Queensland Building Services Authority v Kay - [2001] FMCA 126

FEDERAL MAGISTRATES COURT OF AUSTRALIA

QUEENSLAND BUILDING SERVICES AUTHORITY v KAY [2001] FMCA 126

CREDITORS PETITION – Bankruptcy Act s 52 – No counterclaim.

St George Bank Ltd v Helfenbaum (1999) FCA 1337 24 September 1999
Scott P v AGAV P/L (1994) FCA 257
Guss v Johnstone (2000) 74 ALJR 884
In re a Debtor (1958) 1 Ch 81 at 99
Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346
Re Cox (1934) 7 ABC 98

Applicant:

QUEENSLAND BULDING SERVICES AUTHORITY

Respondent:

JOHN MICHAEL KAY

File No:

BZ190 of 2000

Delivered on:

9 November 2001

Delivered at:

Melbourne

Hearing Date:

12 July 2001

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr B Patane

Solicitors for the Applicant:

Jones King Lawyers

Respondent:

In person

ORDERS

(1)The estate of JOHN MICHAEL KAY be sequestrated.
(2)The petitioning creditors costs of and incidental to the petition including reserved costs in this matter be taxed pursuant to Order 61 of the Federal Court Rules and paid in accordance with the Bankruptcy Act 1966.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BZ190 of 2000

QUEENSLAND BUILDING SERVICES AUTHORITY

Applicant

And

JOHN MICHAEL KAY

Respondent

REASONS FOR JUDGMENT

This is an application by the QUEENSLAND BUILDING SERVICES AUTHORITY which arises from a creditor's petition against the respondent, JOHN MICHAEL KAY. The creditor's petition is based upon a claim for an amount of $32,403.27, being for moneys owing pursuant to a judgment obtained on 19 July 2000, together with what is said to be post-judgment interest. The bankruptcy notice, which was based upon the judgment obtained, was in fact the subject of an application to set aside before the Federal Court at Brisbane. That application to set aside was returnable on 1 November 2000 and was dismissed by the court. The date of compliance of the notice had been extended until 1 November 2000. Accordingly, the date of the act of bankruptcy is said to be 1 November 2000. In fact, extending the date of compliance to that date, it seems to me that by adding another day, it should be 2 November 2000 as the date of the act of bankruptcy in this matter.
In the Federal Court it would seem on the material that the application to set aside had been made returnable and the date for compliance with the bankruptcy notice extended to enable an application to set aside a judgment of the Mackay Magistrates Court. As I understand from the material, that did not succeed and hence the application to set aside the bankruptcy notice did not succeed.
Before this court, the respondent had initially relied upon a notice of intention to oppose the application or petition, and in that notice, filed the 5th day of March 2001, the respondent referred to three grounds, namely (1) the BSA deliberately took advantage of Jalglobe Pty Ltd and John Kay so they could revenue-raise; (2) the BSA knew of the licence problem; (3) the BSA owes John Kay $20,900-plus.
In support of the notice of opposition the respondent has relied upon an affidavit sworn 2 March 2001 and has further relied upon an affidavit of 5 November 2001, and to the extent that I am prepared to rely upon additional material, has also relied upon exhibit R1, which was described as a bundle of documents which had been provided to the court and described as such.
In the material before me, the applicant has in fact referred to a list of material to be read which includes the formal requirements in an application of this kind, and it will be noted that when the matter proceeded this day, I granted leave to the applicant to update that material by the filing of a further affidavit from Ryan Peters sworn the 9th day of November 2001 and an affidavit by Bruce Blaise Patane sworn 9 November 2001. I have read those documents referred to in the list headed Material to be Read submitted by the applicant, and there does not appear to be any real dispute about the court's ability to rely upon that material and in fact I do so.
In relation to the notice of opposition, when this matter was first listed before me in Brisbane on the 12th day of July 2001, I heard submissions from both parties and it became evident on that day that I would require, at least in the exercise of the discretion which I have to consider, whether there is other sufficient cause - pursuant to section 52 of the Bankruptcy Act I would require further material both from the applicant and the respondent.
In essence, the voluminous documentation which has been provided to this court and which I have considered deals with a chronology of events where the respondent, somewhat understandably, has a complaint that from 1993 he was operating as a builder under the mistaken belief that a licence had been extended to the company that then was being used as the corporate structure of his business, namely, Jalglobe Pty Ltd. That company, it was thought by the respondent, had indeed been licensed. It is said by the respondent that he became aware that the company was not licensed and as a consequence of becoming aware of that fact, and moreover the fact that his own individual licence, as it turned out, was then cancelled and reinstated in circumstances which I will presently describe, has led to financial consequences which are said, at least by the respondent, to give rise to a valid counterclaim by him against the applicant which it is said is a counterclaim that would exceed the amount of the bankruptcy notice which is the basis of the creditor's petition.
It is said in brief terms, to quote from paragraph 17 of the respondent's latest affidavit:
“If the error in 1993 in licensing had not happened, a saving of $46,900.00 would have applied if my licence had not been taken away illegally I would be $150,000.00 minimum ahead. This is a total of $196,900.00 less $32,403.00 fine, leaving $164,487.00 ahead”.
In his earlier affidavit Mr Kay refers to a number of outstanding debts which have been owed to the business and which I understand to be debts owed to Jalglobe Pty Ltd. In fact, Jalglobe Pty Ltd, I accept from the material before me, would appear to be the corporation through which Mr Kay had traded and used as the company or vehicle for the conduct of his business.
The issue before this court as it has unfolded following the earlier hearing is now one which has been the subject of further affidavit material to which I have already referred from Mr Kay but also a detailed affidavit to which he had responded from Mr Ryan Peters which was filed with the court in accordance with the court orders on 30 October 2001. It is an affidavit sworn 25 October 2001.
It has been submitted by Mr Kay that in the circumstances I should rely upon his affidavit material and be satisfied that he does have a proper cause of action against the applicant by way of a counterclaim. The applicant submits that any claim that may be in existence is a claim not by the respondent but rather by the company which had previously conducted the respondent's business. I do not intend in this judgment to recite in detail the chronology of events which has occurred, save to say that I accept as an accurate chronology the material which has been placed before the court in the affidavit of Mr Peters to which I have just referred and the chronology that has been submitted by the respondent of the applicant.
In considering whether or not to exercise my discretion under section 52 of the Bankruptcy Act, it is appropriate to look at that section, which provides:
“52(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.”
In the present case I have been referred to a number of authorities, to which I shall refer later, by the applicant's representative. It is useful, however, in my view to refer to an unreported decision of the Federal Court by Sundberg J in the matter of St George Bank Ltd v Helfenbaum (1999) FCA 1337 24 September 1999. In that case his Honour had to consider the issue of grounds for refusal of a sequestration order on application by way of a creditor's petition and specifically to consider whether set-off or cross-claim could amount to sufficient cause. In considering that issue his Honour said:
“The existence of a cross-claim may be a `sufficient cause’ within s 52(2)(b) for declining to make a sequestration order: Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 25. It is for the debtor to establish the existence of `sufficient cause’: Cain v Whyte (1933) 48 CLR 639 at 645-646; Ling at 24. He must establish that he has a real claim against a creditor that is likely to succeed. If the Court is satisfied that there is such a claim, and that its quantum is likely to equal or exceed the creditor's claim, it will not make a sequestration order. If the claim is likely to be less than the creditor's claim, the Court will require the debtor, if he is to avoid a sequestration order, to pay the difference between the judgment debt and the amount he is likely to recover on his claim.”
His Honour then refers to a number of authorities which are not relevant to the present application. His Honour goes on to say:
“A debtor does not establish a real claim that is likely to succeed merely by producing a statement of claim in an action against the creditor: Re Rivett; Ex parte Edward Fay Ltd (1932) 4 ABC 182; Player at 282, or by pointing to the existence of current litigation against the creditor: cf Re Douglas Griggs Engineering Ltd [1963] 1 Ch 19 at 23. While the Court does not try the cross‑claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed: cf Vogwell v Vogwell (1939) 11 ABC 83 at 88; Player at 282”.

In the present case I have also been referred to various authorities by the applicant, and in particular it has been submitted that in this particular case I am entitled to look at the extent to which the respondent has taken steps to prosecute what he believes to be the counterclaim or attempts to set aside a bankruptcy notice. I have been referred to the decision of Scott P v AGAV P/L (in liquidation), (1994) FCA 257 where it was held that the failure to explain the delay in prosecuting the proceedings or an application to set aside the counterclaim should weigh heavily against the respondent.
I should add in this case that even if it is assumed just for the moment that there is in fact a valid cross-claim, the explanation for the delay by the respondent is that he could not afford to pursue that cross-claim and indeed, although on the chronology of events it appears that the respondent as an individual had his licence reinstated, he has indicated that by then it was too late for him to continue to conduct business and that would then be consistent with the view he has taken that he was also not able to afford the cost of pursuing a counterclaim or cross-action against the applicant.
It was further submitted by the applicant, however, that under section 40(1)(g) of the Bankruptcy Act, the degree to which the debtor needs to satisfy the court to have a bankruptcy notice set aside on the grounds of the counterclaim, set‑off or cross-demand has been formulated in a number of other cases which I refer to in addition to the unreported decision of Sundberg J to which I have just referred in the St George Bank case. I was specifically referred to the principles that the debtor must satisfy the court he has a genuine demand and that there is a reasonable probability of success (see In re a Debtor (1958) 1 Ch 81 at 99) which was cited with approval by Roxburgh J in Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350).
It was submitted the debtor must show that he has a prima facie case and that the matter which the court would look at is whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue, in other words, whether it is a claim which is proper and reasonable to litigate, and I was referred to the recent decision of Guss v Johnstone (2000) 74 ALJR 884 at paragraph 39. Again I was referred to the proposition, which I accept as a matter of law, that the mere production of a statement of claim in an action alleging facts which, if true, might give rise to a counterclaim, would be insufficient to satisfy a court (see Re Cox (1934) 7 ABC 98).
The present claim which has been placed before the court by the respondent is as I have described it and referred to in paragraph 17 of the most recent affidavit. In my view, having considered all the material to which I have been referred, at best it seems to me that the grievance by the respondent, albeit one arising out a degree of confusion as to the proper licence-holder, is a grievance concerning the issuing of a licence in 1993. I am satisfied on the material before me that that grievance cannot constitute an arguable case which could form the basis of a counterclaim or cross-claim, and I am further satisfied that it does not appear to me as a matter of law to be a complaint which could be formulated as a cause of action by the respondent against the applicant.
It was a cause for concern and complaint which was raised by the respondent, as indeed was the cause of complaint of his licence being cancelled but, interestingly enough, the restoration of the licence was a restoration of a licence to the individual and not the company. Understandably Mr Kay was concerned about the delay in restoring that licence and the fact that over that period of time his business had collapsed, however it does not seem to me that a complaint, if any, which may have been made and which may have constituted a cause of action was in any event pursued on behalf of the company, yet at the same time it is said that it is the company's losses for work and labour done, and no doubt material supplied, which have led to the difficult financial situation faced by Mr Kay.
In those circumstances, in my view there is neither a proper cause of action by the respondent against the applicant, and indeed I cannot see a proper cause of action on the material before me by the company, Jalglobe Pty Ltd, against the applicant, even if I were to find that the existence of such a complaint or cause of action was relevant in considering this creditor's petition.
In all the circumstances, it is my view that in the present case it is not appropriate, and nor indeed is there any legal basis upon which I can exercise a discretion I undoubtedly have pursuant to section 52 of the Bankruptcy Act.
In all other respects I am satisfied on the affidavit material before me that the other requirements of section 52 of the Bankruptcy Act have been met and complied with. It is clear on the material before me that the respondent was not solvent, and it is also clear to me that the other matters where proof is required pursuant, as I have indicated, to section 52 and other provisions of the Bankruptcy Act, have been satisfied. It is appropriate that I therefore make the following orders:
(1)The estate of John Michael Kay be sequestrated.
(2)The petitioning creditors costs of and incidental to the petition including reserved costs in this matter be taxed pursuant to Order 61 of the Federal Court Rules and paid in accordance with the Bankruptcy Act 1966.

I note that the date of the act of bankruptcy is 2 November 2000.

I certify that the preceding twenty three (23) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 9 November 2001