Maric, N. v Seitanidis, S

[1992] FCA 264

JUDGMENT No. &.+. /.?.22

IN THE FEDERAL COURT OF AUSTRALIA	)
1
VICTORIA REGISTRY	) No VN 2442 of 1991
)
BANKRUPTCY DIVISION	1
NEIL EIARIC (Judgment Debtor)

EX PARTE:  SOFIA SEITANIDIS
(Judgment Creditor)

Coram:	Ryan J
Date:	11 May 1992

Place: Melbourne

MINUTES OF ORDERS

THE COURT ORDERS THAT:

1.    It is declared that the Court is

the debtor has a counter-claim, set-of f or cross-

demand as is referred to in s.40(1) (g) of the

Bankru~tcv Act.

in Order 124 of the Bankruptcy Rules.

2.  The Judgment Debtor pay the Judgment Creditor the costs of this application, including any reserved costs, to be taxed.

NOTE :  Settlement and entry of orders is dealt with

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA REGISTRY	)
1
EANKRUPTCY DIVISION	)

NEIL MARIC

(Judgment Debtor)

EX PARTE:  SOFIA SEITANIDIS

(Judgment Creditor)

Coram:  Ryan J

Date : 11 May 1992

Place : Melbourne

REASONS FOR JUDGMENT

Rvan J: By a bankruptcy notice dated 16 August 1991 the judgment creditor has claimed payment of the sum of $71,991.00 as due to her pursuant to a final order obtained in the County Court at Melbourne on 10 April 1991 in proceedings numbered MC 900556.

In an affidavit sworn on 11 September 1991 the judgment debtor

has deposed: 

"5.	The petitioning credrtor and I entered into an agreement on or about February 1987 the terms of whrch were in return for my services in establrshing and/or contributing in conducting the business, I would be entrtled to a half share of the business or $100,000 on the 1st July 1991.
6.	The busrness was called Just Nails.
7.	I conducted product rnvestrgation, market research, and set in place contacts in Hong Kong and Taiwan for the production of the products I chose.
8.	I further contributed to the business by way of direct marling
and advertising campargns, marketrng reports, copywriting and overseas trips negotrating with suppliers.
9,	I set up alternative premises for the business at 428 St Kilda Road, Melbourne."

The history of the proceedings in the County Court has been recounted by the judgment creditor in an affidavit sworn 14 October 1991 and commenced with the issue of a writ out of that Court on 16 February 1990. The statement of claim annexed to that writ claimed $22,450.00 as money lent, and

$37,423.63 as money paid by the judgment creditor at the

direction of the debtor. Interest was claimed on both sums. The judgment creditor then issued a summons for final judgment. In opposition to that summons the judgment debtor swore an affidavit on 20 June 1990 in which he deposed, amongst other things:

"...the Plaintiff also lent money to Small Business Media Pty Ltd (hereinafter referred to as "S.B.M."), a company of which I have been at all times material and am a director and the proprietor, and I deny that there was any agreement that moneys lent to S.B.M. by the Plaintiff were to be considered moneys lent personally to me. I also deny that there was ever any agreement between me and the Plaintiff, or between me acting on behalf of the S.B.M. and the Plaintrff, that bank interest or charges would be pald by me or S.B.M. on moneys lent.

4. THAT at all trmes materlal the Plaintiff has been the

proprietor of a busrness known as the South Yarra N a ~ l Servrce (hereinafter referred to as "the Plaintiff's business"), which occupied premises at Shop 4, 180 Commercial Road, Prahran in the state of Victoria. Between about December of 1986 and the month of April 1989 the Plaintiff and I would pay personal debts for each other, as money became available to one or other of us; also, the Plaintiff would from time to trme pay accounts due by S.B.M. out of money avazlable to her, and I and S.B.M. would pay accounts and provide services for the Plaintiff and the Plaintiff's business. Informed records of the mutual indebtedness were kept by me, and I recollect that they did not drfferentiate clearly between personal indebtedness and business indebtedness. Those records are no longer avarlable because they were burnt in a frre whrch destroyed the busmess premises of S.B.M. at 2 Krrkdale Street, Brunswick in the State of Victoria on the 17th day of December, 1988 (which event is hereinafter referred to as "the fire").

5. THAT I recollect that at or about the end of June, 1988 accounts between the Plaintiff and the Plazntiff's business, of the one part, and myself and S.B.M. of the other part, were approximately

Up to that time the Plaintiff had paid various debts arising by me and S.B.M., and I and S.B.M. had pard for and provided art works, copy wrlting, prmting, mall distributron, photography, and marketing services for the Plaintiff's busrness, also various debts owing by the Plaintiff.

equal.

6. THAT I have perused copres of the exhibits "SSl", "SS2" and 'SS3" to the Plaintiff's Affrdavit. The copies of the exhibits "SS1" and "552" provided to me are far from clear, but I believe that the sums of money described in them amounts to $55,123.30 and $18,040.00

respectrvely.	Exhibit "SS3" shows payments in reduction of
rndebtedness to the Plaintrff, mostly made by S.B.M..	in the sum of

$26,735.00. It therefore appears that the Plaintiff is claiming a net rndebtedness by me of $46,428.30, before adding the bank charges and interest which I deny. That compares with $59,873.63 before charges and interest clarmed by the Writ herein; I am unable to reconcile the difference between the claims, and do not recognrse many of the items set out rn the sard exhibrts.

7. THAT during the month of July, 1988 the Plaintrff provided

$25,000.00 to S.B.M. for the purchase of fabric from Tarwan. There
was an arrangement that the Plaintrff was to be repard by S.B.M.
together with 20% of the profrt derrved from the sale of the fabric.
The payments in the sum of $25,000.00 to S.B.M. are listed rn exhrbrt
"SS1" to the Plaintiff's Affrdavit. The fabric was duly purchased rn
Taiwan, and it was delrvered to S.B.M.; but it was all burnt m the
fire. It is largely an account of those funds provrded to S.B.M. for
the purchase of fabrrc that at the date of the fire S.B.M. was
Indebted to the Plarntiff in the sum of approxrmately $30,000.00; and
at the date of the fire I also owed the Plaintrff a much smaller
amount of money I am unable to state precisely.

8.     THAT on the 18th day of December, 1988 the day after the fire,

the Plaintiff and I had a conversatron at the premises in Krrkdale Street, Brunswrck formerly occupred by S.B.M.. I remarked that the fabric from Talwan had all been destroyed, to which the Plaint~ff

replied that she did not care. I sard that S.B.M. would pay its indebtedness to her as and when rt could, and that I would do likewise. The Plaintiff then expressed reluctance to seek any repayment at all in the crrcumstances, but rt was eventually agreed between us that S.B.M. and I would pay our indebtedness to the Plaintrff as and when either of us was able to do so. At about the middle of the year 1989 the Plaintrff and I ceased to be on frrendly terms; and since the same trme, because of the effects of the frre,

unable to make any payments at all to the Plaintiff." S.B.M. and I have been in very poor financial circumstances, and

The debtor obtained leave to defend in the County Court and by letter dated 28 March 1991 his then solicitors made a "without prejudice" offer to settle that action. That letter made no mention of the debtor's claim to be entitled to a half-share of the "Just Nails" business or $100,000 on 1 July 1991. Nor was any such contention advanced during the trial in the County Court which occupied three days from 8 to 10 April and

concluded with the entry of judgment for $71,991 to which I
have already referred.

By her affidavit in opposition to the application to set aside the bankruptcy notice, the judgment creditor has denied entering into any agreement of the kind alleged by the debtor. Furthermore, she has exhibited to that affidavit a letter dated 19 June 1991 to her solicitors from a second solicitor for the debtor in which it is recited, amongst other things that "in regard to my client's other properties, these are both on the market for the sole purpose of paying the judgement debt to your client." There is no mention in that letter of the debtor's imminent entitlement to $100,000 from the judgment creditor. Handwritten letters sent by the debtor to the judgment creditor in June 1989 similarly acknowledge his indebtedness to her without suggesting any actual or prospective cross-liability on her part.

demonstrated that on 30 October 1991 he instituted proceedings By a further affidavit sworn 4 November 1991, the debtor has in the County Court seeking to recover from the judgment creditor $100,000 plus interest and costs pursuant to the agreement alleged by him as earlier recounted in these reasons. In the same affidavit the debtor explained his failure to rely on that agreement in the earlier County Court action and the offers to compromise that action by deposing:

"7. That in the proceedings referred to in the Seitanidis affidavit I was represented by MR STEVENSON of Counsel. I was advised that I could not rarse this claim in these proceedings as the amount was not yet due. On Counsels [sic] advice I waited for the agreed period to lapse prior to making demand on the judgement creditor.

8. That no written aareement exists between the ~udgement creditor

and myself, however the-agreement was witnessed by -a third party who
shared an offrce wrth me at 2 KIRKDALE STREET BRUNSWICK EAST.

I refer to paragraph 11 of the SEITANIDIS affidavit and say that I was prepared to settle those proceedrngs, as the JUST NAILS matter was not due and I could hold it rn abeyance. Further the judgement Creditor had represented to me that the business was not going well at the time but the potentral was there to improve."

s.40(1) of the Bankru~tcv Act 1966 it is provided that

"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 frnal 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 trme f ~ x e d by the Registrar by whom the notice was issued; or

(1.1) where the notice was served elsewhere - wrthin the t ~ m e

fixed for the purpose by the order grving leave to effect
the service,

comply wrth the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable

under the f m a l order, as the case may be, being a counter-	claim, set-off or cross demand that he could not have set up m
the action or proceeding m which the judgment or order was obtained".

It is contended on behalf of the debtor in the present case

that the claim for $100,000 for which he has now commenced an

action in the County Court against the judgment creditor could not have been set up in the action or proceeding in which the

judgment was obtained because the sum of $100,000 was not due

and payable until 1 July 1991, i.e. after that action or
proceeding had been commenced and judgment entered in it on 10
April 1991.

In my view, the counter-claim, set-off or cross demand contemplated by s.40(1) (g) must be in respect of a money demand, liquidated or unliquidated so as to be measurable as equal to, or exceeding the amount of the judgment debt. Thus, in Re Jocumsen (1929) 1 ABC 82 it was held that a counterclaim for rectification was not contemplated by the corresponding paragraph of s.52(j) of the Bankru~tcv Act 1924. That conclusion was approved in the joint judgment of Deane and Lockhart JJ in James v Abrahams (1981) 34 ALR 657 at 664.

Accordingly, it is not to the point that the debtor in the present case could have counterclaimed in the County Court proceedings for a declaration that he was entitled after 1 July 1991 to payment of $100,000 pursuant to the alleged agreement with MS Seitanidis.

Counsel for the judgment creditor contended that a	counterclaim for damages for what he called an "anticipatory
breach" of the alleged agreement between the debtor and MS Seitanidis could have been set up in the County Court proceedings. I regard it as unnecessary to rule on that contention because s.40(l)(g) requires this Court to be satisfied by the debtor that he has a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained. That confines attention to the claim asserted by the debtor in the affidavit filed as contemplated by s.41(7) and within the time limit specified in that sub-section. That claim in this case is for $100,000 alleged to be due under an agreement said to have been concluded between him and the judgment creditor in or about February 1987.
That claim could not have been set up in the County Court or elsewhere before 1 July 1991 because under the terms of the agreement alleged by the debtor, the sum of $100,000 was not payable until that date. However, that does not entail the consequence that the claim could not have been set up in the proceedings numbered MC 900556 in the County Court.
It is true that in Re Stokvis (1934) 7 ABC 53 Lukin J instanced time as a matter which could preclude a counterclaim from having been set lip in the action in which judgment was
obtained, saying at 57:

"I take a counter claim, set off, or cross demand which could not be

set up as one which, from uolnt of time, or from its nature, or from absence of empowering provisions, or from pos~tive inhibition so to do, could not be set up in the particular case in which gudgment was obtained. Here, from the point of view of time, from its nature, and from the empowerrng provisions of the Act and rules, the counter claim might have been set up if Stokvis had wished, or chosen, to do so. Mere failure to take advantage of the opportunity can hardly be said to be inability." (emphasis added).

In that case it was clear that the cause of action on which Stokvis relied had accrued well before judgment was obtained against him. See also Re Ste~henson (1929) 2 ABC 9 where the cause of action relied on as founding the counterclaim accrued some two years before judgment was entered against the debtor. On the other hand, in In Re A Debtor (No 37 of 19141 [l9141 3

KB 726 it was made clear that a counterclaim based on a course

of action which could not have been raised by the debtor when the original action was proceeding because the debt from the judgment debtor had not then been assigned to him, could be relied on to set aside a bankruptcy notice.

However, in Re A Debtor [No 619 of 19471 [l9471 LJR 1413 on the facts relied on by the debtor, it appeared, as Lord Greene

MR observed, at 1414 "that the date on which his alleged

counterclaim became enforceable, the date on which the money became payable, happened to be the very date, namely July 1, on which the judgment was signed which formed the basis of the bankruptcy notice." Having held that the master who gave judgment on a summons for final judgment had a discretion to grant leave to defend on the basis of a counterclaim which

only accrued on the date when judgment would otherwise have been entered, his Lordship continued, at 1415:

"Counsel's second point was of this nature. Looking at paragraph (g) itself he said he could satisfy the court that he had such a counterclaim the amount of whrch unquestionably exceeds the amount of the judgment debt - no point arises there - which he could not set up in the action in which the judgment was obtained. He said that does not mean the same thing as if it had sard 'which he could not have set up in the action in which the judgment was obtained'. I do not myself see how in the context here that difference in language can really assist him. What were the facts? Here was a summons for judgment returnable on July 1. The master, as I have already said, would have had complete jurisdiction in the action to take such steps as would enable the defendant to set up that counterclaim effectively in the proceedings. Whether or not the master was asked to exercise that power was a matter which depended entirely on the volition of the debtor. He took no steps whatever to ask the master to exercise

that power which he undoubtedly had. Let us assume he rs wrong, as I

have decided he is wrong, on the construction of the rule, rule 1 (a) of Order 14, he says: Assuming the master had a discretron, nevertheless the fact that he had discretion is rrrelevant, because all you have to look at is the actual de facto posltion of the proceedings in which the judgment was obtained, and the de facto and de jure positron was that judgment was obtained on July 1 and it was not possible for the defendant in law to set up a counterclaim in an action which, as we now know, was going to be concluded by judgment on that very date, July 1. I cannot read the language of paragraph (g) in so lrmited a way, and I think rt would be unfortunate if it had to be read rn that way. It seems to me what he has to do - and the burden of proof is on the debtor under the paragraph - rs to satisfy the court that he could not set up the counterclarm m the action, and that really means that he was unable to set it up. It rs perfectly true he could only set it up rf the master exercrsed rn his favour his discretionary power. But he fails to satisfy the court in my judgment that the counterclaim could not be set up, that he was unable to set rt up, because not only does he fail to show that he could not have obtained leave from the master to set it up, but he even farls to show that he ever t r ~ e d to ask the master to exercrse his discretion.

He therefore farls, in my judgment, on the true construction of this paragraph to satisfy the court that he could not set up that counterclaim. His power to set it up depended on the exercise of a discretronary power which the master undoubtedly had; but he cannot satisfy the language of the sectron to my mrnd - and it seems to me clear - either that in fact or in Law was it impossible to set this up rn the action. In my -judgment he farls to do that, because there was a means by which he could make an application which the master not only could have entertained but, in my ]udgment in all probability, indeed almost certarnly, would have entertarned in order to do justice if he was satrsfied that there was substance in the counterclaim."

Part of that passage was cited with approval by Beaumont J in

Re Franks: ex ~arte	G10 Holdinas Ltd (1990) 24 FCR 398
conclusion. There was clearly a discretionary power in the	In my view, the facts of the present case warrant a similar
County Court to adjourn the trial of the action numbered MC 900556 from 8 April until after 1 July 1991 to enable the
debtor to set up his counterclaim if a Judge of that Court had been persuaded that it had substance. Significantly, there is nothing to suggest that the debtor ever tried to obtain such an adjournment either on the hearing of the summons for final judgment or before or during the trial of the action. The nearest he comes to such a suggestion is to depose that he was advised by Counsel that he "could not raise this claim in these proceedings as the amount was not yet due". However, there is no evidence from Counsel or the solicitors then instructing him that any consideration was ever given to seeking an adjournment of the trial of the action in the County Court, as distinct from prematurely raising the alleged counterclaim as a defence during the trial which commenced on 8 April 1991. Accordingly, I am not satisfied that the debtor could not, in the sense used in S. 40 ( l) (g), have set up that counterclaim in the proceedings in the County Court.
Even if I am wrong in the conclusion which I have just reached, I do not consider that the debtor's affidavit establishes a prima facie entitlement to payment of $100,000 after 1 July 1991. It is true that the debtor is not required by that affidavit to adduce the admissible evidence on which he would rely in attempting to make out that case; (Ebert v
The Union Trustee CO of Australia Ltd (1960) 104 CLR 346 at 350). However, here the debtor has done no more than assert
the making of an agreement containing terms which are so uncertain, and which define the obligations in consideration of which the debtor was to receive $100,000 so loosely, that it is inherently improbable that the alleged agreement was concluded, or at least intended to create legal relations between the parties to it. The inherent unlikelihood that the debtor could make out his cross demand is reinforced by the failure of himself or his successive solicitors to mention it at any of the numerous opportunities which arose between June 1990 and 19 June 1991.
For these reasons the debtor's application is refused. It is appropriate to make orders in the form of those made by Beaumont J in Re Franks: ex Darte G10 Holdinas Ltd (suora). Those orders will be:
1. Declare that the Court is not satisfied that the debtor has a counter-claim, set-off or cross-demand as is

referred to in s.40(l)(g) of the Bankru~tcv Act.

1. Order that the debtor pay the creditor's costs of the application including any reserved costs, such costs to be taxed.

I certify that this and the preceding

ten (10) pages are a true copy of the reasons for judgment of his Honour Mr Justice Ryan.

Associate: - Date:

Counsel f o r the Judgment Debtor: Mr P E l l i o t t

S o l i c i t o r s for the Judgment	Debtor:	Law	Partners
Counsel	f o r the Judgment Creditor:	Mr G.L.	R i c e

S o l i c i t o r for the Judgment Creditor: Woodhams O'Keeffe & CO