Eterovic, B. v Pavlovic, J.
[1995] FCA 344
•29 May 1995
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
GENERAL DIVISION No VN 579/95
Re: BLAZENKO ETEROVIC
Judgment Debtor
Ex parte: JOZO PAVLOVIC
Judgment Creditor
Coram: Olney J
Place: Melbourne
Date: 29 May 1995
MINUTE OF ORDER
THE COURT ORDERS THAT:
The judgment debtor's application to set aside the bankruptcy notice issued herein on 20 March 1995 be dismissed.
The judgment creditor's costs of and incidental to the application be taxed and paid by the judgment debtor and in the event that a sequestration order is made upon a petition founded on the act of bankruptcy committed by the judgment debtor in relation to the bankruptcy notice, such costs are to be treated as, and have the same priority as, the costs of the petitioning creditor.
NOTE:Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
GENERAL DIVISION No VN 579/95
Re: BLAZENKO ETEROVIC
Judgment Debtor
Ex parte: JOZO PAVLOVIC
Judgment Creditor
Coram: Olney J
Place: Melbourne
Date: 29 May 1995
REASONS FOR DECISION
On 20 March 1995 the judgment creditor caused a bankruptcy notice to be issued against the judgment debtor claiming that the sum of $27,875 was due to him by the judgment debtor under a final judgment obtained in the County Court of Victoria at Geelong on 20 February 1991 (the County Court judgment). The time fixed for compliance with the bankruptcy notice was 14 days after service of the notice on the judgment debtor.
Personal service was effected on 21 March 1995.
On 4 April 1995 the judgment debtor filed an affidavit sworn on 3 April 1995 acknowledging the judgment debt and the fact that he had not paid same. The affidavit asserted the following facts: On 21 December 1993 the judgment debtor commenced proceedings in the Supreme Court of Victoria (the Supreme Court proceedings) against 6 defendants (including the judgment creditor) seeking declaratory, injunctive and other relief. The matter was heard on 6, 7 and 8 March 1995. On 22 March 1995 Southwell J gave judgment for the plaintiff (the judgment debtor) and ordered that his costs be taxed and paid by 4 of the 6 defendants (including the judgment creditor). In paragraphs 8-11 of the affidavit the judgment debtor deposed as follows:
I am advised by my solicitors, Messrs Galbally & O'Bryan, and believe that a Bill of Costs is currently being drawn in taxable form to enable my costs to be taxed. I am further advised by my solicitors and believe that they have assessed my costs to be in the range of $25,000.00 - $30,000.00 and subject to my costs being taxed, this figure would accurately represent the Judgement (sic) Creditor's several liability to me. I have been further advised by my solicitors and believe the drawing of the Bill of Costs will be completed within the next fourteen (14) days and will then immediately be submitted to taxation.
Upon my costs being taxed, the sum of money that the Judgement (sic) Creditor is liable to pay to me will be ascertainable.
I am advised by my solicitors and believe the taxed sum the Judgement (sic) Creditor will be liable to pay me will most likely fully set-off the sum now being claimed by the Judgement (sic) Creditor in this action.
I submit I have a valid set-off against the Judgement (sic) Creditor's claim made herein save that at the time of swearing this my Affidavit its (sic) not ascertainable but is anticipated to be in the vicinity of $25,000.00 - $30,000.00. The set-off could not have been raised in Proceeding 268 of 1989 in which the Judgement (sic) Creditor obtained a Judgement (sic) against me.
On the day before the judgment debtor's affidavit was filed, an affidavit sworn that day by his solicitor Andrew Peter O'Bryan was filed in which reference was made to the Supreme Court proceedings and the order for costs. The affidavit continued:
I have instructed costs consultants to draw a Bill of Costs in Taxable Form with respect to the Judgement (sic) Debtor's claimable costs and anticipate being in receipt of this Bill within the next fourteen (14) days.
I estimate the Judgement (sic) Debtor's claimable costs to be paid by the Fourth Defendant and his co-Defendants will be in the range of $25,000.00 - $30,000.00 given the volume of work
carried out in the proceeding. Counsel's fees alone will be in the range of $13,000.00 - $14,000.00.
I further say that immediately the Judgement (sic) Debtor's costs consultants complete the Bill of Costs in Taxable Form, it will be submitted to taxation.
Although no application was filed seeking any orders upon the filing of the judgment debtor's affidavit on 4 April 1995 the Registrar set the matter down for hearing on 19 April 1995. In accordance with the common practice the Court has treated the filing of an affidavit as if it were an application to set aside the bankruptcy notice notwithstanding that the requirements of rule 10 of the Bankruptcy Rules have not been observed. The matter was initially adjourned and finally came on for hearing on 10 May 1995 when 2 further affidavits were filed, one sworn by the judgment creditor's solicitor, the other by the judgment debtor's solicitor.
The affidavit of the judgment creditor's solicitor referred to the County Court judgment in which judgments for separate specified sums were obtained by each of three plaintiffs including the judgment creditor. The defendants in that action were ordered to pay the plaintiffs' costs which were later taxed in the sum of $15,763.85. It appears that the plaintiffs' costs were taxed as a single bill with no apportionment of entitlement between the plaintiffs. Although it is said that the costs were unpaid at the date of the issue of the bankruptcy notice this fact is of no relevance in the present proceeding as the judgment creditor did not rely on any outstanding judgment for costs when he made application for the bankruptcy notice.
The affidavit of the judgment debtor's solicitor filed on 10 May 1995 stated that a bill of costs in the Supreme Court proceeding had been drawn in the sum of $29,059.60 and that same would proceed to taxation on 8 June 1995.
Section 40(1)(g) of the Bankruptcy Act provides that an act of bankruptcy is committed by a debtor
40(1)(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; or
(ii)where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service;
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 Bankruptcy Act provides:
41(7)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.
In this case the judgment debtor filed an affidavit before the expiration of the time fixed for compliance with the bankruptcy notice. The affidavit having been filed on the last day of the time fixed for compliance, there was no
occasion for the Court to consider whether or not it was satisfied as to the matters referred to in s 40(1)(g) before the expiration of the time fixed for compliance. If the affidavit is of the type referred to in s 41(7), the time for compliance with the bankruptcy notice will be extended until the Court makes a decision but if the affidavit does not comply with the subsection, an act of bankruptcy will have been committed upon the expiration of 14 days after service of the bankruptcy notice on the judgment debtor.
To have the benefit of the extension of time provided for in s 41(7) it is necessary that the affidavit filed by the judgment debtor be "to the effect" that he has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g) which is equal to or exceeds the amount of the judgment debt. The debtor must as a minimum requirement file an affidavit asserting that he has such a cross-claim, set-off or cross demand. In Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd 46 FCR 183 Hill J expressed the view that an affidavit pursuant to this subsection must do more than merely assert the existence of a counter-claim, set-off or cross demand of the relevant value, it must contain evidence which establishes that there is an effective claim which is real. In Oliveri v Stafford 91 ALR 91 at p 109 Gummow J observed that although there will be no act of bankruptcy for the purposes of s 40(1)(g) where the debtor satisfies the Court that he has a counter-claim, set-off or cross demand, this will avail the debtor only if it is equal to or greater than the amount of the judgment debt. In Sgambellone; Ex parte Jacques 53 FCR 275, Drummond J was of the same opinion. (See also Vogwell v Vogwell (1939) 11 ABC 83 at 85; Ebert's Case (1960) 104 CLR 346 at p 350; Re a Debtor(1935) 1 Ch 347 per Slesser LJ at p 352; Re McKechnie; Ex parte Weis 99 ALR 99). It must necessarily be the case that an affidavit filed pursuant to s 41(7) will avail the debtor only if it is to the effect that the claimed counter-claim, set-off or cross demand is equal to or exceeds the judgment debt.
In the present case the debtor's affidavit does not assert that he has a cross-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt referred to in the bankruptcy notice. The most the debtor was prepared to say was that he had been advised by his solicitors, and believed, that the costs for which the judgment creditor is liable in the Supreme Court proceeding when taxed "will most likely fully set-off the sum now being claimed by the judgment creditor". The affidavit is not "to the effect" that the judgment debtor has a cross-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt. That being so, the provisions of s 41(7) were not activated so as to extend the time for compliance with the notice and there would be no useful purpose to adjourn the matter until after the taxation of the costs in the Supreme Court proceeding, a course advocated by the judgment debtor.
It follows that the Court was not satisfied as to the existence of a relevant counter-claim, set-off or cross demand within the time fixed for compliance and accordingly an act of bankruptcy was committed at the expiration of 14 days from the date of service of the bankruptcy notice on the judgment debtor.
There is one further matter to which reference should be made. Counsel appearing for the judgment creditor submitted that in any event for the purposes of s 40(1)(g) the counter-claim, set-off or cross demand relied upon by the debtor must be one against the judgment creditor in his own right and not a claim against him as one of several persons jointly liable to the judgment debtor. The authority for this proposition is said to be found in the decision of Street CJ in Eq of the New South Wales Supreme Court in ReEdwin John Brown(1923) 40 WN 73 and a later decision of the Supreme Court of Western Australia in Re Wedd; Ex parte Parker (1962) WAR 42 in which Virtue J expressly agreed with the reasoning in Brown.
Neither Brown nor Wedd are decisions binding on a single judge of this Court, but the fact that the former has apparently not been dissented from for over 70 years and the latter for over 30 years suggests that they are authorities which this Court should treat with considerable respect.
It seems to me that the facts in Wedd are quite distinguishable from those in Brown and the present case. In Wedd the debtor claimed a cross demand against a partnership of which he was a member but in Brown the cross demand set up was a claim against the judgment creditor and his wife jointly. These facts therefore more closely resemble this case in which the costs order upon which the debtor seeks to rely was made jointly against the judgment creditor and 3 others.
The judgment in Brown is quite short and it is convenient to quote it in full:
Street, CJ in Eq. The judgment debtor in this case is seeking to set aside a bankruptcy notice, or at all events to have proceedings stayed upon it. He did not take out a notice of motion, but he brought the matter before the Court on an affidavit, as he was entitled to do, alleging that he had a cross claim which he could not set up in the action. It appears, however, that cross claim is not a claim against the judgment creditor solely, but is a claim against him and his wife arising out of a contract under which the judgment debtor claimed that he became entitled to an amount for commission which was in excess of the judgment debt. He has now shifted his ground, and it is now set up on his behalf that he has a claim against the judgment creditor solely in respect of wrongful acts committed by him. I cannot accept that view of the facts. Whatever claim he may have, if he has any, and I wish to say nothing about that, are claims, as it appears to me, not against the judgment creditor separately, but against him and his wife jointly. That gives rise to the question whether a judgment debtor is entitled to have a bankruptcy notice set aside or to have proceedings on it stayed, on the ground that he has a claim against his judgment creditor jointly with someone else. There is no direct authority on the point except the decision of Mr Justice Walker, Re A Bankruptcy Notice (16 W.N. 181) to which my attention has been directed, but I am of opinion that on the true construction of s 4(1)(g) of the Act a cross demand to come within it must be a cross demand against the judgment creditor solely. I do not think it was ever contemplated by the Legislature that a judgment creditor should be compelled to hold his hand while his debtor prosecutes a claim which he has against him and some other person jointly. Mr Evatt says that the decision of Mr Justice Walker does not go that length, but it seems to me that it is inconsistent with any other interpretation of the words and, in my opinion, that is the right interpretation to be put upon them. That being so, I think the application must be dismissed, and with costs.
(The decision in the case reported at 16 WN 181 turned upon a different issue).
Apart from the judge's perception as to the legislature's presumed intention, the decision in Brown does not expose the reasoning which led to the conclusion reached. However, Ebert v The Union Trustee Company of Australia Limited 1960 104 CLR 346 is authority for the proposition that a counter-claim, set-off or a cross demand may only be set up under s 40(1)(g) of the Bankruptcy Act 1966 if it is against the creditor in the same right as the judgment against the debtor which forms the basis of the bankruptcy notice. Thus a debtor against whom a trustee of an estate has obtained a judgment cannot rely upon a claim against the trustee in his personal capacity in answer to a bankruptcy notice issued on the basis of the trustee's judgment. The logic which leads to such a conclusion is apparent. But it is not immediately apparent why it should be so that a judgment debtor cannot set up in response to a bankruptcy notice a cross demand against one of 2 or more persons who are jointly liable to him in an amount equal to or exceeding the amount of the judgment. If the cause of action upon which the judgment debtor seeks to rely is one on which he could sue the judgment creditor separately without joining other person or persons who are jointly liable, then it would seem that the mischief which was perceived in Brown would not exist. But that case is not this case. Here the judgment debtor sought to set up his own judgment in response to the judgment creditor's demand. The use of the terms counter-claim and set-off in a context which is limited to cases in which the judgment debtor's claim could not be set up in the action or proceeding in which the judgment was obtained suggests that these terms are not used in 40(1)(g) in their usual sense, but rather are intended to indicate (as does the term cross demand) that the judgment debtor has a claim for the payment by the judgment creditor of a sum equal to or exceeding the amount of the judgment which claim the judgment debtor was not able to set up in the action or proceeding in which the judgment was obtained. A judgment against the judgment creditor in another unrelated proceeding would seem to fit comfortably within this concept of a cross demand. A judgment against 2 or more persons can be enforced by the ordinary processes of execution or garnishee against one of several joint judgment debtors and there would appear to be no policy reason why in the context of s 41(7) a judgment debtor should not be able to rely upon a judgment under which the judgment creditor is jointly liable in answer to a bankruptcy notice. Indeed, to hold otherwise may well encourage an abuse of process.
In my opinion, the decision in Brown is not one which should be followed. However, in the present case that view has no bearing upon the outcome of the proceeding.
For the reasons set out above the judgment debtor's application to set aside the bankruptcy notice should be dismissed with costs.
I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 10 May 1995
Place: Melbourne
Judgment: 29 May 1995
Appearances:
Mr T. Irlicht (instructed by Price Higgins) appeared for the judgment creditor.
Mr A.P. O'Bryan (instructed by Galbally & O'Bryan) appeared for the judgment debtor.
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