Re Del Vecchio, Fernando Ex Parte Lewenberg, Alex
[1995] FCA 901
•13 NOVEMBER 1995
CATCHWORDS
BANKRUPTCY - Bankruptcy notice - Counter-claim set-off or cross demand - Whether affidavits satisfy requirements of s.41(7) Bankruptcy Act 1966
Bankruptcy Act 1966 s41(7)
Courts (Case Transfer) Act 1991 (Vict) ss21, 22, 27
Re Stockvis (1934) 7 ABC 53
James v. Abrahams (1981) 34 ALR 657
Re Racheha; Ex parte Antonios (1980) 49 FLR 423
Re Franks; Ex parte GIO Holdings Ltd (1990) 24 FCR 398
Re Doherty unreported 8 October 1993
RE: FERNANDO DEL VECCHIO; EX PARTE: ALEX LEWENBERG VN 1203 of 1995
COURT:Sundberg J
PLACE:Melbourne
DATE:13 November 1995
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VN 1203 of 1995
GENERAL DIVISION )
RE:FERNANDO DEL VECCHIO
Judgment Debtor
EX PARTE:ALEX LEWENBERG
Judgment Creditor
COURT:Sundberg J
DATE:13 November 1995
PLACE:Melbourne
MINUTES OF ORDER
The Court declares that the affidavits filed on behalf of the judgment debtor do not satisfy the description in s.41(7) of the Bankruptcy Act.
The Court orders that the judgment debtor pay the judgment creditor's costs of the proceedings.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VN 1203 of 1995
GENERAL DIVISION )
RE:FERNANDO DEL VECCHIO
Judgment Debtor
EX PARTE:ALEX LEWENBERG
Judgment Creditor
COURT:Sundberg J
DATE:13 November 1995
PLACE:Melbourne
REASONS FOR JUDGMENT
SUNDBERG J:
On 26 July 1994 the judgment creditor, a solicitor, issued proceedings against the judgment debtor in the Magistrates' Court at Melbourne for an amount claimed to be payable for professional services. The matter was to be heard on 9 March 1995, but on that day the judgment debtor requested an adjournment on the ground that he wanted to commence proceedings "in another jurisdiction". The magistrate ordered that the judgment debtor file an amended defence and counterclaim on or before 19 April 1995, and "file all appropriate steps to have the claim, counterclaim and defence transferred" to the County Court by 19 April 1995, and that in default the case proceed to hearing on 19 April. The judgment debtor did not take the steps contemplated by the orders, and on 19 April judgment was entered against him for $10,266.15 together with interest and costs. The judgment debtor did not appear at the hearing.
On 20 April the judgment debtor applied to the Magistrates' Court to have the order set aside and the matter reheard. In his affidavit in support he said that the reason he had not taken the necessary steps was that he was waiting for his accountant to calculate the amount of damages to incorporate in his proposed counterclaim. He said that his accountant's estimate of quantum was "up to $250,000". The application was dismissed.
On 24 May 1995 a Bankruptcy Notice issued on the application of the judgment creditor, based on the Magistrates' Court judgment. It required the judgment debtor to pay the respondent $14,348.48. Difficulty was encountered in serving the judgment debtor, and an order for substituted service was made on 11 August 1995. Service was effected in accordance with that order. The effect of the order was that the time for compliance with the Notice would expire on 22 September 1995. Before then, on 1 September, the judgment debtor filed an affidavit in which he claimed to have a set-off, cross demand or counterclaim exceeding the sum claimed in the Notice which he could not have set up in the proceeding against him in the Magistrates' Court. He exhibited to his affidavit a copy of the writ and statement of claim in a proceeding in the Supreme Court of Victoria commenced on 5 July 1995 in which he, his wife and Maisegrove Pty. Ltd. were plaintiffs and the judgment creditor was defendant. He deposed that he was unable to set up the cross claim "due to, inter alia, a delay in determining quantum and having regard to the jurisdiction limit of the Magistrates Court".
The Supreme Court proceeding is a claim against the judgment creditor for damages for professional negligence. The loss alleged to have been suffered by the plaintiffs is $298,026.67.
By a further affidavit sworn 27 October 1995 the judgment debtor supplemented his earlier bald statement as to why he could not have set up his cross claim in the earlier proceeding. He exhibited the affidavits on which he had relied on the rehearing application. He also exhibited what was described as a "caselog" supplied to him by the Magistrates' Court from which it appears that on 21 March 1995 steps were taken to have the case transferred to the County Court under Part 3 of the Courts (Case Transfer) Act 1991, and that on 6 June the case transfer was "stopped" because of the order made on 19 April. Also exhibited was a document called "Notice of Referral Under Part 3 of the Courts (Case Transfer) Act 1991" which the judgment debtor says was given to him on or about 23 March 1995. It bears that date, and states that the proceeding has been referred to the Designated Judicial Officer of the Magistrates' Court for consideration of a transfer to the County Court. It invited the parties to make submissions on the matter on or before 26 April 1995.
Section 41(7) of the Bankruptcy Act 1966 provides:
Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.
The act of bankruptcy created by s.40(1)(g) is a debtor's failure to comply with a bankruptcy notice or to satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the judgment debt "being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained".
The function performed by s.41(7) was explained by Deane and Lockhart JJ. in James v. Abrahams (1981) 34 A.L.R. 657, at pp.661-662:
The filing, within the time specified in s.41(7), of an affidavit to the effect that a debtor has a counter-claim, set-off or cross demand of the type mentioned in s.40(1)(g), does not constitute an application to set the bankruptcy notice aside. It operates as an automatic extension of time for compliance with the bankruptcy notice until the court can determine whether it is satisfied by the debtor that the debtor has a counter-claim, set-off or cross demand of the type referred to in s.40(1)(g). If the court is so satisfied, it is neither required nor empowered to make an order setting aside the bankruptcy notice. The result of the court's being so satisfied, within either the time originally fixed by the bankruptcy notice for compliance or the extended time resulting from the operation of s.41(7), is that failure to comply with the requirements of the bankruptcy notice does not constitute an act of bankruptcy. After the court has been so satisfied, the bankruptcy notice is spent.
After the expiry of the time which the bankruptcy notice itself fixed for compliance with its terms and up until the day on which the court determined whether it was satisfied that the debtor had a counter-claim, set-off or cross demand of the type referred to in s.40(1)(g), any order purportedly extending time for compliance would be either otiose or futile. If the affidavit filed by the debtor was to the required effect, the time for compliance with the requirements of the bankruptcy notice was automatically extended by the provisions of s.41(7). If the affidavit was not to the required effect, the time for compliance had expired and the act of bankruptcy had been committed.
In Re Doherty, unreported, 8 October 1993, Northrop J. said:
any affidavit or affidavits filed in reliance upon subsection 41(7) must be filed before the expiration of the time specified in the bankruptcy notice. If they are not sufficient to satisfy the requirements of subsection 41(7), affidavits filed after that time cannot be relied upon. Oral evidence cannot be used to cure deficiencies in the affidavits. ... This does not deny that the Court "should adopt a benevolent construction to the initial affidavit". It follows that, if the affidavits filed by the debtor do not satisfy the requirements of subsection 41(7), the act of bankruptcy occurs in conformity with the non compliance with the demands within the time mentioned in the bankruptcy notice. ... Further, this principle does not deny that, provided the debtor has complied with the provision of subsection 41(7), further evidence can be presented by the debtor and evidence may be given by the creditor at the time of hearing before the Court even if the time is after that specified in the bankruptcy notice.
In the present case the judgment creditor did not oppose the judgment debtor's reliance on the affidavit filed after the expiration of the time for complying with the Notice. The sole question argued before me was whether the judgment debtor's cross demand, the existence of which was not disputed, was one which "could not have been set up" in the Magistrates' Court proceeding. Those words contemplate a cross demand which the debtor could not by law have set up in the earlier proceeding. In Re Stockvis (1934) 7 A.B.C. 53, at p.57 Lukin J. said:
I take a counterclaim, set off, or cross demand which could not be set up as one which, from the point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained .... Mere failure to take advantage of the opportunity can hardly be said to be inability.
Counsel for the judgment debtor submitted that the judgment debtor was positively inhibited from setting up the cross demand in the Magistrates' Court. He relied upon the scheme established by the Courts (Case Transfer) Act. Section 27(1) of that Act provides
The defendant to a proceeding in ... the Magistrates' Court may apply to ... the principal registrar of the Magistrates' Court ... for an order that the proceeding be transferred to a higher court if the defendant certifies in accordance with the case transfer rules that a counterclaim involves a matter exceeding the jurisdiction of the court and that the plaintiff does not consent to the court having jurisdiction.
Sub-section (2) requires the principal registrar to grant such an application and make an appropriate order if satisfied that the requirements of the case transfer rules are met. Rule 21 of the Courts (Case Transfer) Rules 1991 requires an application under s.27 to be made in Form 7. Form 7 is a notice by the defendant to all other parties that the defendant applies for an order "that the proceedings be transferred to [suggested transferee court] ...", and in which the defendant certifies that the counterclaim "involves a matter exceeding the jurisdiction of the [transferor court] ...". Section 28 makes applicable to a proceeding transferred under s.27 the provisions of s.21(2) and (3) which deal with the effect of transfer orders made under s.21(1). Section 21(2) provides that on the making of such an order the proceeding is discontinued in the transferor court, and requires that court to send to the transferee court all documents relating to the proceeding. Section 22(1) deals with the conduct of a proceeding after transfer. It is in part as follows:
...
(b)The proceeding is subject to the procedural rules and practices of the transferee court;
(c)Unless the transferee court otherwise orders, anything done or omitted to be done in the proceeding under or in accordance with the rules of court that applied to it before the transfer must be taken, so far as possible, to have been done or omitted under the rules that apply in the transferee court;
...
(f)If the transferee court orders that costs be paid to a party in respect of the conduct of the proceeding in the transferor court in the period before the transfer, that party shall, unless the transferee court otherwise orders, be entitled to costs in respect of that period on the transferor court scale.
The judgment debtor's case was that in order to be able to certify, a defendant has to know that his claim is beyond the jurisdiction of the Magistrates' Court ($25,000), and that it is
either below the monetary limit of the County Court's jurisdiction ($200,000) or above that limit so as to come within the jurisdiction of the Supreme Court. It was said that the judgment debtor did not, at any time before judgment was entered against him in the Magistrates' Court, know what his damage was, and so he could not insert the name of the transferee court in his Form 7 certificate. The submission was that his inability to complete the certificate was a positive inhibition against him bringing a cross demand in the earlier proceeding.
In Re Racheha; Ex parte Antonios (1980) 49 F.L.R. 423 the creditor commenced proceedings against the debtor in the Court of Petty Sessions to recover the cost of building work. The debtor sought to raise a counterclaim that was in excess of that Court's jurisdiction. The Registrar rejected the counterclaim, and drew the debtor's attention to the options available to him: abandon the excess, start a separate action in the District Court, or have the action transferred to the District Court. The creditor then entered judgment. A bankruptcy notice was served on the debtor, and he filed an affidavit purporting to satisfy s.41(7) claiming that he had a counterclaim for $3250 which he could not have set up in the Court of Petty Sessions as it exceeded that Court's jurisdiction. Lockhart J. held that the affidavit did not satisfy s.41(7) because the debtor could have applied to have the action transferred to the District Court pursuant to s.12 of the Court of Petty Sessions (Civil Claims) Act 1970, and then agitated his counterclaim in the District Court. His Honour rejected a submission by the debtor that if he invoked the s.12 procedure the action in the District Court would have been a different action from that in the Court of Petty Sessions and that, in the result, his counterclaim propounded in the District Court would have been one that he could not have set up in the action in which the judgment was obtained. His Honour thought it clear that it was the same action that was transferred from the Court of Petty Sessions to the District Court and continued in the District Court. The very notion of "transfer" suggested this, as did the language of s.12, which assumed continuance in the District Court of the same action that was commenced in the lower court. His Honour pointed out that s.40(1)(g) did not speak of a cross demand that could not have been set up in the "court" in which the judgment was obtained, but one that could not have been set up in the "action or proceeding" in which the judgment was obtained. It is clear from ss.21 and 22 of the Victorian Act that what Lockhart J. said is applicable to a proceeding transferred under s.27 of that Act.
Re Franks; Ex parte GIO Holdings Ltd. (1990) 24 F.C.R. 398 is a decision to the same effect as Re Racheha. Beaumont J. held in Franks that a cross demand was not one that a debtor could not have set up in the action in which judgment was obtained against him merely because it exceeded the monetary limit of the District Court, as it was open to him to overcome the jurisdictional limit by applying for the transfer of the proceeding to the Supreme Court.
On the basis of these cases counsel for the judgment creditor submitted that the judgment debtor could have applied under s.27 for the case to be transferred to the County Court or the Supreme Court, so that after the transfer the cross-claim could have been pursued in the same transferred proceeding.
Counsel for the judgment debtor contended that Racheha and Franks were distinguishable because, unlike the position in those cases, the judgment debtor's inability to quantify his claim prevented him from identifying the appropriate transferee court for the purpose of Form 7. Section 40(1)(g) imposes on the judgment debtor the onus of establishing inability in the relevant sense: Re Franks, at p.401. In my view he has not discharged the onus. One day after judgment was entered in the Magistrates' Court he swore that "the estimate of quantum is up to $250,000". Subsequent events justify the estimate. The claim made in the Supreme Court proceeding issued in July 1995 was for $298,026.67. In order to obtain a transfer it was not necessary for the judgment debtor precisely to quantify his damage. Form 7 does not require that. All that was needed was a decision as to whether the claim was for more than $200,000. If it was, the transfer would be to the Supreme Court, and if not, to the County Court. In my view the judgment debtor could have made that decision with the knowledge available to him in the period immediately preceding the entry of judgment. But in any event, he has not established a positive inhibition of the type contemplated by Lukin J. in Stockvis. The evidence establishes no more than that on the day after judgment was entered the judgment debtor's agent had not completed the investigations necessary to enable quantification of loss and damage for insertion in the proposed counterclaim. That was not a positive inhibition operating on the judgment debtor which prevented him applying for a transfer. As I have said, precise quantification was not required in order to perform that task. The instances given by Lukin J. - point of time, nature of the cross demand, absence of empowering provisions, and positive inhibition - are cases where the law does not permit a cross demand to be set up. The judgment debtor points to no more than a difficulty encountered by his adviser in assessing, for the purpose of issuing proceedings, the precise amount of the loss. That is not a legal obstacle. It is a practical one. All that can be said is that the judgment debtor had not got round to quantifying his claim.
For the foregoing reasons I am not satisfied that the affidavits filed on behalf of the debtor answer the description in s.41(7).
I certify that this and the preceding 9 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg
........ ........ ........ ........ .......
Associate
13 November 1995
Counsel for the Judgment Debtor: Mr C D Johnson
Solicitor for the Judgment Debtor: Raelene Murlie
Counsel for the Judgment Creditor: Mr A W Ellis
Solicitor for the Judgment Creditor: Alex Lewenberg
Date of Hearing: 1 November 1995
Place of Hearing: Melbourne
Date of Judgment: 13 November 1995
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