Re Robert John Laybutt & Anor Ex Parte George Robinson

[1985] FCA 268

Re: ROBERT JOHN LAYBUTT and IRENA LAYBUTT
Ex Parte: GEORGE ROBINSON and PATRICIA LOUISE ROBINSON
No. B2152 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF NEW SOUTH WALES
AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont, J.

CATCHWORDS

Bankruptcy - Bankruptcy Act, 1966, s.41(7) - application to set aside bankruptcy notice - counter-claim which could not be set up in earlier proceedings - sufficiency of statement of claim and its bona fides - failure to explain why it could not have been set up - Bankruptcy Rules, r.10.

HEARING

SYDNEY
#DATE 26:6:1985

ORDER

1. Order that the application to set aside the bankruptcy notice be refused.

2. Order that the time for compliance with the bankruptcy notice be extended up to and including 10 July 1985.

3. Order that the judgment debtors pay the costs of the judgment creditors of this application.

Note: Settlement and entry of orders is dealt with in

Order 36 of the Federal Court Rules.

JUDGE1

The history of this application to set aside a bankruptcy notice is as follows. By application dated 10 May 1985, George Robinson and Patricia Louise Robinson ("the judgment creditors") requested the issue of a bankruptcy notice addressed to Robert John Laybutt and Irena Laybutt ("the judgment debtors"). The judgment creditors produced an office copy of a judgment obtained in the Supreme Court of New South Wales on 2 April 1985 in proceedings in which the judgment creditors were plaintiffs and cross-defendants and the judgment debtors were defendants and cross-claimants. Under the judgment, the judgment debtors, as defendants, were ordered to pay to the judgment creditors, as plaintiffs, the sum of $100,170.77 and costs; the judgment was to take effect on 2 April 1985; and the cross-claim was dismissed. The bankruptcy notice was issued on 13 May 1985. So far as presently relevant, it provided as follows:

"THEREFORE TAKE NOTICE that within Fourteen days (14) days after service of this notice on you, excluding the day on which this notice is served on you, you are required-

(A) to pay the sum of $101,578.65 so claimed by the judgment creditor to

(c) the Judgement Creditors

-OR-

(B) to secure the payment of the sum referred to in paragraph (A) to the satisfaction of the Federal Court of Australia or the judgment creditor (or his agent whose name and address are ...) or compound the sum so specified to the satisfaction of the judgment creditor (or his agent):

AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the above-mentioned requirements of this notice or to satisfy the Federal Court of Australia that you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph

(A) of this notice, being a counter-claim, set-off or cross demand that you could not have set up in the action/... in which the judgment/... was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you.

Dated this 13 day of May, 1985.

(Sgd.)

Deputy Registrar.

NOTE: If you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph

(A), being a counter-claim, set-off or cross demand that you could not have set up in the action (or proceeding) in which the judgment (or order) was obtained, you may, under sub-section 41 (7) of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counter-claim, set-off or cross demand, as the case requires, and the reasons why you were unable to set up the counter-claim, set-off or cross demand and, if you do so, the time for complying with the requirements of this notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counter-claim, set-off or cross demand."

1. The judgment debtors responded to the bankruptcy notice by filing an affidavit sworn by each of them on 3 June 1985 in the following terms (it is sufficient to refer only to the affidavit of the firstnamed judgment debtor):
   

"1. I am the Judgment Debtor in this matter. I refer to the Affidavit of Irene Laybutt sworn on even date.

2. I admit that I am jointly liable with my wife Irene Laybutt to the Judgment Creditors in the sum of $100,170.77 as specified in the Bankruptcy Notice served on 19th May, 1985.

3. By way of counter claim and set-off under the provisions of Section 41(7) of the Bankruptcy Act I say that the Judgment Creditors are indebted to me in the sum of $116,917.00 representing loss of profit in the business known as 'Mount Druitt Inn Hotel Motel' arising out of a Contract between the said Judgment Creditors and myself and my wife on or about November, 1983."

1. The statutory framework in which the affidavits were sworn and filed by the judgment debtors has already been outlined in the terms of the bankruptcy notice cited. It will be sufficient to summarise the relevant provisions of the Bankruptcy Act, 1966 ("the Act"). By s.40 (1)(g), a debtor commits an act of bankruptcy if a debtor does not 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 ... 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 was obtained". By s.41(7), it is provided:
   
   

"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."

1. Although the substantive question which ultimately must be determined is whether an act of bankruptcy has been committed by the judgment debtors, a number of other issues, some adjectival only, have been raised. It is necessary therefore to recite the history of the hearing of the proceedings in some detail.

2. At the commencement of the hearing, the solicitor for the judgment debtors sought to read their affidavits sworn on 3 June. The solicitor for the judgment creditors objected to para.3 of each affidavit as being bad in point of form. I upheld the objection and rejected that paragraph as inadmissible as an impermissible attempt to state a conclusion of law in general terms without establishing any primary facts or, indeed, without even attempting to identify any cause of action at law, in equity or by statute; in other words, the material was no more than an attempt to give evidence of an opinion of the deponent and therefore inadmissible (see Halsbury's Laws of England, 4th Ed., Vol. 17, para.78).

3. The solicitor for the judgment debtors then sought to rectify the deficiencies in their evidence by reading an affidavit sworn by the firstnamed debtor on 24 June. The solicitor for the judgment creditors objected to this course as not open to the judgment debtors. It was submitted that the decision of Lukin, J. in Re Vogwell; Ex parte Vogwell (1939) 11 ABC 75 precluded that course. In an application made under the Bankruptcy Act, 1924 and the Bankruptcy Rules, 1934, Lukin, J. said (at p.77):
   
   

"It will be noted that this affidavit, which is prescribed by s. 52(j) of the Bankruptcy Act and Bankruptcy rules 146 and 147, is one which the applicant must file within the time specified in the bankruptcy notice. The filing of such affidavit operates as an application to set aside the bankruptcy notice (rule 147) and in such affidavit she has to state the grounds (see Form 7 of the rules). I think the rules confine the counter-claim, set-off or cross demand to that claimed in such affidavit. Haphazard suggestions of other grounds not contained in such affidavits are, in my opinion, outside the prescribed time and are not open to the applicant."

1. By rule 10 of the present bankruptcy rules, it is provided that where a debtor files an affidavit "to the effect that" he has a counter-claim, set-off or cross demand of a kind referred to in s.40 (1)(g), "and giving details (thereof) and the reasons why he was unable to set it up in the proceedings in which judgment was obtained", the Registrar shall fix a date at which the debtor "may appear before the Court for the purpose of satisfying the Court that he has the counter-claim, set-off or cross demand referred to in the affidavit".

2. To revert to the history of the proceeding, having indicated that I would reserve judgment on the objection taken by the solicitor for the judgment creditors, I allowed the solicitor for the judgment debtors to read his client's affidavit sworn 24 June subject to that objection. In that affidavit, an attempt was made to outline a claim for damages for misrepresentations inducing the judgment debtors to enter into the contract referred to in para.3 of the earlier affidavit. The misrepresentations were said to relate to the profitability of the business purchased. The affidavit is brief; no attempt is made to indicate with any precision a particular cause of action. For instance, it is not apparent from the affidavit whether an innocent or fraudulent misrepresentation is alleged. The delay in propounding the claim is sought to be explained by asserting that the judgment debtors' trading figures were only recently analysed and that the judgment debtors were only recently advised of their having a cause of action against the judgment creditors "for misrepresentation".

3. Without prejudice to his earlier objection, the solicitor for the judgment creditors read an affidavit of the secondnamed judgment creditor sworn 13 June 1985. It recited the default of the judgment debtors under the contract for sale and proceeded:
   
   

"5. Following Discovery and Interrogatories the Supreme Court proceedings were listed for hearing on the 2nd April, 1985. Shortly prior to that time I became aware that Messrs. Shaw McDonald & Partners obtained the leave of the Court to cease acting for the judgment debtors and I have perused a detailed Affidavit of Mr. Fitzgerald a partner of Messrs. Shaw McDonald & Partners who had the carriage of the matter on behalf of the judgment debtors detailing his attempts to obtain instructions from the judgment debtors to defend the Supreme Court proceedings and his failure to obtain such instructions. Before proceeding to a hearing of the plaintiffs' claim in the Supreme Court proceedings on the 2nd April, 1985, the presiding Judge, Mr. Justice Wood insisted that he have sworn evidence from Mr. Fitzgerald to satisfy himself that the judgment debtors were aware of the hearing date and had been warned that the matter could proceed in their absence. Mr. Fitzgerald attended the Court for that purpose and verified on oath that the judgment debtors were cautioned in such a manner. Having satisfied himself on this aspect of the claim the Judge proceeded to determine the action and the judgment upon which the Bankruptcy Notice was issued, was awarded."

1. In my opinion, the Act and the rules provide for two separate inquiries where a debtor seeks to set aside a bankruptcy notice in the present circumstances. In the first instance, the debtor must in his affidavit provide material which is sufficient to satisfy the Registrar of the existence of a bona fide counter-claim or the like which could not be set up in the earlier proceedings. At this stage, the Registrar is essentially concerned to inquire into the bona fides of the debtor's claim; if it is obviously demurrable as disclosing no possible cause of action, the affidavit should be rejected by the Registrar as raising no case for enquiry (see Re A Bankruptcy Notice (1900) 16 WN (NSW) 180; In Re a Debtor; Ex parte Debtor (1935) 1 CH. 347).

2. At the second stage, the Court enquires into the matter in order to satisfy itself of the existence of an appropriate cross-claim or something like it. At this stage, the judge will require evidence in proper form to indicate the existence of such a claim. This is not to say that the affidavit evidence, including evidence supplementing the earlier affidavit for the purpose of explication without going beyond its scope, must be in a form in which evidence would be required to be given at a final hearing. But, so that the Court may form a view as to the bona fides of the debtor's claim, the affidavit should contain a statement of the legal basis of the claim and an outline of the facts relied on (see Re Jocumsen (1929) 1 ABC 82) and reasons why the debtor was unable to set up the counter-claim or the like (see rule 10).

3. In the present case, it is at least doubtful whether para.3 of the earlier affidavit, whether read in conjunction with the affidavit sworn 24 June 1984 or taken on its own, was sufficient to comply with the provisions of s.41(7) and rule 10 so far as they require a proper statement of the existence of a bona fide counter-claim or something similar: it is not even clear whether the cause of action alleged is in deceit or for innocent misrepresentation or for negligent advice or misstatement; nor is any attempt made to spell out the measure of damages or the basis for claiming the sum of $116,917.00. But, in any event, the judgment debtors have made no attempt, in any of their affidavits or in argument, to establish any reason why the claim now propounded could not have been set up in the Supreme Court. Indeed, if anything, the terms of the judgment suggest that such a cross-claim was launched in that Court but not proceeded with and dismissed.

4. If, as it would appear, the judgment debtors now wish to assert a claim under the general law based on fraud or innocent misrepresentation or negligent misstatement, there is no reason why any such cause of action could not have been litigated by way of cross-claim made in the Supreme Court proceedings. That Court has unlimited jurisdiction under the general law to deal with such matters. (Although that Court does not have jurisdiction to entertain a claim made under s.52 of the Trade Practices Act, 1974, the judgment debtors have never asserted any such claim which, of course, could only be brought in the general jurisdiction of the Federal Court.)

5. It follows, in my view, that the judgment debtors have failed to establish that the claim they now seek to raise by way of cross-claim could not have been raised in the Supreme Court proceeding. It further follows that the affidavits relied on by them are defective for the purposes of rule 10. Moreover, at least one of the matters of which the Court must be satisfied under s.40 (1)(g) if the bankruptcy notice is to be set aside has not been established. I propose to refuse the application accordingly. However, so that the judgment debtors will have an opportunity to consider their position, I propose to extend the time for compliance with the bankruptcy notice for a further 14 days.

6. I make the following orders:
   
   

1. Order that the application to set aside the bankruptcy notice be refused.

2. Order that the time for compliance with the bankruptcy notice be extended up to and including 10 July 1985.

3. Order that the judgment debtors pay the costs of the judgment creditors of this application.