Re Sanfrancesco, M. v Ex parte Cikara, T. (trading as Modena Smash Repairs)

[1991] FCA 193

Re: MARIO SANFRANCESCO
Ex parte: TONEY CIKARA (trading as Modena Smash Repairs)
No. ACT B16 of 1991
FED No. 193
Bankruptcy - Courts and Judges
100 ALR 779/28 FCR 245

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE AUSTRALIAN CAPITAL TERRITORY
GENERAL DIVISION
Neaves J.(1)

CATCHWORDS

Bankruptcy - Judgment obtained against debtor in Magistrates Court (A.C.T.) - Bankruptcy notice based on judgment served on debtor - Affidavit of debtor filed within time fixed for compliance with bankruptcy notice - Whether an affidavit to the effect that the debtor has such a counter-claim, set-off or cross demand as is referred to in s.40(1)(g) of the Bankruptcy Act 1966 (Cth) - Whether counter-claim, set-off or cross demand could not have been set up in proceeding in which judgment against debtor obtained.

Courts and Judges - Magistrates Court (A.C.T.) - Proceedings by special claim to recover debt - Defendant not disputing claim but seeking to rely on counter-claim or cross-action - Provision that counter-claim or cross-action may be pleaded in notice of grounds of defence - Whether absence of defence to claim precludes pleading of counter-claim or cross-action.

Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(7)

Magistrates Court (Civil Jurisdiction) Act 1982 (A.C.T.), ss.16, 35, 41,

HEARING

CANBERRA

#DATE 24:4:1991

Counsel for the judgment: Mr D.R. Romano

Solicitors for the judgment: Romano and Co.

Counsel for the judgment: Mr G. Lee

Solicitors for the judgment: Vandenberg Reid Pappas and MacDonald

ORDER

Declares that the affidavit sworn by the judgment debtor and filed herein on 21 March 1991 is not an affidavit of the kind referred to in s.41(7) of the Bankruptcy Act 1966 (Cth).

Orders that the judgment debtor pay the judgment creditor's costs of this proceeding.

Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

JUDGE1

On 8 August 1990, Tony Cikara trading as Modena Smash Repairs ("the judgment creditor") signed judgment against Mario Sanfrancesco ("the judgment debtor") in the Magistrates Court of the Australian Capital Territory in the sum of $4,860.03 for debt, interest and costs. It appears that the proceedings were brought on a dishonoured cheque which the judgment debtor had given to the judgment creditor when taking delivery from the judgment creditor of a motor vehicle upon which the judgment creditor had undertaken to the judgment debtor that he would do certain work. The judgment debtor says that he subsequently became aware that the work carried out by the judgment creditor was so badly done that it had to be re-done at a higher cost than that quoted by the judgment creditor and that he thereupon stopped payment of the cheque "on the basis that the work done was badly done and of no value" to him. Judgment was entered in the Magistrates Court against the judgment debtor in default of the filing of a notice of grounds of defence.

1. On 25 February 1991 a Deputy Registrar in Bankruptcy, upon the application of the judgment creditor, issued a bankruptcy notice addressed to the judgment debtor. The bankruptcy notice required the judgment debtor to pay to the judgment creditor the amount of $5,231.03, being the amount of the judgment debt plus interest. The time fixed for compliance with the requirements of the notice was 14 days from the date of service. It is common ground that the notice was served on the judgment debtor on 7 March 1991.

2. On 21 March 1991, that is to say before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, the judgment debtor filed an affidavit sworn by him on that day. The affidavit purports to be an affidavit answering the description in s.41(7) of the Bankruptcy Act 1966 (Cth), namely "an affidavit to the effect that he (the judgment debtor) has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g)" of that Act. Paragraph 40(1)(g) refers to 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".

3. The affidavit states (par.7) that "pursuant to the relevant legislation" the judgment debtor had no valid defence in law to the claim made against him by the judgment creditor. The Court was informed by counsel for the judgment debtor that the reference to "the relevant legislation" is a reference to the Cheques and Payment Orders Act 1986 (Cth). The affidavit further states that, after taking delivery of it, the judgment debtor had the vehicle inspected and obtained quotations for the necessary repairs. On 21 March 1991 he commenced proceedings against the judgment creditor in the Magistrates Court of the Australian Capital Territory claiming damages for breach of contract and for losses sustained by the negligent manner in which the work was carried out by the judgment creditor. In those proceedings the judgment debtor claims the sum of $5,149.44 described as "costs and losses in carrying out rectification work", damages for breach of contract and "interest pursuant to Section 227A and calculated in accordance with Section 227B(2) of the Magistrates Court Act" and costs. The reference to the Magistrates Court Act should, it would seem, be a reference to the Magistrates Court (Civil Jurisdiction) Act 1982 (Cth). The judgment debtor also deposes that he has been advised that he has a "valid" cause of action against the judgment creditor and that, if he obtains judgment upon that cause of action, this would have the effect of offsetting the judgment against him.

4. In the above proceedings, the judgment creditor has filed a notice of grounds of defence and cross-claim.

5. The proceedings in which the judgment creditor obtained judgment against the judgment debtor were clearly within the jurisdictional limits of the Magistrates Court as is the claim by the judgment debtor that is the subject of the proceedings commenced by him on 21 March 1991.

6. The affidavit of the judgment debtor filed on 21 March 1991 is, I think, sufficient to satisfy the Court that the judgment debtor has a substantial and bona fide, albeit strongly disputed, claim against the judgment creditor. I do not understand the contrary to have been asserted. Nor is it contested that the claim is for an amount equal to or exceeding the amount of the judgment debt the subject of the bankruptcy notice. The substantial issue between the parties is whether the claim is one that the judgment debtor could not have set up in the action or proceeding in which the judgment on which the bankruptcy notice is founded was obtained. Counsel for the judgment debtor submits that that question must be answered in the affirmative. Counsel for the judgment creditor submits to the contrary. To understand the rival contentions it is necessary to refer to certain provisions in the Magistrates Court (Civil Jurisdiction) Act.

7. Section 16 of that Act provides for the institution of proceedings to recover a debt by the filing of a special or an ordinary claim. Section 35 provides that a defendant in proceedings may, at any time before final judgment is entered in the proceedings, file a notice of grounds of defence. A notice of grounds of defence is to be in accordance with Form 9 in the Schedule (s.36). Form 9 is as follows:
   

"NOTICE OF GROUNDS OF DEFENCE

The defendant intends to defend these proceedings on the following

grounds:

(Plead as required by the Act, for example)

1. The defendant denies etc.

(If cross-claim made)

1. (plead as required by the Act)

The defendant claims the sum of $ "

A defendant in proceedings is not, except with the consent of the plaintiff or with the leave of the court, entitled, at the hearing of the proceedings, to rely on a ground of defence not specified in a notice of grounds of defence filed by him (s.38(1)). Section 41 provides:

"Where, in proceedings instituted by the filing of a special claim -

(a) a period of 21 days has expired after the date of service of the claim;

(b) the plaintiff has filed an affidavit of service of the claim or a certificate of postal service of the claim has been filed;

(c) the defendant has not filed a notice of grounds of defence; and

(d) judgment has not been given or entered in the proceedings, the clerk shall, on the application of the plaintiff in accordance with Form 14 made within 12 months after the expiration of the period referred to in paragraph (a), enter final judgment in accordance with Form 15 for the plaintiff against the defendant for the amount then claimed to be owing and costs as prescribed."

1. Division 5 of Part VI of the Act (comprising ss.44-49 inclusive) has the heading "Special defences". Section 44 deals with the defence of tender before action and s.45 with the defence of set-off. Section 46 provides:
   

"46.(1) A defendant in proceedings may, in his notice of grounds of defence, plead a cross-claim founded on any cause of action in respect of which he might have instituted proceedings in the court against the plaintiff, being a cross-claim for an amount that does not exceed the maximum amount for which the court has jurisdiction under this Ordinance, whether the amount of the cross-claim is calculated on a balance of account, after an admitted set-off or otherwise.

(2) A notice of grounds of defence in which a cross-claim is pleaded shall include such particulars in respect of the cause of action on which the cross-claim is founded as would be required to be included in a claim in respect of that cause of action.

(3) A defendant in proceedings may plead more than one cause of action against the plaintiff by way of cross-claim, but a cross-claim shall not be for a total amount in excess of the maximum amount for which the court has jurisdiction under this Act (whether the total amount is calculated on a balance of account, after an admitted set-off, on an abandonment or otherwise)."

The expression "cross-claim" is defined in s.3(1) to mean "a claim (whether by way of counterclaim, cross-action, set-off or otherwise) pleaded in a notice of grounds of defence filed by a defendant in proceedings".

1. Sections 48 and 49 provide:
   

"48.(1) Subject to this Act, proceedings on a cross-claim shall be conducted, heard and determined, as far as practicable, in the same manner as proceedings instituted by the filing of a claim.

(2) Without limiting the generality of sub-section (1), this Act applies to a cross-claim and to proceedings on a cross-claim as if -

(a) the notice of grounds of defence pleading the cross-claim were a claim;

(b) the defendant pleading the cross-claim were a plaintiff in proceedings instituted to recover the amount claimed on the cross-claim; and

(c) the plaintiff against whom the cross-claim is pleaded were a defendant in such proceedings.

(3) Withdrawal, abandonment or dismissal of the whole or part of a claim or discontinuance of proceedings on the whole or part of a claim does not prevent the continuance of proceedings on a cross-claim, and the withdrawal, abandonment or dismissal of the whole or part of a cross-claim or discontinuance of proceedings on the whole or part of a cross-claim does not prevent the continuance of proceedings on the claim in relation to which the cross-claim was pleaded.

49. The court may, if it is of the opinion that the trial of a claim and cross-claim together would embarrass or delay the hearing of proceedings or be otherwise inconvenient, order that proceedings on the claim and proceedings on the cross-claim be heard and determined separately or make such other order as it thinks just."

1. The argument for the judgment debtor focussed upon the provision in s.46(1) of the Magistrates Court (Civil Jurisdiction) Act that, if a defendant wishes to rely on a cross-claim, he may plead it "in his notice of grounds of defence". It was submitted that it is not open to a defendant who has no defence to the claim made against him to file a notice of grounds of defence with the consequence that such a defendant may not raise a cross-claim in the proceedings brought against him.

2. The obvious purpose of s.46(1) is to provide a mechanism whereby all issues between disputing parties may be resolved in a manner designed to avoid multiplicity of proceedings. The argument advanced by counsel on behalf of the judgment debtor, if accepted, would defeat that purpose in part at least. The construction of the provision for which he contends should, therefore, be adopted only if the language is compelling.

3. In my opinion, the language of the provision does not compel that result. The relevant words in s.46(1) do no more than prescribe the procedural mechanism by which a cross-claim is to be pleaded. It is to be pleaded in a document which the provision refers to as "a notice of grounds of defence". I can see no reason why a notice of grounds of defence may not be filed if the only matter which a defendant wishes to raise is a cross-claim. Indeed, the width of the definition of that expression in s.3(1) and the format of Form 9, although that format is not itself devoid of difficulty, support the conclusion that s.46(1) has not the limited operation for which the judgment debtor contends.

4. I am, therefore, of opinion that the claim the subject of the proceedings commenced by the judgment debtor against the judgment creditor on 21 March 1991 does not answer the description of a counter-claim, set-off or cross demand which the judgment debtor could not have set up in the action or proceeding in which the judgment on which the bankruptcy notice was founded was obtained. It follows that the affidavit filed by the judgment debtor on 21 March 1991 is not an affidavit of the kind referred to in s.41(7) of the Bankruptcy Act. The consequence is that the time fixed for compliance with the bankruptcy notice is not deemed to have been extended by that provision and the judgment debtor committed an act of bankruptcy upon the expiration of the period of 14 days referred to in the notice.

5. The judgment debtor must pay the judgment creditor's costs of this proceeding.