Re McIntyre, C.J. Ex parte Leasepac Australia Pty Ltd

[1989] FCA 528

C A T C H W O R D S

BANKRUPTCY - counter-claim, set-off or cross demand - counter- claim pleaded in Supreme Court - whether "could not have set up" counter-claim in that action - effect of error in Supreme Court judgment.

Bankruptcy Act 1966, s.QO(l)(g), s.Ql(7)

Re: Colin Joseph McIntyre
Ex parte: Leasepac Australia Pty Limited

Qld P496 of-89

PINCUS J.
BRISBANE

B SEPTEMBER 1989

IN THE FEDERAL COURT OF AUSTRALIA	1
GENERAL DIVISION	) QLD L496 of 1989
BANKRUPTCY DISTRICT OF THE SOUTHERN	)
DISTRICT OF THE STATE OF QUEENSLAND

RE: COLIN JOSEPH MCINTYRE

EX PARTE:  LEASEPAC AUSTRALIA PTY LIMITED

MINUTES OF ORDER

JUDGE MAKING ORDER:	PINCUS J.
DATE OF ORDER:	8 SEPTEMBER 1989
WHERE MADE:	BRISBANE
THE COURT DETERMINES THAT:

1. the debtor, Colin Joseph McIntyre, does not have such a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt as is referred to in s.40(l)(g).

THE COURT ORbERS THAT:

2.    the costs of and incidental to this determination be petitioning creditor's costs in the proceedings.

NOTE :	Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	)  QLD P496 of 1989
BANKRUPTCY DISTRICT OF THE SOUTHERN	)
DISTRICT OF THE STATE OF QUEENSLAND	)

RE: COLIN JOSEPH MCINTYRE

EX PARTE:  LEASEPAC AUSTRALIA PTY LIMITED

PINCUS J . 8 SEPTEMBER 1989

REASONS FOR JUDGMENT

A bankruptcy notice has been issued and served and the judgment debtor has filed an affidavit with the intention of satisfying the Court that he has a counter-claim set-off or cross demand of the kind mentioned in s.40(l)(g) of the Bankruptcy Act 1966. When the matter came on for hearing, the debtor neither appeared nor was represented. Nevertheless, as it appears to me,

I am required to make the determination contemplated by the Act

and rules.

The judgment on which the bankruptcy notice is based was given in the Supreme. Court of Queensland on 7 March 1989. The debtor had delivered a defence and counter-claim. The effect of the judgment was that the creditor should recover against the debtor and against another defendant a sum of $54,000 "for claim" and $33,023.99 for interest. The Court's order then provided for costs, refused a stay of execution and concluded:

"AND I T IS FURTHER ORDERED that there be liberty to

apply for directions as to the counter-claim".

It will be seen that the total amount of the judgment, excluding the provision for costs, is $87,023.99.

The basic facts of the matter are not easy to gather from the material. The most detailed account of them is included in an affidavit of Mr I.C. Whittle on behalf of the creditor. That has been filed, but was not served on the debtor before the hearing, so that the debtor had no opportunity to respond to it. Nevertheless, since the debtor did not appear, I see no reason why

I should not take the creditor's affidavit into account.

It is convenient to begin with the statement of claim in the Supreme Court suit. That sets out that on 9 April 1987, an agreement for loan was made between "the Plaintiff as Lender, the First Defendant as Borrower and the Second Defendant as Guarantor". The plaintiff in the suit is, of course, the judgment

notice was issued, is the first defendant.	creditor and the judgment debtor, against whom the bankruptcy	The statement of claim goes on to set out certain terms of the alleged loan agreement and asserts in para.8 that the creditor "advanced the sum of $54,000" to the debtor on 9 April A copy of the agreement referred to in the pleading is
produced. It recites a consideration of the creditor agreeing to lend to the debtor the sum of $54,000.
This is consistent with the statement of claim; that is, the agreement is drawn up as if there were to be an advance of $54,000 under the agreement. It turns out, however, that both the allegation in the statement of claim and the statement of consideration are untrue, if Mr Whittle's affidavit is correct; he deposes to the following transactions:

(i February 1986 Loan of $10,000

(ii) October 1986 Loan of $30,000

Mr Whittle's affidavit does not suggest that there was

any further advance.

The discrepancy between the $40,000 which was (according
to Mr Whittle's affidavit) actually advanced in 1986 and the sum

of $54,000, which, according to the loan agreement, was to be

advanced, is explained in the affidavit as follows.

Firstly, under the February 1986 loan agreement, the debtor, having borrowed $10,000, was to repay that same sum "plus ten thousand dollars ($10,000) guaranteed profit".

It appears to me that the "guaranteed profit'' was not in
fact recoverable, being caught by 6.14 of the Moneylenders Act

1916 (Q.). That statute, which has, since the events in question, been repealed by Act No. 52 of 1987, prohibited with certain

exceptions the charging of moneys -

"For or in respect of the making ... of any loan

. . . 11

Although the section does not make this clear, it seems plain that the charging of interest is not within s.14; an example of its operation can be found in the decision of the Full Court of the Supreme Court in Butler v. Grininq 119491 st.~.Qd. 306.

The High Court has held that breach of 6.14 does not wholly invalidate the transaction in question, but only invalidates it insofar as it purports to impose the proscribed liability: Bedwell v. Stapleton (1954) 94 CLR 567. It appears, therefore, that the sum of $40,000, not $50,000, was due and it is quite clear that no sum of $54,000 was advanced under the agreement eued on in the Supreme Court.

The additional $4,000, according to Mr Whittle's affidavit, was made up of "interest and costs".

The debtor's affidavit does not take any point of the kind just mentioned. .The affidavit complains that on 17 March the creditor agreed to advance $450,000 and relying on that, the debtor entered into an agreement "for an unsecured loan on 9th April 1987". The affidavit goes on to say that the creditor failed to advance "the moneys due pursuant to the said partnership agreement". That reference is obscure, sincy no partnership agreement is mentioned earlier in the affidavit, but I assume that what is meant is that the creditor refused to advance the $450,000.

The affidavit foreshadows a claim for damages totalling In his affidavit, Mr Whittle says in effect that he agreed with the debtor that the creditor would arrange finance to purchase an interest in a bakery "through Trade Credits Limited" in a sum of $450,000. Mr Whittle says that the transaction did not proceed because the debtor did not come to an agreement to buy the interest in the bakery. There appears to me to be a conflict on that point, since the debtor swears that he entered into a contract to purchase the bakery about 3 October 1986. It would not ordinarily be appropriate to attempt to resolve that conflict on an application of this sort, particularly as Mr Whittle's affidavit was not served on the debtor. However, the affidavit of Mr Whittle exhibits a copy of a letter he wrote to the debtor, which requires consideration.

The letter, which is dated 17 March 1987, purports to confirm a conversation of 16 March relating to the purchase of the bakery. It mentions as a condition a promise by the debtor to repay the $30,000 referred to above advanced in October 1986, plus the $20,000 also referred to above. Mr Whittle also exhibits a copy of a letter dated 6 April 1987 written by him to the debtor, which expresses disappointment on the ground that the debtor had

failed to return Mr Whittle's phone calls. It also asserts that Mr Whittle understood that the debtor was to speak to one Allen of Network Finance Limited, that Allen had requested several items of information, but the debtor had not contacted Allen.

The only other point which it is necessary to mention about Mr Whittle's affidavit is that he produces an acknowledgment of debt (recording advances totalling $40,000) signed by the debtor on 6 April 1987. He says, however, that that "may have been signed a week or two later". If so, it does not reconcile easily with the contract of 9 April 1987 which provided for payment of a larger sum and a higher rate of interest than the acknowledgment of debt.

To show such a counterclaim as is necessary, the debtor does not need to show more than that he has a "prima facie" case: Ebert v. The Union Trustee Company of Australia Limited (1960) 104 CLR 346 at 350.

Although the material speaks loosely of the proposed

advance as made under a partnership agreement, the correspondence

would be formed. Further, the correspondence suggests that the	exhibited by Mr whittle suggests that the idea was that a company
money was to come, not from the creditor, but from another company; Network Finance Limited is mentioned in the letter of 6 April 1987.
In those circumstances, I have come to the conclusion that I should not hold that the debtor has a bona fide claim against the creditor for the latter's breach of a partnership agreement in failing to advance a sum of $450,000. The principal reason for so holding is that the parties seem to have contemplated that the money would be advanced by a company other than the judgment creditor, so that if it appears that a debtor has any good cause of action against the creditor, it must be one for failing to procure another to make a loan. Further, it seems that the borrower was to be a company, to be formed.
It should be added that, in my opinion, the fact that the debtor pleaded the counter-claim in question in the Supreme Court does not prevent it from being one which the debtor "could not have set up in the action or proceeding in which the judgment or order was obtained". Although it involves some straining of language, the expression "could not have set up" should in my view be read as including cases in which the defendant has been precluded, by an order of the Court in which judgment was obtained, from using his counter-claim as an answer to the creditor's suit.
In the result, although it appears to me that judgment was entered for too great a sum and on a statement of claim which
was incorrect, in that there was in truth no advance of $54,000
under the agreement pleaded, the debtor has failed to satisfy me that he has such a counter-claim set-off or cross demand as is mentioned in s.40(l)(g) of the Bankruptcy Act 1966. There will be an order that the Court determines accordingly, under s.41(7) of the Act and the costs of and incidental to that determination will be petitioning creditor's costs in the proceedings.

I c-rtify that this and tho six preceding pages a r *

a true copy of th. remsons for judqnant h e r o h of

~ -

His Honour Mr. Justie. Pincum

Aesociate