In the Matter of Frank Norris: Norris, Frank v Manteit, Geoffrey William being the registered proprietor of Kenyons [1997] FCA 1149 (10 October 1997)

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - application to set aside bankruptcy notice on grounds of existence of a counter-claim, set-off or cross demand of the kind referred to in s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (`the Act') that could not have been set up in the proceeding in which the judgment was obtained - Magistrates Court proceedings instituted by firm of solicitors against debtor for unpaid bill of costs - action for small debt - counter-claim by debtor for negligent conduct by firm not able to be raised in Small Debts Court due to the operation of r 89A of the Magistrates Courts Rules 1960 (Qld) (`the Rules') - s 40(1)(g) satisfied.

ESTOPPEL - whether question of res judicata arises - requirement that there be a judicial decision of a final nature upon a matter which it has jurisdiction to decide - no issue estoppel.

COURTS AND JUDICIAL SYSTEM -whether power for a defendant in a small debts action to seek to transfer the matter to the Magistrates Court pursuant to r 220 of the Rules in order to avoid operation of r 89A of the Rules.

Bankruptcy Act 1966 (Cth) s 40(1)(g)

Magistrates Courts Act 1921 (Qld) s 13

Magistrates Courts Rules 1960 (Qld) rr 84, 85, 86, 87, 88, 89, 89A, 220

IN THE MATTER of FRANK NORRIS: FRANK NORRIS v GEOFFREY WILLIAM MANTEIT being the registered proprietor of Kenyons

No QG 7471 of 1997

SPENDER J

BRISBANE

10 OCTOBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 7471 of 1997

in the matter of	frank norris
BETWEEN:	Frank NORRIS Applicant
AND:	Geoffrey William Manteit being the registered proprietor of Kenyons Respondent
JUDGE(S):	spender J
DATE OF ORDER:	10 OCTOBER 1997
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The bankruptcy notice issued on 4 July 1997 to Mr Frank Norris be set aside.

2. The respondent pay the applicant's costs of the application including reserved costs, to be taxed if not agreed.

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

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 7471 of 1997

in the matter of:	frank norris
BETWEEN:	Frank NORRIS Applicant
AND:	Geoffrey William Manteit being the registered proprietor of Kenyons Respondent

JUDGE(S):	spender j
DATE:	10 OCTOBER 1997
PLACE:	BRISBANE

REASONS FOR JUDGMENT

By application filed on 5 August 1997 Frank Norris sought an order from the court that he has a counter-claim, set-off or cross demand of the kind referred to in s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (`the Act'), and for an order that the bankruptcy notice issued on 4 July 1997 against Mr Norris be set aside.

The present proceedings are confined to the claim that Mr Norris has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt, being a counter-claim, set-off or cross demand that he could not have set up in the actual proceeding in which the judgment or order was obtained.

So far as is presently relevant, the factual background is this. On 13 March 1994 Mr Norris consulted Mr Geoffrey William Manteit, then a partner and now the sole proprietor of a firm of solicitors, Kenyons Solicitors, (`Kenyons') concerning claims in respect of personal injuries said by Mr Norris to have been suffered during the course of his employment. The period of his employment extended back many years and Mr Manteit was consulted in respect of a number of injuries.

Plaint No 230 of 1996 was filed in the District Court of Brisbane by Kenyons on behalf of Mr Norris on 24 January 1996. An entry of appearance to that plaint by the employer was filed on 19 February 1996, and the defence pleaded, amongst other things, the Limitations of Actions Act 1974-1981 (Qld) in respect of a number of named paragraphs of the plaint.

On 9 May 1996, Mr Norris determined his retainer with Kenyons Solicitors. On that same day by a letter from his new solicitors, Messrs I.R. Shepherd and Associates, Mr Norris first made allegations of professional negligence against Kenyons. On 2 September 1996, solicitors for the defendant employer served both Messrs Kenyons and Messrs I.R. Shepherd and Associates with a summons and affidavit seeking to strike out parts of the statement of claim. On 27 September 1996, that application by the defendant was heard in the District Court and was successful. There was no appearance by either firm on behalf of Mr Norris on that day.

On 16 August 1996, a bill of costs in taxable form was delivered by Kenyons to Mr Norris. On 27 September 1996, Kenyons instituted Magistrates Court proceedings in the name of Kenyons (a firm) to recover legal fees pursuant to that bill of costs. On 21 October 1996, Mr Norris filed a defence which admitted that Mr Norris retained Kenyons to conduct on his behalf the action for damages for personal injuries, but which asserts that the retainer was on a speculative basis.

The defence further recites that Kenyons had issued a District Court plaint seeking damages for negligence, and says that on 27 September 1996 certain paragraphs of that plaint were struck out with the consequence that `the plaintiff may not have any remaining cause of action.'

The defence continued:

Pursuant to the terms of the retainer entered into by the plaintiff and the defendant, the plaintiff is not entitled to recover any monies for the professional services rendered.

The Magistrates Court proceedings are, by virtue of s 13(1) of the Magistrates Courts Act 1921 (Qld), an action for a small debt, and a Magistrates Court when hearing and determining an action for a small debt is called `a Small Debts Court': s 13 (2).

During submissions to the magistrate hearing the small debts claim, Mr McPherson, a solicitor from Messrs Ebsworth and Ebsworth (Mr Norris's present solicitors), argued that Messrs Kenyons were precluded from pursuing their claim because of their negligent conduct of Mr Norris' claim.

In his affidavit filed 28 August 1997, Mr McPherson says that:

Whilst the Magistrate agreed with the arguments I raised, she advised that as a matter of law she was unable to make a finding of negligence in those proceedings.

On 20 December 1996, the Small Debts Court gave judgment to Kenyons (a firm) in the sum of $4862.95, against Mr Norris. In giving judgment the learned Magistrate ordered:

I order that the defendant pay to the plaintiff the sum of $4862.95.

I take the reference in Mr McPherson's affidavit to the statement by the magistrate that, "As a matter of law she was unable to make a finding of negligence in those proceedings," to be a reference to r 89A of the Magistrates Court Rules 1960 (`the Rules') which provides:

89A (1) Section 84(c) and sections 85 to 89 shall not apply to an action for a small debt.

(2) The filing and delivery of an entry of appearance and defence shall not prevent a defendant to an action for a small debt from bringing an action against the plaintiff in any court of competent jurisdiction in respect of a matter which but for this section might have been the subject of a counter-claim.

The reference in that rule to s 84(c) and ss 85 to 89, is a reference to the rules so numbered. The use of the expression "section" in the Rules in its most recent manifestation is unhelpful and would appear to have no proper basis. Further, the reference is positively mischievous as having a tendency to the uninitiated to elevate a rule of a court to the status of a section of an Act.

However, s 84(c) of the Rules provides:

The filing and the delivery of an entry of appearance and defence shall not operate as a waiver of:

...

(c) the defendant's right to rely on a counter-claim;

...

Sections 85 to 89 deal with the setting up of a cross action either by way of set-off or by way of counter-claim.

The effect of r 89A is that in respect of an action for a small debt as defined in s 13 of the Magistrates Courts Act 1921, the Small Debts Court is not able to entertain a cross-action to the small debt. Counsel for the creditor, Mr Hackett, urged that in the present situation, some of the elements constituting a proposed cross-action might constitute a factual basis to defeat the claim. He argued that the elements sought to be relied upon to constitute professional negligence might also operate as a breach of the contract of retainer, so as to defeat that contractual claim.

It seems to me, however, that an action for professional negligence (being a proceeding in tort), is a claim which, but for the effect of r 89(a) of the Rules, could have been set up as a cross-action to the small debt claim of the firm of solicitors.

Subsequent to the proceedings in the Small Debts Court, a bankruptcy notice issued on 4 July 1997. The bankruptcy notice recites:

Geoffrey William Manteit being the Registered Proprietor of Kenyons ("The Creditor") of 129 Logan Road, Buranda in the State of Queensland, claims you owe the creditor a debt of $5,026.11 as shown in the schedule.

The bankruptcy notice further recited that payment of the debt could be made to Kenyons Lawyers Trust Account at 129 Logan Road, Buranda, Brisbane. The sum referred to in the bankruptcy notice in the schedule is calculated by the principal sum of the judgment in the Small Debts Court, plus interest to 4 July 1997, at the rate prescribed by s 73 of the Common Law Practice Act 1867 (Qld), (now the Supreme Court Act 1995 (Qld)).

On the same day as the bankruptcy notice was issued, Mr Norris was granted leave to amend his District Court claim for personal injuries to include a claim for negligence against named individuals, all being former partners of Kenyons. However, the amendment did not encompass Mr Manteit, who was then one of the partners of Kenyons and since 1 December 1995, has been the owner of the business name, Kenyons Solicitors.

It is accepted for present purposes, that the affidavit of Mr Norris raises a cross-claim that is equal to, or greater than, the sum of the judgment debt in the Small Debts Court. The principal question is whether that claim is a counter-claim, set-off or cross demand that he could not have set up in the proceeding in which the judgment or order was obtained.

In my view, the claim for damages for professional negligence is a counter-claim, set-off or cross demand that could not have been set up in the actual proceedings in the Small Debts Court. It is not to the point that factual elements of that claim for professional negligence might have occasioned a defence to the contractual claim in the Small Debts Court, if it can be shown first that there is a prima facie case of damages for negligence, and secondly if that claim could not have been set up in the actual proceeding in the Small Debts Court.

During the course of submissions it was suggested that r 220 of the Rules, combined with s 80 of the District Courts Act 1967 (Qld), compelled the conclusion that s 40(1)(g) of the Act could not be satisfied.

Rule 220 of the Magistrates Courts Rules provides as follows:

PART 20 - TRANSFER OF PROCEEDINGS

Division 1 - Change of venue

220(1) If a Court at any place and at any time is satisfied that an action commenced at the place where the court is held or pending in the court can be more conveniently or fairly heard or dealt with in a Court or dealt with by the registrar at some other place in Queensland, it may, upon application or of its own motion, order, subject to such conditions as the firstmentioned court may in its discretion impose, that the action be sent for trial to or to be dealt with by such other court or by such registrar.

(2) If before trial, all parties agree, by a memorandum in form 57 signed by each party or each party's solicitor and which memorandum shall be filed with the registrar, that an action pending in the court be heard in a court at some other place in Queensland, the registrar of the first-mentioned court may order that the action be sent to such other court for trial, subject to such conditions as may be agreed upon and set forth in writing and filed with the registrar.

(2A) No fee shall be payable on the filing of any such memorandum.

(3) In such cases the registrar of the court in which the plaint was recorded shall forthwith transmit by post to the registrar of the court to which the action is sent a certified copy of the plaint as recorded in the record of proceedings, of the statement of particulars of claim, of the summons served on the defendant, and of any other documents, and a certified copy of the order of the court or, as the case may be, of the registrar and, in a case under subsection (2), a certified copy of the memorandum of agreement and any writing filed in the registrar's office under that subsection; and the registrar of the lastmentioned court shall record the action in the registrar's record of proceedings, and fix a day for the trial and send notice thereof by post or otherwise to all parties or take such other action as if the action had commenced at the place where his or her office is situated.

(4) Such lastmentioned court if necessary, shall have jurisdiction to proceed with and to hear such action and any judgment may be entered at and enforced in and by the lastmentioned court in like manner and as fully and effectually as if such action had originally been commenced in such court.

Section 80 of the District Courts Act 1967 provides:

80(1) Where there is now or hereafter pending in a Magistrates Court any action wherein the relief or remedy sought is one which would also be available if the action were transferred to a District Court, the defendant may make application to a District Court or a judge thereof to transfer the action to a District Court.

(2) The judge shall not grant the application unless the judge is satisfied that some important question of law or fact is likely to arise.

In my opinion, r 220 is directed at questions of change of venue from one Magistrates Court to another. Section 80 of the District Courts Act 1967 (Qld) contemplates that where there is an action pending in a Magistrates Court, and the relief is one which could also be available in the District Court, the defendant may make application to a District Court or a judge thereof, to transfer the action to a District Court. Clearly s 80 does not encompass a situation where a defendant is claiming by cross-action some tortious remedy or relief. It is suggested, however, that it might have been open to Mr Norris to seek to have the small debt transferred to the District Court, so that he could then, after that transfer, bring a cross-claim for negligence.

Even if that be the case, it seems to me that the claim for negligence answers the description in s 40(1)(g) of the Act, in that it is a cross-action which could not have been set up by Mr Norris in the Small Debts Court.

This case is different from Racheha; Ex parte: Antonios [1980] FCA 132; (1980) 49 FLR 423 where there was express statutory provision for the transfer of the action from the Court of Petty Sessions to the District Court. The debtor in that case could have applied to have the action in the Court of Petty Sessions transferred to the District Court, pursuant to subs 12(2) and (3) of the Court of Petty Sessions (Civil Claims) Act 1970 and could then have contested his counter-claim, set-off or cross demand in the action. No such power for transfer exists in the circumstances of the present case.

The second argument advanced on behalf of the creditor was that issue estoppel operated to preclude the debtor from raising the question of negligence. It was contended that notwithstanding that this was the original application on which the submissions for the creditor were based, some of the elements constituting the tort of negligence might have provided a defence to the contractual claim based on the retainer, and that there was some sort of issue estoppel thereon arising.

This submission I reject. No question of res judicata can apply here. It is plain from the authorities that there must be both jurisdiction and a judgment directly upon the matter said to constitute the `res'.

This much is clear from Attorney General for Trinidad and Tobago v Eriche [1893] AC 518 at 522-523:

It is hardly necessary to refer at length to authorities for the elementary principle that in order to establish the plea of res judicata the judgment relied on must have been pronounced by a Court having concurrent or exclusive jurisdiction directly upon the point. In the Duchess of Kingston's Case SM L C vol ii p 642, which is constantly referred to for the law on this subject, it is laid down that in order to establish the plea of res judicata the Court whose judgment is invoked must have had jurisdiction and have given judgment directly upon the matter in question; but that if the matter came collaterally into question in the first Court, or were only incidentally cognizable by it, or merely to be inferred by argument from the judgment, the judgment is not conclusive.

I refer also to the observations in Ex parte The Amalgamated Engineering Union, (Australian Section) Re Jackson (1937)) 38 NSWSR 13, where Jordan CJ said at 16:

The law of res judicata comes into operation whenever a judicial tribunal has given a judicial decision of a final nature upon a matter which it has jurisdiction to decide.

His Honour continued p 17:

...the estoppel is not restricted to judicial decisions appearing on the face of any formal record of the order of the tribunal. It extends to any matters in fact raised and judicially decided for the purpose of arriving at the decision: Rentit Ltd v Duffield [1937] 3 All ER 117 and also to any matters necessary to be determined in order to found the decision, provided always that the tribunal has jurisdiction to determine these matters for all purposes between the parties, i.e., jurisdiction to determine them directly and immediately as well as merely incidentally.

At p18:

It is permissible to refer to the pleadings in order to see what issues were raised for decision: Houston v Marquis of Sligo 29 Ch d 448. Thus, where the judgment relied upon as an estoppel had been obtained in an action at law, the formal test to be applied to see how far the estoppel extended was to look at the pleadings. Any issues raised on the pleadings and determined by the judgments were res judicatae.

Later his Honour said:

The reasons given for arriving at a decision do not of themselves create any estoppel: Jones v Lewis [1919] 1 KB 328 at 344-5; 351-2; Wall v The King; Ex parte King Won and Wah On (No 2) [1927] HCA 16; 39 CLR 266 at 271; 8 Austn Digest 21; but they may be looked at for the purpose of seeing what matters were in fact decided judicially: ibid, at 288 to 291.

It was further argued for the creditor that there was power pursuant to r 220 of the Magistrates Courts Rules (to which reference has earlier been made), for the defendant in the Small Debts Court to seek to have the matter transferred to the Magistrates Court, to avoid the operation of

r 89A. In this way, it was submitted that it would have been possible for Mr Norris to set up a cross-claim alleging professional negligence.

It seems to me that the claim which is the cross-claim, set-off or cross demand referred to in Mr Norris' affidavit answers the description which is required by s 40(1)(g) of the Act, and that it is an impermissible gloss to say that there is a contingent route by which it might have been possible, after a number of discretionary hurdles were overcome, to have a determination of the cross-claim in some other action or proceeding, or in some other Court.

In my opinion, the scope of r 220 of the Rules is directed towards the speedy and efficient determination of proceedings by having regard to the place and time at which matters can be heard. It is not one directed to jurisdictional limitations or to the nature of proceedings and is not apt to permit a small debt claim to be dealt with in an ordinary Magistrates Court. The object of a small debts claim is to have a speedy, summary determination uncomplicated by cross actions.

If, where a small debt is asserted, it was truly open to a defendant to avoid the consequences of r 89A by seeking the matter to be transferred, `to a Magistrates Court', the evident policy behind the small debts court would be frustrated, or at least considerably compromised. I do not think that r 220 of the Rules can be utilised to effect that purpose. This is further supportive of why the cross-action set up in the present case truly answers the description in s 40(1)(g) of the Act.

For these reasons I am satisfied that Mr Norris has the cross-action of the kind required by section 40(1)(g) of the Act and that the bankruptcy notice should be set aside.

The applicant should have his costs of the application, including reserved costs, to be taxed if not agreed.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender

Associate:

Dated: 10 October 1997

Counsel for the Applicant:	Mr P A Looney
Solicitor for the Applicant:	Ebsworth & Ebsworth
Counsel for the Respondent:	Mr P W Hackett
Solicitor for the Respondent:	Kenyons
Date of Hearing:	10 October 1997
Date of Judgment:	10 October 1997