Jones v Australian Olives Limited
[2009] FMCA 46
•30 January 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| JONES v AUSTRALIAN OLIVES LIMITED | [2009] FMCA 46 |
| BANKRUPTCY – Application to set aside bankruptcy notice – counterclaim set-off or cross demand – what constitutes. BANKRUPTCY – Application to set aside bankruptcy notice – sufficiency of evidence. |
| Bankruptcy Act 1966, s.40(1)(g) |
| Shepherd v Blueberry Farms [2001] FMCA 2 Bhagat v Global Custodians Ltd [2002] FCAFC 223 Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49 |
| Applicant: | ROBERT JONES |
| Respondent: | AUSTRALIAN OLIVES LIMITED |
| File Number: | BRG 725 of 2008 |
| Judgment of: | Jarrett FM |
| Hearing date: | 19 December 2008 |
| Date of Last Submission: | 19 December 2008 |
| Delivered at: | Brisbane |
| Delivered on: | 30 January 2009 |
REPRESENTATION
| The Applicant appeared in person |
| Counsel for the Respondent: | Mr Shaw |
| Solicitors for the Respondent: | McMahon Clarke Legal |
ORDERS
That the application to set aside the bankruptcy notice is dismissed.
That the applicant pay the respondent’s costs of and incidental to the application to be taxed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 725 of 2008
| ROBERT JONES |
Applicant
And
| AUSTRALIAN OLIVES LIMITED |
Respondent
REASONS FOR JUDGMENT
On 18 September, 2008 the respondent issued a bankruptcy notice addressed to Mr Jones. The bankruptcy notice claims the sum of $16,070.13 pursuant to a judgment by default given by the Magistrates Court of Queensland at Brisbane on 4 September, 2008. Mr Jones applies to set aside the bankruptcy notice.
Mr Jones argues that he has a counterclaim, set off or cross demand within the meaning of s.40(1)(g) Bankruptcy Act 1966 equal to or exceeding the sum specified in the bankruptcy notice which he could not have set up in the action in which the judgment upon which the bankruptcy notice is founded, was obtained. Mr Jones applied to have that judgment set aside, but failed in his application.
It was not suggested that the bankruptcy notice was in any way defective. The only matter argued on the application was whether the applicant could, and had, satisfied the court that he had the requisite counterclaim, set-off or cross-demand. His arguments arise against the background of the following facts.
The respondent was the “Responsible Entity” of six agricultural managed investment schemes. The stated purpose of the schemes is to plant, grow, harvest and market olives for commercial gain. Mr Jones is an investor in one of those schemes, referred to in the material as “Project No.1”. As part of his investment, Mr Jones received 300 shares in Collective Olive Groves Limited.
Collective Olive Groves Limited owns the land upon which Project No.1 is carried out. As best as I can tell from the evidence, Mr Jones shareholding entitles him to enter into a licence with Collective Olive Groves Limited to use a certain amount of the land held by that company. That part of the land to which Mr Jones is entitled by his licence is referred to as olive groves y517 and y518 in the evidence.
On 29 June, 1998 Mr Jones and the respondent entered into a written agreement whereby they agreed, amongst other things, that for an annual fee the respondent would manage Mr Jones’ business of planting, growing, harvesting and marketing olives from his olive groves, in accordance with the terms and condition of the agreement.
Between 29 July, 2002 and 28 June, 2006 the respondent invoiced Mr Jones for work it performed according to the agreement. Mr Jones did not pay all that was claimed from him and the respondent commenced the Magistrates Court proceedings against him to recover the amount claimed to be outstanding. After taking into account certain payments and credits the amount claimed to be owing to the respondent in the Magistrates Court proceedings was $12,417.44. The respondent also claimed interest and costs.
Prior to 28 April 2008, Mr Jones was represented by McKean Park Lawyers. They filed, on his behalf, a Conditional Notice of Intention to Defend. The relevant rules of court pursuant to which it was filed required that within a certain time after filing, an application must be brought seeking dismissal of the proceedings on the grounds set out in the Conditional Notice of Intention to Defend (Uniform Civil Procedure Rules 1989, rule 16). No such application envisaged by UCPR 16 was filed by Mr Jones, and so his Conditional Notice of Intention to Defend became unconditional.
A defence and counter claim dated 10 May, 2007 was sent by McKean Park Lawyers to the respondent’s lawyers. It was never filed. Negotiations ensued between the solicitors for both parties until about 19 June, 2007. No agreement was reached to settle the dispute. There was a period of inaction on the part of the respondent.
Correspondence between the solicitors recommenced by letter from the respondent’s solicitors to Mr Jones’ solicitors sent on 30 January, 2008.
On the 23 April, 2008 Mr Jones “informed” the Magistrates Court that he would be acting in his own defence. He assumed (wrongly) that the Defence that had passed between the solicitors had been filed.
The respondent changed its solicitors and by letter dated 11 July, 2008 Mr Jones was informed of that change.
On 24 July, 2008 the respondent’s solicitors wrote to Mr Jones and sent that letter to him by way of e-mail. It foreshadowed an application for judgment against him if he did not file a defence to the respondent’s claim within a certain period of time. Mr Jones says, however, that he had a computer virus problem between April and 10 October, 2008 and he needed to have his computer repaired. Consequently, he did not receive the e-mail or the notice that it gave.
From 3 September, 2008 to 5 October, 2008 Mr Jones was overseas. Mr Jones says that he received no further communication from the respondent’s solicitors until after the judgment by default was given against him on 4 September, 2008. He became aware of the judgment against him upon his return from overseas.
Mr Jones contends that on 6 November, 2008 the respondent was replaced as the “Responsible Entity” for Project No.1 by Huntley Management Limited. There is, apparently, a dispute about that between the respondent and Huntley Management Limited.
Collective Olive Groves Limited has been placed under external administration. According to the respondent’s evidence, the directors of Collective Olive Groves Limited formed the opinion that the company did not have the capacity to pay its debts as and when they fell due and in particular was unable to pay a debt owed to the respondent. That debt is said to arise from a water supply agreement under which the respondent alleges an entitlement to force a sale to and purchase by Collective Olive Groves Limited of certain water pumping and reticulation equipment. The purchase price is the debt upon which the decision to call in the administrators was founded.
In Shepherd v Blueberry Farms [2001] FMCA 2 Driver FM summarised the obligation upon an applicant for an order to set aside a bankruptcy notice who sought to establish that he or she had counterclaim, set off or cross demand within the terms of s.40(1)(g) of the Bankruptcy Act in the following way:
47. As I have already noted the applicant claims that he has a counterclaim, set off or cross demand within the terms of s.40(1)(g) of the Bankruptcy Act. The relevant legal principles are usefully set out in the 5th Edition of McDonald, Henry & Meek; Australian Bankruptcy Law and Practice, Law Book Co, at [40.1.340-350]. For convenience, I incorporate extracts from that text below at paragraphs 47-50. A debtor upon whom abankruptcy notice has been served must offer evidence that he or she has such a counterclaim, set off or cross demand. The mere production of a statement of claim in an action for which he or she alleges facts, which, if true, might give rise to such a claim, is not evidence and is insufficient unless supported by prima facie evidence of their truth. The applicant must first establish the existence of a counterclaim, set off or cross demand. Secondly he must establish that the counterclaim "could not have been set up in the actual proceedings in which the judgment or order was obtained" and, thirdly, he must establish that the counterclaim is equal to or exceeds the amount of the judgment debt.
48. As to the first issue, it has been held by the High Court that the degree to which the bankruptcy court should be satisfied that a debtor has a counterclaim, set off or cross demand of the required amount "may be expressed by saying that the debtor must show that he or she has a prima facie case, even if then and there he or she 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 or her counterclaim, set off or cross demand": Ebert v Union Trustee Co (Aust) Ltd [1960] HCA 50; (1960) 104 CLR 346 at 350. However, the demand must be more than bona fide. The Court must be satisfied that it has a reasonable probability of success. This Court is not called upon to determine the validity of the counterclaim, set off or cross demand but it must be satisfied that the claim is a substantial and bona fide claim which the debtor should fairly be permitted to litigate before the bankruptcy proceedings are allowed to continue: Re A Debtor; ex parte Bolam (1909) 9 SR (NSW) 580. The state of satisfaction required 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.
To facilitate the proper consideration and disposition of an application such as this, rule 3.02(2) of the Federal Magistrates Court (Bankruptcy) Rules 2006 provides:
3.02(2) If the application is based on the ground that the debtor has a counter-claim, set-off or cross demand mentioned in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:
(a)the full details of the counter-claim, set-off or cross demand; and
(b)the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c)why the counter-claim, set-off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
In Bhagat v Global Custodians Ltd [2002] FCAFC 223 the Full Court of the Federal Court of Australia pointed out (at [53]):
… that the mere production of claim in an action that pleads facts which, if proved, would support a claim, has long been held to be insufficient: “[a] statement of claim is no evidence of anything”: In re Foster, Ex parte Basan (1885) 2 Morr 29 at 33 per Brett MR: see also Re Cox (supra) at 101 and Re Verma; Ex parte Deputy Commissioner of Taxation (1985) 4 FCR 181 at 187. It is not even sufficient for a debtor to file an affidavit which merely propounds a claim and states how the debtor proposes to establish it: Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350. There is an obligation on the debtor to adduce evidence that provides reasonable grounds for the institution of proceedings Vogwell v Vogwell (supra) at 85 per Lathan CJ. The task that Mr Bhagat faced was an onerous task. He has raised serious allegations but has not placed before the Court the material (if indeed such material exists) that would justify a Bankruptcy Court from interfering with the judgment that founded the Bankruptcy Notice.
Mr Jones raises a number of complaints about the respondent both in terms of the representations it made to him as a potential investor in Project No.1, and also in respect of its performance of the management duties cast upon it pursuant to its agreement with him. In summary he says:
a)There are issues with the accounting procedures of the respondent that concern him. The amount claimed from him in the Magistrates Court proceeding is incorrect;
b)There has been no disclosure by the respondent of the way in which it has disbursed the annual fees to which it is entitled pursuant to the management agreement. Mr Jones calculates that having regard to all projects managed by the respondent, it must receive income in the order of $5,000,000 per annum;
c)No accounts have been made available to him in respect of the payment and costs of processing olive by S.A. Olives of Inglewood, nor the “investment in Viva Olives”;
d)He was not presented with an opportunity to invest in S.A. Olives of Inglewood, nor in Viva Olives;
e)The annual statements of Collective Olive Groves Limited do not disclose payments to the directors of that company of $10,000 each approved at the 2001 Annual General Meeting of that company. The directors of Collective Olive Groves Limited are said to be the same people as are directors of the respondent;
f)The financial projections set out in the Prospectus (presumably the prospectus relied upon by Mr Jones to make his investment) were not only erroneous, but were misleading and deceptive because cash outlays to the date that returns on investment started were accounted wrongly and there was no discounting in the relevant projections to allow for inflation or the “COL Index”,
g)He was unable to “exit” his investment and sell his olive groves, either using the respondent’s assistance or on his own account;
h)In some years there has been no harvest from the olive groves and there have been no dividends paid to grove holders. Nonetheless, the respondent has not discounted its management fees, whereas the incoming manager Huntley Management Limited, has discounted its fees by 40% “for Projects 4 – 6”;
i)There have been three changes in the directors of the respondent or Collective Olive Groves Limited since the inception of “the projects”. No reason was apparently given for their appointment or resignation. Mr Jones says “This was at a time when losses to Members were increasing…”;
j)The CEO for the respondent claimed in connection with the 2004 Harvest: “So far your investment has delivered on all of these essential elements…”. These “elements” include “a future recurring annual income stream”. Mr Jones regards such a statement as “errant nonsense”;
k)He has never been informed of the availability of the Compliance Plan for the Prospectus. He understands that the Plan should highlight a protocol which ensures or attempts to ensure that the Prospectus forecasts will be met;
l)The respondent denied him access to the Members’ Register for Project No.1;
m)The projections for average fruit yields in year 10 (2008) for the Project of 40kg per tree are misleading and deceptive because they were based upon data from tress in the Mildura area. Mr Jones’ own research reveals that a more realistic estimate is 15kg of fruit per tree at 5 years relying upon “Burr, an authority in the Australian olive industry” which is also “on a par” with the “Henggeler estimate”;
n)Water for the olive groves is supplied via a water licence owned by the respondent and/or Collective Olive Groves Limited. Mr Jones says that the respondent has been irresponsible in relation to water management issues, and in particular was negligent when it enlarged the diameter of the lagoon from which the irrigation water is drawn, rather than deepening it. He further says that the respondent will cause him loss and damage because Collective Olive Groves Limited has been placed in administration by its directors and the current farm managers are being denied access to irrigation water.
The draft defence and counterclaim promulgated by Mr Jones in 2007 is not in evidence before me.
It is difficult to discern any counterclaim or cross-demand or set-off that Mr Jones has against the respondent. I was not taken to any contractual term said to have been breached by the respondent by reason of any of the above complaints and which would sound in damages for Mr Jones. In so far as the complaints about the projections in the Prospectus is concerned, there is no evidence, even of a prima facie nature, that the circumstances of the making of those projections would give rise to liability to Mr Jones. That projections may not have come to be realised does not mean that the making of them was misleading, deceptive or fraudulent: see for example Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49.
Mr Jones says that insofar as Projects 4, 5 and 6 are concerned there are class action proceedings by the investors in those projects against the respondent concerning its conduct in relation to those projects. Even if that was so, it does not assist in this matter because, Mr Jones does not purport to be a member of that class action. To the extent that it is suggested that the class action might be widened to include Project No.1, there is no evidence about the basis of the claims made in the proceedings – not even a pleading from that action.
There is no attempt at any quantification of the counterclaim, set-off or cross-demand that Mr Jones wishes to pursue. Indeed, on his own evidence some money is due to the respondent. He has paid $5,000 of the amount claimed. He does not say how much more, if any is conceded as owing.
Conclusion
I am not satisfied that Mr Jones has demonstrated to the requisite standard that he has counterclaim, set-off or cross-demand against the respondent.
Even if I am wrong about that conclusion, the claims which Mr Jones wishes to pursue were, as a matter of law, a counterclaim, set-off or cross-demand that he could have set up in the original proceedings. That is evidenced by the fact that had drawn and delivered, apparently, an unfiled defence and counterclaim.
Setting aside the bankruptcy notice is not warranted. The application is dismissed with costs.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Jarrett FM
Associate: S. Haysom
Date: 30 January 2009
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