Henderson, in the matter of Henderson v McCafferty

1 I have before me two applications by Mr Henderson to set aside two bankruptcy notices in reliance on a cross-demand within s 40(1)(g) the Bankruptcy Act 1966 (Cth). One was issued by the defendants in Supreme Court proceedings 6231 of 1991 brought by Mr Henderson against the Queensland Law Society and three officers or former officers of that Society. The other was issued by the two defendants in other Supreme Court proceedings brought by Mr Henderson, the Law Society and Mr McMahon, a former Chief Executive Officer of the Society (who is also a defendant in the first Supreme Court action). 2 The first bankruptcy notice was in respect of an order for costs quantified in the amount of $3,705.85 which Mr Henderson was ordered to pay by a judge of the Supreme Court when that judge struck out Mr Henderson's statement of claim and gave leave to deliver a further statement of claim in the proceedings. The bankruptcy notice in respect of those costs is clearly in respect of a judgment debt owed jointly by Mr Henderson to the four defendants in those Supreme Court proceedings in whose favour the costs order was made. 3 The judgment debt the subject of the second notice is also in respect of costs which Mr Henderson was ordered to pay in the second Supreme Court action brought by him against the Law Society and Mr McMahon for judicial review. Those proceedings were dismissed and a costs order was made in favour of the Law Society and Mr McMahon and later taxed in the amount of $2,940.25. Again it is clear that the judgment debt in respect of the second bankruptcy notice is a debt owed jointly by Mr Henderson to Mr McMahon and the Law Society. 4 In support of his claim to a cross-demand, Mr Henderson has put only a limited amount of material before the Court. This includes an affidavit, part of which I gave him leave to read today, which explains the background to the Supreme Court litigation. It is apparent from the current amended statement of claim in Supreme Court action 6231 of 1999 against the Law Society, Mr McMahon and other officers or former officers of the Law Society that Mr Henderson has a long running complaint now the subject of that litigation against the Law Society and those officers in respect of the administration of certain insurance funds and indemnity funds under the control of the Law Society. 5 These are the only proceedings on foot by Mr Henderson upon which he seeks to rely in answer to both bankruptcy notices. The only relief that Mr Henderson claims in these Supreme Court proceedings is, in effect, the reimbursement of all solicitors (including himself) in his position who, according to the claims he makes in the Supreme Court proceedings, have paid unlawfully exacted and excessive amounts to the Law Society in respect of the various funds administered by the Society. 6 Although Mr McMahon is named as a defendant in the current amended Supreme Court statement of claim, no relief is presently claimed against him by Mr Henderson. Mr Henderson has sought an adjournment and has indicated that one of the things he intends to seek to do during the adjournment is formulate a further amended pleading raising a money claim against Mr McMahon. 7 The Supreme Court proceedings still on foot have reached the stage where the Law Society intends bringing a further strike out application against the current amended statement of claim and orders have apparently been made in the Supreme Court preventing either party taking any further proceeding in the action until the Law Society's strike-out application has been dealt with, something which will happen in a few weeks time. 8 The problem for Mr Henderson is that it seems to me that there is a fundamental flaw in his claim that he has a sufficient cross-demand for the purposes of s 40(1)(g) the Bankruptcy Act which would justify orders setting aside both bankruptcy notices. The judgment debts in respect of the two costs orders, the subject of the two bankruptcy notices, are plainly in favour of judgment creditors as joint creditors of Mr Henderson. It is clear enough from the material before me that, while claims for the payment of money (including the payment of money not quantified as yet) to Mr Henderson personally are made against both the Law Society and Mr McMahon as well as other former officers or officers of the Law Society, those claims would give rise only to several obligations by any of the defendants in the Supreme Court proceedings against whom Mr Henderson might succeed in obtaining judgment. It seems to me equally clear from the material before me that the only amendments that Mr Henderson could make would be to refine or, in Mr McMahon's case, to raise for the first time against him, a claim which, if successful, would give rise to a several obligation only on the part of each of the defendants against whom Mr Henderson might obtain judgments. 9 That, in my opinion, constitutes a fundamental defect in any case that Mr Henderson might be able to formulate against any of the judgment creditors who have issued, between them, the two bankruptcy notices before me today. In Stec v Orfanos [1999] FCA 457, the Full Court of this Court dealt with the question of mutuality as an essential requirement before a set-off sufficient to answer a bankruptcy notice can be established. The Court, in the course of explaining what is necessary to establish mutuality, said: