Re McLean Ex parte Biztole Developments Pty Ltd
[1995] FCA 710
•5 Sep 1995
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
No VN 1576/94
Re: HELEN MURIEL McLEAN
Judgment Debtor
Ex parte: BIZTOLE DEVELOPMENTS PTY LTD
(Receiver and Manager appointed)
Judgment Creditor
Coram: Olney J
Place: Melbourne
Date: 5 September 1995
MINUTE OF ORDER
The court is not satisfied that the judgment debtor has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt that she could not have set up in the proceeding in which the judgment was obtained AND ORDERS THAT:
The judgment debtor's application be dismissed.
The judgment debtor pay the judgment creditor's costs including any reserved costs.
NOTE:Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF
THE STATE OF VICTORIA
No VN 3191/93
Re: HELEN MURIEL McLEAN
Judgment Debtor
Ex parte: BIZTOLE DEVELOPMENTS PTY LTD
(Receiver and Manager appointed)
Judgment Creditor
No VN 1576/94
Re: HELEN MURIEL McLEAN
Judgment Debtor
Ex parte: BIZTOLE DEVELOPMENTS PTY LTD
(Receiver and Manager appointed)
Judgment Creditor
Coram: Olney J
Place: Melbourne
Date: 5 September 1995
REASONS FOR JUDGMENT
BACKGROUND
The judgment creditor has caused two bankruptcy notices to be served on the judgment debtor. The first (in proceeding VN 3191/93) was issued on 18 January 1994 and the second (in proceeding VN 1576/94) on 7 July 1994. Each makes demand for the payment of $805,716.05 being the amount of a judgment of the Supreme Court of Victoria obtained on 25 November 1993. The form of the second notice varies from that of the first only to the extent that it identifies by reference to its number the proceeding in which the judgment was obtained.
The judgment debtor has, in respect of each notice, filed an affidavit of the type contemplated by s 41(7) of the Bankruptcy Act and has also made application to set the notice aside.
The application to set aside the first bankruptcy notice raised several grounds, including grounds relating to the form of the notice. That matter was initially resolved in the judgment debtor's favour on 4 July 1994 when Northrop J set the notice aside. On that occasion his Honour did not embark upon a consideration of the other grounds relied upon by the judgment debtor. However, on 17 March 1995 the Full Court (Black CJ, O'Loughlin and Heerey JJ) upheld an appeal against Northrop J's decision, set aside the orders made on 4 July 1994 and remitted the questions still to be decided to a single judge for determination.
The second bankruptcy notice was issued some 3 days after the decision setting aside the first notice. The slight variation in form was no doubt intended to overcome the objection which had been successfully raised before Northrop J. As a result of the Full Court's decision, nothing now turns on the difference in the form of the notices.
TIME FOR COMPLIANCE
The first bankruptcy notice was served on 23 April 1994. It required the judgment debtor to comply with its demand within 14 days of service. The last day for compliance was therefore 7 May 1994 which was a Saturday. By operation of s 36(2) of the Acts Interpretation Act 1901 (Cth) the time for compliance was extended to Monday 9 May 1994. The application to set aside the notice was filed on 6 May 1994 and on 9 May 1994 a Registrar extended the time for compliance pursuant to s 41(6B) of the Bankruptcy Act to and including 31 May 1994 or further order. On 27 May 1994 the judgment debtor filed an affidavit of the type contemplated by s 41(7) thus further extending the time for compliance until and including the day on which this decision is given. In the meantime an order was made pursuant to s 41(6B) extending the time for compliance first to and including 22 June 1994 and on that day, a further order was made by a Judge extending time until midnight on 4 July 1994 or until further order. When giving judgment on the judgment creditor's appeal on 17 March 1995 the Full Court reserved its decision on the question of extension of time pursuant to ss 41(6A) and 41(7). On 5 May 1995 the Full Court rejected the judgment debtor's application for extension of time under s 41(6A) and held that the time for compliance with the bankruptcy notice had been automatically extended under s 41(7).
A similar situation applies in relation to the second bankruptcy notice. By operation of orders made pursuant to s 41(6B) and the provisions of s 41(7) the time for compliance has been extended to and including the date of this decision.
THE AMENDED APPLICATIONS
In the fullness of time the judgment debtor's applications came on for hearing. The two applications were heard together on 26 July 1995. Amendments were made to the applications with the result that, with one minor exception, the same grounds are pleaded in each case. The relevant part of the amended application in proceeding VN 3191/93 is:
That the Bankruptcy notice dated 18 January 1994 and served upon the judgment debtor on Saturday 23 April 1994 and issued in this proceeding by the judgment creditor be set aside.
GROUNDS
(a)The judgment upon which the Bankruptcy Notice is based is irregular and is liable to be set aside in that:
(i)the money claim upon which the judgment is based is not supported by any or any sufficient allegation against the debtor;
(ii)further or alternatively to the extent that the creditor sought and obtained relief both by way of a declaration of trust in favour of the creditor and an order for the transfer of property described and known as 34 Berkeley Street, Hawthorn to the creditor, the relief to which the creditor was entitled was exhausted.
(b)The judgment debtor has a counterclaim, set-off or cross-demand against the judgment creditor in excess of the amount claimed in the Bankruptcy Notice and which is the subject of proceeding 2261 of 1992 in the Commercial List of the Supreme Court by which the sum of $1,762,192.56 together with interest, damages and costs is claimed.
(c)By reason of the matters alleged in the amended statement of claim filed in Supreme Court proceeding 4168 of 1992, further or alternatively, by reason of the matters alleged in paragraph 3 of the "Proposed Further Amended Notice of Intention to (sic) Debtor to Appear at the hearing of the Petition" in VP00486 of 1994 the appointment of David John Beatty as receiver and manager of the judgment creditor and the other companies in the New Life Group is and was at all material times invalid.
The application in proceeding VN 1576/94 contains the following additional ground:
(d)Further and/or in the alternative, the issuing of and prosecution of this Bankruptcy Notice in circumstances where the judgment creditor has issued and is prosecuting Bankruptcy Notice 00319 of 1994 (sic, 3191/93) for the same debt arising out of the same judgment constitutes an abuse of process and the Bankruptcy Notice herein ought to be dismissed.
ABUSE OF PROCESS
It is convenient to deal first with ground 1(d) in proceeding VN 1576/94.
The ground as pleaded suggests that as a general proposition it is an abuse of process for a judgment creditor to issue more than one bankruptcy notice in respect of the same judgment debt. The Bankruptcy Act does not prohibit the issuing of multiple bankruptcy notices in respect of the same debt and there is judicial authority that it is permissible to do so. I refer in particular to Re Fredericke and Whitworth (1927) 1 Ch 253 (per Lord Hanworth MR at p 257-8).
Apart from any question of statutory prohibition, in the facts of this case it is clear that at the time the second bankruptcy notice was issued it could not have been an abuse of process for it to be issued. A similar notice had been struck out a few days earlier on an objection as to its form. The second notice was in a form thought sufficient to remedy the problem that caused the first notice to be struck out. It was as a result of the subsequent appeal that the situation arose that two notices were current simultaneously. If in due course the judgment debtor should pay the judgment debt within the time for compliance such payment will satisfy the demand of both notices. There is no abuse of process nor is there any substance in ground 1(d).
THE INVALIDITY GROUND
Ground 1(c) raises a question as to the validity of the appointment of David John Beatty (Beatty) as receiver and manager of the judgment creditor but it does not indicate what are said to be the consequences, so far as these proceedings are concerned, of the alleged invalidity.
The question of Beatty's status as receiver and manager has been raised in Supreme Court proceeding 4168/92 and was the subject of contention in the hearing of a bankruptcy petition issued by Biztole Corporation Pty Ltd (Receiver and Manager appointed) (In Liquidation) (Bizcorp) and the judgment debtor's husband Stephen Frank McLean (Mr McLean) in proceeding VP 486/94 which I heard on 31 May 1995. My decision in proceeding VP 486/94 was given on 30 August 1995.
Bizcorp is one of a group of companies (of which the judgment creditor is another) associated with the McLean family and known generally as the New Life Group. Beatty is, and has been, at all times relevant to these proceedings, receiver and manager of both companies and of several other companies in the New Life Group. In proceeding VP 486/94 the petitioning creditor was represented by the same counsel and solicitors as the judgment creditor is in the present applications and Mr McLean was represented by the same counsel and solicitors as have represented the judgment debtor. The evidence concerning Beatty's appointment as receiver and manager is the same in this case as in proceeding VP 486/94.
If it is now said that the bankruptcy notices should be set aside on the ground that Beatty had no standing to cause same to be issued, or on the ground that Beatty had no standing to institute the proceedings in which the judgment was obtained I reject both submissions. The fact of Beatty's appointment as receiver and manager of the judgment creditor is not in question nor is the fact that the judgment arose out of the settlement of the judgment proceedings following an agreement to which the judgment debtor and Beatty (in his capacity as receiver and manager, inter alia, of the judgment creditor) were contracting parties. Unless and until Beatty's standing as receiver and manager is invalidated he should be treated as having had authority to prosecute the judgment proceedings and to have caused the bankruptcy notices to be issued. No order made in the present proceedings can affect Beatty's standing as receiver and manager of the judgment creditor.
In VP 486/94 Mr McLean sought to rely upon the matters referred to in ground 1(c) as the basis for his claim that the Court should exercise its discretion to dismiss the petition pursuant to s 52(2) but the question of discretion does not arise in the applications presently before the Court and the only relevance which ground 1(c) can have in these proceedings
is if it leads to the conclusion that there is in truth no real debt behind the judgment.
In my opinion ground 1(c) provides no support for an application to set aside the bankruptcy notices. Even if Supreme Court proceeding 4168/92 is successfully prosecuted and results in a declaration that Beatty was not validly appointed as receiver and manager of the judgment creditor, that would not result in the judgment being set aside nor would it establish that there is no real debt behind the judgment.
GOING BEHIND THE JUDGMENT
Ground 1(a) raises in two ways the question of going behind the judgment. It is appropriate therefore to record the circumstances giving rise to the judgment debt.
The judgment was obtained in Supreme Court proceeding 2149/92 (the judgment proceeding) in which Mr McLean was the firstnamed defendant and the judgment debtor was the secondnamed defendant. On 25 November 1993 Hedigan J made the following declaration and orders:
THE COURT DECLARES BY CONSENT THAT:
The first and secondnamed defendants hold their respective interests in the property referred to in the statement of claim and described in Certificate of Title Volume 5950 Folio 997, ("the property"), on trust for the Plaintiff.
THE COURT ORDERS BY CONSENT THAT:
The third and fourthnamed defendants withdraw their application to register a mortgage over the property numbered S76053P, lodged at the Land Titles Office,
within 14 days after service of a copy of this order as authenticated on them.
The first and secondnamed defendants transfer the property to the plaintiff.
The firstnamed defendant pay to the plaintiff:
(a)the sum of $1,836,000.00;
(b)interest in the sum of $347,924.51; and
(c)the plaintiff's costs.
The secondnamed defendant pay to the plaintiff:
(a)the sum of $677,356.14;
(b)interest in the sum of $128,359.91; and
(c)the plaintiff's costs.
Execution and operation in respect of the above orders and declaration be stayed until 5.00pm on 1 March 1994.
Liberty to apply is reserved to the plaintiff and the fifthnamed defendant, the Registrar of Titles.
The judgment relied upon in the bankruptcy notices is that referred to in paragraph 5. By order made on 6 December 1993 the stay of execution referred to in paragraph 6 was lifted.
In the judgment proceeding the judgment creditor (as plaintiff) alleged that Mr McLean, in his capacity as a director of the plaintiff, had wrongfully used his powers to advance money for his own use. The sum of $1,836,319.79 was claimed against Mr McLean and $677,356.14 against the judgment debtor. It was said that the latter sum was borrowed from the judgment creditor for the purpose of purchasing a property at 34 Berkeley Street Hawthorn. (It is common cause that this is the same property as is referred to in paragraph 1 of the judgment). It was specifically alleged against the judgment debtor (in paragraph 13 of the statement of claim) that -
At all times the secondnamed defendant knew that the sum of $677,356.14 referred to in paragraphs 11 and 12 was:
(a)money borrowed from the plaintiff by the firstnamed defendant or alternatively, the first and secondnamed defendants,
(b)money paid by the plaintiff to or for the benefit of the firstnamed defendant, alternatively the first and secondnamed defendants,
(c)money borrowed by or received by the first defendant, alternatively, the first and second defendants, in breach of the obligations of the firstnamed defendant as director of the plaintiff.
The judgment proceeding was defended by all parties. It was one of a number of cases in the Commercial List of the Supreme Court involving Mr McLean, members of his family (including the judgment debtor), various companies associated with the New Life Group, and others including Beatty. On 16 July 1993 Hedigan J ordered that the judgment proceeding and one other (being the proceeding referred to as the judgment proceeding in proceeding VP 486/94) be fixed for hearing together on 13 September 1993 for the determination of the question of liability. The other Commercial List proceedings were to stand adjourned. In the period preceding 13 September 1993 negotiations took place between the parties' solicitors and Beatty with a view to the settlement of all disputes between the parties and on 10 September 1993 a Deed of Release was signed. The general thrust of the terms of the Deed of Release and the subsequent events giving rise to the parties entering into further terms of settlement are described in detail in the reasons published in proceeding VP 486/94 on 30 August 1995. It is sufficient to say for present purposes that the judgment entered by consent on 25 November 1993 was part of the overall settlement agreed to at that time.
On 2 July 1994 the property at 34 Berkeley Street Hawthorn was sold by auction by the mortgagee under its power of sale.
Subsequently, on 19 August 1994 the balance of the sale proceeds after deduction of the mortgagee's sale expenses and the amount secured by the mortgage was paid to the judgment creditor's solicitors. The sum received was $35,450.24. The judgment creditor says (and it is not in issue) that the amount received was less than the amount of interest which had accrued on the judgment debt up to 19 August 1994 and further that the judgment creditor did not exercise any right pursuant to the judgment in relation to the property either before or after the mortgagee's sale except to require and receive the net proceeds of sale before lifting a caveat it had lodged against the title to the property.
It is not correct (as asserted in ground 1(a)(i)) that the claim upon which the judgment debt is based is not supported by any or any sufficient allegation against the debtor. Paragraph 13 of the statement of claim contains allegations which if proved could have resulted in judgment against the judgment debtor for the sum claimed. Ground 1(a)(i) is without substance.
Nor, in the facts of the case, does ground 1(a)(ii) provide a basis to support the setting aside of the bankruptcy notices. Despite paragraph 3 of the judgment, the property was not transferred to the judgment creditor and in truth and in fact, what the first and second defendants in the judgment proceeding held in trust for the judgment creditor pursuant to the declaration contained in paragraph 1 of the judgment was the net proceeds upon realisation of the property after satisfaction of their liability to the mortgagee. The two remedies achieved by the orders in paragraphs 1 and 5 of the judgment were clearly complementary to each other. The judgment creditor has accounted for the proceeds of the interest it acquired in the property under paragraph 1 of the judgment in a manner which does not affect the amount of the judgment debtor's liability under paragraph 5. The judgment creditor has not sought to recover a greater sum than, by consent of the parties, was agreed to be owing.
COUNTER-CLAIM, SET-OFF OR CROSS CLAIM
I turn now to ground 1(b).
A debtor served with a bankruptcy notice commits an act of bankruptcy unless the requirements of the notice relating to the payment of the judgment debt are complied with or unless the debtor can -
... 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.
(Bankruptcy Act, s 40(1)(g))
In the amended applications the judgment debtor does not plead that the counter-claim, set-off or cross demand therein identified could not have been set up in the action or proceeding in which the judgment was obtained but the thrust of the evidence and the argument in respect of ground 1(b) was directed to that issue.
It is necessary to refer again to the litigation involving the judgment debtor in the Commercial List of the Victorian Supreme Court.
The judgment proceeding was commenced by the judgment creditor on 19 June 1992. In that proceeding the judgment creditor was the sole plaintiff and the judgment debtor, Mr McLean and others were the defendants. The proceeding was defended by all parties. On 28 October 1992 Bizcorp issued proceedings in the County Court at Melbourne seeking the recovery of $227,748.44 said to be loans owing by the judgment debtor to Bizcorp. On 23 November 1992 the judgment debtor filed a defence in the County Court alleging that the sum claimed had been paid to her pursuant to an oral agreement entered into with the judgment creditor and New Life Retirement Villages Pty Ltd whereby those companies would remunerate her for certain interior design and decorative services provided to them by her. Subsequently, on 22 December 1992, the judgment debtor commenced proceedings in the Supreme Court (proceeding 2261/92 - the decorator proceeding) against the judgment creditor and 12 other companies in the New Life Group including Bizcorp. Her claim was for $1,762,192.56 said to be owing to her pursuant to an agreement entered into in or about July 1989 between herself and the judgment creditor "whereby (the judgment creditor) and each of the defendants agreed to pay (the judgment debtor) for the provision of services". (Statement of claim, paragraph 5).
The decorator proceeding is one of the Commercial List proceedings which was adjourned by Hedigan J pending the hearing of the 2 proceedings which were fixed for 13 September 1993. The order fixing the 2 proceedings for trial on 13 September 1993 was made on 16 July 1993. On 6 August 1993 the decorator proceeding was one of several adjourned to 22 October 1993. On the latter date it was struck out but has since been reinstated.
The judgment debtor says that by reason of the order of Hedigan J which in effect delayed the determination of the decorator proceeding until after the resolution of the judgment proceeding, she was unable to set up the claim made in the decorator proceeding as a counter-claim, set-off or cross demand in the judgment proceeding. The judgment creditor says on the other hand that the judgment debtor did not at any stage attempt to set up a counter-claim, set-off or cross demand in the judgment proceeding.
The critical words of s 40(1)(g) of the Bankruptcy Act are "could not have set up in the action or proceeding in which the judgment or order was obtained". The meaning of these words was considered by Lockhart J in ReBrink; Ex parte Commercial Banking Company of Sydney Ltd 30 ALR 433 where his Honour said at p 437:
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 ABC 82 at p 85; Re a Debtor (1914) 3 KB 726, per Avory J, at 730; Re Stokvis (1934) 7 ABC 53, especially per Lukin J at 57, where his Honour said: "I take a counter-claim, set-off, or cross demand which could not be set
up as one which, from 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".
Observations to the same effect can be found in Vicini Ex parte E.A. Sealey & Co 64 FLR 323 and Re Franks; Ex parte GIO Holdings Ltd 101 ALR 504.
There is no question that, as a matter of law, the judgment debtor could have raised the claim made by her in the decorator proceeding as a counter-claim in the judgment proceeding. The judgment proceeding having been commenced by writ in the Supreme Court of Victoria, the judgment debtor (being a defendant to that proceeding) was entitled to counter-claim in the proceeding and to join as defendant to the counter-claim not only the plaintiff but any other person whether a party to the proceeding or not, who could properly be joined with the plaintiff as a party (Supreme Court Rules O 10, rr 10.01, 10.02, 10.03).
The order made by Hedigan J on 16 July 1993 had no bearing upon the judgment debtor's entitlement to plead her counter-claim in the judgment proceeding. By that stage she had as a matter of choice elected to proceed by separate action and whilst that decision was not necessarily irrevocable, the fact is that she chose to proceed in that manner. In these circumstances, on the assumption that for the purposes of s 40(1)(g) she may be regarded as having a cross-claim against the judgment creditor in an amount exceeding the judgment debt, I am nevertheless not satisfied that the cross-claim, set-off or cross demand asserted in ground 1(b) is one which could not have been set up in the judgment proceeding. On the contrary, the cross-claim could have been set up in the judgment proceeding.
CONCLUSION
I am not satisfied that the judgment debtor has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt that she could not have set up in the proceeding in which the judgment was obtained. The judgment debtor has failed to establish any ground for the setting aside of the bankruptcy notices.
Each application will be dismissed. The judgment debtor must pay the judgment creditor's costs of the applications including any reserved costs.
I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 26 July 1995
Place: Melbourne
Judgment: 5 September 1995
Appearances:
Mr R. Macaw QC and Mr P. Ginnane (instructed by Kingdon Lawyers) appeared for the judgment debtor.
Mr D.M. Derham QC and Mr R. Berglund (instructed by Blake Dawson Waldron) appeared for the judgment creditor.
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