett's affidavit, it would have been open to Mr and Mrs Bradbrook to file further affidavits enlarging in more detail on the subject matter. As this did not happen I think it should be assumed in their favour that the counter claim is one that has a fair chance of success. It raises a real question that is worthy of determination at trial in the Supreme Court.
The second limb of the argument, namely whether the counter claim is one that could have been raised in the proceedings in which the judgment was entered, is authoritatively dealt with by decisions of this Court: see Re Gould; ex parte Skinner (1983) 72 FLR 393, the Full Court decision of Chesson v Smith (1992) 35 FCR 594, and an unreported decision of Burchett J on 22 December 1993 in Pollnow v Bay Road Properties Pty Limited and Others. It has been consistently held in these decisions that where an order for costs is made on an interlocutory application within other proceedings, that interlocutory application is itself deemed to be the action in which the relevant order is obtained (see s.40(3)(b)), and that in the deemed action the counter claim, although filed in the substantive proceedings in the other court, is not one that could be set up in the deemed action.
In my view the judgment debtors have made out their claim that they have a counter claim, set off or cross-demand of the kind mentioned in s.40(1)(g). There will be a declaration accordingly. It will remain for the Supreme Court in due course to determine the merits of the claims and counter claim between the parties.
I order the petitioning creditor to pay the judgment debtors' costs of this reference fixed at $150.
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