Hodgson v NAB Ltd and Hodgson v NAB Ltd
[2006] FMCA 1158
•11 August 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HODGSON v NAB LTD & HODGSON v NAB LTD | [2006] FMCA 1158 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice – leave to extend time to serve notice pursuant to s.41(5) of Bankruptcy Act – whether Bankruptcy Notice invalid by reason of calculation of interest over a period of time including a leap year – whether debtors misled – whether bankruptcy notice invalid – reference in order to “the defendant” rather than “the defendants” – formal defect or irregularity pursuant to s.306 of the Bankruptcy Act – not misleading – application to extend time for compliance with s.41(5) of Bankruptcy Act refused – whether counterclaim, set-off or cross demand – s.40(1)(g) of the Bankruptcy Act – claim that debt would not have been incurred but for creditors negligence and/or misleading and deceptive conduct and/or unconscionable conduct – damages not quantified by debtors – vague pleadings – whether counterclaim, set-off or cross demand could not have been set up in the action as required by s.40(1)(g) of the Bankruptcy Act – failure to raise proposed amendment and purported counterclaim, set-off or cross demand until hearing does not constitute inability to do so – application to set aside Bankruptcy Notice dismissed. |
| Bankruptcy Act 1966, ss.40(1)(g), 41(5), 41(7) |
| Re Bond; Ex parte HongKongBank of Australia Ltd (1991) 33 FCR 426 Walsh v Deputy Commissioner of Taxation (1984) 53 ALR 606 Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 58 ALR 185 Re Serafino; Ex parte Classic Manufacturing Pty Ltd (1989) 86 ALR 283 Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 279 Re Wilhelmsen; Ex parte Gould (1986) 66 ALR 189 Re Farrugia; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 1 Re McDonald; Ex parte Elder Smith Goldsbrough Mort Ltd (1978) 18 ALR 505 Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 Guss v Johnstone (2000) 171 ALR 598 Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331 Adams v Lambert (2006) 225 ALR 396 Re Scott; Ex parte Scott v Beneficial Finance Corporation Ltd (1994) 53 FCR 324 Re Brink, Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 |
| Applicant: | NICOLETTE DENISE HODGSON |
| Respondent: | NATIONAL AUSTRALIA BANK LTD |
| File number: | PEG 91 of 2006 |
| Applicant: | GUY HAMILTON HODGSON |
| Respondent: | NATIONAL AUSTRALIA BANK LTD |
| File number: | PEG 92 of 2006 |
| Judgment of: | McInnis FM |
| Hearing date: | 17 May 2006 |
| Date of last submission: | 24 May 2006 |
| Delivered at: | Melbourne (by video link to Perth) |
| Delivered on: | 11 August 2006 |
REPRESENTATION
| Counsel for the Applicants: | Mr A.P. Hershowitz |
| Solicitors for the Applicants: | Muries Lawyers |
| Counsel for the Respondent: | Ms E.C. Hensler |
| Solicitors for the Respondent: | Mallesons Stephen Jacques |
ORDERS
Application PEG91 of 2006
The Application for extension of time for compliance with s.41(5) of the Bankruptcy Act 1966 is refused.
The time for compliance with the Bankruptcy Notice be extended up to and including the time of delivery of my judgment in this matter.
The Application to set aside the Bankruptcy Notice is dismissed.
The Applicant shall pay the Respondent’s costs to be taxed in default of agreement pursuant to the Federal Court Rules.
Application PEG92 of 2006
The Application for extension of time for compliance with s.41(5) of the Bankruptcy Act 1966 is refused.
The time for compliance with the Bankruptcy Notice be extended up to and including the time of delivery of my judgment in this matter.
The Application to set aside the Bankruptcy Notice is dismissed.
The Applicant shall pay the Respondent’s costs to be taxed in default of agreement pursuant to the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 91 of 2006
| NICOLETTE DENISE HODGSON |
Applicant
And
| NATIONAL AUSTRALIA BANK LTD |
Respondent
PEG 92 of 2006
| GUY HAMILTON HODGSON |
Applicant
And
| NATIONAL AUSTRALIA BANK LTD |
Respondent
REASONS FOR JUDGMENT
This judgment relates to two applications filed 13 April 2006 by the Applicants in each application (the Applications). It is agreed that the court should deliver one judgment in relation to the applications as the facts and circumstances relied upon and affidavit material filed are almost identical.
The applications seek to set aside a bankruptcy notice dated 1 March 2006, issued by the Official Receiver at the request of National Australia Bank Ltd (the creditor). In the application filed 13 April 2006 in both proceedings the grounds relied upon were identical save for the date of service of the bankruptcy notice which in application PEG91/2006 was 28 March 2006 whilst in application PEG92/2006 the date was 28 March 2006. The grounds were as follows:-
“1.That bankruptcy notice number WA94 of 2006 which was served on the Applicant on 28 March 2006 be set aside. A copy of the bankruptcy notice accompanies this application.
2.The Respondent pay the Applicant’s costs of this application to be taxed or alternatively fixed in such sum as the Court thinks fit.”
It is also noted that in both applications affidavits in support were filed by the respective Applicants with an affidavit of Nicolette Denise Hodgson in application PEG91/2006 sworn 12 April 2006 relied upon whilst in application PEG92/2006 Guy Hamilton Hodgson relied upon an affidavit sworn by him on 11 April 2006. The affidavits are almost identical and for convenience in this judgment I shall refer to the affidavit of Guy Hamilton Hodgson sworn 11 April 2006 as “the Applicant’s affidavit”.
Preliminary Issues
At the hearing of this application, counsel for the Applicants sought leave to file an amended application and further sought an extension of time within which to serve a notice upon the creditors pursuant to s.41(5) of the Bankruptcy Act 1966 (the Bankruptcy Act). Section 41(5) of the Bankruptcy Act provides:-
“A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.”
It was agreed that the court should consider the question of leave when delivering its judgment in this matter.
One option for the court would be to refuse leave to either amend the application or extend the time for service of a notice pursuant to s.41(5) of the Bankruptcy Act if the court found that the grounds relied upon and agitated by the Applicants were without merit. Of course an alternative may be to allow leave to the Applicants to file the amended application and extend the time for service the notice pursuant to s.41(5) and then either allow or dismiss the application.
In any event, it seemed appropriate in the circumstances to permit both parties to argue the substantive issues and for the court to then determine to the extent that it may be necessary whether leave be granted to the Applicants to file and serve the amended application and/or be granted an extension of time within which to serve a notice pursuant to s.41(5) of the Bankruptcy Act.
It should also be noted that the Respondent was granted leave to file further supplementary submissions relating to certain issues raised for and on behalf of the Applicants at the hearing.
The Bankruptcy Notice
The bankruptcy notice claims that Guy Hamilton Hodgson and Nicolette Denise Hodgson (the debtors) are indebted to the creditor in the sum of $415,582.04.
The schedule to the bankruptcy notice is accurately reproduced as follows:-
Schedule
Column 1
Column 2
1. Amount of judgments or orders
$352,335.42
plus 2. Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders (see Note 1, below)
$63,246.62
plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2, below)
4. Subtotal
$
less 5. Payments made and/or credits allowed since date of judgments or orders
$
6. Total debt owing
$415,582.04
(NB: Amounts, where applicable, are to be inserted in column 2)
It is further noted that annexed to the bankruptcy notice is a document entitled "Schedule 1" which provides:
Schedule 1
1This is the schedule to a bankruptcy notice between National Australia Bank Limited (NAB) and Guy Hamilton Hodgson and Nicolette Denise Hodgson (together, Debtors).
2The ground on which NAB is entitled to claim this interest is order 4 of the Orders Made For Taxation Before Acting Registrar Christo on 24 January 2006 (a sealed copy of which is attached to the bankruptcy notice), which provides “the defendant pay to the plaintiff interest at 6% per annum on $352,335.42 from 4 March 2003 until payment”.
3Accordingly, the NAB is claiming interest of $63,246.62 on the judgment debt.
4The amount of $63,246.62 has been calculated by applying a simple interest rate of 6% per annum to the judgment debt of $352,335.42 for the period from 4 March 2003 until 28 February 2006, as set out in the table below.
Interest Calculations – 28 February 2006
Amount$352,335.42
Interest Rate 6.00%
Daily interest accrual: $57.92
Date From:4 March 2003
Date To:28 February 2006
No of days1092 days
Total interest during period $63,246.62
It will be noted from the schedules that reference is made to an amount of “judgments or orders” of $352,335.42 and interest of $63,246.62.
The claim by the creditor arises from proceedings in the Supreme Court of Western Australia in proceeding number 1555 of 2002 (the Supreme Court proceeding) wherein the creditor is the plaintiff and the debtors are first and second defendants. Annexed to the bankruptcy notice is the plaintiff's bill of costs in the Supreme Court proceeding presented for taxation, claimed to be pursuant to a judgment "made 27 February 2003". Also attached to the bankruptcy notice are "orders made for taxation before Acting Registrar Christo on 24 January 2006". The orders of the Acting Registrar were:
“1.The plaintiff's costs of the action and this application be taxed and allowed at $352,335.42.
2.The certificate of taxation be signed.
3.The defendant pay to the plaintiff $352,335.42.
4.The defendant pay to the plaintiff interest at 6%t per annum on $352.335.42 from 4 March 2003 until payment.
5.The taxation hearing listed for 8 to 10 February 2006 be vacated.”
A number of observations may be made in relation to those orders of the Acting Registrar. The first is that reference is made to "the defendant" in orders 3 and 4, and it is acknowledged that the reference should be to "the defendants".
A second observation is that order 4 refers to interest "from 4 March 2003". To understand the significance of that date, it is noted from the affidavit by Kylie Shay Allan sworn 3 May 2006 (the Allan affidavit) and filed on behalf of the Respondent in both proceedings that an earlier order was made by Master Newnes of the Supreme Court on 4 March 2003 (see Exhibit KSA 7) as follows:
“1.To the extent that the costs referred to in paragraph 2 of the order made 30 July 2002 in this action include the plaintiff's legal costs, including non-litigation costs, payable under clause 7.1 of the Guarantee and Indemnity (including, without limitation, legal costs, including non-litigation costs, incurred in enforcing or attempting to enforce the Guarantee and Indemnity) then all such plaintiff's legal costs shall be taxed if not agreed, on a solicitor and own client basis (namely all costs incurred by the plaintiff, except insofar as they are of an unreasonable amount or have been unreasonably incurred or incurred solely in relation to the Foreign Exchange Contract, so that, subject to the above exception the plaintiff be completely indemnified for its legal costs).
2.In this order, the term "Guarantee and Indemnity" means the Guarantee and Indemnity which is annexure "CEW14" in the affidavit of Carolyn Ellen White sworn 28 November 2001 in these proceedings.”
The orders referred to by the learned Master made on 30 July 2002 are Exhibit KSA5 to the Allan affidavit. Order "2" of the learned Master does not appear to be a costs order. The orders made on 30 July 2002 are as follows:
“1. The defendants do, within 33 days after the date of this order, give the plaintiff vacant possession of the land situated at 18 Fraser Road, Applecross, in the State of Western Australia (“Applecross Property”), being the whole of the land in certificate of title volume 1468 folio 595.
2 The plaintiff’s application to strike out the defence and counterclaim be dismissed.
3 The plaintiff do have judgment against the defendants for $1,997,791.70 in respect of that part of its claim under the Mortgage and the Guarantee and Indemnity which comprises:
(a)the aggregate of all amounts outstanding under the Bill Facility as at 11 December 2001; and
(b) the aggregate of all amounts outstanding under the Overdraft Facility as at 11 December 2001.
4 The plaintiff’s application for summary judgment on the balance of its claim under the Mortgage and the Guarantee and Indemnity in respect of the Bill Facility and the Overdraft Facility (including, without limitation, interest accrued since 11 December 2001 and costs, expenses and liabilities incurred by the plaintiff in enforcing or attempting to enforce its securities against any or all of Trawler Boats Australia Pty Ltd (receiver and manager appointed) and the defendants, be adjourned for 28 days.
5 The issue as to the disposition of any surplus moneys realised by the plaintiff from the sale of the Applecross Property after payment of:
(a) the $1,997,791.70 referred to in Order 3 above; and
(b)all costs, charges, expenses and taxes incurred in connection with or incidental to the sale of the Applecross Property,
be adjourned for 28 days.
6 The issue as to the costs of the application for summary judgment and to strike out the defence and counterclaim be adjourned for 28 days.
7 Subject to Order 5 above, the defendants have leave to defend that part of the plaintiffs claim which relates to the Foreign Exchange Contract.
8 Nothing in these orders prejudices or affects the rights of any of the parties with respect to their contentions as to the proper construction and amount of the limit on the liability of the defendants contained in the Guarantee and Indemnity.
9 There be liberty to apply.
10In these orders the terms “Mortgage”, “Guarantee and Indemnity”, “Bill Facility”, “Overdraft Facility” and “Foreign Exchange Contract” bear their meanings as set out in the amended statement of claim.”
Whilst there may be some errors in the orders made in the Supreme Court of a minor nature, both in the orders of the Acting Registrar and/or the learned Master, it is my view that this court, in bankruptcy, is not required to correct any "slips" in those orders but rather to determine whether those orders relied upon by the creditors have been appropriately referred to in the bankruptcy notice when considering this application to set aside the bankruptcy notice.
The Proposed Amended Application
In the proposed amended application, the Applicants seek the following orders:
“1.That Bankruptcy Notice No. WA94 of 2006, which was served on the applicant on 28 March 2006, be set aside.
2.The time for giving notice under section 41(5) of the Bankruptcy Act 1966 that the applicant disputes the validity of the Bankruptcy Notice on the ground that the sum specified in the Bankruptcy Notice as the amount due to the respondent exceeds the amount in fact due be extended.
3.The respondent pay the applicant's costs of the application to be taxed or, alternatively, fixed in such sum as the Court thinks fit.”
To understand the request for an extension of time within which to serve the notice pursuant to s.41(5) of the bankruptcy notice, it is useful to set out the contents of a letter dated 17 May 2006 which I mark as Exhibit A1 from the Applicants' solicitors to the Respondent's solicitors which purports to be the appropriate notice in the following terms:
“We refer to bankruptcy No. WA94 of 2006.
We hereby provide you with notice pursuant to s. 41(5) of the Bankruptcy Act that the debtor, Guy Hamilton Hodgson and Nicolette Denise Hodgson, dispute the validity of the bankruptcy notice on the ground of a misstatement in the bankruptcy notice.
The amount of interest claimed in schedule 1 of the bankruptcy notice is incorrect and overstated. The misstatement arises by virtue of the following:
1.The year 2004 is a leap year and includes 29 February 2004;
2.The daily interest accrual rate has been calculated on the basis of a 365 year for the entire period;
3.The daily interest accrual rate for the 2004 year should have been calculated on the basis of 366 days.
It is erroneous to calculate interest for periods of days inclusive in the year of 366 days by a calculation which assumes a year of 365 days.”
The Issues
The Applicants seek to set aside the bankruptcy notice pursuant to s.41(7) of the Bankruptcy Act on the basis that the Applicants have a counterclaim, set-off or cross-demand referred to in s.40(1)(g) of the Bankruptcy Act. That subsection provides as follows:
“(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
…”
In addition, the Applicants submitted that the bankruptcy notice is invalid in relation to three aspects; namely:
·the bankruptcy notice overstates the amount owed by the Applicants to the creditor;
·the bankruptcy notice confuses or misleads the Applicants; and
·the bankruptcy notice is founded on more than one judgment or order.
The Applicants submissions:
·challenge the validity of the bankruptcy notice and/or
·assert that the Applicants have a counterclaim, set-off or cross‑demand of a kind sufficient to invoke the operation of s.40(1)(g) of the Bankruptcy Act.
Invalidity of Bankruptcy Notice
Applicants’ submissions
It was submitted that the bankruptcy notice is founded on more than one judgment in that the judgment or order of $352,335.40 arises out of the creditor's bill of costs for taxation pursuant to a judgment made on 27 February 2003. It is submitted the sum of $63,246.62 for interest arises out of orders made by Acting Registrar Christo on 24 January 2006. Accordingly, it was submitted that a bankruptcy notice is a nullity if founded on more than one judgment or order. Reliance was placed upon Re Bond; Ex parte HongKongBank of Australia Ltd (1991) 33 FCR 426.
In relation to this argument, without dealing with the matter in further detail, it seems clear to me that a complete answer to this submission is found in s.41(1)(b) of the Bankruptcy Act, which has been in operation since 5 May 2003, which provides as follows:
“(1)An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:
(a) …
(b)2 or more final judgments or final orders that:
(i) are of the kind described in paragraph 40(1)(g); and
(ii) taken together are for an amount of at least $2,000.”
A further attack on the validity of the bankruptcy notice was based upon the submission that the bankruptcy notice overstates the amount due, and if the debtor gives timely notice within the time specified for compliance to the creditor of overstatement, then s.41(5) of the Bankruptcy Act has the effect of rendering a bankruptcy notice invalid (see Walsh v Deputy Commissioner of Taxation (1984) 53 ALR 606, Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 58 ALR 185, Re Serafino; Ex parte Classic Manufacturing Pty Ltd (1989) 86 ALR 283 at 285).
It was submitted that an overstatement in itself is not enough to render the bankruptcy notice invalid and that the debtor must act to resist the bankruptcy notice (see Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 279). It was submitted that the error in this case, resulting in the overstatement, arose from the error in calculating the number of days on which interest could be claimed. The creditor, it was submitted, failed to take into account the fact that the judgment was given in a leap year with 366 days.
Where the judgment year comprises partly a 365-day year and partly a 366-day year, then interest, it was submitted, or the annual interest rate, is calculated not on an annual rate of 365 days but 366 days. Consequently, it was submitted, the failure by the creditor to take a leap year into account and calculate by a divisor of 366 days has the necessary effect of increasing the amount calculated, thus resulting in an overstatement of the debt.
Specifically, it was submitted that the interest calculation is for the period 4 March 2003 to 28 February 2006 which runs through calendar years 2003 and 2004. Calendar year 2003 comprised 365 days, calendar year 2004 comprised 366 days. As I understand the submissions for the Applicants, this results in a daily calculation of $57.92 rather than $57.75, being a difference in the daily rate of 17 cents.
Reference was made to the decision of Burchett J in Re Clubb; Ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123. In that case the background details are set out in the headnote which refers to a bankruptcy notice being served on the Applicant by the Respondent bank claiming -
“$427,938.29 being the balance of a final judgment obtained in the Supreme Court of New South Wales on 3 May 1985, ‘together with interest ... calculated at the rates prescribed in the Supreme Court Rules ... from 4 May 1985 and which at 10 August 1989 amounts to $311,039.39 making a total of $738,977.68".
The relevant period in that case included a leap year. If it was in error to calculate interest for a period of a year of 366 days by a calculation which assumed a year of 365 days, then the total error in Re Clubb was in excess of $213.73.
In Re Clubb the court held that it had power to extend time for compliance with s.41(5) of the Bankruptcy Act and in that instance held that it should exercise its discretion in favour of the Applicant and to do so. It was further held in that case that when a leap year occurred, a year must be understood to mean 366 days.
After setting out the calculations of interest, Burchett J relevantly stated the following:
“Counsel for the applicant calculated (and counsel for the bank did not dispute his figures) that the amount of $25,535.61, interest claimed for the period 2 November 1987 to 1 March 1988, exceeded by $69.77 the amount which would have been calculated had the denominator of the fraction representing the proportion of the year in question, as well as its numerator , included the extra day, 29 February 1988. He did not provide calculations for the other portions of the judgment year, but I have calculated that, on the same basis, the sum of $44,581.79 includes in respect of the 182 days of the judgment year up to 1 November 1987 an excess of $113.69, and that the sum of $64,014.88 includes in respect of the period of 63 days following 1 March 1988 up to 3 May 1988 an excess of $30.27. If, therefore, it is erroneous to calculate interest, for periods of days included in a year of 366 days, by a calculation which assumes a year of 365 days, the total error in the present case is an excess of $213.73.
The authorities confirm that ‘a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s 41(5) of the Bankruptcy Act 1966 (Cth), as amended, that he disputes the validity of the notice on that ground’: Walsh v DCT (1984) 53 ALR 606; 156 CLR 337 at 339; Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 58 ALR 185; 5 FCR 84 at 86; Re Serafino; Ex parte Classic Manufacturing Pty Ltd (1989) 86 ALR 283 at 285.”
His Honour further agreed with the reasoning of Pincus J in Re Wilhelmsen; Ex parte Gould (1986) 66 ALR 189 which Burchett J found was "directly in point and affirms the court's powers" to extend time, specified in s.41(5) of the Bankruptcy Act. In his conclusion, Burchett J in Re Clubb then states as follows:
“The method pursued by the bank in the present case, as indicated earlier in these reasons, produces in respect of a leap year a total charge for interest exceeding that which the Supreme Court Act 1970 imposes. It would also produce the curious anomaly, if applied to a portion of a leap year consisting of 365 days, that the interest for that portion of the leap year would be identical with the interest which could lawfully be exacted for the full year.
For these reasons, I have concluded that the bankruptcy notice is invalid and must be set aside.”
It was submitted by counsel for the Applicants that a creditor must accurately claim interest (see Re Farrugia; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 1). The debtor, it was submitted, is not required to do his own calculations nor respond to a notice where it is not apparent on its face what he should pay (see Re McDonald; Ex parte Elder Smith Golsborough Mort Ltd (1978) 18 ALR 505 at 507).
Relying upon what is described as the ‘Re Prossimo line’ of authority (see Re Prossimo; Ex parte De Marco (1952) 16 ABC 86), the Applicant submitted that if a notice is given under s.41(5) of the Bankruptcy Act within the time allowed for compliance with a bankruptcy notice which overstates the amount owing to the creditor, the bankruptcy notice is fatally defective. It was noted the time prescribed may be extended.
It was further submitted that the authorities demonstrates that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act or if it could reasonably mislead a debtor as to what is necessary to comply with the notice. The Applicants relied upon Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71.
It was submitted that the bankruptcy notice in the present case causes the Applicants to be confused or mislead in that paragraph 2 of schedule 1 to the bankruptcy notice states that the ground on which the creditor is entitled to claim interest is order 4 of the orders made on 24 January 2006. It was argued that the orders provide in paragraph 4 that "the defendant pay to the plaintiff interest ... ". It was submitted that it is not clear from the orders which attach to the bankruptcy notice whether it is first or second defendant who is ordered to pay interest and accordingly the bankruptcy notice is a nullity.
The Applicant further submitted that the bankruptcy notice confused or misled the Applicant as the date upon which the Respondent claimed interest is stated to be 4 March 2003 in paragraph 4 of schedule 1 of the bankruptcy notice whereas item 3 of the schedule uses the expression “interest accrued since the date of judgment or orders”.
Respondent’s Submissions
The Respondent submitted that it had calculated the amount of interest claimed in the bankruptcy notice as $63.246.62 referred to in paragraph 4 of this judgment. The Respondent in a supplementary outline of submissions filed 24 May 2006 reference was made to Table 1 in a schedule demonstrating that daily interest for 2004 was calculated at the rate of $57.92 on the basis of there being 365 days in 2004 which provided a total claim of $24,240.13 of interest for that year.
Table 2 in the schedule it was submitted shows a calculation based upon the Applicant’s submissions for the year 2004 which essentially provided a difference in the number of days by increasing the days from 365 to 366 which then changed the daily interest rate to $57.76. It was submitted that contrary to the Applicant’s submissions the total amount of interest the Respondent would claim for 2004 would not decrease. The reason why it would not decrease is that the total interest the Respondent claimed for the year 2004 remained 6% of $352,335.42. The effect of the revised calculation it was submitted was to reduce the daily interest rate for 2004 to apportion the total interest claimed over 366 days instead of 365 days. Accordingly it was submitted the Respondent has not overstated the amount of interest in the notice and the proposed misstatement notice dated 17 May 2005 it was argued is misconceived. It was submitted there is no ground on which the Applicant should ask the Court for an order extending the time for giving notice under s.41(5) of the Bankruptcy Act.
The Respondent noted that the Applicant’s claim that the bankruptcy notice is invalid and should be set aside was alleged to be because the notice
·Confuses or misleads the applicant because
(a)the date from which NAB has claimed interest is 4 March 2003 but item 3 to the schedule to the notice refers to interest accrued since the date of judgments or orders
(b)attaches a judgment or orders that states a defendant pay rather than the defendants; and
·The notice is founded on more than one judgment or order
As indicated earlier in this judgment I do not regard it as necessary to consider the issue raised by the Applicant that the notice is founded on more than one judgment or order. Apart from the application of s.41(1)(b) of the Bankruptcy Act referred to earlier in this judgment,
I also note that accept the submission of the Respondent that in any event it would appear that the notice is founded on a final judgment or order made by the Supreme Court of Western Australia on 24 January 2006.
In relation to the other outstanding issues concerning the date from which interest is claimed and reference to “defendant” rather than “defendants”, the Respondent submitted that although the Applicant had claimed to be misled or confused the affidavit material relied upon by the Applicant makes no reference to the bankruptcy notice as being confusing or misleading the Applicant on the grounds relied upon. It was submitted therefore by the Respondent that there is no application before the Court to set aside the bankruptcy notice on the grounds set out earlier in this judgment and the Court should not consider the Applicant’s submissions on those issues.
The Respondent noted its solicitors had received by facsimile dated 18 May 2006 from the Applicants’ solicitors purported notice of the grounds for an order setting aside the bankruptcy notice.
Under cover of objection to the Court hearing or determining the objections, it was submitted that an error will not be a “formal defect or irregularity” within s.306 of the Bankruptcy Act if it is a failure to meet a requirement made essential by the Bankruptcy Act or the error could reasonably mislead a debtor as to what is necessary to comply with notice. Reliance was placed upon the recent High Court decision of Adams v Lambert (2006) 225 ALR 396 and in particular paragraphs 23-32 as follows:-
“23. The appellant's principal argument turns upon s 306 of the Act. Accepting that the misdescription of the provision under which post-judgment interest was claimed, by referring to s 83A of the District Court Act rather than s 85, was a defect or irregularity, and noting that it caused no substantial injustice, is it a formal defect or irregularity within the meaning of s 306?
24. The composite expression "a formal defect or an irregularity", in its application to a bankruptcy notice, conveys a meaning with elements of both inclusion and exclusion. A failure to comply with a requirement, to be found in the Act, imposed by reference to the regulations as to information to be furnished by the notice, is a defect or irregularity. So, in Kleinwort Benson Australia Ltd v Crowl, an erroneous statement of the amount of interest owing on a judgment debt was a defect or irregularity. What is excluded from the section is a defect or irregularity of such a nature that, reading s 306 in the context of the whole Act, it is not "a formal defect or an irregularity". What kind, or degree, of defect is to be regarded as having such a nature?
25. In some cases the answer to that question may be easy. In others, a difficult question of judgment may be involved. The matter for judgment was identified by this Court in Kleinwort Benson Australia Ltd v Crowl[1]. In that case, the majority[2] contrasted the concept of a formal defect or irregularity with a defect or irregularity that renders a bankruptcy notice a nullity that cannot be saved by s 306. To describe a defect as merely formal, or to describe a notice as a nullity, is, of course, to state a conclusion, rather than the reason for reaching that conclusion. Even so, it is necessary to identify the question that arises for judgment. The majority, referring to James v Federal Commissioner of Taxation[3], and Pillai v Comptroller of Income Tax[4], summarised the exclusionary aspect of the meaning of "a formal defect or an irregularity" by saying[5]:
[1] (1988) 165 CLR 71 at 79-81.
[2] Mason CJ, Wilson, Brennan and Gaudron JJ.
[3] (1955) 93 CLR 631 at 644.
[4] [1970] AC 1124 at 1135.
[5] (1988) 165 CLR 71 at 79.
"The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice."
26. The question of construction raised by the words "a formal defect or an irregularity" is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authority[6] it was said: "A better test ... is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid ... In determining the question of purpose, regard must be had to 'the language of the relevant provision and the scope and object of the whole statute'".
27. If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity. Any error is capable of misleading somebody about something. When the respondent saw the bankruptcy notice in this case he may well have concluded that s 83A was the section of the District Court Act dealing with post-judgment interest. In that respect, he would have been misled. When Mr Crowl read the bankruptcy notice in his case, he might have been given the temporary satisfaction of believing that his debt was $23,000 less than was in fact owing. In that respect, he would have been misled. (A debtor who receives a notice involving an overstatement of a kind expressly relieved against by s 41(5) of the Act might receive a very unpleasant surprise). What this Court regarded as relevant to s 306, however, was misleading a debtor about what is necessary to comply with the notice. That kind of misleading, the Court said, takes an error outside the concept of a formal defect or irregularity. However, that is not the full extent of the exclusion.
28. The other exclusionary aspect of the expression "a formal defect or an irregularity" in s 306 was said to consist in a failure to meet a requirement made essential by the Act. Here again, the word "essential", in its application in a particular case, involves a conclusion. If a requirement is made essential by the Act, then a failure to meet that requirement is not a formal defect or an irregularity within the meaning of s 306. Whether a requirement is made essential is to be decided by a process of statutory construction undertaken in the manner described above. The majority in Lewis regarded the error in that case as involving a failure to meet a requirement made essential by the Act.
29. To describe an error or a deficiency in a bankruptcy notice as involving a failure to meet a requirement made essential by the Act is to state a conclusion reached after a consideration of the legislative purpose and an evaluation of the significance or importance of the error or deficiency in the circumstances of the case. That question is not answered by observing that there has been a failure to meet a requirement. In this respect, the majority in Lewis placed undue emphasis on the imperative terms of the Act and Regulations. If there were no failure to meet a requirement, there would be no defect or irregularity. Furthermore, as noted earlier, the fact that the requirement is expressed by the use of the term "must" is not conclusive. How otherwise might a requirement as to form be expressed[7]?
30. The misdescription of the relevant section of the District Court Act was not capable of misleading the respondent as to what he had to do to comply with the notice. This is not a matter of dispute. The question is whether the misdescription involved a failure to meet a requirement made essential by the Act. On the true construction of the Act, is it essential that there be no misdescription of the relevant section? Is it the purpose of the legislation that any slip, such as giving a reference to the statutory provision governing pre-judgment interest when what is intended is a reference to the provision governing post-judgment interest, should invalidate the notice? Is this so no matter how clear it might be from other parts of the notice that the claim is for post-judgment interest?
31. Section 306, in its application to bankruptcy notices, makes it plain that some instances of non-compliance with the requirements as to the form of a notice will not invalidate the notice. The practical significance of an error or deficiency could vary according to the circumstances of each particular case. Errors or deficiencies in compliance with requirements as to form may involve questions of degree as well as of kind. At the same time, the decision in Kleinwort Benson Australia Ltd v Crowl shows that an error may be covered by s 306 even though it involves a substantial misstatement of an amount of money. It was essential that the bankruptcy notice state the amount claimed. Was it essential that the amount be correct? Section 41(5) made it clear that an overstatement, even a large overstatement, would not necessarily invalidate the notice. This Court concluded that it was not the legislative purpose that a substantial understatement should necessarily invalidate the notice. That is to say, accurately stating the amount of interest owing was not a matter of such importance that error necessarily resulted in invalidity. In the present case, overstatement or understatement of the amount of post-judgment interest owing would not necessarily have invalidated the notice. That is part of the context in which legislative purpose is to be considered in deciding whether the reference to s 83A rather than s 85 was fatal.
32. In Lewis[8], Gyles J accurately identified the question as whether correct completion of the form prescribed by the regulations in every respect is a requirement made essential by the Act. Bearing in mind that, in the present case, the error could not have misled the respondent as to what it was necessary to do in order to comply with the requirements of the notice, it is difficult to understand how, consistently with Kleinwort Benson Australia Ltd v Crowl, the respondent could succeed without an affirmative answer to that question. In their dissenting reasons in Lewis, Lee J and Gyles J both gave a detailed account of the 1996 amendments to the Act and Regulations. It is unnecessary to repeat what they said in that respect. Lee J concluded[9]:
"Properly construed, the Act and Regulations do not express an intention to create a new regime of strict compliance imposed on a judgment creditor issuing a bankruptcy notice. The tenor of the Act and Regulations is not consistent with that conclusion. An attempt has been made to recast the process of issue of a bankruptcy notice in terms more understandable to a judgment debtor, but the essential requirements of a bankruptcy notice remain as they have been stated by bankruptcy legislation over many years."
[6] (1998) 194 CLR 355 at 390-391, quoting Tasker v Fullwood [1978] 1 NSWLR 20 at 24.
[7] In a different statutory context "must" will sometimes require an imperative interpretation: SAAP v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 79 ALJR 1009 at 1014 [16], 1024 [70], 1035 [136], 1040 [173], 1046 [208]; 215 ALR 162 at 166-167, 180, 196, 203, 211.
[8] (2000) 109 FCR 33 at 70.
[9] (2000) 109 FCR 33 at 66.
It was submitted by the Respondent that the bankruptcy notice is not confusing and that item 3 in the schedule of the notice refers to “interest accrued since the date of judgment or orders” which is a reference not restricted to the date or dates of the judgment or orders attached to the bankruptcy notice.
The Respondent referred to Note 2 in Item 3 of the schedule which provides as follows:-
“Note 2: Interest accrued (item 3 of the Schedule)
If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice. The document must state:
(a) the provision under which the interest is being claimed;
and
(b) the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.”
It was submitted that schedule 1 to the bankruptcy notice clearly and correctly set out the following:-
(a) The ground on which NAB is claiming interest (being order 4 of the “orders made for taxation before Acting Registrar Christo on 24 January 2006” (orders) which states “the defendant pay to the plaintiff interest at 6% per annum of $352,332.42 from 4 March 2003 until payment”);
(b) The principal sum being $352,335.42 (the period) being 4 March 2003 to 28 February 2006), and the rate (being 6% per annum), at which NAB is claiming interest.
It was submitted therefore that schedule 1 of the bankruptcy notice clearly states the date from which the Respondent claimed interest as being 4 March 2003 and that that date was derived from orders (a copy of which was attached to the bankruptcy notice) made by the Supreme Court on 24 January 2006.
Accordingly it was submitted the notice could not reasonably have misled or confused the Applicant in the manner claimed.
In relation to the Applicant’s claim that reference to a “defendant” pay rather than the “defendants”, it was submitted that reference to “the defendant” could properly be regarded as a “formal defect or irregularity” within s.306 of the Act and would not reasonably have missed the Applicant. It was submitted this is because:-
·It is clear from the notice what the Applicant had to do to comply with the notice;
·It is clear from the extracted orders attached to the bankruptcy notice and when the orders were made counsel appeared for both parties and orders were made in respect of the Applicants as “defendants”;
·The reference to “the defendant” was in an advertent typographical error in the orders;
·The notice makes clear that NAB is claiming a debt from both the Applicants in the respective application and bankruptcy notices.
The Respondent relied again in Adams v Lambert at [31]. Reference was also made to the decision of Lindgren J in Hudson Junior v Donald (Unreported Federal Court of Australia 12 August 1997) (affirmed on appeal in Re Hudson Junior, Donald v Hudson Junior (Unreported Full Court Federal Court 19 May 1998). Specific reference was made to the judgment of Lindgren J where His Honour stated:-
“There is ample evidence that there has never been a misunderstanding on the part of Mr Hudson as to the correct amount”.
It was submitted that in the present case the bankruptcy notice is not defective.
Reasoning
In my view the bankruptcy is not invalid. Accordingly as I do not regard the bankruptcy notice as being invalid any application to extend time for compliance with s.41(5) of the Bankruptcy Act should be refused.
In my view the Respondent’s submissions are correct in relation to the claimed error arising from the fact that the year 2004 was a leap year. The calculations provided by the Respondent reveal and I find that there is no overstatement of the total amount of interest claimed by the Respondent for 2004. The adjustment in the calculations to account for the leap year I accept would not result in any reduction and the amount would remain at $352,335.42. The revised calculation I accept to reduce the daily rate for 2004 would simply apportion the total interest claimed over 366 days over 355 days and the amount claimed would not decrease. Hence there has been no overstatement of the amount of interest in the bankruptcy notice. I accept in the circumstances that there is no basis upon which the Applicant can therefore gain the benefit of the Court’s discretion in extending the time for giving notice under s.41(5) of the Bankruptcy Act.
Likewise, I do not see any basis upon which it could be claimed that the bankruptcy notice is misleading or confusing due to the reference to the term “the defendant” rather than reference to “the defendants”. In my view if anything I accept that the difference, presumably based upon a typographical error in the relevant orders, should only be regarded as a formal defect or irregularity within the meaning of s.306 of the Bankruptcy Act and in the present case I am satisfied could not reasonably have misled the Applicants. I accept that both were represented by counsel before the Supreme Court and it is difficult to conceive how either could possibly be mislead as a result of what I find to be an obvious typographical error. The bankruptcy notice is clear in that it seeks to claim a debt from both Applicants in the proceedings before this Court and that interest is a significant component of that claim.
It is noteworthy that neither Applicant asserts in affidavit material to have been confused or misled as a result of any of the claimed grounds of invalidity in relation to the bankruptcy notices.
Further in my view schedule 1 of the bankruptcy notice clearly sets out the basis upon which interest is claimed and that the date of claimed interest was 4 March 2003. That date is derived from the orders made by the Supreme Court of Western Australia on 24 January 2006. I do not accept that reference to that date could have misled or confused the Applicants in the manner claimed in these proceedings. The reference to item 3 of the schedule of the notice which does refer to “interest accrued since the date of judgment or orders” is not restricted to the date or dates of the judgment or orders attached to the notice. It is clear from note 2 to item 3 of the schedule that where interest is claimed in the bankruptcy notice, details are to be set out in what is described as “a document attached to this notice”.
In the present case the schedule attached satisfactorily sets out in sufficient and appropriate detail the method by which interest is calculated by the creditor and set out the ground upon which the interest is claimed by the creditor, namely order 4 of the orders made for taxation before Acting Registrar Christo on 24 January 2006 which clearly states, “The Defendant pay to the Plaintiff interest at 6% per annum on $352,335.42 from 4 March 2003 until payment”. The schedule also clearly states the principal sum namely $352,335.42 and the period of 4 March 2003 to 28 February 2006 with the rate of 6% per annum which is the rate claimed by the creditor.
I accept therefore that the notice could not properly be regarded as being one which misled or confused the Applicant.
I have already dealt with the suggestion that the notice is defective because it refers to more than one judgment or order.
Applying the principles of the High Court decision in Adams and Lambert I am not satisfied in the present case that there is any failure to meet a requirement made essential by the Bankruptcy Act of a kind capable of misleading the debtors as to their obligations to comply with the bankruptcy notice. There is in fact no misdescription save for the minor issue concerning reference in the order to “the defendant” rather than “the defendants” which does not in my view involve a failure to meet a requirement made essential by the Bankruptcy Act, nor as indicated earlier, has there been any overstatement of the amount of interest owing having regard to the arguments raised in relation to the leap year. As indicated I am not satisfied there has been any misunderstanding or confusion on the part of the debtors or indeed that they have been misled by any of the matters raised in this application. Accordingly I am not satisfied that the bankruptcy notice is invalid or should be set aside and therefore it is appropriate that any application for an extension of time for compliance with s.41(5) of the Bankruptcy Act should be refused in relation to the grounds raised in support of the claim that the bankruptcy notice is invalid.
Counterclaim, Set-Off or Cross-Demand
Applicants’ Submissions
Reliance was placed upon s.40(1)(g) of the Bankruptcy Act set out above.
It was submitted the Applicants' counterclaim or set-off could not have been raised in the proceedings in which the creditor's bill of costs was taxed and interest on those costs was awarded. During the course of submissions, reliance was placed upon the affidavit material in support and it was noted that in that affidavit material there may well be a "paucity" of evidence particularising loss and damage claimed by the Applicants in their counterclaim or set-off.
Nevertheless, it was submitted that that deficiency in the material does not preclude the Applicants from relying upon s.40(1)(g) of the Bankruptcy Act. Reference was made to the authorities, including Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 and Guss v Johnstone (2000) 171 ALR 598. Reliance was also placed upon the decision of Lindgren J in Glew v Harrowell of Hunt & Hunt Lawyers (2003) 198 ALR 331 who, it is claimed, described the threshold at which the Applicant may be allowed to litigate "as relatively low". Reference was made to paragraphs 9-11 of the Court's judgment in that case as follows:
“[9] There are authorities suggesting that Glew and Tresidder 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”.
[10] In Brink Lockhart J said (at ALR 438–9; FLR 141) that the court is not required to ``undertake a preliminary trial of the counter-claim, set-off or cross demand”. But, clearly, the application of the criteria above requires the court to make some kind of preliminary assessment, though obviously not to determine the counter-claim, set-off or cross-demand finally. And in Guss v Johnstone (2000) 171 ALR 598, Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated (at 606):
[40] The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.
[11] Plainly, in order to ``satisfy” the court for the purposes of s 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor's claim was being finally determined, but by reference to the question whether the court should be satisfied that the debtor has a claim deserving to be finally determined.”
In this case it was submitted that there is no dispute the Applicants have a prima facie case. Reference was made to the creditor's application for summary judgment heard in July 2002 where it was agreed that orders be made that the Applicant have leave to defend that part of the creditor's claim which related to what is described as the foreign exchange contract, referred to earlier in the background in this judgment. Further, it was submitted, orders made by Master Newnes on 4 March 2003, set out earlier this judgment, confirms the creditor accepted it was not entitled to any costs of the summary judgment ordered against the Applicant relating to the Foreign Exchange Contract.
The basis of the counterclaim or set-off appears to be set out in the Applicants' affidavits sworn 22 July 2002 in opposition to the application for summary judgment and the Applicants' further amended defence and counterclaim. It was readily conceded that the amended defence and counterclaim do not provide specific details or quantum, nor did it link that counterclaim to the basis upon which the Applicants may have avoided liability under the judgment which was entered and which led to the orders for costs, which are the foundation stone for the bankruptcy notice now sought to be challenged.
It was submitted that but for the creditor's negligence, misleading and deceptive conduct and/or unconscionable conduct, the Applicants would not have incurred liability under the Foreign Exchange Contract and in turn would not have been in default under the mortgage and/or overdraft facility and would not have incurred the legal costs which are the subject of the judgment debt in the bankruptcy notice.
The quantum of the counterclaim, it was submitted, will be proved by way of admissible evidence at the hearing in due course. Justice in this case requires the counterclaim against the creditor to be heard before the bankruptcy proceedings go ahead. It was claimed that it because the creditor consented to grant the Applicant leave to defend that part of its claim relating to the foreign exchange contract on the basis of the defence and counterclaim.
It is useful to set out from the transcript of the hearing in this matter the following statement made for and on behalf of the Applicants in relation to the defence and counterclaim where counsel states at transcript p.24,
“What we say is the following. The defence and counter claim requires amendment, obviously. The position is the following. If there was misleading and deceptive conduct, if there was unconscionable conduct pursuant to section 51AC of the Trade Practices Act or if there was negligence then we say but for that, the applicant would not have entered into a contract of guarantee and indemnity guaranteeing the obligations of the principle debt of the company for the foreign exchange contract. But not only that, if there wasn't a foreign exchange contract in place then there wouldn't have been a default under the overdraft facility, there wouldn't have been a default under the bill facility and in fact there wouldn't have been the need to obtain judgment at all and the consequent costs of 350-odd thousand dollars which have now arisen.
So we say at least to that extent, there is a counter claim or set-out - set-off for the very same amount which is the subject matter of the judgment debt.”
(Transcript p. 24 lines 26 to 39)
It is understood that the argument by the Applicants is that there would not have been any judgment under the mortgage but for the “misrepresentations and unconscionable conduct”.
Respondent’s Submissions
The Respondent referred to the extract from the transcript set out above and submitted that effectively the Applicants are seeking to have this Court redetermine matters which are already the subject of the judgment for possession of land entered on 30 July 2002 (the judgment). As part of the judgment the Supreme Court of Western Australia it was submitted ordered the Applicants to pay money to the Respondent under a mortgage and under the guarantee and indemnity in relation to the bill facility and overdraft facility. It was submitted there is no reason for this Court to go behind the or re-open the judgment and accordingly the submission does not identify any counter-claim set off or cross-demand that the Applicant can rely upon to set aside the notice.
It was otherwise submitted that in any event the Applicants have failed to satisfy the requirements of s.40(1)(g) of the Bankruptcy Act on the following grounds:-
·There is no reason at law why the Applicants could not have sought to make the proposed amendment to the defence and counterclaim at a proper time in the action therefore the Applicant cannot say that the purported counterclaim, setoff or cross-demand “could not have been set up in the action” as required by s.40(1)(g) of the Bankruptcy Act (see Re Scott; Ex parte Scott v Beneficial Finance Corporation Ltd (1994) 53 FCR 324;
·The Applicants failure to raise the proposed amendment and purported counterclaim, set off or cross-demand until the hearing of the matter does not constitute inability (see Re Brink, Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 437;
·The Applicant has failed to provide sufficient evidence to satisfy the Court that the purported counterclaim, set off or cross-demand is one for an amount equal to or greater than the amount claimed in the notice and the Applicants have failed to provide evidence supporting the new submission set out in the extract from the transcript above.
·The Applicants failure to raise the purported counterclaim, set off or cross-demand in the action to progress the counterclaim in the action or to make any proposed amendments to the defence or counterclaim weigh against the court exercising its discretion to set aside the notice.
Reasoning
In my view the vague assertions both in terms of cause of action and/or quantum now sought to be relied upon by the Applicants should not be permitted to provide any or any proper basis upon which the Court can conclude that the defence or counterclaim is one which could have been set up in the action as required by s.40(1)(g) of the Bankruptcy Act.
Whilst it may be theoretically arguable that the defence and counterclaim as now proposed may have avoided the judgment relied upon by the creditor, that is not in my view sufficient basis upon which the Court is able to conclude that there is sufficient evidence to satisfy the Court that the purported counterclaim, set off or cross demand is for an amount equal to or greater than the amount claimed in the bankruptcy notice. A vague assertion of quantum based upon proposed amendments to proceedings in my view is not sufficient for the Court to then set aside the bankruptcy notice pursuant to s.40(1)(g) of the Bankruptcy Act. I can see no reason why the counterclaim as now proposed could not have been set up prior to the default judgment being entered, if indeed it related to that judgment. In my view the manner in which the proposed counterclaim, set off or cross-demand is now sought to be characterised would not of itself provide any basis upon which the default judgment may have been avoided. Instead it may simply have led to another proceeding which may or may not lead to a judgment for what is currently an unspecified quantum. That in my view is insufficient to provide any basis upon which the Court should set aside the bankruptcy notice.
Accordingly in my view this ground should fail.
Conclusion
It follows therefore that the application to set aside the bankruptcy notice in both proceedings should be dismissed with costs.
The Application for extension of time for compliance with s.41(5) of the Bankruptcy Act is refused.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 11 August 2006
0
23
1