Nath v Clipway Pty Ltd

Federal Court of Australia|1999-05-18|Before: Drummond J, Hill J, Hely J, Hely JJ, Spender J, Kiefel J

REASONS FOR JUDGMENT SPENDER J: 1 In these proceedings the appellant seeks to challenge a decision by Drummond J, who dismissed an application by Mr Nath to set aside a bankruptcy notice. The basis of Mr Nath's claim before his Honour and before us was that he was not able to prosecute the cross-demand which he claims he has against Clipway Pty Ltd, the creditor, essentially for two reasons: the first is that his financial circumstances did not permit him to engage the professional advisers and experts that he needed to successfully prosecute his claim, and the second was that his personal circumstances, and, in particular, the hours that he was working in respect of the business, precluded him from giving sufficient time to consulting the expert professionals that he would need in prosecuting his cross-claim. 2 Drummond J said: "There is a long line of authority which establishes, in the context of s 40(1)(g) the Bankruptcy Act 1966 (Cth), that considerations personal to a debtor which prevent him, as a matter of practical reality, from pursuing a cross-claim in proceedings in which judgment is given on which a bankruptcy notice is founded, do not constitute circumstances which entitle the debtor to characterise such a cross-claim as one which he could not have set up in the action or proceeding in which the judgment was obtained. 3 His Honour then referred to a number of authorities which undoubtedly establish that conclusion. It was for that reason that his Honour concluded that Mr Nath's claim against the creditor was not a claim that satisfied the statutory requirements of s 40(1)(g) of the Bankruptcy Act. 4 His Honour further noted, at the penultimate paragraph of his reasons: "The applicant does not rely, in support of an argument that the cross-claim could not have been set up in the District Court, on the fact that his cause of action, the subject of the cross-claim, is for an amount in excess of the monetary jurisdiction of the District Court. The reason for the applicant's decision not to rely on that as a consideration to urge upon me is no doubt to be found in decisions such as Re Ling where Hill J stated, at 137, that authority establishes:

'that a cross-claim will be one which could be set up in the action [for the purposes of s 40(1)(g) the Bankruptcy Act], notwithstanding that to do so the debtor may need to transfer the proceedings first to another court…' " 5 In the course of discussions in this appeal, Hely J drew attention also to the provisions of s 86(5) of the District Court Act of Queensland, which reinforce the observation by Hill J. 6 Accepting then that there may be personal and practical reasons why a debtor is not able to prosecute a cross-claim, the position is that those circumstances do not mean that the cross-demand satisfies the requirements of s 40(1)(g) of the Bankruptcy Act. Of course, whether a creditor's petition is presented and whether it is successful, depends on a consideration of the circumstances that exist at the time and, in particular, a consideration of the requirements of s 52 of the Bankruptcy Act, as they apply at that time. 7 However, it seems to me plain that Mr Nath's appeal is devoid of any prospects of success. It would then be an injustice to the respondent and cause unnecessary expense, and perhaps engender unreasonable expectations, if the Court were to adjourn the matter so as to permit Mr Nath to argue what is in fact unarguable, at a cost which he, in correspondence with the Registry, indicated would be of the order of $5000 or $6000. 8 The application for the adjournment of the matter is refused for the reason that to adjourn the matter would be futile. 9 The appeal has no prospects of success and should be dismissed for the reasons which the learned primary judge gave in his reasons for judgment on 8 February 1999. KIEFEL J: 10 I agree.

HELY J 11 I agree. I would simply like to add one thing, and it is this. Under s 40 subs 1(g) of the Bankruptcy Act, a counter-claim will only operate to avoid the commission of an act of bankruptcy where the counter-claim is one that the debtor could not have set up in the District Court proceedings. Here, the debtor in fact set up a counter-claim, in the sense of filing a counter-claim in the District Court proceedings, which he could not prosecute by reason of his impecuniosity. For that reason, he was non-suited in that counter-claim. 12 The decision of Fisher J in Re Vicini (1982) 64 FLR 323 at 327 is a precise parallel. There, a counter-claim was filed and was not prosecuted by reason of impecuniosity and his Honour recognised that that was not a sufficient foundation to enliven the operation of s 40(1)(g). I agree that the adjournment should be refused and the appeal should be dismissed.

SPENDER J: 13 In the circumstances, there is no reason why the court should not make the ordinary order as to costs. The appeal is dismissed, with costs, to be taxed if not agreed. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, Kiefel and Hely .

Solicitor for the Respondent: Nicholsons Solicitors

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