Correia Fishing Company (WA) Pty Ltd v Momber, R.C

[1987] FCA 177

I>! THE FEDERAL COURT	)
OF AUSTRALIA	)
GENERAL DIVISION	)

BANKRUPTCY DISTRICT )

OF THE STATE OF )

WESTERN AUSTRALIA	1	NO. B4 OF 1987
RE: RENWICK CHARLES MOMBER

Debtor

EX PARTE: CORREIA FISHING CO (WA)

PTY LTD

Credltor

CORAM :	FRENCH J.
23 March 1987

EX TEMPORE REASONS FOR JUDGMENT

On 7 January 1987 the credltor procured the issue of a

bankruptcy notlce against the debtor in respect of a Judgment of

$22,683.86 being a ludgment that the creditor had obtained in

actlon number 2723 of 1986 on 17 September 1986 in the District

Court.

The judgment was in fact for the amount of $18,866 plus

$3,212.91 Interest and costs to be taxed	which were ultimately
allowed at $604.95.

The debtor seeks to set aside the bankruptcy notice so

lssued and has flled an affldavit sworn	17 February 1987 in
support of tnat appllcation.

The affldavit lndlcates that in of about 1974 the debtor began dealing wlth the credltor whlch was

I . I

2 .

fishing vessels. He pl~rchased prawns from the creditor and

established a market for those prawns in Sydney over a period of

time. He clalms to have had an agreement wrth the creditor in

that he would supply the creditor's prawns excluslvely to a number

of interstate purchasers, among them Vincent0 Musumeci, trading as

Waterfront Flsherles and a company Chlen Wah and Co. Ltd ln

Melbourne.

That agreement was said to have been made in 1 9 7 4 and

thereafter according to the debtor he supplied the creditor's

prawns to those two buyers, among others, on an exclusive basis.

The nature of the exclusivlty is not elaborated.

In or about April 1 9 8 5 the debtor says he entered Into a

contract to supply Waterfront Fisheries with a quantlty of prawns

and thereafter entered the contract with the creditor for the

purchase of those prawns which were duly transported to the

premlses of Waterfront Fisheries In Sydney.

Waterfront Fisheries evidently complained to the debtor about the price of the prawns that he was selling and expressed a wish to deal direct with the creditor. The debtor so informed Manuel Correia, a principal of the creditor company. In or about May or June 1 9 8 5 Correia, according to the debtor, went to Sydney and told Waterfront Fisherles that the credltor would supply

prawns to Waterfront Fisheries directly and bypass the debtor.

3 .

Thls arrangement was put Into effect and accordlng to the debtor he has slnce sold no prawns to elther Vasumecl or Chien Wah and

Co. Ltd until a recent agreement to take 100 cartons per month

from 1 March 1 9 8 7 .

His arrangement wlth Musumeci of Waterfront Fisheries

had continued €or many years and he says, was earning him a net monthly proflt of about $ 8 8 0 . The arrangement with Chlen Wah and CO. Ltd was earnlng a net monthly proflt of approximately $220.

The debtor contends, that by reason of the credltor's breach of the contract made between them in 1 9 7 4 whereby he was to act as the credltor's agent for the supply of prawns to Waterfront Fisheries and Chien Wah and Co. Ltd, he had an action for damages against the creditor, the value of which would exceed the creditor's claim against him.

After instrtutlng the proceedlngs in the District Court the credltor made applicatlon for . .,. 7. . .

summary ~udgment.

On Friday, 12 September 1986 the debtor consulted

sollcitors in relation to the summary ~udgment	application whlch
-

was to be heard on 1 7 September at 9 . 4 5 am. He says that the

- - _I_.-C ~.

, . solicltors were lnstructed to appear at the court and to apply for an adjournment on his behalf so that an affidavit In reply could be filed.

4 .

On Wednesday , 17 S e p t e m b e r h e s a y s , t h e s o l i c i t o r whom

h e h a d i n s t r u c t e d t o a p p e a r on t h e c h a m b e r summons d i d n o t a p p e a r

d u e t o a n o v e r s i g h t o n h e r p a r t a n d a c c o r d l n g l y ~ u d g m e n t was

i s s u e d a g a i n s t h im i n t h e sum o f $18 ,866 w i t h a f u r t h e r o rder f o r

costs t o b e t a x e d a n d i n t e re s t t o b e p a i d . A t t h e d a t e of h e a r i n g

of t h e ~ u d g m e n t , t h e s o l l c i t o r s i n s t r u c t e d were not o n t h e r e c o r d

f o r him i n t h e District C o u r t .

T h e d e b t o r s a y s t h a t b y reason of t h e s e e v e n t s , h i s

c o u n t e r c l a i m c o u l d n o t h a v e b e e n set u p i n t h e a c t i o n i n w h i c h t h e

~ u d g m e n t was o b t a i n e d .

By way of r e p l y a f f i d a v l t , Mr M a n u e l F e r n a n d e z Correia ,

t h e m a n a g i n g d l r e c t o r o f t h e c r e d i t o r d e n i e s t h a t t h e r e was e v e r

a n y e x c l u s i v e a g r e e m e n t b e t w e e n t h e c r e d i t o r a n d d e b t o r i n

r e l a t i o n t o t h e s u p p l y of p r a w n s t o W a t e r f r o n t F i s h e r l e s a n d s a y s

t h a t h e was unaware of a n y r e l a t l o n s h i p b e t w e e n t h e d e b t o r a n d

C h l e n Wah and Co. L t d .

A t t h e time o f t h e c r e d i t o r ' s d e a l i n g s w i t h t h e d e b t o r

h e says t h e c r e d i t o r was a l r e a d y s u p p l y i n g p r a w n s t o a number o f

l a r g e w h o l e s a l e r s i n t h e e a s t , and was q u l t e p r e p a r e d t o d e a l w l t h

t h e d e b t o r a s a n a g e n t a l t h o u g h t h e c r e d i t o r d i d n o t know who t h e

d e b t o r ' s p r i n c i p a l s were.

He s a y s t h a t w h e n h e was a p p r o a c h e d b y W a t e r f r o n t

F i s h e r i e s t o s u p p l y p r a w n s h e was aware o f a d i s p u t e b e t w e e n t h e

5.

d e b t o r a n d W a t e r f r o n t F l s h e r i e s a n d a d v l s e d t h e m t h a t h e w o u l d

o n l y s u p p l y p r a w n s t o t h e m 1 f t h e y r e s o l v e d t h e l r d i s p u t e w i t h t h e

d e b t o r a n d I f t h e y h a d s u i t a b l e c r e d i t r e f e r e n c e s . A s f a r a s he

knew t h e d l s p u t e was n e v e r r e s o l v e d a n d h l s c o m p a n y n e v e r s u p p l i e d

p r a w n s t o W a t e r f r o n t F i s h e r l e s . He s a y s t h e r e f o r e t h a t t h e r e was

n o b r e a c h of a n y c o n t r a c t b y t h e c red l tor .

T h e r e 1s a c o n f l i c t o f e v l d e n c e o n t h e a f f i d a v l t s w h l c h

c a n n o t b e r e s o l v e d b y mere r e f e r e n c e t o t h e mater la ls f l l e d i n

t h l s C o u r t .

However , I t h l n k n o t w l t h s t a n d i n g t h a t , t h a t t h e

a p p l i c a t i o n 1s a b l e t o b e d e a l t w l t h o n t h o s e mater ia l s .

A s was o b s e r v e d b y L o c k h a r t J . i n Re S t e r l i n g : Ex p a r t e

E s a n d a L i m l t e d ( 1 9 8 0 ) 4 4 FLR 1 2 5 , t h e r e 1s nowhere i n t h e Act t h a t

t h e C o u r t 1s e x p r e s s l y e m p o w e r e d t o s e t a s l d e b a n k r u p t c y n o t i c e s ,

h o w e v e r I r e s p e c t f u l l y agree w l t h h i s H o n o u r ' s v i e w t h a t a source

of t h e p o w e r 1s t o b e f o u n d i n s u b - s . ( l ) o f s.30 o f t h e B a n k r u p t c y

- Act 1 9 6 6 w h l c h provides:-

" T h e C o u r t -

( a ) h a s f u l l p o w e r t o d e c l d e a l l q u e s t i o n s , w h e t h e r of

l aw o r o f f a c t , i n a n y case o f b a n k r u p t c y or a n y

mat ter u n d e r P a r t X or P a r t XI comlng w i t h i n t h e

c o g n i z a n c e o f t h e c o u r t : a n d

( b ) may make s u c h o r d e r s ( i n c l u d l n g d e c l a r a t o r y o r d e r s

and o r d e r s g r a n t i n g i n j u n c t l o n s or o t h e r e q u i t a b l e

remedies) a s t h e C o u r t c o n s l d e r s n e c e s s a r y f o r t h e

p u r p o s e s of c a r r y l n g o u t o r g l v i n g e f f e c t t o t h l s

Act i n a n y s u c h case or matter ."

6.

The appllcatlon to set aside the bankruptcy notlce In thls case relies upon the crlterlon In s . 4 0 of the Bankruptcy Act whlch provides:-

" A debtor commlts an act of bankruptcy In each of the

followlng cases:-

(g) If a credltor who has obtalned agalnst the debtor a

flnal ~udgment or flnal order, being a judgment or order the execution of which has not been stayed, has served on the debtor In Australia or by leave of the Court elsewhere, a bankruptcy notlce under thls Act and the debtor does not-

( 1 )	where the notice was served in Australia - within the tlme fixed by the Reglstrar by whom the notlce was issued; or
( 2 )	where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the servzce

comply with the requirements of the notlce or

satisfy the Court that he has a counterclaim,

set-off or cross demand equal to or exceedlng the

amount of the ~udr~ment debt or sum payable under

the final order as the case may be, being a

counterclalm, set-off or cross demand that he could

not have set up 1n the actlon or proceedlng in

whlch the ludgment or order was obtalned."

If the debtor can so satlsfy the Court then there is a basls for settlng aslde the bankruptcy notlce. To satlsfy the Court of the existence of the relevant counterclalm, set-off or

. cross demand it 1s not necessary that the debtor establish its valldity to the hilt.

7 .

" . . . t h e d e b t o r m u s t show t h s t h e h a s a p r l m a facie c a s e ,

e v e n I € t h e n a n d t h e r e h e does n o t a d d u c e t h e a d m l s s l b l e

e v l d e n c e w h l c h w o u l d m a k e o u t a p r m a f a c l e c a s e b e f o r e

a c o u r t t r y l n g t h e issues t h a t a r e l n v o l v e d l n t h e

c o u n t e r c l a i m , s e t - o f f o r cross d e m a n d . " E b e r t v Un lon

T r u s t e e Co.	o f	A u s t r a l l a	L imi t ed	( 1 9 6 0 )	1 0 4	C L R	346	a t
350 .

I n Vogwell v V o q w e l l ( 1 9 3 9 ) 1 1 ABC 8 3 , a d e c l s l o n o f t h e

H l g h C o u r t c o n c e r n e d w l t h s . 5 2 3 o f t h e B a n k r u p t c y Act 1924 , La tham

C J w l t h whom S t a r k e a n d M c T l e r n a n JJ a g r e e d , s a i d a t 8 5 : -

" T h e words o f t h e s e c t l o n a r e t h a t t h e d e b t o r m u s t

s a t i s f y t h e c o u r t t h a t h e h a s a " C o u n t e r c l a i m , s e t - o f f

or cross d e m a n d w h l c h e q u a l s or exceeds t h e a m o u n t o f

t h e ~ u d g m e n t d e b t " . I n t h e f l r s t p l a c e i t 1s

a c c o r d l n g l y c l e a r t h a t t h e c o u n t e r c l a i m , s e t - o f f o r

cross d e m a n d m u s b e t s o m e t h i n g s o u n d i n g l n m o n e y . I t 1s

a l s o o b v l o u s t h a t t h e s e c t l o n d o e s n o t a p p l y or r e f e r t o

a n a l r e a d y e s t a b l l s h e d r i g h t . I f t h e r e were an a l r e a d y

e s t a b l l s h e d s e t - o f € , f o r e x a m p l e , t h e ~ u d g m e n t d e b t

w o u l d h a v e b e e n r e d u c e d pro t a n t o a n d I f t h e r e h a d b e e n

a c o u n t e r c l a m or cross d e m a n d w h i c h h a d a l r e a d y b e e n

a p p l l e d a s a g a l n s t t h e a m o u n t o f t h e j u d g m e n t t h e

p o s i t i o n w o u l d h a v e b e e n e n t l r e l y d i f f e r e n t . What t h e

s e c t i o n contemplates 1s a c l a m to t h e e n f o r c e m e n t o f a

r i g h t s o u n d l n g I n m o n e y . I t m u s t b e a r ea l c l a m : l t 1s

l n s u f f l c l e n t t h a t t h e d e b t o r b e l i e v e s t h a t h e h a s a

c l a l m a n d t h e a u t h o r l t l e s s h o w t h a t t h e matter t o w h l c h

t h e c o u r t looks 1s t h l s - w h e t h e r i t 1s just t h a t t h e

claim s h o u l d d e t e r m i n e d b e b e f o r e b a n k r u p t c y t h e

p r o c e e d i n g s a re a l l o w e d t o c o n t i n u e ; l n o t h e r w o r d s ,

w h e t h e r i t 1s a c l a m w h i c h i t 1s p r o p e r a n d r e a s o n a b l e

t o l l t l g a t e . T h a t 1s t h e e f f e c t of t h e d e c i s l o n i n R e

R l v e t t : Ex p a r t e Edward Fay L t d ( ( 1 9 3 2 ) 5 ABC 1 8 2 ) a n d

R e D u n c a n ; Ex p a r t e M o d l i n ( ( 1 9 1 7 ) 1 7 SR(NSW) 1 5 2 ) .

T h e r e f o r e , t h e r e m u s t a p p e a r t o b e some s u b s t a n c e i n t h e

c o u n t e r c l a m ,	s e t - o f €	or	cross	demand	which	1s	r e l i e d
upon . "

I n R e B r i n k (1980) 4 4 FLR 1 3 5 a t 1 4 2 , L o c k h a r t J . said:-

" . . . t h e a f f i d a v l t c a n n o t m e r e l y c o n t a i n a n a s s e r t l o n

t h a t t h e d e b t o r h a s a c o u n t e r c l a l m , s e t - o f € o r cross

demand whlch he c o u l d n o t h a v e set u p I n t h e a c t l o n I n

w h l c h t h e ~ u d g m e n t o r o r d e r was o b t a l n e d . "

e .

His Honour did however accept that in many cases it would be difficult in the time available for the debtor to present more than an outline of his case. HIS observations were approved by the Full Court in Eastick v Australla and New Zealand Banklnq Group Limited (1981) 53 FLR 91 at 93.

The affidavlt filed by the debtor in the present case

gives a fairly patchy outline of the basis upon which he contends

that he has a counterclalm agalnst the creditor.

Nevertheless it might be that the materlal set out in

that affidavlt would be suf€lclent in the llght of the

observations made by Lockhart J., to establish that there was a

bona fide dispute glving rise	to a counterclaim against the
creditor in this case.

However havlng reached that polnt, that 1s not the end

of the matter.

The counterclaim must be one whlch could not have been set up In the action in which the judgment was obtained.

In this case, the basis upon which it 1s contended by

the debtor that the counterclaim could not have been set up in

this action, is that hls sollcitors failed to appear at a summary

~udgment application to be heard on 17 September 1986.

9.

I t 1 s n o t suggested t h a t t he re 1s a n y o t h e r h a r t o t h e

s e t t l n g u p of t h e c o u n t e r c l a i m l n t h e p r o c e e d l n g s a n d l n d e e d , r l r

P l e t a x a s € o r t h e c l e b t o r , e x p r e s s l y c o n c e d e d t h a t t h e c l a l m f o r

damages a d v e r t e d t o I n h i s c l l e n t ' s a f f l d a v l t w o u l d h a v e b e e n a b l e

t o be	p l e a d e d	as	a	c o u n t e r c l a m	w l t h l n	t h e	r u l e s	o f	t h e	Distrlct
C o u r t .

I t seems t o me t h a t w h a t e v e r t h e f u l l s c o p e o f t h e c lass

o f c o u n t e r c l a l m s a n d s e t - o f f s c o n t e m p l a t e d b y t h e w o r d s " t h a t h e

c o u l d n o t h a v e s e t up i n t h e ac t lon" a s u s e d i n p a r a . ( g ) o f s . 4 0 ,

t h e y do n o t e x t e n d t o c o v e r t h e case o f a c o u n t e r c l a l m t h a t t h e

d e b t o r f a l l e d t o s e t u p I n t h e a c t l o n w h e r e h a d t h e o p p o r t u n l t y t o

d o so, w h e t h e r t h a t f a i l u r e b e a t t r i b u t a b l e t o h l s own d e f a u l t or

t h e d e f a u l t o f h i s s o l i c i t o r s .

I no te t h a t t h e c o m m e n t a r y on t h a t p r o v l s l o n I n McDonald

Henry and Meek a t para . 204 d e a l i n g w l t h t h e w o r d s " h e c o u l d n o t

h a v e s e t up I n t h e a c t l o n " , s a y s t h a t t h e y refer t o a c o u n t e r c l a l m

w h l c h , f r o m p o i n t of t u n e , o r f r o m I ts n a t u r e , or f r o m a b s e n c e o f

e m p o w e r i n g p r o v l s l o n s , or f r o m p o s l t i v e l n h l b i t l o n so t o do, c o u l d

n o t b e set u p I n t h e a c t l o n i n w h l c h j u d g m e n t was i s s u e d .

A u t h o r i t y f o r t h a t 1s c l t e d , b e l n g R e S t o c k l i s t (1934) 7

A D C 5 3 ; Re S t e v e n s o n ( 1 9 2 9 ) 2 ABC 9 a n d V a s s l n l Ex p a r t e E . A .

S e a l y a n d Co. 6 4 FLR 323.

10.

In my opin~on, whatever the full scope of the meaning of

those words, they do not extend to a case of the present kind. The fact 1s not that the debtor could not set up his counterclam, but that for reasons which one can accept may not be attributable to his own fault, dld not set up the counterclam.

In the circumstances, the application to set aside the

bankruptcy notice will be dismissed and the debtor is to pay the

creditor's costs of the application.

I hereby certify that this and the preceding nine ( 9 ) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice French.

Counsel :

. for the Debtor Mr A . Metaxas

Instructed by Phillips Fox

. for the Creditor Mr de Lestang

instructed by Benjamin & de Lestang

Date of Hearing: 23 March 1987

I

Date of Judgment: 23 March 1 9 8 7