Re Somerset, Edward Plantagenet & Anor v Ex Parte National Australia Bank Ltd

[1990] FCA 785

JUDGMENT No. ?.8.5,..:/..?--

TCY D I S m I C T OF THE 1 BN No. 60 of 1990

S T A T E OF OUEENSLAND 1

WWARD	P-NET
SOMERSET

RECEIVED Debtors

E E I O N A S I A BANK LIMITED

Creditor

PRlNClPAL

y	N I N U T E S	OF	ORDER
Spender J. 21 December 1990 Brisbane

mE COURT D E V :

It is not satisfied that the debtors have a counter- claim, set-off of cross demand equal to or exceeding the amount of the judgment debt that could not have been set up in the action or proceeding in which the judgment was obtained.

(i)  In the event of a sequestration order being made on the application of the National Australia Bank Limited in respect of the judgment debt the subject of bankruptcy notice No. 60 of 1990, then the costs of this application including reserved costs be allowed with the priority prescribed by r. 40 of the

. w m g	Settlement and entry of orders is dealt with in Rule
124 of the Bankruotcv Rules.

v.

(ii) In the event of no sequestration order being made in respect of bankruptcy notice No. 60 of 1990, then I order that the debtors should pay the costs of this application, including reserved coats, to be taxed if not agreed.

JN THE F E D E W COURT OF AUSTRALIA 1

DIV- 1

DISTRICT OF TH4 1 BN NO. 60 of 1990

- 1

RE :	EDWARD PLANTAGENET SOMERSET and ELSIE JOY
SOMERSET  Debtors
EX PARTE:	ON& AUSTRALIA BANK LIQU2Uj Creditor

CORAM:	Spender J.
PLACE :	Brisbane
DATE :	21 December 1990

B A S O N S FOR JUDGMENT (EX TEMPORE1

This is the hearing, pursuant to Rule 10 of the

ruDtcv Rules in connexion with an affidavit filed under a.

41(7) of the pankru~tcv Act 1966.

On 16 January this year the National Australia Bank
Limited applied for a bankruptcy notice against Edward

Plantagenet Somerset and Elsie Joy Somerset. The application

was based on a judgment of Neaves J. in the Federal Court	dated 29 September 1988 where his Honour dismisaed the
Somerset's claim and the claim of two companies with which they were interested, Kabwand Pty Limited ("Kabwand") and E.J.R. Pastoral Company Pty Limited ("E.J.R. Paatoral"), and gave judgment for the National Australia Bank against Kabwand and Mr and Mrs Somerset in the sum of $972,852.37.

Bankruptcy Notice No. 60 of 1996 issued on 17

January 1990 i n an amount of $590,970 .40 , being t h e amount of

t h e judgment	of	M r J u s t i c e Neaves	less	an	amount	r e a l i s e d by
t h e National	Aus t ra l i a	Bank	i n respec t of	a	s a l e of	p roper t i e s

which w e r e r e f e r r ed t o i n t h e order of t h e F u l l Court of t h e

Federal Court. The Fu l l Court (Lockhart, Hartigan and H i l l JJ) on 2 1 Apri l 1989 dismissed t h e appeal from t h e order of Neavee J. but made some va r i a t i on t o t h e orders of t h e learned

primary judge i n reepect of some secured p roper t i e s .

The bankruptcy no t ice , which was a 28 day no t ice ,

wae served on 9 March 1990 and, within t h e t i m e l imi ted f o r

compliance, an a f f i d a v i t was f i l e d by M r Somerset and by Mrs

Somerset, each of them being f i l e d on 5 Apri l 1990.

Section 4 0 ( 1 ) ( g ) of t h e Bankru~tcv Act provides:

" A debtor commits an a c t o f bankruptcy i n each

o f	t h e fol lowing cases:-
. . .

(g) i f a c r e d i t o r who has obtained aga ins t t he

debtor a f i n a l judgment o r f i n a l order ,

be ing a judgment o r o rder t h e execution of	which has no t been stayed, has served on
t he debtor i n Aus t ra l i a o r , by leave o f
t he Court, elsewhere, a bankruptcy n o t i c e
under t h i s A c t and the debtor does no t -
( i ) where t he n o t i c e was served i n

Aus t ra l i a - within t h e t i m e f i xed by

the Reg is t ra r by	whom	the n o t i c e was
issued; o r

( i f ) where t he n o t i c e was served elsewhere

- within t he t i m e f i xed f o r t h e

purpose by t he o rde r g iv ing leave t o

effect t he se rv ice ,

comply with t h e requirements of t he n o t i c e

o r s a t i s f y t he Court t h a t he has a

counter-claim, s e t -o f f o r c ro s s demand

equal t o o r exceeding t he amount o f t h e

judgment debt o r s u m payable under t he

final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the acti on or proceeding in

which the judgment or order was obtained; "

And section 41(7) provides:

" Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notf ce, 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 4 0 ( l ) (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. "

After a number of interlocutory orders made by a Registrar, the Rule 10 hearing to determine whether the court ie satisfied that the judgment debtors have the counter-claim, set-off, or cross demand referred to in the affidavit filed on 5 April 1990 was adjourned to 3 December 1990, and on that day was adjourned to today.

It is convenient to refer to the affidavit of Mre

Somerset as representative of the S. 41(7) affidavits. In

paragraph 2 of that affidavit Mrs Somerset says:

" Pursuant to Section 4 1 ( 7 ) of the Bankruptcy Act

I say that I have a counterclaim, set off or

cross demand equal to or exceeding the amount of the judgment debt the subject of the bankruptcy notice issued against me, that could not have been set up in the action or proceeding in which the judgment or order was obtained. "

And then in paragraph 3, the particulars of the counter-claim, set-off or croee demand relied on are set out in numbered eub- paragraphe.

The first of those subparagraphs refers to a second mortgage by the National Australia Bank Limited over property at Toowoomba. As at the date of that affidavit, that property had not been sold and the affidavit asserts that the property ie the eubject of an appeal 4727 of 1997 entered for argument before the Full Court of the Supreme Court of Queensland.

Thoee proceedings concern actions by Mr and Mre Somerset againet a builder and Esanda Limited ('Esanda'). Ambroee J. gave judgment against the Somerset interests but the appeal has not yet been heard.

Subparagraph 2 of the particulars speaks of an

amendment to that appeal to include a claim pursuant to the

m e Practices Act 1974 to the claim in those proceedinge.

The proposed amendment on behalf of Mrs Somerset is to allege

against Esanda that it breached its duty of care, it engaged	in unconscionable conduct and engaged in conduct in trade or
commerce that was mieleading and deceptive.

The third subparagraph of the partic~~lare refers to

a writ 4106 of 1989 and originating summons 311 of 1990. presently the subject of an appeal to the Full Court.

The fourth subparagraph refers to writ 69 of 1989 which are proceedings between Mr and Mrs Somerset against the National Australia Bank Limited, Mr Cannon who was a manager of that bank at the time of the events leading to the litigation in the Federal Court before Neaves J., and also against real estate agents. Those proceedings (of which the written statement of claim is in evidence before me) claims breach of contract and/or negligence and/or misrepresentation and/or negligent misstatement, wilful destruction of bank documents, withholding bank documents, fraudulent intent, deceit and/or altering clients' and bank documents with intent to deceive. The writ is dated 22 December 1989.

Subparagraph 5 of the particulars refer to writ 57 of 1989 which are proceedings between Kabwand, E.J.R. Pastoral and Mr Somerset against David N. Elliot and others, who are chartered accountants. Those proceedings (in respect of which both the writ and statement of claim are before me) alleges negligence and/or negligent misstatement and/or deceit against

each and every one of the defendants.

The affidavit asserts that the National Australia Bank is proceeding with the issue of the bankruptcy notice to prevent the litigation of the above claims by the Somersets and their associated companies.

In paragraph 4 of that affidavit the following

appears r

" The reason why i t could n o t have been set up i n

the	or ig ina l	a c t i o n or	proceeding	i t 3 8	When	we
set	up	the o r i g i n a l	a c t i o n we	d i d no t	know	the
National	A u s t r a l i a	Bank	had	ac ted	i n	a

fraudulent manner. W e o n l y thought their

conduct mis leading w i th i n the meani n g o f the

Trade Prac t i ce ( s ic ) Ac t , and u l t i m a t e l y we

were found to be t e c h n i c a l l y out o f t ime .

W e now have claimed agains t t h e National

A u s t r a l i a Bank for Breach o f Contrac t , and/or

negl igence	and/or	in isrepresenta t ion ,	and/or
n e g l i pent	mistatement	( s ic ) , w i l f u l	d e s t r u c t i o n

o f bank documents, w i t h ho ld ing ( s ic ) bank

documents, fraudulent i n t e n t , d e c e i t , and/or

a l t e r i n g c l i e n t s and bank documents w i t h i n t e n t

t o dece i ve. "

The nature o f t h e c la im which l e d t o t h e judgment

deb t i s referred t o i n t h e reasons	f o r judgment	by Neaves	J . ,
who said a t page 2 o f h i s judgment:

" The proper ty known a s 'Gunne Doo" and the purchase appl icants ' case i s t h a t , i n connect ion

wi t h t h e purchase by Kabwand P t y Limited o f a

by E. J.R. Pastoral Company P t y Limf t e d o f the strawberry farm bus iness be ing conducted on t h a t property , the vendor i n the case o f each con t rac t o f purchase b e i n g one J e f f r e y Robert

Carde l l , Senior , and i n connect ion w i t h the

purchase by Xr	and M r s Somerset a t auc t ion o f a
proper ty known a s 'Glenhaven' ,	the vendor i n

t h a t	case	be ing	t h e	respondent	a s	mortgagee
e x e r c i s i n g	i t s power	o f	s a l e ,	the	respondent

was g u i l t y o f conduct t h a t was mis leading or "

decep t i ve o r l i ke ly t o mislead or dece ive .

In t h e course o f t h a t l i t i g a t i o n , which occupied 11

s i t t i n g days i n February and March o f 1 9 8 8 , t h e app l i can t s

were represented by senior and junior counsel and the

respondent bank was a l s o represented by senior and junior
counse l .

In giving judgment, Neaves J (at p. 5) said of Mrs

Somerset:

' l I formed such an adverse v i e w o f Eu-8 Somerset

a s a wi tness tha t i n what	fol lows I have
comple te ly disregarded what	she has s a i d except

where i t i s confirmed by o ther c r e d i b l e

evidence, oral o r documentary. "

He also expressed his impression of the credibility of Mr Somerset in a slightly less adverse way, but the tenor of hie judgment is that he preferred the evidence, in particular, of Mr Cannon, a bank manager of the National Australia Bank, to that of the Somersets.

The gravamen of the present complaint is that Mr Cannon and other bank officers conducted themselvea in a deceitful way. It is asserted that documents have been destroyed which would have shown the correctness of the contention by Mr and Mrs Somerset; that other documents

relating to other events have been altered - again, with a

fraudulent purpose; that there has been insufficient adherence

consequence, the assessment by Neaves J ought not be relied	to the requirements of discovery at trial, and that, as a	on.
It is further asserted that in respect of the purchase of the property "Glenhaven," the bank fraudulently concealed material in relation to the supply of electricity to those premises. It is true, and accepted, that at a later time, some four months after the original date for settlement, the difficultiee with electricity were redtified and the Somereete settled the contract. 1 infer that prior to eettlement the Somereete were fully aware of what is now said to be default and concealment on behalf of the bank.
In addition to the rather tereely expressed material in the affidavit, to which I have already referred, the court has received a very large body of affidavit material, over objection by the bank. Thie extensive material I have read, and I pay particular attention to reports by Mr Salmon concerning what ie said to be the primary deficienciee in the conduct of the bank and its officers in their dealings with the Somersete, and to the evidence that was given at first instance. But it eeeme to me that the matter can be resolved, for the purpoeee of bankruptcy proceedings, without reeort to the minutiae of the eubmieeione made ably by Mre Somerset in the couree of both her eubmieeione and reply.
I mean her no dieeervice when I say that it ie made. The ieeuee in theee proceedings are clear and the unneceeeary to deecend to the particulars of the aasertione anewere to them, it seems to me, equally clear. The thruet of
the eubmieeione, in addition to the matters to which I have referred, comee down to this: Mre Somerset eaye that "We now believe that we can eetablieh a prima facie case against the bank." On the baeie of detailed criticisms extending over much of the evidence that was traversed before the primary judge she eeeke to invite thie court to reach different
conclusions on questions of credit or, at least, to entertain the view that were they to pursue the litigation to which I have referred those courts might reach different conclusions
on questions of credit to that reached by Neaves J.
So far as principle is concerned, the authorities speak of the tests in different verbal formulations. In
Stokvie (1934) 7 ABC 53, Lukin J. said at p. 57:

" I take a counter claim, set off, or cross demand which could not be set up as one which, from point of time, or from its nature, or from absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained. Here, from the point of view of time, from its nature, and from the empowering provisions of the Act and rules, the counter claim might have been set up if Stokvls had wished, or chosen, to do so. Mere failure to take advantage of the opportunity can hardly be said to be inability. "

In m e r o n v. g&& (1944) 68 CLR 571, Rich J at 592

said that the debtor must show that the counter-claim, set-off or cross-demand was "a bona fide claim which he was entitled

to litigate."

In Voawell. v. Voawell 11 ABC 83, Latham CJ at 85 said that what had to be shown was that it was just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it was a claim which "it is proper and reasonable to litigate." He

said at p. 86:

" ... there must appear to be some substance i n

the counter-claim, s e t - o f f or cross-demand

whi ch i s r e l i e d on. "

And later at pp. 88-89 he said8

" . . .while i t i s n o t t h e d u t y o f the Court o f

Bankruptcy t o t r y i n advance the

counter-claims,	s e t - o f f s or cross demands which
a r e r e l i e d upon	under S . 5 2 ( j ) , i t must appear

t h e y a r e r e a l counter-claims. . ."

AB early as 1885, in xe Foster. Ex ~ a r t e Baean

2 Morr. 29, Cotton LJ, in the course o f argument said:

" Where there i s no s t a y o f execu t ion , you cannot

s t o p a bankruptcy n o t i c e , u n l e s s you make o u t a

prima f a c i e case .

He eaid that it is not right that a bankruptcy notice should
be stayed on a mere piece of pleading, and that a statement of

claim may be a mere invention.

Importantly, in Ebert v. The Union Trustee C o m D m

nf AUB- (1960) 104 CLR 346 at 350, Dixon CJ and

McTiernan and Windeyer JJ said, at 350:

" The appe l lan t cannot s a t i s f y the Court t h a t a

cross demand exists by showing no more than t h a t she propounds one and s t a t e s how she

s u g p s t s t h a t she can make it o u t . In B2

E x wrte Modlin (1917) 17 S .R . (N.S.W.)

152 S t r e e t J sa id t h a t the deb tor need n o t

s a t i s f y the Court t h a t there are reasonable

grounds for b e l i e v i n g t h a t he w i l l e s t a b l i s h

h i s cross	a c t i o n ,	b u t	o n l y t h a t	he	has	a	bona
f i d e	c la im	which	he	i s	f a i r l y	e n t i t l e d	t o

11 t i g a t e . T h i s perhaps i s expressed t o o

favourably to t h e debtor . I n Re A Debtor (1958) 1 Ch. 81 Roxburgh J sa idr ' But n o t every demand w i l l s u f f i c e . A demand made i n bad

f a i t h would not be good enough. The deb tor

must s a t i s f y t h e Court t h a t h e has a genuine demand.. .But i n my opin ion a demand must be more than bona f i d e : the Court must be

satisfied that it has a reasonable probability of success' (195B) 1 Ch., at p. 99. Perhaps the standard may be expressed by srry.lng that 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 i ssues that are i nvolved in his counter-claim, set-off or cross demand."

It seems to me that there are two fatal difficulties in this case. As I will indicate, I am satisfied, on a benevolent view of the affidavits filed on 5 April 1990, that they fall within the statutory requirement of S. 41(7) of the Bankru~tcv Act 1966. However, in both of the respects of which that subsection speaks, the material does not satisfy what the law requires.

As to the allegations that are sought to be made now, it seems to me that, in the sense of Lukin J's comments in the stokvis case (supra), these matters were in issue in those proceedings, and that having regard to the curial history of the matter, as well as to the material so

extensively exhibited before me, it cannot be said that there	has been established the prima facie case of which the High
Court spoke in mert'e case.
But independently of that question, it seems to me that the claims presently made were able to be made in the
original proceedings. Mr Salmon speaks of a conversation that
he had with a Mr Albion on 1 February 1988. The trial before Neavee J commenced on 15 February, and as I understand what
was told to me from the bar table, Mr Albion gave evidence on
29 February. This was one instance of a witness in respect of
whom it was said material existed which would support the claim by the Somersets. It seems to me that the material was available to Mr Salmon, at least before the commencement of the trial, and that that material was communicated to the solicitors for the Somersets and was not put to Mr Albion in the course of hie evidence-in-chief or hie cross-examination.
Mrs Somerset Bays that her relations with her then solicitors, in respect of the investigating officers, did not enable her to find out what the material was until some time after the case. But that circumstance cannot affect the inquiry whether the material could have been set up in the original proceedings. There are many other similar matters of evidence in the same category as that to which I have made particular reference.
In respect of the electricity complaint about the property "Glenhaven", it is clear, for instance, that the Somersets became aware of the claimed duplicity and deceit on
behalf of the bank, and that subsequent to obtaining that knowledge, settled the contract.
In the proceedings before Neaves J, it was expressly admitted by Mr Cannon that, in a number of respects, he had substituted documents or altered documents, and that wae a serious matter of criticism going to his credibility. In
respect of that matter, there is an observation by Neaves J which is referred to at page 16 of the judgment of the Full Court, where their Honours say:

" His Honour mentioned that, although Mr Cannon

had apparently substituted two diary notes of

31 July 1984 and 6 December 1984 for the

ori ginal notes and a1 though this action could justifiably be criticised, he did not regard Mr. Cannon's conduct in that regard as affecting his credibili ty as to the events wi th which the case was concerned. "

The matter of alteration and substitution of

documents was very much a live question there, although it may

be - and I make no finding in this regard - that there has

been a more thorough documentation of such defects subsequent

to the giving of that evidence.

As to the general claim in respect of fraud and

deceit, what was, in fact, in issue between the parties appears from the latest amended statement of claim, and, in particular, paragraphs 7B(ii), 8(a) and 10. Paragraph 7B(ii),

when epeaking of the discussions between Mr Somerset and Mr Cannon, alleged that on 1 November 1984, the said Col Cannon stated:

" The said business was a sound and prosperous

business . "

Paragraph 8(a) alleged that:

" As the respondent well knew: -

(a)	The said business had not earned and was
not then earning substantial profits or any significant profits at all;
(b)	JEFFERY RQB&RT CARDELL Snr. was indebted t o the Respondent for a s u b s t a n t i a l sum o f
money p e r t a i n i n g t o the sa id b ~ ~ s f n e s s and
t h e land known a s 'Gunnadoo' ( o f the order
o f m -RED M D FORTY THOUSAND DO-

" ($240,000.00);

...

And paragraph 10 pleaded:

"	The	respondent	d e l i b e r a t e l y	r e f r a i n e d	from
i n fonn f ng	the	Appl icants	o f	the	m a t t e r s

r e f e r r e d to i n sub-paragraphs ( a ) and ( b ) o f

paragraph 8 h e r e o f , and informed the Appl icants

t h a t the s a i d b u s i n e s s was a sound and

prosperous b u s i n e s s . "

The learned primary judge made certain findings in this respect which are summarised by the Full Court at pp. 15- 16 of their judgment:

" H i s Honour found t h a t M r Somerset had decided

t o purchase 'Gunna D o o r well before any meet ing

which h e a s s e r t s he had wi th M r . Cannon. H i s

Honour was a l s o s a t i s f i e d t h a t t h e approach t o

M r . Cannon was solely f o r the purpose o f

o b t a i n i n g f inance for the purchase o f Glenhaven

and t h a t M r . Somerset was n o t a t a l l i n t e r e s t e d

i n or i n seek ing adv ice r e l e v a n t t o t h e ques t ion whether the purchase o f 'Gunna Door should be made. H i s Honour found t h a t no th ing which may have been sa id by M r Cannon t o e i t h e r M r or Wrs Somerset on 8 November 1984 or on any p r i o r occasion induced them t o t a k e or r e f r a i n from t a k i n g any a c t i o n i n r e l a t i o n t o the

c o n t r a c t s which had been executed by Kabwand

and E. J.R. Pastoral on 2 November 1984. "

These are very strong findings, but the Somersets seek to challenge them. It seems to me that there is a fundamental misconception of the purpose of the court in this approach. Effectively, the submissions of Mrs Somerset were directed to

a large number of documents and pieces of oral evidence, the

purpose of which was to indicate that the findings by the learned trial judge were open to criticism and that there existed a possible basis for a contrary conclusion to be reached. She submits that different conclusions on questions of credit should properly have been made, particularly with the full armoury of evidence which she now says is available, but which was not then available.

It seems to me that she ignores the finding of inducement by the learned primary judge. She seeks to point to evidence indicating a reason why Cannon should have acted as he is alleged by the Somersets to have done. Essentially, it involves concealing the financial history of Cardell, a man against whom the Somersets proceeded ~uccessfully for deceit; and subsequently, of course, the delinquency of Mr Cannon, as bank manager, in permitting that financial history. The inducement finding by the learned primary judge was not concerned with those matters at all. It was directed to the fact that the decision to enter into the various transactions was not induced by anything said by Cannon; and in

particular, was not induced by Cannon's admitted statement that the strawberry farm had an excellent cash flow.

At page 19, the Appeal Court held:

" This court does not consider that what was said by Mr Cannon in relation to the excellent cash flow of the strawberry business makes out the allegation that on 8 November 1984 Mr Cannon had represented 'that the said business was a sound and prosperous business'. In any event no express representation said to have been made on 8 November 1984 was pleaded in the statement of claim. "

As to amendment to alter the basis on which the applicants claimed against the bank, senior counsel for the Somersets, during his reply, sought to further amend the statement of claim in the respects set out at machine number p. 144 of Exhibit "B" to document 39. Those are the four numbered paragraphs which relate to amendments to paragraphs 7, 10 and 12(a), and to insert a new paragraph 8. Objection

was taken to those amendments on the basis that they were too late, and that there were matters of evidence which might have been pursued in relation to those matters, should they be pursued. The Full Court thought there was substance in those criticisms, but they also said at p. 23 of their judgment:

" There is a further reason why the amendments

sought should not be allowed. Because of the view taken by the trial Judge, particularly as to the meaning and effect of the relevant words spoken by Mr. Cannon on 8 November 1984 and hi 8 view that no inducement occurred, which are v i e w shared by this Court, the effect of the amendments sought is fruitless and futile. For this reason as well this Court does not allow the application to amend. "

The matters which are said by the Somersets to taint the conduct of Mr Cannon and the bank were very much alive at the time of the litigation. From Mr Salmon's evidence it appears that, in large measure, they were available prior to

the trial but - for reasons which do not presently appear -

were not, at least in their entirety, pursued during the primary litigation. It seems to me, from the nature of the case as pleaded, and from the nature of the application to

amend, that this is not a case where it can properly be said that the matters which are sought to be litigated now as a cross-claim, set-off or cross demand are matters which, "could not have been set up in the action or proceeding in which the judgment or order was obtained."

And as I have earlier indicated, it is also my view that, apart from that disqualification, I am not satisfied that a prima facie case exists of those matters on the material presently before me.

In this particular case the initial affidavit filed within the time for compliance with the bankruptcy notice has difficulties of interpretation as to what precisely it asserts and the particularity of the claims it makes. In

parte The w c i a l _Banking ComDanv of Svdnev Ltd (1980) 44

FLR 135 at 142, Lockhart J said:

" I do not think any good purpose would be served

by my attempting to express a definitive formula as to what the initial affidavit must contain. That must depend in every case on the

particular facts and circumstances; see	-
Debtor: Ex m r t e The Debtor v. ~ossouq per
Upjohn L.J. C19631 1 W.L.R. at p. 56. "

That approach was adopted by the Full Court of the Federal Court in Eastwick v. Ustralia and New Zeal-

UOUD m i t e d (1981) 53 FLR 91.

Lockhart J. in m n k ' s case said at 141:

" Upon the hearing of a matter under S. 41 (7) the court has before it the initial affidavit which brings the subsection into play. There may, of course, be no other evidence. On the other hand there may be a great deal of evi dence . This will depend upon the circumstance6 of each case. Plainly thi s Court hae power to permit the debtor to supplement his case by addi tfonal evidence. The ini tial affidavit filed under S. 4 1 ( 7 ) operates to extend time for compliance with the requirements of the bankruptcy notice until the court determines whether it is satisfied that the debtor has the requisite counterclaim, set- off or cross demand. "

In the circumstances here, and giving the initial affidavit material the widest and most benevolent of construction, I am prepared to hold that that affidavit does fall within the statutory requirements of 41(7) of the Bankruatcv Act:. But for the reasons which I have given I reject the contention on behalf of the Someraet interest8 that there has been compliance with the requirements of S. 40(l)(g) of the m u ~ t c v Act. It follows that Mr and m s Somerset will have committed an act of bankruptcy if either of them fails to comply with the bankruptcy notice, time for

compliance with which has been extended by S. 41(7) to this day. As to costs, I propose to adopt the alternative order

that is suggested in paragraph 206 of McDonald Henry and

Meek's Bustralian Bankru~tcv Law & Practice. I order that in

the event of a sequestration order being made on the application of the National Australia Bank Limited in respect of the judgment debt the subject of bankruptcy notice No. 60

19   l

of 1990, then the costs of this application including reserved costa be allowed with the priority prescribed by r.40

of the B.-In the event of no sequestration

order being made in respect of bankruptcy notice No. 60 of 1990, then I order that the debtors should pay the costs of this application, including reserved costs, to be taxed if not agreed.

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