Koutoulas v Venuto - [2005] FMCA 1112

FEDERAL MAGISTRATES COURT OF AUSTRALIA

KOUTOULAS v VENUTO & ORS

[2005] FMCA 1112

BANKRUPTY – Contested bankruptcy notice – whether the debtor had a cross-claim, set off or cross demand that could not have been raised in the proceedings supporting the bankruptcy notice considered – considerations personal to the debtor not relevant.

Bankruptcy Act 1966 (Cth), ss.40, 41
Local Courts (Civil Claims) Act 1970 (NSW)

Hassin v ANZ Banking Group [2002] FMCA 97
Nath v Clipway Pty Ltd [1999] FCA 149
Nath v Clipway Pty Ltd [1999] FCA 625
Re Ling; ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129

Applicant:

KONSTANTINOS KOUTOULAS

First Respondent:

Second Respondent:

Third Respondent:

DOMERIC VENUTO

GEORGE SAMARAS

SALVATORE CRINO

File Number:

SYG583 of 2005

Judgment of:

Driver FM

Hearing date:

17 May 2005

Delivered at:

Sydney

Delivered on:

17 May 2005

REPRESENTATION

Solicitors for the Applicant:

Mr J Capsanis
JP Capsanis & Co

Counsel for the Respondent:

Mr P Barham

Solicitors for the Respondent:

D La Rosa, Izzo & Co

ORDERS

The application is dismissed.
The applicant is to pay the respondent’s costs and disbursements of and incidental to the application, including any reserved costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG583 of 2005

KONSTANTINOS KOUTOULAS

Applicant

And

DOMENIC VENUTO

First Respondent

GEORGE SAMARAS

Second Respondent

SAVLATORE CRINO

Third Respondent

REASONS FOR JUDGMENT

I have before me an application by Konstantinos Koutoulas under s.41(7) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). Mr Koutoulas challenges a bankruptcy notice served on him by the respondents upon the basis that he asserts a counter-claim, set off or cross demand of equal or greater value than the judgment debt supporting the bankruptcy notice that could not have been set up in the proceedings leading to the judgment debt.
The application filed on 8 March 2005 annexes a bankruptcy notice NN222 of 2005 which was defective in that it was not properly issued by the Official Receiver. However, I have before me an affidavit by Gregory W Hughes made on 5 April 2005 annexing a later version of bankruptcy notice NN222 of 2005 that was properly issued. It appears from Mr Hughes' affidavit that the notice was served on Mr Koutoulas on 3 April 2005. Mr Koutoulas does not dispute service, rather he relies upon ss.41(7) and 40(1)(g) of the Bankruptcy Act.
In the circumstances, the proceedings have been dealt with on the basis that they are a challenge to the bankruptcy notice annexed to Mr Hughes' affidavit. Mr Koutoulas relies upon his own affidavit made on 7 March 2005 and filed the following day. Annexed to that affidavit is a copy of a deposited plan in the Land Titles Office. Exhibited to the affidavit is a bundle of documents which apparently formed the appeal book in proceedings in the Supreme Court of New South Wales on appeal from the decision of the Local Court supporting the bankruptcy notice.
The short history is that Mr Koutoulas bid for a property sold by the respondents to these proceedings and was the successful bidder. He wrote a cheque which he subsequently stopped payment on. The respondents regarded the contract for the purchase of the land as having been repudiated by Mr Koutoulas and terminated the contract and sued for damages. They were successful in the proceedings in the Local Court, which resulted in the judgment supporting the bankruptcy notice. An appeal by Mr Koutoulas against that decision in the New South Wales Supreme Court was unsuccessful.
In his affidavit, Mr Koutoulas seeks to raise an additional issue, that is that the plan forming annexure A to his affidavit was not registered with the Land Titles Office until 22 March 2002. Mr Koutoulas deposes that until the outcome of the proceedings in the Local Court was known, he did not know that he was legally bound by the contract for the sale of the land and that since then, having become aware of the late filing of the deposited plan, he has come to understand that the respondents would not have been able to perform their obligations under the contract of sale. This forms the basis of an asserted set off, cross-claim or cross demand which Mr Koutoulas asserts he was not able to set up in the original proceedings.
Mr Koutoulas was cross-examined on his affidavit. It is clear from that cross-examination that Mr Koutoulas is a Greek gentleman with some deafness and with no legal training whatsoever. I accept on the basis of what he told me that he did not have a good understanding of the proceedings in which he was a party in the Local Court or, for that matter, the proceedings which followed in the Supreme Court. It appears that for a substantial period, at least in the Local Court proceedings, Mr Koutoulas was self-represented.
Mr Koutoulas told me that he did not understand the issue relating to the deposited plan until well after the judgment in the Local Court. Indeed, it seems that the issue did not arise until well after the decision on appeal by the Supreme Court. Mr Koutoulas conceded under cross‑examination that he had himself not conducted any search of the land titles records prior to the decision of the Local Court.
In submissions, Mr Capsanis, for Mr Koutoulas, put to me that the claim now available to Mr Koutoulas is of equal value to the judgment debt because it would form a complete answer to the damages claim based upon the breach of contract. He also submits that the necessary issue of mutuality exists between the parties in relation to the claim now available to Mr Koutoulas. Mr Capsanis submits that it was not open to Mr Koutoulas to agitate a claim based upon the assertion that the respondents were unable to perform their obligations under the contract until the issue of whether there was a contract had been resolved by the Local Court.
There are a number of answers to that proposition. These are, in large part, dealt with in written submissions prepared on behalf of the respondents by Mr Barham and augmented in his oral submissions.

I accept from those submissions that, as a matter of law, a claim based upon an asserted inability to perform the contract could have been raised in the Local Court under the Local Courts (Civil Claims) Act1970 (NSW) and the rules of court made in relation to such proceedings.
Mr Barham submits that there is no substance to the claim now asserted by Mr Koutoulas. He submits that such a claim could not now be pursued as an estoppel would arise pursuant to the Anshun and Rippon principles. There is some force in that submission, given the factual findings made by the Local Court in its decision, in particular those appearing at point 50 on page 132 to the exhibits to Mr Koutoulas' affidavit. The magistrate accepted the evidence of Mr Venuto that the auctioneer at the sale explained the extent of the property subject of the sale prior to the auction commencing. The magistrate also accepted that the property was marked so that prospective purchasers could see where the boundaries were and the contract adequately described the property for sale. It appears that those factual findings were not challenged in the appeal.
Apart from any issue of estoppel, the factual findings render it highly debatable whether Mr Koutoulas, in a cross-claim, set off or cross demand, could have succeeded in satisfying a court that the respondents were not in a position to perform their contractual obligations. While it is a fact that the deposited plan was not registered until 22 March 2002, it does not follow that it could not have been.
Apart from anything else, however, the challenge to the bankruptcy notice by Mr Koutoulas cannot succeed because he has not satisfied me that the claim he now asserts could not have been set up in the original proceedings. This is a matter upon which useful guidance is provided by the learned authors of McDonald, Henry and Meeks Australian Bankruptcy Law and Practice Service on pages 2,625 and 2,626. As the learned authors note, the question of whether the cross demand could not have been set up in the proceeding in which the judgment was obtained for the purposes of s.40(1)(g) of the Bankruptcy Act is a question to be answered by reference to legal considerations Re: Ling; ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129 at 132 and 137 per Hill J, approved in Nath v Clipway Pty Ltd [1999] FCA 625 per Spender, Kiefel and Hely JJ. The learned authors also note the following observations by his Honour, Drummond J at first instance in that case:
…considerations personal to a debtor which prevent him, as a matter of practical reality, from pursuing a cross-claim in proceedings in which judgment is given on which a bankruptcy notice is founded, do not constitute circumstances which entitle the debtor to characterise such a cross-claim as one which he could not have set up in the action or proceeding in which the judgment was obtained.[1]
[1] Nath v Clipway Pty Ltd [1999] FCA 149
That decision has been followed repeatedly since, including by Raphael FM in Hassin v ANZ Banking Group [2002] FMCA 97 at [22]. The learned authors conclude that the bankruptcy court will decline to set aside a bankruptcy notice on this ground where the debtor has only been denied the opportunity of contesting the creditor's claim and making a claim or set off against the creditor in the relevant proceedings due to the debtor's own failure to take steps to avail himself or herself of the opportunity.
In this case, while one may have sympathy to Mr Koutoulas in dealing with legal proceedings that he had little understanding of and with little legal assistance, he was under no legal impediment. His defence and cross-claim that were filed in the Local Court proceedings establish that he was not, as a matter of law, limiting himself to obtaining a determination on the question of whether there was or was not a contract in existence. His defence and cross-claim raised in addition assertions that, on the basis of equity, he should not be answerable to the present respondents in damages, even if there was a contract.
There was no legal impediment to Mr Koutoulas raising the issue of the absence of a deposited plan. He may have had a lack of knowledge. He may have had a lack of funds. He may have had a concern about the potential costs implications of a broadening of the legal proceedings. None of those are considerations supporting a contention that the issue now sought to be agitated could not have been set up in the Local Court proceedings. On that basis, the application under ss.41(7) and 40(1)(g) of the Bankruptcy Act fails.
I dismiss the application.
On the question of costs, the application having been dismissed, Mr Capsanis concedes that costs follow the event. Mr Barham seeks an order for costs on behalf of the respondents. I will order that the applicant pay the respondents’ costs and disbursements of and incidental to the application, including any reserved costs.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 9 August 2005