Pollnow, E.H. v Madgwick, W.W

[1989] FCA 205

Re: ERROL HUGH POLLNOW Ex Parte ERROL HUGH POLLNOW
And: WARREN WALTER MADGWICK
No. B2782 of 1988
FED No. 205
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE
AUSTRALIAN CAPITAL TERRITORY
Lockhart J.(1)

CATCHWORDS

Bankruptcy - Bankruptcy Act 1966 para. 40(1)(g) - whether costs order of Supreme Court of New South Wales "final order" - whether possibility of application for special leave to appeal to High Court negates finality - whether debtor has cross demand against creditor equal to or exceeding claim against the debtor.

Bankruptcy Act 1966: para. 40(1)(g)

HEARING

SYDNEY

#DATE 10:5:1989

Counsel for the Debtor: Mr. J.V. Nicholas

Solicitors for the Debtor: Beston & Riordan

Counsel for the Petitioning Creditor: Mr. N. Cotman

Solicitors for the Petitioning Creditor: Madgwicks

ORDER

The application be dismissed.

The applicant pay the respondent's costs of the application.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an application by Errol Hugh Pollnow ("the debtor") to set aside a bankruptcy notice dated 3 August 1988 and issued at the request of Warren Walter Madgwick ("the creditor"). The notice is based on an order for costs made against the debtor and in favour of the creditor in proceeding No. 2983 of 1983 in the Supreme Court of New South Wales, Equity Division.

1. In the proceedings currently before this Court the debtor seeks to have the bankruptcy notice set aside on two grounds. First, it is alleged that the order for costs on which the bankruptcy notice is based is not a "final order" within the meaning of para. 40(1)(g) of the Bankruptcy Act 1966 ("the Act"). Secondly, it is alleged that the debtor has a cross demand against the creditor which exceeds the claim of the creditor upon which the bankruptcy notice is based.

2. It is necessary to give some account of the Supreme Court proceedings. On 8 April 1983 Garden Mews-St. Leonards Pty. Limited ("Garden Mews") purported to appoint two receivers and managers of Butler Pollnow Pty. Limited ("Butler Pollnow") pursuant to the terms of a deed of equitable charge dated 4 February 1982. The debtor was a director of Butler Pollnow and the creditor was a director of Garden Mews.

3. The debtor commenced proceedings in the Supreme Court of New South Wales Equity Division (No. 2983 of 1983) in which he was the sole plaintiff. McClelland J. of the Supreme Court heard a motion to strike out the statement of claim. On 23 July 1984 his Honour ordered that the statement of claim be struck out, that Butler Pollnow be joined as a co-plaintiff and removed as a defendant, that leave be granted to the plaintiffs (the debtor and Butler Pollnow) to file a fresh statement of claim, that the proceedings be dismissed with costs as against certain of the defendants (not the creditor) and that the debtor pay the costs of the creditor of the application before the court to strike out. McClelland J.'s reasons for judgment are reported in (1984) 2 ACLC 511.

4. In the Supreme Court proceedings the debtor and Butler Pollnow sought a declaration that the appointment of the receivers made on 8 April 1983 was invalid and claimed damages for trespass arising from this appointment. Damages were claimed not only against Garden Mews and the receivers but also against Queensboro and the creditor who, as mentioned above, was a director of Garden Mews. The debtor and Butler Pollnow also claimed damages for alleged breaches of duty by the receivers and managers.

5. On 31 July 1985 McClelland J. made orders that certain questions be tried separately from other questions under Part 31 rule 2 of the Supreme Court Rules 1970. Questions (b) to (e) in that order were decided by Kearney J. of the Supreme Court on 19 March 1986. His Honour decided in favour of the debtor, holding that the receivers and managers had been appointed invalidly to Butler Pollnow: (1986) 6 NSWLR 363. His Honour's decision was reversed on appeal by a majority decision of the Court of Appeal of New South Wales. The Court of Appeal held that, although the instrument of appointment was not registered, s. 115A of the Conveyancing Act 1919 (NSW) did not preclude the Receivers from exercising their powers. The Court further held that s. 111 of the Conveyancing Act did not operate to prevent the appointment due to an absence of written notice: (1986) 6 NSWLR 378.

6. The debtor then sought from the High Court special leave to appeal which was refused as the decision did not finally determine the rights of the parties in the action. The High Court refused special leave on the basis that the debtor was free to bring a further application once the rights of the parties were finally determined in the action.

7. The special leave application concerned the validity of the appointment by Garden Mews of the receivers and managers to Butler Pollnow. That question was not the basis of the claim by the debtor against the creditor in the Supreme Court proceedings. The parties to the application for special leave were the debtor as the applicant, the receivers and managers as the first respondents and Garden Mews and Queensboro as the second respondents.

8. A further question was decided by Kearney J. on 3 November 1987 to the effect that no purported appointment of the receivers of Butler Pollnow was made by Queensboro Pty. Limited ("Queensboro"), a defendant in the action. As a result of that decision the claim against Queensboro was dismissed.

9. The question of Garden Mews' entitlement on 8 April 1983 to appoint a receiver and manager pursuant to the deed of charge subsequently came before Hodgson J. of the Supreme Court. His Honour gave his reasons for judgment on 11 May 1988 and made orders on 18 May 1988 that there be verdict and judgment for the Garden Mews, Queensboro and the creditor in the action and that the debtor pay the costs of the proceedings except in so far as costs were dealt with in previous orders of the Supreme Court. The debtor appealed to the Court of Appeal of New South Wales from Hodgson J.'s judgment which on 14 December 1988 dismissed the appeal with costs.

10. The debtor has not applied to the High Court for special leave to appeal from the Court of Appeal's judgment given on 14 December 1988.

11. Two questions were argued before me: first, whether the order for costs made by McClelland J. on 23 July 1984 was a final order within the meaning of para. 40(1)(g) of the Bankruptcy Act and; second, whether this Court is satisfied that the debtor has a cross demand equal to or exceeding the amount of the sum payable under the order for costs (assuming that it is a final order) being a cross demand that he could not have set up in the Supreme Court action.

12. The orders of McClelland J. on 23 July 1984 striking out the statement of claim and making other related orders were plainly interlocutory orders. There is perhaps some room for argument as to whether the order for costs made in favour of the creditor was an interlocutory or final order. It is my view that at the time it was made it was an interlocutory order. As outlined above Hodgson J. subsequently ordered that there be verdict and judgment for the creditor in the Supreme Court proceeding. Also, on 14 December 1988 the Court of Appeal dismissed the appeal from Hodgson J.'s judgment. Notwithstanding the lengthy and complicated history of the Supreme Court action it seems plain that on the entry of judgment for the creditor against the debtor in the Supreme Court action the order of McClelland J. for costs became a final order.

13. All that remains in the Supreme Court action is the outstanding issue of the claim for breach of duty against the receivers and managers of Butler Pollnow for their conduct of the receivership. Nothing remains extant against the creditor.

14. It follows from the history of the Supreme Court action and the fact that the debtor no longer has any claim against the creditor that he has not satisfied me that he has a cross demand of the kind required by para. 40(1)(g) of the Bankruptcy Act.

15. It is true that the High Court refused special leave to appeal on 4 December 1986 on the basis that the debtor was free to bring a further application for special leave once the rights of the parties were finally determined in the action. But, as I said earlier, that was with respect to an issue which can no longer be regarded as live against the creditor, even if it had been at the time special leave was refused.

16. The debtor may hereafter seek special leave to appeal from the judgment of the Court of Appeal of 14 December 1988; but it is now nearly five months since the judgment of the Court of Appeal was given and no application for special leave has been made. The possibility of an application being made to the High Court for special leave to appeal against the Court of Appeal's judgment must be considered together with the inherent uncertainty as to whether special leave would be granted. In these circumstances I am not persuaded that a cross demand of the requisite kind has been established by the debtor.

17. I should say in conclusion that Burchett J. heard two somewhat similar applications on 19 October 1988 involving the same Supreme Court action and the debtor but the creditors were Garden Mews and Queensboro, not Mr. Madgwick: Pollnow v Queensboro Pty. Limited, 19 October 1988, unreported. The question whether the debtor had the requisite cross demand was considered by his Honour and he declared that he was satisfied that the requisite cross demand existed. His Honour noted that the information before him on the matter was "sparse in the extreme" and that the appeal to the Court of Appeal from the judgment of Hodgson J. had not then been heard by the Court of Appeal. His Honour said at 8-9:
    

"It would clearly be invidious for this Court to attempt to assess the prospect that the Court of Appeal may overrule the decision of Hodgson J., or that the High Court may ultimately grant special leave and allow an appeal on the question on which a majority of the Court of Appeal, with Priestley J. dissenting, has overruled the decision of Kearney J. The issue should rather be whether there is a real possibility that the debtor's claim will ultimately be established. The stage of considering whether there is a prima facie case has already been passed. It is necessary to bear in mind that s. 40(1)(g) does not require the debtor to satisfy the Court that he will succeed in his claim; the ordinary test of whether he has merely shown a prima facie case makes that plain. In the present cases, the dissenting judgment of Priestly J. seems to me, taken in conjunction with the other circumstances, to show that the debtor has a cross demand within the meaning of s. 40(1)(g). Accordingly I declare that I am satisfied, in each case, that the debtor has a cross demand of the type referred to in s. 40(1)(g)."

1. The Court of Appeal has now heard the appeal from Hodgson J.'s judgment and dismissed the appeal and no application for special leave to the High Court has been made notwithstanding the lapse of almost five months. Those matters together with the circumstance that the creditor here is Mr. Madgwick, not Queensboro or Garden Mews against whom different causes of action subsisted in the Supreme Court proceedings, to my mind render the present case distinguishable on its facts from the preceedings before Burchett J. in October 1988.

2. The Court orders that the application of the debtor to set aside the bankruptcy notice be dismissed and that the debtor pay the creditor's costs of the application.