Re Schaw, Raimond (also known as Saw Oo)

[1981] FCA 266

Re: RAIMOND SCHAW also Known as SAW OO Deptor (Applicant)
No. B942 of 1981
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Lockhart J.

CATCHWORDS

Bankruptcy - bankruptcy notice - whether affidavit is of kind referred to in ss. 41 (7) and 40 (i) (g) of the Act.

Bankruptcy Act 1966 (Cth.) ss. 40 (i) (g); 41 (7)

HEARING

SYDNEY

#DATE 18:12:1981

JUDGE1

On 18 March 1981 a 14 day bankruptcy notice was issued by a Deputy Registrar in Bankruptcy at the request of the Bank of New South Wales (the creditor) directed to Raimond Schaw, also known as Saw Oo (the debtor) claiming that the sum of $72,583.52 was due by the debtor to the creditor under a final judgment obtained by the creditor against the debtor in the Supreme Court of New South Wales on 6 March 1980.

The bankruptcy notice was served upon the debtor on 4 August 1981. On 18 August 1981 the debtor filed an affidavit sworn by him purporting to invoke the provisions of s. 41 (7) of the Bankruptcy Act 1966. The affidavit reads as follows, omitting formal parts:

"1. I am the judgment debtor.

2. I believe I have a cross-claim in relation to the action of the creditor in respect of the breach of the creditor's application to Bovo Investments Pty. Limited ("Bovo") whilst the creditor was in possession as mortgagee of properties owned by Bovo.

3. The amount of the cross-claim, I believe, exceeds the amount of the judgment obtained by the creditor.

4. I wish to avail myself in the Supreme Court's proceedings of the counter-claim which Bovo has against the bank.

5. I have instructed Messrs. J. W. Maund and Kelynack, solicitors, and Mr. V. Bruce barrister to take all steps to institute the necessary proceedings to set aside the judgment and to exercise my right without delay.

6. I was served the bankruptcy notice on 4 August 1981."

The affidavit is handwritten and has the hallmarks of an affidavit prepared by the deponent.

The Registrar set the matter down for hearing by the Court. It was mentioned on a number of occasions for directions and was heard by me yesterday. The creditor contends that the affidavit of 18 August 1981 (which I shall refer to as the first affidavit) is not an affidavit of the kind mentioned in s. 41 (7) and s. 40 (i) (g) of the Act, namely an affidavit to the effect that the debtor has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt, being one that he could not have set up in the Supreme Court proceeding in which the judgment was obtained.

The debtor swore two later affidavits, but it is common ground that the only affidavit filed before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice is the first affidavit. It is therefore to the first affidavit alone that the Court may look to consider the contention of the creditor that the first affidavit is not of the requisite kind. In Re Brink (1980) 30 A.L.R. 433 I said at p. 439:-

"In my opinion the affidavit cannot merely contain an assertion that the debtor has a counter-claim, set-off, or cross demand which he could not have set up in the action in which the judgment or order was obtained. The affidavit must show a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which the debtor could not have set up in the action in which the judgment or order was obtained: see Vogwell v. Vogwell, supra, at 85; Ebert's Case supra, at 350; Re A Debtor 1935 1 Ch. 347, per Slesser L.J. at 352. It is well to remember that the initial affidavit has to be filed within a limited time namely, the number of days after the service of the bankruptcy notice upon the debtor fixed by the Registrar. These times are fixed by him without any knowledge on his part of the possibility of a counter-claim, set-off or cross demand being propounded by the debtor. In many cases it is difficult, if not impossible, for the debtor to present more than a mere outline of his case in the time available. I do not think any good purpose would be served by my attempting to express a definitive formula as to what the original affidavit must contain. That must depend in every case on the particular facts and circumstances: see Re A Debtor 1963 1 W.L.R. 51, per Upjohn L.J. at 56. The fact that it is within the power of the court to determine when the hearing of a matter under s. 41 (7) will take place, and thus the length of the extension of time to comply with the requirements of the bankruptcy notice; and the difficulty, if not impossibility in some case, of the initial affidavit being anything other than a mere outline of the debtor's case due to the temporal constraints imposed by the notice, all point to the conclusion that the court should adopt a benevolent construction to the initial affidavit."

The reference in the passage I have quoted from my judgment in Brink's Case to Vogwell v. Vogwell is to the following statement by Latham C.J. 11 A.B.C. at p. 85: -

"It must be a real claim; it is insufficient that the debtor believes that he has a claim, and the authorities show that the matter to which the court looks is this, - whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which it is proper and reasonable to litigate."

In my opinion the first affidavit in this case does not meet the tests required of an affidavit of the kind mentioned in ss. 41 (7) and 40 (i) (g). It is merely an assertion of the debtor's belief that he has some cross-claim against the creditor in respect of some alleged breach of the creditor's obligation to Bovo Investments Pty. Limited whilst the creditor was in possession as mortgagee of properties owned by Bovo. There is not even a skeletal outline of the facts upon which the debtor would seek to rely to support his alleged cross-claim against the creditor. Not even the most benevolent construction can, in my view, save the affidavit.

It follows that an act of bankruptcy was committed by the debtor on 18 August 1981 provided of course that the bankruptcy notice is valid. The question of the validity of the notice arose in the course of discussion between counsel for the debtor and myself yesterday. There had been no earlier indication given by the debtor to the creditor of any intention to challenge the validity of the notice. Counsel for the creditor objected to any ruling being made by the court in this matter as to the validity of the notice. He contended that the very nature of a matter under s. 41 (7) is inconsistent with a challenge to the validity of the bankruptcy notice. By taking the course he has it was said that the debtor had elected to treat the notice as valid, at least for the purposes of this matter.

It is common ground that if the notice is bad it cannot give rise to an act of bankruptcy and that a challenge to the validity of the notice may be made upon the hearing of any petition which the creditor may present based on non-compliance with the bankruptcy notice itself of 18 March 1981.

I do not find it necessary to determine whether a matter under s. 41 (7) is necessarily inconsistent with a challenge to the validity of the bankruptcy notice, which is the genesis of the matter.

In all the circumstances I do not think it is appropriate to determine the validity of the bankruptcy notice in this present matter. The attack on the notice is that although it asserts a claim by the creditor that a sum of $72,583.52 is due by the debtor to the creditor under a final judgment obtained by the creditor against the debtor in the Supreme Court of New South Wales on 6 March 1980, it then goes on to require payment of $73,583.52 expressed as being the amount "so claimed" by the creditor and to secure the payment of the sum referred to in paragraph (a) of the notice to the satisfaction of this Court or the judgment creditor or to compound the sum so specified to the satisfaction of the creditor.

Plainly the statement of the amount of which payment is required as $73,583.52 is a defect; but whether it is a fundamental defect is an arguable question which involves considering if s. 41(5) of the Act applies to save the notice from invalidity, and this is no easy question.

I will say no more about it at this stage except that if the creditor proceeds to present a petition based on non-compliance with the requirements of this bankruptcy notice it will have to satisfy this Court that the notice is valid. Also if the debtor seeks from this Court an injunction restraining the presentation of a petition based on non-compliance with the requirements of this notice the question of its validity may then arise for determination. That, of course, presupposes that the creditor will proceed to present a petition based on non-compliance with this bankruptcy notice.

Having concluded that the first affidavit is not of the kind referred to in ss. 41(7) and 40(i)(g), it is not necessary to consider the other evidence in the case. As to costs I propose to reserve them in view of the possible challenge to the validity of the bankruptcy notice at a later stage. Accordingly I declare that the affidavit of Raimond Schaw sworn on 18 August 1981 is not an affidavit of the kind referred to in section 41(7) and section 40(i)(g) of the Bankruptcy Act 1966. I reserve the costs of both parties.