Re Sammut, J. v Ex parte Boral Bricks (Vic) Ltd

[1991] FCA 287

7             '71

JUDGMENT NO. h.... .- ..,...

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	) No. B465 of 1991
BANKRUPTCY DISTRICT OF THE STATE	)
OF VICTORIA	)

- RE: JOHN SAMMUT
Debtor

EX PARTE:	BORAL BRICKS (VIC.	1
LIMITED

Creditor

C O W :  Jenkinson J.

RECEIVED

PLACE :  Melbourne

31 MAY 1991

m:  29 May, 1991 FEDERAL COURT OF

AUSTRALIA PRINCIPAL REGISTRY

REASONS FOR JUDGMENT

Trial of the question whether the Court is satisfied
that a debtor served with a bankruptcy notice has such a

counter-claim, set-off or cross demand as is referred to in

paragraph 40(l)(g) of the B a n k r u ~ t c v A c t 1966.

customarily signs. The debtor signed below those words. He	has "Lemburg Home Builders" in the place where the drawer
carries on business under those words.
The debtor has filed an affidavit alleging three counter-claims, two of which exceed the amount payable under the order of the Magistrates' Court, and each "being a counter-claim, set-off or cross-demand that he could not have set up in the .... proceeding in which the .... order was obtained", within the meaning of those words in S. 40 ( l) (g) of the Bankruutcv Act 1966, according to his allegation. The affidavit deposes to the institution by the debtor on 25 January 1991 of an action in the County Court of Victoria against the judgment creditor. It is by reference to the amended statement of claim in that action that the debtor describes the three claims he alleges in his affidavit. One of his allegations is that the judgment creditor is, and (it may perhaps be inferred from the evidence, and was assumed by the parties before me) was at the time when the judgment creditor instituted the proceeding in the Magistrates' Court, indebted to him in the sum of $2,250, the price payable under
expressed thus : "Between 29th May 1990 and 27th September an agreement in respect of which the only other information is
1990 the Plaintiff sold to the Defendant advertising space". The evidence before this Court does not expressly disclose what the consideration was for which the debtor gave the judgment creditor the cheque. The parties assumed in their submissions that the cheque was given in payment for bricks sold and delivered by the judgment creditor to the debtor, under an agreement upon breaches of which the other two claims by the debtor are alleged to arise. The debtor alleges -
either expressly or by allegations from which it may be inferred - that on 13 March 1990 he and the judgment creditor made an agreement in writing for the sale by the judgment creditor to him of bricks, that at that time the judgment creditor knew that the bricks were for use by the debtor in performance of a building agreement between the debtor and Victoria S m u t , a term of which agreement provided for payment by the debtor to Victoria S m u t of damages in the sum of $1,500 per week for delay in completion of the building, that delay was caused by the judgment creditor's failure in breach of the agreement for sale of bricks to deliver bricks within the agreed times for delivery, that thereby the debtor became liable in damages to Victoria S m u t for delay and that he is entitled to recover as damages from the judgment creditor a sum equal to the amount he is liable to pay Victoria Sammut in pursuance of that term of the building agreement. The claim is expressed to be for "$24,000
creditor of the agreement for sale of bricks, consisting in damages". The debtor also alleges breach, by the judgment the judgment creditor's failure "to issue a credit for bricks
that were found to be broken, inconsistent in size and not manufactured in one batch". The claim is expressed to be for "$2,560 damages".
The debtor's claim for the price of "advertising space" is for a liquidated amount and was, according to the reasoning of Madden C.J. in Inoleton v . Coates (1896) 2 A.L.R. 154, one which the debtor could have set up in the proceeding in which the order founding the bankruptcy notice was
obtained. (The M a a i s t r a tes ' C o u r t C i v i l P r o c e d u r e R u l e s 1989
do not, as the G e n e r a l R u l e s o f P r o c e d u r e i n C i v i l P r o c e e d i n a s
1986 of the Supreme Court of Victoria and the C o u n t v C o u r t
R u l e s o f P r o c e d u r e i n C i v i l P r o c e e d i n a s 1989 do, expressly
provide for raising as a defence or set-off a claim by a defendant against a plaintiff for the recovery of a debt or damages. But s.31(b) of the Supreme C o u r t A c t 1986 authorizes the Magistrates' Court to give effect to every ground of defence or counter-claim, equitable or legal, in as full and ample a manner as the Supreme Court might give in the like case.) In that case Madden C.J. held that a claim by the defendant against the plaintiff for money lent might be pleaded as a set-off to the plaintiff's claim on a promissory note made by the defendant. The plaintiff's claim arose out of a transaction quite separate from the transaction out of which the defendant's claim arose. Here the debtor has not
which the claim on the cheque arose. his claim for $2,250 arose was part of the transaction out of shown by evidence whether or not the transaction out of which It is now accepted, by authorities which I consider I should follow, that a claim for unliquidated damages will not be admitted as a ground for denying judgment for the plaintiff on a claim, between the immediate parties to a bill of exchange, for payment of the amount due on that bill :
Mobil Oil A u s t r a l i a L t d . v . C a u l f i e l d T v r e S e r v i c e P t v . L t d .
[l9841 V.R. 441 and cases there cited. The rules stated in
those authorities are not stated in identical terms. Perhaps the most comprehensively expressed exclusion of impediments to judgment without stay of execution on a claim on a bill of exchange is that stated by Sir Eric Sachs in Cebora S.N.C. v.
S . I . P . ( I n d u s t r i a l P r o d u c t s ) L t d . [l9761 1 Lloyd's Rep. 271 at
278:

The bankruptcy notice is founded on an order of the Magistrates' Court of Victoria obtained by the judgment creditor against the debtor on 20 February 1991. The order was made upon a complaint upon a bill of exchange under Part I

of	the	I n s t r u m e n t s A c t	1958	and	Order	24	of	the	M a a i s t r a t e s '
C o u r t	C i v i l	P r o c e d u r e	R u l e s .	The	bill	was	a	cheque	for

$2,088.96 drawn by the debtor and payable to the judgment creditor, dated 3 December 1990. The printed bank cheque form

"Any erosion of the certainties of the application by our Courts of the law merchant relating to bills of exchange is likely to work to the detriment of this country, which depends on international trade to a degree that needs no emphasis. For some generations one of those certainties has been that the bona fide holder for value of a bill of exchange is entitled, save in truly exceptional circumstances, on its maturity to have it treated as cash, so that in an action upon it the Court will refuse to regard either as a defence or as grounds of a stay o f execution any set-off, legal or equitable, or any counterclaim, whether arising on the particular transaction upon which the bill of exchange came into existence, or, a fortiori, arising in any other way. This rule of practice is thus, in effect, pay on the bill of exchange first and pursue claims later."

by Sir Eric Sachs nor Inule ton v. C o a t e s , supra, but the	I think that I should accept and apply neither the statement
statement by Lord Wilberforce in Nova l J e r s e v J Knot v.
Kammuann S ~ i n n e r e i G.m.b.H. [l9771 1 W.L.R. 713 at 720:

"I take it to be clear law that unliquidated

cross-claims cannot be relied upon by way of extinguishing set-off against a claim on a bill

of exchange: Warwick v. Nairn (1855) 10 Exch.

762; James Lamont & Co. L t d . v. Hyland L t d .

[l9501 1 K . B . 585. As between the immediate

parties, a partial failure of consideration may be relied upon as a pro tanto defence, but only when the amount involved is ascertained and

liquidated: Warwick v. Nairn, 10 Exch. 762;

Agra and Masterman's Bank L t d . v. Leigh ton

(1866) L.R. 2 Exch 56; James Lamont & Co. v . Hyland [l9501 1 K.B. 585, Brown, Shipley & Co. Ltd. v . Alicia Hosiery Ltd. [l9661 1 Lloyd's Rep. 668."

Two of the other four members of the House of Lords who participated in the decision of that case agreed in Lord Wilberforce's speech and another, Lord Russell of Killowen, spoke to similar effect (at 732-733): "It is in my opinion well established that a claim for unliquidated damages under a contract for sale is no defence to a claim under a bill of exchange accepted by the purchaser: nor is it available as set-off or counterclaim. This is a deep rooted concept of English commercial law. A vendor and purchaser who agree upon payment by acceptance of bills of exchange do so not simply upon the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sale. The bill is itself a contract separate from the contract of sale. Its purpose is not merely to serve as a negotiable instrument, it is also to avoid postponement of the

purchaser's liability to the vendor himself, a postponement	grounded upon some allegation of failure in some respect by
the vendor under the underlying contract, unless it be total or quantified partial failure of consideration." These observations in the House of Lords were obiter in relation to a defendant's liquidated claim, for the House was considering an unliquidated claim. But to the authority of their authors must be added the authority of the judges to whose reasoning in Warwick v . Nairn (1855) 10 Ex. 762; Aura and Masterman's
Bank Ltd. v . Leiuhton (1866) L.R. 2 Exch. 762 and James Lamont
& Co. v. Hvland [l9501 1 K.B. 585 Lord Wilberforce referred.
Even if the agreement for sale of advertising space had been part of the agreement under which the cheque was given, breach by the judgment creditor of any obligation under which it lay to make payment to the debtor of $2,250 in respect of advertising space could not have constituted a failure of the consideration for the cheque, which the parties have treated as given for bricks bargained and sold (and, perhaps, delivered). Accordingly the debtor's claim for $2,250, the price payable in respect of advertising space, was in my opinion a set-off that he could not have set up in the proceeding in which the order founding the bankruptcy notice was obtained.
There remains the question whether the debtor's claim for $2,250 constituted a counter-claim or cross-demand which he could not have set up in the proceeding in which the order founding the bankruptcy notice was obtained. The
with the procedure prescribed by Part I of the Instruments Act proceeding in the Magistrates' Court was brought in accordance
1958, a procedure no longer available in England. Under Part I the defendant must obtain, within a specified time after service of the originating process, the Court's leave to appear and defend the proceeding. Unless leave is granted within that time final judgment may be entered. Under "special circumstances" such a judgment may be set aside and leave to appear and defend the proceeding may be given. But leave to appear and defend will not be given if only matter of counter-claim or cross-demand is raised by the defendant. Matter of defence or facts making it incumbent on the holder of the bill of exchange to prove consideration or other special circumstances, of which none appear in this case, must be proved in order to gain leave to appear and defend. In a proceeding brought in accordance with the ordinary rules of civil procedure a defendant often has the opportunity to institute a counter-claim before judgment for the plaintiff on the plaintiff's claim has been obtained, and is then able to prosecute the counter-claim notwithstanding the entry of judgment on the plaintiff's claim. No such an opportunity is available to a defendant sued in accordance with the procedure ordained by Part I of the Instruments Act 1958 unless and until the defendant has first obtained leave to appear and defend the plaintiff's claim. This the debtor could not have done by reference to his claim for $2,250.
Although the debtor's claim for $2,250 exceeded the amount of the cheque, the final order of the Magistrates'
Court, which included a sum for costs, was for $2,387.96. That claim could not satisfy the requirement of s.2O(l)(g) that the debtor's counter-claim, set-off or cross-demand should equal or exceed the amount of the sum payable under the final order.
Neither of the other claims is liquidated. Each exceeds the amount of the sum payable under the final order of the Magistrates' Court. The authorities to which I have referred require the conclusion that neither could have been set up in the proceeding in which the order founding the bankruptcy notice was obtained.
There will be a declaration that the Court is satisfied that the debtor has counter-claims namely those for $2,560 damages and $24,000 damages which are particularised in exhibit JSI to the affidavit of the debtor sworn the 3rd day of April 1991 each exceeding the amount of the sum payable under the final order specified in the bankruptcy notice that
,he could not have set up in the proceeding in which the said
final order was obtained.

I certify that this and the 8

preceding pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Jenkinson.

Associate

L ?--

Dated: 29 May, 1991

Counsel for the Judgment Creditor :	Ms. J. Davies
Solicitors for the Judgment	Collins & Stephens
Creditor
Judgment Debtor in Person
Dates of Hearing	17 and 24 April, 1991