Selth, Re D.T. Ex Parte D.T. Selth Elric Pty Ltd

[1986] FCA 109

Restrlcted Distribution

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	) QLD BN925 of 1985
BANKRUPTCY DISTRICT OF THE SOUTHERN 1 DISTRICT OF THE STATE OF OUEXNSLAND )

RE: David Trevor SELTH

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EX PARTE: David Trevor SELTH Applicant

ELRIC PTY LIMITEX Respondent

SPENDER J.

17 MARCH, 1986

REASONS FOR JUDGMENT

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This	is	an application by David Trevor Selth under	c - .
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s.41(7) of the Bankruptcy Act 1966 directed to satisfying the

Court that he has a counter-claim, set-off or cross-demand as 1 s

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referred to m paragraph 4O(l)(g) of the Act, that is, a

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I	counter-claim, set-off or cross demand equal to	or	exceeding	the
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amount of the judqment debt referred to in the Bankruptcy Notice

which has been served on him. bemg a counter-claim, set-off or

cross demand that he could not have set up in the actual

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! proceeding in which the judgment or order was obtained.

On 7 May, 1985, a Bankruptcy Notice directed to Mr.

Selth was issued on the request of Elric Pty. Limited (Elric).

The Bankruptcy Notice claimed the sum of $5.099.67, said to be a

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i	amount due to Elric as the halance outstanding under a judgment
i	obtained by it against Mr. Selth in the Supreme Court of
I	Queensland on 15 February, 1985.

l	In that action, No.5032 of 1983, the Writ of Summons by
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Elric against Mr. Selth was issued on 24 November, 1983 claiming

i	$113,309.91, moneys paid by Elric to	a	third party for and on
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I behalf of Mr. Selth and at his request. On 6 December, 1983, a

1	I	judgment in default of appearance was entered against Mr. Selth
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in that sum and costs of $230.90. On 31 January, 1984, on Mr.

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Selth's application, the default Judgment was set aside by

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i	consent and the judgment creditor's costs of obtaining judgment
and in respect of the application to set aside the ~udgment by
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default were awarded agalnst Mr. Selth. On 2 March, 1984, Mr.
i	I	Selth delivered a defence in the action. On 21 March, 1984, Elrlc
I	applied for summary judgment against Mr. Selth on the basis that
the defence delivered on 2 March, 1984 disclosed no proper I .
defence. On that day, Master Lee Q.C., granted leave to Mr. Selth
to file an amended defence and ordered that he pay the judgment I

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creditor's costs of the applicatlon to be taxed. On 11 Aprll, I .

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1984, Mr. Selth delivered an amended defence. On 17 October,

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I 1984, he delivered a further amended defence and counter-clalm, .,

pursuant to leave granted to hlm by the judge of the Supreme

Court of Queensland sitting in the Commercial Causes

jurisdiction. On 22 October, 1984, applicatlon was made for the

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whole of the counter-clalm to be struck out. Such appllcation was	I. .
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heard and determined by Mr. Justice Moynihan who, after hearing

argument for counsel for both parties, ordered that paragraphs 3,

5, 6 , 7, 8 and 9 of the amended defence and counter-clalm

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delivered on 17 October, 1984 be struck out and refused the

defendant's application to re-plead in the action and ordered Mr.

Selth to pay the plaintiff's costs of and incldental to the

application, including reserved costs. The trlal of the action

was heard by his Honour, Mr. Justice De Jersey on 6 , 7, and 8

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February, 1985 and he gave judgment which founds the present

Bankruptcy Notice No.925 of 1985. On 31 July, 1985, Mr. Selth

instituted proceedings in the Supreme Court against Elric, those

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proceedings being 2533 of 1985. The Statement of Claim in '

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proceedings No.2533 of 1985 was delivered on 4th October, 1985. i ,

There has been no application by Mr. Selth to stay the

executlon of the judgment of De Jersey J. on the basis that he

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has a separate actlon which is now on foot.

Two questlons fall for determination. The first 1 s

whether on examinatlon of the materlal as filed and the nature of

the proceedmgs In the Supreme Court, Mr. Selth has a "falr

chance" of succeedlng in his claim against Elric: see the revlew

of the authorities by Lockhart J. in Re Brink; Ex parte The

Commercial Bankinu Companv of Svdnev Ltd. (1980) 44 F.L.R. 135,

and his conclusion at p.141 that "this Court must be satisfled

that the debtor has a fair chance of success". The second is

whether such claim is one which could not have been set up in the

action in which the judgment was obtained.

On the first question, while it is unnecessary to reach

a concluded view, there are very real difficulties In the way of

Mr. Selth's success. Various formulations of his clams against

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Elric involve what are sald to be losses incurred by a company,

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Co-ownership Land Development Pty.Ltd. Essentially, his claim

! alleges breaches by Elric of its fiduciary duty leading to the

frustration of an alleged joint venture development of land on

!	Stradbroke Island. In addition there are other claims but those claims seem to me to be against parties other than Elric.
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Hhat is the nature of the loss alleged to have been

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suffered by Mr. Selth has never been clearly defined. The

material does not show whether his clam is based on the r '

diminution in the value of hls shares in Co-ownership Land

Development Pty.Ltd. ("COLD") as a result of the activities of

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Elric, or whether in some way he is entitled to all or some part

of the Company's loss.

In relation to Mr. Selth's entitlement in respect of the

development of South Stradbroke land by COLD, he accepted that he personally owned none of the land, that land was owned by COLD and was to be developed by COLD, so that when sold the profit

would be made by COLD. In relation to that he was asked, "How

was it that you stood to make a proflt from the development of I ..

Cold's land?", to which he answered (at p.24) "The sale of my

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shareholding which was and still is an equal alternative to the , _ I '

sale of the deallnq of the assets of CO-Ownership Land

Development".

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I strongly suspect that his alleged claim is contrary to

the general principle, as expressed in Prudentlal Assurance

Co.Ltd. v. Newman Industries Ltd.(No.2) C19823 Ch 204 at 210:-

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"... A cannot, as a general rule, bring an action

against B to recover damages or secure other

relief on behalf of C for an injury done by B to

C. C is the proper plaintiff because C is the

party injured, and, therefore, the person in	whom
the cause of action is vested."

See also v. Vaqqelas (1984) 56 A.L.R. 31.

On the second limb, I am clearly of the view that

whatever claim Mr. Selth has against Elric is a claim which, on the authorities, he could have pursued in the action leading to the judgment against him. Indeed, while there is a different

basis suggested in some of the material, in his evidence before

me Mr. Selth made it plain that hls claims agalnst Elric which he	' _	,!
is now pursuing in proceedlngs No.2533 of 1985, are the claims
that he attempted to put before the Court by way of counter-claim in proceedings No.5033 of 1983.

Mr. Selth, in December, 1983, in support of his

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application to set aside judgment by default, swore that he had

instructed his solicitors to prepare and draw a defence and

counter-claim in the action and he anticipated that that pleading

would be settled by counsel in one week. The defence which was

delivered in March, 1984, raised the question of the joint

venture in relation to the development of Stradbroke Island land

and COLD's inability to complete that project and to the alleged

hindrance of one Lord in relation to that development.

In the course of his evidence before me, he was asked,

"Can you tell us why solicitors acting apparently on your

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instructions put in a defence raising some of the issues you now

rely on but dld not put in a counter-claim?". To which he

answered, "I told you there were simply not enough funds to pay them to do the detailed preparation of the statement of claim".

(This appears at 16-17).

He was asked, "Are you telling us that Morris, Fletcher

& Cross filed a defence or delivered a defence on your behalf but

refused to deliver a counter-claim because of lack of funds on

your part, because you would not pay? - "I am not saying they

specifically refused to deliver a counter-claim. I am simply

saying the work stopped in all Its aspects, and part of the work

would have been the drawing, engrossing, and settling of a

statememt of claim. He was asked why no counter-claim was

delivered although two defences were, to which he said that

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because of the amount of work which was involved in the

preparation of the counter-claim, with all the goodwill in the

world, he said, he was not able to get the statement of claim to

a point where counsel could be brlefed to settle it. In respect

of the counter-claim dellvered in October 1984, he admitted,

that it was done at the last moment and it was just a pleading

"which might not have led to this occasion had it been done more

thoroughly and fees properly available."

Mr. Selth was not allowed to re-plead his counter-claim

because it had been defectively formulated, not because of

reasons of convenlence or efficient disposal of the business of

the Court or because it would embarrass other parties.

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In Re Waterhouse (1960) 18 A.B.C. 147, Clyne J. dealt

with a situation where a first instance judgment by default had

been signed agalnst a debtor in the sum off7070.00. Later, a

judge of the Supreme Court ordered that an application by the

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debtor to set aside this judgment be dismissed unless within , _,

twenty-one days he paid into Court the sum off3,000.00 as

security for the amount claimed and costs; if this be done the

~udgment should be set aside and the debtor let in to defend.

The sum off3,000.00 was not paid into court within the time limit or at all and the judgment accordingly remained. Clyne J. said,

at p.149:-

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"The applicant is at the outset on thls application

confronted with an obstacle which, in my opinion,

is fatal to his application. If he was

unfortunate and prejudlced by the fact that a

judgment was obtalned against him by default, he

was given an opportunity of contesting the claim

as set out in the writ of the respondent, but

sublect to a condition that he pay into court a

sum of f3.000.00. That he dld not or could not

pay this sum into Court may be another misfortune

suffered by the applicant but the order of Manning

J. I cannot disregard."

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He referred to In Re Isaac: Ex parte Isaac (1885) 2

Mor. 258, where a debtor against whom judgment had been obtained by default had obtained leave to defend on payment of a sum of

money into court whlch he neglected to do. Judgment was

therefore signed and a bankruptcy petition issued, on which a

receiving order was made. It was held on appeal that the debtor

had had ample opportunity to set up the alleged set-off in the

action which he had neglected to do, and that the order of the

County Court was a right order.

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In Re Brink: Ex parte The Commercial Bankinq Company of

Svdnev Ltd., (supra), Lockhart said at 139:-

"The words 'that he could not have set up in the

action or proceeding in which the judgment order

was obtained', mean 'which he could not by law set

up in the action': see Re Jocumsen ( 1 9 2 9 ) 1 A.B.C.

at 85; Re a Debtor per Avory J. C19141 3 K.B. at

730; and Re Stockvis (1934) A.B.C. 7 5 3 ,

especially per Lukin J. where his Honour said: 'I

take a counter claim, set off or cross demand

which could not be set up as one which, from the point of tme, or from its nature, or from absence

of empowering provisions, or from a 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 opportunlty l

can hardly be said to be inability'	(at 57)."	' !
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Here, there was no legal impediment to the settlng up of

Mr. Selth's claim in the actlon. In my opinion, mere lack of

funds or lack of time or lack of expertise or a combination of

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those is not a proper basis for concluding that the clam 1 s one

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which he "could not have set up in the action." . .

It follows that I am not satisfied that Mr. Selth has

such a claim as is referred to In s.4O(l)(g).

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