Re McKellar, Ian Bruce & Anor Ex Parte L & T Croker Pty Ltd
[1996] FCA 322
•1 MAY 1996
C A T C H W O R D S
BANKRUPTCY - whether a counter-claim, set-off or cross demand of the kind referred to in s.40(1)(g) of the Bankruptcy Act - application to review Registrar's decision of non-satisfaction that such counter-claim, set-off or cross demand raised - bankruptcy notice founded on Supreme Court judgment - debtors alleged that Supreme Court proceedings had been compromised by settlement agreement - prior to hearing of Supreme Court proceedings, debtors issued Supreme Court writ for declaration that matter settled - orders made that latter action be heard immediately prior to earlier action - Supreme Court dismissed latter action and held no settlement agreement reached - debtors seeking to rely upon alleged misleading or deceptive conduct and negligence on the part of the creditor and the creditors' representatives and others during settlement negotiations - actions and omissions upon which such causes of action propose to be based occurred prior to the issue of the second writ - whether counter-claim, set-off or cross demand could have been set up in the action in which the judgment was obtained.
Bankruptcy Act 1966 (Cth) ss.14(5), 40(1)(g), 41(7)
Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135
Re Bryant (unreported Hill J. 4 May 1994, No. 234 of 1994)
Re Doherty (unreported Northrop J. 8 October 1993, No. 739 of 1993)
Re Vicini; Ex parte E A Sealey & Co (1982) 64 FLR 323
Webb v. Hunter (unreported Full Court) 10 August 1995, No. 609 of 1995
RE: IAN BRUCE McKELLAR and PETER JACOBUS BOTMAN;
EX PARTE L & T CROKER PTY LTD
No. WP171 of 1996
CARR J.
PERTH
1 MAY 1996
IN THE FEDERAL COURT )
OF AUSTRALIA )
GENERAL DIVISION )
BANKRUPTCY DISTRICT ) No. WP171 of 1996
OF THE STATE OF )
WESTERN AUSTRALIA )
B E T W E E N : RE: IAN BRUCE McKELLAR
and PETER JACOBUS
BOTMAN
Debtors
and
EX PARTE: L & T CROKER
PTY LTD
Creditor
CORAM: CARR J.
PLACE: PERTH
DATE: 1 MAY 1996
MINUTES OF ORDERS
THE COURT ORDERS AND DECLARES THAT:
The application be dismissed.
The affidavits filed on behalf of the judgment debtors do not answer the description of affidavits required by s.41(7) of the Bankruptcy Act.
The time for compliance with the bankruptcy notice the subject of these proceedings expired in accordance with its terms and was not extended by any affidavit filed under s.41(7) of the Bankruptcy Act.
The debtors pay the creditor's costs of the application.
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 )
BANKRUPTCY DISTRICT ) No. WP171 of 1996
OF THE STATE OF )
WESTERN AUSTRALIA )
B E T W E E N : RE: IAN BRUCE McKELLAR
and PETER JACOBUS
BOTMAN
Debtors
and
EX PARTE: L & T CROKER
PTY LTD
Creditor
CORAM: CARR J.
PLACE: PERTH
DATE: 1 MAY 1996
REASONS FOR JUDGMENT
Introduction
This is an application under s.14(5) of the Bankruptcy Act 1966 (Cth) ("the Act") for review of a Deputy Registrar's decision, under rule 10(5) of the Bankruptcy Rules ("the Rules"), in effect to reject the debtors' claims that they have a counter-claim, set-off or cross demand of the kind referred to in s.40(1)(g) of the Act. The short question is whether the debtors' affidavits answer the description of affidavits required by s.41(7) of the Act.
Factual Background
At all material times the debtors were directors of a company called Barrob Pty Ltd ("Barrob"). Barrob is in liquidation, having been wound up pursuant to a resolution of
its members passed on 16 January 1992.
On 15 March 1993 the creditor in these proceedings, L & T Croker Pty Ltd ("Croker") and five other plaintiffs sued the debtors in the Supreme Court of Western Australia under s.592 of the Corporations Law in respect of debts incurred by Barrob ("the s.592 action"). In summary, the plaintiffs alleged that immediately before the time when each of their respective debts was incurred, there were reasonable grounds to expect that Barrob would not be able to pay all its debts as and when they became due. In those circumstances the plaintiffs claimed that the debtors, as directors of Barrob at the time when each debt was incurred, were jointly and severally liable for the payment of the debt.
The s.592 proceedings were defended. On 10 May 1994 that action was entered for trial. Several mediation conferences took place before a Supreme Court Registrar in the first half of 1995. In the meantime, on 26 April 1995, the action was listed to be heard on 25, 26 and 27 July 1995.
The debtors and their advisers considered that the s.592 action had been compromised by an agreement reached in May or early June 1995. By mid-June 1995 the creditor had made it clear that it did not regard the s.592 action as having been settled. Accordingly, the debtors decided to sue the creditor to have the terms of settlement observed.
On 7 July 1995 the debtors sued the creditor and the other plaintiffs in the s.592 action seeking, inter alia, a declaration that that action had been compromised by the agreement alleged to have been reached in May or early June 1995. I shall refer to those proceedings as "the second Supreme Court action".
On 17 July 1995 Steytler J. of the Supreme Court of Western Australia ordered that the second Supreme Court action and the s.592 action should be tried at the same time. On the same date his Honour made directions for the disposal of interlocutory matters in respect of the second Supreme Court action. When the actions came on for hearing, Steytler J. ordered that the second Supreme Court action be heard first and that the s.592 action be heard immediately thereafter. The two matters were thus heard consecutively. The second Supreme Court action was heard on 25-27 July 1995 and the s.592 action on 27, 31 July and 1-2 August 1995. On 15 September 1995 his Honour gave judgment in both actions. His Honour dismissed the second Supreme Court action and entered judgment for the creditor for $136,142.88 in the s.592 action. On 7 November 1995 the creditor obtained the issue of a bankruptcy notice against the debtors based on that judgment. The time fixed for compliance with the bankruptcy notice was 14 days after its service. The bankruptcy notice was served on Mr McKellar on 8 November 1995 and on Mr Botman on 14 November 1995. On 23 November 1995 the debtors filed an application under s.41(7) of the Act. On the same date Mr McKellar filed an affidavit in support of that application and on 28 November 1995 Mr Botman filed an affidavit in support of the application.
The Deputy Registrar considered the application and the affidavits and then advised the debtors, by letter dated 17 January 1996, that the application had been rejected under sub-rule 10(5) of the Rules. Each letter included a statement of the Deputy Registrar's reasons for her decision. On 6 February 1996 the debtors applied to have the Deputy Registrar's decision reviewed. The question is whether the affidavits sufficiently comply with the provisions of s.41(7) of the Act. In other words has each debtor filed with the Registrar an affidavit to the effect that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt which was the subject of the s.592 action, being a counter-claim, set-off or cross demand that he could not have set up in that action?
It is well accepted by a long line of decided cases that the expression "that he could not have set up in the action or proceeding in which the judgment or order was obtained" means "which he could not by law set up in the action". In Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 at p.139, Lockhart J. stated the principle in these terms:
"The words `that he could not have set up in the action or proceeding in which the judgment or order was obtained' mean `which he could not by law set up in the action': see Re Jocumsen (1929) 1 A.B.C. at p.85; Re A Debtor per Avory J. [1914] 3 K.B., at p.730 and Re Stockvis (1934) 7 A.B.C 53 especially per Lukin J. where his Honour said: `I take a counter claim, 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."
I have scrutinised the matters of complaint which the debtors describe in their affidavits as matters which they may wish to litigate with the creditor. In their affidavits this is expressed in terms that they "... may not wish to proceed with an
appeal against the decisions [Steytler J's decisions] but choose rather to make a claim in the Federal Court of Australia on the judgment obtained by the creditor due to its and the McLernon Group's breach of the provisions of s.52 of the Trade Practices Act and damages to be assessed in tort ...". In their written submissions the debtors say that the matters upon which they will rely are not limited to the matters referred to in their affidavits. As a matter of law, so far as this application is concerned, in my view they are so limited - see Re Doherty (unreported Northrop J. 8 October 1993, No. 739 of 1993) at p.8. The matters of which the debtors complain can be summarised as follows:
.a comment said to have been made by Mr Croker, a director of the creditor, at a general meeting of Barrob's creditors on 3 May 1995 to the effect that the creditor would vigorously defend a claim by the liquidator of Barrob against the creditor under s.565 of the Corporations Law and would not be refunding any moneys to Barrob. There is evidence that the creditor repaid the sum of $70,000 to Barrob;
.that certain persons involved in the settlement negotiations in relation to the s.592 action had no actual or ostensible authority from the creditor. It is said in the affidavits that this evidence emerged at the trial of the second Supreme Court action. However, I note that Steytler J's decision in those proceedings was not based on any absence of authority on the part of the persons referred to;
.that one of the persons present and purportedly representing the plaintiffs in the settlement negotiations in the s.592 action, a Mr Thomason, had misrepresented his instructions concerning what the creditor would accept. I have scrutinised that particular complaint. What it amounts to is a reference to a statement said to have been made at the trial by Mr Thomason that the plaintiffs had instructed him to accept $100,000 in settlement and yet during the settlement negotiations, he was negotiating on the basis that the plaintiffs would accept land plus cash. On the face of the debtors' own affidavits it emerged that by 30 June 1995 they were well aware that the plaintiffs
in the s.592 action would only settle for $100,000 cash. In the course of his address in these proceedings Mr McKellar said that that offer was quite acceptable but that by that time he was, as he put it, "so jacked off" that he could not deal with the plaintiffs;
.that evidence was led at the hearing of the second Supreme Court action that any proposed settlement agreement had been "subject to contract" whereas a prior letter had contained what was said in effect to be a term to contrary effect. It is clear from Steytler J's judgment in that matter that his Honour held that it was obvious on the face of the plaintiffs' correspondence that it was written "subject to contract". That was a key basis for his Honour's decision;
.an allegation that the creditor's solicitors had given advice concerning the prospects of termination of Barrob's liquidation whereas an organisation known as "the McLernon Group" had written to the debtors' solicitors in misleading terms concerning the prospect of such termination. I regard that as being a matter purely between the debtors and the McLernon Group;
.that the creditor's solicitors had not given "the true reasons" for denying that a settlement agreement had been reached. The debtors say that the true reason for such denial was the creditor's solicitors' opinion that Barrob's liquidation could not be terminated. The debtors say that the creditor's failure to instruct the McLernon Group or its solicitors to advise the debtors or their solicitor of that matter before 10 May 1995 was both misleading and negligent.
In my view, each of the matters of which the debtors say they "may choose" to complain about in Federal Court proceedings (yet to be commenced) could, as a matter of law, have been raised as a counter-claim, set-off or cross demand in the s.592 action.
In their written submissions the debtors say that their counter-claim did not arise until the Supreme Court's decision in the second Supreme Court action. In my opinion that
submission is, as a matter of law, misconceived. In oral submissions it emerged that the debtors were contending that until the hearing of the second Supreme Court action they had only oral evidence but at the hearing obtained what was described as "hard evidence". In my view, all of the causes of action upon which the debtors now seek to rely accrued before the second Supreme Court action was commenced and could have been included as part of the subject matter of either that action or the s.592 action. Furthermore, the debtors have not discharged their onus of proving that they could not have obtained leave to amend their defence and counter-claim to raise the issues which they raised in the second Supreme Court action and the additional matters upon which they now seek to have the option of relying. See Re Bryant (unreported Hill J. 4 May 1994, Judgment No. 234/1994). I have taken into account that the Court should adopt a benevolent construction of the affidavits: see Re Brink at p.440. Even adopting such a benevolent approach I do not consider that the affidavits meet the requirements of s.41(7). First, I do not consider that the matters of which complaint is made sufficiently identify a relevant counter-claim, set-off or cross demand. Secondly, if I am wrong in that regard and they do so, then any such counter-claim, set-off or cross demand could have been raised in the s.592 action.
In their written outline of submissions the debtors acknowledge that "... the counter-claim could have been set up on (sic) the Action in which judgment was obtained except that:
.there was no time for preparation of the counter-claim before the trial of the section 592 action;
.pleadings would have to have been introduced too late at trial to be allowed by the judge;
.issues and evidence found in the debtors' counter-claim arose before the trial of the section 592 action but prior to the trial of the second action no substantial written evidence of the misleading conduct existed; and
.without the hard evidence obtained from the second action the counter-claim could not have been effectively prosecuted but with the evidence from the second action it can be successfully prosecuted."
On my view of the authorities none of the matters put forward by the debtors establishes that if they have a counter-claim, set-off or cross demand, such counter-claim, set-off or cross demand could not, as a matter of law, have been set up in the s.592 action. I note that Steytler J. was prepared to hear the second Supreme Court action within a very short time (some 3 weeks) of the writ having been issued.
Mr McKellar submitted that it was "speculative" whether his Honour would have allowed these further matters to be raised in the s.592 action. At the same time he cast some blame on his then solicitors. The truth of the matter is that no attempt was made to do so. He has not satisfied me that Steytler J. would have refused an application to add these claims by way of counter-claim to those proceedings or order that the two actions be consolidated.
Furthermore, I do not consider that the evidence establishes that if such a cross demand existed it would be in an amount equal to or exceeding the amount of the creditor's judgment. The debtors' evidence on this aspect comprised the following assertion:
"It is reasonable to expect that the quantum of damages assessed if Ian McKellar [Mr Botman] and myself are
successful at trial in the Section 52 action would be equal too (sic) or in excess of the Creditor's judgment in the Supreme Court on the S.592 action."
No basis is given for that assertion and in my view the affidavit is deficient in that regard. Such a deficiency would, on its own, defeat the debtors' application.
Conclusion
In summary, I have held that:
.the debtors' affidavits do not show on their face that they have any real or effective cross-claims;
.even if they had such cross-claims, they could as a matter of law have been set up in the s.592 action; and
.(on the same assumption) the affidavits do not establish that any counter-claim, set-off or cross demand would be equal to or exceed the amount of the creditor's judgment debt.
Accordingly, I consider that the Deputy Registrar was correct when she reached similar conclusions and endorsed both of the debtors' affidavits "Affidavit not sufficient. No case raised." as she was required to do under rule 10(5) of the Rules. There will be a declaration that the debtors' affidavits do not answer the description of affidavits required by s.41(7). It has not been necessary to consider whether either or both of those affidavits was filed within time and, if one of them was not filed within time, what consequences would have resulted.
In those circumstances, the consequence is that there has been no deemed extension of time within which to comply with the requirements of the bankruptcy notice. See Re
Vicini; Ex parte E A Sealey & Co (1982) 64 FLR 323 at p.327, [expressly approved of in Webb v. Hunter (unreported Full Court) 10 August 1995] and the list of cases to similar effect set out on p.10 in the reasons for judgment in Webb v. Hunter.
I certify that this and the preceding ten
(10) pages are a true copy of the Reasons for
Judgment of Justice Carr.Associate:
Date: 1 May 1996
The debtors appeared in person
Counsel for the Creditor: Mr D S McDonald
Solicitors for the Creditor: Williams & Hughes
Dates of Hearing: 1 May 1996
Date of Judgment: 1 May 1996
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