Re Vanderwall, W.J

[1991] FCA 181

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAI. DIVISION	1
EMKRUPTCY DISTRICT OF THE	) No NP 640 of 1991
STATE OF NEW SOUTH WALES	)

Re: W.J. AND S.V. VANDERWALL

Debtors

Einfeld J Svdney 26 March 1991

The debtors have presented a petition under section 56 in respect of a business partnership involving themselves and M r and possibly Mrs McWilliam of Putney. Pursuant to section 56(6) the Registrar did not accept the petition but referred it to the Court and caused a notice in accordance with the rules to be given to Mr McWilliam. He had not joined in presenting the petition. This much is required by section 56(6)(b).

bound to reject the petition if I ordered him to do so.

By section 56(7) the Court on reference of a petition in this way may direct that the Registrar accept or reject the petition or may with the consent of any one or more of the petitioning partners amend the petition by deleting the name of the partner who did not give consent and to accept the petition as so amended. It is therefore for me to determine whether the Registrar should be directed to accept or reject the petition. By subsection (7)(a) the Registrar would be

There has been placed before me today a deed by which Mr McWilliam together with his wife have compromised then part of any debts owed by the partnership to a man named Dennis Herbert Lindsay. He was the proprietor of enterprises known

as Fitzroy Displays and Fitzroy Electroplating wh~ch carr~ed

on business at the Revesby address from which the debtors and
Mr McWilliam were also operating their business together.

The debtors advised the Court that following upon the compromise by Mr and Mrs McWilliam of their debts with Mr Lindsay, Mr Lindsay is now suing the debtors for the balance of the debts now said to be owing. The debtors obviously seek bankruptcy as a method of defence to this action.

I can see no issue of the principle arising under section 56 that would prevent that method of defence being adopted according to law. Obviously debtors' petitions will often be used for such a purpose and it is clear from the provisions of subsections ( 6 ) and (7) that the purpose of referring the

matter to the Court is to ensure that the interests of other	partners who did not join in presenting the petition are
adequately protected or catered for.
In the current case the other partner or partners have dealt with their own part in the debts involved and do not need the Court to protect their interests. Part of the settlement Ln which they were involved was contained in terms of settlement called Short Minutes of Order entered in the Commercial
Division of the New South Wales Supreme Court in matter number 50498 of 1990 in which both the McWilliams and the Vanderwalls were defendants.
For those reasons it seems to me appropriate that pursuant to subsection (7)(a) of section 56, I should direct the Registrar to accept the petition and I do so.

2

I

I certify that thls and the

preceding pages are a true copy "f the
Reasons for Judgment hereln of n S Honour

Justlce E~nfeld C @ L ~ ~ C \ I L L ~ ~

! I

Assoclate

I

CATCHWORDS

EiANKRUPTCY - bankruptcy no t ice - not ice based on f i n a l order

of taxing master - whether no t i ce v a l i d - counter-claim,

set-off o r cross demand - par tnership - whether

par tnership a s s e t s properly so ld - whether c r e d i t o r ' s

f u r t he r claims can be set off	agains t debtor ' s	c ross claim
Bankruotcv A c t	1966 ,	s . 4 0 ( l ) ( g )

R e :	ROBERT LACHLAN McKECHNIE	-	Debtor
Ex par te :	REGINALD WITWORTH WEIR	-	Judgment Credi tor

No. P . 79 of 1 9 9 0

Morling J.
18 Apri l	1 9 9 1
Sydney

19 APR 1991

I

IN THE FEDERAL COURT OF AUSTRALIA	1
BANKRUPTCY DISTRICT OF	) No. P 79 of 1990
NORTHERN TERRITORY	1

RE:  ROBERT LACHLAN McKECHNIE

Debtor

EX PARTE:  REGINALD WITWORTH WEIR

MINUTES OF ORDER

JUDGE MAKING ORDER	Morllng J
DATE OF ORDER	18 Aprll 1991
WHERE MADE	Sydney

THE COURT MAKES THE FOLLOWING DECLARATION AND ORDER:

1.         The Court declares that it is not satisfied that the debtor has a counter-clalm; set-off or cross demand of a land referred to in para.

40(l)(g) of the Bankruptcv Act 1966.

2.         Debtor to pay judgment creditor's costs.

m:	Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA	1
BANKRUPTCY DISTRICT OF	) No. P 79 of 1990
NORTHERN TERRITORY	)

RE:  ROBERT LACHLAN McKECHNIE

Debtor

EX PARTE:  REGINALD WITWORTH WEIR

Judgment Creditor

Morhng J.

REASONS FOR JUDGMENT

On 14 August 1990 the judgment creditor ("Weir") served on the

debtor ("McKechme") a 14 day bankruptcy notlce founded upon an order made in the Supreme Court of the Northern Terntory of Australia on 8 December 1989. The order was made by Master Lefevre and was in respect of the amount referred

to in a bill of costs taxed by him pursuant to a judgment of the Court dated 22

February 1988. The order made on 8 December 1989 was that McKechme should

pay Weir's costs m the sum of $22,467.93.

McKechnie did not pay the sum claimed, nor secure its payment nor

compound it wthin the time limited by the bankruptcy notlce as required by the notlce. However, within that tlme, he filed and served an affidavit m purported comphance wth s.41(7) of the Bankruptcv Act 1966 and rule 10 made thereunder. Rule 10 provldes as follows:

"Where a debtor on whom a bankruptcy notlce has becn served files an affidavlt to the effect that he has a counter-clam, set-off or cross demand of a hnd referred 10 in paragraph JO(l)(g) of the Act, and glvlng deta~ls of the counter-claim. set-off or cross demand, as the case requires, and the reasons why he was unable to sct up the counter-clalm, set-off or

cross demand, the Reg~strar -

(a)	shall fix a date, time and placc at which the debtor may appear bcfore the Court for the purpose of satls@lng the Court that he has the countcr- claim, set-off or cross demand referred to in the affidawt, and:
@)	shall serve notice of the date, tune and place so bxed on the solicitor for the debtor and the sol~citor for the judgment creditor spec~fied m the notice, respectively."

The Registrar took the mew that the affidavit filed by McKechme did

not comply with the requirements of s.41(7). McKechnie sought of a remew of the Registrar's declsion and on 14 January 1991, Foster J set aside the Regstrar's decision and remitted the matter to the Registrar to fix a date for the heanng by

the Court. Pursuant to Foster J's orders the matter has now come on for hearing for the purpose of McKechnie satlsfylng the Court that he has the counter-clalm,

set-off or cross demand referred to in hls affidavit.

When the matter was called on for hearing MS Gearin, counsel for

McKechnle, took a preliminary polnt. She submitted that the bankruptcy notice

was invalid because it did not correctly identify the order which gave rise to McKechnie's liability to pay the debt referred to in the bankruptcy notlce. It 1s

convement to deal with this polnt before addressing the more substantive matters

relled upon by the debtor.

Relevantly, the bankruptcy notlce reads as follows:

"TO:  ROBERT LACHLAN McKECHNIE
Unit 1, 3 Banyan Street, Fanme Bay in the Northern Territory of Australia,
Retired Caretaker.".

WHEREAS REGINALD WITWORTH WEIR of 135 Backbeach Road Portsed in thc State of Victorla (hereinafter referred to as 'the judgment creditor') has claimed that the sum of 522,467 93 is duc by you to him under a final order obtained by him agalnst you in the Supreme Court of the Northern Territory of Austral~a on the 8th day of December 1989 being an order the execution of whlch has not been stayed

THEREFORE TAKE NOTICE that wthm fourteen (14) days after semce of thls notice on you excluding the day on which thls notice is served on you, you are required:

(a)	to pay the sum of $22,467.93 so clauned by the Judgment Creditor to the Judgment Creditor: or
(b)	to secure the payment of the sum relcrred to in paragraph (a) to the satisfaction of thc Federal Court of Australia General Division Bankruptcy Dlstrict of the Northern Territory of Australia at D a m n or the judgment creditor (or hls agent whose name and address is Ward Kellcr 1st Floor 19 The Mall Darwin in the Northern Terntory of Australia) or compound the sum so specified to the
satlsfaction of the judgment creditor (or his sa~d agent).

Order 63, rule 54 of the Northern Temtory Supreme Court Rules

provides, m part, as follows:

"54. (1) Where the Taung Master taxcs a bill, otherwise fixes or assases an amount for

costs, or makes an order under or in pursuance of rule 63.51(2) or 63.52(2), he shall state

the result m the form of an order.

(2) The T a n g Master, may after the conclusion of the taxation of a bill make a

final order in respect of the amount at which he allows thc costs or of hls disallowance of
the costs."

It is not in dispute that the order made by Master Lefevre, as the

T m n g Master, on 8 December 1989 was a tinal order m terms of rule 54(2).

Section 40(l)(g) of the Bankruptcv Act provides that a debtor

commits an act of bankruptcy:

"If a credltor who has obta~ned agalnst the debtor a final ~udgment or final order, belng a judgment or order the execution of whlch has not been stayed, has served on the debtor in Austral~a or, by leave of the Court, elsewhere, a banlcruptcy notlce under tlus Act and the debtor does not -

(I)	where the notlce was sewed in Australia - wlthln the tune hxed by the Registrar by whom the notlce was issued; or
(11)	where the notlce was sewed elsewhere - wthm the tlme G~cd for the purpose by
the order glvlng leave to effect the s c ~ c e ,

comply w ~ t h the requirements of the nonce or satlsfy the Court that he has a counter-

clam, set-off or cross demand equal to or exceed~ng	the amount of the judgment debt or
cross demand that he could not have set up in the actlon or proceeding in whlch the	sum payable under the final order, as thc use may be, belng a counter-clam, set-off or
judgment or order was obtamed,"

In my opinion the bankruptcy notice is m proper form. It correctly

ident~fies	the final order pursuant to whch the sum of $22,467.93 is due by
McKechnle to Weir.	The Taxing Master's order was a final order. It was gwen
that character by rule 54.	I see no reason why it should not be regarded as a final

order for the purposes of s.40(l)(g) of the Act.

MS Gearin sought support for her submission in the decision of

Beaumont J in W~lmot v Buckley (1984) 56 ALR 589. In my opinion that decision

is distinguishable. In that case the applicant was served wlth a bankruptcy notice

which described the respondents as 'budgment creditors" and referred to a specified amount as being due by the applicant to the respondents under a certificate of taxation. There was no evldence of a formal judgment having been drawn up in relation to the claimed amount. It was held that the bankruptcy notice was bad because by describing the respondents as 'Iudgment creditors" and referring to the

amount due as under the certificate of taxation, the notice could be construed as
suggestrng that the certificate of taxation was the source of the applicant's l~ability
and that the certificate was a judgment, and that to convey that impression would

be capable of misleading the debtor. It was also held that the notice failed to

identlfy the final judgment or order upon which it was based and that there was no

final judgment or order for the purposes of s.40(l)(g) of the Act.

In the present case the etfect of rule 54 is to empower the Taxlng

Master to make a final order m respect of the amount which he allows for costs.

It was by vlrtue of his final order of 8 December 1989 that the debtor's liabihty arose. The posltion in Wilmot v Buckley was quite different. The order for costs

upon which the bankruptcy notice was founded in that case was an order of the Supreme Court of New South Wales. There does not appear to have been any provision in the rules of that Court equivalent to the relevant rule of the Supreme

Court of the Northern Territory. And even if there had been, there was no

evldence in the case before Beaumont J that a formal judgment deahng with costs had been drawn up, as contemplated by Part 52 rule 63 of the New South Wales

Suoreme Court Rules.

MS Gearin also relied upon the decislon Re Cartwnnht; Ex parte

Cartwnnht v Barker (1975) 2 All E.R. 970. In that case a bankruptcy notlce

specified the debt claimed as being "the amount due on a final judgment or order obtained by (the petitionlng creditor) aga~nst you (the joint debtors) in the High Court of Justice dated 20 March 1974, whereon execution has not been stayed!'

In fact the amount claimed was the sum certified by a Taxlng Master on 20 March

1974, as belng the amount of costs owng to the petitionlng creditor under a

judgment obtained by him against the debtors on 5 November 1970 in the f i g h

Court. It was held that the bankruptcy notice was bad for the reason, Inter alia,

that a did not show under what judgment or order the sum claimed was due and that m the case of costs the effectlve judgment was the order of the court itself, not

the certificate quantifying their amount. to earher decisions of the Court of Appeal, said (p.972): In that case Gould~ng J, after referring	"They show to my mmd quite clearly that in the case of costs the effectwe judgment 1s the
decree of the court Itself orderlng costs to be paid, not the cert~ficate quant~fy~ng them at a given figure. Accordingly, the relevant judgment or order for the purpose of a bankruptcy notice is the former though no doubt the latter may have to be referred to in order to
spec~fy the sum."

As was the case m Wilmot v Duckley, there appears to have been no

prowsion m the rules pursuant to whlch costs are taxed in the High Court of

Justlce in England equivalent to Order 63, rule 54 of the

S u ~ r e m e Court Rules.	For that reason, I thlnk Re Cartwrinht is also
dlstlngu~shable.

I turn now to the substance of the matter, which 1s whether

McKechnle has satisfied the Court that he has a counter-clalm, set-off or cross

demand which equals or exceeds the amount referred to m the bankruptcy notlce.

It was common ground before me that it was necessary for McKechnie to show

that he has a prima facie case that he has such a counter-clalm, set-off or cross demand which has a "fair chance of success" - see per Lockhart J m Re W; Ex

parte The Commercial Bankme Com~anv	of Svdney (1980) 44 FLR 135 at 140
where the relevant authorities are collected.

McKechnie's clalms are of three kinds. They arise out of the

circumstance that he carried on business in partnership with Weir for some tune after the death of one Squlres in 1984. Prlor to his death, Sqmres carried on a	caravan park business in partnershlp wlth McKechnie.	Squlres dled intestate, and
the Publlc Trustee became h ~ s	administrator.	Welr became entltled to the

deceased's estate. It seems common ground that shortly after Letters of

Admlnlstratlon were granted to the Public Trustee, Weir and McKechnle agreed to

carry on the partnership busmess. It 1s m respect of deallngs in thls partnershlp that McKechnle clalms to have a counter-claim, set-off or cross demand equal to or exceeding the amount of the costs referred to in the final order identified in the bankruptcy notice.

First, McKechnie claims that he has paid a sum of approx~mately

$1,200 for electncity and that he has not been reimbursed for the payment. It 1s

sufficient to say that if McKechnle has a claim for reimbursement for this amount,

it is a claim against the estate of the deceased Squires, and not against Weir.

Indeed, I d ~ d	not understand this clalm to be pressed in final argument by MS
Geann.
Secondly, McKechnie alleges that he has a claim against Welr in

respect of the disposition of certain of the partnership assets. On 7 December 1989 an order was made by the Supreme Court of the Northern Territory that the assets of the partnership be sold. The sale of the partnership assets took place on 9 December 1989. According to McKechme not all the assets of the partnership

were sold. In h s onginal affidavit he Identified some assets whch he believed had not been sold. In subsequent affidavits and evldence he gave varying accounts of what he claimed not to have been sold. The evldence called on behalf of Weir is	that all the assets which could be sold were in fact sold. McKechnie gave evidence	that he himself was at the sale and successfully bid a total of $400 for some of the
chattels offered for sale. He claims that after the sale the auctioneer refused to take h ~ s money and would not sell him the items which had been knocked down to hlm.

I am quite unpersuaded by McKechnle's evldence as to what

happened at the sale. After the sale the auctioneers sent letters to the sol~c~tors

for Welr and McKechnie advising them of the results of the auctlon and enclosing

lot sheets disclosing the prices ach~eved. They advlsed the solicitors that the total

proceeds of the sale were $5872 and that thls sum was being held on account in the

joint names of the solic~tors. No complaint was made by McKechn~e's solicitors as

to the manner in which the sale had been conducted. McKechnie's maln complaint about the sale 1s that some 3,000 glass and metal louvres which formed part of the

partnership property were not sold. He clalms that these were left on the slte at

the end of the auction and that they subsequently disappeared or were destroyed. It appears that these artlcles were some 17 years old at the date of the auction.

Although McKechnie claimed that they had not detenorated, it seems to me that if

they were not sold at the auction it is unllkely that they were saleable. There 1s no ewdence before me to suggest that the auctioneers were incompetent or dishonest or acted in dereliction of their duty. I do not thlnk there is a prlma facle case that they faded to achieve the best prices avallable for the partnership assets.

Mr Dawd Lovendge, the auctioneer who conducted the sale, gave

evldence on affidavit and was not cross-examined. He sald that he and his staff

inspected the property on several occasions before the sale, made an inventory of

the chattels to be sold and that the Inventory was made avallable to McKechnie and Welr to peruse. The inventory was used as a catalogue for the auctlon sale. He sald he was not aware of any items in the inventory which were not stlll on the

property when the auctlon was conducted. He regarded the auction as "practically
a junk sale" and said that all items were in extremely poor condition. I would
have expected him to have been cross examined had it been Intended to have been

suggested on behalf of McKechme that his evldence was not reliable.

Weir's solicitor also gave evldence on affidavit and was not cross

examined. He said that he was present at the sale, that he observed McKechnie was present and that he [McKechnie] did not object that the auctlon was belng conducted in an improper manner. He said that prior to the auction he examined the artlcles for sale and formed the vlew that all items were in an extremely poor condition and that the majority of them could only be described as "worthless junk".

There was other evldence from persons who, for the most part, did

not see the articles sold, and who placed much value upon them.	I do not think
this evldence goes any way to establishing McKechnie's clalms.

Moreover, and perhaps more importantly, I do not thmk there is any

evldence making out a prima facie case against Weir that he 1s liable to McKechrue

for any failure to sell the partnershp assets at proper prices. It is true that the

McKechnie had been ejected from the land by order of the Supreme Court. It is	assets (which consisted of chattels) were located on land owned by Weir and that	also true that after McKechnie was ejected from the land the chattels were at Weir's risk. But that is not to say that there is a prima facie case established
agalnst Weir that he disposed of the assets m such a way as to make him llable to McKechnie for damages. It was m Weir's interests, as much as McKechme's, that the saleable partnership assets be sold and the best prlces obta~ned for them. As the ewdence stands, I am not persuaded that McKechnie has a clalm upon whlch he has any real prospects of success against Weir m respect of the sale of the
partnership assets.

The thud claim which McKechnle raises against Weir is that, on the

talung of partnershlp accounts, there will be found to be a considerable amount of money owing to him by Wen. According to McKechnie's calculations, the amount whlch wll be found to be owng to hlm is in the v~cinlty of $22,400. However, as I understand his evidence, he concedes that, in making these calculations, he omitted to take Into account two sums totalling $7,100 which he himself had received.

When these sums are taken into account, and bearing in mlnd that he had a 2/3rds

interest m the partnership, hls entitlement would be reduced to about $20,000.

However, in calculating the sum to whlch he claims to be entitled on

the talung of accounts, McKechnie assumed that a sum of $17,328.54 paid for rates and taxes on the land upon which the partnership business was conducted and for Insurance of buildings from whlch the partnershlp buslness was conducted were wholly the responsiblhty of Wen. In other words, he claimed that, upon the talung of accounts, Weir would be required to refund thls sum to the partnershlp.

I am conscious of the fact that, on the hearing of thls apphcatlon, it 1s

not incumbent on McKechnie to show that he wlll succeed on thls issue when accounts are taken. It 1s sufficient that he be able to show that he has a prima

facie case. But in my oplnion he has not made out a prima facie case on thls

issue. It was McKechnie who drew the cheques for payment of the amounts which

he now says should have been paid by Weir. When he swore hls hrst affidawt In

support of his contention that he had a counter-claim, set-off or cross claim against Weir he made no mention of t h ~ s um of $17,328.54 or of the payments for rates,

taxes and ~nsurance prem~ums which make it up. In two subsequent affidawts he

likewise made no mention of this claim. His own accountant prepared a set of

accounts of the partnership, presumably under McKechnle's instructions, and made no mentlon of the payments as hawng been made in discharge of partnership liabilities. The accountant was not called to say that he had made a mistake m

preparing the accounts or that they did not accord wth the instructions given to

him by McKechnie.

Having regard to all the ewdence, I do not think there is any real

prospect that McKechnie would succeed on the talung of accounts in showng that

Weir is requued to reimburse the abovementioned sum of $17,388.54 to the

partnership.

In view of the above findings, I am not satisfied that McKechn~e has

a counter-claim, set-off or cross demand of the lund referred to in para. 40(l)(g) of the Act. This makes it unnecessary for me to rule upon an interesting submission

made by Mr Southwood, who appeared for the judgment creditor. Thls

subm~ss~on was based upon the undisputed fact that the judgment creditor has obtained final orders against the judgment debtor in the Supreme Court of the

Northern Territory of Australia for the payment of about $13,000 ("the additional orders"), none of wh~ch has been paid. Mr Southwood submitted that the judgment debtor was himself entitled to set up, in opposition to the debtor's clam,

the amount due under the additional orders.

So far as my own researches and those of counsel have revealed,

there is no Australian authority on this polnt.	However, there 1s clear authonty in
England in support of Mr Southwood's subrmssion.	In Re a debtor (No 75N of

1982, Warrington), ex parte the debtor v National Westminster Bank vlc (1983) 3 All ER 545, Warner J (wth whose judgment Sir Robert Megarry V-C concurred)

held that on the true construction of s.l(l)(g) of the English Bankruptcy Act 1914 (which is in not dissimilar terms from s.40(l)(g)), a judgment credtor who is

confronted with a counter claim, set off or cross demand by the judgment debtor may himself set up in opposition thereto, another claim of his own against the judgment debtor whlch, when added to the judgment debt, overtops the debtor's

counter claim, set off or cross demand. Warner J, having s a ~ d that the point was a '

novel one on which there was no authority, sald (at p.558):

"It seems to me that, when the section refers to the judgment debtor hav~ng 'a

counter-clam set off or cross demand whlch equals or exceeds the amount of the judgment dcbt', it cannot mean a counter clam, set-off or cross-demand whlch, if

set up in an independent actlon, would itself be defeated by a counterclaim by the

credltor It must ... mean a cross-demand havlng at least some chance of success "

With all respect to the mews expressed by then Lordships, I would

have thought there is much to be said for the mew that s.40(l)(g) contemplates that it is sufficient for the judgment debtor to sat~sfl the court that he has a counter claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt upon whlch the bankruptcy notice 1s based. I would ordinarily

follow such a declslon of the Chancery Divlslon but since the polnt 1s a novel one

and need not be decided for the purposes of disposing of the present application it

is best left for another day.

I cert~fy that t h ~ s and the preced~ng th~rteen (13) pages are a true copy of the

Reasons for Judgment herem of hls Honour Mr Justice T.R. Morhng

Assoclate:  rJ 5. C:-l, ,L ,

Counsel for the debtor:	Mrs S Gear~n
Instructed by	Elston and Gllchnst
Counsel for the creditor:	Mr S Southwood
instructed by	Ward Keller
Dates of heanng'	13, 14 March 1991
Date Judgment delwered:	18 Aprll 1991