Re Eather, Rosemary; Ex Parte Eather, Rosemary v Mayco Industries Pty Ltd
[1997] FCA 445
•1 May 1997
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
No QN 1944 of 1995
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
Re: ROSEMARY EATHER
Ex parte: ROSEMARY EATHER
Applicant
and: MAYCO INDUSTRIES PTY LTD
Respondent
CORAM: Spender J
PLACE: Brisbane
DATE: 1 May 1997
MINUTES OF ORDER
THE COURT DECLARES that it is not satisfied in relation to paragraph 2 of the application to set aside the bankruptcy notice that Mrs Eather had a counter-claim, set-off or cross demand that she could not have set up in proceedings before the Queensland Building Tribunal.
THE COURT ORDERS THAT:
The application to set aside the bankruptcy notice filed 21 February 1996 is dismissed.
The respondent to that application be awarded its costs of the application, including reserved costs, to be taxed if not agreed.
The petition filed by the creditor in No 365 of 1996 be dismissed.
The petitioning creditor pay the costs of the debtor, including reserved costs, to be taxed if not agreed.
Note:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
No. QN 1944 of 1995
BANKRUPTCY DISTRICT OF THE
STATE OF QUEENSLAND
Re: ROSEMARY EATHER
Ex parte: ROSEMARY EATHER
Applicant
and: MAYCO INDUSTRIES PTY LTD
Respondent
CORAM: Spender J
PLACE: Brisbane
DATE: 1 May 1997
REASONS FOR JUDGMENT
I am dealing today with an application to set aside bankruptcy notice No 1944 of 1995. The application was filed on 21 February 1996 by Mrs Rosemary Eather and sought orders that:
“ 1. The bankruptcy notice herein be set aside.
2.A declaration that the applicant has a counter-claim set-off or cross demand of a kind referred to in paragraph 40(1)(g) of the Act, details of which are annexed.
3.I request the court to ‘go behind the judgment’ Queensland Building Tribunal and breaches of QBSA Act 1991 and incorrect payment figure, judgment order Sept 20 1995 (QRT) lodged as bankruptcy notice No 1944 1995 by Mayco Industries Pty Ltd.”
This application is part of a much larger saga to which some brief reference has to be made. It is important to note that the application and supporting affidavit was filed on 21 February 1996 and the petition presented by Mayco Industries Pty Ltd (‘Mayco’) on 12 June 1996 asserts in paragraph 4 that:
“ Mrs Eather, within six months before the presentation of this petition, committed the following act of bankruptcy namely, that [she] failed to comply on or before the 22nd day of February 1996 with the requirements of a bankruptcy notice served on her on 24 January 1996, or to satisfy the Court that [she] had a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in paragraph (a) of the bankruptcy notice.”
Section 40(1) of the Bankruptcy Act 1966 (‘the Act’) relevantly provided:
“ A debtor commits an act of bankruptcy in each of the following cases:
...
(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia - within the time fixed by the Registrar by whom the notice was issued; or
(ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, 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.”
Section 41(7) of the Act at the relevant time provided:
“ 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 bankruptcy notice in the present case contained the usual note as follows:
“ If you have a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in paragraph (a) of this Notice, being a counter-claim, set-off or cross-demand that you could not have set up in the action in which the judgment was obtained, you may under sub-section (7) of section 41 of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counter-claim, set-off or cross-demand, as the case requires, and the reasons why you were unable to set up the counter-claim, set-off or cross-demand, and, if you do so, the time for complying with the requirements of this Notice shall be deemed to have extended until the Court determines whether it is satisfied that you have such a counter-claim, set-off or cross-demand.”
Here the condition referred to in subsection 41(7) of the Act was met with the consequence that the time for compliance was extended by force of the Act until today.
In that respect, I refer to the recent judgment of the Full Court of the Federal Court in Komesaroff v Law Institute of Victoria (unreported, Full Federal Court, Spender, Drummond, and R D Nicholson JJ, 7 April 1997 ), and to the observations of Lockhart J in Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433, where his Honour said at 439:
“ The initial affidavit filed under 41(7) operates to extend time for compliance with the requirements of the bankruptcy notice until the court determines whether it is satisfied that the debtor has the requisite counter-claim, set-off or cross-demand. Although the mere filing of the requisite affidavit brings the statutory extension automatically into play, the court thereafter controls the matter.”
His Honour continued:
“ In my opinion, the affidavit cannot merely contain an assertion that the debtor has a counter-claim, set-off or cross demand which he could not have set up in the action in which the judgment or order was obtained. The affidavit must show a counter‑claim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which the debtor could not have set up in the action in which the judgment or order was obtained: see Vogwell v Vogwell, (1939) 11 ABC 83 at 85; Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350; In re A Debtor [1935] 1 Ch 347 per Slesser LJ.”
Finally, in respect of this aspect of the matter in James v Abrahams (1981) 34 ALR 657, Deane and Lockhart JJ said at 661:
“ The filing, within the time specified in 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 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 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 section 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 in 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 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 section 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.”
The present application has its origins in a contract for the construction of a dwelling house, the contract bearing the date 21 January 1994. That contract included, amongst other things, the cost of construction of kitchen cupboards and vanity cupboards.
There have been extensive proceedings between the builder, Mr Pallada, and Mrs Eather, in which the builder made a claim for moneys due and owing and as a consequence issued a bankruptcy notice and later a sequestration order. The proceedings took place both in the Queensland Building Tribunal (‘the QBT’) and in the Federal Court in its bankruptcy jurisdiction.
Part of the difficulty in the present case is that Mrs Eather entered into a contract in respect of the kitchen with the creditor, Mayco, and the present application is concerned with dealings between those parties.
I accept the submission by Mr Cox on behalf of the creditor that these proceedings are concerned with the relations between Mayco and Mrs Eather, and are not inextricably intertwined with other contentious dealings between Mrs Eather and Mr Pallada.
The application for a sequestration order was dealt with by Cooper J on 30 May 1996. His Honour made various findings and concluded, in refusing the application for a sequestration order, by saying:
“ I am satisfied that the debtor has a genuine and serious cross-claim against the petitioning creditor in respect of the defects particularised in the two directions given by the Building Authority and that she has not been reasonably able to litigate that claim to a conclusion because of the agreement to adjourn those proceedings before the Building Tribunal to await the outcome of directions given on 10 August 1995. The petitioning creditor ought not in those circumstances be permitted to withdraw from this agreed position and thereby deny to the debtor the opportunity to successfully resist sequestration of her estate by establishing an entitlement to damages which exceeds the judgment debt on which the petition is based. The debtor has in these circumstances demonstrated other sufficient cause within the meaning of section 52(2)(b) of the Act. The petition will be dismissed.”
As is clear from the application to set aside the bankruptcy notice, Mrs Eather sets up two bases, the first of which is the existence of a counter-claim, set-off or cross demand which she could not hope to set up in the proceedings in respect of which the judgment was obtained and, secondly, an invitation for the court to go behind that judgment.
The claim in respect of the counter-claim, set-off or cross demand is an assertion that Mayco is in breach of its contract in respect of the kitchen. The claim essentially is that the amount ordered by the QBT was wrong because they heard no evidence directed to that aspect of the matter.
It is further claimed that the vanity supplied by Mayco was unsuitable for the purpose for which it was bought and could not be plumbed, and that there were damages flowing from the various aspects of breach of contract. It is further claimed that in the proceedings before the QBT, Mrs Eather was denied procedural fairness in that she was afforded no opportunity to present evidence and be heard on the claim in this respect.
There is an initial difficulty of how these complaints can be relied on, on an application to set aside a bankruptcy notice rather than constituting grounds for appeal in respect of the judgment which founds the bankruptcy notice.
It is, however, necessary to go in some detail into the various appearances and hearings before the QBT. The bankruptcy notice is based on a claim for $4,673.00 being a final judgment obtained by Mayco against Mrs Eather in the QBT on 20 September 1995. Mayco lodged an application with the QBT on 9 March 1995. That application referred to the contract amount as $7667.00 of which payment $2024.00 had been made and so the claim was for $5643.00. On 22 May 1995, an order headed “Consent Order”, was made by the QBT. The order recites:
“ Upon hearing Mr Butterfield for the applicant and Mrs Eather for the respondent in the above application, the Queensland Building Tribunal makes the following orders, by consent:
1. That the respondent pay the sum of four thousand seven hundred and twenty-one dollars ($4721.00) into the Tribunal's trust account by 4 pm on 12 June 1995.
2. That the Tribunal arrange an on site inspection between the Queensland Building Services Authority in the presence of the parties, to draw up an agreed list of work to be carried out by the applicant to complete the contract with regard to the kitchen, and a copy of the list is to be provided to the parties and to the Tribunal.
3. That the applicant shall rectify those items on the list within fourteen (14) days of receiving the list. Upon completion of the work, the applicant shall notify the Queensland Building Services Authority inspector who shall advise the Tribunal of the satisfactory completion of the work.
4. The Tribunal shall pay the sum held in its trust account to the applicant upon receipt of the Authority's report that the work is satisfactorily completed;
5. That both parties be granted liberty to approach the Registry for mediation or a further time and date for hearing.
On 3 July 1995, Mr Burnett, a member of the QBT, made an order in the following terms:
“ Upon hearing Mr Cox for the applicant and Mrs Eather for the respondent, the Queensland Building Tribunal makes the following orders:
(1) That order 1 of 22 May 1995 be amended to provide that the sum of four thousand seven hundred and twenty-one dollars ($4721.00) be paid into the Tribunal's trust account by 4 pm on 14 July 1995.
(2) That order 2 of 22 May 1995 be undertaken on or before 4 pm 21 July 1995;
(3) That the terms of order 4 of 22 May 1995 be vacated;
(4) That the application is listed for hearing at 9.30 am on Thursday, 24 August 1995 at Queensland Building Tribunal, 35 Merivale Street, South Brisbane.
It seems to me somewhat curious that these orders for the payment of sums were made, albeit by consent, on the basis of the invoice referred to in the application, unsupported by any further statements on behalf of Mayco. There seems to have been at least the suspicion that it was for the respondent to the application to disprove a claim by an applicant. It is noteworthy that the amounts in respect of which the QBT made orders were later acknowledged by Mayco to be greater than that which ought to be paid by Mrs Eather.
Notwithstanding that on 3 July 1995 the matter had been listed for hearing on 24 August 1995, Mr Burnett made further orders on 4 August 1995. The orders of those dates commence:
“ Upon hearing Mr Cox for the applicant and Mr Lewis of counsel for the respondent, the Queensland Building Tribunal makes the following order:
1.That the respondent file two copies in the Tribunal and deliver one copy to the applicant of any further material on or before:
4.00pm, 4 August 1995
2.That the applicant file two copies in the Tribunal and deliver one copy to the respondent of any material in response to the material delivered by the respondent pursuant to order No 1 on or before:
4.00pm, 14 August 1995
3.That the respondent comply with the terms of Tribunal order No 2 dated 22 May 1995 on or before:
4.00pm, 9 August 1995
4.That legal representation be permitted at the hearing.
5.That the medical reports of Doctor Cash dated 31 May 1995 and 6 June 1995 and Doctor Whiting dated 7 June 1995 held on file No C745-94 be provided to the applicant at the Tribunal Registry upon request.
6.That the hearing of this matter will proceed at 9.30am, 24 August 1995 at 35 Merivale Street, South Brisbane.”
On 4 August 1995, two days after those directions were made, an inspection was carried out by the Queensland Building Services Authority (‘the QBSA’). The report of that inspection documents a number of defects. There is reference to the bench tops, the dishwasher being unable to be located in its correct position due to height restrictions, a kitchen tidy bin was to be supplied, single leaf door supplied and fitted in regard to a towel rack, a towel rack to be fixed, as well as adjustment of doors and drawers.
On 24 August 1995, a proceeding central in many respects to Mrs Eather's present complaints was held at the QBT. On that day, Mr Lewis of counsel instructed by John Harris announced his appearance for Mrs Eather. He said immediately after announcing his appearance:
“ ...before we do proceed,...if I could ask that - Mrs Eather is not here today, and she can't be here because of an illness which has been on-going for some time, so there are, so far as I am aware, there aren't any statements at all on the Tribunal file in any event, so there won't be any cross-examination required. If she can just be excused on that basis.”
It was said by Mr Lewis that the contract was not complete, to which the Member of the QBT said:
“ [The contract is] not complete to the extent of the matters raised in the Queensland Buildings Services Authority report of 8 August 1995...”
with which Mr Lewis agreed.
Mr Butterfield, on behalf of Mayco said on that occasion:
“ This is the first knowledge I [have had of this] this morning. We've never been made ever aware in all our discussions and correspondence, and even at the last Tribunal hearing, that there was an amount to be deducted for a bench top. Now, it would appear, looking at the contract, that our original contract did include for a postform laminated bench top. If we didn't perform and didn't have to put that laminated bench top in then, we would be willing to deduct the cost of that bench top from the contract. I'm just surprised it's never been brought up before, and its never been questioned before and I just want to have time to go back to my office and talk to people and find out well why we didn't deduct the cost of the bench top.”
He later said:
“ The amount of the invoice has never been questioned. When the orders were made by the Tribunal for her to pay into the trust the balance of the moneys outstanding, she didn't object to the residual value of the invoices being correct. So it seems just strange to me that all of a sudden she has discovered that we haven't deleted an amount for the bench top, and it was only brought to my attention this morning, therefore, I really feel I should have the right to just check it out.”
Mr Lewis indicated that:
“ I'm under a difficulty here with instructions. I am unable to contact the respondent.”
After reference to the absence of material, the matter was stood down, and the Member asked Mr Lewis to obtain instructions in relation to the bench top. At that stage Mr Lewis stated that it was common ground that the vanity had not been installed.
After a short adjournment, the proceedings resumed at 12.35 pm. Mr Lewis made an important announcement to Mrs Burke, the Member constituting the QBT:
“ We have reached some or have come some way. My instructions are at the moment - and they are not in dispute with Mr Butterfield - are that there would be a compromise on the amount claimed, so that Mrs Eather, the respondent, would be liable to pay a sum of $4,673.00, which has taken into account the cost of the bench top and compromise on the cost of the vanity. Upon Mr Bob Clifford, from the QBSA being satisfied that the items that he mentioned in his report have been fulfilled in a satisfactory manner.”
He later said, in relation to the payment of funds into the trust account:
“ Mrs Rosemary Eather is prepared to accept the Tribunal's direction on that.”
As a consequence of those statements and discussions, the orders of the QBT on 24 August 1995 were as follows:
“ Upon hearing Mr Butterfield for the applicant, and Mr Lewis for the respondent in the above application, the Queensland Building Tribunal makes the following order:
1. That the respondent give access to the applicant upon the applicant giving the respondent 24 hours notice.
2. That the rectification work required by the Queensland Building Services Authority, (the Authority) report dated 8 August 1995, be completed by the applicant by 4 pm, 1 September 1995.
3. That a report from Mr Clayton, an authority inspector be obtained thereafter upon an inspection by Mr Clayton on or before 4 pm 8 September 1995.
4. That the amount of the $4,673.00 be paid by the respondent to the Queensland Building Tribunal's trust account by 4 pm, 31 August 1995.
5. That the said amount of $4,673.00 be paid to the applicant, by the Tribunal, upon receipt of the report of the authority inspector that the rectification works have been carried out.”
On 7 September 1995, Mr Clayton made an inspection and reported that the matters required to be completed or rectified had been done.
On 20 September 1995, there was a telephone hookup, at which Mr Butterfield, for Mayco, was present. Mr Cotterill, the Chairperson of the QBT presided, and Mr Lewis was also present by telephone. The transcript of those proceedings indicate that Mr Lewis said:
“ Yes, Mrs Eather is here with me incidentally. The position that we are in at the moment with my instructions from Mrs Eather is that she has gone to the bank; she hasn't been able to raise the funds which were part of an overall amount that she had arranged to borrow from the bank for the entire building project. There are a number of reasons why she can't raise the funds at this stage. There are other things that are going on concerning the building.”
And later:
“ First of all, she needs further time to raise the money, or she will need to make application for instalment payments under the Tribunal's powers.”
Mr Butterfield complained that Mrs Eather had been using every possible tactic to delay payment of this, to which Mr Lewis responded:
“ Well, just in response to that, the matter was compromised at the hearing of this action, because, as you were aware, there were deductions to be made, and Mrs Eather, at all times, says she wasn't obliged to pay the full amount that you claimed, and I don't think you took any issue with the fact that there had to be some deductions taken at least for work that wasn't performed by you but was included in your invoice.”
Mr Butterfield said:
“ No, I dispute that totally. I mean, we fully complied with our contractual arrangement.”
Later, Mr Lewis said that Mrs Eather had attempted to get the money from the bank. There was a suggestion that she pay the money off at $20.00 per month, and, at the conclusion of that hearing, the Tribunal made the following orders:
“ Upon hearing Mr Butterfield for the applicant and Mr Lewis for the respondent, the Queensland Building Tribunal makes the following orders:
(1) The respondent pay the sum of four thousand six hundred and seventy-three dollars ($4673.00) to the applicant, by 4pm on 18 October 1995;
(2) That in default of payment, the respondent shall pay interest at the rate of 11% per annum on that sum from today's date until final payment is made.”
On 9 November 1995, a certified copy of the order of the Queensland Building Tribunal, together with an affidavit of Darryl Leonard Cox, was filed in the District Court at Brisbane, and Mrs Eather was served with a certified copy of the order made by the QBT on 20 September 1995.
I am satisfied, having regard to the history of the matter that I have set out in such detail above, that complaints by Mrs Eather concerning the kitchen - work done by Mayco - were compromised by her representative in the proceedings before the QBT.
This is not a case where any outstanding complaints concerning that work remain for a basis for complaint by Mrs Eather. If, as is contended on her behalf, Mr Lewis acted contrary to his instructions from Mrs Eather or without authority, that is a matter which might be taken up in other proceedings, but they can have no relevance to the circumstances here. One might, however, note that the conversation of what occurred on 20 September 1995 recorded that it occurred in the presence of Mrs Eather, and the whole tenor of that conversation is consistent with the fact that there was an amount agreed by way of compromise of the disputes between Mrs Eather and Mayco concerning the kitchen work, and that Mrs Eather did not have the capacity to pay the sums which had been ordered to be paid earlier.
It seems to me that the nature of the present complaints advanced by Mrs Eather concerning the kitchen work are not matters which found a counter-claim that could not have been set up in the proceedings in the QBT, and therefore, is not a counter-claim of the kind referred to in paragraph 40(1)(g) of the Act. There are, in the material filed on behalf of Mrs Eather, other claims set up as counter-claims, including claims that Mayco vexatiously and oppressively brought proceedings against her; that Mayco brought a proceeding against her which caused her loss, inconvenience and embarrassment resulting from the proceedings, and that she ought to be able to rely on these matters.
In my opinion, these claims are merely asserted. There is no evidence to support a prima facie view as to their existence, but, moreover, it seems to me that if it were competent for a claim to be advanced in respect of these kinds of matters, I am not persuaded that they could not have been set up in the proceedings as a set-off in respect of the claims by Mayco. In the circumstances, the court is not satisfied that Mrs Eather has a counter-claim, set-off or cross demand that she could not have set up in the proceedings before the QBT and which exceed the amount claimed by the creditor.
The effect of that conclusion is that the Act provides that, on the filing of an affidavit to the effect that Mrs Eather had a counter-claim, set-off or cross demand, of the kind referred to in paragraph 40(1)(g), the force of the Act itself extended the time for compliance with that bankruptcy notice until today. It seems to me that, on the application to set aside the bankruptcy notice, the respondent, Mayco Industries Pty Ltd, should have its costs of that application, including reserved costs, to be taxed if not agreed.
In respect of the application to set aside the bankruptcy notice, that application is dismissed. The court, I have indicated, is not satisfied in relation to paragraph 2 of that application that Mrs Eather has a counter-claim, set-off or cross demand that she could not have set up in the proceedings in the QBT in respect of which the debt which founds the bankruptcy notice was made.
The respondent to that application, Mayco Industries Pty Ltd, should have its costs of that application, including reserved costs, paid by Mrs Eather; those costs to be taxed if not agreed. In relation to the creditor's petition No 365 of 1996 which in my view is based on a misunderstanding of the effect of s 41(7) of the Act, the petition is dismissed, and I order that the petitioning creditor pay the costs of the debtor, including reserved costs, to be taxed if not agreed.
I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.
Associate
Date: 1 May 1997
The applicant appeared in person.
Solicitor for the respondent : Mr D Cox of Masinello & Associates
Date of hearing : 14 October 1996
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