Re Walton, M.C. Ex parte National Mutual Life Association of Australasia Ltd

[1993] FCA 919

DISTRIBUTION n LIMITED

JUDGMENT No.

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF THE	) NO. NN 2846 of 1993
STATE OF NEW SOUTH WALES	)

RE :  MALCOLM COLIN WALTON
Applicant/Debtor

EX PARTE : NATIONAL MUTUAL LIFE ASSOCIATION
OF AUSTRALASIA LIMITED

Respondent/Creditor

HILL J SYDNEY 9 NOVEMBER 1993

EX TEMPORE REASONS FOR JUDGMENT

Mr Malcolm Colin Walton ("the debtor") applies to the Court to set aside a bankruptcy notice served upon him on the ground that he has a counter-claim that he could not have set up in the action or proceeding in which the judgment against him, obtained by National Mutual Life Association of Australasia Pty Limited ("the creditor"), was obtained being in value equal to or exceeding the amount of that judgment debt. The application is brought pursuant to s.40(l)(g) of the Bankruptcy Act 1966 ("the Act").

form of the notice.

The judgment upon which the bankruptcy notice was based is a judgment of the Commercial Division of the Supreme Court of New South Wales, delivered on 9 September 1992 in the sum of $112,550.07. No separate argument is raised as to the

The circumstances in which the judgment debt was recovered and in which it is claimed that the debtor has a counter-claim are as follows. The debtor was a life insurance agent engaged by the creditor. Pursuant to the agency agreement the debtor received commissions for business which he wrote. However, if at a later date the policy holder, whose business he had attracted, failed to renew his or her policy, the debtor suffered what is referred to as a "commission reversal", that is to say, he became liable to repay to the creditor the commission which had previously been earned.

The judgment relied upon as founding the bankruptcy notice was a judgment in proceedings in which the creditor sought to recover from the debtor amounts of commission reversals. The cross-claim, cross demand or counter-claim alleged by the debtor and said not to have been available at the time of the original proceedings resulting in judgment, is

under the Trade Practices Act 1974.	said to be based in negligence, breach of fiduciary duty or
So, it is said that the creditor owed a duty of care to the debtor. A duty of care had been breached. That breach entitled the debtor to damages precisely equal to the amounts of money owing to the creditor for commission reversals. A similar argument is said to arise in respect of the claim for breach of fiduciary duty. The final claim placed upon the Trade Practices Act is said to arise because the creditor in trade or commerce made certain representations to the debtor in reliance upon which Mr Walton became an agent and executed certain guarantees suffering ultimately loss or damage.
The debtor seeks, in addition to, or as an alternative to, claims for damages, a declaration that the judgment debt obtained by the creditor against him be held by the creditor on a constructive trust for him.
Prima facie, on these facts, if there were a cross- claim, cross demand or counter-claim which the debtor had against the creditor, that would be a cross-claim, counter- claim or cross demand which could have been raised in the original proceedings. To escape this difficulty, counsel for the debtor raised a somewhat novel argument based upon issue estoppel and in particular the decision of the High Court in Port of Melbourne Authoritv v Anshun Pty Ltd (1981) 147 CLR
decision in Henderson v Henderson (1843) 3 Hare 100 at 115, 67 589 at 602-603, and what was said in that case concerning the
ER 313 at 319.
So far as I understand the argument, it can be put thus: an issue estoppel will only arise where there has been a failure to exercise reasonable diligence on the part of a litigant seeking to raise a fresh point properly belonging to the subject of litigation: Anshun. From this it is then submitted that Anshun gives rise to a common law right that a party to litigation is not precluded from raising a point not raised in a prior proceeding if that was a point that could not reasonably have been raised in that proceeding. Put shortly, it is said that the points intended to be dealt with in the claims in negligence, breach of fiduciary duty or under the Trade Practices Act belong to the subject of litigation, and would be precluded by Anshun from being raised in subsequent proceedings, unless they were such as could not reasonably have been raised initially.
Then it is said that s.40(l)(g) of the Act should be construed against the background of the common law principles discussed in Anshun. So it is said that the common law gives rise to a right to ralse a matter as a cross-claim, cross demand or counter-claim, if that could not reasonably have been raised in the original proceedings. Reference is made as to the question of interpretation to the decision of the High
Court in Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 252, particularly in support of a submission
that the Act must be read so as not to interfere with common law rights unless there is a clear intention so to do.
The question of interpretation and the relationship between statutory and common law rules may be accepted without difficulty.

So it is said that when one construes s.40(l)(g),

the reference to a cross-demand, etc, in that paragraph must be read as a reference to a cross demand that could not have been set up with reasonable diligence in the prior proceedings. So it is said that if there were no issue estoppel at common law preventing the matters in the statement of claim being raised, they could operate as a cross demand for the purposes of s.40(l)(g).

The reference to reasonable diligence becomes relevant in the light of some affidavit evidence that was adduced before me. That evidence tended to suggest, and I make no finding on the matter, that the debtor's solicitors in the proceedings in which judgment was obtained may well have been negligent and that negligence may well have precluded as a practical matter (or so it is said) the debtor raising the claims in negligence, breach of fiduciary duty or under the Trade Practices Act.

In my view these submissions fail for two reasons. The first and perhaps the simpler of the two reasons is that the submissions run counter to what was said by Lockhart J in Re Brink: Ex parte Commercial Banking CO of Svdney Limited (1980) 30 ALR 433 at 437. In that case, which has been followed in a number of authorities since, Lockhart J determined that the words "that he could not have set up in the action or proceeding in which the judgment order was obtained" meant "which he could not by law set up in the

actlon"

.

As his Honour said, in quoting Lukin J in Re Stokvis (1934) 7 ABC 53 at 57, the "Mere failure to take advantage of the opportunity can hardly be said to be inability".

Although, as is submitted, the point immediately ralsed for decision before me was not, it would seem, raised before Lockhart 3, there is nothing in the judgment that suggests that a claim which could legally have been brought by a debtor at the time the proceedings were brought against him by the creditor, but which was not, for some reason extraneous to the debtor, (for example, because the solicitor for the debtor did not think of it or was otherwise negligent,) fell within the words of s.40(l)(g): "...cross-demand that he could not have set up in the action or proceeding in which the judgment order was obtained".

Although I was referred to a passage in the judgment in Clark v UDC Finance Ltd (1985) 2 NZLR 636 at 640, which suggested that there may exist cases where the failure to bring a cross-claim was due to "supervening circumstances" which made it factually impossible for the cross-claimant to bring the cross-claim at the time the original proceedings for judgment were brought, I do not think that the present case

could be said t o f a l l within the category o f supervening

circumstances, i f there be such a discrete category.

That point i s s u f f i c i e n t t o resolve the present

application. However, I do not th ink tha t t h e debtor's

rel iance upon t h e decision o f t he High Court i n Anshun i s

warranted. I am happy for the purposes o f t h e present proceeding t o adopt as a correct statement o f principle the discussion by Pries t ley J A i n v Commonwealth Bank o f

Australia	(unreported, Court o f Appeal,	2 0 December	1 9 9 1 ) o f
Anshun and	Henderson.	In tha t discussion a t 7-8,	Pries t ley J A
said:

"The decision o f G i b b s C J and Mason and

Aickin J J i n Anshun seems t o me t o be

authority for the following propositions:

( I ) that Wigram VC's extended principle a s

stated i n Henderson i s accepted a s good

l a w by the High Court;

( 2 ) that that principle applies, i n t e r

a l i a , t o category	(3) cases, that i s t o a
proceeding i n which a party i s assert ing a	cause o f action which could have been
raised, b u t was no t , i n a previous proceeding i n which the same party was assert ing a d i f f e r e n t cause o f action based on substant ial ly the same fac t s agalnst the same party a s the second proceeding i s being brought; and
(3) that the extended principle o f Henderson w i l l be applied t o the second proceeding when it was unreasonable for the party asserting the cause o f action i n that second proceeding t o re f ra in from
raising i t i n the ear l ier proceeding
against the same opponent party."

The reference to Henderson is a reference, inter alia, to that part of the judgment of the Vice Chancellor at 319 (ER 115), as said:

"The plea of res judicata applies, except In special cases, not only to points upon which the Court was actually required by the partles to form an oplnlon and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, mlght have brought forward at the time."

There will of course be, from time to time,

difficulty in determlnlng whether a subsequent point raises a

matter that properly belonged to the subject of litigation. Priestley JA, in the passage referred to, used a different form of language amounting, I think, to the same thing, when his Honour referred to the bringlng of different causes of action against the same party based on substantially the same facts. Thus, if 'A' claims to have a right of action agalnst

of facts, and in addition a statutory claim based on the same	'B' at common law, the damages arising out of a particular set
set of facts and raising the same cause of action, Anshun would generally support the proposition that a subsequent attempt to raise the statutory claim, when the common law claim had been determined adversely, would fail on the basis
of issue estoppel .
But I do not understand Anshun to be authority for the proposition that a subsequent claim against a judgment creditor by the judgment debtor must necessarily fail if it is based upon the same basic set of facts as a claim by the judgment creditors against the judgment debtor, unless the case was one which fell within the exception to the rule in issue estoppel based upon reasonableness. Putting it another way, I do not see that there is anything in the principle of issue estoppel that would prevent the debtor in the present case from raising a trade practices claim based upon, for example, breach or mlsrepresentation as a claim against the creditor after judgment had been obtained by the creditor in proceedings based upon the debt. In part this will be because the facts upon which each cause of action is based wlll not be identical.
It follows that if the principle of issue estoppel upon which the submission was based has no application to the
because the claim was one which could have been brought in the present circumstances, the submission fails in limine, both
proceedings in which the creditor obtained judgment and is not one which could be said to be the subject of issue estoppel unless the debtor was able to show that circumstances existed which made it such that the point could not reasonably have been raised at the time. In these circumstances I would dismiss the application.

I order the debtor to pay the creditor's costs.

I certify that this and the
preceding nine (9) pages
are a true copy of the Reasons
for Judgment herein of his Honour

Mr Justice H111.

associate: T~(&hzm/i	L'
Date	:

rs b e klC13

Counsel and Solicitors	Mr N Perram
for the Debtor:	instructed by ISP Law

Solicitors for the Creditor: Cutler Hughes & Harris

Date of Hearlng:  9 November 1993