Byrnes v Royal & Sun Alliance Insurance Australia Ltd

REASONS FOR JUDGMENT 1 I have before me a motion by the respondent seeking an order that the applicant's application filed on 26 March 1999 claiming an order that Bankruptcy Notice NN 358 of 1999 be set aside, should be summarily dismissed. I also have before me a motion by the respondent to set aside two Notices to Produce issued by the applicant on 21 April 1999 and 28 April 1999, and a motion by the applicant for a stay of these proceedings until the documents called for by the earlier Notice have been produced. It was agreed between the parties that it was convenient to determine the summary dismissal claim first, which I shall now do, although the outstanding Notices to Produce may bear upon the issue of whether summary dismissal is appropriate. 2 Before an application will be summarily dismissed, the respondent must establish clearly that the application does not deserve a final hearing, because it plainly will not succeed. 3 On 2 March 1999 a bankruptcy notice was issued by the respondent claiming a debt of $50,334.67 being the sum of $49,841.72 for which a District Court default judgment was entered in favour of the respondent against the applicant on 18 January 1999, and accrued interest. 4 The affidavit originally filed in support of the application to set aside the bankruptcy notice is that of the applicant sworn on 26 March 1999. It appears from that affidavit that the ground on which the bankruptcy notice is sought to be set aside is that the applicant has a counter claim, set-off or cross demand equal to or exceeding the amount claimed in the bankruptcy notice. However, the only particulars given of that counter claim are as follows: "2. I have previously advised the Respondent that both myself and a company Minskie Holdings Pty Limited ("Minskie") of which I am the managing director, have a set-off against the Respondent in an amount exceeding the sum specified in the Bankruptcy Notice as owing to the Respondent." 5 Clearly enough, that affidavit fails to comply with the provisions of Order 77 rule 13(3) because it fails to give full details of the counter claim, set-off or cross demand; it fails to state the amount of the counter claim, set-off or cross demand or the amount by which it exceeds the amount claimed in the bankruptcy notice; and it fails to state why the counter claim, set-off or cross demand was not raised in the District Court proceedings. 6 The application to set aside the Bankruptcy Notice came before a Registrar of this Court on 13 April 1999. The applicant was directed to file and serve all further affidavits on which he intends to rely on or before 28 April 1999. No further affidavits were filed by that date. Instead the Notices to Produce to which I have adverted, were issued. 7 When the various motions came on for hearing before me on 9 June 1999 a further affidavit was filed by the applicant, sworn on that date. Counsel for the applicant accepted, correctly in my view, that the affidavit evidence still failed to comply with Order 77 rule 13(3). 8 The evidence filed in the proceedings, if not establishing the following facts, at least suggests that the following facts are capable of being established: Ÿ On 18 November 1996 the respondent issued a bond in the sum of $95,000 in favour of Cascade Holdings Pty Limited upon the basis that the applicant and Minskie Holdings Pty Limited would indemnify the respondent if it was called upon to make payment pursuant to that bond. Ÿ The respondent made payment under the bond. Ÿ In 1997 on a date unknown proceedings were instituted in the District Court against the applicant and Minskie Holdings Pty Limited seeking to recover the sum of $95,000. Ÿ On 15 September 1997 the respondent agreed to withhold any further enforcement action provided that, amongst other things, it received a bank cheque in an amount of $10,000 per month. The terms of that agreement are not before me. I infer that pursuant to it, consent orders were executed which entitled the respondent to the immediate entry of judgment in the event that payment was not made in accordance with the agreement. These consent orders are not before me. Ÿ Payments were made in accordance with the agreement until 16 February 1998, when the payment due on that date was not paid. 9 The evidence either establishes, or suggests that there can be established the following further facts: Ÿ Concept Properties Pty Limited ("Concept") was in late 1997 the owner of land situated at 220 Walker Street, Quakers Hill. Ÿ In late 1997 Concept entered into a contract with Bluecrest Constructions Pty Limited to construct 10 home units on the Quakers Hill property. Ÿ A policy of insurance was issued by the respondent for the period 14 February 1997 to 14 February 1998 covering the contract works being undertaken on a number of properties, including the Quakers Hill property. Ÿ The insured under the policy were Bluecrest Holdings Pty Limited and Bluecrest Constructions Pty Limited ("Bluecrest"). The policy was noted to show Arkway Pty Limited as a mortgagee. Ÿ In late 1997, after construction of the units had commenced, the Quakers Hill property was vandalised. Somebody got into some of the units. Blinds were taken, as was the front door and some appliances. Gyprock walls were kicked in. Ÿ In February 1998 Bluecrest went into liquidation. Whether it had made a claim under the policy is not entirely clear but on 23 March 1998 Concept Properties Pty Limited wrote to the respondent indicating that it wanted the claim processed as a claim by the mortgagee whose interest was noted. Ÿ On 3 April 1998 a demand under s 459E of the Corporations Law was made on Minskie Holdings Pty Limited by the respondent for payment of the sum of $52,637.46 being the amount then outstanding in consequence of the arrangements reached on 15 September 1997. Ÿ On 9 April 1998 the applicant advised the respondent's solicitors that any claim which the respondent might have against Minskie Holdings Pty Limited and Byrnes was more than offset by monies payable by the respondent to Byrnes for claims as a result of Arkway Pty Limited having assigned its rights under the insurance policy earlier referred to. Injunctive relief was threatened should the respondents seek to obtain a default judgment. Ÿ On 17 April 1998 the applicant informed the respondent's solicitors that: "Our current claim on one job at Lemongrove is $35,000. On the other claims there is one for $8,000 and one which we have yet to quantify. This would under the current circumstances suggest there is $7,000 outstanding between these two claims." 10 There was other correspondence between the parties which it is not necessary to record, except to say that specific details of the alleged cross claim were not given. The next event of significance is that in a letter dated 14 May 1998 and on the letterhead of a firm of solicitors, Shakespeare Haney the following appears: "The Manager, Royal Sun Alliance Dear Sir, RE: CONCEPT PROPERTIES PTY. LTD. RE: WALKER STREET, QUAKERS HILL We advise that Arkway Pty. Ltd. hereby assigns its interest in the above insurance policies to James Warren Byrnes and/or Minskie for the purpose of the current claims. Yours faithfully Shakespeare & Haney Per: [illegible signature]" 11 On 4 January 1999 the solicitors for the respondent notified the applicant that unless the balance due to the respondent was paid by Wednesday 13 January 1999, the respondent would apply to the Court for default judgment without further notice to him. As earlier indicated, default judgment was entered on 18 January 1999 in file number 2324/1997. It is described as a default judgment, and there is no basis for an inference that it was entered pursuant to any consent orders which may have been signed in association with the 15 September 1997 agreement. 12 The only ground on which the bankruptcy notice is sought to be set aside is the alleged existence of a counter claim, set-off or cross demand equal to or in excess of the amount claimed. The operation of Order 77 rule 13(3) is thus attracted. It is common ground that the requirements of the rule have not been satisfied. That may not be a sufficient basis, of itself, for summarily dismissing the claim, but the affidavit evidence must do more than simply assert the existence of a counter claim of the requisite value. Whilst the evidence need not actually establish the entitlement of the debtor, it must show that the debtor does have a genuine counter claim of the requisite amount, made in good faith, and which could not have been set up in the District Court proceedings: Thomas v St George Bank Ltd [1999] FCA 166. 13 A bona fide assertion of a genuine cross demand would need to cover the following matters: Ÿ That Arkway Pty Limited as mortgagee of the Quakers Hill property suffered loss in consequence of the vandalism. Ÿ Arkway Pty Limited had a claim to recover that loss from the respondent. Ÿ The effect of the 14 May 1998 document was to assign the benefit of that claim to the applicant. Ÿ That the amount of the claim was in excess of the amount for which the bankruptcy notice was issued.