Chen v Bannerman

REASONS FOR JUDGMENT (revised from transcript) HIS HONOUR: 1 In this matter the applicant seeks to satisfy the Court pursuant to ss 40(1)(g) and 41(7) of the Bankruptcy Act 1966 (Cth) ("the Act") that he 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 action or proceeding in which the judgment ... was obtained." to use the language of s 40(1)(g) of the Act. 2 The creditor is a solicitor who acted for the applicant and his family companies from about January 1997 until, I gather, some date in 1999. The Bankruptcy Notice is founded on a judgment of $17,506.48 plus a small amount of interest, the judgment debt stemming from a judgment of the Local Court recovered on 1 November 2000. The judgment was obtained by way of the registration of an assessment by an officer of the Supreme Court of New South Wales of the creditor's costs. 3 The applicant's claim is, in substance, that one of the matters in relation to which he and/or one of the various companies he owned or controlled instructed the creditor was in connection with the sale of a certain taxi plate. The applicant claims that the respondent creditor has failed to pay or account to him for a total sum in excess of $124,000 from the proceeds of that sale. 4 No steps were taken to put this claim, or a claim of overcharging generally, or any other claim of misperformance by the respondent creditor before the Supreme Court assessor even though ss 208A and 208B of the Legal Professional Act 1987 (NSW) gives a solicitor's client against whom the solicitor seeks to obtain an enforceable costs order the right to challenge payment in the event of misperformance. Obviously, if the solicitor had never accounted properly for $124,000 it would be very unlikely that the assessor would have sanctioned the solicitor recovering $17,506.48 worth of costs. I am not satisfied that the debtor could not have "set up" his claim in the "proceeding in which the judgment was obtained". There is no warrant to give "proceeding" such a narrow meaning that it could not encompass the process of an application for Supreme Court assessment of a solicitor's costs plus registration of the resultant assessment in the Local Court. A "proceeding" is contemplated to be something different from an "action" and it is a term apt to have a much wider meaning. The two-stage process can fairly be regarded as "the proceeding in which the judgment was obtained". Einfeld J came to a similar conclusion in Bhattacharya v Berger [1999] FCA 883 at paras 35-32. 5 Further, in order to have a Bankruptcy Notice set aside, the applicant's claim must be valid and genuine and likely to be successful. A debtor must show that he has something in the nature of a prima facie case: e.g. see Re Brink; Ex parte Commercial Banking Co. of Sydney Ltd (1980) 44 FLR 135. The claim must be shown to be a real one which is proper and reasonable to litigate; it must have some substance and be bona fide. The Court must be satisfied that the debtor has a fair chance of success. 6 In this case, it does not seem to me that the applicant's claims falls within this category. The events in question are said to have occurred in 1997, yet on the applicant's own evidence nothing was done for two years to complain of the non-receipt of the large sum supposedly not accounted for. This does not engender confidence that the applicant's claim is soundly based, at least on the face of the matter. Further, the applicant has not been able to satisfy me that the proceeds of the sale of the taxi plate were to be held on his personal account rather than on the account of the company, Zhon Yuan Pty Limited, in the name of which the taxi plate was acquired and held. Thus, it is not shown that it is the applicant who may have had any claim for misfeasance by the creditor. 7 It is important in the public interest that an act of bankruptcy be made certain: see Alistair Byron v Southern Star Group Pty Ltd [1997] FCA 151 per Lehane J. It is not a case appropriate for further adjournment while the debtor pursues other avenues of complaint that may be open to him. Although on the material before me it is unlikely, it is possible that the applicant has been badly treated by a solicitor. If the applicant has grievances in this regard, these proceedings will not prevent his complaining, if he wishes, to the Law Society. Nor, as an automatic result of what I am doing, will the applicant be made bankrupt. There will be a separate hearing about that matter if, as I imagine, the respondent creditor proceeds to issue a petition asking that the applicant be made bankrupt. 8 Therefore, I declare that the applicant has not satisfied the Court that he has a counter‑claim, set-off or cross-demand, equal to or exceeding the amount of the judgment debt, being one that he could not have set up in the action or proceeding in which the judgment was obtained. I declare, accordingly, that the time for compliance with the Bankruptcy Notice expires at midnight on 20 February 2001. The applicant is to pay the costs of these proceedings, including reserved costs. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick.