Johnston v Johnston
[2016] FCCA 3197
•9 December 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JOHNSTON & ANOR v JOHNSTON | [2016] FCCA 3197 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice – counterclaim, set-off or cross-demand – where bankruptcy notice relies upon interlocutory costs order – where counterclaim constituted by claim in proceedings in which costs order was made – bankruptcy notice set aside. |
| Legislation: Bankruptcy Act 1966, ss.40(1)(g), 40(3)(b) Uniform Civil Procedure Rules 1999 (Qld), r.682(2) |
| Cases cited: Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346 Licul and Others v Corney (1994) 180 CLR 213 Pollnow v Queensboro Pty Limited [1988] FCA 625 Re: Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould; Ex parte: Ian Robert Skinner and Dayle Kerry Smith (1983) 72 FLR 393 |
| First Applicant: | KENNETH ERIC JOHNSTON |
| Second Applicant: | NORMAN REGINALD JOHNSTON |
| Respondent: | OWEN DAVID JOHNSTON |
| File Number: | BRG 1031 of 2015 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 18 March 2016 |
| Date of Last Submission: | 18 March 2016 |
| Delivered at: | Brisbane |
| Delivered on: | 9 December 2016 |
REPRESENTATION
| Counsel for the First and Second Applicants: | Mr Wrenn |
| Solicitors for the First and Second Applicants: | Arnell & Cooper Lawyers Pty Ltd |
| Counsel for the Respondent: | Mr Smith |
| Solicitors for the Respondent: | Mellick Smith & Associates |
ORDERS
Bankruptcy Notice No. 185191 of 2015, which was served on the Applicants on 23 October 2015 be set aside.
The Respondent pay the Applicants’ costs of and incidental to this application including reserved costs, if any, to be taxed according to the Federal Circuit Court (Bankruptcy) Rules 2006.
The Respondent be at liberty to apply within 7 days for the setting aside of Order 2.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 1031 of 2015
| KENNETH ERIC JOHNSTON |
First Applicant
And
| NORMAN REGINALD JOHNSTON |
Second Applicant
And
| OWEN DAVID JOHNSTON |
Respondent
REASONS FOR JUDGMENT
On 23 October, 2015 the respondent to this application, Owen Johnston, caused a bankruptcy notice to be served upon the applicants, Kenneth Johnston and Norman Johnston. By this application the applicants seek that the bankruptcy notice be set aside. They also seek an extension of the time within which they might comply with the bankruptcy notice if it is not set aside.
By the bankruptcy notice, the respondent claims that the applicants owe him a sum of $31,565.80 pursuant to an order for costs issued by the Registrar of the Supreme Court of Queensland at Townsville on 14 July, 2015. That order arose from an order that the respondents’ costs of an interlocutory hearing before North J in the Supreme Court of Queensland at Townsville on 17 September, 2014 be assessed and paid by the applicants. I will say a little more about those proceedings later in these reasons.
The applicants apply to have the bankruptcy notice set aside on two grounds. First, they claim that they have a counterclaim, set off or cross-demand against the respondent which they claim they could not have set up in the proceedings in which the order attached to the bankruptcy notice was made. Second, they claim that the issue of the bankruptcy notice is an abuse of process.
Background
This is yet another instalment in the litigation that has been raging between these parties since the passing of the parties’ mother, Harriot Cecilia Johnston (deceased) on 1 February, 1998. The parties to these proceedings are all beneficiaries under the will of the deceased that has now been proved in solemn form. The respondent was initially appointed as a co-executor (along with an accountant) of the Deceased’s estate by her will. The applicants are presently the Administrators and Personal Representatives of the personal Estate of the Deceased.
The material before me demonstrates that the following proceedings have been, or are on foot between the parties in the Supreme Court of Queensland:
a)proceedings 88/1998 (Townsville Registry);
b)caveat proceedings 230/1998 (Townsville Registry);
c)proceedings 740/1998 (Townsville Registry);
d)proceedings 914/1998 (Townsville Registry);
e)proceedings CLS135/2000 (Cairns Registry);
f)proceedings SC71/2007 (Cairns Registry);
g)proceedings 550/2010 (Townsville Registry);
h)proceeding 725/2013 (Townsville Registry).
Subsequently, four of those applications (Cairns 88/1998, Townsville 230/1998, Townsville 740/1998 and Townsville 914/1998) were amalgamated with Cairns 135/2000 by an order of Dutney J made on 29 May, 2006. Later, on 14 July, 2011 action Townsville 550/2010 was ordered by Cullinane J to be “placed on the Probate file in the Will of Harriet Cecilia Johnston, Deceased” and, as best as I can tell, amalgamated as application Townsville 725/2013.
In some reasons for judgment delivered on 6 March, 2003 Jones J summarised the history of the litigation between Owen Johnston (described in the extract below as one of the plaintiffs and who was, together with Francis Bruce Matthew, one of the two executors of the Estate) and Kenneth Johnston (described as the defendant) to that point:
[1] The plaintiffs in this action are the Executors under the will of Mrs Harriet Cecilia Johnston who died on 1 February 1998. One of the plaintiffs, Mr Owen Johnston, is a son of the testatrix and the major beneficiary under her will which was executed on 4 September 1992. The other plaintiff is an accountant.
[2] The defendant is also a son of the testatrix and a residuary beneficiary under the will. He contends, however, that this will and also other wills dated, respectively, 5 September, 1991 and 31 August 1992 are invalid.
[3] The testatrix died on 1 February 1998. She was survived by five children who, other than the first named plaintiff and the defendant, are Norman Johnson, Beverley Rankin and Helen Roots. For convenience I shall refer to members of the family by given names only. Not only was Owen the major beneficiary under the will, he also benefited from gifts made during the testatrix’s lifetime.
[4] The executors seek to propound the will of 4 September 1992. The defendant asserts that the will is not valid on the grounds that, at the time of its execution, the plaintiff was of unsound mind and lacking testamentary capacity; that the document did not express her true wishes and, alternatively, that it was executed whilst the testatrix was under undue influence of the plaintiff, Owen Johnston. The same allegations are made in respect of the earlier wills referred to above. By counterclaim the defendant seeks to propound a will executed on 9 January 1991.
The issue of which will of the Deceased should be admitted to probate was settled by an order of Dutney J made on 29 May, 2006 following a six day trial of matter no. CLS 135/2000 and the applications otherwise consolidated with it. His Honour ordered that a will made by the Deceased on 5 September, 1991 be admitted to probate in solemn form. His Honour also ordered that the costs of all of the parties be assessed on an indemnity basis and paid out of the Estate of Harriet Cecilia Johnston as a priority to all other claims.
By the will proved in solemn form, the respondent inherited the whole of his mother’s share and interest in the capital and assets of a partnership business carried on between she, her husband Eric, the respondent and his wife under the name Ithaca Farming Company. He was also to receive a transfer of certain land specified in the will, if the deceased maintained an interest in it at the time of her death, on the condition that the respondent paid to the executors of the Estate $100,000 to form part of the residuary of the Estate.
The residuary of her Estate was bequeathed to the deceased’s other four children as tenants in common in equal shares.
On 23 November, 2007 orders were made in application SC71/07 removing the respondent as an executor of the Estate. Dutney J removed the respondent because “however the matter is looked at, it appears that Mr Owen Johnston has a conflict of interest in remaining as a trustee, his position being that he should not pay the debt [claimed to be owing by him to the Estate of $100,000] to the Estate but he should simply apply it to his costs of the trial [to prove the will in solemn form]”. Plainly, the respondent’s attempt to set-off the amount he owed the Estate against the costs order in his favour to be paid from the Estate was inapproporiate.
On 18 October, 2010 Cullinane J made orders in action no.550/2010 that:
a)Beverly Rankin be removed as Executor of the Deceased’s estate;
b)That the applicants before me be appointed as Administrators and Personal Representatives of the “personal Estate of the Late Harriet Cecilia Johnston, and be given, in relation to all such Estate from the death of the deceased, all the powers hitherto exercisable as Administrators under the Succession Act (Qld) 1981 and the Trusts Act (Qld) 1973”;
c)amended an earlier order made by Cullinane J on 14 July, 2011 as follows: “The grant of probate for the Will of the Late Harriet Cecilia Johnston dated 5 September, 1991, ordered by the Honourable Justice Dutney on 29 May 2006 be delivered up to the Registrar of the Cairns Supreme Court for these Orders to take effect in the administration of the Will of the deceased, subject to such directions as the Registrar deems fit, and that any requirement upon the Applicants to deliver up the sealed copy of that Will, last in the possession of the Third Respondent, is dispensed with.”; and
d)“The costs of the Applicants and the Third Respondent [Owen Johnston] of this Application be paid from the Estate, to be assessed on an Indemnity basis”.
The applicants argue that the administration of the Estate cannot be finalised until the assets of the Estate are properly identified and are delivered up to them as the administrators of the Estate. They allege that the respondent has possession of much of the Deceased’s estate including personalty and will not disgorge it to them.
There is a dispute about what falls into the Estate. The only evidence about what assets might comprise the Deceased’s estate appears from three letters written at various times by the solicitors, from time to time, for the respondent.
The first letter was written on 2 August, 2006. In it, the respondent suggested that the Estate consisted of:
a)a bank account with Westpac of approximately $25,000;
b)a half interest of the Deceased in the Partnership “Ithaca Farming Company”;
c)“maybe some shares in a fertilizer company”;
d)a debt owing by Owen Johnston and his wife to the Estate relative to the purchase of land “back in 1995 of $100,000.00”; and
e)perhaps a “Trustee bank account by which the Deceased held a small amount of money in trust for one or more of her grandchildren”.
As to the partnership, the letter pointed out that it had been valued for the purposes of the respondent’s matrimonial proceedings with his wife at $28,828.00. The letter also pointed out that the Estate had liabilities.
On 3 November, 2011 the respondent’s solicitors wrote to the solicitors then acting for the applicants and again set out the respondent’s position concerning the assets of the Deceased’s estate. The position was different to the earlier letter. The letter appears to be a response to a letter from the applicant’s solicitors, but that letter is not in evidence. The absence of that makes some of the response unintelligible. After setting out details of a number of documents belonging to the Estate that were enclosed with the letter, it continues:
2. I have no knowledge of this and will have to seek further instructions;
3. I have no knowledge of this aspect but I note that such assets were devised to my client pursuant to the Will which you clients are currently administering;
4. The $100,000.00 referred to is not owing. The property referred to in Clause 3(ii) of the Will dated the 05/09/91 was sold pursuant to a Contract of Sale entered into between the deceased and my clients subsequent to the making of that Will.
The third letter was written by the same solicitors that wrote the earlier two letters on behalf of the respondent. It is dated 15 July, 2014. They again set out a list of assets that the respondent claimed comprised the Estate. His case changed. Whilst the list was generally the same as that in the first letter to which I have referred above, there was a significant change in respect of the $100,000 said to be owing to the Estate. Instead of that amount being owned by Owen Johnson, the assertion made in this letter by the solicitors for the respondent was that the debt was owned by a company associated with Mr Johnson. Moreover it was asserted that recovery of the debt was statute barred.
To advance the administration of the Estate, the applicants commenced Townsville Supreme Court proceeding 725/2013. According to the latest version of the statement of claim in those proceedings filed on 16 December, 2015, the applicants claim:
44. The First and Second Plaintiffs seek the following relief under their duty to collect and get in the real and personal Estate of the deceased. so as to distribute the legacy provided under Clause 3(b) of the "valid Will" equally amongst Kenneth Johnston, Norman Johnston, Beverley Rankin and Helen Roots, and particularly;
i) That the Defendant be ordered to deliver up to the First and Second Plaintiffs. all the property forming the assets of the Estate of the late Harriet Cecilia Johnston, that is in his direct or indirect possession, custody or control, including, but not limited to, the property derived by the Defendant and described in Paragraph 37 of this Further Amended Statement of Claim and including the Defendants:
a) Dealings with the Estate of Eric Merton Johnston, between the grant of Power of Attorney to the Defendant 29 September 1990 and the Orders of His Honour Justice Kniepp making a Protection Order over the Estate of Eric Merton Johnston 22 May 1992;
b) Dealings with the Estate of Eric Merton Johnston between the making of that Protection Order over the Estate of Eric Merton Johnston 22 May 1992 and his death 30 September 1994;
c) Dealings with the Estate of Harriet Cecilia Johnston between her grant of Power of Attorney to the Respondent 31August1992 to the time of her death 1February1998;
d) Dealings with the Estate of Harriet Cecilia Johnston as Co-Executor of the Estate from her death 1 February 1998 to the time of his removal as a Co-Executor 23 November 2007 and the Defendant's removal; and
e) Dealings with the Estate of Harriet Cecilia Johnston since the Court removed him as an Executor 23 November 2007 and the present time;
deemed to have arisen as part of the subject Estate under section 45 of the Succession Act (Qld) 1981. and pursuant to Sections 6 and 52 (2) of the Succession Act (Qld) 1981, and Sections 8 and 9 of the Trusts Act.
ii) That the Defendant be ordered to make Account in affidavit form, of all present assets of the Estate that came into or remain in his direct or indirect possession. custody or control, including an account of the disposition of any of those assets.
iii) That pursuant to UCPR rule 643 (2) the Respondent be called upon to show cause why he should not comply with the Orders set out above, under UCPR Rule 643 (l)(c) and (3).
…
iv) An order that the costs of the proceeding be paid by the Respondent; and
v) Such further order, directions or other relief as the Court deems appropriate.
It is tolerably clear from the further amended statement of claim that the applicants are claiming against the respondent not just in respect of property of which they say he stands possessed and which belongs to the Estate, but they are also claiming in respect of profit that he has derived through his use of those assets, including assets that have come into the Deceased’s estate from the Estate of the respondent’s father when he died. The allegations are complex and not at all easy to follow. I will not attempt to further summarise them.
In written submissions delivered in support of the present application, counsel for the applicants summarises the claims of the applicants in the Townsville proceedings as:
The Applicant's entitlement under the legacy provided by clause 3 b) of the Will, is to one half of the residual Estate, and is, as pleaded in Townsville matter 725/13, made up of;
a)$100,000 owing to the Estate on 1 February 1998, plus 15 years interest from 1 February 1999;
b)$25,145 in the name of the Deceased, in Westpac Account 900177 on 30 April 1997 which was opened in 1990, plus 16 years interest from 1 February 1999;
c)Account of profits derived from LOT 1, REGISTERED PLAN 734725, County of NARES, Parish of MALANDA, and LOT 71 , CROWN PLAN NR379, County of NARES, Parish of MALANDA;
d)Half the value of the partnership of Ithica Farming Company;
e)$50,000 obtained by Owen Johnston on redemption of 27,732 shares held in ATCDA Ltd by the father and mother, which was disbursed through Ithica Farming Company;
f)3000 Shares in ATCDA Ltd held in Ithica Farming Company, cost value of $111,957 at 30 June 2001;
g)property and/or monies taken, without claim of right, for the benefit of the Owen Johnston, and contained in the Respondent's;
i) property in Davies Road Land Trust;
ii) property in Malanda Certified Concrete; and
iii) property generally.
According to counsel’s submissions, there is also a claim made by the applicants in the Cairns proceedings (CLS 135/00) against the respondent, described in his written submissions as follows:
The property of the Estate constituting the Counter-claim, Set off or Cross demand that is claimed from the Respondent in Cairns Supreme Court matter CLS135/00, is directed at his dealings with, and possession of the property of the deceased, and also arises from him holding;
a) a Power of Attorney over her financial affairs from 31 August 1992 to the time of her death, 1February1998;
b) the role of Executor from 1 February 1998 to 23 November 2007; and
c) a position as trustee, as the property remains constructively in his possession or control.
Counterclaim, set-off or cross-demand
A debtor will commit an act of bankruptcy if a creditor who has obtained a final judgment or order against the debtor, the execution of which has not been stayed, serves the debtor with a bankruptcy notice and, the debtor does not 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, 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: s.40(1)(g) of the Bankruptcy Act 1966 (Cth).
The applicants’ argument appears to be that as beneficiaries of the Deceased’s estate they are entitled one quarter of the residual Estate each (a total of one half between them) and if they are successful in the Townsville proceedings in the sense that the respondent is ordered to deliver up property or perhaps pay money to the Estate, they will obtain possession of the assets of the Estate which will be duly administered and they will subsequently receive their legacy. From that, they will be able to discharge this debt.
In my view, the applicants have mischaracterised their liability in the sense that whilst they are personally liable for the costs order, they do not have to rely upon the receipt of their legacies under the Deceased’s will before they can meet that liability. The Townsville Supreme Court proceedings were instituted by the applicants in their capacity as administrations and personal representatives of the Deceased Estate. Whilst they incurred personal liability for costs orders made against them in those proceedings, they nonetheless have a right of indemnity against the assets of the Estate because the action is brought by them for the benefit of the Estate. Their right of indemnity takes priority over the payment of any legacy of the distribution of any other property in accordance with the terms of the deceased will.
Exercising their duties as administrators and personal representatives of the Deceased’s estate the applicants have a demand against the respondent which, if realised in the way the applicants hope, might mean that they will receive some funds from which they might pay the respondent’s costs order. The issue raised in this application is twofold, namely:
a)whether the claim set up by the applicants in the Townsville Supreme Court proceedings is 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, 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”; and if so
b)whether I can be satisfied that the applicants have a genuine or prima facie case about that.
As to the first matter, it is necessary to understand that the order upon which the bankruptcy notice is based is an interlocutory costs order. It does not meet the description of a final order as that term is generally understood and as discussed in Licul and Others v Corney (1994) 180 CLR 213.
However, for the purposes of s.40(1)(g) of the Bankruptcy Act, s.40(3)(b) of the Act deems a judgment or order to be a final judgment or order for the purposes of s.40(1)(g) of the Act if it is enforceable as, or in the same manner as, a final judgment or order obtained in an action. The proceeding in which the judgment or order was obtained is deemed to be the action in which it was obtained.
The respondent’s costs order is enforceable as if it were a final order. The purport of rule 682(2) of the Uniform Civil Procedure Rules 1999 (Qld) seems to be that an order for costs of an application in a proceeding is payable in the usual way unless there is an order that they not be assessed until the proceeding ends. The costs order here is a costs order made on an application in a proceeding. No orders were made about those costs not being assessed forthwith.
However, the inter-relationship between s.40(1)(g) and s.40(3)(b) of the Act and interlocutory costs orders was considered by Fitzgerald J in Re: Ronald Wallace Gould, Elaine Margaret Gould and Julie Gay Gould; Ex parte: Ian Robert Skinner and Dayle Kerry Smith (1983) 72 FLR 393. In that case, the respondent debtors had issued a bankruptcy notice based upon a costs order that had been made following an unsuccessful interlocutory application for an injunction by the applicant debtors. The principal proceedings were still on foot. At….his Honour said:
It was not in dispute before me that the order for costs upon the dismissal of the application for an interlocutory injunction in Queensland Supreme Court action No. 1473 of 1982 is one which is enforceable as or in the same manner as a final judgment obtained in an action in that Court. The order for costs is therefore deemed by para 40(3) (b) of the Act to be a "final judgment so obtained", i.e. a "final judgment" obtained in an "action". However, para 40(3)(b) of the Act does not stop there; the "action" is identified. For the purposes of para 40(1)(g), the statutory fiction effected by the deeming is extended to convert the "proceedings" in which the order was in fact obtained into the "action" in which the notional "final judgment" was obtained. In my opinion, the test in such circumstances called for by para 40(1)(g) of the Act is to ascertain not whether the cross demand could have been set up in the Supreme Court action No. 1473 of 1982, but whether it could have been set up in the deemed action, the proceeding in which the order for costs was made, i.e., the application for an interlocutory injunction in that action. The answer is clearly negative. It is, of course, obvious that there has been no final judgment in action No. 1473 of 1982 which is still on foot.
A similar conclusion was reached in Pollnow v Queensboro Pty Limited [1988] FCA 625. Gould and Pollnow were approved and applied by the Full Federal Court in Re: Murray Addair Chesson and Iris Ensley Smith [1992] FCA 429. After referring to each of those cases, the Court (Beaumont, Gummow and Cooper JJ) said:
In our view the reasoning in both these cases is in point here. In the present case, although the order for costs is by virtue of section 40(3)(b) of the Act deemed to be a final order obtained in the action in which it was obtained, the order of Master Windeyer dismissing the application for leave was itself interlocutory - see Hall v Nominal Defendant (1966) 117 CLR 423. It follows, in our view, that the claim for final relief, the subject of the respondent's cross-demand, could not have been set-up in answer to the appellant's application for a costs order made in the interlocutory application.
In other words, to adopt the language of Burchett J in Pollnow's case, the position is as follows. The relevant, "proceeding", for the purposes of section 40(1)(g), is either the application for the interlocutory order for leave or the application for a costs order in that interlocutory application. In either case the common law claim could not have been set up in answer to the creditor's application for a costs order in the interlocutory matter. That follows from the nature of the proceeding. On behalf of the appellant, reliance was placed before us upon the recent decision of O'Loughlin J in Re Willats; Ex parte Nissan Finance Corporation Limited, (1991) 31 FCR 206, but in our opinion that decision may be distinguished for present purposes. The question there was whether a debtor who failed to apply for leave to raise a cross-claim may still contend that he could not set up the cross-claim. That is a different question. In our view his Honour was correct in making the declaration he made.
The respondent argues that the applicants’ claim in the Townsville Supreme Court proceedings is not a counterclaim, set-off or cross-demand that could not have been set up in the proceedings in which the order for costs was obtained. He argues:
In fact it is the opposite. The Supreme Court Claim is the total Claim of the Applicants and it has been set up in the Supreme Court and the Order for Costs on which the Bankruptcy Notice is based is an Order for Costs against the Applicant in those Supreme Court proceedings pursuant to a successful Application by the Respondent to strike out the substantive Claims of the Applicants;
But as will be apparent from the foregoing, the authorities are against the respondent’s argument. Here, the claims made by the applicants in the Townsville Supreme Court proceedings meet the description of a counterclaim, set-off or cross-demand that could not have been set up in the proceedings that led to the making of the costs order.
However, I must be satisfied that the applicants have established a prima facie case in the sense described in Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346 at 350. In that case Dixon CJ, McTiernan and Windeyer JJ said:
The standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.
The applicants rely upon affidavits sworn by their solicitor, Christopher Blishen. The respondent argues that:
At its best the Affidavit of Mr Blishen indicates that (impliedly) the Applicants have no funds to meet the debt currently and have no possibility of having funds to meet the debt (which founded the Bankruptcy Notice) unless and until:-
(i) They successfully litigate their Supreme Court Claim against the Respondent; and
(ii) That the Estate they are hoping to administer has any funds; and
(iii) That the extent of the assets and/or funds of the Estate is unknown to them; and
(iv) That the assets and/or funds of the Estate will be sufficient to pay the debts of the Estate and leave a residue which will exceed the debt;
However, I am satisfied that the applicants have established their claim to the extent necessary. Whilst the applicants concede that the value of the residual Estate is unknown and they say that it will not be known “until disclosure and account is completed by the respondent” there is some evidence about the nature and extent of the Estate that they seek to recover.
I have set out earlier the respondent’s position as to the assets of the Estate. On his own case there is a bank account which, many years ago now, had $25,000 in it. It is an account over which, by implication at least, the respondent has control. If it is an Estate asset, the applicant’s claim to it and the interest on that sum appears unanswerable (no defence to the Townsville Supreme Court proceedings has been put before me). That sum, together with the interest, might clearly exceed the amount claimed in the bankruptcy notice, given the period of time it has been in the hands of the respondent. There is also the matter of the the $100,000 said to be owed by the respondent to the Estate. That he owed that sum to the Estate at some point in time seems uncontentious having regard to his solicitor’s letter of 2 August, 2006. Whilst the respondent in subsequent correspondence suggests that the debt is not owing by he (and his former wife) and then more lately has suggested that the debt was not owing by him but by a company associated with him, the respondent has placed no material before the Court to suggest, even on a prima facie basis, that the applicants’ claim might not succeed. Whilst the respondent’s solicitor’s’ letters contend that the debt is “statute barred” there is no material before me from which I can form a concluded view about that. There will, no doubt, be questions about whether the respondent has acknowledged the debt so as to re-enliven the relevant limitation period.
In addition the respondent, by his solicitor’s correspondence, concedes that a half interest in the Ithaca Farming Company is an asset of the Estate. Whilst the respondent’s solicitors correspondence points out that there are difficulties that might attend the valuation of that partnership as at relevant dates, that is hardly a reason for depriving the Estate, and those entitled to it, to that asset. If the applicants’ allegation that the respondent has used partnership property for his own purposes is made good, then their claim arising out of the use of that property in breach of his duties as a sometime executor of the Deceased’s estate may also be a good one.
Conclusion
I am satisfied that the applicants have demonstrated that they have a counter-claim, set-off or cross-demand which they could not have raised in the proceedings in which the costs order which is attached to the bankruptcy notice issued by the respondent could have been raised. I am satisfied that the applicants have demonstrated a prima facie case in respect of their claim.
In my view, the bankruptcy notice must be set aside. Having regard to that finding, it is unnecessary to consider the applicant’s alternative basis for setting aside the bankruptcy notice, namely that it is an abuse of process.
Nothing has been brought to my attention that would suggest that costs should not follow the event.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Judge Jarrett
Date: 9 December 2016
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