Thyssen v Maniotis and Anor. - [2001] FMCA 60

FEDERAL MAGISTRATES COURT OF AUSTRALIA

THYSSEN v MANIOTIS & ANOR [2001] FMCA 60

BANKRUPTCY – Application to set aside Bankruptcy Notice – Stay of Supreme Court Action by Debtor – whether cross demand for purpose of
s 41(7) Bankruptcy Act – whether ‘effective’ cross demand if claim stayed

COSTS – where Application dismissed – Costs before Registrar – non-attendance by Applicant – assumption of consent adjournment – no consent orders executed

Bankruptcy Act s 40(1)(g) and s 41(7)

Applicant:

CON GEORGE THYSSEN

Respondents:

BASIL MANIOTIS & ANOR

File No:

MZ490 of 2001

Delivered on:

17 July 2001

Delivered at:

Melbourne

Hearing Date:

17 July 2001

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr S Gillespie-Jones

Solicitors for the Applicant:

Law Partners

Counsel for the Respondents:

Mr J Nolan

Solicitors for the Respondents:

Leo Dimos & Associates

ORDERS

The notice of motion filed 13 June 2001 be dismissed.
The applicant debtor to pay the respondent creditors' costs including reserved costs of the notice of motion to be taxed in default of agreement provided, however, that if a sequestration order is made against the applicant debtor based upon the bankruptcy notice which is the subject of this application, then the costs of the respondent creditor shall be costs in the petition.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE

MZ 490 of 2001

CON GEORGE THYSSEN

Applicant

And

BASIL MANIOTIS AND ANOR

Respondents

REASONS FOR JUDGMENT

Ex Tempore

This is an application by Con George Thyssen, (the debtor), to set aside a bankruptcy notice. The application filed on 2 February 2001 seeks to set aside a bankruptcy notice dated 12 January 2001. The bankruptcy notice in this matter is a notice based upon a debt which is said to have arisen from orders made for costs in interlocutory matters before the Supreme Court of Victoria. The application is one which was heard and the subject of a decision made by the registrar on

4 June 2001. I should indicate for the sake of completeness that on that day orders were made in accordance with the amended order that the application be dismissed and the applicant pay the respondent's costs of and incidental to the application to be taxed in default of agreement.
The applicant in these proceedings by notice of motion filed 13 June 2001 has sought an order that the orders of the registrar made on

4 June 2001 be vacated. There was some discussion about the reason why the orders were made by the registrar in the absence of the applicant. It seems to me that for present purposes it is not necessary for me to analyse those circumstances or indeed make any particular findings, as in my view this notice of motion which seeks a review of the decision is a hearing de novo and I am satisfied that I am entitled to give the applicant to argue his case in support of the application to set aside the bankruptcy notice based upon material which was not only available to the registrar, but as I have indicated in the earlier parts of this hearing, material which by leave the applicant seeks to rely upon, and in particular, I refer to additional affidavits of the applicant sworn 16 July 2001 which to some extent is corroborated and assisted by an affidavit sworn the same day by Natalia Thyssen, the applicant's wife.
The bankruptcy notice in the present case was a notice as indicated founded upon a costs order made by the Supreme Court in proceeding number 6664 of 1995. That was a proceeding which was commenced by the applicant and other associated entities against the respondents. The basis of the application to set aside the bankruptcy notice is that the applicant has effectively what is described as a cross-demand equal to nor greater than the amount of the judgment debt. It's said that the applicant is entitled to rely upon, and does rely upon, the Bankruptcy Act, and in particular section 41(7). Section 41(7) provides:
Where, before the exploration of time fixed for compliance, if the requirements of 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 counterclaim set of or cross‑demand as is referred to in paragraph 41(g) and the court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counterclaim set off or a 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 it is so satisfied.
I am satisfied in the present case that it is appropriate for the debtor on this notice of motion to agitate his rights pursuant to the section to which I have just referred. As I have indicated the role of the court in a matter of this kind is to conduct a hearing de novo and it is particularly in a case of this kind where there is at least on the face of it some dispute as to why orders were made on 4 June 2001 in the absence of the applicant. I am further strengthened in the view that I am entitled to look at the bankruptcy notice and entitled to consider in the exercise of my discretion pursuant to section 41(7). I am further, as I say, strengthened in that view by reference by applicant's counsel to the High Court decision of Guss v Johnstone (2000) 171 ALR 598. In particular, counsel took me to the decision of the court which appears at page 610, and in particular I was referred indeed by both counsel to paragraph 62 and up to paragraph 64 of that judgment where the court states:
“[62] There are examples of cases where appellate courts have considered on their merits appeals against decisions under provisions corresponding to section 41(g) and 41(7). It is true that there is no statutory grant of power to annul an act of bankruptcy or to extend the time for compliance of the bankruptcy notice other than in a case where the conditions of section 41(6)(a) have been satisfied. Suppose, however, that it had been demonstrated to the Full Court that the decision at first instance was based upon an error of law perhaps involving a misapprehension as to the test to be applied in considering whether the judge was satisfied within the terms of the statute. In such a case the Full Court may well have set aside the declaration. We are unable to accept that whenever in a proceeding under 41(g) and 41(7) a judge at first instance has determined that he or she is not satisfied of the matter referred to in section 41(7) and has declined to interfere with the process initiated by a creditor no appellate reversal of that decision, whether by the Full Court or by this court can alter the consequence of the decision. In a proper case it would have been within the power of the Full Court to set aside the declaration made by Sundberg J, the consequences for proceedings and events that had occurred in the meantime would vary with the circumstances but they could not include the same consequences as flowed from the order in Streimer v Tamas where the statutory power to extend time for compliance with a bankruptcy notice given by 41(6)(a) was exercised after an act of bankruptcy had been committed.
[64] That having been said, there remains the question of the appropriateness of appellate intervention. That in turn directs attention to the nature of the issue which was before the Full Court on appeal. The fact that an act of bankruptcy was committed on 30 May 1997 has a bearing to the matter.
The court goes on to other considerations. As I indicated during the course of submissions it is my view that that extract to which I have referred assists to the extent of at least enabling this court to properly consider the merits of the issues raised for and on behalf of the applicant and whether indeed there is a basis upon which I should exercise the discretion under section 41(7). As I further indicated, however, because this is an application by way of review of a decision of a registrar it is in any event a hearing de novo and to that extent it may be distinguished from the role of an appellate court in the case to which I referred by the High Court.
The cross-demand in this application is said to be constituted by an amended statement of claim. The amended statement of claim is one which has in fact been, I should indicate, amended it looks like a number of times but the amended statement of claim is the one dated 29 August 2000 and it's exhibit CGT2 of the affidavit of Con George Thyssen sworn 2 February 2001. In his affidavit Mr Thyssen, in very brief terms, refers to the nature of the cross-claim. I refer in particular to his affidavit to which I have just referred, and in particular paragraph 4 of that affidavit. The deponent says in that paragraph:
“4. On 22 July 1985 (and varied by deed dated 28 July 1988), the other plaintiff and the respondent executed a partnership deed under which it was agreed by the deed dated 28 July 1988 that Valimi Pty Ltd would pay me $280,000 for my work and labour and skill between 21 July 1985 and 1 January 1988. However, the respondents inter alia prevented Valimi Pty Ltd from paying me the $280,000. As a result of the actions of the respondents I lost, inter alia, $280,000.
The deponent then produces the latest statement of claim. In his later affidavit which I granted him leave to file this day, the applicant, in paragraph 5, elaborates on the matters to which I have just referred in paragraph 4 of his earlier affidavit and I don't need to go through those matters but do refer to them in passing. In the Supreme Court proceedings to which I have referred it would appear that in January 2001 the respondents had sought orders that the plaintiff's claim be dismissed on the ground that interlocutory costs had not been paid. A master of the Supreme Court on 5 February 2001 refused to make such an order. That refusal was the subject of an appeal before Bongiorno J of the Supreme Court. That appeal was heard on

19 February 2001, the decision being delivered on 24 May 2001. The appeal was allowed from the orders of the master and orders were made that the applicant's proceedings in the Supreme Court be stayed until the interlocutory costs had been paid.
The applicants then sought to appeal the decision of Bongiorno J before the Victorian Court of Appeal and to that extent filed an application to that court on 7 June 2001. That application was an application for leave to appeal and the application was heard and refused on 22 June 2001.
As I have indicated the issue before me is one which arises under section 47(1) of the Bankruptcy Act. Counsel for the applicant referred me to the unreported decision of the Court of Appeal, and in particular stressed on behalf of his client that all that had simply occurred in relation to his client's claim was that an order has been made for a temporary stay. He stressed that the temporary stay unlike an order which might be regarded as terminating the proceedings is not a stay which should in any way affect the substantive rights of his client.
He contrasted this to an order for a permanent stay or indeed an order for dismissal for failure to comply with a costs order arising out of an interlocutory application. I was referred in particular to the decision of the Court of Appeal and in particular his Honour Chernov J who said at page 4 the following:
“It was put on behalf of the applicants that substantial injustice would arise from the fact that as a matter of practicality his Honour's order would put at risk the applicant's ability to defend successfully the bankruptcy and liquidation proceedings. In my view, however, that argument cannot be accepted. If the order had not been made but the bankruptcy proceeding and the insolvency proceeding had continued the applicants would put before the respective courts precisely the same argument that they would now put, namely, that they have a substantial case against those who seek sequestration and that the determination of the bankruptcy proceedings and the liquidation proceeding should await the resolution of the principal proceeding. That argument is still open to them and it is a matter for the Federal Court and the Court hearing the liquidation application to decide whether that constitutes sufficient defence to the claims.
It is to be borne in mind that the applicants chose to bring this complex piece of litigation and to prosecute it, and that the interlocutory costs that were run up by the respondents were not incurred due to fault on their part. The situation was brought about by the applicants obviously in appropriate formulation of their claim.”
In the same decision in the preceding paragraph I note that the Court of Appeal states:
“In my view it is difficult to see how substantial injustice would arise in this case if the decision were not set aside.”
His Honour's order does not take away the applicant's substantive rights. Before me in this case counsel for the applicant has indicated that the claim therefore which is presently stayed in the Supreme Court and which has been brought by his client is a claim which is clearly one of substance and can be characterised as a cross-demand which should provide a proper basis upon which this court should exercise its discretion under subsection 41(7).
In response, the respondent does not take issue with the characterisation of the applicant's statement of claim as being a cross-demand. I have in fact been referred to a decision which was delivered by his Honour von Doussa in the matter of Bradbrook v Farrow Mortgage Services Pty Ltd which was a decision delivered by his Honour on 9 February 1994, as I have indicated is unreported. The issue of whether a claim by a plaintiff in Supreme Court proceedings that have been stayed can constitute a cross-demand for the purposes of section 41(7) in response to an order for costs arising out of interlocutory orders in those proceedings is not a matter which the parties have agitated before me today and therefore not a matter which I need to decide save that in passing I should indicate that I have some reservations about the extent to which what his Honour has referred in the decision of Bradbrook v Farrow Mortgage, and in particular paragraph 12, would apply to the facts of the present case. For the purpose of this judgment, however, I accept that the matter has not been agitated and that the statement of claim can, if I so find, constitute a cross-demand sufficient to justify the exercise of my discretion under section 41(7).
The point raised by counsel for the respondent, however, is that once the proceedings have been stayed as a consequence of non-payment of the order for costs arising out of the interlocutory applications before the Supreme Court, the fact is that a cross-demand, however characterised, cannot be effective. In support of that submission counsel for the respondent referred me to two decisions, the first being in Re GEB, a debtor, which is decision of the Court of Appeal, and is reported 1903 2 KB 340. In particular, I was taken to that decision where the court states at page 347 the following:
Now, what is said by the debtor here is that he has a set-off which equals or exceeds the amount of the judgment debt and which he could not set up in the action in which judgment was obtained. It is not disputed, in fact it is common ground, that he could not set up this set-off in the action in which the judgment was obtained. He could not do so by reason of the want of mutuality. The debtor says that although he could not do so, yet by virtue of the terms of the 38 section of the Bankruptcy Act 1883, a section which takes effect when a receiving order has been obtained and takes effect from the date of the receiving order, there is an effective set-off which can be set up against the claim of the judgment creditor and which entitles him to have this bankruptcy notice set aside.
Further in that judgment I referred to page 348 where the court states:
Then has he a counterclaim set off or cross-claim which apart from that he could set up at all? One must ask oneself at what point of time. It is quite plain, indeed, it is common ground, that at the time when the action was brought and the judgment was obtained he had not a set-off equalling the amount of the judgment debt.
Counsel for the respondent also referred me to the decision In re A Bankruptcy Notice (1934) Ch 431, and in particular took me to page 440, where the court, Lord Justice Maugham, in delivering his judgment, said:
“Now the first question which arises I think, or at any rate the first question I would like to deal with is the question as to the context in which the word "has" is used. The debtor must satisfy the court that he has a counterclaim set-off or cross-demand which equals or exceeds the amount of the judgment debt. There this court has no difficulty because the Court of Appeal in Re GEB, with considerable regret in the peculiar circumstances of that case, came to the conclusion that the section means a counterclaim set-off or cross-demand which is effective at the time of the hearing of the application to set aside the bankruptcy notice.
What is submitted in the present case by counsel for the respondent is that the last words which I have referred to from that judgment apply with equal force in effect in circumstances where a plaintiff's statement of claim constituting a cross-demand has been stayed. So that at the time when the application is made to set aside the bankruptcy notice, and indeed, at the time when the matter comes before this court, it cannot be said that there is indeed an application, that is, a cross-demand, which is effective at the time the application to set aside the bankruptcy notice is made.
In my view the submission made by the respondent in this regard has considerable force. It seems to me that in the circumstances where the plaintiff's claim has effectively been stayed it is difficult to see how that can then be construed by a court in bankruptcy as being an effective cross-demand at the time when the application to set aside the bankruptcy notice has been filed. The fact of the matter is that costs have been incurred, a stay has been properly sought, there's a refusal to pay, and indeed, there is no present indication as to when if ever those costs are to be paid and when if ever the stay is to be lifted.
It seems to me it is not to the point as submitted by counsel for the applicant to suggest that the respondent can at some stage in the future seek to have the stay made permanent. What this court has to deal with at this stage is an application to set aside a bankruptcy notice based upon the existence of a real cross-demand at this time. The effect of the stay in my view is such as to make it unreasonable for the court to conclude that there is indeed at the present time a cross-demand which would encourage the court to exercise its discretion under section 41(7). To do otherwise would lead in my view to an unreasonable outcome as it would mean that the respondents are simply making application to enforce orders in the Supreme Court, and by succeeding in obtaining at least a temporary stay, could have that order used against them in the pursuit of bankruptcy proceedings and the use of the bankruptcy notice to which I have already referred.
Accordingly, it is my view that it is appropriate in the present case that I should make the orders sought by the respondent. I should add, however, for the sake of completeness that the extent to which a court in future may rely upon the claim by the applicant in a creditor's petition will be a matter for that court based on information then available which may or may not include evidence of payment of the costs or may or may not include other matters which have not been referred to in this application.

Clearly the issues to be considered by a court in relation to a creditor's petition, and in the exercise of the discretion pursuant to section 52 of the Bankruptcy Act, may well involve further consideration of the issues beyond those considered by this court. For those reasons I propose to make the following order:
The notice of motion filed 13 June 2001 be dismissed.
The order for costs I propose making, Mr Nolan, is the applicant debtor should pay the respondent creditors' costs including reserve costs of the notice of motion to be taxed in default of agreement. Is there any other order required or variation of that order? I will hear counsel on that.

Costs

In this application I indicated that I propose making an order subject to hearing from counsel as to costs. The application for costs by the respondent has been opposed. The opposition to an award of costs is based upon what is said to be an understanding concerning what may occur before the registrar on 4 June 2001, namely that the matter would be the subject of consent orders to adjourn the application to enable the applicant to file a notice seeking leave to appeal to the Court of Appeal in Victoria. There is some force in the submissions being made by counsel for the respondent that his instructing solicitors, and indeed client, could well have a basis for believing that consent orders were to be forthcoming which would allow the matter to have been adjourned from 4 June 2001.
I have had the advantage of reading the affidavit of Jenny Jivris, sworn in June 2001, and the affidavit in support of the motion from Mr Volovich sworn 13 June 2001, and also I have been referred to the affidavit of Paul Bravender‑Coil, sworn 29 June 2001. On a proper reading of that affidavit material I conclude that prior to 4 June 2001 there were discussions between the parties in relation to the prospect of the applicants seeking leave from the Court of Appeal to appeal a decision of Bongiorno J given on 24 May 2001. There had been affidavit material from Mr Volovich where he deposed to receiving instructions to take those proceedings, and there was at the very least foreshadowed an agreement between the parties which would be subject of consent orders to enable the application to set aside the bankruptcy notice to be adjourned from 4 June 2001 to a date after determination of the appeal to the Court of Appeal.
In those circumstances it has been submitted on behalf of the applicants that I should not award the costs of this application being dismissed. It seems to me that in the circumstances to not order costs at all would be improper as the decision that I have made is based upon the merits of the application which clearly has been pursued by the applicant. It seems to me further that in some form or other the matter would have been heard either before a registrar of the Federal Court prior to the matter being transferred or a registrar of the Federal Magistrates Court of Australia, or indeed a federal magistrate, once the matter had been transferred.
The real issue is the costs which were part of, and will form part of the costs of the notice of motion, namely, those costs incurred on 4 June 2001, together with costs thrown away in terms of the preparation of affidavit material to which I have referred and which the applicant may not otherwise have prepared. On balance it is my view that the issue of costs is very much within the discretion of the court, and that whilst I have considerable sympathy for the understanding, at least the understanding which the applicant and his representatives have of what was to occur on 4 June and whilst I accept that a prudent solicitor for a respondent may have brought the matters to the attention of the registrar in more detail than I have been referred to, the fact remains that attempts were made to contact the solicitor for the applicant prior to 4 June 2001. It was the applicant's application then listed before the court and no doubt what might have been a brief hearing where there was no appearance the application was dismissed.
Because of the onus of the applicant in the carriage of an application, because that onus does not simply evaporate where there might be the prospect of consent orders it is my view that a solicitor acting appropriately would have attended or at least assured himself or herself that the matter had been the subject of consent orders properly and duly executed, but as I have indicated, I can well understand why on this particular occasion an assumption perhaps was made that the matter would be the subject of an adjournment. In all those circumstances it seems to me that it is not appropriate to exercise my discretion to not award costs, or indeed, to alter the order for costs beyond what has already been indicated.
Accordingly, I confirm that the orders I make are:
(1)The notice of motion filed 13 June 2001 be dismissed.
(2)The applicant debtor to pay the respondent creditors' costs including reserved costs of the notice of motion to be taxed in default of agreement provided, however, that if a sequestration order is made against the applicant debtor based upon the bankruptcy notice which is the subject of this application, then the costs of the respondent creditor shall be costs in the petition.

I certify that the preceding twenty seven (27) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 17 July 2001