Hassin v ANZ
[2002] FMCA 97
•27 May 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HASSIN v ANZ | [2002] FMCA 97 |
| BANKRUPTCY – Application to set aside bankruptcy notice on the basis of counter-claim, set-off or cross-demand – application dismissed. Bankruptcy Act1966 (Cth) ss. 40, 41 Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 |
| Applicant: | ROGER SOLOMON HASSIN |
| Respondent: | AUSTRALIA AND NEW ZEALAND BANKING GROUP |
| File No: | SZ 140 of 2002 |
| Delivered on: | 27 May 2002 |
| Delivered at: | Sydney |
| Hearing Date: | 22 May 2002 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr M Abdul-Karim |
| Solicitors for the Applicant: | McKell’s Solicitors |
| Counsel for the Respondent: | Mr R Beasley |
| Solicitors for the Respondent: | Blake Dawson Waldron |
ORDERS
Application dismissed.
Time for compliance with the bankruptcy notice extended until 29 May 2002.
Applicant pay the Respondent’s costs pursuant to the Federal Court Rules, to be taxed if not agreed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 140 of 2002
| ROGER SOLOMON HASSIN |
Applicant
And
| AUSTRALIA AND NEW ZEALAND BANKING GROUP |
Respondent
REASONS FOR JUDGMENT
This is an application to set aside a bankruptcy notice which was originally issued on 30 July 2001. The grounds for the application are stated to be:
“1. That the applicant has a counter-claim, set-off, or cross-demand of the kind referred to in s.40(1)(g) of the Bankruptcy Act 1966 (Cth).
2. That the bankruptcy notice issued at the date of 30 July 2001 against the applicant be set aside.”
The application was supported by an affidavit of Mr Hassin dated
26 February 2002.
It is appropriate to give a short history of the proceedings between the two parties. The respondent’s claim against the applicant arises out of loans made to the applicant (in conjunction with others) to finance the purchase of properties on the mid-north coast of New South Wales. In November 2000 an amended Supreme Court summons was filed in the Commercial List of the Equity Division of the Supreme Court of New South Wales and a defence and cross-claim was filed on behalf of all four defendants of whom the applicant was one. On 4 May 2001 Hunter J ordered that all the defendants file and serve an Amended Defence by 18 May 2001 and listed the matter for hearing on 4 July 2001. On 8 June 2001 Hunter J ordered that unless the defendants file an amended defence by 15 June 2001 the plaintiff would be at liberty to apply for default judgment. On 4 July 2001 no defendants appeared at the hearing, no amended defence was filed and default judgment was entered. On 31 July 2001 the bankruptcy notice which is the subject of this application was issued.
The bankruptcy notice was not immediately served. After being extended by the Official Receiver on 17 January 2002 until 30 July 2002 an order for substituted service was sought. Service was effected pursuant to an order of the Registrar dated 31 January 2002 on
7 February 2002. On 26 February 2002 the applicant filed a Notice of Motion in the Supreme Court to set aside the judgment. He also filed this application. The parties agreed that this application should stand over pending the hearing of the motion to set aside the judgment. This was heard on 22 March 2002 and dismissed by McClellan J.
I was provided with written submissions by counsel for the applicant. At the hearing I was asked to admit a further affidavit dated 8 April 2002. The respondent objected to the admission of this document on the basis that it constituted an attempt to raise, out of time, matters required to be raised in the affidavit accompanying the application. The respondent relied on a decision of Hill J in Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 at 188-189. In that case His Honour said:
“The debtors, within the time limited for compliance with the bankruptcy notice, filed two affidavits. These affidavits, individually or cumulatively, did little more than assert the existence of a cross-claim, cross-demand, or set-off, and in my view did not comply with the provisions of s.41(7). The affidavit of which s.41(7) speaks must do more than merely assert the existence of a cross-claim etc of the relevant value. It must contain evidence which establishes that there is an effective cross-claim, a claim that is real; cf Lukin J in Re Vogwell; Ex parte Vogwell (1939) 11 ABC 75 at 77, affirmed on appeal by the High Court in Vogwell v Vogwell (1939) 11 ABC 83 at 85; Ebert v Union Trustee Co of Australia Ltd (No 2) (1960) 104 CLR 346 at 350; Re McKechnie; Ex parte Weir (1991) 27 FCR 515 at 519-520 per Foster J. This is because the affidavit in question is required to “show” a relevant counter-claim, set-off or cross-demand. An insufficient affidavit does not bring the provisions of s.41(7) into operation.
Although the debtors filed out of time an affidavit setting out the facts upon which they would rely to show a relevant cross-claim … that affidavit, while it might be read to expand matters in an affidavit otherwise complying with s.41(7) filed in time, cannot be used to supplement any deficiency where no sufficient affidavit has been filed within the terms of s.41(7).”
The current s.41(7) does not require an affidavit, instead it requires an application to the court of the type now before me. The rules of the Federal Magistrates Court and the Federal Court require such an application to be supported by an affidavit. So the effect of the old s.41(7) is retained.
The original affidavit filed by the applicant makes the following allegations said to constitute a counter-claim, set-off or cross-demand:
·Non-service of any demand for the repayment of a loan or threatening legal proceedings;
·The unreasonable withdrawing of overdraft facilities which the debtor was using to fund the loan repayments;
·A failure of the respondent to comply with the terms of an agreement to make further advances for the purposes of building upon the land which was purchased with the original loan monies;
·Failure to account in relation to the exercise of the respondent’s powers in relation to the property;
·Failure to advise the applicant of whether or not the properties had been sold.
The affidavit of 8 April 2002 does expand somewhat on these matters and in particular makes an allegation that the sale of a property known as “Lot 7 Paradise Palms Resort, Coffs Harbour” for a price of $50,000 was a sale at an undervalue. In submissions the applicant stated that he had only become aware of the existence of the sale of this property by way of a fax from the respondent’s solicitors exhibited to his affidavit and dated 28 March 2002 a date after the completion of the proceedings before McClellan J. It is this cross-claim that forms one of the strongest planks in the applicant’s submissions.
I think it is just arguable that the reference in the original affidavit to the failure to account is indicative of a proper cross-claim over a sale at an undervalue that comes to light after an enquiry as to an accounting. At the end of discussions between myself and counsel for the parties, that seemed to be the only issue between the applicant and the respondent. The affidavit is therefore admitted.
The first point raised in the applicant’s submissions was that there was a difference of approximately $68,538.69 between the amount originally claimed in the summons filed on 17 October 2000 and the amount for which judgment was given on 4 July 2001. The amount claimed in the bankruptcy notice was based upon this judgment plus interest. It is not clear whether this point was raised to allege the invalidity of the bankruptcy notice or as a cross-claim. In so far as the former is concerned I would not accept it. It is settled law that a bankruptcy notice must follow the form of a judgment upon which it is based: Kleinwort Benson v Crowl (1988) 165 CLR 71 at 80, but that does not extend to the originating process. This is self evident as many proceedings are started with larger (or smaller) claims than those for which judgment is entered. If it is a matter of a set-off or cross-claim then it is certainly a matter which could have been raised by the applicant at the hearing before McClellan J. Counsel for the applicant in this matter appeared before McClellan J. This is clearly not a matter within the scope of s.40(1)(g).
The second point raised by the applicant was that the bankruptcy notice was issued 26 days after the entry of the default judgment:
“There does not appear to have been any order or any indication on the default judgment as to the time for compliance under Part 40 rule 6 of the Supreme Court Rules. That being the case the Applicant had the usual 28 days period to file a Notice of Motion for stay of execution of judgment, to setting aside the default judgment or to make payment or come to some arrangement acceptable to the Respondent.
… In the light of the default judgment not being final judgment specifying time for compliance in accordance with Part 40 rule 4 it was not open to the Respondent to issue Bankruptcy Notice against the Applicant prior to 2nd August 2001.”
This also seems to be an attack on the validity of the bankruptcy notice, not a matter raised under s.40(1)(g).
The relevant rule of the Supreme Court is actually Part 40, rule 3 which states as follows:
[40.3] Date of effect
3 (1) A judgment shall take effect –
(a)where it is given in Court – as of the date on which it is given;
(b)otherwise – as of the date of entry.
Although this judgment was alleged to be a default judgment it was subject to the challenge before McClellan J. I am advised that His Honour gave an ex-tempore judgment in which he dismissed the application to set the default judgment aside. A default judgment once entered is a final judgment until such time as it is set aside. In this case it was not. The applicant did not provide me with any authority to support the suggestion that a bankruptcy notice cannot be issued for 28 days after a decision not to set aside a judgment that had been entered some nine months previously. I do not accept that there is any validity in this point.
The third point raised by the applicant suggests the possibility of a cross-claim. The applicant states that as at the date of judgment on
4 July 2001 the respondent had not accounted to the applicant for the proceeds of sale of any of the seven properties which the monies claimed were used to purchase. It was only on 28 March 2002 that the applicant learnt that six of the properties had been sold and one had been agreed to be sold. The applicant claims that the figure of $361,821.53 (the sale proceeds) represents a set-off against the amount claimed in the bankruptcy notice of $573,815.29. It appeared that the applicant was also saying that this rendered the bankruptcy notice defective in that by the time it was served the amount claimed was clearly wrong. There are two problems with this submission.
Firstly, the High Court in Walsh v Deputy Federal Commissioner of Taxation [1984] 156 CLR 337 a judgment of Gibbs J speaking for the whole court states:
“In form the notice speaks as at the date which it bears, that is the date of its issue, and although service is essential to make non-compliance an act of bankruptcy, and although the time fixed for compliance runs from the date of service, the notice must be understood as speaking as at the date of its issue and the requirements of the notice, for the purposes of s.40(1)(g) of the Bankruptcy Act, must be ascertained in that context. This reinforces the view that the amount which must be correctly stated is the amount of the judgment debt owing at the date of issue.”
The properties which had been sold in order to reduce the amount of the judgment debt were not settled until after the issue of the bankruptcy notice and therefore the amount owed as at that date was as per the judgment. The issue of the notice giving the judgment sum as the amount owed was appropriate.
Even if the bankruptcy notice had demanded payment of an amount in excess of that currently owed by the applicant to the respondent the applicant was obliged to give notice pursuant to s.41(5) Bankruptcy Act and no such notice was given.
Finally the applicant makes a claim for breach of contract and other alleged breaches of the Contracts Review Act 1980 (NSW) and the Trade Practices Act 1974 (Cth). These are articulated in a Statement of Claim which has now been issued in the Supreme Court of New South Wales. The sale of the Coffs Harbour property at an undervalue is one of the matters alleged. It is said by the applicant that its total claims against the respondent far outweigh the amount of the bankruptcy notice and certainly outweigh the amount currently owing after the proceeds of the sale of the properties has been deducted from the judgment debt.
The difficulty with these claims are that the applicant has to show that the counter-claim, set-off or cross-demand could not have been set up in the original action. The debtor is required to satisfy the court that the cross-demand exists (see the excerpt from Re James set out above). Counsel for the respondent submits that the claim cannot succeed because it is wrongly based upon the provisions of the Trade Practices Act which exclude claims relating to conduct of persons engaged in financial services (see ss. 51AAB and 51AF Trade Practices Act). He also asserts that the relief claimed under the Contracts Review Act is excluded by virtue of s.6(2) of that Act because it was a contract entered into in the course of or for the purpose of a trade, business or profession. Counsel may well be right about this but the claim also asserts breaches of contract. The part of the claim which was most strongly argued was that of the sale at an undervalue. In this regard I was shown a copy of the contract for purchase of the land at Coffs Harbour in the sum of $200,000 and the valuation of the land at $285,000. It is said that the land has been sold for $50,000. There is some dispute as to whether the valuation actually deals with the land in question. Certainly, the DP number of the land in the Certificate of Title differs from that in the valuation. However, there was tendered in evidence another valuation made for the respondent recently in the sum of $60,000. If this is correct it is unlikely that a court will find a sale at an undervalue for $50,000.
The other claims made in the new Statement of Claim are those which have previously been raised by the applicant and in respect of which I have even less confidence that they have any prospects of success. They depend very much upon the respondent being required to fund the loan repayments for the land from overdrafts granted to other companies associated with the debtor. They also involve a claimed failure by the respondent to reinstate accounts which the applicant agreed could be closed. It is my view that these proceedings have very little prospects of success as presently constituted.
The applicant has also failed to convince me that the matters raised in the new Statement of Claim are matters which could not have been raised in the proceedings in which judgment was given. The law is clear that the issue of whether a counter-claim, set-off or cross-demand could not have been set up is determined by legal considerations (Re Ling; Ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129 at 132 per Hill J; Westbrook v National Australia Bank Ltd (1999) FCA 892). The applicants have said that the reason for the failure to set-up the cross-claim was a combination of the applicant having had a serious motor vehicle accident and been in hospital and of him not knowing that the properties had been sold. It would be easy to be critical of the bank for not keeping its debtor advised of what was going on. But the court is not appraised of all the facts and such criticism may well be misdirected. What is certainly the case is that the applicant could have made enquiries. He did make enquiries in March 2002 but he did nothing before then. This does not qualify as a legal impediment to bringing the cross-claim. Up until 22 March 2002 the applicant could have raised all of these matters in the Supreme Court of New South Wales. He did not choose to do so. He did not choose to make any enquiries. He has only himself to blame.
It follows from the above that the application must fail. Time for compliance with the bankruptcy notice has been extended until judgment. In order to provide the applicant with one further opportunity to avoid committing an act of bankruptcy I extend the time for compliance with the bankruptcy notice until 29 May 2002.
I order that the applicant pay the respondent’s costs pursuant to the Federal Court Rules to be taxed if not agreed.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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