Grave v Blazevic Holdings Pty Limited
[2010] FMCA 386
•8 June 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GRAVE v BLAZEVIC HOLDINGS PTY LIMITED | [2010] FMCA 386 |
| BANKRUPTCY – Bankruptcy Notice – where applicant failed to serve a payment schedule under BCISOP Act – nature of his remaining rights under s.32 – whether right to restitution is a cross demand – whether the cross demand could have been set up in the action or proceeding in which the judgment was obtained – whether court should extend time for compliance pending an appeal to NSWCA. |
| Building and Construction Industry Security of Payment Act 1999, ss.3, 13, 14, 15, 17, 32 Bankruptcy Act 1966, ss.40(1)(g), 41(7), 52 Supreme Court of Judicature Act 1873 Supreme Court of Judicature (Consolidation) Act 1925, s.39 Federal Court of Australia Act 1976 Bills of Exchange Act 1909, s.34(3) Legal Profession Act 2004 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Butterworths Bankruptcy Law and Practice 10.0130 Federal Magistrates Court (Bankruptcy) Rules 2006 |
| Dualcorp Pty Limited v Remo Constructions Ltd [2009] NSWCA 69 Obacelo Pty Ltd v Taveraft Pty Ltd (1985) 5 FCR 210 |
| Applicant: | WARWICK SUTTON GRAVE |
| Respondent: | BLAZEVIC HOLDINGS PTY LIMITED ACN 106 372 123 |
| File Number: | SYG 747 of 2010 |
| Judgment of: | Raphael FM |
| Hearing date: | 10 May 2010 |
| Date of Last Submission: | 10 May 2010 |
| Delivered at: | Sydney |
| Delivered on: | 8 June 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr T Lynch |
| Solicitors for the Applicant: | Swaab Attorneys |
| Counsel for the Respondent: | Mr M Lozina |
| Solicitors for the Respondent: | Michael Atkinson & Associates |
ORDERS
Application dismissed.
Applicant pay the Respondent’s costs which are to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 747 of 2010
| WARWICK SUTTON GRAVE |
Applicant
And
| BLAZEVIC HOLDINGS PTY LIMITED ACN 106 372 123 |
Respondent
REASONS FOR JUDGMENT
The applicant is a dental surgeon who, purportedly on behalf of his service company, entered into an agreement with the respondent to undertake building works in a dental surgery he intended to move into at the end of February 2009. Although the respondent provided the applicant with a building contract I do not believe one was ever signed by the parties and the work proceeded on the basis of the quotation provided by the builder to the applicant on 21 January 2009. On or about 6 March 2009 the respondent sent the applicant a payment claim pursuant to the Building and Construction Industry Security of Payment Act 1999 (“BCISOPA” Act) in the amount of $126,763.84. On 20 March the applicant made part payment of this invoice by a cheque drawn on the account of his service company Gradenco leaving a balance of $60,763.84. On 6 April 2009 the respondent issued a further payment claim to the applicant (not his service company) for variations being invoice 1535 in the amount of $57,078.56.
The objects of the BCISOPA Act are set out in s.3:
“3 Object of Act
(1) The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.
(2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments.
(3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves:
(a) the making of a payment claim by the person claiming payment, and
(b) the provision of a payment schedule by the person by whom the payment is payable, and
(c) the referral of any disputed claim to an adjudicator for determination, and
(d) the payment of the progress payment so determined.
(4) It is intended that this Act does not limit:
(a) any other entitlement that a claimant may have under a construction contract, or
(b) any other remedy that a claimant may have for recovering any such other entitlement.”
But it is not necessary to have a written construction contract for the purposes of the Act:
“s.4 Construction Contract
Means a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party.”
The procedure for recovering progress payments under the Act is contained in ss.13 to 17. Parts of these sections are set out below:
“13 Payment claims
(1) A person referred to in section 8 (1) who is or who claims to be entitled to a progress payment (the "claimant") may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.”
“14 Payment schedules
(1) A person on whom a payment claim is served (the "respondent") may reply to the claim by providing a payment schedule to the claimant.
(2) A payment schedule:
(a) must identify the payment claim to which it relates, and
(b) must indicate the amount of the payment (if any) that the respondent proposes to make (the "scheduled amount").
(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.
(4) If:
(a) a claimant serves a payment claim on a respondent, and
(b) the respondent does not provide a payment schedule to the claimant:
(i) within the time required by the relevant construction contract, or
(ii) within 10 business days after the payment claim is served,
whichever time expires earlier,
the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.
15 Consequences of not paying claimant where no payment schedule
(1) This section applies if the respondent:
(a) becomes liable to pay the claimed amount to the claimant under section 14 (4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section, and
(b) fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates.
(2) In those circumstances, the claimant:
(a) may:
(i) recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, or
(ii) make an adjudication application under section 17 (1) (b) in relation to the payment claim, and
(b) may serve notice on the respondent of the claimant’s intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract.
….
(4) If the claimant commences proceedings under subsection (2) (a) (i) to recover the unpaid portion of the claimed amount from the respondent as a debt:
(a) judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1), and
(b) the respondent is not, in those proceedings, entitled:
(i) to bring any cross-claim against the claimant, or
(ii) to raise any defence in relation to matters arising under the construction contract.
17 Adjudication applications
(1) A claimant may apply for adjudication of a payment claim (an "adjudication application") if:
(a) the respondent provides a payment schedule under Division 1 but:
(i) the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim, or
(ii) the respondent fails to pay the whole or any part of the scheduled amount to the claimant by the due date for payment of the amount, or
(b) the respondent fails to provide a payment schedule to the claimant under Division 1 and fails to pay the whole or any part of the claimed amount by the due date for payment of the amount.
32 Effect of Part on civil proceedings
(1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract:
(a) may have under the contract, or
(b) may have under Part 2 in respect of the contract, or
(c) may have apart from this Act in respect of anything done or omitted to be done under the contract.
(2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3).
(3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal:
(a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and
(b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.”
The applicant did not give the respondent a payment schedule for either of the claims made by the applicant and so on 5 May 2009 the respondent filed a Statement of Claim in the District Court seeking judgment in the sum of $117,842.40 together with interest and costs based upon the unpaid payment claims. The applicant did not file a defence although he wrote to the Registrar of the District Court referring to the Statement of Claim and indicating the issues he had with its contents. On 10 June 2009 judgment in default of appearance was entered against the applicant in the sum of $120,232.08. The applicant then sought to have the judgment set aside and the matter proceeded before Judge Delaney in the District Court. I am indebted to his Honour’s judgment for the history of this matter recited above.
The applicant argued before his Honour that he had a complete defence to the claim because it was brought against the wrong person. It should have been brought against his service company, Gradenco Pty Limited. His Honour noted that the applicant did not avail himself of the relevant provisions of s.14 by providing a payment schedule in which he either disputed the identity of the person to whom the payment claim was directed or disputed that the amount claimed was owed or raised a claim that the work was not done properly. His Honour found at [39] after quoting from the judgment of the NSW Court of Appeal in Dualcorp Pty Limited v Remo Constructions Ltd [2009] NSWCA 69, Allsop P, McFarlan JA and Handley AJA:
“[39]Although what his Honour referred to there was the finality of an adjudication determination, in my opinion there is no difference where, as here, no payment schedule was provided. The amount claimed in the payment claim is as final as if there had been adjudication.”
And at [40]:
“[40]There can be no doubt that the applicant continues to have rights at law, as section 32 of the Act clearly contemplates, and separate proceedings may be brought to enforce those rights because, as subsection (3) of section 32 states:
(3)In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal:
(a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and
(b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.”
Before concluding at [41] and [42]:
[41]In the light of the provisions of section s14 and 15 of the Act, I am of the view that the judgment which has been entered in favour of the respondent cannot be set aside.
[42]Accordingly, the notice of motion is dismissed and, subject to any application to the contrary, the applicant is to pay the respondent’s costs of and incidental to the motion.”
His Honour’s Judgment was dated 1 December 2009. On 23 February 2010 Dr Grave filed a Summons seeking leave to appeal in the Supreme Court. This included a draft Notice of Appeal. On 8 February 2010 the respondent had issued a Bankruptcy Notice NN410/10. The Bankruptcy Notice exhibited a copy of the Judgment of the District Court claiming the sum of $120,232.08 plus interest, totalling $7,050.98 and is the notice which the applicant Dr Grave seeks to set aside in this court. Originally, he argued that the bankruptcy notice was defective but he now relies solely on the arguments that he makes under ss.40(1)(g) and s.41(7) of the Bankruptcy Act 1966 in this application to the court to set aside the notice. Section 40(1)(g) is in the following form:
“(1) A debtor commits an act of bankruptcy in each of the following cases:
(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 specified in the notice; 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 or she 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 or she could not have set up in the action or proceeding in which the judgment or order was obtained;”
As an alternative form of relief the applicant asks that the court extend the time for compliance with the bankruptcy notice until after the decision by the Supreme Court on the appeal.
The applicant’s argument that he falls within s.40(1)(g) is that his claim that the respondent has brought proceedings against the wrong party is a defence which by the operation of s.32 of the BCISOPA Act is converted into a right to a restitutionary claim to recover the money to be paid under the judgment. He argues that by virtue of the provisions of BCISOPA Act set out above the applicant had no right to bring this claim in the original proceedings and so is not a cross demand that could have been set up in the proceeding in which the judgment or order was obtained.The respondent argues the situation that is before the applicant is one of his own making. He could have and should have filed a payment schedule stating that he owed no money to the builder because he was not a party to the contract and that this type of proceeding does not fall within s.40(1)(g). He also argued that as a result of the cross examination of Dr Grave that took place before me I should not believe anything that Dr Grave said including his argument that he was not the proper party to the arrangement. He argues that there is no merit in the appeal and that therefore it would not be appropriate to extend time for compliance until after the appeal is determined.
I should say at the outset that although I did not find Dr Grave’s evidence, particularly that relating to claimed defects and the time in which the builder was advised of them, was totally satisfactory, I am not prepared to conclude after such a restricted cross examination that the well has been truly poisoned so that I should not accept anything which he might say; Re: Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 (2003) 198 ALR 59. The manner in which the applicant must “satisfy” the court that he has the counter claim, set off or cross demand was considered authoratively by Lindgren J in Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331:
“[9]There are authorities suggesting that Glew and Tressider must satisfy me of the following interrelated and sometimes overlapping matters:
•that they have a “prima facie case”, even if they do not adduce evidence which would be admissible on a final hearing making out that case: Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 (Ebert) at 350; Re Brink; Ex parte Commercial Banking Co of Sydney Ltd(1980) 30 ALR 433 at 438–9 ; 44 FLR 135 at 141 (Brink); Gomez v State Bank of New South Wales Ltd[2002] FCAFC 101; BC200201643 at [17], [18];
•that they have ``a fair chance of success” or are ``fairly entitled to litigate” the claim: Brink at ALR 438–9; FLR 141; Gould v Day[1999] FCA 1650; BC9907767 at [27], [28]; Re Capsanis; Capsanis v Owners — Strata Plan 11727[2000] FCA 1262; BC200005275 at [11]; and
•that they are advancing a ``genuine” or ``bona fide” claim: Re Capsanis; Capsanis v Owners — Strata Plan 11727 [2000] FCA 1262; BC200005275 at [11].
It may be that the first and second formulations are intended to cover the same ground. In Brink Lockhart J treated (at ALR 438–9; FLR 141) the reference to a “prima facie case” in Ebert as a reference to “a fair chance of success”.
In the instant case Dr Grave has pointed to the fact that he conducts his business through his service company, which the court is aware is a common practice amongst professional people. He points to the fact that the cheque for the initial payment was given by the service company. He refers to conversations between himself and the builder. I think that in these circumstances I can accept that the case that Dr Grave wishes to bring is arguable, although I would not go so far as to say on the evidence currently before me that it has “a fair chance of success”. I would not dismiss this application for that reason. I am therefore required to consider whether Dr Grave’s claim that he was not the contracting party constitutes a cross demand for the purposes of the Act and if it did whether he could have raised it in the proceedings.
It is clear that s.32(3)(d) BCISOPA Act creates a right to restitution of any moneys paid pursuant to the liability imposed by s.14(4) and it is equally clear that Delaney J at [40] of his judgment accepted that Dr Grave had a continuing right to allege that he was not party to the contract in separate proceedings. To that extent there is no issue estoppel in this case. Because Dr Grave did not file a payment schedule he did not have the opportunity provided by the Act to make his arguments about the correct contracting party. In Okaroo Pty Limited v Vos Construction and Joinery Pty Limited and Anor [2005] NSWSC 45 such a step was taken and in the subsequent adjudication there was a finding that Okaroo was a party. When the matter came before Nicholas J by way of a claim for a declaration that the adjudication determination was void his Honour described his task as:
“[5]The issue which remained for determination in these proceedings is whether the adjudicator was correct in finding that there was an arrangement between the parties which was a construction contract as that expression is defined in s 4 of the Act. Both parties accepted that if the adjudicator was wrong and the court found there was no construction contract he had fallen into jurisdictional error so that the determination was void, and Okaroo was entitled to the declaration sought.”
Nicholas J found that in the circumstances of that case Okaroo had entered into a construction contract as defined and was therefore a correct party to the adjudication which the court upheld. I cannot see anything in the Okaroo decision which assists Dr Grave as suggested by the applicant’s counsel. If Dr Grave had taken the same approach as taken by Okaroo the issue of liability would already have been finally determined.
Dr Grave argues that his statutory restitutionary right is not excluded from consideration under s.40(1)(g) by virtue of the money not having been paid. He argues that the sub-section is predicated upon non payment and a purposive reading of the sub-section would appear to confirm this. There is reference to “sum payable”.
Does this statutory restitutionary right fall within the definition of a cross claim, cross demand or set off? This is a phrase which has been considered in numerous cases in the courts of England and Australia. Most authorities refer with approval to the dicta of the Court of Appeal in Re A Bankruptcy Notice [1934] 1 Chancery 431 where Lord Harnsworth MR took the position, which has been echoed ever since, that:
“It is unnecessary at the present moment to define precisely what is meant by those words.”
He then defined set off as:
“Something which provides a defence because the nature and quality of the sum so relied upon are such that it is a sum which is proper to be dealt with as diminishing the claim which is made and against which the sum so demanded can be set off.”
The Master of the Rolls went on to note that a counter claim was a creature of the Supreme Court of Judicature Act 1873 and that it was then defined by s.39 of the Supreme Court of Judicature (Consolidation) Act 1925. In Australia there is no provision in the Federal Court of Australia Act1976 relating to cross claims; Obacelo Pty Ltd v Taveraft Pty Ltd (1985) 5 FCR 210 per Wilcox J at [214] but these claims are dealt with in the Rules by definition in O.1 r.4 and in O.5. In regard to cross demands his Lordship said:
“I turn therefore to what to my mind is the wider word, “cross demand”. If a cross demand is only to be interpreted as meaning something which could have been introduced into the action by way of counter claim, it adds nothing to the word “counter claim”. “Cross demand” seems to me to be a word introduced in order to give a wider ambit to the meaning of these claims, something that would not be described, certainly, as a set off, something that could not have been brought in the action, something that still lies outside a counter claim, but is of a nature which can be specified and which is of such a nature that it equals or exceeds the amount of the judgment debt. I do not desire to say what “cross demand” may include…”
In Re Dalco (1986) 67 ALR 605 at [611] Neaves J made it clear that the expression “set off” could not be defined for the purposes of s.40(1)(g) of the Bankruptcy Act as:
“A matter which if proved could provide a justification for the debtor’s refusal to pay the creditor’s debt. That is of course a necessary element but it is not, of itself, sufficient. It is also necessary that the matter relied upon by the debtor be properly described as a set off. The essential nature of a set off is that it is a counter veiling claim: the debtor, in effect, admits the existence of the creditor’s debt but sets up a counter veiling claim as excusing him from paying the creditor’s debt either wholly or in part depending upon the amount of the counter veiling claim. There is a difference in kind between a set off to which the debtor is entitled and an assertion by the debtor that there are grounds for disputing the validity of the creditor’s debt. In the instant case, it is the latter, not the former which the applicant seeks to establish. The fact that ss.175 and 177 of the Income Tax Assessment Act precluded the defence upon which the applicant relies being raised in the recovery proceedings, namely the defence that the assessments and the amended assessments were not validly made, provides no warrant for giving an extended meaning to the words of s.40(1)(g) of the Bankruptcy Act in a case where the judgment upon which the bankruptcy notice is founded is one in respect of a liability to income tax.”
There are similarities in the provisions of the ITAA and the BCISOPA Act where in respect of a claim under the latter the debtor does not serve a payment schedule. I think it is unlikely that the right of restitution granted under s.32 would constitute a set off but I take the view that it can constitute a cross demand. In John Shearer v Gehl (1995-96) 134 ALR 1 at [8] the Full Court of the Federal Court Von Doussa, Hill and Tamberlin JJ opined:
“It would seem to follow that in the context of the Law [Corporations Law], a context similar to that in s 41(7) of the Bankruptcy Act 1966 (Cth), a cross-demand will include any claim for damages which exists at the time the application to set aside the statutory demand is made, which is for a monetary amount capable of quantification whether or not it arises out of the same transaction or circumstances as the debt to which the statutory demand relates…
The policy behind Div 2 of Pt 5.4 of the Law supports this interpretation. Failure to comply with a statutory demand is taken to be evidence of insolvency. It is for that reason that application may be made to the court to set aside a statutory demand in circumstances where the person against whom the demand is made has a genuine cross-demand, at least equal to the amount of the sum demanded from him or her. If it should turn out that there was a real cross-demand of equal amount to the sum referred to in the statutory demand, the company failing to comply with the statutory demand would be wound up in circumstances where clearly it was not insolvent and where a proof of debt from the person giving the statutory demand might well be rejected in liquidation because of the existence of a set-off: cf Gye v McIntyre (1991) 171 CLR 609 ; 98 ALR 393.”
The claim in Shearer upon which the s.359 Notice had been issued was a claim under Bills of Exchange similar to that considered by Cohen J in Buying Systems (Aust) Pty Limited v Tien Mah Litho Printing Co (Pte) Limited (1986) 5 NSWLR 317. In neither case could the counter claim be set up in the proceedings because of the provision of the Bills of Exchange Act 1909 s.34(3) which like the ITAA has echoes in the BCISOPA Act. If the debtor in the instant case is successful in the claim which he can make for restitution then he would not owe money to the respondent. He should not be endangered by committing an act of bankruptcy in such circumstances.
The question of whether the cross demand could have been set up in the proceedings in which the judgment was obtained still requires determination. References to that state of affairs in the preceding paragraphs in my discussion of other judgments was not intended to presage my decision on this point.
The right to obtain an assessment of an amount payable by a building owner to a builder under the BCISOPA Act has distinct similiarities to the provisions contained in the Legal Profession Act 2004 (NSW) and the Uniform Civil Procedure Rules 2005 (NSW) whereby an assessment of costs ordered in an action is made and enforced. In both cases there is an administrative procedure whereby the amount owing is found; in the former by a costs assessor, in the latter, by an adjudicator. But there is an essential difference. That is that the cost assessor’s powers are:
“[l]imited to determining the value of the work done or services rendered in circumstances where there is no dispute that costs are payable and the only issue is as to the amount. It is no part of their function to determine whether or when such costs are payable.” Muriniti v Lyons [2004] NSWSC 135 per Dunford J.
Under the BCISOPA Act a building owner can argue that he is not the correct person to whom a payment claim should have been addressed.
In Massih v Esber [2008] FCA 1452 Flick J considered the various authorities which bore upon the question of whether a judgment entered pursuant to the provisions of the Legal Profession Act and the Uniform Civil Procedure Rules was one in which a cross claim for the division of development losses, which clearly exceeded the amount of assessed costs, could not be set up. “Could not have been set up” means could not have been set up as a matter of law Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135; Re Vicini; Ex parte E A Sealey & Co (1982) 64 FLR 323. In Massih Flick J notes:
“The statutory phrase "must not be narrowed". A judgment debtor is "not to lie by with his cross-demand, but must prosecute it with due diligence": Re Brown, Ex parte Peisley Brothers(1892) 3 BC (NSW) 13 at 14 per Manning J. "A debtor having a claim against his or her creditor can not just stand by while judgment is obtained and later seek to use that claim to set aside a bankruptcy notice founded upon that judgment": Re Ling; Ex parte Ling v Commonwealth[1995] FCA 1410; (1995) 58 FCR 129 at 137 per Hill J.”
In Re Gould; Ex parte Skinner (1983-84) 72 FLR 393 at [407-408] Fitzgerald J noted the provisions of s.40(3)(b) of the Bankruptcy Act and stated:
“It was not in dispute before me that the order for costs upon the dismissal of the application for an interlocutory injunction in Queensland Supreme Court action No 1473 of 1982 is one which is enforceable as or in the same manner as a final judgment obtained in an action in that Court. The order for costs is therefore deemed by s 40(3)(b) of the Act to be a "final judgment so obtained", that is, a "final judgment" obtained in an "action". However, s 40(3)(b) of the Act does not stop there; the "action" is identified. For the purposes of s 40(1)(g), the statutory fiction effected by the deeming is extended to convert the "proceedings" in which the order was in fact obtained into the "action" in which the notional "final judgment" was obtained. In my opinion, the test in such circumstances called for by s 40(1)(g) of the Act is to ascertain not whether the cross demand could have been set up in the Supreme Court action No 1473 of 1982, but whether it could have been set up in the deemed action, the proceeding in which the order for costs was made, that is, the application for an interlocutory injunction in that action. The answer is clearly negative.”
In Chesson v Smith (1992) 35 FCR 594 at [596] the Full Bench of the Federal Court Beaumont, Gummow and Cooper JJ approved the views expressed by Fitzgerald J in Re Gould and stated at [596]:
“In our view the reasoning in both these cases is in point here. In the present case, although the order for costs is by virtue of s 40(3)(b) of the Act deemed to be a final order obtained in the action in which it was obtained, the order of Master Windeyer dismissing the application for leave was itself interlocutory — see Hall v Nominal Defendant, (1966) 117 CLR 423. It follows, in our view, that the claim for final relief, the subject of the respondent's cross-demand, could not have been set-up in answer to the appellant's application for a costs order made in the interlocutory application.
In other words, to adopt the language of Burchett J in Pollnow's case, the position is as follows. The relevant, "proceeding", for the purposes of s 40(1)(g), is either the application for the interlocutory order for leave or the application for a costs order in that interlocutory application. In either case the common law claim could not have been set up in answer to the creditor's application for a costs order in the interlocutory matter. That follows from the nature of the proceeding.”
Finally, in Massih his Honour concluded his reasons by saying at [46]:
“The result of the present Application, it is considered, can be stated simply. For the purposes of the present Application, it was accepted that the joint venture agreement as between the Applicant and the Respondent gave rise to losses, those losses being said to be approximately $160,000. Those losses obviously exceed the judgment debt of $77,498.96. But, as at the date upon which the Bankruptcy Notice was served in February 2008, no account had been taken -- as had been ordered by Hall J in March 2007. Whether an account had or had not been taken, however, those losses could not have been set up during the process whereby the costs assessor made a determination as to costs. Nor could those losses have been set up in opposition to the filing of the Certificate of the costs assessor with the District Court and the judgment thereafter being taken to have been made by reason of s 368(5) of the Legal Profession Act.” (emphasis added)
In the instant case the applicant could have raised his defence that he was not the proper party in the process whereby the amount due was determined. That he failed to do so was entirely his fault. There was no legal impediment to him doing so. That failure coloured the entry of the judgment in the proceedings pursuant to which the bankruptcy notice was issued. I take from what fell from their Honours in the cases cited above, particularly Flick J, that one has to look both at the administrative action and the formal legal proceeding by which the administrative determination is turned into a judgment upon which the creditor is in a position to issue execution: Pepper v McNiece (1941) 64 CLR 642 at [657] per Williams J. I am satisfied that in this case the restitutionary right which only came into existence because of the applicant’s own failure to have the issue determined under the BCISOPA Act does not constitute a cross demand that could not have been set up in the proceedings in which the judgment was obtained.
I have considered the applicant’s alternative claim for relief, namely that I should extend the time for compliance of the bankruptcy notice until after the decision by the New South Wales Court of Appeal in the applicant’s appeal against the decision of Delaney J. The position relating to such an application is probably best expressed in Byron v Southern Star Group Pty Limited (1997) 73 FCR 264 where the court indicated that the discretion to extend the time for compliance should be exercised having regard to all the relevant facts including both the impact upon the debtor of what constitutes a change in status if an act of bankruptcy occurred and the impact upon creditors [per Butterworths Bankruptcy Law and Practice 10.0130). This approach was adopted by Hill J in Wenkart v Abigano (1998) FCA 1035. In balancing the interests of a debtor who has failed to take advantage of an opportunity to raise the very defence that he would raise should his appeal be successful against the interests of a creditor whose entitlement to a payment, as matters stand at present, is undeniable and against whose judgment no stay has been ordered, I would tend to the view that no extension of time should be given. I would also note that having read the decision of Delaney J and considered myself the provisions of the BCISOPA Act that he relied upon, the prospects of success in the appeal cannot be said to be high. I would note that whilst a refusal to grant the extension of time will lead to the applicant committing an act of bankruptcy should he not make the payment this is not the final chapter as a court still has a discretion under s.52 of the Bankruptcy Act as to whether to make a sequestration order when the petition comes to be heard.
I would dismiss the application and would order that the applicant pay the respondent’s costs which are to be taxed if not agreed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 8 June 2010
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