Re Morgan, K.L. v John Fairfax & Sons Ltd

[1987] FCA 145

Re: KEVIN LEONARD MORGAN
Ex Parte: JOHN FAIRFAX AND SONS LIMITED
No. B5354 of 1986
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont J.

CATCHWORDS

Bankruptcy - application to set aside bankruptcy notice - application for declaration that Court is satisfied that applicant has cross demand equal to or exceeding amount payable to respondent under final orders - power to grant temporary extensions of time for compliance with bankruptcy notice - Bankruptcy Act 1966: s.40(1)(g), s.41(6A), s.41(7); Bankruptcy rule 103(1).

HEARING

SYDNEY

#DATE 1:4:1987

Counsel and Solicitors for Applicant: C. Evatt instructed by Steve Masselos & Co.

Counsel and Solicitors for Respondent: S.D. Rares instructed by Mallesons Stephen Jaques.

ORDER

Declare that the Court is satisfied that the applicant has a cross demand equal to or exceeding the amount of the sum payable by him to the respondent under the final orders mentioned in bankruptcy notice No. B. 5354 of 1986, viz, $7,316.27.

The respondent pay the applicant's costs of the application.

Note: Settlement and entry of orders is dealt with in Bankruptcy Rule 124.

JUDGE1

This is an application for a declaration that the applicant, Kevin Leonard Morgan ("the debtor"), has a cross demand equal to or exceeding the total amount payable to John Fairfax and Sons Limited ("the creditor"), under four orders for the payment of costs made by the Supreme Court of New South Wales being a cross demand that the debtor could not have set up in the action or proceedings in which the orders were obtained for the purposes of s.40(1)(g) of the Bankruptcy Act 1966 ("the Act").

1. The debtor commenced proceedings against the creditor in the Supreme Court in November 1983 claiming damages for a defamation. The debtor claimed that the creditor defamed him in an article published in the Australian Financial Review on 17th November 1983. Several interlocutory applications were heard and determined by the Supreme Court in relation to discovery, interrogatories, pleadings and particulars. Orders for costs were made against the debtor for certain of the applications. The orders in question were made in April and May 1985 and were in the total sum of $6,837.64.

2. The trial of the action took place in February and March 1986. Towards the end of the hearing, the trial judge ordered that the jury be discharged and that there be a new trial. The debtor was ordered to pay the creditor's costs of the trial. The debtor sought leave to appeal from the decision awarding costs against him. In April 1986, the Court of Appeal granted leave to appeal. It is anticipated that the appeal will be heard in the middle of 1987.

3. On 28th November 1986, on the application of the creditor, the Deputy Registrar issued a bankruptcy notice addressed to the debtor. The notice recited that the creditor claimed the sum of $6,837.64 together with interest making a total of $7,316.27 was due by the debtor to the creditor under final orders obtained by the creditor against the debtor in the Supreme Court in April and May 1985. The notice required compliance with its terms within 14 days after its service. Notice was served on the debtor on 28th January 1987. On 10th February 1987 (i.e. before the expiration of the 14 day period stipulated in the bankruptcy notice had expired) the debtor filed an application seeking the following orders:
   
   

"1. That the Bankruptcy Notice issued by and on behalf of John Fairfax and Sons Limited on 28 November 1986 be set aside.

2. That the time in which the Applicant is to comply with the said Bankruptcy Notice be extended until after the determination of the appeals between the parties in the Court of Appeal (New South Wales Court of Appeal No. 78 of 1986 and 103 of 1986).

3. For such other or further orders as to this Honourable Court shall be deemed necessary...."

1. No affidavit was then filed but the application stated that, on the hearing of the application it was intended to use an affidavit sworn by the debtor. The application was set down for hearing on 9th March 1987. On 10th February 1987 the Deputy Registrar made an order in the following terms:
   
   

"Upon condition that the bankruptcy notice in this matter was served on the debtor on 28 January 1987 pursuant to section 41(6B) of the Bankruptcy Act 1966, I extend the time allowed for compliance with the requirements of the bankruptcy notice to 9 March 1987".

1. On 9th March 1987, the matter came before me in the general bankruptcy list. I was then informed by counsel for the debtor that the application to set aside the bankruptcy notice was not pursued but that the debtor was seeking a declaration that he had a cross demand of the kind contemplated by s.40(1)(g) of the Act. Counsel for the creditor indicated that the debtor's application was opposed. As it appeared that the hearing of the matter would take some time as a contested application, I directed that it be fixed for hearing as a special fixture on 23rd March 1987. I indicated that I proposed to further extend time for compliance with the bankruptcy notice up to and including 23rd March. Counsel for the creditor then indicated that he wished to object to any such extension on substantial grounds. In particular, he foreshadowed a submission, to be dealt with later in these reasons, that the Deputy Registrar had no power to grant the extension of time granted on 10th February 1987. He further submitted that I had no power to grant any further extension. In essence, his contention was that time for compliance with the bankruptcy notice had already expired and that the Court then had no power, retrospectively, to grant any extension. In the circumstances, I indicated that I granted further extension of time for compliance with the notice up to and including 23rd March but did so on the footing that I was not to be taken as finally deciding the question of the power of the Deputy Registrar or of myself to grant the extensions in question.

2. On 23rd March 1987, the debtor's application was heard. In support of the debtor's application, counsel for the debtor read an affidavit sworn by the debtor on 12th February 1987 and an affidavit sworn by John Harris, a law clerk employed by the debtor's solicitors. In these affidavits, the history of the defamation proceedings as summarised above is stated. Reference is made in that evidence to the material published in the Financial Review of which complaint is made. That material, which is annexure A to the debtor's Amended Statement of Claim is annexed to these reasons.

3. Before turning to the submission foreshadowed by the creditor that an act of bankruptcy has already been committed and that the Court has no power to deal with the present application, I will consider first the debtor's contention that the Court should now declare that the debtor has a cross demand of the kind required by s.40(1)(g).

4. In Re Judd, Ex parte Pike (1924) 24 SR (NSW) 537, Maughan A.J. held that the term "cross demand" in a precursor of s.40(1)(g) included a claim for unliquidated damages for the tort of slander (at pp 539-40). See also Re Brink; Ex parte Commercial Banking Company of Sydney (1980) 30 ALR 433 at pp 436-7; Re Gould; Ex parte Skinner (1983) 72 FLR 393 at pp 406-7.

5. For the purposes of s.40(1)(g), the Court is not to attempt a trial in advance of the debtor's defamation claim. However, the debtor must show that he has "a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in this cross demand" (see Ebert v. Union Trustee Company of Australia Ltd (1960) 104 CLR 346 at p 350. In Re Brink, supra, Lockhart, J. said that for present purposes, the Court must be satisfied that the debtor has "a fair chance of success" (at p.439).

6. In the present case, I am satisfied, on the available material that the debtor has a fair chance of succeeding on the issue of liability in his defamation action. On the question of quantum, I am satisfied that the debtor has a fair chance of recovering a verdict in excess of $7,316.27.

7. It is a requirement of s.40(1)(g) that the cross demand for damages for defamation could not be set up in the interlocutory proceedings in which the subject costs orders were made. This requirement is satisfied here.

8. It follows that, subject to consideration of the contentions foreshadowed by the creditor, I would propose to make the declaration sought by the debtor.

9. I turn now to the creditor's contentions. In the first place, the creditor submits that because the Deputy Registrar had no affidavit before him on 10th February 1987 to support the debtor's appplication, the Deputy Registrar lacked power to grant the temporary extension. Alternatively, it is said that the exercise of power to extend was voidable because it was something done arbitrarily in that there was no evidence to support the application.

10. In my opinion, these submissions should not be accepted. Although there was no affidavit then before the Deputy Registrar, the formal application then filed indicated that it was intended to file an affidavit by the debtor. Moreover, the extension granted was for a short period only. It is true that r.l03(1) requires that any application be supported by an affidavit stating the facts upon which the applicant proposes to rely. However, there is nothing in the rules to suggest that if an affidavit is not filed at the time the application is filed, the proceedings are a nullity. On the contrary, r.103(1) should be construed as subject to the usual implication that its requirements be performed within a reasonable time (see Koon Wing Lau v. Calwell (1949) 80 CLR 533 at p.573). The debtor's affidavit sworn 12th February 1987, was filed on l3th February. In my view, it was filed within a reasonable time.

11. There is no suggestion of bad faith on the part of the Deputy Registrar. Nor could it be suggested that he exercised his power capriciously or fancifully (c.f. The Queen v. Anderson; Ex parte Ipec-Air Pty Ltd (1965) 113 CLR 177 at p 189). There is a presumption of regularity and in the absence of any material which could reasonably put the Deputy Registrar upon notice that the debtor's application was otherwise than bona fide, he was, in my view, justified in assuming that the debtor intended to prosecute in good faith an application to set aside the bankruptcy notice. On that assumption, it was proper, in my view, that a temporary extension of time be granted. Similar comments could be made concerning the further temporary extension granted on 9th March. In each case, the court is intervening on short notice, on an emergency basis, to hold the status quo pending a full hearing of the respective contentions of the parties.

12. It is true that, in the final result, the debtor has not prosecuted his application to set aside the bankruptcy notice. What he now seeks is a declaration that the notice is "spent" (see James v. Abraham (1981) 34 ALR 657 at p.661). The debtor's application as filed sought an order setting aside the bankruptcy notice and also other or further orders as the Court deemed necessary. Even if a declaration of the kind now sought was, strictly speaking, not an order setting aside the notice, it is open to the debtor to seek further or other orders as is appropriate.

13. By s.41(6A) of the Act, where, before the time fixed for compliance with the requirements of a bankruptcy notice, an application to set aside the notice has been filed with the registrar, the Court may extend the time for compliance with the bankruptcy notice. In my view, this power was applicable in the present case notwithstanding the subsequent change in the debtor's case: the condition precedent, viz the filing of an application to set aside the notice, was satisfied here at all material times (c.f. Streimer v. Tamas (1981) 54 FLR 253).

14. It is true that s.41(7) of the Act, providing for an automatic extension in certain circumstances, cannot apply here. But it does not follow that a temporary extension cannot be granted pursuant to s.41(6A).

15. I propose to make the declaration sought, with costs.