James v Abrahams

A bankruptcy notice, being Bankruptcy Notice 1297 of 1995 issued dated 7 September. That notice was directed to Mr Thompson and commences: " WHEREAS GRIMLEY PTY LTD & CABLESKI WORLD PTY LTD of Level 6 332 St Kilda Road, Melbourne in the State of Victoria (hereinafter referred to as "the judgment creditors") have claimed that the sum of $7,000.00 is due by you to the judgment creditors under a final Judgment obtained by the judgment creditors against you in the Court of Appeal, Supreme Court of Queensland (held at Brisbane) on the 23 May 1995, being a final Judgment the execution of which has not been stayed. " The notice was a 28 day notice requiring payment or the securing of the payment or a compounding of that sum to the satisfaction of the judgment creditors, the words "judgment creditors" when speaking of the provision of security or the compounding of the debt being the subject of a handwritten "s" in each case, in writing similar to that of the Deputy Registrar who issued the notice. In accordance with the statutory form, the notice continued: " AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the abovementioned requirements of this Notice or to satisfy the Federal Court of Australia or other court exercising Federal Jurisdiction in Bankruptcy pursuant to the provisions of Section 27 of the Bankruptcy Act 1966 that you have a counterclaim, set-off or cross-demand equal to or exceeding the sum specified in paragraph (a) of this Notice, being a counter-claim, set-off or cross-demand that you could not have set up in the action, in which the final Judgment was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you. " and indicated, after the signature of the Deputy Registrar: " NOTE: If you have a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in paragraph (a) of this Notice, being a counter-claim, set-off or cross-demand that you could not have set up in the action in which the Judgment was obtained, you may under sub-section (7) of section 41 of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counter-claim, set-off or cross-demand, as the case requires, and the reasons why you were unable to set up the counter-claim, set-off or cross-demand, and, if you do so, the time for complying with the requirements of this Notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counter-claim, set-off or cross-demand. " The notice concluded: " This Notice was issued on the application of GRIMLEY PTY LTD whose address for service is c/- Messrs MacGillivrays, Solicitors, 141 Queen Street, Brisbane. " It will be necessary later in these reasons to consider the disconformity between the terms of the application for a bankruptcy notice and the person by whom it was made, and the persons referred to as judgment creditors in the bankruptcy notice. On 16 October 1995, Mr Thompson filed in the High Court Registry, an application for special leave to appeal from the judgment of the Court of Appeal. Mr Thompson, if leave is granted and if his appeal succeeds, seeks orders, inter alia, that: " That the defendant/appellant in the above actions pay to the plaintiff/Respondent the costs of and incidental to the applications (above) including all reserved costs before His Honours Shephardson J. 11th November 1994 His Honour MacKenzie J. 16th and 17th November 1994. That the respondents to this appeal pay to the appellant the costs of and incidental to this appeal. That the Respondents pay all costs associated with or as a result of the findings of the Full Court of Queensland. He also on 16 October filed in the Federal Court of Australia General Division Bankruptcy District of the State of Queensland, a document entitled 'Application to the Court' which is confusing and misleading. It refers to "Bankruptcy Estate No: 1297 of 1995" which I take to be the reference to the number of the Bankruptcy Notice. Application is made by Mr Thompson for the following orders: " 1. STAY OF EXECUTION. 2. OR IN THE ALTERNATIVE OTHER APPROPRIATE RELIEF. " The document later continues: " On the hearing of this application it is intended to use the following affidavits; " and then refers to an affidavit of Stanley William Thompson; a space left for the date of swearing is left blank. There was filed on 16 October an affidavit by Mr Thompson which refers to the history of the litigation. It includes reference to the foreshadowed appeal to the High Court of Australia, but further says that the debtor has filed a further amended statement of claim, and exhibits to the affidavit a number of documents which include the orders and reasons of the Court of Appeal, his amended notice of appeal in the High Court, an amended statement in support of his application for special leave to appeal, the amended statement of claim in proceedings 714 of 1994 which claimed to have been amended pursuant to the leave granted by the Court of Appeal, and a document described in the affidavit of 16 October 1995 as "DEBTORS AFFIDAVIT 7th July 1994", and the penultimate paragraph of that affidavit says: " The Judgement debtor seeks inter-alia through his application, filed together with this affidavit a stay on further proceedings in the notice of Bankruptcy. " When the matter was before me on 3 November 1995, Mr Thompson, as the transcripts show, made it plain that the material filed by him on 16 October was in response to the matters which were contained in the bankruptcy notice, and in particular, to the reference to the existence of a cross-demand. In the amended statement of claim Mr Thompson alleges inter alia in paragraph 4 and 5 as follows: " 4. The Plaintiff commenced to construct a golf driving range on the leased property in late February, 1992. Thereafter the Plaintiff did construct a golf driving range on the leased property, performed other works on the leased property and commenced to conduct and promote a golf driving range business on and from the property. 5. In proceeding as detailed in paragraph 4 the Plaintiff expended the sum of $199,000.00. " The statement of claim includes as part of the relief sought as an alternative to other claims: " ...the sum of $199,000.00 by way of restitution in respect of monies expended by the Plaintiff to the benefit of the Defendants. " There are other claims for specific performance, damages for breach of contract, and damages pursuant to s 82 of the Trade Practices Act 1974 for conduct said to be in contravention of s 52A and/or s 53A of the Trade Practices Act. In the document labelled "Debtors Affidavit" Mr Thompson swears to the matters the subject of the allegations in the statement of claim, in particular the expenditure of substantial sums of money as is claimed in the statement of claim. I turn now to consider the issues raised by the material to which I have referred. First of all the application for a "stay" is misconceived. The Federal Court has no jurisdiction to make an order staying the execution of orders made by the Queensland Court of Appeal. That jurisdiction rests with that Court: see Rules of the Supreme Court (Qld) O 70 r 28. Brennan J in Jennings Construction Limited v Burgundy Royale Investments Pty Ltd (No. 1) (1986) 161 CLR 681, held, at 684: " When an application for special leave to appeal is made to this Court, a jurisdiction to stay may be exercised by the court below and it is to that court - the court in which the matter is pending and which is familiar with the matter - that an application to stay should first be made. " His Honour held that the High Court has inherent jurisdiction to grant a stay of proceedings to preserve the subject-matter of litigation, though it is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted. The application for a "stay" has to be understood, however, in the context of the information conveyed to Mr Thompson by the bankruptcy notice. The costs order of the Court of Appeal in the present case is a "final order" for the purpose of s 40(1)(g). An interlocutory order for costs made by a Court of Appeal will constitute a final judgment in respect of those costs where the party entitled to the costs obtains judgment for those costs: In Re Boyd. Ex parte McDermott [1895] 1 QB 611. Section 40(3)(b) of the Act provides: " 40(3) For the purposes of paragraph (1)(g): ... (b) a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained. " Where a mechanism is provided for taxation or certification of costs, as is the case under the Costs Act 1867 (Qld) in respect of orders made by the Supreme Court of Queensland, an order to pay costs and the Certificate of Taxation together constitute a final order within the meaning of s 40(1)(g) of the Act: see Wilmot v Buckley (1984) 2 FCR 540 at 544; Clyne v Deputy Commissioner of Taxation (1982) 42 ALR 703 and Re Ryan; Ex parte Ryan v Jupiter's Management Limited (1992) 38 FCR 127, where I had to consider an order made by the Court of Appeal for, amongst other things, costs, and I concluded that such an order was a final order upon which the creditor might issue execution. The fact that there is a pending application for special leave to appeal to the High Court does not affect the finality of the order made by the Court of Appeal. The next question, however, is whether the debtor has a counter-claim, set-off or cross demand within the meaning of ss 40(1)(g) and 41(7) of the Act. Rule 10 of the Bankruptcy Rules provides: " (1) A debtor on whom a bankruptcy notice has been served may file an application to the effect that he or she has a counter-claim, set-off or cross demand of a kind referred to in paragraph 40(1)(g) of the Act. (2) An application must contain details of the counter-claim, set-off or cross demand, as the case requires, and the reasons why the debtor was unable to set up the counter-claim, set-off or cross demand. (3) If a debtor files an application, the Registrar must consider whether, on the face of it, the application: (a) raises a counter-claim, set-off or cross demand; and (b) gives sufficient particulars of the counter-claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim, set-off or cross demand. (4) If the Registrar is satisfied that an application: (a) raises a counter-claim, set-off or cross demand; and (b) gives sufficient particulars of the counter-claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim, set-off or cross demand; he or she must: (c) fix a date, time and place at which the debtor may appear before the Court to satisfy the Court that he or she has the counter-claim, set-off or cross demand referred to in the application; and (d) endorse a copy of the application with that date, time and place and return it to the debtor. ... " Lockhart J in Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433, at 439, pointed out that the affidavit must contain more than a mere assertion of the existence of the requisite counter claim, set off or cross demand which could not have been set up in the action in which the judgment or order was obtained. The affidavit must show such a counter claim set off or cross demand. His Honour's judgment was approved by the Full Court in Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91 where, at page 95, in the joint judgment of Deane, Fisher and Sheppard JJ, their Honours accepted as sufficient in the circumstances an affidavit which did not verify an essential ingredient of the cause of action sought to be set up, except by asserting a debtor's belief as to the matter in question. Their Honours said: " The question whether an affidavit is an affidavit 'to the effect' required by s 41(7) must, as we have indicated, depend in every case on the particular facts and circumstances and should be determined on a benevolent construction of the relevant affidavit. " In that case their Honours held that it was apparent from the affidavit that the claim was not one which could have been set up in the proceedings in which the judgment founding the bankruptcy notice was obtained. In Re Brink (supra), Lockhart J at 437 expressed the view that: " The object of the Legislature...is obviously to prevent a judgment creditor from pursuing bankruptcy proceedings when as between himself and the judgment debtor, the balance of account is in favour of the judgment debtor..." In this context, it is necessary to bear in mind that s 40(1)(g) does not require the debtor to satisfy the court that he will succeed in his claim: the test has been said to be whether he has shown a prima facie case. Because, therefore, the cross-claim does not have to be definitely proved, the position, in my view, is that if there is a genuine prospect that the debtor has a claim which exceeds that which the creditor has against him, then bankruptcy proceedings should not be open. In the material before me there are two possible cross-demands, giving a benevolent construction to the affidavit material filed in time by Mr Thompson. The first may be said to arise as a result of the application for special leave. I say at the outset that, in my opinion, the prospects of obtaining special leave are remote. The nature of the appeal was an appeal from a refusal by a judge at first instance to strike out proceedings. The appeal was allowed but leave to re-plead was granted. It is difficult to imagine that there are circumstances of general importance in that history which would persuade the High Court to grant special leave. In any event, it seems to me the material does not show that, were he to be successful, the costs that he would receive would exceed the $7000 the subject of the bankruptcy notice. It is, of course, the case that the claim for costs in the High Court is not a claim which Mr Thompson could have set up in the proceeding in the Court of Appeal. However, the question is not here truly one of a cross demand. If he succeeds in his application for special leave and subsequent appeal, the debt on which the bankruptcy notice is founded will have been extinguished. It does not seem apt to describe an appeal from the proceeding in which an order was made, particularly a costs order, as a cross demand for the purposes of s 40(1)(g). The existence of an appeal may be a very good reason for considering whether there is, in truth and reality, a debt on which a petition might be based; (see Corney v Brien (1951) 84 CLR 343). If the application for special leave to appeal is bona fide and there are some prospects of success on the appeal, it would, in my view, ordinarily provide a sound basis on which a petition might be adjourned pending the prosecution of the application for special leave and appeal. I do not think it can constitute a cross demand for the purposes of s 41(7). As to the other possible cross claim, in this case I am satisfied from the reasons for judgment of the Court of Appeal and the contents of the further amended statement claim verified by the contents of the "Debtors Affidavit" of 7 July 1994, that there is an affidavit filed within time "to the effect" that there is a money claim greatly in excess of the $7000 on which the bankruptcy notice is founded. That substantive claim could not have been set up in the Court of Appeal, which proceeding was concerned with the correctness of strike-out proceedings before a judge at first instance. I therefore declare that I am satisfied that the debtor has a cross demand of the type referred to in s 40(1)(g). That conclusion is sufficient to dispose of the matter. The bankruptcy notice is spent; it cannot provide the basis for a creditors petition. However, as I indicated earlier in these reasons, there are a few matters concerning the validity of the bankruptcy notice that should be mentioned. In my opinion, the order for costs, which is the foundation of the bankruptcy notice, was an order which gave the judgment creditors a joint right to the costs. It did not give a joint and several right. It will be remembered that the order of the Court of Appeal was: " The respondent pay the appellants' costs of the Hearing on 16 November 1994 including reserved costs, if any, of that Application. " In my opinion, the nature of the costs order made by the Court of Appeal was the same as the order considered by Clyne J in Re Bowen; Ex parte The Australian Workers' Union (1945) 13 ABC 275. In that case the debtor and others were plaintiffs in an unsuccessful equity suit in the Supreme Court of New South Wales and were ordered to pay the defendants' costs. One of the defendants was the Australian Workers' Union. The solicitor for the defendants in the equity suit, acting ostensibly on behalf of the judgment creditors, (the defendants in the equity suit), made the request for the issue of a bankruptcy notice against the debtor in respect of the order for costs. In fact, the solicitor did not have authority to do so as regards two of the judgment creditors; and the petition was not signed by these two creditors. In the bankruptcy notice some of the judgment creditors were not designated in the manner in which they were designated in the equity suit. For present purposes, the findings by Clyne J which are of relevance are his finding that the order for costs was one which gave the judgment creditors a joint right to the costs and not a joint and several right; that the bankruptcy notice was not a proper notice on the ground that it was not a notice issued on behalf of all the judgment creditors and, therefore, the act of bankruptcy alleged in the petition had not been established. He also held that the petition was invalid on the ground that the judgment creditors were jointly entitled to the order for costs and should all join in the petition, but this was not in fact done. At 280 his Honour considered Re Darby (1904) 22 WN (NSW) 87 which was relied on by the petitioners before him. There Walker J had concluded that one of several joint judgment creditors may apply in the name of all the judgment creditors and without their concurrence for the issue of a bankruptcy notice. Clyne J said at 281: " Despite the authority of Re Darby, I am not prepared to hold that one or more of several persons jointly entitled to costs under a judgment or order can issue a bankruptcy notice under the Bankruptcy Act on behalf of and without the concurrence of all the persons so entitled. The Bankruptcy Act and the Rules made thereunder empower a partner to act for the firm of which he is a member in proceedings in bankruptcy, but they do not empower one person to take such proceedings on behalf of a number of persons who are themselves jointly entitled to take such proceedings but who are not partners. " An appeal to the High Court from the judgment of Clyne J was unsuccessful. In Australian Workers' Union v Bowen (1946) 72 CLR 575, Latham CJ, Rich, Dickson and Williams JJ, with Starke J dissenting, dismissed the appeal on the ground that the right to enforce the judgment was a joint right, and accordingly the bankruptcy notice, being authorised by some only of the judgment creditors, was invalid. Their Honours also held that the petition, being founded on an invalid bankruptcy notice and not having been authorised by all persons to whom the debtor owed the judgment debt upon which the bankruptcy notice was based, was irregular. Latham CJ said at 583: " The decision in Re Darby (1904) 22 WN (NSW) 87 that one of a number of joint judgment creditors was entitled to obtain the issue of a bankruptcy notice in the name of all the creditors cannot be supported as against the authorities to which I have referred. The position, therefore, is that bankruptcy notice was issued without the authority of two of the judgment creditors and accordingly was prima facie invalid. " Dixon J, as he then was, said at 590: " The facts...[in the Federal Bankruptcy Court]... showed that the bankruptcy notice was not authorised by all the persons who were for the time being entitled to enforce the order for the payment of the debt relied on; see s 52(j) of the Bankruptcy Act 1924-1933. The right to enforce the judgment was vested in those persons jointly, and not severally, and, therefore, it was necessary that it should be obtained in the names of all of them by a person authorised either in fact or in law so to obtain it. " Williams J at 591 said: " Section 3 of the Judgment Creditors' Remedies Act 1901 (N.S.W.) provides that such an order has the effect of a judgment at law. The order created a joint right in the defendants to be paid and a joint liability in the plaintiffs to pay the costs within the specified period. The costs were not so paid and the defendants became entitled to issue a writ of execution against the plaintiffs jointly, which could be levied upon the property of any one or more of them individually: Halsbury's Laws of England, 2nd ed., vol. 14, p. 12. It was the defendants jointly and not severally who were persons for the time being entitled to enforce the order as a final judgment against the plaintiffs within the meaning of s 52(j) of the Bankruptcy Act 1924-1933. " That case was followed by Burchett J in Re Pollnow (1994) 12 ACLC 88, where a bankruptcy notice was held to be defective because it was not issued on behalf of all of the joint creditors. In this particular case the bankruptcy notice purports to be issued on behalf of the joint creditors, but the bankruptcy notice was obtained on the application of one only of the joint creditors, and there is nothing in the material to indicate that Grimley was entitled, in law or in fact, to apply on behalf of both itself and Cableski. Consistent with the observations to which I have referred in Bowen, at first instance and on appeal, and the judgment of Burchett J in Re Pollnow, in my opinion, the bankruptcy notice, issued as the result of an application by one only of two joint creditors, would be invalid. It is unnecessary strictly to make a decision to that effect, because on the affidavit material of Mr Thompson, I am satisfied there is a cross demand of the type of which s 40(1)(g) speaks; the consequence is that the bankruptcy notice is therefore spent. In those circumstances I make the declaration that I have indicated. The petition, which was returnable before the Court today, is based on an act of bankruptcy which has not in fact been committed. In the ordinary course, if this had been ordinary litigation, Mr Thompson would be entitled to his costs of his application (if there are any), but I am sensitive to the fact that the material on which he relies, and in fact succeeded, was confusing and less than transparent, and may have encouraged the issue of a petition prior to the determination of his application filed on 16 October. In those circumstances my present intention is to make no order as to costs, either of that application or of the petition, and I will now hear from the parties on that aspect of the matter. I make no order as to costs, both of the application filed on 16 October by Mr Thompson and on the petition. The petition is dismissed. I certify that this and the preceding twenty-one (21) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender. Associate Date: 23 November 1995 Mr S. W. Thompson appeared in person. Counsel for Grimley Pty Ltd and Cableski World Pty Ltd : Mr C F C Wilson instructed by : MacGillivrays Date of Hearing : 3 November 1995