Emanuele, Giuseppe v Grey, Ronald

[1997] FCA 1545

FEDERAL COURT OF AUSTRALIA

Bankruptcy - bankruptcy notice - application to set aside notice on the ground that the debtor has a counter claim or set-off - bankruptcy notice founded on order for costs made jointly in favour of several parties - counter claim or set-off in respect of costs in other proceedings ordered against one only of those parties - whether the counter claim or set-off is due in the same right - whether time for compliance with the notice should be extended beyond the date when the Court determines that it is satisfied that the debtor does not have a counter claim, set-off or cross demand as referred to in s 40(1)(g) of the Bankruptcy Act 1966

Bankruptcy Act 1966 (Cth), ss 40(1)(g), 41(6A), 41(7)

Australian Workers’ Union v Bowen (1946) 72 CLR 575
Thiess Watkins White Construction Limited (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452
Re Thompson; ex parte Thompson v Grimley Pty Ltd (1995) 135 ALR 700
Edwin John Brown (1923) 40 WN (NSW) 73
Re Wedd; ex parte Wedd v Parker (1961) 19 ABC 36
James v Abrahams (1981) 51 FLR 16
James v Federal Commissioner of Taxation (1955) 93 CLR 631
Re Molesworth (1907) 51 Sol Jo 653
Clyne v Deputy Commissioner of Taxation (No. 5) (1982) 69 FLR 345
Re Stirling; ex parte Esanda Ltd (1980) 44 FLR 125
McLean v ANZ Banking Group Ltd (1993) FCR 300

Matter No. SG7173 of 1997

GIUSEPPE EMANUELE v RONALD ALWIN GREY, BRIAN BATES, PETER JOHN LAMB, ARTHUR BROWN, ALLAN JOHN DAU, PETER EDWARD PHILLIPS, IAN DOUGLAS TEMBY and COMMONWEALTH OF AUSTRALIA

VON DOUSSA J
ADELAIDE
17 DECEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG7173  of   1997

BETWEEN:

GIUSEPPE EMANUELE
APPLICANT

AND:

RONALD ALWIN GREY
FIRST RESPONDENT

BRIAN BATES
SECOND RESPONDENT

PETER JOHN LAMB
THIRD RESPONDENT

ARTHUR BROWN
FOURTH RESPONDENT

ALLAN JOHN DAU
FIFTH RESPONDENT

PETER EDWARD PHILLIPS
SIXTH RESPONDENT

IAN DOUGLAS TEMBY
SEVENTH RESPONDENT

COMMONWEALTH OF AUSTRALIA
EIGHT RESPONDENT

JUDGE:

VON DOUSSA

DATE OF ORDER:

17 DECEMBER 1997

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

Upon publication of these reasons the Court will hear the parties as to the orders which should be entered.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG7173 of 1997

BETWEEN:

GIUSEPPE EMANUELE
APPLICANT

AND:

RONALD ALWIN GREY
FIRST RESPONDENT

BRIAN BATES
SECOND RESPONDENT

PETER JOHN LAMB
THIRD RESPONDENT

ARTHUR BROWN
FOURTH RESPONDENT

ALLAN JOHN DAU
FIFTH RESPONDENT

PETER EDWARD PHILLIPS
SIXTH RESPONDENT

IAN DOUGLAS TEMBY
SEVENTH RESPONDENT

COMMONWEALTH OF AUSTRALIA
EIGHT RESPONDENT

JUDGE:	VON DOUSSA
DATE:	17 DECEMBER 1997
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

This is an application by Giuseppe Emanuele (“the debtor”) to set aside a bankruptcy notice dated 28 July 1997 which was served on him on 7 August 1997. The application is made on the ground that the debtor has a counter claim or set-off against the creditors who issued the bankruptcy notice (“the judgment creditors”) which could not have been set up in the proceedings in which the judgment or order relied upon by the judgment creditors was obtained: see ss 40(1)(g) and 41(7) of the Bankruptcy Act 1966 (“the Act”). The debtor also seeks an extension of the time for compliance with the requirements of the notice pursuant to s 41(6A) of the Act.

The bankruptcy notice was issued by eight parties who constitute the judgment creditors.  At all material times the first six creditors were officers of the Australian Federal Police.  One of these officers is Allan John Dau (“Mr Dau”).  The seventh creditor (Ian Douglas Temby) was the Director of Public Prosecutions, and the eighth creditor is the Commonwealth of Australia (“the Commonwealth”).

On 4 February 1994 the debtor was convicted on a charge of bribery in the Magistrates Court in the Australian Capital Territory.  The debtor appealed against the conviction, and on 16 March 1995 the conviction was quashed by Higgins J in the Supreme Court of the Australian Capital Territory.  The informant appealed against the decision of Higgins J to the Full Court of the Federal Court of Australia.  On 4 December 1995 the Full Court dismissed the appeal. 

Following the dismissal of the bribery charge, the debtor, together with two companies of which he was a director, commenced civil proceedings in the Supreme Court of the Australian Capital Territory against the judgment creditors and a number of other parties seeking damages arising out of the conduct of the defendants which led to the charge of bribery being laid.  The causes of action included abuse of process, misfeasance in public office, negligence, breach of duty including statutory duty, the tort of negligence and the tort of intentional infliction of harm. 

The defendants applied to have the statement of claim in the civil proceedings struck out.  On 16 October 1996 orders were made in relation to the statement of claim which led to the action being discontinued against some of the defendants, and leave being granted to the plaintiffs to amend the statement of claim against the judgment creditors against whom the civil proceedings remained on foot.  An order was made that the judgment creditors recover their costs of and incidental to the application to strike out the statement of claim together with the costs of the amendments and any costs thereof thrown away (“the civil proceedings costs”).

Pursuant to the order made on 16 October 1996 the civil proceedings costs were taxed and allowed at $24,277.65 on 22 May 1997.  The bankruptcy notice was based on this order for costs together with $2,139.09 interest which had accrued between the date of the order and the issue of the bankruptcy notice.

Whilst the order for the civil proceeding costs was made against “the plaintiffs”, that is the debtor in these proceedings and the two plaintiff companies in the civil proceedings, both of which are now in liquidation, the judgment creditors are entitled to enforce the order against the debtor alone.  This is so as the order for costs against the plaintiffs is joint and several as between them: see Australian Workers’ Union v Bowen (1946) 72 CLR 575 at 583, Thiess Watkins White Construction Limited (in liq) v Witan Nominees(1985) Pty Ltd [1992] 2 Qd R 452, and the authorities cited therein. Under the order for costs the debtor incurred a personal liability for the full amount of the taxed costs and interest thereon.

The counter claim or set-off which the debtor seeks to raise in answer to the sum claimed in the bankruptcy notice is in respect of moneys due to the debtor under costs’ orders made in his favour in proceedings in respect of the bribery charge laid in the Magistrates Court. Mr Dau was the informant in those proceedings.  After the conviction was quashed, Higgins J ordered that the informant pay the sum of $600,000 as costs to the debtor.  These costs have already been paid.  Further, Higgins J ordered that the informant pay the debtor his costs of the appeal to the Supreme Court of the Australian Capital Territory.  The Full Court of the Federal Court also ordered that the informant pay the debtor his costs of the appeal to that Court.  These two orders for costs (“the bribery charge costs”) have not yet been taxed, but an affidavit filed in support of the present application from Peter John Norman, a solicitor with expertise in legal costing, deposes to the fact that he has drawn draft bills in the sums of approximately $396,000 and $41,000 respectively which will be lodged for taxation.  For present purposes it may be accepted that when the costs are taxed, allocaturs will issue for substantially more than the amount claimed in the bankruptcy notice.

The order for the civil proceedings costs upon which the bankruptcy notice is founded is an order made in favour of the eight parties jointly who constitute the judgment creditors.  As joint creditors it was necessary for all of them to apply for the issue of the bankruptcy notice:  Australian Workers’ Union v Bowen and Re Thompson; ex parte Thompson v Grimley Pty Ltd (1995) 135 ALR 700 at 708-710.

Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a counter claim, set-off or cross demand which equals or exceeds the amount of the judgment debt on which the bankruptcy notice is founded, the counter claim, set-off or cross demand must be mutual and due in the same right: see Edwin John Brown (1923) 40 WN (NSW) 73, Re Wedd; ex parte Wedd v Parker (1961) 19 ABC 36, and James v Abrahams (1981) 51 FLR 16 at 27-29 per Fisher J. In answer to a bankruptcy notice issued by several joint creditors the debtor may not raise a debt owed to one of the creditors individually. He may only raise as a counter claim, set-off or cross demand a monetary liability owed to the debtor by all the creditors jointly: James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 643.

In the present case counsel for the judgment creditors contends that the debtor’s application must be dismissed as the counter claim or set-off which the debtor seeks to raise is not due in the same right.  The debtor seeks to set up a monetary liability owed to him solely by Mr Dau whereas the claim against him is in respect of a liability owed jointly to the judgment creditors.

Senior counsel for the debtor does not dispute that for the purpose of s 40(1)(g) a counter claim, set-off or cross demand must be due in the same right. However, he contends on the debtor’s behalf that in reality that is the situation here. There are two limbs to this argument. First, he argues that in the civil proceedings the Court should infer that the only party that is outofpocket in respect of the civil proceedings costs is the Commonwealth. Secondly, the Court should infer in respect of the bribery charge costs that Mr Dau, as a member of the Australian Federal Police, will be indemnified by the Commonwealth. Thus, it is said, it is the Commonwealth that is seeking to recover moneys from the debtor under the bankruptcy notice, and it is the Commonwealth which will be required to pay the bribery charge costs ordered against Mr Dau.

In my opinion the debtor’s contention must fail on grounds both of fact and law.

As a matter of fact I do not think the Court is entitled on the very limited information filed by the debtor to infer that the Commonwealth alone is the party out of pocket in respect of the civil proceedings costs, nor that Mr Dau will be indemnified by the Commonwealth.

However, even if it were possible to infer from the fact that the Australian Government Solicitor appeared as solicitor on the record for all the judgment creditors in the civil proceedings, that the Commonwealth was the only creditor with a beneficial interest in recovering the civil proceedings costs, there would remain the question whether for the purpose of raising a counter claim or set-off, the liability of the debtor to satisfy the civil proceedings costs became a legal liability owed by him to the Commonwealth alone.  If that inference were drawn, the Commonwealth would be the only judgment creditor with a beneficial interest in the costs, but all the judgment creditors would remain the parties in whom the right to enforce the order was jointly vested: Australian Workers’ Union v Bowen at 584 per Latham CJ, and at 588-590 per Dixon J. All eight of the judgment creditors would bring enforcement proceedings as trustees of a trust in favour of the Commonwealth. Assuming, for the moment, that the second limb of the debtor’s contention is correct, and it is the Commonwealth, not Mr Dau, who owed him money under the orders for the bribery charge costs, then the debtor would be seeking to raise as a counter claim or set-off a debt owed to him by the Commonwealth against a debt claimed by trustees of a trust in favour of the Commonwealth.

In my opinion that is the situation which the Court of Appeal ruled against in Re Molesworth (1907) 51 Sol Jo 653, a decision followed by Fisher J in James v Abrahams.  The reasons of the Court of Appeal were stated as follows by Cozens Hardy MR:

“The debtor here is asserting a claim for damages against the testator’s estate by virtue of a contract by the testator to leave him a certain amount of money by his will, and he has sued the executors.  The executors, on the other hand, have an ordinary judgment for costs against the debtor based upon an order of the Probate Division.  The executors’ judgment is personal, they sued as individuals, whereas the debtor’s claim is not against them as individuals, but is against their testator’s estate.  What he claims is not due from them in the same right, and I am therefore of opinion that he has no counterclaim at all...”

Here, the creditors have a judgment which is personal to them, and jointly owed to them, even if, as between themselves and the Commonwealth, they have obligations as trustees to account to the Commonwealth for the proceeds.  The counter claim or set-off is however, not against the trustees (assuming they are to be so regarded), but against the beneficiary of the trust.  The counter claim or set-off raised is for money not due from the creditors in the same right.

The second limb of the debtor’s contentions must also fail as the moneys due to the debtor under the orders for the bribery charge costs cannot be treated as moneys due to the debtor by the Commonwealth.  Mr Dau, as the informant laying the bribery charge, acted in exercise of original not delegated authority, and at his own discretion by virtue of his office.  As a matter of law the Commonwealth is not vicariously liable for his actions.  The relevant authorities are gathered together in the decision of McGregor J in Clyne v Deputy Commissioner of Taxation (No. 5) (1982) 69 FLR 345. I did not understand senior counsel for the debtor to dispute that Mr Dau was acting in exercise of original authority in laying the bribery charge.

In my opinion the application to set aside the bankruptcy notice must be dismissed.

Time for compliance with bankruptcy notice was automatically extended by the debtor making application to the Court for an order setting aside the notice, by operation of s 41(7) of the Act. As amended in 1996, that subsection now provides that:

“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.”

In my opinion the extension deemed to occur by s 41(7) is intended to cover exhaustively the situation where an application is made to have a bankruptcy notice set aside on the ground that the debtor has a counter claim, set-off or cross demand, and the more general power to extend time to comply with a bankruptcy notice contained in s 41(6A) has no application. But in any event, the power to extend time for compliance in s 41(6A) is a power in aid of setting aside the notice itself: Re Stirling; ex parte Esanda Ltd (1980) 44 FLR 125 at 129-130, and McLean v ANZ Banking Group Ltd (1993) 42 FCR 300 at 305. In this case, once the Court has determined that it is satisfied that the debtor does not have a counter claim, set-off or cross demand as referred to in s 40(1)(g) there is no occasion to exercise such a power to further extend time for compliance with the notice. However, at the request of the parties, I shall publish these reasons, and then hear counsel as to the orders which the Court should make.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa J

Associate:

Dated:             

Counsel for the debtor:	Mr C J Kourakis QC
Solicitor for the debtor:	Randle and Taylor
Counsel for the judgment creditors:	Ms S Maharaj
Solicitor for the judgment creditors:	Australian Government Solicitor
Date of Hearing:	8 December 1997
Date of Judgment:	17 December 1997