Gibbons v Romero & Ricardo
[2000] FMCA 1
•12 September 2000
FEDERAL MAGISTRATES ACT 1999
IN THE FEDERAL MAGISTRATES COURT
OF AUSTRALIAAT BRISBANE BZ11 of 2000
BETWEEN: GABRIEL GEISSA AND CARL GIBBONS
APPLICANT
AND: ROMERO
RICARDO
RESPONDENT
R E A S O N S F O R J U D G M E N T
BEFORE FEDERAL MAGISTRATE BAUMANN
Date of Hearing: 6 September 2000
Date of Judgment: 12 September 2000
INTRODUCTION
1.This is an application filed 6 July 2000 by Gabriel Geissa and Carl Gibbons, (“the applicants”), for an order that bankruptcy notice QN396 of 2000 be set aside. Ricardo Romero, (“the respondent”), opposes the application.
2.Since the filing of the application, the time for compliance with the bankruptcy notice has been extended to permit time for the hearing of the application and delivery of these reasons.
HISTORY
3.The applicants entered into a contract with the respondent on 5 April 1994 in respect of the purchase of a bistro business known apparently as Ricardo’s Bistro, operated in part of the premises known as the Prince Consort Hotel at 226 Wickham Terrace, Fortitude Valley. A copy of the contract was not produced to the Court. Part of the terms are set out at paragraph 6 of Mr Gibbons' affidavit filed 6 July 2000 and paragraphs 6 and 7 of the affidavit of Gabriel Geissa filed 14 August 2000.
4.In the absence of the whole of the contract, all I can infer from the material produced is that:
(a) the purchase price was $27,000 payable by instalments;
(b)the respondents claim to have paid $20,080 inclusive of $13,000 in cash;
(c)the respondents entered into possession and apparently operated the business;
(d)at some time after the contract was entered into, Geissa entered into an agreement to transfer his interest in the business to Kentlee Pty Ltd. It is not clear whether Gibbons was still a part-owner, as he alleges that he prosecuted the appeal to the Supreme Court, although he is not mentioned as a party in either the Liquor Appeals Tribunal appeal or the High Court appeal;
(e)the applicants say that the contract was essentially subject to the transfer of the liquor licence and also a two-year lease of the premises being granted;
(f)it appears apparent from the withdrawal of the High Court Appeal, by notice of discontinuance dated 13.10.97, that Kentlee Pty Ltd was unsuccessful. Certainly, as pleaded in the application for special leave, Kentlee Pty Ltd was wholly unsuccessful in the Queensland Court of Appeal judgment given 2 April 1996.
5.Curiously, whilst the extensive appeal process was being undertaken by Kentlee Pty Ltd, it seems the respondent had commenced proceedings against the defendants (who are the applicants in this matter), in the Brisbane Magistrates Court. A history of the Brisbane Magistrates Court action number 21024 of 1994 is conveniently given at paragraph 2 of the affidavit of Dain Hansen Locke, the respondent's solicitor, filed 14 July 2000. An entry of appearance, defence and counter-claim was filed by the applicants as defendants on 28 March 1995. There is no evidence to suggest that the applicants took any further action.
6.The only reasonable inference that can be drawn from the history of the Magistrates Court proceedings is that the applicants in this matter neither complied with directions of the Magistrates Court, nor did they effectively and diligently pursue their defence; and, more relevantly, their counter-claim. The claim appears to have been for a sum of not less than $14,909.50, being the judgment debt, whilst the applicants alleged a counter-claim of $28,297. Mr Gibbons acknowledges that "there was to be some accounting for the operation of the business and the rental which was payable" as an adjustment to the moneys sought to be recovered, but further particulars were not provided in his affidavit.
7.Judgment was entered by default in favour of the Respondent on 20 June 1996, nearly four years ago. The applicants seek to give some explanation in their material about the reasons why they either had failed to prosecute their counter-claim or delayed in seeking to set aside the judgment, namely
(a) paragraph 4 of the affidavit of Gibbons:
I did not receive notice from my solicitor at the time because I had changed address, and I could not provide instructions;
(b) paragraph 8 of Gibbons' affidavit:
I was not in a position to set up the counter-claim or cross-demand because the outcome of the appeal was not available or known by the time that judgment was entered against me;
(c) paragraph 9 of Gibbons' affidavit:
I was not aware that judgment was entered against me;
and further, that he assumed:
The creditor was not pursuing the matter, given that we were not pressing the sum of $20,080 which was paid and in respect of which we sought a judgment;
(d) paragraph 12 of Geissa's affidavit:
The respondent told me that he was not interested in enforcing any judgment against me but wanted to proceed against Gibbons because he was antagonistic towards him;
(e) paragraph 13 of Geissa's affidavit:
He informed me on that occasion that he would not proceed against me and would take no further action; and
(f) paragraph 15 of Geissa's affidavit:
The respondent wanted to resolve all matters at the time with me, and we agreed that if he did not enforce the judgment, that I would not proceed with the counter-claim.
8.Certainly, Gibbons should have assumed at the time of his oral examination on 27 January 1999 that the respondent:
(a)had entered judgment against him; and
(b)that he was pursuing his judgment. Still Gibbons apparently did nothing until after the bankruptcy notice was served upon him.
9.The allegations identified above by Geissa are denied by the respondent in his affidavit filed 28.8.2000. On an interlocutory motion such as this, I am unable to make findings of credit. I merely observe that Geissa, apparently aware of the judgment against him by reason of his oral examination of 23.11.1998, was not entitled to assume that the respondent would not be pursuing his judgment.
10.The proper process, as he now has belatedly undertaken, was to immediately give instructions to his solicitor to seek to set aside the judgment. It was suggested in submissions on behalf of the Geissa that he was entitled to take no further action on his counter-claim, relying upon the statements and assurances of the respondent. It is unnecessary for me to decide whether an argument of issue estoppel as advanced by the applicant can arise when the issue of execution of a lawful judgment is in issue. Suffice it to say that it holds little attraction as an argument to me.
11.An application by the applicants for leave to proceed to set aside a judgment was filed in the Brisbane Magistrates Court on 14.7.2000, again after the bankruptcy notice was served, and was, on its first return date, dismissed because of a failure to appear. Mr Barbi, solicitor for the applicant, says that was due to an apparent failure by someone in his office to appear, and that the application for leave to proceed has been enlivened and is to be heard shortly. For the reasons mentioned below, it is not necessary for me to decide whether or not:
(a)the original counter-claim had merit; or
(b)if the current application for leave to proceed will succeed.
THE LAW
12.In these circumstances where the respondent, as creditor, has a final judgment against the applicants which has not been stayed, an Act of Bankruptcy is committed if the applicants fail to comply with the requirements of a bankruptcy notice, or:
“...satisfy the Court that he or she 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 he or she could have set up in the action or proceeding in which the judgment or order was obtained.” (s40(1)(g) BANKRUPTCY ACT 1966 (Cth)).
13.The applicant bears the onus of satisfying me that the counter-claim could not have been set up in the action. The submissions of the applicant on this point concede that the counter-claim was pleaded and filed in 1995. Despite the order of the Brisbane Magistrates Court made on 20 May 1996 debarring the defendants from defending the proceedings, the counter-claim, they say, is still on foot. The counter-claim was filed before the results of any appeals by Kentlee Pty Ltd were determined.
14.The principal submission of the respondent is that the counter-claim asserted by the applicant debtors could and indeed was set up in the proceedings in the Brisbane Magistrates Court. Section 40(g) of the Bankruptcy Act has of course been the subject of much judicial discussion. The breadth of the key expression "could not have been set up in the action or proceeding" has been examined by Hill J in re Ling ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129, when he said:
“The policy inherent in this section would seem to be that a debtor should be allowed to challenge a bankruptcy notice based upon a judgment obtained so long as the debtor had prima facie a counter-claim of a value at least as great as the judgment obtained which he could bring against the judgment creditor. Conversely, however, the debtor could not challenge the bankruptcy notice if the debtor could have brought the counter-claim in a timely way at the same time as the proceedings brought against him, but failed to do so. The section could, on its face, have no application if the debtor had brought the counter-claim in the proceedings and was either successful or unsuccessful with that counter-claim.”
15. In this matter, the counter-claim was set up but was not pursued in a timely manner by the applicant debtors either before the judgment or subsequent to the issue and service of the bankruptcy notice.
16.What emerges from the submissions in evidence of the applicants is that:
(a) they claim that although pleaded, they could not proceed with their counter-claim until the Kentlee appeals had been exhausted. Even if that were the case, no explanation is given for not seeking a stay in the Magistrates Court proceedings pending the resolution of the appeal process in the superior courts of what they say was a related appeal. Again, as Hill J in re Ling observed:
“the mere fact that there was an excuse as to why the cross-claim was not brought will not avail a debtor seeking to come within section 41(7) of the Act if a cross-claim could legally have been brought.”
(b) there have been obvious failures by the applicants to pursue the counter-claim with personal and reasonable diligence. There is a long line of authority which establishes, in the context of section 41(g) of the Act, that:
“Considerations personal to a debtor which prevent him, as a matter of practical reality, from pursuing a cross-claim in proceedings in which judgment is given on which a bankruptcy notice is founded, to not constitute circumstances which entitle the debtors to categorise such a counter-claim as one which he could not have set up in the action or proceedings in which the judgment was obtained”. See Nath v Cliffway Pty Ltd (1999) FCA 149 (unreported judgment of Drummond J – 8/2/99).
17.As was also observed many years ago by Lukin J in re Stokvis (1934) 7 ABC 53 at 57.2:
“I take a counter-claim set off or cross-demand which could not be set up as one which from point of time or from its nature or from absence of empowering provisions or from positive inhibition so to do could not be set up in the particular case in which judgment was obtained. Mere failure to take advantage of the opportunity can hardly be said to be inability”.
18.The applicants set up but did not pursue the counter-claim to the judgment upon which the Bankruptcy Notice is founded. For the reasons given they are unable to then rely on section 40(1)(g) in my view and their application must fail accordingly.
19.For the sake of completeness I should note the technical submission made by the respondent. The Bankruptcy jurisdiction is, of course, a notoriously technical jurisdiction and it is not unusual for legal practitioners to raise what are essentially technical points. The point raised by the respondent is that neither applicant has stated in his affidavit the amount by which the counter-claim exceeds the amount claimed in the Bankruptcy Notice. The submission is that this is a breach of rule 13(3)(c) of the Bankruptcy rules and order 77, rule 13(3)(c) of the Federal Court rules. The amount and nature of the counter-claim is identified by reference to the copy of the pleading exhibited to Mr Barbi's affidavit and although the actual amount was subject to adjustment, (see Gibben's affidavit at paragraph 10), had I been required to decide the point in the respondent's favour I would have required a stronger submission than was made.
COSTS
20.The respondents have been successful in opposing the application and they should have their costs. They seek an order in accordance with the authority in Re: Harris (1931) 3ABC 103 and Re Grant Muir ex parte Norup, Smith and Fletcher (1948) 14ABC 125 that is that the applicants pay the respondent's costs of defending this application and in the event of the applicants' bankruptcy that the costs become the respondent's costs of the petition. I so order.
FORMAL ORDERS
(1)that the application be dismissed.
(2)that the applicants pay the respondent's costs of defending this application and in the event of the applicants' bankruptcy that the costs become the respondent's costs of the petition.
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