Field v Jenolan Caves Resort Pty Ltd (No.2) - [2008] FMCA 1701

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FIELD v JENOLAN CAVES RESORT PTY LTD (No.2)

[2008] FMCA 1701

BANKRUPTCY – Application to set aside bankruptcy notice – where applicant relies on existence of a contingent set off – where there is little evidence of the set off – where there is no evidence of the value of the set off – where the applicant seeks time to file a Statement of Claim in the Supreme Court of NSW.

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

Re GEB (1903) 2 KB 340
Vogwell v Vogwell (1939) 11 ABC 83
Guss v Johnson (2000) 171 ALR 598
Re Naghten & Anor v Commonwealth Bank of Australia, unreported

Applicant:

ARCHER PHILLIP FIELD

Respondent:

JENOLAN CAVES RESORT PTY LTD (RECEIVER & MANAGER APPOINTED) (IN LIQUIDATION) ACN 003 985 760

File Number:

SYG 2637 of 2008

Judgment of:

Raphael FM

Hearing date:

15 December 2008

Date of Last Submission:

15 December 2008

Delivered at:

Sydney

Delivered on:

15 December 2008

REPRESENTATION

Counsel for the Applicant:

Mr R Newton

Solicitors for the Applicant:

Messenger & Messenger

Counsel for the Respondent:

Mr P Dowdy

Solicitors for the Respondent:

Henry Davis York

ORDERS

Application dismissed.
Applicant to pay the Respondent’s costs to be taxed if not agreed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2637 of 2008

ARCHER PHILLIP FIELD

Applicant

And

JENOLAN CAVES RESORT PTY LTD (RECEIVER & MANAGER APPOINTED) (IN LIQUIDATION) ACN 003 985 760

Respondent

REASONS FOR JUDGMENT

There comes before me an application filed on 13 October 2008 to set aside bankruptcy notice NN3281/08 issued by the Official Receiver on 2 September 2008. The judgment attached to the bankruptcy notice referred to a summary judgment given on 16 February 2007 stayed until 16 March 2007 in the sum of $814,454.00 odd. The judgment was stayed so that the debtor could file and serve a cross-claim no later than 14 March 2007. According to the evidence before me contained in the affidavit of Michael Kenneth Sullivan filed on 3 November 2008, an amended commercial list response and cross-claim were filed but that was subject to a notice of motion, which on 21 June 2007, resulted in the striking out of part of the defence and cross-claim with further orders for service of what would be an amended cross-claim. The stay continued until eventually it was dissolved after two hearing dates had been abandoned as a result of the inability of the debtor to have his case prepared. As I understand Mr Newton's submissions on behalf of the debtor today, any cross-claim that he may have would only tangentially involve the current respondent and does not appear to be the cross-claim envisaged by Hammerschlag J in the Supreme Court of New South Wales. It is important for Mr Newton to say this because if the cross-claim he now refers to, which after this paragraph I shall refer to as a set off because that is more accurately what it is, was connected to the one that Hammerschlag J gave leave to file, it most certainly could have been set up in the proceedings under which the judgment was obtained and would therefore not be a set off of the type envisaged by s.40(1)(g) of the Bankruptcy Act 1996 (the “Act”).
Earlier today I declined to admit an affidavit that had been sworn this morning which attempted to articulate the set off that I have referred to. The failure of the debtor to file and serve this document within the period provided by the court should be considered fatal to its late filing. The affidavit that was filed in support of the application to set aside the bankruptcy notice does hint in paragraph 17 at the existence of the alleged set off. As I understand Mr Newton's submissions, his client believes that he, as the sole director and shareholder of Jenolan Caves Resort Pty Ltd, has the ability to require that company to make a claim against the receivers and managers that were appointed by the St George Bank and against the bank for entering into an agreement with the New South Wales Government under which, what is claimed to be the sole asset of the company, a long lease of the Jenolan Caves Resort, was transferred back to the government.
The debtor argues that he is an obligor of the bank under a guarantee in respect of which he has been sued and in respect of which a judgment exists for some $6 million odd. He would argue that if he complies with his obligations under the guarantee and pays the bank on behalf of the company he has a right of contribution from the company and therefore a set off against the company in respect of any debt that he owes the company. I believe that putting the matter in this way puts it at the highest so far as the debtor is concerned.
The debtor says that this set off was not a set off that he could have raised in the original proceedings and therefore is one that falls within s.40(1)(g). The first problem that he faces is that so far as I am aware from the evidence before me, all the facts surrounding the sale of the asset were known to the debtor as early as 2005 and yet no proceedings have been commenced. Mr Newton says that the debtor has obtained two opinions from senior counsel and that he is on the cusp of filing a statement of claim but no draft document has been shown to me.
The second problem faced by the applicant debtor is that he has not paid any money to the bank under the guarantee and so his claim is, as Mr Newton has accepted on more than one occasion, contingent. Should he succeed in the action of the company against the receivers and the bank there may be no debt owed to the bank and therefore no obligation under the guarantee. If there is no obligation there is no set off.
The third problem faced by the debtor arises from the one referred to above. Nobody knows how much the set off is worth. It is always possible that the company could succeed against the bank and the receivers to a figure that is less than the amount owed and which is the subject of the bankruptcy notice. The Act requires that the set off be equal to or exceed the value of the amount for which the bankruptcy notice has been issued.
Next, although I have attempted to give a description of the set off, I have to say that I really have very little evidence about it and cannot therefore assess the strength of the claim made by the debtor that the actions of the bank and the receivers were wrongful. They appear to involve the interpretation of some NSW Act under which trustees were created for the land but I have not seen either the Act or the trust deed or any other document related thereto.
Any set off, counter claim or cross-demand that is utilised by a debtor for the purposes of s.40(1)(g) and s.41(7) of the Act must be established to be an effective set off which exists at the time of the application to set aside the bankruptcy notice; Re GEB (1903) 2 KB 340 at [348], Vogwell v Vogwell (1939) 11 ABC 83. The courts have cast doubt as to whether a setoff that is merely contingent or inchoate can be an effective setoff for the purposes of s.40(1)(g); Guss v Johnson (2000) 171 ALR 598. In that case the High Court said at [40]:
“The state of satisfaction referred to in s.40(1)(g) and 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to wait for determination of the claim.”
In that case the views expressed by the primary judge about the cross-claim involved, including its inchoate nature and the delay in it being brought, were accepted by the High Court as correct reasoning; Guss at [47]. Delay was also considered to be a matter of importance in Re Naghten & Anor v Commonwealth Bank of Australia unreported Federal Court, Foster J, 21 May 1998 where his Honour said:
“The absence of any such claim is a matter which I feel should not unreasonably be taken into account when one has regard to the other aspect of this matter, namely whether I am satisfied that the application constituting the cross-demand is a bona fide application. The claim quite obviously could have been made at a far earlier point of time than it was, and it clearly appears from the material that has been put before me, that it has not progressed in the Supreme Court.”
The evidence that is put before me does not satisfy me that the applicant has a set off equal to or exceeding the amount of the judgment debt. There is painfully little evidence of anything and the delay would appear to be consistent with a lack of conviction about the existence of the set off. I would also have considerable difficulty in accepting as a set off for these purposes a right which could only possibly come into existence after a payment has been made on behalf of the company where that payment has not yet been made.
Finally, I would say to Mr Newton's plea that I should give his client two or three days so that he can file the cross-claim that has been held like the sword of Damocles over the head of Mr Dowdy’s clients that this is an application to set aside a bankruptcy notice. It is not the hearing of a petition. There is plenty of time before that takes place for Mr Field to file his claim and apply to another bankruptcy judge under s.52(2)(b) of the Act.
The application is dismissed. The Applicant must pay the First Respondent's costs to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: