Grubic, J. v Commonwealth Bank of Australia
[1994] FCA 500
•11 JULY 1994
RE: JOSKO GRUBIC
EX PARTE: COMMONWEALTH BANK OF AUSTRALIA
No. SN60 of 1994
FED No. 500/94
Number of pages - 8
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
GENERAL DIVISION
BRANSON J
CATCHWORDS
Bankruptcy - bankruptcy notice - counter-claim, set-off or cross demand equal to or exceeding judgment debt - whether such counter-claim, set off or cross demand could have been set up in the action in which the judgment was obtained.
Bankruptcy Act 1966 (Cth), ss. 40(1)(g) and 41(7)
Supreme Court Rules 1987 (SA) rr 48.01 and 47.08
Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 439 Walton v The National Mutual Life Association of Australasia Limited (Full Court of the Federal Court, 25 May 1994, unreported)
Re Willats; Ex parte Nissan Finance Corporation Ltd (1991) 104 ALR 361
Re Gould; Ex parte Skinner (1983) 72 FLR 393 at 404-405
HEARING
ADELAIDE, 23 June 1994
#DATE 11:7:1994
Counsel for the Judgment Debtor: Mr J Sulan QC
Solicitors for the Judgment Debtor: Mellor Olsson
Counsel for the Judgment Creditor: Mr J Lunn
Solicitors for the Judgment Creditor: Neville P Anderson
ORDER
THE COURT ORDERS THAT:
The debtor is to pay the creditor its costs of the proceeding to be taxed if not agreed.
Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.
JUDGE1
BRANSON J On 1 December 1992 the Commonwealth Bank of Australia ("the creditor") obtained a judgment in the Supreme Court of South Australia against Josko Grubic ("the debtor") in the sum of $614,272.60 plus interest. On 1 February 1994 the Deputy Registrar issued a bankruptcy notice directed to the debtor. Personal service of the notice was dispensed with and service by post was ordered. Time for compliance with the bankruptcy notice was fixed for 14 days after 15 April 1994. On 29 April 1994, that is on the last available day, the debtor filed with the Registrar an affidavit. The affidavit sought to invoke the provisions of subs41(7) of the Bankruptcy Act 1966.
Subsection 41(7) provides as follows:-
"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 counterclaim, 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."
Paragraph 40(1)(g) is, so far as is here relevant, in the following terms:-
"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... being a judgment... the execution of which has not been stayed, was served on the debtor in Australia... a bankruptcy notice under this Act and the debtor does not -
(i) ... within the time fixed by the Registrar by whom the notice was issued; or
(ii) ...
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... being a counter-claim, set-off or cross demand that he could not have set up in the action... in which the judgment... was obtained."
It is necessary to determine:-
(a) whether the affidavit filed on 29 April 1994 satisfies the requirements of subs41(7); and
(b) if it does, whether the court is satisfied on the whole of the evidence placed before it that the debtor 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 could not have set up in the action in which the judgment was obtained.
The effect of the filing of an affidavit which satisfies the requirements of subs41(7) of the Bankruptcy Act is to extend the time within which the debtor must comply with the requirements of the bankruptcy notice or alternatively satisfy the court that he or she has a counter-claim, set-off or cross demand of the kind referred to in paragraph 40(1)(g), to avoid the commission of an act of bankruptcy.
In Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at pp439-440 Lockhart J said of an affidavit filed pursuant to subs41(7):-
"In my opinion the affidavit cannot merely contain an assertion that the debtor has a counter-claim, set-off or cross demand which he could not have set up in the action in which the judgment or order was obtained. The affidavit must show a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which the debtor could not have set up in the action in which the judgment or order was obtained...
It is well to remember that the initial affidavit has to be filed within a limited time namely, the number of days after service of the bankruptcy notice upon the debtor fixed by the Registrar. These times are fixed by him without any knowledge on his part of the possibility of a counter-claim, set-off or cross demand being propounded by the debtor. In many cases it is difficult, if not impossible, for the debtor to present more than a mere outline of his case in the time available.
...
The fact that it is within the power of the court to determine when the hearing of a matter under s41(7) will take place, and thus the length of the extension of time to comply with the requirements of the bankruptcy notice; and the difficulty, if not impossibility in some case, of the initial affidavit being anything other than a mere outline of the debtor's case due to the temporal constraints imposed by the notice, all point to the conclusion that the courts should adopt a benevolent construction to the initial affidavit."
(See also Re Hodby; Ex parte Kenny (1986) 75 ALR 111 at p112).
Mr Lunn, counsel for the creditor, submitted that the debtor's affidavit of 29 April 1994 was not sufficient to bring subs41(7) into operation and that the debtor had therefore committed an act of bankruptcy. The insufficiency identified by Mr Lunn was that the affidavit did not address the requirement that the counter-claim, set-off or cross demand referred to therein was one "that he could not have set up in the action... in which the judgment... was obtained." Certainly the affidavit contains no such express assertion. Would a "benevolent construction" of the affidavit allow me to find such an assertion by inference?
In paragraph 4 of his affidavit the debtor asserts that he has a counter-claim, set-off or cross demand against the judgment creditor in excess of the amount of the judgment. As mentioned above, he does not expressly advert to whether such counter-claim, set-off or cross demand could have been set up in the action in which the judgment was obtained. However, he exhibits a summons and statement of claim issued out of the Supreme Court of South Australia on 22 March 1994 ("the Supreme Court proceedings").
The statement of claim in the Supreme Court proceedings pleads two separate occasions in 1986 on which the debtor provided to the creditor registered mortgages as security for certain financial facilities. In respect of one facility of $250,000 the debtor pleads the giving of security by way of mortgages described as "the Athol Park mortgages". Paragraph 7 of the statement of claim reads as follows:-
"It was agreed between the plaintiff and Mr Del Veccio, an officer of the defendant (hereinafter referred to as 'Del Veccio'), that the said mortgages were provided solely as security in respect of the said facility and for no other purpose."
By paragraph 9 of the statement of claim the debtor alleges that on a date in December 1987 the creditor forwarded to him confirmation that the facility of $250,000 had been repaid in full.
The Athol Park mortgages are in evidence before me. They have been signed by the debtor and his wife. They are in terms "all monies" mortgages. Each of the Athol Park mortgage is registered pursuant to the Real Property Act 1886. It has the effect of and is to be deemed and taken to be a deed duly executed by the parties who have signed it (Real Property Act s57).
The debtor further pleads in the statement of claim in the Supreme Court proceedings that by way of security for a farm overdraft he, in or about May 1986, executed certain mortgages over farm property. These are referred to in the statement of claim as "the farm mortgages". Paragraph 12 of the statement of claim reads:-
"At the time of the execution of the farm mortgages it was agreed between the plaintiff and Mr Del Veccio that the farm mortgages were provided by way of security for the said overdraft and for no other purpose."
Paragraph 14 of the statement of claim in the Supreme Court proceeding alleges that the debtor made payments in reduction of the farm overdraft, and by letter dated 18 August 1992 from his solicitors indicated to the creditor that he wished to pay the amount of the farm overdraft then due and owing on condition that the creditor discharge the farm mortgages and return to him the certificate of title for the farm property.
The farm mortgages are also in evidence before me. They are also by their terms "all monies" mortgages. They are signed by the debtor and are registered pursuant to the Real Property Act 1886. They are therefore to be deemed to be deeds duly executed by the debtor.
Paragraph 17 of the statement of claim in the Supreme Court proceedings appears to encapsulate the debtor's principal complaint against the creditor in those proceedings. It reads as follows:-
"The defendant, by its refusal to discharge the Athol Park and farm mortgages and release to the plaintiff the Certificates of Title in respect of the Athol Park property and the farm property, and by dint of the actions of Mr Del Veccio as set out in paragraphs 7 and 12 above has engaged in misleading conduct contrary to section 52 of the Trade Practices Act."
The refusal referred to in paragraph 17 of the statement of claim allegedly occurred, as appears from the pleadings as a whole, as to the Athol Park mortgage possibly as early as December 1987 and continues to this day (see paras 6 and 9-11 of the statement of claim). As to the farm property the refusal apparently occurred some time between 18 August 1992 and approximately mid-October 1992 and continues to this day (see paras 9-11 of the statement of claim).
The claim of the debtor as pleaded in the statement of claim in the Supreme Court proceedings, so far as it is a monetary claim, is for damages for breach of contract and for damages pursuant to the Trade Practices Act for misleading conduct.
At least in argument before me, the Trade Practices Act claim appeared to be that principally relied upon.
In paragraph 12 of his affidavit of 29 April 1994 the debtor particularises the loss and damage which he asserts that he has suffered by reason of the failure of the creditor to discharge the mortgages and release the certificates of title. The largest amounts are referred to in paragraphs 12(a) and (b). They relate to an alleged inability to sell the farm in 1988. Paragraph 12(e) relates to an alleged inability to lease the Athol Park property in March 1991. Paragraphs 12(c) and (d) relate to an alleged inability to enter into leases at unspecified times in 1992. Paragraphs 12(c) and (d) do not allege loss or damage in substantial amounts when compared with the amount of the judgment debt.
In Walton v The National Mutual Life Association of Australasia Limited (unreported decision of the Full Court of the Federal Court: judgment delivered 25 May 1994) the Court held that section 40(1)(g) plainly contemplates, in addition to counter-claims, and set-offs which might strictly provide defences to particular actions, cross demands which might not.
I turn to consider the provision of the Supreme Court Rules 1987 which governed the conduct of the Supreme Court proceedings in which the final judgment the subject of the bankruptcy notice herein was obtained ("the judgment proceedings").
Rule 48.01 provides as follows:-
"Where a defendant has a claim against a plaintiff whenever or however arising which does not amount to a set-off, he may instead of bringing an action, make a counter-claim in respect of that claim."
Rule 47.08 is concerned with grounds of defence and counter-claim which arise after the issue of proceedings. So far as is here relevant it provides"-
"(1) A ground of... counter-claim that has arisen after the issue of proceedings but before the defendant has pleaded his defence may be pleaded...
(2) ...
(3) A ground of defence or counter-claim which arises after the delivery of the defence or counterclaim may be pleaded without leave as an amendment to the defence or counter-claim provided notice thereof is given to the opposite party within twenty one days after the ground of defence or counter-claim has arisen..."
That is, the Supreme Court Rules gave the debtor the right to plead any claim that he might have had against the creditor as a counter-claim. Such right extended to claims arising after the commencement of the proceedings and indeed to claims arising after the delivery of the defence and counter-claim. The debtor did file and serve a counter-claim in the judgment proceedings. The counter-claim did not extend to the claims now sought to be raised by the debtor.
When then does it appear that the debtor's alleged claims against the creditor arose? The statement of claim exhibited to the debtor's affidavit of 29 April 1994 alleges breach of contract. It appears that the relevant contract or contracts were entered into in May 1986, and allegedly breached as at the dates of the respective refusals to discharge the mortgages and return the certificate of title. The asserted causes of action in contract would have accrued as at the dates of such alleged breaches. Such dates were within the currency of the judgment proceedings which effectively concluded on 27 November, 1992 when the Court entered a declaratory judgment.
The claim for damages for misleading conduct pursuant to the provisions of the Trade Practices Act would appear to invoke s82 of the Trade Practices Act. A cause of action under s82 accrues at the time that loss or damage is suffered as a consequence of a contravention of a provision of Part IV or Part V of the Trade Practices Act. (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514). As mentioned above the loss and damage referred to by the debtor in his affidavit of 29 April 1994 commenced to be suffered as to the farm property in 1988 and as to the Athol Park property in 1991. Such causes of action could have been set up in the judgment proceedings.
There is incidentally a curiosity with respect to the claim by the debtor that the creditor's refusal to discharge the mortgages caused him to suffer loss by reason of his inability to sell the farm in 1988. Paragraph 9 of his affidavit of 29 April 1994 indicates that he did not seek to make the payments which would, on his case, have entitled him to seek the discharge of the mortgages on the farm property until April 1992, and that it was at that time that he requested discharges of the mortgages and the return of the certificate of title.
In my view it is not possible, even on the most benevolent of constructions, to conclude that the affidavit of the debtor of 29 April 1994 is 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) of the Bankruptcy Act.
If I am wrong in this regard and the affidavit may be construed as being to that effect, I am not satisfied on the whole of the evidence placed before me that the debtor in fact has a counter-claim, set-off or cross demand against the creditor which could not have been set up in the action in which the judgment was obtained. The test in this regard is whether the asserted counter-claim, set-off or cross demand could in law have been so set up (Re Willats; Ex parte Nissan Finance Corporation Ltd (1991) 104 ALR 361 and the cases referred to therein). It is not to the point that the debtor may not have been advised to set them up at that time, and/or that it did not occur to him to do so. (See Walton v The National Mutual Life Association of Australasia Limited above). In my view the amended counter-claim, set-off or cross demand could as a matter of law have been so set up.
Further I am not satisfied that any counter-claim, set-off or cross demand which the debtor may have against the creditor is equal to or exceeds the amount of the judgment debt. Whilst it would be inappropriate for the court to undertake a preliminary trial of the asserted counter-claim, set-off or cross demand, it must be satisfied that the debtor has a fair chance of success (Re Brink above; see also Re Gould; Ex parte Skinner (1983) 72 FLR 393 at pp404-405).
I am unable to be so satisfied for reasons which include:-
(a) that the largest proportion of the damage alleged by the debtor to have been suffered by him (see paras 12(a) and (b) of his affidavit of 29 March 1994) appears to be irrecoverable on the facts as pleaded in the Supreme Court proceedings: any amount arguably recoverable would, in my view, be significantly less than the amount of the judgment debt; and
(b) that the debtor would appear to be bound by a finding of the Supreme Court that the mortgage over the Athol Park property secured the guarantee the subject of the Supreme Court proceeding (see the reasons for decision of Perry J in the proceedings which gave rise to the judgment debt).
It follows from my conclusion that the affidavit filed by the debtor on 29 April 1994 was not an affidavit to the effect that he had such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g) of the Bankruptcy Act, that the time fixed for compliance by the debtor with the requirements of the bankruptcy notice was not extended by subs41(7) of the Act. Consequently the debtor committed an act of bankruptcy by failing, within the time fixed by the Registrar to 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 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 was obtained.
The court so declares.
33. The debtor is to pay the creditor its costs of the proceeding to be taxed if not agreed.
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