Re Campbell, P.R. & anor Ex parte Esanda Finance Corporation Ltd

[1992] FCA 181

NOT FOR CIRCULATION

IN THE FEDERAL COURT OF AUSTRALIA )

SOUTH AUSTRALIA DISTRICT REGISTRY

No. SN779 of 1991

GENERAL DIVISION	)	No. SN780 of 1991
I
BANKRUPTCY DISTRICT OF THE STATE	)
I
OF SOUTH AUSTRALIA	j

Re : PAUL RAYMOND CAMPBELL

and

THERESA ANNE CAMPBELL

Judgment Debtors

Ex Parte: ESANDA FINANCE

CORPORATION LIMITED

Judgment Creditor

CORAM:	von Doussa J.
DATE :	16 March 1992

In each of these matters there is an

.

review of a decision made by a Deputy Registrar of this Court on 3 February 1972 in relation to affidavits which have been filed by the debtors in answer to the bankruptcy notices which have been served. The debtors have not been represented this morning on the hearing of the applications although there are affidavits of service indicating that the applications have been brought to their attention. I have reached a firm view as to what the outcome of the applications should be, and as that view is adverse to the creditor I propose to give my reasons now without enquiring further as to the reason why the

debtors are not present.

The bankruptcy notices were served by substituted service and deemed to be served on the male debtor on 16 January 1992 and on the female debtor on 10 February 1992. Within the fourteen day time fixed for compliance with each notice the debtors filed two affidavits, a substantial one by each debtor and another by his and her former solicitor, Mr Hugh Nield. The affidavits which have been filed in each matter are, for all intents and purposes, identical and I shall therefore simply deal with the affidavits filed by the male debtor, Mr Campbell, in the proceedings against him.

Upon the affidavits being filed the Registrar had duties under rule 10 of the Bankruptcy Rules which reads:

"(1) A debtor on whom a bankruptcy notice has been served may file an application to the effect that he or she has a counter-claim, set-off or cross demand of a kind referred to in paragraph 40(l)(g) of the Act.

(2) An application must contain details of the counter- claim, set-off or cross demand, as the case requires, and the reasons why the debtor was unable to set up the counter-claim, set-off or cross demand.

(3) If a debtor files an application, the Registrar must

consider whether, on the face of it, the

application;

(a)	raises a counter-claim, set-off or cross demand; and
(b)	gives sufficient particulars of the counter- claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim, set-off or cross demand.

(4) If the Registrar is satisfied that an application:

(a) raises a counter-claim, set-off or cross demand; and

(b) gives sufficient particulars of the counter- claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim, set-off or cross demand;

he or she must:

(c)	fix a date, time and place at which the debtor may appear before the court to satisfy the court that he or she has the counter-claim, set-off or cross demand referred to in the application; and
(d)	endorse a copy of the application with that date, time and place and return it to the
debtor. "

It is unnecessary to read sub-rules lO(5) and (6). Speaking
of the obligation imposed by sub-r. lO(4) Foster J. in
McKechnie: Ex Darte Weir (1991), 27 FCR 515, at p.517 said:

"It is clear, of course, that the purpose of the rule is to provide the necessary machinery for giving effect to the provisions of sub-s.41(7). The obligation is cast upon the Registrar, upon the filing of the affidavit contemplated by the section and the rule, to fix the matter for hearing before the Court in the way prescribed in the rule. It had been held, however, in decisions of this Court founded upon earlier decisions relating to the Bankruptcy legislation in England, that the Registrar has the additional obligation of forming a judgment as to the sufficiency of the affidavit of the debtor to activate

the rule..."

In the present case the Deputy Registrar considered that the affidavits were sufficient to activate the rule, and directed that the debtors appear at a time and place which he fixed to satisfy the Court that each debtor had the counter-claim, set- off or cross demand referred to in the affidavits.

The creditor seeks to review the decisions of the Deputy

Registrar on the footing that the Deputy Registrar should have held that the affidavits were insufficient to activate the rule for two reasons. Firstly, the affidavits did not give sufficient particulars of the counter-claim, set-off or cross demand, and secondly, that the affidavits did not set out reasons why the judgment debtors were unable to set up the alleged counter-claim, set-off or cross demand in the action or proceeding on which the bankruptcy notice was founded. The bankruptcy notice in each case is founded upon an allocatur sealed in the Supreme Court of South Australia on 3 September 1991 in Actlon No.1060 of 1990 in that Court between the creditor and the debtors and another. The allocatur is in the sum of $7,753.37.

A debtor served with a bankruptcy notice must comply with para.40(l)(g) and r.10 expeditiously in filing an affidavit or affidavits if it is the debtor's intention to set up a counter-claim, set-off or cross demand. Of necessity in the time that is available often the affidavit material will not

be replete with full particulars. As Lockhart J. observed in	Re Brink: Ex oarte The Commercial Bankinu Comoanv of Svdney
Ltd (1980), 44 FLR 135 at 142, the Court should adopt a benevolent construction to the initial affidavit (or af fidavits) . The af fidavit which was filed by each debtor in this case is a substantial document running into some 43 paragraphs. The affidavits give the background to two sets of proceedings in the Supreme Court.

It appears that the debtors together were carrying on business as computer programmers and they had borrowed money from the creditor. The affidavits do not disclose the precise amount. Security was given for the borrowing, including a bill of sale over computer equipment and mortgages over each of the debtors' residential properties. The money borrowed was primarily to enable the debtors to pursue a particular job which they had received from a hardware company to produce a computer programme. That job did not go ahead as hoped. The debtors encountered difficulties, and an inability to keep up payments to the creditor. In the event the creditor sought to realise its security under the bill of sale, and also to realise the two properties which had been mortgaged.

Action No.1060 of 1990 in the Supreme Court was brought by the creditor seeking possession of each of the residential properties. I am informed by counsel for the creditor that possession was sought in each instance as mortgagee.

The alleged counter-claim, set-off or cross demand arises primarily by reason of action taken by the creditor under the bill of sale. The debtors allege that chattels that were not the subject of a bill of sale were seized. In particular, a Tower computer was seized and in the course of the removal of the computer by the creditor a hard disk was damaged, and software and data thereon was lost.

Paragraph 16 of Campbell's affidavit identifies six

areas of dlspute with the creditor. I mention three of them. The first concerns the complete destruction of intellectual property and data contained on a hard disk in the unlawfully seized Tower computer. The second item concerns loss of profits and the cost of reconstruction of lost data. The final item, which indicates that the dispute is not wholly limited to the unlawful seizure of chattels under the bill of sale, concerns an allegation that the sale of the two residential properties of the debtors was unnecessary and unwarranted in that if the creditor had not seized and damaged the debtors' property, in particular the Tower computer, the debtors would have been able to pay out the creditor in due time. The affidavit goes on to imply that the creditor has since acknowledged that the Tower computer was wrongfully seized and has taken steps to replace the damaged hard disk.

The affidavit deposes to a reason why the alleged
counter-claim, set-off or cross demand was not set up in

Supreme Court Action No.1060 of 1990, but it does so in the

barest of terms. Paragraph 27 of the affidavit reads:

"Notwithstanding the sale of our residences because of legal technicalities the Court was unable to take into consideration in Actlon No 1060 of 1990 the fact that the Creditor had caused damage to my sister and me for in excess of our indebtedness to the creditor and for which we had instigated Action No 1848 of 1990."

That paragraph identifies the other action in the Supreme Court. The papers filed by the debtors indicate in barest form that in Action No.1848 of 1990 the debtors sought to

recover damages for the matters which they now assert give rise to their counter-claim, set-off or cross demand but, unfortunately, the pleadings in those proceedings are not yet before this Court.

Against that background the creditor asserts that the affidavit merely makes a bald assertion of a counter-claim and, in particular, of a counter-claim exceeding in amount the sum of the allocatur but fails to give adequate particulars. I reject that submission. In my view the affidavit, whilst lacking in precision and particulars which quantify the likely counter-claim, set-off or cross demand nevertheless gives sufficient information to indicate that a substantial claim is being made by the debtors further particulars of which can be found in the Supreme Court proceedings.

It must be borne in mind that the Registrar's duty under
r.10 is only to, as it were, vet the affidavits to see that

they are not frivolous, to see that on the face of them there

may be a sufficient case for investigation by the Court. If	the affidavit meets that requirement the matter is then
referred to the Court for hearing and investigation to see whether, in fact, there is a counter-claim, set-off or cross demand which equals or exceeds the amount of the debt asserted by the bankruptcy notice.
In my view the affidavits, although lacking in precision, are sufficient to indicate that there might well be such a

cross-claim, set-off or cross demand and that the matter is worthy of further investigation by the Court. My view on that point is that the Deputy Registrar correctly exercised his function in referring the matter into Court for hearing and for further investigation. I consider the Deputy Registrar was correct both in respect of the liability aspects of the asserted counter-claim, set-off or cross demand, and also in respect of the question whether the alleged counter-claim, set-off or cross demand was of an amount which equalled or exceeded the amount claimed in the bankruptcy notice. In my opinion the affidavit raises a substantial case for investigation on each of those topics.

The other point raised by the creditor is whether the affidavits sufficiently explain why the counter-claim, set-off or cross demand was not set up in the proceedings in the Supreme Court. As I have indicated the affidavits purport to address that topic. Again, in my view the Deputy Registrar correctly exercised his function under r.lO.

A difficulty may exist in the case of a bankruptcy notice founded on an allocatur. There is a conceptual difficulty in seeing how in response to an allocatur any counter-claim, set- off or cross demand could be raised; and if that is an impossibility, it would follow that requirement of the rule was fulfilled. That in itself seems to me to be a difficult question worthy of further investigation which justified the Deputy Registrar referring the matter into Court for hearing.

But further than that, on the actual factual merits, the paragraph of the affidavit does assert that there were legal technicalities which prevented the debtors setting up the counter-claim, set-off or cross demand in the Supreme Court in Action No.1060 of 1990. In the face of that assertion, in my view the Deputy Registrar properly referred the matter in to the Court for investigation. What those legal technicalities are do not appear from the affidavits, but if there were some, there may be an adequate reason why the counter-claim, set-off or cross demand was not pursued in Action No.1060 of 1990.

The assertion that there were technical difficulties gains support from the fact that there are other proceedings on foot in the Supreme Court which are yet to be resolved. If on further consideration in this Court it transpires that there were no reasons in law, or in fact, why a counter-claim, set-off or cross demand could not have been set up in Supreme Court Action No.1060 of 1990, then it will be held that the affidavits fail to comply with the requirements with

para.40(1) (g) of the Act, and r.10 - subject, of course, to

the preliminary point whether a counter-claim, set-off or

cross demand can be set up against an allocatur.

I was informed, very properly, by counsel for the creditor from the Bar table, that there are reasons for decision which were published by Master Burley on 9 October 1990 in the Supreme Court which bear on this topic; those reasons are not presently before the Court but would clearly be material on the full hearing of the debtors' applications under r. 10. I simply record that it seems from what I have been told that the debtors did make an attempt to oppose the order sought in Action No.1060 of 1990, namely orders for possession, by arguing before the Court the matters raised by their alleged counter-claim, set-off or cross demand. It seems that the Master considered that the counter-claim was not one that went to the validity of the security documents, and accordingly under the statement of principle made by the High Court in Inalis & Another v Commonwealth Tradina Bank of Australia (1972) 126 CLR 161, the existence of a counter-claim would not itself justify a stay of the claims for possession. The proper order, on the contrary, was that possession be given unless the money due under the securities be paid into Court. It appears that the debtors were in no position to pay the money into Court and were therefore in no position to resist the order for possession.

In a practical sense it may well be that on further investigation it will appear that there is substance in the assertion that the counter-claim, set-off or cross demand

could not be set up in Action No.1060 of 1990. However, that is a matter for the hearing which the Deputy Registrar has directed. It is enough for present purposes that I am satisfied that the affidavits sufficiently outlined an assertion worthy of reference into Court.

In my view the applications for review of the decisions

of the Deputy Registrar should be dismissed. There will be no
order as to costs.

I direct that the creditor, by pre-paid post despatched as soon as possible, advise each debtor that the application for review has been dismissed, that the hearing listed at 10.00 a.m. on Monday, 23 March 1992 to determine whether the debtors have a counter-claim, set-off or cross demand which equals or exceeds the amount claimed in the bankruptcy notice will proceed at that time; and that if the debtors wish to be heard on their applications they must be present in person or by counsel and be in a position to give proper particulars of their alleged counter-claim, set-off or cross demand so as to satisfy the Court that it equals or exceeds the creditor's claim.

I certify that this and the

/O preceding pages are a

true copy of the Reasons for Judgment of M r Justice von Doussa

Associate: !+? ~ & r d

Dated: /642/92

No appearance by the debtors

Counsel for the creditor	: M r R W Evans
Solicitor for the creditor	: Mouldens
Date of hearing	: 16 March 1992