Licul and Others v Corney

Paragraph 2 of the prescribed form requires that a copy of the judgment or order relied upon by the creditor be attached. Two orders of the Supreme Court of South Australia are attached. The first is an order of Olsson J made in chambers on 12 December 1996. Paragraph 7 of that order reads: "7. That any stay of the order for costs made on the 8th day of February 1995 by Judge Kelly Master of the Supreme Court be set aside and that the said order for costs and (sic) do stand against the defendants Tadeusz Stec and Bogdan Leczynski." The second order attached to the bankruptcy notice is an office copy of an allocatur dated 18 May 1995 which certifies that: "The short form bill of costs of the plaintiffs has been taxed pursuant to the Order of His Honour Judge Kelly made herein on the 8th day of February 1995 and has been allowed at $26,289.07." Both orders had been made in Supreme Court Action No. 2045 of 1994 in which ERI, and Messrs Conroy, Rybak and Georgopolos were the four plaintiffs. The defendants named in the heading of both orders are Tadeusz Stec, Bogdan Leczynski and AMD International Pty Ltd ("AMD"). In affidavits filed by Mr Stec in these proceedings he deposes that ERI was incorporated on 8 February 1994 for the purpose of marketing intellectual property and technology created by him relating to the production of electric motors from amorphous magnetic materials. He asserts that he and Mr Leczynski held 56 per cent of the share capital of ERI whilst Messrs Conroy, Rybak and Georgopolos held the remaining 44 per cent. Mr Stec claims that he, along with Messrs Conroy, Rybak and Georgopolos constituted the directors of the board. In about May 1994 a dispute arose between Mr Stec and Mr Leczynski on the one hand and Messrs Conroy, Rybak and Georgopolos on the other hand. Messrs Stec and Leczynski purported to call general meetings of ERI on 12 May 1994 and 24 October 1994. Following those purported meetings they asserted that resolutions had been passed which had the effect of removing Messrs Conroy, Rybak and Georgopolos as directors of ERI and changing the registered office of the company which had previously been at Suite 10, 1 Zwerner Drive, Hallett Cove, South Australia to a new address. On 25 November 1994 proceedings no. 2045 of 1994 were commenced in the Supreme Court by ERI and Messrs Conroy, Rybak and Georgopolos. At that time the defendants named were Messrs Stec and Leczynski and Mrs Barbara Stec. On 29 November 1994 Judge Kelly as Master of the Supreme Court made summary orders declaring that Messrs Conroy, Rybak and Georgopolos "are presently and have been since the date of incorporation of [ERI] directors of [ERI]" and that the registered office of the company had not been changed. The order reflects a finding that the purported general meetings of 12 May 1994 and 24 October 1994 had not been validly held. Orders were also made directing that the defendants be restrained from holding themselves out as being directors or secretaries of ERI or otherwise interfering with its management. The question of costs was reserved. On 16 December 1994 Messrs Stec and Leczynski made application to the Supreme Court to set aside the order of 29 November 1994. On 8 February 1995 Judge Kelly further considered the application made by the plaintiffs in action no. 2045 of 1994, and the application of Messrs Stec and Leczynski dated 16 December 1994. He made a number of declarations and orders, one of which dismissed the application of Messrs Stec and Leczynski dated 16 December 1994, and another of which provided: "… that the plaintiffs recover against the defendants their costs of the action and this order and the order of Judge Kelly made herein on the 29th day of November 1994 on a solicitor/client basis to be taxed." On 16 February 1995 Mr Stec made application for an extension of time to appeal from the order of Judge Kelly and on 17 February 1995 lodged an appeal against the order of 8 February 1995. The appeal was heard by Perry J in the Supreme Court on 14 August 1995. Perry J made a number of orders and in particular order 2 provided: "As to the order made by Master Kelly on 8 February 1995 … it is ordered: (a) An order setting aside the said order, including orders for costs…" Perry J made a number of holding orders and directed that there be an early trial of the issues raised by the originating application. The trial was heard by Olsson J who delivered written reasons for judgment on 19 April 1996. Formal orders reflecting certain of the findings made by Olsson J, including findings as to the ownership of intellectual property, were entered on 29 May 1996 and 24 July 1996. The order of 24 July 1996 directed that an inquiry be conducted by a Master into certain outstanding issues. Following that inquiry, further orders were entered by Olsson J on 12 December 1996. Paragraph 7 of that order is earlier set out, but as it is critical, I repeat it: "That any stay of the order for costs made on the 8th day of February 1995 by Judge Kelly Master of the Supreme Court be set aside and that the said order for costs and (sic) do stand against the defendants Tadeusz Stec and Bogdan Leczynski." On 24 July 1996 Olsson J further ordered that AMD be joined as a defendant in the proceedings. From that point onwards, Mrs Stec ceased to be named as a defendant, and the named defendants in action no. 2045 of 1994 became Messrs Stec, Leczynski and AMD. Although by the applications made on 16 and 17 February 1995 Mr Stec sought to challenge the orders of Judge Kelly made on 29 November 1994 and 8 February 1995, Judge Kelly's order made on 8 February 1995 that "the plaintiffs recover against the defendants their costs…" remained on foot until the order of Perry J made on 14 August 1995. On 20 April 1995 solicitors acting for the plaintiffs, ERI and Messrs Conroy, Rybak and Georgopolos, posted a short form bill of costs to the solicitor then on record for the defendants in the proceedings, Mr Peter Scragg. Rule 101A.02(2) of the Supreme Court Rules requires that a person to whom a short form bill is delivered shall within 21 days of the delivery respond to the bill. The subrule provides that in the event that the person to whom the bill is delivered fails to comply with this requirement the whole of the costs sought shall be deemed to be admitted and payable. Rule 101A.02(4) provides that if at the expiration of the 21 day period there is no response to the short form bill the party who delivered it may apply to the Registrar for an allocatur. There was no response to the short form bill posted on 20 April 1995, and upon application to the Registrar under r 101A.02(4) the allocatur attached to the bankruptcy notice was issued on 18 May 1995. On 7 June 1996 the first respondent, Nicholas Orfanos, was appointed administrator of ERI pursuant to the provisions of Part 5.3A of the Corporations Law. Mr Orfanos is a chartered accountant who carries on practice in Adelaide. Following meetings of creditors as provided for in Part 5.3A, ERI entered into a deed of company arrangement on 19 September 1996. Immediately following the appointment of Mr Orfanos as administrator on 7 June 1996, the validity of his appointment was challenged by Mr Stec. On 17 June 1996 in action no. 2045 of 1994 Olsson J dismissed the challenge and made an order and declaration that the appointment of Mr Orfanos was not invalid by reason of a failure to comply with s 448A of the Corporations Law (this being the ground upon which Mr Stec mounted his challenge). The validity of the appointment of Mr Orfanos as administrator was confirmed subsequently in action no. 1263 of 1996 in the Supreme Court of South Australia wherein Messrs Stec and Leczynski as plaintiffs sought orders including an order for the removal of Mr Orfanos as administrator: see the reasons for judgment of Judge Burley delivered on 20 June 1997. These proceedings came on before me on the first occasion on 1 September 1997. On that day applications for discovery made by Mr Stec were considered and dismissed. The Court was also informed that on 27 August 1997 Olsson J in another action which had been commenced by Messrs Stec and Leczynski in the Supreme Court, action no. 1315 of 1995, had declared that the plaintiffs had persistently instituted vexatious proceedings, and ordered that they be prohibited until further order from instituting further proceedings without the leave of the Court. In my opinion the declaration that Mr Stec was a vexatious litigant made in the Supreme Court did not prohibit him from exercising his statutory right to challenge a bankruptcy notice in this Court, and I so ruled. It was apparent from the papers that Mr Stec sought to re-agitate in this Court the validity of the appointment of Mr Orfanos as administrator of ERI. I ruled that this question had already been determined conclusively between the parties by judgments of the Supreme Court of South Australia, and directed that the proceedings in this Court go forward on the basis that Mr Orfanos was validly appointed as administrator. The matter was then stood over. The application next came on for hearing on 31 October 1997. On that occasion discussion with Mr Stec clarified that the application was intended as one to set aside the bankruptcy notice on the ground of invalidity or irregularity, and in the alternative to establish that he had a counter-claim, set-off or cross demand which met the requirements of s 40(1)(g) of the Act. Claims for relief that went beyond these topics were summarily dismissed. The application was confined to the following grounds inappropriately described in the application as claims for "interlocutory relief", namely: "11. That the address of 99 Frome Street Adelaide where the creditors can only be heard of, but not found invalidate the Bankruptcy Notice and that the Bankruptcy Notice is set aside. 15. That the Bankruptcy Notice was issued contrary with Section, 40(1)(g), 41(1), 43(3) of the Bankruptcy Act 1966 is invalid, defective and will be set aside. 15a. That the Bankruptcy Notice issued on a base of falsified documents and order entered by fraud is invalid, defective and will be set aside. 16. That the applicant's counter claims against the company on amounts: 16.1 $225,000 due to unpaid remuneration, 16.2 … exceed amount claimed by the company and that the Bankruptcy Notice is set aside. 17. That the applicant's counter claims against Messrs. Conroy, Rybak and Georgopolos on amounts: 17.1 $225,000 due to unpaid remuneration, 17.2 due to Supreme Court order dated 11th December 1996 in action 1263 of 1996 and pending proceeding related to assessment of damages exceed amount claimed by Messrs. Conroy, Rybak and Georgopolos and that the Bankruptcy Notice is set aside." It was clarified with Mr Stec that ground 15 was to be read merely as a general statement of the nature of the relief claimed in respect of the matters raised in the other four grounds of complaint. In relation to paragraph 15a the only point sought to be raised was that the order of Judge Kelly dated 8 February 1995 was not attached to the bankruptcy notice. Directions were given about the future conduct of the action. At a later directions hearing, Mr Stec identified an additional ground for challenging the validity of the bankruptcy notice, and the Court directed that it be added as an additional issue for trial, namely: "That the order made in Supreme Court, Action No. 2045 of 1994 on 12 December 1996 constitutes a stay of execution because it prevents Mr Stec from realising his assets to pay his debts." In the course of further directions hearings Mr Stec sought to contest the validity and regularity of a number of sealed orders of the Supreme Court. He contended that the invalidity or irregularity of these orders had the consequence that no money was owing under the orders of the Supreme Court relied upon in the bankruptcy notice by the creditors. Mr Stec informed the Court that he intended to apply to the Supreme Court to have the allocatur dated 18 May 1995 set aside. For this purpose the trial of these proceedings was adjourned to enable the application to the Supreme Court to be heard and determined. On 24 March 1998 Lander J delivered reasons for judgment in the Supreme Court dismissing the application to set aside the allocatur. Before his Honour, Mr Stec had argued that Mr Scragg was not acting for him at the time that the short form bill was delivered to Mr Scragg. Mr Stec asserted that the short form bill was at no time delivered to him or brought to his knowledge before the allocatur issued. Lander J held that Mr Scragg was acting for Mr Stec when the short form bill was delivered, and pursuant to the provisions of r 101A.02, the allocatur was properly signed. Lander J went on to consider the effect of the orders made by Perry J on 14 August 1995 and Olsson J on 12 December 1996. His Honour accepted Mr Stec's argument that the effect of the order of Perry J was to set aside the order made by Master Kelly on 8 February 1995, and from the date of Perry J's order the order of Judge Kelly, including that part of it which related to the order for costs, ceased to operate. However, Lander J observed that was not the end of the matter because the order of Olsson J revived the order of Judge Kelly made on 8 February 1995 in all respects, and in particular so far as it related to costs. It is against this background that the issues identified by Mr Stec, set out above, must be decided. At the outset of the trial Mr Stec sought to join Mr Scragg as a party to the proceedings so that he could re-agitate the question whether Mr Scragg was acting for him at the time that the short form bill of costs was delivered. That application was dismissed. In the course of arguing his application to join Mr Scragg, Mr Stec asserted that because Mr Scragg had not brought the short form bill of costs to his attention, the allocatur did not constitute a final order of the Supreme Court. Mr Stec argued that a final order only arises where all parties to the order have been given the opportunity to state their position before the order is made. This is not the legal test by which it is determined whether an order is final or interlocutory. Under the general law an order will be a final order if in the litigation between them it finally disposes of the rights of the parties on the particular question to which it relates: see Licul and Others v Corney (1976) 180 CLR 213 and Computer Edge Pty Ltd & Another v Apple Computer Inc & Another (1984) 54 ALR 767 at 768. For the purpose of s 40(1)(g), s 40(3)(b) provides that 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. In the present case the order for costs, and the quantification of those costs by the allocatur, which the creditor relies upon in my opinion constitute a final order. This is so even if Mr Stec is correct in his assertion that there are some issues in action no. 2045 of 1994 which remain to be determined. An order for costs made on an interlocutory application is nonetheless a final order: Kayo Contractors v Fernandez (1984) 71 FLR 34 and Re Gibbs; Ex parte Triscott (1995) 65 FCR 80. Mr Stec advanced a further point in the course of arguing this aspect of his case. He contended that the Court should go behind the judgment of Lander J and reconsider whether the allocatur was properly issued. Mr Stec pointed out that the allocatur had been issued in this case in default of any response being made to the short form bill on his behalf. Undoubtedly this Court has the power to go behind a judgment or order obtained by default where the purpose of doing so is to inquire whether the judgment is founded on a real debt: Corney v Brien (1951) 84 CLR 343. In my opinion this is not an appropriate case to go behind the decision of Lander J. The proceedings in this Court were adjourned for the specific purpose of allowing Mr Stec to pursue the challenge to the allocatur in the Supreme Court. He has done so. He was given a full hearing on the matter and a reasoned judgment has been delivered dismissing that challenge. Further, even if the Court were to go behind the order of Lander J which confirmed the validity of the allocatur, the exercise would expose the source of the debt relied upon, namely the order of Olsson J made on 12 December 1996. As against Mr Stec and Mr Leczynski, that order reinstated the effect of the original order for costs made on 8 February 1995. The source of the debt is not open to challenge. The allocatur merely quantified the extent of those costs. There is no information before this Court which suggests that the costs were not appropriately quantified by the allocatur. The amount of the costs, as opposed to the validity of the order in respect of them, has not been the subject of challenge at any point in these proceedings by Mr Stec. Turning now to the issues raised by the application, the first complaint, ground 11, relates to the nomination in the bankruptcy notice of 99 Frome Street Adelaide as the address of "the creditor". The debt sought to be recovered by the bankruptcy notice was a debt owed jointly to ERI and Messrs Conroy, Rybak and Georgopolos: see Australian Workers' Union & Others v Bowen (1946) 72 CLR 575 at 583, and Re Thompson; Ex parte Thompson v Grimley Pty Ltd and Anor (1995) 135 ALR 700 at 708-710. It is understandable that the four creditors were described in the bankruptcy notice as "the creditor". The genesis of Mr Stec's complaint lies in a misunderstanding of the judgment of the High Court of Australia in James v Federal Commissioner of Taxation (1955) 93 CLR 631 and commentary in McDonald, Henry and Meek "Australian Bankruptcy Law & Practice" based on s 41 of the Act prior to the substantial amendments made to that section by the Bankruptcy Legislation Amendment Act 1996 (No. 44 of 1996). Prior to those amendments s 41(2)(a)(i) specifically required that a bankruptcy notice require the debtor to "pay the judgment debt or sum ordered to be paid in accordance with the judgment or order". That provision was repealed by the amending legislation. Now, the requirement is simply that the notice be in accordance with the form prescribed by the regulations. In James' case the High Court considered the validity of a bankruptcy notice issued under the Bankruptcy Act 1924-1954, s 53 of which contained provisions similar to the now repealed provisions of s 41(2)(a)(i) of the Act. The bankruptcy notice in that case was held to be invalid for reasons which included the fact that the notice required that the judgment debt, being a debt due jointly to a number of creditors who had received a favourable order for costs in litigation, be paid to their agent, the Deputy Crown Solicitor for the Commonwealth, at a nominated address for the Deputy Crown Solicitor in Brisbane. That requirement did not meet the terms of s 53. The High Court said at 639: "Section 53 also provides that the notice shall require the debtor to pay the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order. We are here concerned with an order that the plaintiff shall pay the costs to the defendants. It does not provide that the plaintiff must pay the costs to the defendants at any particular place as the bankruptcy notice does. But the prescribed form simply directs the debtor to pay the debt to the creditor 'of'. Unless the judgment or order does so the notice should not require the debtor to pay the creditor at a particular place. It is the duty of a debtor to seek out the judgment creditor and pay the judgment debt to the creditor if he is in Australia. The debtor has the correlative right to pay the creditor wherever he can find him so that a debtor could be seriously prejudiced if he was led to believe that he was bound to pay the creditor at one particular place. The objection is not a trifling one particularly in a large geographical area like Australia. It is one of substance. If a judgment creditor can direct payment at one place exclusively it means that, although he and the debtor reside or carry on business in the same vicinity, the creditor can require the debtor to seek him or his agent out in some remote part of the realm. The defect in the present bankruptcy notice is that it directs the debtor that he must pay the creditors at a certain address. Such a direction could only be in accordance with a judgment or order if the judgment or order directed payment at that particular address. The creditors, in order to comply with the form in the schedule, varied so as to apply to joint creditors, would have to give an address or addresses where they or one of them, or some agent authorized on their behalf, could be found during the seven days, where the creditor could be paid or where by agreement the debt could be secured or compounded, and this is so whether the address is the residence or the place of business of the creditor: Re Beauchamp (1904) 1 K.B. 572, at pp. 583, 584." In the present case the bankruptcy notice actually meets the requirements laid down by the former, more exacting, legislation. The notice specifies the address where one of the joint creditors can be found and the debtor could at his option make payment. The notice does not purport to specify a particular place where payment has to be made. Payment can be made anywhere to any of the joint creditors. The notice does not by its terms limit that right. Paragraph 4 of the notice expressly provides for a convenient means of payment: "Payment of the debt can be made to Electro Research International Pty Ltd (subject to Deed of Company Arrangement) … of c/- Nicholas Orfanos, Deed Administrator, Ground Floor, 99 Frome Street, Adelaide SA 5000". In my opinion there is no irregularity in the bankruptcy notice arising from the description of the address of the creditors, and this ground of complaint is without substance. The next ground of complaint is that identified in paragraph 15a of the application which contends that the bankruptcy notice should be set aside as it did not attach the order of Judge Kelly dated 8 February 1995. The prescribed Form 1 requires that a copy of the judgment or order relied upon by the creditor be attached to the bankruptcy notice. In my opinion this requirement was fulfilled in the present case. The orders relied upon by the creditors are the order of Olsson J dated 12 December 1996 and the allocatur dated 18 May 1995. The operative order which imposed a liability to pay costs was that of Olsson J, and the allocatur served to quantify the amount payable under that order. The order of Judge Kelly dated 8 February 1995 ceased to have any effect when it was set aside by Perry J on 14 August 1995, and although the subsequent order of Olsson J made on 12 December 1996 provided that the order of 8 February 1995 "do stand against the defendants Tadeusz Stec and Bogdan Leczynski" it is the order of Olsson J which imposes the liability which the creditors seek to enforce. I agree with the reasons for judgment of Lander J on this point. This ground of complaint is without substance. Before turning to grounds 16 and 17 of the application which concern Mr Stec's assertion that he has a counter-claim, set-off or cross demand which exceeds the amount claimed in the bankruptcy notice, it is convenient to deal with the allegation that the order of Olsson J made on 12 December 1996 constitutes a stay of execution, and with other alleged grounds of invalidity of the bankruptcy notice raised by Mr Stec in the course of argument. The terms of ss 40(1)(g) and 41(3)(b) will render invalid a bankruptcy notice issued in respect of a judgment or order where execution of the judgment or order has been stayed. Mr Stec referred the Court to Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572, and contended that certain of the orders made by Olsson J had the effect of a stay as they prevented Mr Stec from paying the debt constituted by the order for costs. Mr Stec relies upon paragraphs 1 to 3 of Olsson J's order which, in substance, declare that certain patents and intellectual property to which Mr Stec laid claim are beneficially owned by ERI, and direct Mr Stec to execute assignments of patents registered in his name to ERI. Mr Stec contends that as the order had the effect of removing property from him, it prevented him from paying the costs order. This submission misunderstands the notion of a stay, and the decision in Wiltshire-Smith. In Wiltshire-Smith the Court held that if the practical effect of a Court order imposed on the property of the debtor were to remove the property from the control of the debtor, thereby preventing the debtor paying a debt which could otherwise have been discharged from the property, the order could amount to a circumstance sufficient to disentitle the judgment creditor from proceeding immediately to execution: see 585-587. Unlike the orders in question in Wiltshire-Smith, the order of Olsson J declared that the intellectual property was not beneficially owned by Mr Stec. Accordingly, Mr Stec never had a legal right to realise or otherwise use that property to discharge the order for costs. The principles discussed in Wiltshire-Smith have no application in a situation of that kind. Additional points raised by Mr Stec in the course of argument can be disposed of shortly: · Mr Stec contended that paragraph 7 of the order of Olsson J had never been pronounced. Mr Stec drew the Court's attention to several other orders which had initially been sealed by the Supreme Court and later recalled and resealed in an amended form. Mr Stec contended that this showed a pattern of unreliability and irregularity on the part of the Supreme Court. I do not agree. The amendments to the orders which he produced were amendments as to form rather than substance. In any event even if the amendments of other orders reflected substantial correction, that did not happen with the order relating to costs made by Olsson J on 12 December 1996. The copy order attached to the bankruptcy notice initially contained an additional paragraph numbered 6 which has been struck out and the deletion sealed with the seal of the Supreme Court. This alteration of the document plainly does not affect the validity of the balance of the order, nor does it touch on a matter relating to the costs order. · Mr Stec contended that the office copy of the allocatur dated 18 May 1995 attached to the bankruptcy notice was invalid because it named the defendants in the proceedings as Tadeusz Stec, Bogdan Leczynski and AMD. Elsewhere in the papers filed by Mr Stec is a copy of the original allocatur (as opposed to an office copy) which was presumably issued on or about 18 May 1995. In that document the defendants are shown as Tadeusz Stec, Bogdan Leczynski and Barbara Stec. As indicated earlier in these reasons, AMD was substituted as a defendant in place of Mrs Stec by order of Olsson J on 24 July 1996. Presumably the office copy of the allocatur was sealed after this amendment occurred, and through a clerical error, the office copy bore the name of the substituted defendant. However, this is a matter of no consequence as the order of Olsson J expressly reinstated the earlier costs order only in respect of Tadeusz Stec and Bogdan Leczynski. The clerical oversight, if that is the explanation, is irrelevant to the creditors' bankruptcy proceedings against Mr Stec. · Mr Stec contended that the bankruptcy notice was invalid because it did not show the address of ERI as Suite 10, 1 Zwerner Drive, Hallett Cove, which was the registered office of the company at the time of the litigation in 1995 and 1996. There is nothing in the papers before the Court to show whether the registered office of the company has been altered since then. However, as I have earlier pointed out, the address for the creditors nominated in the bankruptcy notice was an address where, at the option of the debtor he could make payment. The bankruptcy notice did not prevent him from searching out and finding the company at another address, if the registered office of the company were elsewhere. · Section 41(3)(a) of the Act requires that a bankruptcy notice be issued on the application of a creditor who has obtained against the debtor a final judgment or order. Mr Stec contended that the bankruptcy notice is invalid because it was issued on the application of Mr Orfanos. This submission is without substance. Plainly the bankruptcy notice is a claim by the four creditors to whom the debt was owed jointly. The notice is signed by the proper officer of ERI, namely the deed administrator, as the authorised agent of the creditors. · Mr Stec contended that as the claim against him is for costs, the claim should have appeared against item 2 of the schedule to the bankruptcy notice, not against item 1. Again, this submission is based on a misunderstanding. The claim, although for costs, is correctly shown as the "amount of judgment or order". Item 2 is provided for additional costs claimed that have not been included in the judgment or order. Here no additional costs are claimed, and item 2 has correctly been left blank. I turn now to the grounds raised in paragraphs 16.1 and 17 of the application which relate to the alleged counter-claim, set-off or cross demand. Mr Stec contends that an amount of $225,000 is due to him by ERI as unpaid remuneration. He claims that this sum is due to him as director's fees. Mr Rybak has filed an affidavit denying the entitlement. Mr Orfanos has produced evidence indicating that inconsistent allegations have been made by Mr Stec in the past regarding this alleged entitlement. Mr Stec relies in particular upon his interpretation of a handwritten note apparently made by the company's accountant at a meeting on 17 March 1994. The note is ambiguous and falls far short of evidence that directors' remuneration at the rate of $100,000 per annum was agreed for each director. Indeed such an agreement, having regard to the financial position of the company which was just commencing business, seems highly unlikely. No such agreement finds expression in any of the minutes of the company. Even if there were some agreement at the outset that directors' fees would be paid, the assertion that Mr Stec is entitled to directors' fees for a period of 2Ľ years from March 1994 to June 1996 could not be supported having regard to the findings made in the Supreme Court litigation regarding his conduct and status. He was injuncted from even holding himself out as a director from 29 November 1994. On the information before the Court Mr Stec has not satisfied me that he has a prima facie or bona fide claim against the company in respect of remuneration for any amount, let alone $225,000. He has failed to satisfy the Court that he has a fair chance of success with such a claim: see Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 and Ebert v The Union Trustee Co of Australia Limited (1960) 104 CLR 346. As against Messrs Conroy, Rybak and Georgopolos who at relevant times have been directors of ERI, Mr Stec also asserts a claim of $225,000 in respect of the remuneration unpaid to him by the company. He contends the directors are liable to him for this amount pursuant to the provisions of Division 4 of Part 5.7B of the Corporations Law. This asserted liability against Messrs Conroy, Rybak and Georgopolos must fail for a number of reasons. First, it must fail in any event as Mr Stec has failed to establish a prima facie case of an entitlement to remuneration from the company. Further, even if the evidence established an agreement in March 1994 to pay directors' fees as alleged, there is no evidence that the company was insolvent at that stage. The date of the first insolvency is not established, but the evidence suggests that it was at a date later than November 1994 when Mr Stec was restrained from even holding himself out as a director. It is difficult to envisage how the obligations against insolvent trading could have application to an entitlement to directors' fees, but even if that were possible, s 588M which makes provision for the recovery of compensation from directors for loss resulting from insolvent trading applies only where the company is being wound up. ERI is not being wound up. In the course of argument Mr Stec asserted that he had additional counter claims against ERI, namely claims for $38,133 for the design of a stator and $47,400 for the cost of obtaining a patent. I agree with the submission of counsel for the creditors that these claims were adjudicated upon by Olsson J in his reasons for judgment published on 19 April 1996. The amounts asserted by Mr Stec formed part of the value of the intellectual property which Mr Stec transferred to ERI as consideration for an allotment of shares. The findings by the trial judge led to declarations and orders on 29 May 1996 as to the shareholding of the company and as to the ownership of the intellectual property by the company. Far from establishing a prima facie case that Mr Stec has claims against the company for these amounts, the information before the Court establishes that his claims have been resolved adversely to him in the Supreme Court. The claim asserted in paragraph 17.2 of the grounds is a putative claim against Messrs Rybak and Georgopolos. In action no. 1263 of 1996 a judgment for damages to be assessed was entered by a Master against them in default of their appearance at a status conference on 11 December 1996. An application was filed in those proceedings by Messrs Rybak and Georgopolos on 20 February 1997 to set aside the default judgment. That application has not been heard. On 28 February 1997 a note on the Supreme Court file indicates that the application was to be deferred pending the resolution of other matters first. Insofar as the information before this Court reveals the present position, it appears that those other matters have not been resolved, and a stalemate has occurred because of the order declaring Mr Stec to be a vexatious litigant. There is no information before the Court which enables any estimate to be made of the damages that might be assessed against Messrs Rybak and Georgopolos if the default judgment against them is not set aside. The evidence does not establish that Mr Stec has a claim against either Mr Rybak or Mr Georgopolos which equals or exceeds the amount claimed in the bankruptcy notice. Whilst I have dealt with each of the claims alleged against the individual creditors, I consider there is a short answer to the alleged counter-claims, set-offs or cross demands raised by Mr Stec. Where a debtor seeks to set aside a bankruptcy notice on the grounds that the debtor has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the counter-claim, set-off or cross demand must be mutual and due in the same right. In answer to a bankruptcy notice issued by several joint creditors, the debtor may not raise a debt owed to one or some of them individually. The debtor may only raise as a counter-claim, set-off or cross demand a liability owed to the debtor by all the creditors jointly: see James v Federal Commissioner of Taxation at 643 and Emanuele v Grey and Others (unreported, von Doussa J, 17 December 1997 at 4). In the present case each of the alleged claims raised by Mr Stec are not claims against the creditors jointly. In my opinion this reason alone provides a sufficient basis for the Court to declare that Mr Stec does not have a counter-claim, set-off or cross demand of the kind referred to in s 40(1)(g) of the Act. In the course of presenting his argument in support of the remuneration counter-claim against the company, Mr Stec alleged that Mr Orfanos and Mr Rybak had abused the proceedings in this Court by swearing to facts in their affidavits which were not true. The deponents in their affidavits disagreed with Mr Stec as to his alleged entitlements. Disagreements between witnesses on matters of fact are common place. The documents filed in this case raise no suspicion that there has been any abuse of process by the creditors either jointly or individually. In my opinion Mr Stec has failed to establish any ground upon which the bankruptcy notice should be set aside, and has failed to satisfy the Court that he has a counter-claim, set-off or cross demand of the kind referred to in s 40(1)(g). The application should be dismissed with costs. I certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa

The applicant appeared in person Counsel for the Respondent : Mr D G Riggall Solicitor for the Respondent : Knox & Hargrave Date of hearing : 19 May 1998 Date of judgment : 12 October 1998