Schmitz, E. v Kodak (Australasia) Pty Ltd

[1995] FCA 522

IN THE FEDERAL COURT OF AUSTRALIA       )

BANKRUPTCY DISTRICT OF  )

THE STATE OF VICTORIA  )

GENERAL DIVISION  )       No VN 889 of 1995

RE:EDGAR SCHMITZ

Debtor

Ex parte:KODAK (AUSTRALASIA) PTY LTD

Creditor

COURT:Sundberg J

DATE:24 July 1995

PLACE:Melbourne

MINUTES OF ORDER

The Court makes the following declaration:

1. The debtor does not have a counter-claim, set-off or cross demand within the meaning of s.40(1)(g) of the Bankruptcy Act 1966.

And the Court orders that:

1. The debtor pay the creditor's costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA                )

BANKRUPTCY DISTRICT OF  )

THE STATE OF VICTORIA  )

GENERAL DIVISION  )       No VN 889 of 1995

RE:EDGAR SCHMITZ

Debtor

Ex parte:KODAK (AUSTRALASIA) PTY LTD

Creditor

COURT:Sundberg J

DATE:24 July 1995

PLACE:Melbourne

REASONS FOR JUDGMENT

SUNDBERG J:

On 29 August 1994 Kodak (Australia) Pty. Ltd. ("Kodak") obtained judgment in the Magistrates' Court at Melbourne against Edgar Schmitz for $13,534.79 together with interest and costs. A Bankruptcy Notice based on the judgment debt was served on Mr. Schmitz. There is no evidence of the date of service, though the handwritten date on Mr. Schmitz's copy of the Notice (29 May 1995) may have been the date of service. On 9 June 1995 Mr. Schmitz filed an affidavit stating that he wished to enter a counterclaim against Kodak under s.41(7) of the Bankruptcy Act 1966. Because there is no evidence of the date of service of the Bankruptcy Notice, I cannot tell whether the application is within the 14 day period prescribed by s.41. I will however treat it as within time.

It appears from his affidavit that Mr. Schmitz was formerly a director of a now deregistered company E.D.S. Pty. Ltd. ("EDS") which initially traded under the name

"Photos in a Flash (Kodak Express)" and later under the name "Meadow Mews (Kodak Express)".  He says that when EDS purchased Photos in a Flash (presumably from Kodak) one of the conditions of the contract was that Kodak would exchange the very troublesome Kodak paper processor and the almost rusted out film processor that was then in use with a brand new Kodak System 25, comprising a brand new paper processor and a brand new film processor.  The paper processor in fact installed by Kodak was a second hand machine.  Problems were encountered with the newly installed paper processor, and on the recommendation of the then Tasmanian Manager of Kodak, Tom Byrne, another Kodak System 25 paper processor was purchased.  The new System also encountered unspecified problems, and due to this and "the Kodak technicians ineptitude to maintain the machines to an optimum level we kept losing money and customers".

After a period of six months Kodak stopped honouring their warranty maintenance service on the paper processor even though the warranty period promised by Mr. Byrne was for 12 months.  Mr. Schmitz says that Mr. Byrne's reason for not continuing with the warranty was that it was too costly to do so.  He then itemises his/EDS's "tangible losses" at $23,873.20.

Mr. Schmitz then explains why his claim against Kodak was not pursued before the Magistrates' Court on 29 August 1994.  On the evening of 28 August 1994 (i.e. the evening before the hearing) Mr. Schmitz, his solicitor and two potential witnesses to support the cross-claim against Kodak, met the barrister retained to represent Mr. Schmitz.  The barrister told Mr. Schmitz that the claim against Kodak could not be dealt with next day and would have to be heard separately at a later time.  This was presumably because no sufficient notice had been given of intention to make the cross-claim as required by the Magistrates' Court Rules.  Negotiations took place before the case was called on.  Settlement was reached on the basis that Kodak would forgo its interest claim in consideration of Mr. Schmitz abandoning his claim.  Mr. Schmitz says that "as I had no avenue open to me to present my counter claim at that hearing I felt strongly pressured into accepting the terms and conditions put forward by Kodak".  He signed the terms of settlement "but felt very uneasy doing it".  In his submissions to me he said he had received "bad advice".

Kodak's counsel opposed the application on three grounds. The first was that on the evidence the cross-claim belonged to EDS and not Mr. Schmitz. The second was that the cross-claim did not fit the description in s.40(1)(g), because it was one that could have been set up in the Magistrates' Court. The third was that the claim no longer existed as a result of the terms of settlement.

Section 40(1)(g) speaks of a "counter-claim, set-off or cross demand ... that he could not have set up in the action or proceeding in which the judgment ... was obtained". The effect of the authorities is that failure to comply with a procedural requirement that prevents a cross-claim being dealt with at the same time as the principal claim does not establish that the debtor "could not have set up" the cross-claim in the action in which judgment was obtained on the principal claim. The cases are helpfully collected by O'Loughlin J. in Re Willats (1991) 104 A.L.R. 361. Had he complied with the Rules, Mr. Schmitz could have set up his counterclaim. There was nothing "in law" which prevented him from doing so: cf. Re Brink; Ex parte Commercial Banking Co. of Sydney Ltd. (1980) 30 A.L.R. 433, at p.437.

Even if Mr. Schmitz's cross-claim was one that he could not have set up in answer to Kodak's claim, it has ceased to exist as a result of the terms of settlement.  That Mr. Schmitz may have bargained away his counterclaim as a result of "bad advice" cannot alter that fact.  He was represented by a solicitor and a barrister, and he signed the terms.

In view of what I have said I do not need to deal with Mr. Ribbands' first point that any cross-claim belonged to EDS and not Mr. Schmitz.

Accordingly I am not satisfied that Mr. Schmitz has a counter-claim, set-off or cross demand of the type referred to in s.40(1)(g). There will be a declaration accordingly, and Mr. Schmitz must pay Kodak's costs.

The court declares that it is not satisfied that the debtor has a counter-claim, set-off or cross demand of the type referred to in s.40(1)(g).

The Court orders that the debtor pay the creditor's costs.

I certify that this and the preceding 3 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg

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ASSOCIATE

24 July 1995

The Debtor appeared in person.

Counsel for the Respondent:              J A Ribbands

Solicitors for the Respondent:            Holmes Hanlon

Date of Hearing:  12 July 1995

Place of Hearing:  Melbourne

Date of Judgment:  24 July 1995