Re Michael Loftus Ex Parte: Sypkes Securities Pty Ltd [1992] FCA 23 (5 February 1992)

FEDERAL COURT OF AUSTRALIA

Re: MICHAEL LOFTUS
Ex parte: SYPKES SECURITIES PTY. LTD.
No. B003540 of 1991
FED No. 25
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
Olney J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - claim by debtor to have counter-claim, set-off or cross-demand - affidavit filed pursuant to section 41(7) - adequacy of affidavit to give rise to statutory extension of time to comply with bankruptcy notice.

Bankruptcy Act 1966, s.41(7)

Re Brink; Ex parte Commercial Banking Company of Sydney Ltd. [1980] FCA 78; 30 ALR 433

Vogwell v Vogwell (1939) 11 ABC 83

HEARING

MELBOURNE
5:2:1992

Counsel for judgment debtor: Mr Strang

Solicitor for judgment debtor: Diana Cohen and Associates

Counsel for judgment creditor: Mr P. Hayes QC and Mr D. Williams

Solicitor for judgment creditor: Corrs Chambers Westgarth

ORDER

There be no deemed extension of time to comply with the requirements of the bankruptcy notice.

The application to set aside the bankruptcy notice be dismissed.

The costs of the judgment creditor be taxed and paid by the judgment debtor and in the event of a sequestration order being made upon a petition based upon the act of bankruptcy constituted by failure to comply with the bankruptcy notice, the costs be costs in the bankruptcy.

DECISION

On 18 November 1991 a bankruptcy notice was issued against Mr Loftus (the judgment debtor) at the instance of Sypkes Securities Pty Limited (the judgment creditor). The bankruptcy notice was in the usual form and demanded payment within 14 days of service of the sum of $10,700 (the judgment debt). The judgment debt represents the amount of taxed costs in Victorian Supreme Court action number 6060 of 1990 in which the judgment creditor was the plaintiff and the judgment debtor and another were the defendants.

2. An order for costs was made against defendants on 2 August 1990 when the plaintiff was given leave to enter final judgment. Those costs were later taxed on 11 September 1991 in the sum referred to. The bankruptcy notice was served on 22 November 1991. On 6 December 1991, being the final day upon which compliance with the bankruptcy notice was required, the judgment debtor, acting in person, filed an application for an order that the bankruptcy notice be set aside. That application was supported by an affidavit sworn by the judgment debtor. The judgment debtor seeks an adjournment of the proceedings to enable him to file further affidavit evidence in support of his alleged counter-claim, set-off or cross-demand. The judgment creditor opposes the adjournment and seeks a decision on the question of whether the judgment debtor sufficiently complied with the provisions of the Act to enable the deemed extension of time referred to in section 41(7) to take effect. I will briefly summarise the contents of the judgment debtor's affidavit which contains some nine paragraphs.

3. In the first 4 paragraphs the judgment debtor identifies himself, acknowledges that he was served with the bankruptcy notice on 22 November 1991, and claims that he had not previously been aware of the judgment debt.

4. The remaining paragraphs of the affidavit are as follows:
5. A dispute currently exists as to a variety of matters

between, inter alia, myself and Sypkes Securities Pty.
Ltd., some of the particulars of which are set out in
the copy solicitors letter of demand attached.
6. The amount of $10,700 so claimed was, I believe,
determined by the taxing master of the Supreme Court
by way of interlocatory (sic) proceedings as to an
order for costs on one matter of dispute only.
7. All the other matters outstanding have been the
subject of extensive negotiation with the numerous
parties involved. I am entitled to indemnity for the
order for costs, the subject of these proceedings.
The serving of this Notice on me has confirmed to all
parties that these negotiations are not seriously
considered by Sypkes Securities Pty. Ltd. and so
litigation will be initiated as soon as possible
against Sypkes Securities Pty. Ltd. for the various
cross claims I and others have against the judgment
creditor. Now produced and shown to me marked with
the letters "ML1" are true copy correspondence to the
solicitors for the Judgment Creditor dated the 18th May 1990.
8. These matters involve several millions of dollars of
assets including three large properties at Gembrook,
Victoria, a wholesale pot plant nursery and one of
Australia's largest cut flower businesses which is
also a significant exporter.
9. I sincerely believe that the serving of the Bankruptcy
Notice and the issue of proceedings in this Court are
merely a tactic to inhibit my ability to pursue my
claims against the Judgment Creditor and associated
persons of the Judgment Creditor. My claims exceed
the sum of $10,700 claimed by the Judgment Creditor.
I ask the Court to set aside the notice so that I may
pursue my claim.

5. The letter exhibited to the affidavit is one of considerable length. It was written by a firm of solicitors acting for the judgment debtor and addressed to Mr P. Sypkes who presumably has some association with the judgment creditor. The letter runs into some two and a half pages and it is not necessary for me to canvass the details. The only comments I wish to make about it are that it was written on 10 May 1990 when the Supreme Court action was current and that after outlining certain conduct complained of by the judgment debtor it contains a threat of legal action.

6. Certain demands are made to which I need not make detailed reference. It is sufficient to observe that the letter predates the date of the order for leave to enter final judgment and was put forward by the judgment debtor at that time to indicate the basis of his then claimed counter-claim against the judgment creditor.

7. Affidavits in reply have been filed on behalf of the judgment creditor but it is unnecessary to canvass them in detail.

8. The relevant provisions of the Bankruptcy Act are sections 40(1)(g) and 41(7) which provide:

40(1) A debtor commits an act of bankruptcy in each of
the following cases:-
...
(g) if a creditor who has obtained against the debtor a
final judgment or final order, being a judgment or
order the execution of which has not been stayed, has
served on the debtor in Australia or, by leave of the
Court, elsewhere, a bankruptcy notice under this Act
and the debtor does not -
(i) where the notice was served in Australia -
within the time fixed by the Registrar by
whom the notice was issued; or
(ii) where the notice was served elsewhere -
within the time fixed for the purpose by
the order giving leave to effect the service,
comply with the requirements of the notice or
satisfy the Court that he 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
could not have set up in the action or
proceeding in which the judgment or order was obtained:
...
41(7) 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.

9. It would seem that section 41(7) is complied with simply by the filing of an affidavit and no application as such is necessary, the affidavit being the means whereby the process of satisfying the Court as to the existence of an appropriate counter-claim, set-off or cross-demand is set in motion. However, the nature of the affidavit that is required is quite clear from the section, namely it must be an affidavit to the effect that the judgment debtor has such a counter-claim, set-off or cross-demand as is referred to in paragraph 40(1)(g). Referring back to that paragraph, it is clear that the relevant type of counter-claim, set-off or cross-demand is one which must be equal to or exceeds the amount of the judgment debt and one that the judgment debtor could not have set up in the action or proceeding in which the judgment was obtained.

10. On any view of the judgment debtor's affidavit he has not even asserted, let alone sought to provide evidence to satisfy the Court, that he has a counter-claim, set-off or cross-demand that could not have been set up in the action or proceeding in which the judgment order was obtained.

11. In an appropriate case there would be little or no resistance to an application for an adjournment to provide time to file more detailed evidence of a claimed counter-claim, set-off or cross-demand, and in this context I refer to and adopt the dictum of Lockhart J. in re Brink; Ex parte Commercial Banking Company of Sydney Limited [1980] FCA 78; 30 ALR 433. At p 439 his Honour said:

Upon the hearing of a matter under subsection 41(7) the
court has before it the initial affidavit which brings the
subsection into play. There may, of course, be no other
evidence. On the other hand, there may be a great deal of
evidence. This will depend upon the circumstances of each
case. Plainly this court has power to permit the debtor to
supplement his case by additional evidence. Initial
affidavit filed under s.41(7) operates to extend time for
compliance with the requirements of the bankruptcy notice
until the court determines whether it is satisfied that the
debtor has the requisite counter-claim, set-off or
cross-demand. Although the mere filing of the requisite affidavit
brings the statutory extension automatically into play, the
court thereafter controls the matter. The subsection
recognises that the court may not be able to hear the matter
immediately. It may not be convenient to do so, or the case
may be complex and require that directions be given to both
parties to define the issues and as to the giving of
evidence. The filing of the affidavit operates as a
statutory injunction to preserve the status quo until the
court determines the matter, ensuring that, in the meantime
there is no act of bankruptcy.

And at page 440 his Honour said:

The fact that it is within the power of the court to
determine when the hearing of a matter under s.41(7) will
take place, and thus the length of the extension of time to
comply with the requirements of bankruptcy notice; and the
difficulty, if not impossibility in some cases, of the
initial affidavit being anything other than a mere outline
of the debtor's case due to the temporal constraints imposed
by the notice, all point to the conclusion that the courts
should adopt a benevolent construction to the initial affidavit.

12. The main thrust of the creditor's opposition to the application for adjournment is that the affidavit as filed does not comply with the basic requirements of sub-section 41(7) and in particular does not seek to set up a counter-claim, set-off or cross-demand of the type referred to in paragraph 40(1)(g). In re Brink Lockhart J. had something to say about the contents and form of the initial affidavit and I quote from page 439 of the report:

In my opinion the affidavit cannot merely contain an
assertion that the debtor has a counter-claim, set-off or
cross-demand which he could not have set up in the action in
which the judgment order was obtained. The affidavit must
show a counter-claim, set-off or cross-demand which equals
or exceeds the amount of the judgment debt and which the
debtor could not have set up in the action in which the
judgment or order was obtained.

13. He then refers to the earlier decision of Vogwell v Vogwell (1939) 11 ABC 83 at p 85 to which reference was made during argument. After canvassing the particular facts of the case in some detail Lockhart J. said at p 441:

In my opinion there is an inherent defect in the affidavit,
namely that it does not indicate that any counter-claim,
set-off or cross-demand which may be available to the
applicant could not have been set up in the District Court
proceedings. Under the District Court rules, (Pt 20, rr 1
to 5) a defendant may plead a counter-claim, cross action or
set-off or any cause of action under which he might have
brought an action against the plaintiff in the District
Court. There is nothing to suggest from the affidavit of
the applicant that all his demands against the respondent
could not have been set up in the District Court action.
Indeed, the contrary appears to be the case.
In these circumstances the original affidavit of the
applicant does not answer the description of the affidavit
required by s.41(7). In the result there has been no deemed
extension of time to comply with the requirements of the
bankruptcy notice.

14. The same observations are, in my opinion, appropriate in this case. In my view, irrespective of what further evidence the judgment debtor may seek to adduce if granted an adjournment, the defect in the original affidavit cannot be cured. The judgment debtor has simply not complied with section 41(7) of the Act within the prescribed time. Accordingly, the deemed extension of time for compliance with the bankruptcy notice contemplated by sub-section 41(7) did not take effect and the time for complying with the notice has now expired. It follows that, in my opinion nothing would be gained by adjourning the matter to facilitate the bringing of further evidence.

15. There is one other matter to which I should refer and that is that it is common cause that yesterday a proceeding was commenced in the Supreme Court of Victoria by the judgment debtor against the judgment creditor seeking damages in the sum of some $420,000. The statement of claim in that proceeding is before me. There is nothing in the statement of claim as pleaded that indicates that that claim is one that could not have been set up in the proceedings in which the judgment in question was obtained. Be that as it may, the conclusion I have reached would be unaffected, even if it had been patent from the statement of claim that it relates to a matter which could not have been set up in the original Supreme Court proceedings. The issue here is a very narrow one and that is whether the provisions of section 41(7) have been complied with and in my opinion they have not been.

16. The demand of the bankruptcy notice is of course to pay the debt or to secure payment or to compound it to the satisfaction of the creditor, and this within the period limited by the notice. I infer from the absence of any evidence of payment, security or composition that this has not occurred although if it has I will be happy to be told so. On the assumption that the inference I have drawn is correct, the judgment debtor has not demonstrated any basis to justify the setting aside of the bankruptcy notice, nor has he satisfied me in accordance with section 40(1)(g) of the Bankruptcy Act that he has a counter-claim, set-off or cross-demand of the type referred to in that section.

17. In re Brink, where the result was similar to that arrived at in these proceedings, Lockhart J. made an order that there be no deemed extension of time to comply with the requirements of the bankruptcy notice and that the application under section 41(7) be dismissed. I rather suspect that some such order is required in these proceedings. At least there should be an indication from the Court that it has not been satisfied in accordance with section 40(1)(g).