Re Deen; Ex Parte Deen v Muller

[1995] FCA 633

CATCHWORDS

BANKRUPTCY - Bankruptcy notice - s. 41(7) affidavit filed showing assignment to debtor after judgment obtained against debtor by creditor of a debt owing by the judgment creditor to another - whether debtor could have set up counter-claim in proceedings in which judgment debt obtained - valid counter-claim in fact set up.

Bankruptcy Act 1966 (Cth) - ss 40(1)(g) and 41(7)

In re A Debtor [1914] 3 KB 726 Applied
Re Vicini (1982) 64 FLR 323 Applied

Re Mohamed Hussian Karim Deen
Ex parte Mohamed Hussian Karim Deen v Alexander Muller
QN 554 of 1995

Drummond J
Brisbane
11 August, 1995

IN THE FEDERAL COURT OF AUSTRALIA   )     No. QN 554 of 1995
GENERAL DIVISION                   )
BANKRUPTCY DISTRICT OF             )
THE STATE OF QUEENSLAND            )

RE:MOHAMED HUSSIAN KARIM DEEN

Debtor

EX PARTE:MOHAMED HUSSIAN KARIM DEEN

Applicant

ALEXANDER MULLER

Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER:                Drummond J
DATE OF ORDER:  11 August, 1995
WHERE MADE:  Brisbane

THE COURT DECLARES THAT:

1. The applicant judgment debtor has a counter-claim, set-off or cross demand of the kind referred to in s. 40(1)(g) the Bankruptcy Act 1966 (Cth).

THE COURT ORDERS THAT:

1. The respondent judgment creditor pay the applicant judgment debtor's costs of and incidental to today's hearing.

NOTE:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA   )    No. QN 554 of 1995
GENERAL DIVISION                   )
BANKRUPTCY DISTRICT OF             )
THE STATE OF QUEENSLAND            )

RE:MOHAMED HUSSIAN KARIM DEEN

Debtor

EX PARTE:MOHAMED HUSSIAN KARIM DEEN

Applicant

ALEXANDER MULLER

Respondent

CORAM:    Drummond J
PLACE:    Brisbane
DATE:     11 August, 1995

REASONS FOR JUDGMENT

This is an application by a judgment debtor to set aside a bankruptcy notice demanding payment of a judgment debt for $7,722.36.  The background to the dispute is a contract entered into by a company called Lyshall Pty. Ltd. ("Lyshall") by which it sold a business to the judgment creditor.  Lyshall was the trustee of the Deen Family Trust.  The debtor was a director of that particular company.  The company carried on the business of converting cars into stretch limousines under the name "Presidential Coach Builders".  The cars were usually imported.  After the sale was completed, it became apparent that the import licenses held by Lyshall, which were essential to the carrying on of the business, could not be transferred to the creditor.  It was therefore decided to sell the company to the creditor.  Before that took place, Lyshall retired as trustee of the Deen Family Trust and various members of the family, including the debtor, became the trustees in place of the company.  The assets of the company, which were of course trust assets, were transferred to the new trustees.

Litigation arose between a supplier to the creditor's business and the creditor.  The creditor brought the debtor into that litigation as a third party and recovered judgment from the debtor.  He then issued a bankruptcy notice calling on the debtor to pay the amount of the judgment of $7,722.36.

Shortly after the service of the bankruptcy notice and within the time allowed by s. 41(7) to file an affidavit showing that the debtor had a counter-claim of the kind referred to in s. 40(1)(g) the Bankruptcy Act 1966 (Cth), the trustees, who included, as I have said, the debtor, assigned to the debtor a debt of $31,900 owing by the creditor to the trustees in respect of the unpaid balance of the purchase price under the contract for the sale of the business that I have referred to.  Notice of this was given to the creditor.

The debtor, in reliance upon this assignment, asserts that he has a good counter-claim sufficient to defeat the bankruptcy notice.  Authority supports him in this contention.  In a very similar factual situation, the Divisional Court in In re a Debtor [1914] 3 K.B. 726, under a provision similar to s. 40(1)(g) the Bankruptcy Act 1966 (Cth), held that even accepting that the debtor could have, had he so chosen, obtained the assignment in time to set up the counter-claim in the action, the bankruptcy notice still had to be set aside inasmuch as the debtor, as matters stood at the time the action was proceeding, had no legal entitlement to set up the counter-claim in that action before judgment.  That is an approach which has been applied in this Court by Fisher J in Re Vicini (1982) 64 F.L.R. 323 at 326. His Honour regarded the ruling in In re A Debtor, supra, as stating a principle applicable to proceedings under the Australian legislation.

The solicitor for the creditor relies on three arguments to answer the attack on the creditor's bankruptcy notice.  Firstly, he attacks the validity of the assignment to the debtor.  He refers to clause 13 of the Deen Family Trust Deed which prohibits the trustee from taking any benefits under the trust (except for certain presently irrelevant benefits).  He submits that the debtor, who was one of the trustees at the time who made the assignment, took the assignment in breach of this clause, i.e., in breach of trust.  But all clause 13 prohibits is a trustee taking a benefit "under the trust".  For a trustee to take for value an assignment of trust property with the consent of all the beneficiaries does not, in my opinion, involve him taking any benefit "under" the trust.
         Next, the solicitor for the creditor submits the assignment was not a proper one in view of clause 3 of the deed of assignment, which provides:

"In consideration of this assignment Mohamed Hussian Karim Deen agrees to pursue recovery of the debt from [the creditor], and to pay to the trust the sum of 50% of any moneys actually received by him (but not including any moneys effectively received by way of set-off or settlement)."

The solicitor submits that the debtor got so much of the assigned debt as is necessary to meet the judgment debt without, in effect, giving any consideration to the trust for that part of the debt.  But that element of the assignment cannot, in my opinion, be isolated from the rest of what was assigned.  That element of the assignment was obtained in return for the debtor assuming the burden of prosecuting the claim on the assigned debt against the creditor, just as much as was the debtor's entitlement to share equally with the trust in any moneys recovered from the creditor after setting aside from those moneys the amount equal to the judgment debt so obtained.

Finally, the solicitor seeks to distinguish In re A Debtor, supra, on the basis that there is a difference which he contends is of present significance between the wording of the English Act and the Australian Act.  The English Act required a counter-claim, if it was to defeat a bankruptcy notice based on a judgment debt, to be one which the debtor:

"... could not set up in the action in which the judgment was obtained."

Under the Australian Act, the counter-claim, if it is to be sufficient for such a purpose, must be one which the debtor:

"... could not have set up in the action or proceeding in which the judgment or order was obtained."

The solicitor for the creditor stresses the presence of the word "have" in the Australian, but not in the English, legislation and submits that because the debtor here could, by procuring a timely assignment of a debt owing by the creditor to the trust, have set the assignment up as a counter-claim in the action in which the creditor obtained his judgment.  In my opinion, this difference in wording between the two sections does not provide any reason for not applying to the Australian legislation the principle in In re A Debtor, supra. The principle for which that case is authority is that in order to determine whether a judgment debtor is entitled to defeat a bankruptcy notice based upon the judgment by reason of a counter-claim, it is only causes of action which the debtor was entitled to plead up to the time the judgment was given that are capable of amounting to a counter-claim of the kind referred to in s. 40(1)(g). Such an approach fits in exactly with the ordinary meaning of the relevant phrase in s. 40(1)(g) of the Australian Act. The principle in In re A Debtor, supra, has, as I have said, been applied by Fisher J to the Australian legislation.  I reject the argument.

I will therefore declare that the applicant judgment debtor has a counter-claim, set-off or cross demand of the kind referred to in s. 40(1)(g) the Bankruptcy Act 1966 (Cth) in relation to the judgment debt, the payment of which is demanded by the bankruptcy notice the subject of this application.

It seems to me that the proper order for costs is that the respondent to the application should pay the applicant's costs limited to the costs of today's hearing on the basis that he elected to defend the matter when he, by that stage, had already been put into possession of all the material relied on by the applicant which has yielded success to the applicant.

I certify that this and the preceding
five pages are a true copy of the
reasons for judgment herein of the
Honourable Justice Drummond.

Associate:

Date:             11 August, 1995

Solicitors for the debtor:           Russell and Company

Solicitors for the creditors:        Walters & Co.

Date of Hearing:  11 August, 1995