Ebert v Union Trustee Company of Australia Ltd [1960] HCA 50; (1960) 104 CLR 346 (9 August 1960)

HIGH COURT OF AUSTRALIA

EBERT v. THE UNION TRUSTEE CO. OF AUSTRALIA LTD. [1960] HCA 50; (1960) 104 CLR 346

Bankruptcy

High Court of Australia
Dixon C.J.(1), McTiernan(1) and Windeyer(1) JJ.

CATCHWORDS

Bankruptcy - Bankruptcy notice - "Counter-claim, set-off, or cross demand": what constitutes - Evidence sufficient to satisfy court - Judgment creditor entitled to judgment in own right - Cross demand in representative capacity sought to be set up - Necessity for cross demand to be in same right - Bankruptcy Act 1924. 1958 (Cth), s. 52 (j).

HEARING

Sydney, 1960, May 26; August 9. 9:8:1960
APPEAL from the Federal Court of Bankruptcy.

DECISION

August 9.
The COURT delivered the following written judgment:-
This is an appeal from an order of the Federal Court of Bankruptcy dated bankruptcy notice was issued upon the application of the respondent, the Union Trustee Company of Australia Limited. It was based upon a judgment debt for costs. By the judgment the Supreme Court of Queensland dismissed with costs an action or suit in which the appellant was plaintiff and the respondent trustee company was defendant. (at p347)

2. The ground upon which the application to set aside the notice was founded was that the appellant debtor had a counter-claim or cross demand exceeding the claim of the respondent trustee company. The alleged cross demand was of an extremely unusual description. It was founded upon the view that by a course of proceedings a liability of the requisite amount might be imposed on the trustee company. First a will of which the trustee company is administrator with the will annexed is to be pronounced invalid or alternatively a given devise contained in it is to be struck out as forming no part of the testator's testamentary intention. Thereupon the appellant will, as she claims, establish a title to a greatly increased interest in the estate and the respondent trustee company would, because of the manner in which it has dealt with the estate or the assets, be liable to the appellant in an amount exceeding the judgment debt. It was contended that this was a cross demand that was sufficient to defeat the bankruptcy notice and that sufficient support for it had been shown or suggested to entitle her to have the notice set aside or at all events suspended pending further proceedings to establish her claim. Clyne J., before whom the application came, was of opinion that the supposed cross demand was not of a description which could possibly fall within the language of s. 52 (j) of the Bankruptcy Act 1924-1958 and his Honour dismissed the application to set aside the bankruptcy notice. Notwithstanding an earnest and closely reasoned argument by Mr. Stonham in support of the appeal we have found ourselves unable to doubt the correctness of this conclusion of Clyne J. But it is necessary to give an account of the facts of the case before proceeding to discuss the reasons which make it appear to us inevitable. (at p348)

3. The respondent trustee company is the administrator with the will annexed of the estate of William Wood deceased. The appellant, Gertrude Emily Ebert, is one of the beneficiaries under the will. She was in fact a niece of the deceased and she and his three sisters were entitled under the will to his residuary estate in equal shares. This is the will which in whole or in part the appellant seeks to challenge. The will is dated 13th May 1944. After certain bequests to charities and some pecuniary legacies, he gave and devised to a devisee whom the will described as the testator's tenant and friend William Thomson of Palm Beach South Coast Queensland all his freehold property situated at Palm Beach aforesaid on the east side of the railway line together with all improvements thereon. After certain other directions the testator devised and bequeathed all the rest and residue of his estate which he called his "residuary estate" unto and to his trustee. This was the late Dr. Fowles of Brisbane whom he described as a "barrister-at-law who has been my friend and attorney for more than twenty years past", and whom later in the will he appointed his executor as well as trustee. In fact Dr. Fowles predeceased the testator. The trusts of the residuary estate were to convert the assets and to divide the proceeds equally between the deceased's three sisters all residing at Reed Street Cremorne Sydney and his niece Gertrude Ebert of Point Piper Sydney or such of them as survived share and share alike as tenants in common so that each of them should get an equal share in the residuary estate. By a proviso the testator declared that his tenant and friend William Thomson should have the option for two years from the date of his death of purchasing his freehold property situated at Nerang near Palm Beach for 400 pounds cash. The testator died on 14th January 1948. As a nominee of the residuary legatees, namely the three sisters and the appellant Gertrude Emily Ebert, the Union Trustee Company obtained a grant of letters of administration with the will annexed on 31st August 1949. On 12th May 1953 Gertrude Emily Ebert the appellant issued a writ in the Supreme Court of Queensland against the respondent trustee company seeking decree for administration of the estate and accounts and enquiries. The suit was based on allegations of delay and neglect in administering the estate. The suit came to a hearing before Mansfield C.J., a hearing occupying some seventeen or eighteen days. The suit was dismissed with costs. The judgment which was pronounced on 22nd July 1957 adjudged that the defendant trustee company recover against the plaintiff, that is the now appellant, the costs of the action to be taxed and further adjudged that the defendant recover from the estate of the testator its costs to be taxed as between solicitor and own client less any amount recovered from the plaintiff under the previous order as to costs payable in the first instance out of the plaintiff's share in the estate of the testator. The costs were taxed and the allocatur showed that under the order against the appellant Gertrude Emily Ebert they had been allowed at 3614 pounds 1s. 7d. (at p349)

4. By the bankruptcy notice which was dated 5th December and served on 17th December 1958, the appellant was required to take notice that within fourteen days of service she must pay to the respondent trustee company the sum of 3614 pounds 1s. 7d. claimed by the company as being the amount due on the final judgment obtained against her in the Supreme Court of Queensland dated 22nd July 1957, or among other alternatives, she must satisfy the Bankruptcy Court that she had a counter-claim, set-off or cross demand against the trustee company which equals or exceeds the sum claimed by it and which she could not set up in the action or proceeding in which the final judgment was obtained. This of course follows the language of s. 52 (j). By an affidavit sworn on 31st December the appellant sought to set up a cross demand or counter-claim which is based upon the following contentions: - First, she wished to call in the grant for proof of the will in solemn form by the administrator; then she wished to show that the clause in the will already recited by which the land at Palm Beach was devised to Thomson was void on the ground that it was inserted by mistake or through fraud. Alternatively, she wished to show that the whole will was void on the ground that the testator lacked testamentary capacity and his mind was overborne by Dr. Fowles. Having done that she wished to assert that the trustee company would be responsible to her for what had occurred in the administration of the estate notwithstanding the provisions of ss. 39-40 of the Probate Act 1867 protecting executors and administrators for bona fide administration under a grant subsequently revoked. By these steps, so it was contended, she could make out a cross demand sufficient for the purposes of s. 52 (j). (at p350)

5. By affidavit the appellant placed certain material before the Court of Bankruptcy in support of her allegations that the testator, whose age at the time of making the will is given as eighty-five, was not of full testamentary capacity and was overborne and in support of her assertion that grounds existed for denying protection to the trustee company, if the grant to it of administration c.t.a. were revoked. Section 52 (j) makes it necessary that a debtor served with a bankruptcy notice, if he does not comply with its requirements, should satisfy the Court of Bankruptcy that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt. The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand. "Cross demand" is the word relied upon here. The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out. In Re Duncan; Ex parte Modlin (1917) 17 SR (NSW) 152; 34 WN 49 Street J. said that the debtor need not satisfy the Court that there are reasonable grounds for believing that he will establish his cross action, but only that he has a bona fide claim which he is fairly entitled to litigate. This perhaps is expressed too favourably to the debtor. In Re A Debtor (1958) 1 Ch 81 Roxburgh J. said: "But not every demand will suffice. A demand made in bad faith would not be good enough. The debtor must satisfy the Court that he has a genuine demand. . . . But in my opinion a demand must be more than bona fide: the Court must be satisfied that it has a reasonable probability of success" (1958) 1 Ch, at p 99 . Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand. What the appellant put before the Bankruptcy Court does not reach this standard but it is not necessary to discuss the material that appears from the affidavit because we think the thesis on which her case rests is clearly outside s. 52 (j). One may put aside altogether the suggestion that the clause in the will devising the land at Palm Beach to Thomson could be excised from the will and administration c.t.a. granted with that devise omitted. It would be quite impossible to treat the devise as a severable part of the will which could be simply eliminated on the ground that it got there by inadvertence mistake or deception. It is enough to refer to the reasons of Lord Greene M.R. in Re Horrocks (1939) P 198, at pp 216-222 . If the appellant is to obtain a greater interest in the estate of William Wood deceased than she took under the will of 13th May 1944 that has been proved, the whole will must be pronounced invalid and, as it appears, that fate must be shared by an earlier will of the same year. (at p351)

6. Now let it be supposed that the appellant were afforded the opportunity of pursuing the course of proceedings she desires. Could it possibly be said that they constitute or comprise a cross demand upon the respondent which equals or exceeds the amount of the judgment debt? So far as the appellant is concerned it is a demand that a grant of administration c.t.a. should be brought in for proof in solemn form. Obviously that in itself cannot fall within the words. The judgment for costs is against the appellant and creates a debt to the respondent which so far as the appellant is concerned is owing to the respondent in its own personal right. The assets of the estate have been realized and there remained in the hands of the respondent trustee company at the time of the application a sum of 2980 pounds. Even if on recovery from the appellant of the costs adjudged the respondent trustee company would be bound to recoup the estate in respect of sums disbursed therefrom for the costs of the suit, it still remains true that it is a judgment debt in favour of the trustee company in its own right. Suppose the grant of letters of administration were to be revoked or that the will is to be proved in solemn form. Is the trustee company necessarily the party to undertake the duty? If so, in what right? If a prior will is, as the appellant now alleges, found to be the true last will, why is it to be supposed that the trustee company is to administer it? If there were ground for such a supposition it would be in a new and different right and, at that, a new representative right. Then again if any liability could be imposed upon the respondent trustee company to make good the amount of the deceased's estate which ex hypothesi had been erroneously distributed by it as administrator under the now existing grant, it would not be an immediate liability to the appellant but a liability to make good the amount to the estate, a liability she could only enforce indirectly or circuitously. These considerations are enough to show in detail why it is that the appellant debtor does not possess a cross demand against the respondent trustee company of a description within s. 52 (j). But that it is not a cross demand within s. 52 (j) might be seen from the mere statement of the thesis upon which the appeal was based without going into such considerations in detail. On the part of the respondent other reasons also were advanced for the conclusion that the appeal must be dismissed but it is unnecessary to go beyond what has already been said. (at p352)

7. The appeal will be dismissed with costs. (at p352)

ORDER

Appeal dismissed with costs.