Scott, P. v Agav P/L (In Liquidation)

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JUDGMENT No.

Qil

TN THE FKDBRAIi COURT OF AUSTRALIA

GENERAIi DIVISION	No. QP 2466 of 1993
BANKRUPTCY DISTRICT OF THE	No. QP 2467 of 1993
STATE OF QUEENSLAND

RE:	PAUL SCOTT

EX PARTE: AGAV PTY LTD fIN LIQUIDATIONS	'/s
I

MINUTES OF ORDER

'JUDGE MAKING ORDER:	SPENDER J
DATE OF ORDER;	23 FEBRUARY 1994
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

The Court finds that it is satisfied of the act of bankruptcy in CP 2466/93 and of the matters of which the Act requires proof.

The Court orders;

1. that there be a sequestration order made against the estate of the debtor;

2. the costs of and incidental to the petititon, including reserved costs, be taxed and paid in accordance with the Act.

NOTE;

Settlement and entry of orders is dealt with in Rule 124

of the Bankruptcy Rules.

received

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federal court of

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AUSTRALIA

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PRINCJPAL

VCA nEQJSTHY

IM THE FEDERAL COURT OF AUSTRMjIA

GENERAL DIVISION	No. QP 2466 of 1993
BANKRUPTCY DISTRICT OF THE	No. QP 2467 Of 1993
STATE OF QUEENSLAND

RE:	PAUL SCOTT

EX PARTE: AGAV PTY LTD fIN LIQUIDATION^

CORAM:	Spender J
PLACE:	Brisbane
DATE:	23 February 1994

REASONS FOR JUDGMENT

These are two contested creditor's petitions. The first is founded on an order for costs made in District Court Proceedings Ho. 4 of 1990 by his Honour Judge Shanahan on 1 October 1990 in the District Court at Emerald. According to a certificate of taxation dated 17 December 1990, these costs were taxed at $2202.14. The debtor is the plaintiff in those proceedings ('the proceedings'). The petitioning creditor, Agav Pty Ltd (In Liquidation), ('Agav') is the first defendant. The second defendant is Central Highlands Air Taxi Pty Ltd and the third defendant Kyleen Pty Ltd.

The second petition is founded on an order for costs made by his Honour Judge Dodds in the District Court at Emerald on 26 August 1991 in the same proceedings. The certificate of taxation dated 10 November 1992 certifies that those costs ordered by Judge Dodds are taxed at $1971.78. I am unaware of

why two petitions were lodged.

It seems to me that, since I

propose to make a sequestration order against the estate of Mr Scott in respect of the petition founded on the order of Judge Shanahan of 1 October 1990, I should dismiss the second petition and make no order as to costs in respect of it.	r-
Both petitions were contested, the grounds of opposition being as follows. First, the debtor is owed money by the judgement creditor in a sum which exceeds the sum specified in paragraph (a) of the respective bankruptcy notices. That claim is based on the proceedings in which the debtor claims $47,720.00, together with interest. It is said on behalf of the debtor that he is entitled to set-off of this amount against the sum specified in paragraph 4 of the petitions, those s\ims being the taxed costs which remain unpaid.
The second ground pressed was that the orders referred to in the bankruptcy notices and in paragraph 2 of the petitions were not final judgments or final orders within the meaning of s. 40(1)(g) of the Bankruptcy Act 1966 ('the Act').
The third ground is that the bankruptcy notices were defective and therefore invalid, in that they did not properly identify the orders under which the amounts claimed are said to be due.
There was a further ground of opposition: that the petition was an abuse of process and was brought for the collateral purpose of bringing to an end the proceedings, but

that ground has been abandoned. It is convenient to deal with

the second and third grounds first.

In relation to the second ground, in my opinion, the order referred to in the bankruptcy notices and in the petitions are final judgments or final orders within the meaning of s. 40(1) (g) of the Act. In particular, in my opinion, by virtue of the provisions of s. 40(3)(b), each order for costs, made respectively by Judge Shanahan and by Judge Dodds, is able to found a bankruptcy notice, and non-compliance with that notice is a proper basis for a petition.

Section 40(3)(b) provides that for the purposes of

paragraph 1(g):

...a judgment or order that Is enforceable as,

or in the same manner as, a final judgment obtained In an action, shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained. "

The Rules of the District Court, r . 363 provides:

Except where herein otherwise provided, the costs of any action or proceeding shall be paid by an apportionment between the parties in such manner as the Judge directs, and in default a special direction shall abide the event; and the costs may he recovered in like manner as a debt adjudged by the Court to be paid can be recovered. “

Rule 287 provides:

In any case in which a judgment is given for the payment of money, and the party against whom judgment was given has made default on the payment thereof, the Registrar, on the

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application of the party in whose favour the judgment was given, may issue a warrant of execution which shall be directed to a bailiff.

It was held in Ex Parte Ide (1886) 17 QB 755 that a judgment or order can found a bankruptcy notice only if execution may be had upon it. In this particular case, in my opinion, the costs orders are capable of supporting a warrant of execution and are final judgments or orders as a consequence of the provisions of s. 40(3)(b).

In relation to the third ground, in my opinion neither bankruptcy notice was defective because the orders under which the amounts claimed are said to be due are properly identified in the notice. The prescribed form, form 4 in schedule 1 of the Bankruptcy Rules 1968 requires details to be included in the notice of the final judgment or order under which the sum claimed in the notice is said to be due. A bankruptcy notice which does not correctly identify the judgment or order under which the amount claimed is said to be due is not a valid notice: Re Cartwright; Ex parte Cartwright v. Barker [1975] 1 WLR 573 and Wilmot V. Buckley 2 FCR 540.

In Gardiner v Gardiner 39 FCR 259, a judgment of the Full Court of the Federal Court, where a bankruptcy notice which had been set aside by a judge at first instance, Neaves J said at 274:

" The notice now under challenge identifies the

judgment or order under which the amount of

$7574.10 Is claimed to be due as being 'the final judgment or final order obtained by the Judgment Creditors against you in the Supreme Court of New South Wales/ Sydney Registryf Equity Division, made on 22 May 1969 and entered on 31 October 1990. ' In my opinion this description does not correctly identify the judgment or order under which the amount is claimed. The respondents' liability to pay the amount claimed has its source in the judgment of Needham J given on 4 June 1986, and that judgment is not referred to in the notice. "

He later said/ in a passage which was relied on by Mr Lumb, counsel for the debtor:

" The effect of the order made by the Deputy

Registrar on 22 May 1989 was simply to preserve the situation in respect of what is referred to in the order as 'all disputed items eventually found in favour of the [appellants]'. ?7hile it may have been necessary to include in the bankruptcy notice a reference to the order made on 22 May 1989, and perhaps to the certification of taxation dated 29 November 1988, the omission of any reference to the source of the respondents' liability, namely the judgment of 4 June 1986 is, in my opinion, fatal to the validity of the notice. The defect is not a formal defect to which section 306 of the Bankruptcy Act could apply. "

In this case, the bankruptcy notice No. 500 of 1993,

refers to an amount of $2202.14, and that amount is said to be:

[D]ue by you to the Judgment Creditor under a final order obtained by the Judgment Creditor against you in the District Court of Queensland held at Emerald on 1 October 1990, being an order, the execution of which, has not been stayed. "

In bankruptcy notice No, 501 of 1993 the sum of $1971.78

is described as being:

[DJue by you to the Judgment Creditor under a final order obtained by the Judgment Creditor against you in the District Court of Queensland held at Emerald on 26 August 1991, being an

ordex", the execution of which has not been

stayed. "

There is no reference in the bankruptcy notice to the description of the amount as being the amount of costs reached on a taxation but, in my opinion, while a reference to the certificate of taxation might have been helpful, omission of a reference to the costs or to the taxation of them is not a defect in the notice.

In Re Litherland; Ex parte Showerama Products Pty Ltd 5 FCR 137, a bankruptcy notice was issued based on an order for costs in the Supreme Court of Queensland. Beaximont J held that the judgment, being final under 0. 18 r. 1 of the Supreme Court Rules, was therefore final for the purposes of s. 40(1) (g) of the Act, and that a bankruptcy notice can be based on an order for costs.

In the facts of that particular case, his Honour held

that failure to specify in the bankruptcy notice that the sum

claimed represented the balance due under the judgment as costs

was not likely to mislead or confuse the debtors, and therefore

was not fatal to the bankruptcy notice. His Honour said at 138:

>• i'

It Is submitted on behalf of the petitioner that an order for costs is a 'final judgment or final order' for the purposes of s. 40(1}(g) of the Bankruptcy Act^ 1966f (Cth). By virtue of O 18 r 1 of the Supreme Court Rules (Qld), the judgmenty although summaryr is final. It followsf in my opiniony that the judgment dated 11 December 1981 was 'final' for present purposes. Furthery in my view, even apart from the operation of s 40(3)(b) of the Bankruptcy Act 1966 (Cth) (see Re Skinner's and Smith's

Ar}t>l±cation fl982) 45 ALR 553 at 555} a bankruptcy notice can be based upon an order for costs (see Re Cartwright: Ex carte Cartwright v. Baker [1975] 1 WLR 573 ̂ cf Kayo Contractors v. Fernandes (19B4) 27 NTR 21 at 27). Furtherf the present case may be distinguished from Wilmot v. Buckley (1984) 2 FCR 540, where it was sought to base a bankruptcy notice upon a certificate of taxation for costs rather than the judgment ordering the costs. "

And he said:

Finally, though it would have been preferable if the bankruptcy notice had stated explicitly that the sum of $1715.52 was the balance remaining due under the Supreme Court judgment as costs, I do not think the debtors could have been confused or misled on this account or otherwise. Whilst the failure to express the position explicitly is not fatal to the bankruptcy notice if the debtor could not reasonably be misled (see re Winbourne: Ex carte The Debtor (1979) 24 ALR 494), it is nonetheless a matter to be taken into account on the question of the costs in the petition. "

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The bankruptcy notice in that case claimed that the sum

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I have referred to was due to the petitioner -

under a final order obtained by the [petitioner] against the [debtor] in the Supreme Court of Queensland on 11 December 1981. "

The description in that bankruptcy notice is the same as the description adopted by the petitioning creditor in the present cases.

Reliance was placed on behalf of the debtor on Re Ryanr

Ex parte Rvan v Jupiter's Management Limited 38 ECR 127. That

case, before me, was a personal injuries action in which the

debtor obtained against the creditor a judgment with costs in the

District Court. The creditor paid the judgment sum and costs and

subsequently filed a notice of appeal. The Court of Appeal allowed the appeal ordering a new trial of the action and that the debtor repay the judgment sum and costs. The debtor failed to repay the judgment sum and costs and a bankruptcy notice was issued based on the orders of the Court of Appeal. The debtor asserted a cross demand based on the claim in the second trial of the personal injuries action, claiming, pursuant to s. 40(1) (g) of the Bankruptcy Act 1966 (Cth), that it could not have been set up in the actual proceeding in which the judgment or order was obtained. I held that an order made by the Court of Appeal for the repayment of the judgment sum and costs was a final order upon which the creditor might issue execution. That case, it should be noted, was the hearing of an affidavit filed pursuant to s. 41(7), and the judgment depended on my conclusion that the Court of Appeal's order for repayment was not part of the original proceedings. It was made in the court's inherent jurisdiction to do complete justice between the parties. The cross-demand for personal injuries could not have been set up in that action or proceeding.

There is authority which suggests that an order for costs, such as the costs orders in the present case, are interlocutory in character. In Hall v The Nominal Defendant (1966) 117 CLR 423, Taylor J at 439 said:

A great deal has been said concerning the distinction between final and interlocutory orders but it has, in the main, been the practice of courts to confine themselves to a consideration of the character of the particular order in question in each case. Jndeed, in In re Page; Hill v. Fladaate [.1910] 1 Ch. 489 Cozens-Hardy M.R. commenced his judgment by

saying: 'J have no Intention of attempting the task of defining exhaustively or accurately the meaning of an interlocutory order. I leave that to others. The only point we have to decide here is whether the order in this particular case is an order which must he appealed against within the time limited for appeals from interlocutory orders' [1910] 1 Ch. at p. 491. 'Others' have,. however, not, in general, attempted the task which the Master of Rolls declined to undertake. However, at an earlier stage Lord Alverstone C.J., when called upon to say whether a particular order was interlocutory or final said: 'It seems to me that the real test for determining this question ought to be this: Does the judgment or order, as made, finally dispose of the rights of the parties? If it does, then I think it ought to be treated as a final order; but if it does not, it is then, in my opinion, an interlocutory order': Bozson V. Altrincham Urban District Council [1903] 1 K.B. 54 7, at pp. 548-549. Much the same test has been proposed on other occasions and, if I may say so with respect, it provides a broad test which is unexceptionable. So an order made in the course of an action or suit which does not conclude the rights of the parties inter se, although it may, of course, conclude the fate of a particular application in which it is made, is interlocutory only. "

However, the provisions of s. 40(3)(b) to which I have already referred, in my opinion lead to the conclusion that the order for costs made by Shanahan J and Dodds J are final orders for the purpose of the Act.

I turn now to the major difficulty I have had with these petitions, and that is the fact that it was argued on behalf of the debtor that he has a cross-demand in excess of $45,000 by reason of the negligence of the petitioning creditor, and that in those circumstances the court should, in the exercise of the discretion given by s. 52(2) of the Act dismiss the petition for "other sufficient cause."

Sections 52(1) and 52(2) provide:

" 52(1) At the hearing of a creditor's petition, the

Court shall require proof of -

(a)	the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(h) service of the petition; and

(c)	the fact that the debt or debts on which the petitioning creditor relies is or are still owing;

and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. "

52(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor -

(a) that he is able to pay his debts; or

(b)	that for other sufficient cause a sequestration order ought not to be made;

it may dismiss the petition. "

It is important to note that the existence of any cross demand was not earlier relied on by the debtor pursuant to the provisions of ss. 40(1) (g) or 41(7) of the Act as a basis for setting aside the bankruptcy notice. Section 41(7) provides:

Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, 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 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. "

As Hill J said in Re Smith; Ex parte Chesson 106 ALR 359

at 363:

The policy behind the exclusion from the category of acts of bankruptcy of those cases where the debtor has a counter-claim etc which could not have been set up In the action or proceeding In which the judgment debt upon which the bankruptcy notice is based Is clear. It was spelled out In relation to the Bankruptcy Act 1898 (NSW) by Haughn AJ in Re Rudd: Ex parte Pike (1924) 24 SR(NSW) 537 at 540f In a passage cited with approval by Lockhart J In Re Brinks Ex pa.rte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 437:

' The object of the legislature In providing machinery for the setting aside of a bankruptcy notice where a judgment debtor has a cross-demand is obviously to prevent a judgment creditor from pursuing bankruptcy proceedings when, as between himself and the judgment debtor, the balance of account Is In favour of the judgment debtor...'

This statement must. In relation to the present legislation, be qualified In two minor respects. First, the relief granted by the statute to the debtor Is conditional upon the debtor acting In a timely fashion/ In practical terms this means that the affidavit as to the existence of the cross-claim etc must be filed prior to the expiration of the period limited In the bankruptcy notice for compliance. Secondly, as has been pointed out In various judgments under the present legislation, the bankruptcy notice Is not set aside. It Is merely spent: James v. Abrahams (1981) 34 ALR 657 at 661 per Deane and Lockhart JJ. "

The policy behind that subsection of preventing a judgment creditor from pursuing bankruptcy proceedings when the balance of account is in favour of the judgment debtor focuses on the debtor acting in a timely fashion. The application has to be made before the time fixed in the bankruptcy notice for compliance with it. What is sought in the present case is.

notwithstanding that the debtor did not avail himself of the opportunity at the proper time, now to set up a claimed cross claim as a basis on which the court should exercise the discretion to dismiss the petition.

No real explanation has been offered as to why no application was made to set aside the bankruptcy notice, nor really has there been any acceptable explanation for the delay, and one of the reasons for my ultimate conclusion is that absence of explanation, although I suspect from the evidence before me that a major reason is simply the fact that at all relevant times Mr Scott has been insolvent.

The cross-demand raised by the debtor relates to his claim in the proceedings in Emerald. Mr Scott was the owner of 34 honey bee hives at one site and 77 hives at another. All of the bees were strong and healthy as at 6 February 1987, according to Mr Scott's affidavit. On 17 Februaiy 1987, Mr Scott discovered that all the hives at the smaller site had been destroyed, and on 28 February 1987 he discovered that all the hives at the larger site had been destroyed.

Agar carried on the business of aerial spraying operations. The evidence suggests that on 6 and 7 February Agar carried out spraying operations near the smaller site and on 27 February it carried out spraying operations near the larger site.

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After Mr Scott discovered the deaths at the larger site,

he contacted a representative of the Department of Primary

Industries, and that officer inspected the hive site and took samples and photographs of the hive site. After Mr Scott discovered the bee deaths at the smaller site, he contacted another representative of the Department of Primary Industries, who inspected that site and took samples and photographs. The claim by Mr Scott is for the cost of replenishing the bee hives, being 110 hives at $105 each, and the loss of nine months honey production, totalling $45,855.

Mr Scott claims $47,720 damages from Agar and/or the second defendants and $33,100 from the third defendant in the proceedings. Mr Scott's claim is that the defendants, including Agar, breached their duty of care owed to him when crop dusting in the vicinity of his bees. Agar has filed and served a notice claiming indemnity or contribution against the second defendant and has also claimed indemnity on the grounds that the second defendant was responsible for causing or contributing to Mr Scott's alleged damage.

The affidavit of Margo June MacGillivray relates to the course of those proceedings and in particular refers to a letter dated 5 December 1990 sent by the solicitors for the debtor advising that a brief was with counsel to draw an amended plaint in respect of what is said to be the incorrect joinder of the third defendant. The pleadings have not as yet been amended to discontinue the action against the third defendant nor has the action been entered for trial.

As far as Ms MacGillivray is aware, the last step taken by Mr Scott in the District Court action was to deliver answers to Agar's request for further and better particulars on 7 September 1991, and the last step of any type taken in the proceedings was Agar's application for third party discovery against the Department of Primary Industries on 25 November 1991. Those documents were inspected on 16 December 1991 and copies obtained on 21 January 1992.

The creditor raises two matters relevant to the exercise of the discretion in this matter. The first is that the creditor claims to have a good defence to the proceedings. The creditor claims causation will be one of the major areas of dispute between the parties. It submits that there is evidence indicating that the creditor is not responsible for spraying the chemicals which the debtor says caused the death of his bees.

The second is that if the matter proceeded to trial and the creditor was successful, the creditor asserts that it fears that further costs incurred in respect of the proceedings will be wasted because the debtor would not be in a position to satisfy any costs orders made in favour of the creditor. This is based on the fact that they were told by the solicitors for the debtor on 1 November 1993 that Mr Scott was unemployed; that his only income was unemployment benefits in the sum of $286.40 per fortnight.

Since that time, he has obtained employment as a fruit

picker and that employment is expected to last until May.

However, the clear inference from the material is that he is a person of very limited means and that he does not have the capacity to pay the two costs orders, there being an offer to pay off those amounts by $100 per month, which offer was not accepted.

On the basis of these two submissions, the creditor claims it is prima facie entitled, on the proof of the matters referred to in s. 51(1) of the Act, to a sequestration order.

First, so far as the merits of the proceedings are concerned, it seems to me that while I acknowledge the difficulties in causation to which the creditor refers, there is at least an arguable case that the debtor will succeed against the creditor, particularly in respect of the deaths of the bees at the larger site, because there the evidence seems to suggest that the bees died of a pesticide poisoning attributable to the chemical Monocrodophus which is moderately to highly toxic to bees and was the cause of death of the bees. The evidence further suggests that the petitioning creditor was the aerial sprayer of that particular chemical at relevant times.

Is that sufficient for the exercise of the discretion conferred by section 52(2)? While I have been troubled by the matter, ultimately I have concluded that I should make the sequestration order. In In re Douglas Griaas Engineering Ltd [1963] ICh. 19 Pennycuick J said at 23:

It seems to me that this prima facie right of the petitioning creditor to a wlndlng-up order

Is not displaced merely by showing that the company has a disputed claim against the petitioning creditor which is the subject of litigation in other proceedings. I have been referred in this connection to In re Jimalaamated Properties of Rhodesia fl913) Ltd [1917] 2 Ch. 115; 33 T.L.R. 414, C.A. in which the Court of Appeal upheld a winding-up order made notwithstanding that there was current an appeal by the company against the judgment upon which the winding-up order had been made. No authority more directly in point has been cited to me. "

That observation, however, was the subject of conmieiit in In re L.H.F. Wools Ltd [1970] 1 Ch. 27. That was an appeal from an order for the compulsory winding up of an insolvent company which had a cross-claim against the petitioning creditor. The Court of Appeal, (Harman, Danckwerts and Edmund Davies LJJ said that whether or not it was proper to make an order for the compulsory winding up of an insolvent company which had a cross claim against the petitioning creditor was a matter entirely within the discretion of the judge, whose decision could not be interfered with on appeal unless he had erred in principle. The Court, however, held that the judge had erred in the exercise of his discretion because he had given insufficient weight to:

(a)	the modern practice that where a company had a genuine and serious cross-claim against the petitioning creditor which it had not reasonably been able to litigate, the petition should usually be dismissed or stayed;
(b)	the fact that the company's directors would be better able than a licpiidator to prosecute its claim in Belgixim against the bank, and
(c)	that there were, save for that claim, no assets, so that delay would not prejudice the bank.

There is the further question of costs / and the likelihood that should the debtor fail in the proceedings, the order for any costs expended by the creditor in defending those proceedings will be empty. On the whole of the material, it seems to me that the debtor has not made sufficient cause against the making of a petition.

I am satisfied of the act of bankruptcy in Creditor'^s Petition No. 2466 of 1993 and of the matters of which the Act requires proof. I make a sequestration order against the estate of Paul Scott, and I order that the costs of and incidental to that petition, including reserved costs, be taxed and paid in accordance with the Act.

In respect of Creditors Petition 2467 of 1993, as I indicated earlier, I dismiss that petition and make no order as to costs.

I certify that this and the preceding seventeen (17) pages are a true copy of the reasons for judgment herein of the Honourable Mr Justice Spender.

u '

Associate

Date: 23 February 1994

Counsel for the petitioning creditor: Mr Derrington

instructed by:	Phillips Fox
Counsel for the debtor:	Mr Lumb
instructed by:	Kinsey Bennett & Gill
Date of Hearing:	15 February 1994
Date of Judgment:	23 February 1994

The court ordered that the petition should be stayed

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pending the trial of the company's action in Belgium against the

bank with liberty to either party to restore.

In this particular case, there are factors which lead me to conclude that I should make the petition in this case. The first is the question of delay. There was no attempt made to set aside the bankruptcy notice and so the existence of the cross claim which the petitioner says he has, has not been relied on at the bankruptcy notice stage of the bankruptcy proceedings.

Secondly, it seems to me that the proceedings have not

been pursued with diligence by the applicant. It may be that his financial circumstances are the reason for that. The evidence is not strong in that area but, in any event, it seems to me clear that he has not prosecuted the proceedings with proper diligence.

Thirdly, it seems to me that there are the rights of other persons which have to be considered here. The petitioning creditor is in liquidation and the position is that it has some moneys, but that the liquidator is unable to make a distribution to the shareholders or otherwise finalise the liquidation whilst the proceedings remain on foot. But for the proceedings, the liquidator would have been in a position to make a distribution to shareholders since August 1992 and the shareholders, naturally enough, are anxious to obtain their entitlement to any distribution from the creditor.	i .
f f
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[1994] FCA 257

23 Feb 1994