Eastick v Australia and New Zealand Banking Group Ltd

[1981] FCA 77

Re: ROBERT FRANK EASTICK
And: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (1981) 53 FLR 91
No. G32 of 1981
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Deane(1), Fisher(1) and Sheppard(1) JJ.

CATCHWORDS

Bankruptcy - whether a "counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt" - nature of affidavit required under s.41(7) of the Act - extension of time for compliance with Bankruptcy notice.

Bankruptcy Act, 1966 s.40(1)(g); s.41(7)

Bankruptcy - Bankruptcy notice - Debtor alleging counterclaim, set-off or cross demand equal to or exceeding amount of judgment debt - Requirements of affidavit in compliance with s. 41(7) of Bankruptcy Act 1966 - Principles to be applied - Whether claim could have been set up in previous court proceedings - Effect of sufficient affidavit - Bankruptcy Act 1966 (Cth), ss. 40(1)(g), 41(7).

HEADNOTE

In October 1979 the respondent obtained judgment against the appellant upon a guarantee in the Supreme Court of New South Wales. Two subsequent appeals against the judgment were dismissed. In November 1980 the Registrar, at the request of the respondent, issued a bankruptcy notice directed to the appellant founded on the judgment debt. The appellant, within time, filed an affidavit intended to be filed pursuant to s. 41(7) of the Bankruptcy Act 1966. Annexed to the affidavit was a draft statement of claim which it was said was proposed to be filed forthwith in the Supreme Court of New South Wales. The appellant argued that by the deed of guarantee, which was the basis of the proceedings in the Supreme Court, a certificate signed by any officer of the respondent was conclusive evidence of the amount of his indebtedness to the respondent. By reason of such certificate the appellant claimed that he was precluded from challenging the alleged indebtedness. He claimed that the respondent had failed to apply the sum of almost $7,000 in reduction of the overdraft of the principle debtor, that the certificate had been given fraudulently and that the certificate had been given negligently. At first instance, Lockhart J. concluded that the appellant did not have a counterclaim, set-off or cross demand of the kind referred to in s. 40(1)(g) and s. 41(7) of the Act. He further found that the affidavit filed by the appellant was not an affidavit of the kind referred to in s. 41(7) with the effect that the act of bankruptcy was committed on the date after the expiry of the bankruptcy notice.

On appeal,

Held: The court refused, on the evidence, to interfere with the finding or the declaration of Lockhart J. save as to the final matter regarding the sufficiency of the affidavit: (1) In considering whether an affidavit complies with s. 40(1)(g) and s. 41(7) the court should adopt a benevolent construction.

Re Brink; Ex parte Commercial Banking Company of Sydney Ltd. (1980), 44 FLR 135, approved.

(2) The facts deposed to by the appellant in relation to the negligent issue of the certificate by an officer of the respondent would, if they had been accepted, have constituted a basis for an action which appeared to be a counterclaim, set-off or cross demand at least equal to the amount of judgment debt.

(3) Notwithstanding the fact that the appellant did not adduce any real or substantial evidence that the principal debtor was not in fact indebted to the respondent or even positively deny any such indebtedness, the affidavit was "to the effect that" the appellant had a relevant claim in negligence against the respondent.

(4) In the circumstances the propounded claim in negligence should properly be regarded as one which could not have been set up in the Supreme Court proceedings, because the damage alleged to have been suffered was the obtaining of judgment in those proceedings as a result of the use of the certificate in the actual course of the proceedings.

(5) For the above reasons the affidavit was an affidavit which satisfied the requirements of s. 41(7) of the Act and therefore time for compliance with the bankruptcy notice extended until and including 20th March, 1981, when Lockhart J. dealt with the proceedings before him. Finding of Lockhart J. reversed on this point only.

Appeal dismissed.

HEARING

Sydney, 1981, June 15-16, 19. #DATE 19:6:1981

APPEAL.

Appeal from findings and declaration of Lockhart J.

The appellant in person.

M.L.D. Einfeld, for the respondent.

Cur. adv. vult.

Solicitors for the respondent: Norton Smith & Co.

D. LEVIN

ORDER

1. THAT the appeal be dismissed.

2. THAT the appellant pay the respondent's costs of the appeal. Appeal dismissed with costs.

JUDGE1

On 18 October, 1979, the respondent Australia and New Zealand Banking Group Limited obtained, in the Supreme Court of New South Wales, judgment against the appellant Robert Frank Eastick in the amount of $38,712.67 together with interest. The judgment was upon a guarantee and was obtained upon motion for summary judgment before the Master of the Supreme Court. Subsequent appeals by the appellant to a Judge of the Supreme Court and, thereafter, to the Court of Appeal of the Supreme Court were dismissed.

On 25 November, 1980, a bankruptcy notice directed to the appellant and founded on the judgment debt issued at the request of the respondent. The notice was a fourteen day notice. It was served on the appellant on 28 November, 1980. On 11 December, 1980, the debtor filed an affidavit to which was annexed a draft Statement of Claim which it was said was proposed to be filed forthwith in the Supreme Court of New South Wales. The draft Statement of Claim named the appellant as plaintiff and the respondent as defendant and sought, inter alia, damages in the amount of $38,712.67. This affidavit was plainly intended to be filed pursuant to the provisions of s.41(7) of the Bankruptcy Act, 1966 ("the Act") and to be an affidavit of the kind referred to in that sub-section. As such, the affidavit was intended to raise for the consideration of the Court the issue propounded by s.40(1)(g) of the Act.

Section 40(1)(g) of the Act provides that a debtor commits an act of bankruptcy:
"(g) if a creditor who has obtained against the debtor a final judgment or final 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 notice under this Act and the debtor does not --
(i) where the notice was served in Australia - within the time fixed by the Registrar by whom the notice was issued;

. . . . . . . . . . . . . .

comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained;"

Section 41(7) of the Act provides:
"Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied."

The matter came before Lockhart J. on 20 March, 1981. A considerable body of evidence, in addition to the affidavit of 11 December, 1980 and the annexed draft Statement of Claim, was before his Honour. His Honour, in an ex tempore judgment, reached the positive conclusion that he was satisfied that the appellant did not have a counter-claim, set-off or cross demand of the kind referred to in s.41(7) and s.40(1)(g) of the Act. In the result, his Honour made a declaration to the effect that he was not satisfied that the appellant had any such counter-claim, set-off or cross demand and ordered the appellant to pay the respondent's costs of the application including reserved costs. The appellant, who appeared in person, appeals to this Court from his Honour's judgment.

The starting point of the appellant's argument that he has a counter-claim, set-off or cross demand which exceeds or equals the amount of the judgment debt and which could not be set up in the Supreme Court proceedings is to be found in the provisions of the Deed of Guarantee in pursuance of which those proceedings were brought. That Deed provided, inter alia, that a certificate signed by any officer of the defendant would be conclusive evidence of the amount of the principal debtor's indebtedness to the respondent. The judgment of the Master was, at least to some extent, based upon such a certificate. The appellant contends that, by reason of the certificate, he was precluded in the Supreme Court proceedings from challenging that the principal debtor owed any moneys to the appellant or the amount of such indebtedness. He suggests that he has the following claims against the respondent:

(a) A claim in the amount of $6938.50 and interest representing an amount which he had paid to the respondent to be applied by the respondent in reduction of the overdraft account of the principal debtor and which was not so applied;

(b) An action against the respondent in fraud. The fraud alleged is a fraudulent giving of the certificate as to indebtedness which was used in the Supreme Court proceedings. In this regard, the allegation apparently is that the certificate fraudulently mis-stated the amount owing by the principal debtor. At times, the appellant in his submissions before this Court, also referred to a claim based on "fraudulent evidence" before the Supreme Court; and

(c) An action in negligence based on the negligent giving of the relevant certificate.

We shall briefly consider these alleged claims in the order in which we have mentioned them.

As regards the suggested claim arising out of the respondent's failure to credit the principal debtor's account with the amount of the alleged payment of $6938.50, Lockhart J. said:
"There is abundant evidence in the proceedings before the Master to show that the question of actual indebtedness of the debtor to the creditor and, indeed, as to the circumstances surrounding the payment of $6938.50 to the creditor, the subject of alleged cross-action, was before the Master and litigated. Indeed, questions were addressed by the debtor himself who conducted his own case to witnesses called on behalf of the creditor. Thus it seems to me the very issues sought to be litigated in the cross-action of the debtor as to the sum of $6938.50 were in truth litigated before the Master and it is inherent in his finding and in the judgment of the Supreme Court . . . that the cross-claim of the debtor has no substance . . . ".
We can see no reason for interfering with his Honour's conclusions in this regard. Quite apart from the question of substance, this alleged claim is, in any event, obviously for far less than the amount of the judgment debt. Moreover, the appellant could have set it up by way of cross action in the proceedings in the Supreme Court.

The allegations of fraud can be shortly disposed of. Lockhart J. concluded that there was not the faintest suggestion of fraud to be gleaned from the evidence before him and that the charge of fraud against the respondent or the bank officers was totally without foundation. Our own perusal of the evidence leads us unhesitatingly to agree with his Honour's conclusions in that regard. Indeed, the material before us indicates that the allegations were irresponsible and should not have been made.

The appellant's alleged claim against the respondent in negligence was initially propounded on the basis that the certificate of indebtedness of the principal debtor was negligently given and that, whereas the certificate showed indebtedness in the amount of $38,712.67, the truth of the matter was that the principal debtor was not indebted to the respondent at all. The appellant did not, either before Lockhart J. or before this Court, adduce any material to support, or, indeed, even seek to maintain, the absence of any such indebtedness. The action in negligence, which was propounded in argument, was based upon a small number of suggested inaccuracies or errors in the respondent's records in relation to the principal debtor which the appellant suggested undermined the reliability of the certificate given. Lockhart J. was of the view that there was no evidence before him which satisfied him that there could be any prima facie case made out of any such inaccuracies or errors. Our own consideration of the evidence leads us to agree with his Honour's conclusion in that regard. More important however, it is apparent that, apart from an alleged amount of some $2,800 which the appellant sought to show as a discrepancy by comparing amounts which should not properly be compared, the alleged errors or inaccuracies are in respect of minor amounts and could not warrant any real doubt being cast on the general reliability of the respondent's records. They could not, even if added to the claim for $6938.50 and interest, total anything approaching the amount of the judgment debt.

It was argued by the appellant that, in deciding that he was not satisfied of the matters mentioned in s.40(1)(g), Lockhart J. had had regard only to the contents of the affidavit of 11 December, 1980 and the draft Statement of Claim annexed thereto. Examination of his Honour's judgment discloses that that is simply not so. His Honour's judgment makes it clear that he paid regard to the overall body of material before him.

It was also submitted by the appellant that Lockhart J. was in error in the approach which he adopted as to the appropriate standard of satisfaction required by s.40(1)(g) of the Act. Examination of his Honour's judgment discloses no such error. His Honour was positively satisfied that a counter-claim, set-off or cross demand of the relevant type did not exist. It was therefore unnecessary for him to define, in precise terms, the nature and degree of satisfaction necessary for the purposes of s.40(1)(g) of the Act.

The appellant advanced a number of other submissions as to suggested errors both by the Master in the Supreme Court of New South Wales and by Lockhart J. We have, as best we can, given consideration to whether any one or more of those submissions warranted interference by this Court with the declaration or order which Lockhart J. made. Some of those submissions related to suggested errors by his Honour either in comments made or questions asked during the course of the appellant's submissions before him. Another involved a re-canvassing of the evidence before the Supreme Court. Suffice it to say that we are unpersuaded that any ground exists for interfering with his Honour's failure to be satisfied that the appellant had a counter-claim, set-off or cross demand in the relevant amount or with the declaration to that effect which he made.

One further matter remains for consideration. That matter is a finding by Lockhart J. that the affidavit of 11 December, 1980, was not an affidavit of the kind referred to in s.41(7) of the Act, that is to say, that it was not an affidavit "to the effect that" the appellant had "such a counter-claim, set-off or cross demand as is referred to in para. 40(1)(g)". Since that affidavit was the only affidavit filed before the expiration of the time fixed for compliance with the bankruptcy notice, the result of the finding would be that the time for such compliance was not extended. The question is not merely academic: it is relevant to determining the date of any act of bankruptcy constituted by a failure by the appellant to comply with the requirements of the bankruptcy notice.

The filing of an affidavit pursuant to the provisions of s.41(7) of the Act is the accepted method of setting in motion an application, for the purposes of s.40(1)(g), to satisfy the Court that a judgment debtor, who has been served with a bankruptcy notice, has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt being a counter-claim, set-off or cross demand that the judgment debtor could not have set up in the action or proceedings in which the judgment was obtained. In Re Brink; Ex parte Commercial Banking Company of Sydney Limited ((1980) 30 A.L.R. 433), Lockhart J. examined the requirements which an affidavit must satisfy if it is to be an affidavit of the kind specified in s.41(7). His Honour pointed out that, in many cases, debtors attempt to take advantage of the provisions of s.41(7) without the benefit of legal advice and made (ibid, p. 440) the following general comments with which we agree:
"It is as well to remember that the initial affidavit has to be filed within a limited time namely, the number of days after service of the bankruptcy notice upon the debtor fixed by the Registrar. These times are fixed by him without any knowledge on his part of the possibility of a counter-claim, set-off or cross demand being propounded by the debtor. In many cases it is difficult, if not impossible, for the debtor to present more than a mere outline of his case in the time available.

I do not think any good purpose would be served by my attempting to express a definitive formula as to what the original affidavit must contain. That must depend in every case on the particular facts and circumstances: see Re a Debtor (1963) 1 WLR 51, per Upjohn LJ at 56.

The fact that it is within the power of the court to determine when the hearing of a matter under s41(7) will take place, and thus the length of the extension of time to comply with the requirements of the bankruptcy notice; and the difficulty, if not impossibility in some cases, of the initial affidavit being anything other than a mere outline of the debtor's case due to the temporal constraints imposed by the notice, all points to the conclusion that the courts should adopt a benevolent construction to the initial affidavit".

Examination of the affidavit of 11 December, 1980 and the annexed draft Statement of Claim makes it tolerably clear that the appellant was propounding two distinct grounds of claim against the respondent. The first arose out of the alleged payment by the appellant to the respondent of the sum of $6938.50. On the face of the affidavit and annexed draft Statement of Claim, this alleged claim does not appear to be a counter-claim, set-off or cross demand of the kind referred to in paragraph 40(1)(g) for the reason that there is nothing in either the affidavit or the annexed draft Statement of Claim to suggest that it could not have been set up in the Supreme Court proceedings. The second propounded ground of claim against the respondent is not, however, so readily disposed of.

The appellant, in the affidavit of 11 December, 1980, swore to the accuracy of certain paragraphs of the annexed draft Statement of Claim. Overall, the appellant swore, in or by his affidavit, that:

(i) On or about 29 March, 1974, the appellant executed a Deed of Guarantee guaranteeing the payment by the principal debtor of certain moneys to the respondent;

(ii) The said Deed provided, inter alia, that a certificate signed by any officer of the respondent would be conclusive evidence of the amount of the principal debtor's indebtedness to the respondent;

(iii) On or about 25 December, 1978, the respondent served on the appellant a Statement of Claim in the Supreme Court of New South Wales claiming the sum of $34,845.18 pursuant to the Deed of Guarantee;

(iv) On or about 2 May, 1979, the respondent applied to the said Court for summary judgment against the appellant;

(v) On or about 8 October, 1979, an officer of the respondent, Mr. McCormac, gave a handwritten certificate purportedly pursuant to the Deed of Guarantee certifying the indebtedness of the principal debtor as at 20 September, 1979, to be $38,712.67;

(vi) By reason of the certificate of 8 October, 1979, the appellant was prevented from challenging that the principal debtor owed any money to the respondent or the amount of any such indebtedness;

(vii) The appellant believed that, in fact, no moneys at all were due by the principal debtor to the respondent;

(viii) On 19 October, 1979, summary judgment in the Supreme Court of New South Wales was granted to the respondent and the appellant was ordered to pay $38,712.67 together with interest and costs to the respondent;

(ix) The appellant proposed to file forthwith in the Supreme Court of New South Wales the annexed draft Statement of Claim which alleged, inter alia:

11. The said certificate wrongly stated the indebtedness of (the principal debtor) there being no debt due by (the principal debtor) to the Defendant.

12. The Defendant was negligent in giving or alternatively in allowing to be given the said certificate.

Particulars

The defendant did not require Mr. McCormac to check or alternatively adequately to check, the Defendant's records.

13. Further or alternatively, the Defendant was negligent in the keeping of records of transactions on accounts of (the principal debtor) in that (the principal debtor) was not in fact indebted to the Defendant in the sum shown in such records or at all.

14. The issue of the said certificate precluded the Plaintiff from defending the said Supreme Court proceedings on the ground of defence that no moneys were due from (the principal debtor) to the Defendant".

(x) The appellant claimed to have a counter-claim, set-off or cross demand against the respondent equal to or in excess of the sum claimed in the bankruptcy notice which he could not have set up in the proceedings in which judgment was given.

Examination of the sworn allegations set out above makes it clear that the appellant, in the affidavit of 11 December, 1980, did far more than simply assert that he had a counter-claim, set-off or cross demand of the kind referred to in s.41(7) of the Act. Subject to one qualification, he swore to the existence of facts which, in the context of the effect which has been given to banker's certificates of the relevant type (see Dobbs v. National Bank of Australasia Limited ((1935) 53 C.L.R. 643) and Bache & Co. (London) Ltd. v. Banque Vernes Et Commerciale de Paris S.A. ((1973) 2 L1. L.R. 437), would constitute a basis for a bona fide action in negligence which would have a real prospect of success. The qualification is that the affidavit does not constitute or indicate any real evidence that the principal debtor was not, in fact, indebted to the respondent or even positively deny any such indebtedness. It simply contains a sworn statement of the appellant's belief that no such indebtedness existed. On the other hand, the annexed draft Statement of Claim contained, in an unverified paragraph, an unqualified denial of any such indebtedness.

The question whether an affidavit is an affidavit "to the effect" required by s.41(7) must, as we have indicated, depend in every case on the particular facts and circumstances and should be determined on a benevolent construction of the relevant affidavit. In the present case, we have reached the conclusion that, notwithstanding the qualification to which we have referred, the affidavit, when read with the annexed draft Statement of Claim, was "to the effect that" the appellant had the relevant claim in negligence against the respondent. That claim, being a claim for damages in the amount of the judgment debt together with any costs which the appellant had been ordered to pay and interest, would appear to be a counter-claim, set-off or cross demand at least equal to the amount of the judgment debt. The question remains whether it appeared from the affidavit that the claim was not one which could have been set up in the Supreme Court proceedings. In our view, it did.

The alleged negligently given certificate was not given until almost a year after the initiation of the proceedings in the Supreme Court. The damage alleged to have been suffered by the appellant was the obtaining of judgment in those proceedings as a result of the use of the certificate in the actual course of the proceedings. In the circumstances, the propounded claim in negligence should properly be regarded, for the purposes of s.40(1)(g), as one that could not have been set up in the Supreme Court proceedings.

It follows that we are of the view that the affidavit of 11 December, 1980 was an affidavit which satisfied the requirements of s.41(7) of the Act and that there was an extension of time for compliance with the bankruptcy notice until, and including, 20 March, 1981 when Lockhart J. declared that he was not satisfied that the appellant had a counter-claim, set-off or cross demand of the kind referred to in s.40(1)(g).

In the result, the appellant has failed in his attack on the declaration which Lockhart J. made. He has succeeded in his attack on the finding that the affidavit of 11 December, 1980 did not satisfy the requirements of s.41(7) of the Act. The effect of that success is, however, only to postpone the commission of the act of bankruptcy. Moreover, the material before the Court strongly suggests that the only reason the affidavit did satisfy the requirement of s.41(7) was that the appellant was prepared to swear that he believed the principal debtor was under no indebtedness to the respondent in circumstances in which it would seem somewhat unlikely, to say the least, that that belief was genuinely held by him. It appears to us that the appropriate course is to leave undisturbed the order for costs in the respondent's favour which was made by Lockhart J. and to order that the appellant pay the respondent's costs of this appeal.

We would dismiss the appeal with costs.