Dougan v Conias
[2000] FCA 1556
•3 NOVEMBER 2000
FEDERAL COURT OF AUSTRALIA
Dougan v Conias [2000] FCA 1556BANKRUPTCY - application to set aside a bankruptcy notice - consideration of the background and basis for the judgment - whether time to comply with the bankruptcy notice can be extended until time of the appeal
Bankruptcy Act 1966(Cth) ss 41(6A), 41(6C)
Corney v Brien (1951) 84 CLR 343 Cited
Wren v Mahony (1972) 126 CLR 212 Cited
Olivieri v Stafford (1989) 24 FCR 413 Cited
Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14 Cited
Re Kleiss; Ex parte Kleiss v Capt’n Snooze Pty Ltd (1996) 61 FCR 436 Cited
Cellulose Products Pty Ltd v Truda (1970) 92 WN (NSW) 561 Cited
Covino v Bandag Manufacturing Pty Ltd [1983] 1 NSWLR 237 Cited
Indrisie v General Credits Ltd [1985] VR 251 Cited
Elkhoury v Farrow Mortgage Services Pty Ltd (in liq) (1993) 114 ALR 541 CitedGRAEME VICTOR DOUGAN v SPERO CONIAS AND JOAN MARIE CONIAS
Q7097 OF 2000VICTORIA LEE DOUGAN v SPERO CONIAS AND JOAN MARIE CONIAS
Q7114 OF 2000COOPER J
BRISBANE
3 NOVEMBER 2000
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q7097 OF 2000
BETWEEN:
GRAEME VICTOR DOUGAN
APPLICANTAND:
SPERO CONIAS AND JOAN MARIE CONIAS
RESPONDENT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q7114 OF 2000
BETWEEN:
VICTORIA LEE DOUGAN
APPLICANTAND:
SPERO CONIAS AND JOAN MARIE CONIAS
RESPONDENT
JUDGE:
COOPER J
DATE:
3 NOVEMBER 2000
PLACE:
BRISBANE
THE COURT ORDERS THAT:
1.The applications are dismissed.
2.The applicants pay the respondents’ costs of and incidental to the application, including reserved costs, if any, to be taxed if not agreed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q7097 OF 2000
BETWEEN:
GRAEME VICTOR DOUGAN
APPLICANTAND:
SPERO CONIAS AND JOAN MARIE CONIAS
RESPONDENT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q7114 OF 2000
BETWEEN:
VICTORIA LEE DOUGAN
APPLICANTAND:
SPERO CONIAS AND JOAN MARIE CONIAS
RESPONDENT
JUDGE:
COOPER J
DATE:
3 NOVEMBER 2000
PLACE:
BRISBANE
REASONS FOR JUDGMENT
On 10 February 2000 a bankruptcy notice was issued against Graeme Victor Dougan in respect of a total debt of $32,464.40. The notice was issued on a judgment of the Magistrates Court of Queensland at Brisbane given on 18 November 1999 in favour of Spero Conias and Joan Marie Conias. A bankruptcy notice was also issued against Victoria Lee Dougan in respect of a debt of $32,464.40 based on the same judgment.
On 7 March 2000, Mr Dougan applied to set aside the bankruptcy notice issued against him. He also sought an order extending the time to comply with the notice. Mrs Dougan filed a similar application on 22 March 2000. The two applications have been heard together.
Each application is brought under s 41(6A) of the Bankruptcy Act 1966 (Cth) (“the Act”). That section provides :
“41(6A) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a)proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b)an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.”
Section 41(6C) provides :
“41(6C) Where :
(a)a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and
(b)the Court is of the opinion that the proceedings to set aside the judgment or order:
(i)have not been instituted bona fide; or
(ii)are not being prosecuted with due diligence;
the Court shall not extend the time for compliance with the bankruptcy notice.”
The ground relied upon in each application is :
“1. That the bankruptcy notice be set aside as a counter claim to offset the judgement debt totally has still to be resolved on appeal to the District Court (date for hearing still to be advised).”
The applications were argued by Mr Dougan on his own behalf and on behalf of his wife. Mr Dougan has no legal training.
Mr and Mrs Conias were the landlords of premises described as Lot 3 on Building Unit Plan 6561, County of Stanley, Parish of Enoggera, being commercial premises leased to Westhaven Pty Ltd as trustee of The Gourmet Catering Trust. Mr and Mrs Dougan guaranteed the performance by Westhaven Pty Ltd of its obligations under the lease dated 20 November 1994. Westhaven Pty Ltd failed to pay the rent due and Mr and Mrs Conias obtained judgment against it. On 28 October 1997, Mr and Mrs Conias re-entered into possession of the leased premises.
On 11 February 1998, Mr and Mrs Conias issued a plaint and summons No 4694 of 1998 out of the Magistrates Court at Brisbane seeking to recover losses alleged to have been suffered in consequence of the non-performance by Westhaven Pty Ltd of its obligations under the lease. On 6 March 1998, Mr and Mrs Dougan filed a defence to the Magistrates Court proceedings. On 19 June 1998 Mr Dougan as trustee for The Gourmet Catering Trust issued proceedings No 16933 of 1998 out of the Magistrates Court at Brisbane against Mr and Mrs Conias for conversion of plant and equipment present on the premises when the landlords re-entered into possession. That claim was for $30,000, the alleged value of the plant and equipment..
The two plaints came on for hearing before Mr Quinlan SM on 17 November 1999. They were heard together over a period of two days. Mr and Mrs Dougan were not legally represented. At the end of the hearing on the first day, counsel for Mr and Mrs Conias challenged the standing of Mr Dougan to sue on the alleged conversion. Counsel contended that property in the goods and chattels passed to the Australian Securities and Investment Commission (“the ASIC”) on the deregistration of Westhaven Pty Ltd on 1 August 1997 pursuant to s 601AD of the Corporations Law. Mr Dougan produced a deed of removal of trustee and appointment of new trustee to the Gourmet Catering Trust which appointed him trustee in lieu of Westhaven Pty Ltd. That appointment was effective from 27 February 1998. The Magistrate ruled that Westhaven Pty Ltd had not abandoned the goods and chattels at the demised premises, and that Mr Dougan could maintain the claim for conversion.
On 18 November 1999, Mr Quinlan SM reconsidered his previous ruling. His Worship ruled that property in the goods and chattels had vested in the ASIC subject to the trusts provided for under The Gourmet Catering Trust. He held that without the consent of the ASIC, Mr Dougan could not be appointed trustee in lieu of Westhaven Pty Ltd. In consequence, he dismissed plaint No 16933 of 1998. In relation to plaint No 4694 of 1998, he ruled against the grounds of defence and gave judgment for Mr and Mrs Conias.
Mr and Mrs Dougan appealed to the District Court at Brisbane, by appeal No D4920 of 1999, against the judgment in plaint No 4694 of 1998 on 16 December 1999. The appeal was drafted and filed by Messrs Georgeson & Co, solicitors. The grounds of appeal are :
“1.His Worship was wrong on the evidence to conclude, as he did, that the Respondent/Plaintiffs had properly mitigated their loss.
2.His Worship’s findings were against the weight of evidence.
3.His Worship wrongly failed to disallow the Plaintiff’s claim at paragraph 10 of their Plaint for costs of $3,229.40 and interest thereon, as being a claim contrary to the provisions of Rule 321 of the Magistrates Court rules.
4.His Worship wrongly failed to take into account the benefit that the Plaintiffs received from retaining chattels in the premises such as to extinguish or diminish the Plaintiffs’ claim.”
Mr Dougan, as trustee of The Gourmet Catering Trust, appealed against the judgment in plaint No 16933 of 1998 by District Court appeal number D4921 of 1999 filed 16 December 1999.
The appeals filed in the District Court by Mr and Mrs Dougan personally and Mr Dougan as Trustee were subject to District Court Practice Direction No 4 of 1997, which deals with appeals. Paragraph 9 of the Practice Direction provided :
“9(a)Within twenty-eight days of filing the Notice of Appeal the appellant shall file and serve on any respondent who has entered an appearance an outline of argument on behalf of the appellant.
(b)An appeal will not be given a date for hearing until the outline of argument has been filed.”
On 17 January 2000, the solicitors for Mr and Mrs Conias brought to the attention of Messrs Georgeson & Company the requirements of paragraph 9 of the District Court Practice Direction, and expressed the view that the outline of argument was due to be filed and served by 18 January 2000. No outline of argument was delivered within the prescribed time period or at all. That remained the situation on the hearing of the applications.
Mr and Mrs Dougan seek to set aside the bankruptcy notice on the basis that the principal debtor, Westhaven Pty Ltd as trustee of The Gourmet Catering Trust, had a cross-claim or set-off for damages for conversion of the goods and chattels of the trust by the landlord which it could have set-off against the landlord’s claim for rent under the lease. This right to set-off, they contend, passed to Mr Dougan with the change of trustee irrespective of whether ASIC held for a time property in the goods and chattels because of the operation of s 601AD of the Corporations Law. That set-off equals or exceeds the judgment debt, and they submit they are entitled to the benefit of the set-off. In consequence, they submit that there is no debt due and owing by them to the creditors.
This Court may, in an appropriate case, go behind a judgment to see whether in truth and reality a debt is due from the judgment debtor to the judgment creditor: Corney v Brien (1951) 84 CLR 343; Wren v Mahony (1972) 126 CLR 212. The power to go behind a judgment may be exercised on an application to set aside a bankruptcy notice: Olivieri v Stafford (1989) 24 FCR 413 at 430 - 431. However, the power to go behind a judgment is not readily exercised if there has been a substantive hearing of the matter on its merits by the court in which the judgment was granted.
In the present case, Mr and Mrs Dougan could only rely on the claim of the trustee to an award of damages for conversion, if at all, as an equitable set-off which operates to prevent there being a debt which is due and payable, if as a matter of construction of the guarantee, all that they guaranteed was the debts properly due by Westhaven Pty Ltd to the landlord: Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14; Re Kleiss; Ex parte Kleiss v Capt’n Snooze Pty Ltd (1996) 61 FCR 436.
However, there is a substantial body of Australian authority that, in the absence of the principal debtor as a party to the proceedings, the guarantor cannot assert in answer to an action on the guarantee an equitable set-off which the debtor might have had in an action on the principal obligation: Cellulose Products Pty Ltd v Truda (1970) 92 WN (NSW) 561 at 588; Covino v Bandag Manufacturing Pty Ltd [1983] 1 NSWLR 237 at 240-1; Indrisie v General Credits Ltd [1985] VR 251 at 253; Elkhoury v Farrow Mortgage Services Pty Ltd (in liq) (1993) 114 ALR 541 at 549. In the present case Mr and Mrs Dougan face the added difficulty that the Trustee of The Gourmet Catering Trust seeks to enforce its own cause of action for the benefit of the trust.
In the present case, Mr and Mrs Dougan guaranteed “the due and punctual payment by the Lessee of all payments whether by way of rental or otherwise as they fall due and from time to time owing to the Lessor under the said Lease”. By clause 7 of the guarantee, they undertook “to pay to the Lessor on demand in the event of a failure on the part of the Lessee punctually to discharge an obligation mentioned herein the sum (whether rental or otherwise) necessary to discharge such an obligation”.
As a matter of construction, Mr and Mrs Dougan, in my view, bound themselves to pay such sum as was necessary to discharge an obligation on the part of the lessee which fell due for performance under the lease and which was not performed by the lessee. Such a construction would not allow Mr and Mrs Dougan to rely upon any equitable set-off the lessee may have had as a defence to the demand under the guarantee. Such remedy as Mr and Mrs Dougan had was against the lessee by way of indemnity, with the lessee enforcing its rights to recover damages for conversion of its goods and chattels from the lessor.
In these circumstances, no basis is made out for the Court to go behind the judgment. The judgment, unless set aside on appeal, stands as evidence of the existence of the judgment debt. No basis is shown for setting aside the bankruptcy notice.
I turn to the issue of extending the time for complying with bankruptcy until the determination of the appeal in the District Court.
In my opinion the appeals have not been, and are not being, prosecuted with due diligence. In his affidavit Mr Dougan swears that the delay in prosecuting the District Court appeals has been occasioned by Mr and Mrs Dougan having to pursue applications to have the bankruptcy notices stayed.
In my view, s 41(6C) of the Act requires that the proceedings to set aside judgment be prosecuted with due diligence as a necessary incident of any application to extend time under s 41(6A). The making of such an application cannot relieve the applicant from the obligation to prosecute the proceedings to set aside the judgment with due diligence.
The effect of s 41(6C) is such that the Court cannot extend the time for compliance with the bankruptcy notice where it is of the opinion that the proceedings to set aside the judgment are not being prosecuted with due diligence. In the present case, s 41(6C) operates to prevent the Court making the orders sought.
Each application will be dismissed with costs.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper. Associate:
Dated: 3 November 2000
Applicant in person: Mr G Dougan and on behalf of Mrs V Dougan Counsel for the Respondent: Mr KJ McGhee Solicitor for the Respondent: Robert Downey Lawyers Date of Hearing: 10 July 2000 Date of Judgment: 3 November 2000
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