Sarina v O'Shannassy
[2020] FCCA 1625
•19 June 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SARINA v O'SHANNASSY | [2020] FCCA 1625 |
| Catchwords: BANKRUPTCY – Determination of question whether the time for complying with the requirements of a bankruptcy notice should be extended to the time there is determined the counter-claim, set-off, or cross demand the debtor claims he has against the creditor and on which he relies as a ground for applying to set aside a bankruptcy notice – whether debtor has complied with the requirements for making an application to set aside a bankruptcy notice on the ground that the debtor has a counter-claim, set-off, or cross demand that exceeds the judgment debt so as to have engaged s.41(7) of the Bankruptcy Act 1966 (Cth) (Act) – debtor has not complied –– extension of time to be granted in aid of other grounds on which debtor relies for setting aside bankruptcy notice. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.27(1), 30(1)(b), 40(1)(g), 41(6A), 41(7) Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), r.3.02(3) |
| Cases cited: Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449 Ex p Ruffle; In re Dummelow (1873) LR 8 Ch App 997 Glew v Harrowell, in the matter of Glew [2003] FCA 373 Guss v Johnstone [2000] HCA 26 Olivieri v Stafford (1989) 24 FCR 413 Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 Re Sterling, Ex parte Esanda Ltd [1980] FCA 61; 44 FLR 125 Jagatramka v Coeclerici Asia (PTE) Limited (No.2) [2015] FCCA 2743 Sarina & Anor v O'Shannassy (No.2) [2019] FCCA 2802 Stec v Orfanos [1999] FCA 457 Webb v Hunter (1995) 59 FCR 24 |
| Applicant: | CLINTON SARINA |
| Respondent: | JOHN O'SHANNASSY |
| File Number: | SYG 1345 of 2020 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 12 June 2020 |
| Date of Last Submission: | 12 June 2020 |
| Delivered at: | Sydney |
| Delivered on: | 19 June 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr C Bolger, by video |
| Solicitors for the Applicant: | Kalantzis Lawyers |
| Respondent in person, by video |
ORDERS
The question whether the time for compliance with the requirements of bankruptcy notice BN249223 served on the applicant either on 9 or 11 March 2020 be extended up to and including the day Judge Manousaridis gives judgment in matter number SYG1339/2018 is answered in the negative.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1345 of 2020
| CLINTON SARINA |
Applicant
And
| JOHN O'SHANNASSY |
Respondent
REASONS FOR JUDGMENT
Introduction
In these reasons for judgment I consider whether the time for compliance with the requirements of bankruptcy notice BN249223 the respondent, Mr O’Shannassy, served on the applicant, Mr Sarina, should be extended up to and including the day on which I give judgment in a proceeding (Proceeding) that is pending before me in which Mr Sarina claims Mr O’Shannassy defamed him (Defamation Claim).
Background
The bankruptcy notice, which was issued on 6 March 2020, required Mr Sarina, within 21 days of service, to pay to Mr O’Shannassy $26,071.47. That is the amount of a judgment Mr O’Shannassy on 31 January 2020 arranged to be entered against Mr Sarina in the Local Court of New South Wales (Judgment Debt). The Judgment Debt, in turn, represents the amount recorded in a certificate of determination of costs (Costs Certificate). The Costs Certificate was issued under s.70 and s.78 of the Legal Profession Uniform Law Application Act 2014 (NSW) (LP Application Act) in response to an application Mr O’Shannassy made under s.68 and s.74 of the LP Application Act for the assessment of costs the District Court ordered Mr Sarina to pay. The Certificate of Costs was registered with the Local Court pursuant to s.71(3) of the LP Application Act.
The bankruptcy notice was served on Mr Sarina either on 9 or 11 March 2020. On 27 March 2020 Mr Sarina applied to the Federal Court for an order that the bankruptcy notice be set aside “on the grounds of s.40(1)(g)” of the Bankruptcy Act 1966 (Cth) (Act), and, in the alternative, for an order under s.41(6A) of the Act that the time for complying with the requirements of the bankruptcy notice be extended until the Defamation Claim is finally determined. One of the grounds on which Mr Sarina relied is that the Defamation Claim, and an order for costs I made in the Proceeding (Costs Order), each constitutes a counter-claim, set-off, or cross demand.
On 2 June 2020 an order was made under r.27.11 of the Federal Court Rules 2011 (Cth) that the proceeding in the Federal Court be transferred to this Court. The matter came before me for directions on 5 June 2020; and on that day I set down for hearing on 12 June 2020 the determination of the question I consider in these reasons.
Statutory provisions and principles
The proceeding before me is an application to set aside a bankruptcy notice. The Act does not confer an express power on this Court to set aside a bankruptcy notice, but there is no question that this Court, in the exercise of the “jurisdiction in bankruptcy” conferred on it by s.27(1) of the Act, has the power to do so. The principal source of power is s.30(1)(b) of Act which provides that the Court may make “such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter”.[1] Another source of power is s.41(6A) of the Act which empowers the Court to extend the time for compliance with the requirements of a bankruptcy notice if, before the time for complying with those requirements, the debtor has, among other things, applied to set aside the bankruptcy notice. It has been said that the power of the Court to extend the time for compliance with the requirements of a bankruptcy notice carries with it the power to set aside the bankruptcy notice itself.[2]
[1] Olivieri v Stafford (1989) 24 FCR 413, at page 430 (Gummow J)
[2] Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125, at page 130 (Lockhart J)
There are a number of grounds on which the Court may set aside a bankruptcy notice. Relevant to the question I am required to determine in these reasons is the ground s.41(7) of the Act assumes is available to set aside a bankruptcy notice, that ground being the debtor has a “counter-claim, set-off or cross demand as is referred to in paragraph s.40(1)(g)” of the Act. Paragraph (g) of s.40(1) of the Act describes the conditions in which a person on whom a bankruptcy notice has been served commits an act of bankruptcy. Those conditions are where the person does not comply with the requirements of the bankruptcy notice or does not satisfy the Court that he or she has:
a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.
As I have noted elsewhere,[3] the matters on which a Court must be satisfied before it can be satisfied that a debtor has a counter-claim, set-off, or cross demand against the creditor have been stated in different ways, and in ways that sometimes overlap. The various statements were summarised by Lindgren J in Glew v Harrowell.[4] In broad terms a debtor must satisfy the Court that the counter-claim, set-off, or cross demand is made in good faith, and that there is sufficient substance to the counter-claim, set-off, or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.
[3] Jagatramka v Coeclerici Asia (PTE) Limited (No.2) [2015] FCCA 2743, at [167]-[168]
[4] [2003] FCA 373, at [9]
Even if the judgment debtor has a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt”, he or she may rely on it as a ground for setting aside a bankruptcy notice only if the counter-claim, set-off, or cross demand “could not have been set up” by the judgment debtor in the proceeding in which the judgment was obtained. The expression “could not have been set up” has been construed narrowly:[5]
The words “that he could not have set up in the action or proceeding in which the judgment or order was obtained” mean “which he could not by law set up in the action.”: see Re Jocumsen (1929) 1 A.B.C., at p. 85; Re A Debtor (1914) 3 K.B. 726 per Avory J. at p. 730 and Re Stockvis (1934) 7 A.B.C. 53 especially per Lukin J. at p. 57 where his Honour said: “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 . . . Mere failure to take advantage of the opportunity can hardly be said to be inability.”
[5] Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135, at page 139 (Lockhart J)
A debtor who applies to set aside a bankruptcy notice on the ground that he or she has a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” must comply with r.3.02(3) of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules), which provides:
If the application is based on the ground that the debtor has a counter-claim, set-off or cross demand referred to in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter-claim, set-off or cross demand; and
(b) the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter-claim, set-off or cross demand was not raised in the proceedings that resulted in the judgments or orders to which the bankruptcy notice relates.
Next, there is s.41(6A) of the Act, which provides:
Where, before the expiration of the time fixed for compliance with a bankruptcy notice:
(a)proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b)an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
It has been said that the “power to extend time for compliance” with a bankruptcy notice “is in aid of the power to set aside the notice itself”.[6]
[6] Re Sterling, Ex parte Esanda Ltd [1980] FCA 61; 44 FLR 125, at page 129
Finally, it is necessary to refer to s.41(7) of the Act:
Where, before the expiration of the time fixed for compliance with a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(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.
Parties’ submissions
Counsel for Mr Sarina submits he could not have set up the Defamation Claim in the Local Court in answer to the lodgement in that Court for registration of the Costs Certificate. Counsel submits the Defamation Claim is of sufficient substance which Mr Sarina should, in justice, be permitted to have heard and determined in the usual way. Counsel relies on a judgment I gave in the Proceeding dismissing an application for summary dismissal Mr O’Shannassy made (summary dismissal judgment).[7] In relation to the Costs Order, Mr Sarina relies on tax invoices Mr Sarina’s counsel and solicitor issued in relation to the work covered by the Costs Order, and these are in excess of $30,000.
[7] Sarina & Anor v O'Shannassy (No.2) [2019] FCCA 2802
Mr O’Shannassy, on the other hand, submits the Defamation Claim is not “relevant as a claim because at the time of serving the Bankruptcy Notice and this bankruptcy litigation Mr Sarina has not established set-off or cross claim to justify a stay order”.[8] Mr O’Shannassy submits the Defamation Claim has not been finally concluded;[9] it is “merely an inchoate one” instead of being “an effective claim existing at the time the application to set aside the bankruptcy notice is heard and capable of being enforced by an action”;[10] the Defamation Claim is not a “counterclaim, set-off or cross-demand” because there is no mutuality between the Judgment Debt and the Defamation Claim;[11] Mr Sarina has given no evidence of the value of the Defamation Claim;[12] and Mr Sarina has not filed any evidence of good faith.[13] Mr O’Shannassy further submits that no amount has become due and payable under the Costs Order.[14]
[8] Respondent’s Further Outline of Submissions, [34]
[9] Respondent’s Further Outline of Submissions, [39]
[10] Respondent’s Further Outline of Submissions, [39] relying on Guss v Johnstone [2000] HCA 26
[11] Respondent’s Further Outline of Submissions, [39] relying on Stec v Orfanos [1999] FCA 457
[12] Respondent’s Further Outline of Submissions, [22]
[13] Respondent’s Further Outline of Submissions, [35]
[14] Respondent’s Further Outline of Submissions, [28]
What are the issues?
The parties’ submissions appear to be directed to the question whether Mr Sarina has a “counter-claim, set-off or cross demand equal to or exceeding the amount of the” Judgment Debt. That, however, is not the question I am required to answer on this application. To determine in these reasons whether Mr Sarina has a counter-claim, set-off or cross demand would be to determine one of the grounds on which Mr Sarina relies to set aside the bankruptcy notice. That is not what the parties have submitted I decide.
There are potentially two issues. One is whether I am satisfied that, before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, Mr Sarina can be said to have applied to set aside the bankruptcy notice on the ground that he has “a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g)” of the Act. If that question is answered in the affirmative, s.41(7) of the Act will apply, with the consequence that the time for Mr Sarina complying with the requirements of the bankruptcy notice will be deemed to have been extended immediately before its expiration, up until and including the day on which the Court determines whether it is satisfied Mr Sarina does have such counter-claim, set-off, or cross demand. A second question will arise, but only if the first question is answered in the affirmative; and that is whether I should determine whether Mr Sarina has a counter-claim, set-off, or cross demand that exceeds the Judgment Debt independently of my finally determining the Defamation Claim.
Has s.41(7) of the Act been engaged?
It has been held that whether a debtor has applied to set aside a bankruptcy notice on the ground that the debtor has a counter-claim, set-off, or cross demand, and whether, therefore, s.41(7) of the Act applies, depends on whether the debtor has complied with any requirements relating to the filing of an affidavit in support of such a claim.[15] Sub rule 3.02(3) of the Bankruptcy Rules, to which I have already referred, imposes a number of requirements. The question is whether the affidavit Mr Sarina filed at the time he filed his application to set aside the bankruptcy notice complies with r.3.02(3).[16]
a)The affidavit identifies the counter-claim, set-off, or cross demand Mr Sarina asserts he has against Mr O’Shannassy, these being the Costs Order, and the Defamation Claim, and he has given full details of those claims, as required by r.3.02(3)(a) of the Bankruptcy Rules.
b)Mr Sarina has given evidence of the amount of the costs he has been charged which he says are covered by the Costs Order; but Mr Sarina does not swear to the amount of the counter-claim, set-off, or cross demand based on the Costs Order. Nor does Mr Sarina depose to the amount of the counter-claim, set-off, or cross demand based on the Defamation Claim. To that extent, Mr Sarina has not complied with r.3.02(3)(b) of the Bankruptcy Rules. That need not be fatal; it might be open to Mr Sarina to apply for an order under r.1.06 of the Federal Circuit Court Rules 2001 (Cth) dispensing with compliance with r.3.02(3)(b) of the Bankruptcy Rules on terms that he file an affidavit in which he swears to the amount of each of the counter-claims, set-offs, or cross demands based on the Costs Order and the Defamation Claim,[17] and he swears to the amount by which the sum of these two amounts exceed the Judgment Debt.[18]
c)There is sufficient material in Mr Sarina’s affidavit to explain why he did not raise the Costs Order or the Defamation Claim at the time the Costs Certificate was registered with the Local Court; and that is because the Judgment Debt was entered, not as a consequence of the determination of a proceeding, but by the registration as a judgment of the Costs Certificate under s.71(3) of the LP Application Act. The procedure for registering a Costs Certificate does not allow the raising of any counter-claim, set-off, or cross demand.
[15] See, for example, Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) FLR 135; Webb v Hunter (1995) 59 FCR 24
[16] Affidavit of C Sarina 26.03.2020
[17] See Ex p Ruffle; In re Dummelow (1873) LR 8 Ch App 997
[18] Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449, at [36]-[48]
I am not, therefore, satisfied Mr Sarina has met the requirements of r.3.02(3) of the Bankruptcy Rules. That means that s.41(7) of the Act has not been engaged, and there is presently not on foot an application to set aside the bankruptcy notice on the ground that Mr Sarina has a counter-claim, set-off, or cross demand equal to or in excess of the Judgment Debt.
Mr O’Shannassy’s submissions
Although not necessary, it might be helpful if I address some of the submissions Mr O’Shannassy has made.
a)First, Mr O’Shannassy relies on the Defamation Claim not having been finally determined, and the costs covered by the Costs Order not having been assessed. That construes s.40(1)(g) and s.41(7) of the Act as requiring the debtor to have recovered a judgment on the counter-claim, set-off, or cross demand on which the debtor relies. Those subsections, however, are incapable of being so read; they require a counter-claim, set-off, or cross demand.
b)Second, Mr O’Shannassy submits the Defamation Claim and Costs Order are no more than “inchoate” claims. Mr O’Shannassy relies on a passage from the judgment of the Full Federal Court in Guss v Johnstone which refers to an asserted cross demand being “inchoate or contingent” and, for that reason, not being a counter-claim, set-off, or cross demand to which s.40(1)(g) and s.41(7) applied.[19] What was said about the claim the Full Federal Court described as “inchoate or contingent” does not apply to the Defamation Claim. As is apparent from the statement of claim Mr Sarina filed in the Proceeding, the Defamation Claim is a presently constituted cause of action. The same may be said of the Costs Order. Although the costs covered by the Costs Order have not been assessed, and, therefore, cannot at the moment be registered as a judgment, the Costs Order nevertheless constitutes a fully constituted unliquidated claim on the part of Mr O’Shannassy. That is supported by Guss v Johnstone where the primary judge accepted that costs that had not been taxed, but which the debtor assessed at $2,500, were capable of constituting a counter-claim, set-off or cross demand.[20]
c)Third, relying on Stec v Orfanos, Mr O’Shannassy submits the Judgment Debt, on the one hand, and the Defamation Claim and Costs Order, on the other, lack mutuality. It is true that in the paragraph from the judgment in Stec v Orfanos on which Mr O’Shannassy relies the Full Federal Court said: “[w]here a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right”. But the Full Federal Court also explained what that meant: the “requirement that the two claims be “in the same right” is directed to the capacities in which the claimants claim. Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee”.[21] There is no question that the Judgment Debt, on the one hand, and the Defamation Claim and Costs Order, on the other, are claims “in the same right”.
d)Fourth, Mr O’Shannassy submits Mr Sarina has given no evidence of good faith. I do not accept that submission. Mr Sarina has annexed to his affidavit the summary dismissal judgment, which is reasonably capable of supporting the inference that Mr Sarina brought the Defamation Claim, and applied for an order for costs which resulted in the Costs Order, in good faith.
e)Fifth, Mr O’Shannassy further submits that no amount has become due and payable under the Costs Order. That may be so; but the costs order nevertheless constitutes a subsisting claim Mr Sarina has against Mr O’Shannassy for the payment of an unliquidated amount.[22]
[19] Guss v Johnstone [2000] HCA 26, at [43]
[20] Guss v Johnstone, [2000] HCA 26, at [21]
[21]Stec v Orfanos [1999] FCA 457, at [24]
[22] Ex p Ruffle; In re Dummelow (1873) LR 8 Ch App 997
Determination of existence of counter-claim, set-off or cross demand
Again, although it is not necessary, it would be helpful if I address the question whether, assuming Mr Sarina has on foot an application to set aside the bankruptcy notice on the ground that he has a counter-claim, set-off, or cross demand equal to or in excess of the Judgment Debt, I should determine whether I am satisfied Mr Sarina has such counter-claim, set-off, or cross demand independently of my determining the Defamation Claim. In my opinion, cost and convenience would obviously have pointed to my deciding that question in the course of my determining the Defamation Claim. The Defamation Claim is well advanced, the only outstanding matter being the hearing of submissions that has been set down for 1 July 2020.
Disposition and further progress
I propose to dispose of the question I have considered in these reasons for judgment by answering it in the negative. At the time I pronounce my answer I will set the matter down for a further directions hearing at a day and time convenient to the parties.
Given Mr Sarina relies on other grounds for his application to set aside the bankruptcy notice, I will make an order under s.41(6A) of the Act extending the time for compliance with the requirements of the bankruptcy notice up to and including the day on which the matter will be listed for further directions.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 19 June 2020
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