Re Kleiss, C.A. v Ex parte Commonwealth Bank of Australia
[1995] FCA 408
•23 JUNE 1995
CATCHWORDS
BANKRUPTCY - affidavit filed under s41(7) - whether affidavit had effect of extending time - affidavit not in conformity with s41(7)
Bankruptcy Act 1966, ss 40(1)(g), 41(7)
Biztole Developments Pty Ltd v McLean, 5 May 1995, unreported,
Full Court of the Federal Court
Re Ryan; Ex parte Ryan v Jupiters Management Ltd (1992) 38 FCR
127
Bryant v Commonwealth Bank of Australia, 9 November 1994, unreported, Full Court of the Federal Court
Re Brink; Ex parte The Commercial Banking Co of Sydney Limited
(1980) 44 FLR 135
Re McKechnie; Ex parte Weir (1991) 27 FCR 515
Re Laybut; Ex parte Robinson, 26 June 1985, unreported,
Beaumont J
Re Willats; Ex parte Nissan Finance Corporation Ltd (1991) 31
FCR 206
Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd
(1993) 46 FCR 183
Re Adami; Ex parte Queensland Country Credit Union Ltd, 6 June
1995, unreported, Kiefel J
Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty
Ltd (No 2) (1994) 51 FCR 14
No. NN 3656 of 1994
RE CHRISTOPHORUS ANTONIUS KLEISS; EX PARTE COMMONWEALTH BANK OF AUSTRALIA
MOORE J
SYDNEY
23 JUNE 1995
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION ) No. NN 3656 of 1994
BANKRUPTCY DISTRICT OF THE )
STATE OF NEW SOUTH WALES )
RE: CHRISTOPHORUS ANTONIUS KLEISS
EX PARTE: COMMONWEALTH BANK OF AUSTRALIA
JUDGE: Moore J
PLACE: Sydney
DATE: 23 June 1995
ORDER OF THE COURT
THE COURT ORDERS THAT:
The matter is adjourned to enable the parties to bring in short minutes.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION ) No. NN 3656 of 1994
BANKRUPTCY DISTRICT OF THE )
STATE OF NEW SOUTH WALES )
RE: CHRISTOPHORUS ANTONIUS KLEISS
EX PARTE: COMMONWEALTH BANK OF AUSTRALIA
JUDGE: Moore J
PLACE: Sydney
DATE: 23 June 1995
REASONS FOR JUDGMENT
On 8 December 1994 an affidavit of Mr Christophorus Kleiss was filed in bankruptcy proceedings arising from a judgment debt payable by Mr Kleiss to the Commonwealth Bank of Australia ("the Bank") in the sum, including interest, of $273,441.56. Judgment had been obtained in the Supreme Court of New South Wales. On 26 October 1994 a bankruptcy notice based on that judgment debt had been issued by the Registrar in Bankruptcy and served on Mr Kleiss on 17 November 1994. The notice demanded payment within twenty eight days of the date of service viz by 15 December 1994.
Provision for the filing of such an affidavit is found in Rule 10 of the Bankruptcy Rules. That rule together with s41(7) of the Bankruptcy Act 1966 ("the Act") establishes a procedure which enables a person on whom a bankruptcy notice has been served to file an affidavit with the result, ordinarily, that the Court then considers the matters referred to in s40(1)(g) of the Act. This procedure was discussed and explained by Foster J in Re McKechnie; Ex parte Weir (1991) 27 FCR 515.
Section 40(1)(g) provides:
"(1)A debtor commits an act of bankruptcy in each of the following cases:
(a)...
(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;"
and s41(7) provides:
"(7)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 time referred to in the opening words of s41(7) may
be extended: see Biztole Developments Pty Ltd v McLean, 5 May 1995, unreported, Full Court of the Federal Court. It can be seen that in order to satisfy s40(1)(g), the judgment debtor must establish a number of matters. The first is that there exists, at least prima facie: see Re Ryan; Ex parte Ryan v Jupiters Management Ltd (1992) 38 FCR 127, a claim of the type comprehended by the paragraph. However it is also necessary that the judgment debtor demonstrate that the claim relied upon "could not have been set up in" the proceedings that gave rise to the judgment debt. However the Court need only consider these matters if the time for complying with the bankruptcy notice has been extended by the operation of s41(7). This, in turn, depends on the contents of the affidavit filed in the manner provided for in Rule 10.
The affidavit filed on 8 December 1994 refers to the proceedings in the Supreme Court and annexes various documents to which I return shortly.
The affidavit goes on to say:
I have no money and no assets and cannot afford to pay for legal representation.
I am continuing to seek legal representation in order to appeal the decisions of both Judge O'Keefe and Judge Giles, and to press my cross claim against the Plaintiff.
The basis for my appeal and cross claim in so far as I am able to present it, is contained in the documents annexed hereto and marked with the letters 'B1' to 'B3'.
I deny that I am indebted to the Plaintiff."
The Bank submitted that affidavit does not meet the
requirements of s41(7). The form of the affidavit required by that subsection has most recently been considered by a Full Court of the Federal Court in Bryant v Commonwealth Bank of Australia, 9 November 1994, unreported. The Full Court said:
"Section 41(7) provides for an extension of time for compliance with the bankruptcy notice so as to allow the Court time to hear the parties and to consider the debtor's claim that he has a counterclaim or set-off as described in s.40(1)(g). The mere filing of an affidavit which satisfies the terms of the subsection will bring the extension of time, for which the section provides, into operation. As an affidavit is required, it must verify the cross-claim or set-off, it must verify that the cross-claim or set-off equals or exceeds the amount of the judgment debt, and it must verify the fact that the cross claim is one which could not have been set up in the action which the judgment order was obtained. In Re Brink; Ex parte The Commercial Banking Co of Sydney Limited (1980) 44 FLR 135 Lockhart J said at 142:-
'In my opinion the affidavit cannot merely contain an assertion that the debtor has a counterclaim, 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 counterclaim, 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, at p85; Ebert's Case (1960) 104 CLR, at p350; Re A Debtor per Slesser L.J. [1935] 1 Ch 347, at p352.'
His Honour went on to comment, however, that because of the time constraints imposed by s41(7), and because the affidavit would be a mere initial affidavit, the Court should adopt a benevolent construction to the initial affidavit."
Mr Kleiss submitted the affidavit was adequate and referred to not only the judgment of Lockhart J in Re Brink; Ex parte The Commercial Banking Co of Sydney Limited (1980) 44 FLR 135, but also to the judgment of Foster J in Re McKechnie; Ex parte Weir, supra, to support a submission that the affidavit filed on 8 December 1994 conformed with the minimum requirements of s41(7). In addition, reliance was placed on a judgment of Beaumont J in Re Laybut; Ex parte Robinson, 26 June 1985, unreported which was referred to by Foster J in McKechnie, supra.
It is apparent from these judgments that while the affidavit must contain certain information so as to conform with the statutory requirements, a benevolent approach should be taken to the construction of an affidavit filed by a judgment debtor. However there are plainly limits on the extent to which the Court may benevolently construe the affidavit. So much is apparent from Bryant, supra in which the Full Court concluded that the affidavit lodged by the judgment debtor did not satisfy the requirements of s41(7).
I have already set out the relevant paragraphs of the affidavit of Mr Kleiss. Two matters clearly emerge from it, namely that Mr Kleiss asserts he has a cross-claim and that he denies he is indebted to the Plaintiff. The two statements are plainly linked and Mr Kleiss is saying, in effect, that the amounts due under the cross-claim exceed the amounts of the judgment debt.
However it is clear from the judgment of the Full Court in Bryant, supra, which I am bound to follow, that it is necessary for the affidavit to verify that the cross-claim could not have been set up in the proceedings that gave rise to the judgment debt. Annexed to the affidavit is a written submission of Mr Kleiss dated 23 February 1994 which was a submission to be made to the Supreme Court prior to judgment being entered. The submission includes a paragraph with the opening words "from the proposed judgment I learned that;" which is then followed by a discussion of the method by which Mr Kleiss' indebtedness to the Bank should be recalculated having regard to findings made by Levine J that certain debits made to Mr Kleiss' bank account should not have been made. Those debits related to fees for dishonoured cheques. Later in the submission he refers to the dishonoured cheques and says that the "cheques could not and would not have been dishonoured had the debits, in particular those made in April and June and referred to by his Honour, not taken place". The submission goes on to say that a conclusion could be drawn that the Bank had embarked on a deliberate campaign to close down his business and defame him. This may be taken to be some evidence of the nature and existence of the cross-claim he would wish to bring against the Bank.
This affidavit must be read having regard to the information on this Court's file at the time it was filed on 8 December 1994. The application filed on 25 October 1994 for the issue of the bankruptcy notice contained a copy of the judgment in the Supreme Court which provided information which indicates judgment was not finally entered until 23 February 1994. So much can be inferred from the fifth order, namely that judgment be stayed for 28 days from 23 February 1994.
A benevolent reading of the affidavit including the annexures would indicate that Mr Kleiss sought to amend his cross-claim on 23 February 1994 and did so to raise a case founded, in part, on findings made by Justice Levine in the reasons for judgment published in December 1993. It is also apparent that the attempt to amend the cross-claim was unsuccessful.
The question that then arises is whether the affidavit addresses the question of whether the cross-claim could not have been set up in the Supreme Court proceedings. At this stage, in my opinion, a distinction has to be drawn between whether the affidavit contains material directed to that issue and whether ultimately a finding can be made, by reference to that material, that the claim could not have been set up in the sense that it could not, because of some legal obstacle, be set up in the proceedings: see Re Brink, supra, at 139, Re Willats; Ex parte Nissan Finance Corporation Ltd (1991) 31 FCR 206, Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (1993) 46 FCR 183 and Re Adami; Ex parte Queensland Country Credit Union Ltd, 6 June 1995, unreported, Kiefel J. However even bearing in mind that distinction, I am not satisfied that the affidavit provides any evidence showing why the cross-claim could not have been set up in the proceedings in the Supreme Court. The mere refusal of the Court to permit the amendment of the cross‑claim and the understanding that Mr Kleiss derived from findings of fact made by the trial judge and published in his reasons in December 1993, go only to the question of whether the cross-claim could, as a matter of practicality, have been set up in the proceedings in the Supreme Court. There is no material which addresses the question raised by s40(1)(g), namely the existence of circumstances that would enable a submission to be made that the cross-claim could not have been "set up" as that expression appears in s40(1)(g).
This might be thought to be an oppressive conclusion visited upon a litigant in person who, by his own admission and understandably, knows little of the complexities of Australian bankruptcy law. However it must be borne in mind that the legislative scheme is one in which the filing of an affidavit under s41(7) has the effect of extending the time fixed for compliance with the requirements of a bankruptcy notice. The failure of a judgment debtor to comply with the notice within that time is a significant element of the scheme created by Div1 of PtIV of the Act. If the affidavit is not one that enlivens the provisions of s41(7) so as to create a deemed extension of time, then an act of bankruptcy may then have been committed by the failure to comply with the notice: see Re McKechnie, supra, at 518.5. It also has to be borne in mind that the existence of a claim by the debtor to a set-off or cross demand can, in appropriate circumstances, justify the Court declining to make a sequestration order on a petition based on the act of bankruptcy: see Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 2) (1994) 51 FCR 14.
The affidavit filed on 8 December 1994 was not such an affidavit. I will adjourn the matter to enable the parties to bring in short minutes to reflect this judgment.
I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Moore.
Associate:
Date:23 June 1995
Litigant in Person: Mr C.A. Kleiss
Counsel for the Respondent: Mr C. Hodgekiss and
later Mr A. Hill
Solicitor for the Respondent: Abbott Tout
Date of hearing: 3 & 24 April
& 8 May 1995
Date of judgment: 23 June 1995
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