Ebner v Official Trustee in Bankruptcy
[2003] FMCA 442
•8 October 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| EBNER v OFFICIAL TRUSTEE IN BANKRUPTCY | [2003] FMCA 442 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice – whether counterclaim set-off pursuant to s.40(1)(g) – relevance of stay |
Bankruptcy Act 1966, ss.40(1)(g), 41(7)
Taxation Administration Act 1953
Crimmins v Glenview Home Units Pty Ltd (1999) FCA 515
Guss v Johnstone (2000) 171 ALR 598 at 607
Bradbrook v Farrow Mortgage Services Ltd FCA Von Doussa J
9 February 1994
Thyssen v Maniotis [2001] FMCA 60 McInnis FM 8 October 2001
Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238
Re A Bankruptcy Notice (1934) 1 Ch 431 at 439-440
| Applicant: | INGRID EBNER |
| Respondent: | THE OFFICIAL TRUSTEE IN BANKRUPTCY |
| File No: | MZ 470 of 2003 |
| Delivered on: | 8 October 2003 |
| Delivered at: | Melbourne |
| Hearing Date: | 8 September 2003 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr G Bigmore QC with Mr M Harvey |
| Solicitors for the Applicant: | Clayton Utz |
| Counsel for the Respondent: | Mr M Galvin |
| Solicitors for the Respondent: | Deacons |
ORDERS
So much of the Rules of the Court are dispensed with that would otherwise prevent the application filed 7 May 2003 being heard and determined by the Court.
The Bankruptcy Notice dated 4 March 2003 served upon the Applicant on 16 April 2003 be set aside.
The Respondent pay the Applicant’s costs including reserved costs, if any, to be taxed in default of agreement pursuant to Order 62 of the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MZ 470 of 2003
| INGRID EBNER |
Applicant
And
| THE OFFICIAL TRUSTEE IN BANKRUPTCY |
Respondent
REASONS FOR JUDGMENT
This is an application by Ingrid Ebner (the Applicant) filed 7 May 2003 seeking orders that a Bankruptcy Notice dated 4 March 2003 served upon the Applicant on 16 April 2003 be set aside. The Application is opposed by the Official Trustee in Bankruptcy (the Respondent). The Respondent opposes the application in its capacity as a judgment creditor.
The application is made pursuant to s.41(7) of the Bankruptcy Act 1966 (the Bankruptcy Act) which provides as follows:-
“Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor 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 Application filed 7 May 2003 seeks to set aside the bankruptcy notice on the ground that the Applicant has a set-off, counterclaim or cross-demand equal to or exceeding the amount claimed in the bankruptcy notice namely the sum of $43,006.18.
The Respondent relied upon a Notice of Intention to Oppose the application filed 25 June 2003. In that notice a preliminary issue was raised alleging non compliance with Order 30.02 of the Federal Magistrates Court Rules 2001. That rule provides as follows:-
“30.02 Requirements of application to set aside, or extend time for complying with, notice
(1) This rule applies to:
(a) an application to set aside a bankruptcy notice; or
(b)an application for an extension of the time for complying with a bankruptcy notice.
(2) An application must be accompanied by:
(a) a copy of the bankruptcy notice; and
(b)an affidavit stating:
(i) the grounds in support of the application; and
(ii) the date when the bankruptcy notice was served on the applicant; and
(c) a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.
(3) If the application is to set aside a bankruptcy notice on the ground that the debtor has a counter-claim, set-off or cross-demand mentioned in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:
(a)the date when the bankruptcy notice was served on the debtor; and
(b) the full details of the counter-claim, set-off or cross-demand; and
(c) the amount of the counter-claim, set-off or cross-demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(d) why the counter-claim, set-off or cross-demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
(4) The application and accompanying documents must be served on the respondent creditor within 3 days after the application is filed.”
In the Notice of Intention to Oppose the Application the Respondent specifically refers to failure to comply with Order 30.02 in the following terms:-
“(a)The application was not accompanied by a copy of the Bankruptcy Notice for the purposes of Rule 30.02(2)(a);
(b)The Affidavits accompanying the application did not state:
(i)The full details of any counter-claim, set off or cross demand as required by Rule 30.03(3)(b);
(ii)The amount of any counter-claim, set off or cross demand and the amount by which it exceeds the amount claimed in Bankruptcy Notice No. VN351/03 as required by Rule 30.03(3)(c); and
(iii)Why the counter-claim, set off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the Bankruptcy Notice No. VN351/03 was issued as required by Rule 30.03(3)(d).”
The preliminary issue in relation to non compliance with Order 30.02 ultimately became an issue to be dealt with in light of the substantive issues arising out of the application to set aside the Bankruptcy Notice. I decided that it was appropriate to consider the merits of the application if I were minded to make an order dispensing with compliance with the rule if I was satisfied pursuant to Rule 1.06 that it would be in the interests of justice to do so. It was conceded by the Applicant that the application had not been accompanied by a copy of the relevant Bankruptcy Notice. Indeed a copy of the Bankruptcy Notice only appeared in affidavit material filed and served on behalf of the Respondent. I regarded the merits of the application as a relevant matter when considering the exercise of the Court’s discretion to dispense with compliance with the Rules particularly where the reason given for the failure to provide the Bankruptcy Notice with the application was described as “inadvertence”. Although some discussion occurred seeking to confine the matter to the preliminary issue the parties ultimately presented arguments in full in relation to the substantive issue on the understanding that I were to decide that there was no merit at all in the case I may not be inclined to exercise my discretion to dispense with compliance with Rule 30.02.
In a written outline of argument in opposition to the application to set aside the Bankruptcy Notice Counsel for the Respondent usefully set out the background facts which do not appear to be in dispute as follows:-
“1.Maxwell Ebner (the applicant’s husband) became bankrupt, and the Official Trustee became the trustee of his property, on 29 August 1994. The bankruptcy was discharged
4 October 1997. Pursuant to a warrant under s 130(3) of the Bankruptcy Act (‘the Act’), the Official Trustee searched the Ebners’ home and seized certain chattels.
2.In 1999, Mrs Ebner commenced an application in the Federal Court seeking to recover the chattels on the basis that they were either all owned by her or, alternatively, by her and her husband jointly. She also sought damages for personal injuries and for damage to the chattels and the home (‘the chattels proceedings’).
3.The respondent cross-claimed in the chattels proceeding, claiming that the Official Trustee was entitled to all chattels owned by the bankrupt and to the bankrupt’s interest in any chattels jointly owned by him and Mrs Ebner. The Official Trustee further sought an order for the partition, alternatively a sale in lieu of partition, of the jointly owned chattels.
4.In the meantime, on 7 December 2000 the applicant was ordered to pay the respondent’s costs of an unrelated appeal to the High Court of Australia. The costs were subsequently taxed and allowed in the sum of$46,826.08. The respondent issued a bankruptcy notice against the applicant on 4 March 2003 claiming an amount of $43,006.18, being the amount of the taxed costs less amount received.
5.The chattels proceeding was substantially heard by Finkelstein J who handed down his decision on all claims in the proceeding, except the property damages claim, on 14 February 2003. In short, His Honour:
(a) refused Mrs Ebner’s claim to recovery of the chattels;
(b) refused Mrs Ebner’s personal injuries claim;
(c) on the Official Trustee’s cross-claim;
(i) declared that 80% of the chattels (except for a handful of particular items ordered to be returned to Mrs Ebner) were vested in the Official Trustee (as property of the bankrupt) under ss 58 and 116 of the Act;
(ii) consequently ordered that the Official Trustee be responsible for the sale of the chattels and the distribution of the proceeds (after payment of various costs) 80/20 between the Official Trustee and Mrs Ebner, and
6.Mrs Ebner’s claims for damage to chattels (found to be hers) and damage to the home are scheduled to be heard by Finkelstein J in October 2003.
7.On 1 May 2003, Finkelstein J ordered that his orders of 14 February 2003 be stayed. They remain stayed.
8.Mrs Ebner appealed from the orders of Finkelstein J, and the Official Trustee cross-appealed. By consent, on 28 August 2003, the Full Court of the Federal Court ordered that the references to “20%” and “80%” in Finkelstein J’s orders of 14 February 2003 be varied by substituting “50%” in each case. The Full Court otherwise ordered that the parties bear their own costs of the appeal and the cross-appeal.”
The Applicant relied upon an affidavit sworn by Christopher Antony Dale on 6 May 2003 and by leave a further affidavit sworn
2 September 2003. The Respondent relied upon an affidavit sworn by Edward James Marsh, the Deputy Official Receiver, on 16 May 2003 and by leave a further affidavit sworn 5 September 2003.
In the light of that chronology the Applicant’s set-off, counterclaim or cross-demand claimed to exceed the amount of $43,006.18 in the Bankruptcy Notice is based upon either an entitlement to 50 per cent of the proceeds of the sale of chattels to be sold which were the subject of the order of Finkelstein J varied on appeal and costs which the Applicant claims may be awarded by Finkelstein J in her favour against the Respondent.
Proceeds of sale of chattels
The affidavit of Christopher Antony Dale sworn 6 May 2003 refers to the proceedings before Justice Finkelstein and notes that there had been a determination by Justice Finkelstein in the chattels proceedings that the Official Trustee had converted those chattels to his own use by virtue of their seizure at the time of a raid conducted by the Insolvency Service Trustee Services Australia on 22 October 1998 and as a consequence, the Applicant is entitled to damages for that conversion. During the course of submissions counsel for the Applicant referred to the decision of Finkelstein J delivered 14 February 2003 and the orders made on 14 March 2003 which as indicated earlier were subsequently varied by the Full Court on 20 August 2003. In the judgment of Finkelstein J reference was made to paragraph 39 where His Honour states:
“39.This unidentified property has been converted by the Official Trustee either because he has asserted ownership over it (see Oakley v Lyster [1931] 1 KB 148; Short v The City Bank (1912) 12 SR (NSW) 186; and, for an interesting case involving aircraft stolen from Kuwait, Kuwait Airways Corporation v Iraqi Airways Co (Mance J, 29 July 1998, Queens Bench Division, unreported)) or has refused to hand it over (Howard E Perry & Co Ltd v British Railway Board [1980] 1 WLR 1375). Accordingly, Mrs Ebner is entitled to recover by way of damages 20 per cent of the present value of the property held by the Official Trustee. The calculation of the actual amount, if it cannot be agreed, is a matter which will be undertaken at a later hearing.” (emphasis added)
At the time of swearing the first affidavit Mr Dale was unable to precisely determine the full amount of the claims allegedly outstanding against the Respondent. At the hearing an attempt was made to analyse the monetary consequences of the 50 per cent interest in the chattels as ordered by the Full Court and after deducting expenses and in part relying upon affidavit material of the Respondent it was suggested that a total valuation of $279,355 would result in a 50 per cent net interest to the Applicant of $113,894.16 which it was submitted easily exceeds the amount claimed in the Bankruptcy Notice namely the sum of $43,006.18.
Annexed to the first affidavit of Mr Dale is a copy of the decision of Finkelstein J delivered on 14 February 2003. It is useful to recite the further background details not disputed in the present application and set out in the first three paragraphs of His Honour’s Reasons for Judgment as follows:-
“1Maxwell Ebner became a bankrupt on 29 August 1994 when an order sequestrating his estate was made on the petition of the Australian & New Zealand Banking Group Limited, a judgment creditor. The Official Trustee in Bankruptcy was appointed trustee of the estate. Pursuant to s 58 of the Bankruptcy Act 2966 (Cth) the property of the bankrupt vested in the Official Trustee. In his statement of affairs to the Official Trustee (as to which see s 54(1)) the bankrupt claimed that he was unemployed, had no income and owned no assets. Some ten years earlier, in a statement of financial position submitted to the ANZ Bank for the purpose of obtaining credit, the bankrupt claimed that he owned, among other assets, furniture and household effects (including antiques and paintings) to the value of $250,000. The two statements are not necessarily inconsistent, as the bankrupt could have disposed of his personal property before bankruptcy. Indeed he had transferred to the applicant, his wife Ingrid Ebner, his interest in their matrimonial home at 6 Watts Parade, Mt Eliza, although the transfer was later set aside at the suit of the Official Trustee on the basis that it had been made with intent to defraud creditors. However, Mr Ebner does assert that when the sequestration order was made he owned no personal property, perhaps apart from a few items of clothing. The truthfulness of this assertion is at the heart of this case.
2It is convenient to begin with a description of the events which led to the institution of this action. Following an investigation, the Official Trustee formed the view that the personal property located at Watts Parade, which he believed to be worth around $500,000, was "the property of the bankrupt solely or the bankrupt and his wife and as such constituted divisible property of the bankrupt" which was being concealed from him. Accordingly, the Official Trustee applied for the issue of a warrant under s 130(2) of the Bankruptcy Act authorising a member of the Australian Federal Police to enter the Watts Parade property, search for and take possession of "relevant property" (which was defined in the warrant to include (paintings; antiques; other furniture and household effects; jewellery and watches; any of the property of the bankrupt; property that may be connected with, or related to, the Bankrupt's examinable affairs; or books (as defined in the Act) (including books of an associated entity of the Bankrupt) relevant to any of the Bankrupt's examinable affairs) and deliver that property to the Official Trustee. The warrant was issued on 16 October 1998 and executed five days later. In all 432 individually identified items (including some sets) were removed from the property and delivered to the Official Trustee in whose possession they still remain.
3 In this action Mrs Ebner seeks an order that the Official Trustee be directed to deliver this property to her. She also wants compensation in the event that any of the property has been damaged. Finally there is a claim for damages for personal injury (mental distress) alleged to have been caused by the issue and execution of the warrant and the detention of the property. The basis upon which these orders are sought is that Mrs Ebner is the owner of the property, having acquired it by purchase, gift or operation of law. Accordingly, she alleges that the Official Trustee "had no basis in fact or in law" to apply for the warrant, and in any event, in the first instance, he should have requested her to deliver up the property before proceeding to obtain the warrant. Mrs Ebner relies upon s 178 to found her relief. Section 178 provides that "if the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable". It seems, although it is not altogether clear, that Mrs Ebner seeks damages under s 178 even if she is not the owner, or a co-owner, of the personal property.”
It is noted that the orders made by Finkelstein J on 21 March 2003, after referring to the apportionment of the chattels the Court provided for sale of the chattels and otherwise dismissed the cross-claim. The costs were adjourned to a date to be fixed which is now understood to be on 14 October 2003.
Attached to the first affidavit of Mr Dale are copies of correspondence between the solicitors for the respective parties. The thrust of the Applicant’s claim was set out in a facsimile letter from the Applicant’s solicitors to the Respondent’s solicitors dated 17 March 2003. In that correspondence the Respondent refers to the amount owing of $43.006.18 under the Certificate of Taxation dated 8 August 2002. In the correspondence it is noted that no attempt had been made to recover that amount though the solicitors became aware that a Bankruptcy Notice had been issued on 4 March 2003. It is noted in the correspondence and repeated in submissions before this Court that at that time an appeal to the Full Court of the Federal Court was contemplated and it was asserted in those circumstances that it would be premature for the Respondent to take steps against the Applicant. It was claimed that the chattels proceedings judgment resulted in matters in favour of the Applicant including a return of certain items in specie and at that time subject to any adjustment by the Full Court 20 per cent of remaining chattels with other issues outstanding including damages claims to the house allegedly caused by the Official Trustee whilst executing a warrant, claim for damages for conversion of the chattels, a claim for damage to chattels seized by the Official Trustee while executing the warrant, claim for chattels claimed to be allegedly missing as a result of the execution of the warrant and claim for delivery up of documents seized. It was noted that the personal injuries claim had been excised from the chattels proceedings before Finkelstein J. In the correspondence it was claimed that the Applicant would therefore be well placed to make an application pursuant to s.41(7) of the Bankruptcy Act having regard to rights which fall within s.40(1)(g) of that Act. The issues kept alive are said to constitute counter-claims, set-offs or cross-demands equal to or exceeding the amount still owing under the Certificate of Taxation and it is claimed that those counter-claims, set-offs or cross-demands could not have been set up at the time of the taxation. Needless to say the request to desist from pursuing recovery of the amount under the Certificate of Taxation by service of the Bankruptcy Notice was refused.
Submissions were made consistent with the correspondence to which
I have referred from the Applicant’s solicitors.
In dealing with the issue of the proceeds of sale of chattels, it was submitted that there is merit in the Applicant’s claim in that this is relevant as a factor to be taken into account in the exercise of the Court’s discretion to dispense with compliance with Rule 30.02. It is convenient to note that reliance was placed upon the decision of Branson J in Crimmins v Glenview Home Units Pty Ltd (1999) FCA 515. That case was an application under s.41(7) of the Bankruptcy Act and the Court was required to deal with a contention that as a consequence of amendment to s.41(7) in 1996 that the section is enlivened by the mere filing of an application to the Court. In dealing with that contention the Court stated that the submission pays no regard to the terms of Order 77 Rule 13 of the Federal Court Rules which I note is in identical terms to Rule 30.02 of the Federal Magistrates Court Rules. The Court in Crimmins case rejected the suggestion that the Federal Court Rules and I interpolate the Federal Magistrates Court Rules in the present case, are not part of the law to be applied by the Court. The suggestion that compliance with the requirements of the Act is sufficient was likewise rejected. It seems clear to me that those comments by the Court apply equally to the Federal Magistrates Court. In the Crimmins case despite the Court bringing to the attention of the parties the power of the Court to dispense with compliance with any of the requirement of the Rules, no application for dispensation was made. In the present case an application has been made and Counsel then referred the Court to the deficiencies in Crimmins case and the way in which the Court then dealt with those deficiencies. It was noted for example in Crimmins that the Applicant did not verify the matters alleged or particularised in letters written by her solicitor and in a draft statement of claim and relevantly went on to state the following:-
“19 It seems to me to be appropriate to construe the requirements of O 77 r 13(3)(b) of the Federal Court Rules in the light of the authorities on the obligation imposed on debtors by s 41(7) of the Act before it was amended in 1996. In particular, I conclude that the requirement of O 77 r 13(3)(b) that "full details of the counter-claim, set-off or cross demand" be stated in the affidavit which accompanies the application will be satisfied if the details stated are sufficient to show the nature and substance of the cross action and to demonstrate that the debtor is bona fide in his or her contention that the cross action exists (see Re Brink; Re Donkin).
20 Applying that construction of the rule, I conclude, albeit with some hesitation, that the application and accompanying affidavits complied with the requirements of O 77 r 13(3)(b) so far as the applicant's personal injuries claim and her car park claim are concerned. I find, however, that they did not comply with the rule so far as the asserted claim "in respect of repair obligations" is concerned. No real particulars of such claim can be identified in either of the affidavits which accompanied the application or in the annexures thereto. There is insufficient material in the affidavits to demonstrate that the applicant has even a prima facie claim in respect of any particular repair obligation.
21 The affidavits which accompanied the application did not, in my view, comply strictly with O 77 r 13(3)(c). Although no application was made to the Court for the Court to dispense with strict compliance the requirements of O 77 r 13(3)(c), it seems to me that this is an appropriate case, so far as the applicant's personal injuries claim is concerned, for the Court to give such a dispensation. Not only is the claim an unliquidated one, it appears that the applicant's injuries may not have stabilised in December 1998. For that reason it may then have been premature for an accurate estimate of her recoverable damages, should liability in the respondent for such injuries be established, to have been made. I conclude with some hesitation that in the circumstances, the expression of opinion of the applicant's solicitor should be accepted as sufficient compliance, so far as the applicant's personal injuries claim is concerned, with O 77 r 13(3)(c).”
In relation to the substantive issue of whether the Court was satisfied the Applicant had a relevant counter-claim, set-off or cross-demand of a kind contemplated by s.40(1)(g) I was referred to the following paragraph of the decision of Branson J in Crimmins:-
“25 I turn to consider whether I may be satisfied that the applicant has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g) of the Act. Having regard to my above finding, this consideration will in the first instance be limited to the asserted personal injuries claim. For this purpose it is appropriate for me to have regard to the additional affidavit evidence filed and served after the expiration of the time for compliance with the Notice (Re Brink at 439). The whole of the evidence before me must be such as to demonstrate that the debtor has a prima facie case in respect of the cross action (Ebert v The Union Trustee of Australia Ltd (1960) 104 CLR 346).”
Further reference was made to an issue of a personal injuries claim as a counter-claim in Crimmins and again it is useful to set out the following paragraph from the Court’s decision:-
“29 Having regard to the limited evidence placed before me, and the appropriately qualified expression of opinion of the solicitor who now acts for the applicant in respect of her personal injuries claim as to the value of her claim, I am unable to be satisfied that the applicant's personal injuries claim against the respondent is "a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt" within the meaning of s 40 (1)(g) of the Act.”
After referring to those passages it was submitted that there were similarities between the Crimmins case and the present case and specifically it was submitted that the amount payable by the Official Trustee to the Applicant pursuant to the orders made in consequence of the finding of conversions of chattels is an amount which will undoubtedly on all the evidence from both sides exceed the judgment debt claimed in the Bankruptcy Notice.
It should be noted that although the Notice of Intention to Oppose the Application had asserted that the Applicant does not have a counterclaim, set-off or cross-demand that she could not have set up in the action or proceeding in which the judgment or order was obtained. It is common ground that that ground of objection is not pursued by the Respondent. It was obviously not pursued because the costs order in the High Court was based upon a Federal Court decision some time earlier than the claim for conversion and other matters arose.
It was submitted by the Respondent that any claim by the Applicant to the proceeds of sale of chattels could not be regarded as a counterclaim, set-off or cross-demand within the meaning of s.40(1)(g) of the Bankruptcy Act. It was argued that insofar as the claim is based on Finkelstein J’s orders (adjusted by the Full Court) the claim has been stayed pursuant to order of Finkelstein J made on 1 May 2003. For a claim to be available under s.40(1)(g), it was submitted that it should be effective as at the date of the hearing of the application to set aside the Bankruptcy Notice. So long as the claim is stayed it was submitted it is therefore not available as a counterclaim, set-off or cross-demand under s.40(1)(g) (see Guss v Johnstone (2000) 171 ALR 598 at 607; Bradbrook v Farrow Mortgage Services Ltd FCA Von Doussa J 9 February 1994 and Thyssen v Maniotis [2001] FMCA 60 McInnis FM 8 October 2001). Counsel relied upon what this Court said in the ex tempore decision of Thyssen and in particular referred to the following paragraphs:-
“18.In my view the submission made by the respondent in this regard has considerable force. It seems to me that in the circumstances where the plaintiff's claim has effectively been stayed it is difficult to see how that can then be construed by a court in bankruptcy as being an effective cross-demand at the time when the application to set aside the bankruptcy notice has been filed. The fact of the matter is that costs have been incurred, a stay has been properly sought, there's a refusal to pay, and indeed, there is no present indication as to when if ever those costs are to be paid and when if ever the stay is to be lifted.
19.It seems to me it is not to the point as submitted by counsel for the applicant to suggest that the respondent can at some stage in the future seek to have the stay made permanent. What this court has to deal with at this stage is an application to set aside a bankruptcy notice based upon the existence of a real cross-demand at this time. The effect of the stay in my view is such as to make it unreasonable for the court to conclude that there is indeed at the present time a cross-demand which would encourage the court to exercise its discretion under section 41(7). To do otherwise would lead in my view to an unreasonable outcome as it would mean that the respondents are simply making application to enforce orders in the Supreme Court, and by succeeding in obtaining at least a temporary stay, could have that order used against them in the pursuit of bankruptcy proceedings and the use of the bankruptcy notice to which I have already referred.”
It was further submitted that the Respondent should be entitled to rely upon the affidavit of Edward James Marsh sworn 16 May 2003 where exhibited to that affidavit (EJM21) is a notice served on 22 February 2001 under s.260-5 of Schedule 1 to the Taxation Administration Act 1953. The Official Trustee, it was submitted, is obliged to pay any monies to which the Applicant is entitled from the proceeds of sale of the chattels to the Deputy Commission of Taxation. It was submitted that if the Applicant’s share of the proceeds of sale of the chattels is correctly characterised an amount payable by her and constituting a counterclaim, set-off or cross-demand against the Official Trustee, the effect of the ATO notice is to charge that amount with payment of the Applicant’s tax debt (see Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238). Having regard to the size of the debt, namely $2,390,694.10 it was submitted there is no amount payable to the Applicant and accordingly no claim available to set-off against the amount claimed in the Bankruptcy Notice. Any claim by a judgment debtor to an interest in a sum of money coming into the hands of the judgment creditor which amount is subject to a prior claim by a third party is not a counterclaim, set-off or cross-demand it was submitted within the meaning of s.40(1)(g) (see Re A Bankruptcy Notice (1934)
1 Ch 431 at 439-440). It was further submitted that in any event the claim by the Applicant is not a personal claim against the Official Trustee but rather a proprietary claim to her share in the proceeds of sale of the chattels as declared by Finkelstein J and adjusted by the Federal Court. The Applicant’s claim for her share of the proceeds of sale is no more than a claim against the Official Trustee than the claim of the Official Trustee to its share is a claim against the Applicant. There is no claim it was argued by the Applicant to the chattels themselves, only to the proceeds of their sale and until the sale occurs and the proceeds are received by the Official Trustee the Applicant has no claim.
In relation to the issue raised concerning a stay of the order of Finkelstein J it was submitted by Counsel for the Applicant that those proceedings before that Court are not finished and outstanding issues are listed for hearing in October. It was submitted that the present case can be distinguished from the facts in Thyssen and other cases to which reference has been made as the fact remains that despite a stay being in existence it is not suggested the stay will remain after due consideration of the outstanding matters before Finkelstein J. It is and can only be characterised as a temporary stay.
In my view the issue of the stay in the context of the facts of the present case cannot be used as a means of arguing that there is not any counterclaim in existence upon which the Applicant may rely for the purpose of s.40(1)(g) of the Bankruptcy Act. The stay is clearly a temporary stay and the cases to which reference was made were not dealing with a stay of that kind. I accept the submissions otherwise made for and on behalf of the Applicant in relation to that issue.
In characterising the nature of the Applicant’s claim for what is now 50 per cent of the proceeds of sale of chattels presently held by the Respondent, it was submitted by the Applicant that that constitutes an entitlement to damages. It was further submitted that there is clear finding by Finkelstein J undisturbed by the Full Court that there has been conversion and that the Applicant is entitled to damages. It was therefore submitted that one could not find a clearer case to which s.41(7) might apply. It was argued that the further claim for damages to the chattels or damages to the house has yet to be dealt with albeit not a large claim. It was argued that there has been an award of damages.
In my view applying the law as set out by Branson J in Crimmins and elsewhere it is at least arguable that on the whole of the evidence that the Applicant has a prima facie case. Despite my reservations about characterising the nature of the order for what is now 50 per cent of the proceeds of sale of chattels, it does at least appear from paragraph 39 and the words emphasised in the quotation that an entitlement to recover by way of damages the percentage of the property held by the Respondent has been made. And although I have some reservations about the findings I am prepared to accept for the present purposes that the requirements of s.40(1)(g) have been satisfied.
In relation to the issue of the notice from the Taxation Office attached to the affidavit of Mr Marsh and marked as Exhibit EJM 21 Counsel for the Applicant submitted that that notice dated 22 February 2001 includes the following:
“If you now owe the available money to the debtor, the payment to the Commissioner of Taxation is to be made IMMEDIATELY. If you do not owe the available money to the debtor but you will later owe it to the debtor, the payment to the Commissioner of Taxation is to be made immediately the money becomes owing to the debtor.”
It was submitted that the money owing to the debtor is the balance rather than the gross so that the set-off asserted by the Applicant occurs before there is any net balance owing capable of being intercepted by the Tax Office. It was submitted therefore that the tax notice is not relevant to the application pursuant to s.41(7) which only requires the Applicant to establish that there was a cross-demand equal to or exceeding the amount claimed in the Bankruptcy Notice rather than establishing that the payment from the Respondent would be a gross or net amount.
The issue of any competing claims upon amounts obtained upon sale of chattels by the trustee is not a matter as I understood the submissions from the Applicant which should determine the outcome of this application. Those matters will be dealt with as a separate and discrete issue.
In my view the submissions of the Applicant have some force and in the circumstances I do not regard it as relevant that the net proceeds of the sale of the chattels may be defeated by a competing claim arising out of the notice from the Taxation Office.
Costs
Although it may be unnecessary to consider the issue of costs it is noted that there is a dispute between the parties as to whether the Applicant has an entitlement to costs based upon an interpretation of whether she has been successful in the proceedings before Finkelstein J. Counsel for the Respondent made submissions that in the circumstances attempts will be made to convince Finkelstein J that a costs order should be made in favour of the Applicant and then asserted that costs awarded in those circumstances would be far more than the amount claimed in the Bankruptcy Notice.
Conversely Counsel for the Respondent sought to argue that the Applicant had been unsuccessful before Finkelstein J and accordingly costs would follow the event with an order being made in favour of the Respondent.
In the circumstances it would be presumptuous and in my view inappropriate for this Court to anticipate the costs order to be made by Finkelstein J in the Federal Court. At best in the context of the current application it is only possible for this Court to conclude that there is a possibility of a costs order in favour of the Applicant. Again, there is a possibility that that costs order may exceed the amount claimed in the Bankruptcy Notice. Recognising the possibility as being more than speculative I am able to conclude that it is at least arguable that a costs order may be made in favour of the Applicant in an amount exceeding the amount in the Bankruptcy Notice. To the extent that I am required to make that finding and in the event that my finding in relation to the sale of chattels issue is an error I would further conclude that the potential costs order is another basis upon which the Applicant can succeed in this application to set aside the Bankruptcy Notice.
Having determined that there is merit in the application it is necessary for me to consider whether in the circumstances I will make an order that so much of the rules be dispensed with that would otherwise prevent the application being heard by the Court. Although the explanation for the failure to comply with the rules appears to be primarily based upon inadvertence or a misunderstanding I am prepared to accept in the present circumstances that the non compliance is not of a sufficient type which would result in undue prejudice or should otherwise as a matter of fairness prevent the Applicant from pursuing the application. For the reasons advanced by Branson J in Crimmins it is my view that in the circumstances it is appropriate to dispense with compliance with the rules.
It follows that the orders of the Court will be –
(1)So much of the Rules of the Court are dispensed with that would otherwise prevent the application filed 7 May 2003 being heard and determined by the Court.
(2)The Bankruptcy Notice dated 4 March 2003 served upon the Applicant on 16 April 2003 be set aside.
(3)The Respondent pay the Applicant’s costs including reserved costs, if any, to be taxed in default of agreement pursuant to Order 62 of the Federal Court Rules.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 8 October 2003
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