O'Donnell v Owens
[2004] FMCA 111
•15 July 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| O'DONNELL v OWENS | [2004] FMCA 111 |
| BANKRUPTCY – Application to set aside a bankruptcy notice – whether Local Court of New South Wales had jurisdiction to hear this claim and whether the debtor had a counter claim set off or cross demand that could not be set up in the original action – application dismissed. |
Bankruptcy Act 1966 (Cth), ss.30, 40(1), 40(1)(g), 41(1), 41(7), 43(1), 43(1)(d), 47(7)(i)
Industrial Relations Act 1999 (Qld), ss.293, 399
Industrial Relations Act 1996 (NSW), s.106
Local Courts (Civil Claims) Act 1970 (NSW), ss.12, 21(b)
Judiciary Act 1903 (Cth), s.44
Federal Court of Australia Act 1976 (Cth), s.32
Federal Court Rules 1976, Order 5, Rule 1
Australian Constitution Act 1901 (Imp), s.37(1)
Re Noel Ling ex parte: Noel Ling v Commonwealth of Australia (1995) 130 ALR 596
Re Racheha; Ex parte Antonios (1980) 49 FLR 423
Bathshon v Migliorini & Associates [2003] FMCA 32
Premier Sport Australia Pty Ltd v Dodds [2001] NSWSC 707
| Applicant: | JAMES O'DONNELL |
| Respondent: | MICHAEL JOHN OWENS |
| File No: | BZ178 of 2003 |
| Completed on: | by Bryant CFM on 2 July 2004 |
| Delivered on: | by Coker FM on 15 July 2004 |
| Delivered at: | Townsville |
| Hearing date: | 30 October 2003 |
| Judgment of: | Bryant CFM |
REPRESENTATION
| Counsel for the Applicant: | In person |
| Solicitors for the Applicant: | Nil |
| Counsel for the Respondent: | Mr Elliot |
| Solicitors for the Respondent: | Michael Owens & Associates |
ORDERS
THAT the Application be dismissed.
THAT the time for compliance with the bankruptcy notice be extended for a further seven days to take effect from the date of delivery of judgment.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT TOWNSVILLE |
BZ178 of 2002
| JAMES O'DONNELL |
Applicant
And
| MICHAEL JOHN OWENS |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant in this matter seeks the setting aside of a bankruptcy notice dated 11 March 2003 requiring payments by the applicant debtor to the respondent creditor in the sum of $7078.68. The amount claimed represents a judgment for $7078.68 obtained by the respondent creditor against the applicant debtor in the Local Court at Kogarah in the state of New South Wales on 29 November 2002.
The debtor claims pursuant to s.41(7)(i) of the Bankruptcy Act 1966 (Cth) ("the Act") that he had a counterclaim, set off or cross demand that could not be set up in the original action and is equal to or exceeding the amount claimed in the bankruptcy notice.
History of proceedings
Until May 1999 the applicant was secretary of the Federated Clerks Union of Australia North Queensland branch, union of employees. In May 1999 his employment with the Federated Clerks Union ceased when he was defeated in the membership ballot. Thereafter the facts are in dispute. Either, the applicant was working for the respondent as claimed by the applicant or he was conducting his own industrial relations files out of the respondent's office, as claimed by the respondent.
Proceedings were brought by Chris Anderson & Co Pty Ltd against the respondent for services rendered in the Local Court (Civil Claims) Small Claims Division. The respondent brought third party proceedings against the applicant claiming an indemnity pursuant to a deed entered into between the applicant and the respondent. The applicant did not attend the proceedings and judgment was entered against the respondent and in turn, the respondent obtained a judgment against the applicant.
The respondent then issued a bankruptcy notice on 11 March 2003 which was served on 13 March 2003.
The applicant has filed an application claiming he has a counterclaim for wages which far exceed the amount stated in the bankruptcy notice and to have the bankruptcy notice set aside. The applicant claims that he had an arrangement with the respondent that the respondent would pay him a percentage of fees generated by the applicant. He claims in paragraph 9 of his affidavit sworn 3 April 2003 and in paragraphs 56, 57 and 58 and Schedule C of the affidavit filed 30 May 2003 that he has a claim for wages. He sets out in either case, that the amount of the alleged counter-claim will exceed the respondent's claim (in round figures $40,000 as opposed to $7000).
Relevant legislation
Section 43(1) of the Act provides that, where a debtor has committed an act of bankruptcy and one of the pre-req uisites set out in s.43(1)(d) is satisfied, the Court may, on a petition presented by a creditor make a sequestration order against the estate of the debtor. Section 40(1) sets out the cases in which a debtor commits an act of bankruptcy. One of those cases is referred to in s.40(1)(g) which relevantly provides that an act of bankruptcy is committed if a creditor who has obtained against a debtor a final judgment or final order being a judgment or order the execution which has not been stayed, has served on the debtor a bankruptcy notice under the Act and the debtor does not take the steps set out in that provision.
Section 41(l) provides that an official receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that is of the kind described in s.40(1)(g) and is for an amount of at least $2000. Although there is no express power conferred by the Act on a Court to set aside a bankruptcy notice, it is clear that there is power to do so. The power is derived from s.30 of the Act and from the principle that a power conferred by Parliament carries with it the power necessary for its performance for execution: Re Sterling; Esanda Limited (1980) 44 FLR 125. Pursuant to s.40(1)(g) of the Act the applicant is required to:
a)show that he has a prima facie case or one with a fair chance of success capable of falling within s.41(7) of the Act;
b)the value of the case is equal to or exceeds the respondent's debt; and
c)that the applicant could not have set up the case in the action or proceeding in which the judgment or order was obtained (ie. the Local Court proceedings) for the purposes of the current proceedings the respondent conceded that the applicant does have a prima facie case, or one with a fair chance of success and of being the requisite value, capable of falling within s.41(7) of the Act.
The sole issue for determination therefore is whether the Court will find that the applicant could not, within the language of s.40(1)(g) of the Act, have set that claim up as a counterclaim or cross claim in the Local Court proceedings brought against him by the respondent.
The applicant claims that his claim arose out of employment with Michael Owens & Associates, Solicitors (the respondent's firm) because his claim arises from the Industrial Relations Act 1999 (Qld), and contends that the Local Court at Kogarah does not, and did not, have jurisdiction to deal with such a claim.
He claims to have by reference to the clerical employees award, calculated wages due and owing by the respondent's firm and to have lodged a wages claim with the District Industrial Inspector Department of Industrial Relations in Queensland. The total claimed is $48,111.37. The applicant contends that the limit to which the creditor could recover in the Local Court was $40,000 and at all times he had a claim which exceeded that sum and to obtain the amount of his counterclaim he would have had to commence proceedings in the District Court in New South Wales.
Pursuant to the Industrial Relations Act 1999 in Queensland there is no monetary jurisdictional limit placed on the Industrial Magistrate. The applicant contends that an Industrial Magistrate in Townsville (where the parties reside) could hear the matter and that because of s.399 of the Industrial Relations Act, the effect is that exclusive jurisdiction in such matters is given to the Industrial Magistrate thus, it is contended by the applicant that he could not have set up the case in the Local Court in Kogarah.
The respondent contends that the applicant has an onus upon him to show that he could not in law set up the action in which the judgment was obtained. The respondent further contends that there is no reason why the claim/counter-claim/cross-claim could not have been filed in the Local Court proceedings as:
i)sections 12 and 21(b) of the Local Courts (Civil Claims) Act 1970 (NSW) contain no impediment to the New South Wales Court in trying the issues under Queensland law, vis-à-vis the applicant and respondent;
ii)the Industrial Relations Act provides for certain rights and responsibilities vis-à-vis employees and employers and by operation of s.399 enables an application to be made to a Magistrate to recover wages but does not give exclusive jurisdiction to the Industrial Magistrate;
iii)a wages claim could have been made as a breach of contract claim rather than the claim under the Industrial Relations Act;
iv)there has been no excuse or reason given for the failure to make the claim based on percentage of fees generated as this should not be a claim under the Industrial Relations Act;
v)if the applicant had brought an alternative claim based on contract which exceeded the jurisdiction of the Local Court, there was an ability to transfer the matter to the District Court; and
vi)that there is no prohibition other than the jurisdictional limit (which can be overcome) and on the pro rata claim in the alternative rather than based on a wages claim could have been made in the proceedings. The applicant contended in relation to this argument that as a matter of industrial relations law in Queensland, the award provisions could not be undercut by any agreement and thus the jurisdiction of the Industrial Magistrate in Queensland could not be ousted. He asserted that contractual claims between himself and the respondent were not valid because they were less than the award wages and that in relation to award wages the industrial Relations Act has no application in a Court in New South Wales; it only applies in the Industrial Magistrates Court in Queensland.
Conclusion
In Re Noel Ling ex parte: Noel Ling v Commonwealth of Australia (1995) 130 ALR 596 Hill J considered this problem in the context of a claim which has been commenced in the Federal Court where the Federal Court's jurisdiction is limited. He held that the claim could have been commenced in the High Court and remitted to the Federal Court pursuant to s.44 of the Judiciary Act 1903 (Cth). This would have given the Federal Court sufficient jurisdiction to hear and determine the matter on all bases. During the course of those proceedings, Hill J discussed the effect of Re Racheha; Ex parte Antonios (1980) 49 FLR 423 where the creditor had commenced proceedings against the debtor in the Court of Petty Sessions. The amount sued for exceeded the jurisdiction of that Court but the debtor failed to object to the jurisdiction prior to judgment being entered against him. Hill J noted that had he done so the action would have been transferred to the District Court. The debtor had a choice of abandoning the excess or commencing separate proceedings in the District Court, or of objecting to the jurisdiction of the Court to hear the plaintiff's claim and having that transferred to the District Court where there was no relevant jurisdictional limit that would have precluded him setting up his crossclaim. Lockhart J held that in circumstances where the debtor had a crossclaim he could have set up in the District Court had the debtor had neither elected to abandon the excess or have the matter moved to the District Court. At paragraph 31 Hill J said:
These cases, it seems to me, establish that a crossclaim will be one which could be set up in the action notwithstanding that to do so the debtor may need to transfer the proceedings first to another Court, or may need to obtain in his or her favour the exercise of a discretion for doing so. The onus of showing that the claim is not one that could have been set up in the creditor's proceedings lies upon the debtor. That onus will not be satisfied merely by showing that some indirect course may be need to be followed (that course being in the discretion of the debtor) nor by showing that there existed a discretion which could have been exercised against a setting up of the claim as a crossclaim. To satisfy that onus the debtor must show that, as a matter of law and in the circumstances prevailing, he or she could not have set up the crossclaim.
At paragraph 32 Hill J said as follows:
I do not find the result strange having regard to the evident policy underlying s 40(1)(g) to which I have referred earlier. A debtor having a claim against his or her creditor cannot just stand by while judgment is obtained and later seek to use that claim to set aside a bankruptcy notice founded upon that judgment. If machinery is available for that claim to be agitated as a crossclaim in the proceedings, even if the application must be made in a timely way to another Court or leave must be obtained, that application should be made or that leave sought. Otherwise the debtor will be bound by his or her conduct.
At paragraph 35 Hill J considered other ways in which the debtor could have brought about the result that the tortious claims became crossclaims. He said:
… I am inclined to think that the tortious claims, or at least that claim based upon alleged negligence on the part of the Commonwealth could, but for order 5 rule 1 of the Federal Court Rules, have been raised as a matter falling within the associated jurisdiction of the Court under s 32 of the Federal Court of Australia Act being associated with matters in which the jurisdiction of the Court is invoked and in respect of which s 37(1) of the Constitution permitted jurisdiction to be conferred upon this Court.
In Bathshon v Migliorini & Associates [2003] FMCA 32, Raphael FM considered a matter in which the applicant contended that he had a claim against the creditor in contract and/or tort which he could not have raised against it in the action or proceeding in which the judgment or order was obtained. His claim arose under s.106 of the Industrial Relations Act 1996 (NSW) and he sought orders declaring them void in whole or in part or varying in whole or in part the contract or arrangement between the applicant and the respondents whereby the applicant performed work as an architect.
The applicant contended in that case that the nature of s.106 proceedings precluded a claim which was totally separate from the claim of unfairness with which s.106 was concerned. Any claim which he may have had against the respondent was not one which sought enforcement of the original contract which the applicant had petitioned the commission to set aside for varying s.106 proceedings. Both the applicant and the respondent agreed that the essential requirement of proceedings under s.106 was the existence of a claim regarding the unfairness of a contract or arrangement pursuant to which a party performed work in industry.
Federal Magistrate Raphael accepted that the jurisdiction of the Industrial Relations Commission was limited and that the commission could only make a declaratory order in respect of a contract which it found to be unfair. Citing Premier Sport Australia Pty Limited v Dodds [2001] NSWSC 707 at [19] Raphael FM said that Premier Sports is authority for the proposition that a claim commenced under s.106 which involved matters that are outside the jurisdiction of the Industrial Relations Commission of New South Wales can be cross-vested into the Supreme Court of New South Wales. He thus noted that and concluded that it followed that a claim was capable of being cross-vested from the Industrial Relations Commission into the Supreme Court of New South Wales which Court would have jurisdiction to hear the tortious claims now advanced by the applicant. He found that to be fatal to the applicant's case.
This case is different from the ones cited to the extent that the respondent contends that there was no Court in New South Wales that could exercise jurisdiction in relation to the award claims arising under Queensland legislation.
The claims by the applicant are, as referred to in schedule A, B and C of the applicant's affidavit filed 6 June 2003, claimed in the alternative. The applicant contends that in November 1999 he commenced working at the office of Michael Owen & Associates, Solicitors, on a part time basis and then full time from 6 December 1999. He contends that on 6 December 1999 the respondent and he had a discussion in relation to remuneration. He contends that he was told that he would be paid a weekly wage when money was forthcoming from a project in Fiji on which he had been working. In April 2000 he says that he had another discussion with the respondent about payment and suggested from that point in time he would be willing to work for a percentage of the fees which he would generate on the basis that he would receive two thirds of such fees minus GST. He asserts that the respondent agreed to this proposal.
He then asserts that from 2 May 2000 until his employment terminated on 15 May 2001 Michael Owens & Associates, Solicitors, received actual payment of $40,796.37 in payment for work which he performed and which he sets out schedule A. He contends that a further amount which should have been paid to him in payment for the work he performed was an amount of $20,064 which he sets out in schedule B.
He asserts that subsequently problems arose between them and the applicant asserts that the respondent denied the agreement for payment. The applicant thus contends that:
If that is the case, I am entitled to award wages for the period November 1999 until 15 may 2001.
The applicant asserts at paragraph 59 of his affidavit filed 6 June 2003:
I have lodged a wages claim with the District Industrial Inspector - Department of Industrial Relations in relation to the moneys due and owing to me from my time at Michael Owen & Associates, Solicitors.
The applicant however did not annex any documents in relation to the claim. The calculations in schedules A, B and C which he annexed to the affidavit referred to, detailed in schedules A and B the gross amount that he claimed the client paid and from which, pursuant to the agreement alleged, he is entitled to two thirds. Schedule C is the wages claim based on the clerical employee award.
What does emerge from the evidence however is that the applicant appears to be arguing as his primary position that there was an agreement between himself and the respondent to pay him a percentage of moneys recovered on the files on which he worked. The way in which he has framed his award wage claim appears to be in the alternative as described.
Thus, there is no impediment to him raising the contractual claims as a counterclaim in the Local Court proceedings. On his own calculations based on the pro rata claim he would have been entitled to about $40,573. This is so close to the limit of the Local Court's jurisdiction that he could have, as was described in Re Noel Ling ex parte: Noel Ling v Commonwealth of Australia, abandoned his claim to the small amount in excess of the jurisdiction of the Court. Alternatively he could have sought to transfer the proceedings to the District Court in view of the amount of the counterclaim.
It is clear from the applicant's own evidence that his claim was based on two alternative courses of action one of which was able to be brought as a counterclaim or set off in the Local Court proceedings.
In any event, I am not persuaded by the applicant, who bears the onus, that the right to recover under the Queensland Industrial Relations Act confers exclusive jurisdiction on the Industrial Magistrate as under s.293 of the Industrial Relations Act which states that jurisdiction conferred on a Magistrate for the certain matters is not exclusive of another Court's jurisdiction to hear a claim for an employee's wages payable under an industrial instrument. The finding that I have reached is consistent with any policy underlying s.40(1)(g) so that a debtor having a claim against his or her creditor cannot just stand by while judgment is obtained and later seek to use the claim to set aside the bankruptcy notice founded upon that judgment (Re Noel Ling ex parte: Noel Ling v Commonwealth of Australia at [32]).
Furthermore, as the applicant did not annex any documents in relation to the proceedings in the Industrial Magistrates Court I have no indication of when that action might be finalised. Accordingly, I propose to dismiss the application but I will extend the time for compliance with the bankruptcy notice for a further seven days from the date of delivery of Reasons for Judgment so that the applicant has a further chance to make payment of the amount due.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Bryant CFM
Associate: Peter Smith
Date: 14 July 2004
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