GLEESON CJ, GAUDRON, McHUGH, KIRBY AND CALLINAN JJ
JOSEPH GUSS APPELLANT
AND
RAYMOND JOHNSTONE RESPONDENT
Guss v Johnstone [2000] HCA 26 11 May 2000 M55/1999
ORDER
Appeal dismissed.
Appellant to pay the intervener's costs of the appeal.
On appeal from the Federal Court of Australia
Representation:
F G A Beaumont QC with L M F Watts for the appellant (instructed by Joseph Guss)
No appearance for the respondent
Intervener:
D S Levin QC with S P Gardiner intervening on behalf of Geelong Building Society (In Liquidation) (instructed by Minter Ellison)
Notice: This copy of the Court’s Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Guss v Johnstone
Bankruptcy – Bankruptcy notice served on debtor after creditor obtained order for costs – Debtor claimed counter-claim, set-off or cross demand equal to or exceeding amount of order for costs being a counter-claim, set-off or cross demand that he could not have set up in the proceedings in which the order for costs was obtained – Debtor applying to the Court for order setting aside bankruptcy notice – Whether Court satisfied that debtor had such a counter-claim, set-off or cross demand before expiration of time fixed for compliance with requirements of bankruptcy notice.
Bankruptcy – Sequestration order – Appeal against orders of primary judge that Court not satisfied that debtor has a relevant counter-claim, set-off or cross demand – Issues to be determined by appellate court – Utility of appeal.
GLEESON CJ, GAUDRON, McHUGH, KIRBY AND CALLINAN JJ. The appellant is indebted to the respondent in the sum of $4,989.40, which is the amount payable under a final order for costs made in proceedings in the Supreme Court of Victoria in 1994.
In September 1996 the respondent served on the appellant a bankruptcy notice under the provisions of the Bankruptcy Act1966 (Cth). The appellant attempted to satisfy the Federal Court that he had a counter-claim, set-off or cross demand equal to or exceeding the amount of the debt, being a counterclaim, set-off or cross demand that he could not have set up in the action or proceeding in which the order for costs was obtained. The attempt was unsuccessful. A judge of the Federal Court (Sundberg J) declared that the Court was not so satisfied. An appeal to the Full Court of the Federal Court failed. A further appeal is brought to this Court against the decision of the Full Court.
Before examining the background to, and the basis of, the appeal, it is convenient to set out the relevant provisions of the Bankruptcy Act. They are to be found in ss 40 and 41, and are as follows:
"40(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,…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Guss v Johnstone [2000] HCA 26
Case
[2000] HCA 26
Decision Date
CaseChat Overview and Summary
This case concerned an appeal to the High Court of Australia regarding a bankruptcy notice. The appellant, a solicitor, had been served with a bankruptcy notice by the respondent, a barrister, for an amount of $4,989.40, representing the respondent's costs ordered in previous proceedings. The appellant sought to set aside this notice, alleging he had a counter-claim, set-off, or cross-demand equal to or exceeding the amount of the costs order, which he could not have raised in the original proceedings.
The primary legal issue before the High Court was whether the appellant had demonstrated the existence of a counter-claim, set-off, or cross-demand of the kind contemplated by section 40(1)(g) of the *Bankruptcy Act 1966* (Cth) before the time for compliance with the bankruptcy notice expired. This required the Court to determine if the appellant had established a prima facie case for such a claim, even without presenting evidence sufficient to win the underlying dispute.
The High Court, affirming the decision of Sundberg J, found that the appellant had failed to establish the necessary counter-claim, set-off, or cross-demand. The first alleged ground related to the liquidator's costs of $11,889.57, which the Court found were not a consequence of any negligence by the respondent but rather a necessary expense to initiate the properly constituted proceedings. The second ground concerned losses allegedly suffered by Tropitone Furniture Co International Pty Ltd, which the Court held were Tropitone's losses, not the appellant's, and were unsupported by evidence of a claim by Tropitone against the appellant or the merit of such a claim.
Consequently, the appeal was dismissed. The appellant was ordered to pay the intervener's costs of the appeal.
Orders
Orders of the court
1.
Appeal dismissed.
2.
Appellant to pay the intervener's costs of the appeal.
Background
Background to the litigation
Before 16 December 1996, s 41(7) was expressed slightly differently, and referred to filing an affidavit raising a counter-claim, set-off or cross demand rather than applying for an order setting aside the bankruptcy notice[1]. The difference explains why, in the present case, the appellant, on 13 December 1996, merely filed an affidavit without making any formal application to set aside the bankruptcy notice. The procedure that was adopted also explains the form of the order made by Sundberg J.[1]The amendment was effected by the Bankruptcy Legislation Amendment Act 1996 (Cth). As to the operation of the earlier provision, see James v Abrahams (1981) 34 ALR 657.Background to the proceedings in the Federal Court The following summary of the background to the proceedings in the Federal Court, and of the issues which the appellant sought to raise, is taken from the reasons for judgment of Sundberg J. The appellant is a solicitor. The respondent is a barrister. (The respondent took no part in the appeal to this Court and submitted to any order the Court might make save as to costs. There was, however, a contradictor, a company which is also a creditor of the appellant, and which, by consent, was given leave to intervene.) Courts in Victoria, over a number of years, have dealt with disputes between the appellant and the respondent concerning fees which the respondent claims he is owed by the appellant. Those disputes arose out of proceedings in 1991 and 1992 in which the appellant, acting as solicitor for a number of parties, including a company named Tropitone Furniture Co International Pty Ltd ("Tropitone") and the appellant himself, briefed the respondent in an action to recover certain property which a company named Sietel Limited was holding in premises at Moorabbin. The action, which the respondent originally advised, was held to be defective in relation to parties, and failed. It then became necessary to persuade the liquidator of a related company to institute proceedings to recover the property. The liquidator was prepared to do so only if the parties represented by the appellant agreed to pay his costs of the contemplated action. They agreed. The liquidator commenced fresh proceedings, and obtained an order. The liquidator's costs amounted to $11,889.57. The solicitors for the liquidator held in trust a sum of $16,200, from which the costs of $11,889.57 were deducted, leaving a balance of $4,310.43. A cheque for the latter amount was sent to the appellant, presumably to be applied in favour of the parties he represented. Notwithstanding the success of the liquidator's action, further difficulties arose. Tropitone was not able to recover its property. The property was later said to have been worth approximately $50,000, and Tropitone was alleged to have suffered losses in the amount of approximately $100,000 for delay in recommencing its business. In September 1992, the respondent commenced proceedings in the Magistrates' Court against the appellant to recover his fees. He obtained judgment in the amount of $8,430, together with interest and costs. An application to the Magistrates' Court to set the judgment aside was dismissed. An application for leave to appeal from that order was dismissed by a Master of the Supreme Court. An appeal from that dismissal was dismissed by Beach J. A further application to the Magistrates' Court to set aside the judgment was dismissed. The appellant then applied to the Supreme Court for a declaration that that dismissal was a nullity. That application was dismissed by Hayne J. The appellant appealed to the Full Court against the decision of Hayne J. The Full Court ordered the appellant to give security for costs, in default of which the appeal would be dismissed. The security was not provided, and the appeal was dismissed. The appellant was ordered to pay the respondent's costs. The respondent's costs were taxed in the amount of $4,989.40. That is the debt upon which the bankruptcy notice was based.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
HUGH, KIRBY AND CALLINAN JJ
The proceedings under s 41(7) were heard before Sundberg J on 22 May 1997. Judgment was reserved, and was delivered on 30 May 1997. Sundberg J declared that the Court was not satisfied that the appellant possessed a counterclaim, set-off or cross demand of the kind referred to in s 40(1)(g) of the Bankruptcy Act. The appellant did not comply with the requirements of the bankruptcy notice. In the result, the appellant committed an act of bankruptcy on 30 May 1997. That is not in dispute.The reasons for judgment of Sundberg J, and subsequent proceedings Before commencing his examination of the facts, and the arguments presented to him, Sundberg J referred to the principles governing an application of the kind in question. He observed that it was upon the appellant to show a prima facie case of the existence of a counter-claim, set-off or cross demand of the kind referred to in the relevant provisions, even if he did not adduce admissible evidence which would make out a case before a court trying the issues involved in such a counter-claim, set-off or cross demand[3]. It has not been suggested that his Honour misunderstood or misapplied the principles governing the exercise in which he was engaged.[3]Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350 per Dixon CJ, McTiernan and Windeyer JJ. The judge referred in his reasons for judgment to the two matters upon which the appellant had relied, in his affidavit, and in argument, as giving rise to a counter-claim, set-off or cross demand. The first matter concerned the liquidator's costs of $11,889.57. These were not costs thrown away by the plaintiffs, including the appellant, in the original defectively constituted proceedings. The claim related to the amount that the interested parties had to agree to pay to the liquidator before the liquidator would agree to commence the properly constituted proceedings for the recovery of their property. It was an amount that would have had to be paid even if the proceedings had been properly constituted in the first place. Sundberg J said he could find no causal connection between any negligence on the part of the respondent and the payment of that amount. If, at the outset, the respondent had advised that the liquidator should be asked to commence the proceedings, the liquidator would have required an agreement to cover his costs in any event. On this issue, Sundberg J was clearly correct. The second matter relied upon by the appellant was the loss suffered by Tropitone, said to have been $50,000 for loss of property and $100,000 for delay in recommencing its business. The judge pointed out that this was a loss of Tropitone, not of the appellant. Equally clearly, Sundberg J was correct about that. The appellant attempted to make an assertion that he was liable (presumably to Tropitone) for such loss, but Sundberg J said that this assertion was unsupported by any facts showing either that Tropitone had made such a claim against the appellant (for an alleged loss which had been suffered five years previously) or that such a claim had merit.