Webb v Hunter

REASONS FOR JUDGMENT The Proceedings On 18 October 1996, a bankruptcy notice, issued at the request of the creditor, was served on the debtor. The bankruptcy notice required the debtor to pay the sum of $21,670.08 due to the creditor under a final judgment said to have been obtained against the creditor from the Local Court at Richmond, on 1 May 1996. The amount of $21,670.08 comprised the judgment debt of $18,785.30, plus interest accrued to 13 August 1996, the day prior to the date of the bankruptcy notice. The judgment debt related to costs incurred by the debtor in respect of legal services provided by the creditor, her former solicitor. Those services were provided in connection with proceedings in the Equity Division of the Supreme Court of New South Wales, which were resolved by consent orders on 7 September 1994. On 29 October 1996, within the period fixed for compliance with the bankruptcy notice, the debtor, who was not then legally represented, filed an affidavit which was intended to comply with the requirements of s 41(7) of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act"), namely "an affidavit to the effect that [she] has such a counter-claim, set-off or cross-demand as is referred to in [s 40(1)(g) of the Bankruptcy Act]". The filing of such an affidavit, if it complies with the requirements of s 41(7) operates as a statutory injunction to preserve the status quo until the Court determines whether it is satisfied that the debtor has the requisite counter-claim, set-off or cross demand, ensuring in the meantime that no act of bankruptcy is committed by reason of non-compliance with the bankruptcy notice: Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 (Fed Ct/Lockhart J), at 141-142. If the affidavit filed does not comply with the requirements of s 41(7), the time for compliance with the bankruptcy notice is not extended by force of the sub-section: Webb v Hunter (1995) 59 FCR 24 (Fed Ct/FC), at 29-30 and authorities cited there. The present proceedings were initially set down by a Registrar for a hearing on 19 November 1996, following the filing of the debtor's affidavit, but were adjourned until 10 December 1996. On that day, the matter came before me as Duty Judge. I was told by the representatives then appearing that the hearing was likely to take one hour. It quickly became apparent that this estimate was unrealistic. It also became apparent that the evidence which the debtor had filed was incomplete in respects. Accordingly, the proceedings were adjourned part-heard until 20 March 1997. Unfortunately, without fault of the parties, the matter could not be heard on that date. The proceedings were relisted on 12 August 1997 and the hearing was completed on that date. At the adjourned hearing, the creditor was represented by Mr Rogers of counsel, while the debtor was represented by Mr Stubbs, a solicitor. Mr Rogers and Mr Stubbs agreed that four issues arise for determination: (a) Has the debtor satisfied the Court that she has a counter-claim, set-off, or cross demand against the creditor? (b) Is the debtor's counter-claim, set-off or cross demand one that could not have been set up in the action or proceeding in which the judgment was obtained against her? (c) Has the debtor satisfied the Court that she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt? (d) Did the affidavit filed by the debtor on 29 October 1996 satisfy the requirements of s 41(7) of the Bankruptcy Act, thereby extending the time for compliance with the bankruptcy notice? The Legislation Section 41(7) of the Bankruptcy Act provides as follows: "Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross demand as is referred to in paragraph (g) of sub-section (1) of the last preceding section, and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied." Paragraph 40(1)(g) provides: "A debtor commits an act of bankruptcy in each of the following cases:- ... (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not- (i) where the notice was served in Australia - within the time fixed by the Registrar by whom the notice was issued; or (ii) ... comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, 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 or order was obtained;..." The Course of Events The following account is taken from the evidence adduced at the hearing held on 10 December 1996 and 12 August 1997, not merely from the debtor's affidavit filed on 29 October 1996. In and before 1994, the debtor lived in a flat at a property in Greystanes. The property had been the home of the debtor's late daughter, Maureen Loveridge. Until her death, Ms Loveridge lived there with a Mr Maloney, who claimed in the Equity Division proceedings to be her de facto husband. After Ms Loveridge's death Mr Maloney, as plaintiff, brought proceedings in the Equity Division of the Supreme Court of New South Wales seeking an order for possession of the property in Greystanes. The defendants were the debtor, the debtor's granddaughter (Ms Kylie Loveridge) and two friends of Ms Loveridge who were in occupation with her consent. The debtor and Ms Loveridge were represented in the Equity Division proceedings by the creditor, who briefed Mr Newbrun of counsel (the "barrister") to appear on their behalf. The debtor filed a cross-claim seeking, inter alia, a declaration that she was entitled to occupy the flat rent-free during her life on payment of one third of rates in respect of the property. The proceedings were listed for hearing before Cohen J on 7 September 1994. On that date, his Honour made orders in accordance with short minutes of order signed by counsel for the plaintiff and by the barrister on behalf of all four defendants (including the third and fourth defendants in those proceedings, for whom he did not act). The orders provided for the plaintiff to have possession of the whole of the property. Although the orders did not provide for the property to be sold, the plaintiff was ordered to pay the debtor the sum of $55,000 "out of the proceeds of sale". The orders provided for each party to bear his or her own costs. According to the uncontradicted evidence of the debtor, in her affidavit of 29 October 1996, she was evicted from the flat on 29 November 1994, and some of her possessions were ruined. It is the debtor's contention both the creditor and the barrister failed to act on instructions to seek an adjournment of the proceedings, and that the proceedings were settled without her instructions. The undisputed evidence is that the debtor, who is a pensioner now aged 79, was admitted to a private hospital on 3 September 1994, and remained as an inpatient until 3 October 1994. At this time, she was diagnosed as suffering from "a post-traumatic stress disorder which manifested itself as anxiety/depressive symptoms". This disorder was said by a treating psychiatrist to be associated with her perception that she was a victim of terror perpetrated by her de facto son-in-law. (Of course, this is not to be taken as a finding that the fear was well-founded.) The debtor attended court in a wheelchair on 7 September 1994, along with members of her family and a court support volunteer, Ms Ingram. As the creditor's memorandum of costs shows, he attended court that day for a period of five hours. On 4 October 1994, the creditor forwarded a memorandum of costs to the debtor and Ms Loveridge in respect of the Equity Division proceedings in the sum of $14,209.50, allowing for $1,200 already paid on account. At about this time, the debtor sought legal aid to apply for orders to set aside the consent orders made by Cohen J on 7 September 1994. The correspondence suggests that the debtor, or her daughter (Mrs Harley-Graves) on her behalf, had alleged that she was incapable of giving instructions and that counsel had refused to act on a request from Mrs Harley-Graves to apply for an adjournment. A letter from a solicitor at the Legal Aid Commission, dated 17 October 1994, stated that the debtor denied she was liable to pay the costs charged by the creditor or that she had agreed to the settlement. In a letter of 7 November 1994, Mrs Harley-Graves complained to the Legal Services Commission that both the creditor and the barrister were guilty of professional misconduct, allegedly by ignoring instructions to apply for an adjournment and executing short minutes of order without instructions from the debtor or Ms Loveridge. The debtor's complaint against the creditor was referred by the Legal Services Commissioner to the Professional Standards Department of the Law Society of New South Wales (the "Law Society") for investigation. On 22 June 1995, the Bar Council of New South Wales resolved to institute proceedings against the barrister in the Legal Services Tribunal. On 15 February 1995, the creditor filed a statement of claim with the Local Court at Richmond. The statement of claim named the debtor and Ms Loveridge as defendants and claimed the sum of $14,209.50 plus interest and costs, making a total claim of $15,218.22. The statement of claim was served on the debtor on 16 March 1995. On 1 May 1995, the creditor obtained judgment in default of the filing of a defence, apparently in the sum of $15,320.22. On 24 May 1995, the debtor filed a notice of motion in the Local Court at Richmond, seeking orders that the default judgment be set aside. The application to set aside the default judgment was adjourned on a number of occasions, but was determined on 9 August 1995. At that hearing, the creditor was represented by counsel, while the debtor and Ms Loveridge were not legally represented. The debtor's daughter, Mrs Harley-Graves, spoke on the debtor's behalf. The transcript of the proceedings on that date was in evidence. It shows that Mrs Harley-Graves, on the debtor's behalf, asserted that she had a claim against the creditor on the ground that he had settled the Equity Division proceedings without instructions. The learned magistrate observed that any such claim had to be raised by way of a cross-claim, rather than a defence to a common money count and that no such claim had been formulated. Although the debtor had filed what purported to be a defence after the creditor had obtained the default judgment, his Worship did not consider that the document disclosed a defence to the creditor's claim. The learned magistrate made directions providing for Ms Loveridge to file a defence in the proceedings against her since, in her case, no affidavit of service had been filed on behalf of the creditor. By contrast, in the debtor's case, the creditor had filed an affidavit of service. However, his Worship observed that some of the items included in the memorandum of costs rendered by the creditor appeared not to relate to any amounts that could be due by the debtor (as distinct from Ms Loveridge). On this basis, he made the following orders: "The Application to set aside Default Judgment is refused. The Plaintiff to file and serve revised particulars of debt within seven days separating those matters that relate apparently only to Ms Loveridge from those that relate to the joint debt; Default Judgment already entered be amended in the Court according to the revised particulars of debt and execution of the Default Judgment is stayed until fourteen days after the revised particulars of debt are served on Mrs Graves." His Worship further ordered that costs be costs in the cause, although it is not entirely clear what effect that order had on the debtor's liability to pay the costs of the application to set aside the default judgment. While there was some discussion at the hearing of the present proceedings as to whether revised particulars of debt were filed, no evidence to this effect was tendered. However, after the hearing and in compliance with directions made during the hearing, the debtor's solicitor informed me that he was satisfied that the creditor had filed revised particulars of debt in the Local Court. I would have inferred in any event that the particulars had been filed. I also infer that some portion of the amount recorded on the certificate of default judgment represents the costs of the application to set aside the default judgment, since the difference between the sum of $15,320.22, for which the default judgment was originally awarded, and the sum of $18,785.30 recorded in the certificate of judgment, cannot be accounted for simply by interest in respect of a period of less than nine months. On 26 June 1995, after the debtor had filed the notice of motion in the Local Court, but before the notice was dealt with, she filed an application in the Supreme Court for assessment of the creditor's memorandum of costs. On 15 January 1996, the debtor wrote to the Law Society requesting an order for compensation and waiver of fees in the complaint against the creditor. The Law Society replied on 23 February 1996, stating that the request for a compensatory order was noted, should the Professional Conduct Committee ultimately come to an adverse decision regarding the creditor's conduct. As I have previously noted, the bankruptcy notice was served on the debtor on 18 October 1996. The debtor filed her affidavit, in purported compliance with s 41(7) of the Bankruptcy Act, on 29 October 1996. This affidavit was read in these proceedings, together with two affidavits subsequently sworn by the debtor. In addition, Mr Stubbs read, on the debtor's behalf, an affidavit sworn by the court support volunteer, Ms Ingram. Both the debtor and Ms Ingram were cross-examined by Mr Rogers. The barrister appeared in response to a subpoena issued at the request of the creditor and gave brief oral evidence. Neither the complaint against the creditor nor the application to the Supreme Court in relation to his memorandum of costs has yet been determined. The barrister gave evidence that the disciplinary proceedings against him had been finalised by the Legal Services Tribunal. He said that a finding of unsatisfactory professional conduct had been made against him, on the basis that he had settled Ms Loveridge's claim without instructions to do so. He said that other complaints against him were dismissed. The grounds for the Tribunal's determination were not in evidence. Sufficiency of the Affidavit Although the parties identified the sufficiency of the debtor's affidavit of 29 October 1996 to comply with the requirements of s 41(7) of the Bankruptcy Act as the final issue to be considered, I think it is appropriate to deal with that question first. It has been held that evidence filed on behalf of the debtor outside the period for compliance of the bankruptcy notice cannot be relied upon to support the sufficiency of the affidavit for the purposes of s 41(7): Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 (Fed Ct/Hill J), at 187. The Court has power to permit the debtor to supplement his or her case on other issues by additional evidence (Re Brink, at 141), but the initial affidavit must stand on its own. It is therefore convenient to consider first whether the debtor's affidavit of 29 October 1996, which was the only affidavit filed within the period for compliance, satisfies the requirements of s 41(7): cf Re Lee; Ex parte Lee (Fed Ct/Foster J, 8 October 1996, unreported). In Re Brink, at 142, Lockhart J said that, in order to comply with s 41(7), the affidavit "cannot merely contain an assertion that the debtor has a counterclaim, set-off or cross demand which he could not have set up in the action in which the judgment or order was obtained. The affidavit must show a counterclaim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which the debtor could not have set up in the action in which the judgment or order was obtained". See also Re James, at 188-189. However, in determining the sufficiency of the affidavit, the Court is to adopt a benevolent construction. In Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91 (Fed Ct/FC), the Court explained (at 93-94) the approach that should be taken, expressing agreement with comments made by Lockhart J in Re Brink: "The filing of an affidavit pursuant to the provisions of s 41(7) of the Act is the accepted method of setting in motion an application, for the purposes of s 40(1)(g), to satisfy the court that a judgment debtor, who has been served with a bankruptcy notice, has a counterclaim, set-off or cross demand equal to or exceeding the amount of the judgment debt being a counterclaim, set-off or cross demand that the judgment debtor could not have set up in the action or proceedings in which the judgment was obtained. In Re Brink; Ex parte Commercial Banking Company of Sydney Ltd, Lockhart J examined the requirements which an affidavit must satisfy if it is to be an affidavit of the kind specified in s 41(7). His Honour pointed out that, in many cases, debtors attempt to take advantage of the provisions of s 41(7) without the benefit of legal advice and made the following general comments with which we agree: 'It is as well to remember that the initial affidavit has to be filed within a limited time, namely, the number of days after service of the bankruptcy notice upon the debtor fixed by the Registrar. These times are fixed by him without any knowledge on his part of the possibility of a counterclaim, set-off or cross demand being propounded by the debtor. In many cases it is difficult, if not impossible, for the debtor to present more than a mere outline of his case in the time available. I do not think any good purpose would be served by my attempting to express a definitive formula as to what the original affidavit must contain. That must depend in every case on the particular facts and circumstances: see Re a Debtor; Ex parte Debtor v Tossoun [1963] 1 WLR 51, at 56 per Upjohn LJ. The fact that it is within the power of the court to determine when the hearing of a matter under s 41(7) will take place, and thus the length of the extension of time to comply with the requirements of the bankruptcy notice; and the difficulty, if not impossibility in some cases, of the initial affidavit being anything other than a mere outline of the debtor's case due to the temporal constraints imposed by the notice, all point to the conclusion that the courts should adopt a benevolent construction to the initial affidavit' (at 142)." The debtor's affidavit of 29 October 1996 was prepared with the assistance of her daughter, Mrs Harley-Graves. It was not suggested by Mr Rogers that the affidavit was drafted with the benefit of legal advice. It is therefore particularly appropriate that a "beneficial construction" of the affidavit be adopted. Taking this approach, it seems to me that the affidavit complies with s 41(7) of the Bankruptcy Act. The affidavit goes beyond simply making assertions. It states that the debtor has a claim against the creditor in "gross professional negligence" and identifies the claim as resting, inter alia, on the fact that the Equity Division proceedings, determined on 7 September 1994, were settled without her instructions. It is clear enough from the affidavit that the debtor claims that the creditor was her solicitor in the Equity Division proceedings; that he authorised the settlement of the proceedings on terms that were disadvantageous to her and that required her to vacate the granny flat that she occupied; and that the creditor authorised the settlement without her instructions, thereby breaching his duty of care and his contractual obligations to her. The material in the affidavit provides evidence of these claims. The debtor's affidavit also says that the debtor was told by her barrister in the Equity Division proceedings that she would receive $92,000; that the order made by the Supreme Court was that all parties bear their own costs; and that she was evicted from her house in consequence of the orders, suffering the loss of personal possessions. This evidence, although not presented as precisely as would be the case if a lawyer had settled the affidavit, provides a factual basis for a damages claim against the creditor, including the professional costs covered by the judgment debt referred to in the bankruptcy notice. Re Brink establishes (at 144) that the affidavit must "indicate" that the debtor's cross demand could not have been set up in the Local Court proceedings. I refer later in this judgment to the jurisdictional limits of the Local Court. It is enough to record here that, at the time the creditor obtained the default judgment, the Local Court could entertain a cross-claim for damages in an amount not exceeding $40,000. In my view, the affidavit indicates that the debtor intends to claim damages against the creditor under at least the following heads: · the whole or a substantial part of the amount claimed by the solicitor in his memorandum of costs and included in the bankruptcy notice (in fact this figure is $15,409 if the sum of $1,200 paid by the debtor is taken into account); · the difference between the "lower end of the scale", at which the case was settled and the sum of $92,000 calculated by her barrister; and · damages for being evicted from the granny flat, losing her possessions and being "soaked to the skin". It is true that the affidavit does not quantify the total amount claimed. Nor does it identify the amount the debtor received under the terms of settlement in the Equity Division proceedings. In fact, this sum was $55,000, as appears from the orders made in the Supreme Court, which were referred to in, but not annexed to, the debtor's affidavit. I think that, giving the affidavit a benevolent construction, there is sufficient to "indicate" that the debtor's claim for damages could not have been brought in the Local Court, because the claim exceeded the jurisdictional limit of the Local Court. The affidavit contains enough to show the heads of damage the debtor intended to claim and that the amount claimed is likely to exceed $40,000. I think it would be taking the language of s 41(7) of the Bankruptcy Act too far to construe it as precluding reference being made to the bankruptcy notice (which was mentioned in the affidavit and was on the Court file) and to the orders (which were also mentioned in the affidavit), when considering whether the debtor's claim was one that could not have been set up in the proceedings in which the creditor obtained judgment. I do not think it is necessary in the circumstances of the present case, for the affidavit to specify the precise sum claimed or the method of calculation. The Debtor's Claim The next question is whether the debtor has established that she has a counter-claim, set-off or cross demand against the creditor. As I have mentioned earlier, once the Court determines the initial affidavit satisfies the requirements of s 41(7), the Court has the power to permit the debtor to supplement his or her case by additional evidence: Re Brink, at 141; Re James, at 188. "Cross demand" is a term of wide import. It includes a claim for unliquidated damages for a tort, whether or not it is connected with the cause of action out of which the judgment debt arises: Re Judd; Ex parte Pike (1924) 24 SR (NSW) 537, at 539-540; John Shearer Limited v Gehl Company (1995) 14 ACLC 147 (Fed Ct/FC), at 152-153. The test for determining whether a debtor has satisfied the Court that he or she has a cross demand was stated by Dixon CJ, McTiernan and Windeyer JJ in Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346, at 350: "The appellant cannot satisfy the court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out. In Re Duncan; Ex parte Modlin (1917) 17 SR (NSW) 152, Street J said that the debtor need not satisfy the court that there are reasonable grounds for believing that he will establish his cross-action, but only that he has a bona fide claim which he is fairly entitled to litigate. This perhaps is expressed too favourably to the debtor. In Re a Debtor [1958] 1 Ch 81, Roxburgh J said: 'But not every demand will suffice. A demand made in bad faith would not be good enough. The debtor must satisfy the court that he has a genuine demand....But in my opinion a demand must be more than bona fide: the court must be satisfied that it has a reasonable probability of success': [1958] 1 Ch at 99. Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand." In Re Brink, at 141, Lockhart J followed the High Court's decision, but observed that it does not require the Court to undertake a preliminary trial of the cross demand: "rather this court must be satisfied that the debtor has a fair chance of success". On the evidence, the debtor has satisfied this test in relation to her claim based on the alleged breach of duty by the creditor in settling her claim without instructions. The debtor swore in her affidavits, as she has consistently asserted since shortly after the Equity Division proceedings were concluded, that the proceedings were settled without her instructions. In her cross-examination, as one might expect having regard to the evidence of her health, she had great difficulty in recalling events and was confused on some matters. Nevertheless, she reiterated that she had not given instructions to settle the matter. The debtor's evidence was supported by Ms Ingram. Ms Ingram's evidence was to the effect that, except for a short break of five minutes, she was with the debtor for the whole of the time at court on 7 September 1994, and at no time did anyone explain to the debtor the proposed settlement. The barrister gave evidence that he had discussed with the debtor an offer, made by Mr Maloney, that she should receive $55,000 in return for moving out of the premises. He thought it likely that Ms Ingram was present at the discussion, at which he said he recommended that the debtor should accept the offer. I do not think it is necessary or appropriate to choose between the evidence of Ms Ingram and the barrister. It is enough for present purposes to say that I thought Ms Ingram was a credible witness. This is not to say that a trier of fact would not accept the barrister's account. The point is that there is a fair chance that Ms Ingram's account ultimately will be accepted. Two other important points emerged from the barrister's evidence. First, he said that at one stage he had formulated an offer on behalf of the debtor to settle the proceedings in a manner that involved a "notional benefit" to her of about $95,000, including the benefit of remaining in the flat for her lifetime. Moreover, the benefit was calculated, according to the barrister, after allowing $45,000 for the debtor's contribution to the property. This evidence rather tends to support a statement in the debtor's affidavit of 29 October 1996 that her barrister had made a calculation that she was get an amount of $92,000. Secondly, the barrister admitted that he had no recollection of discussing the proposed costs order with the debtor prior to the short minutes of order being handed up. These minutes provided for each party to bear his or her own costs. Of course, as I have already noted, the creditor was present at the Court on 7 September 1994. I think the evidence establishes that the debtor has a fair chance of making out a case that the creditor breached his duty to her and that she suffered loss as a consequence. I am fortified in that conclusion by the fact that the creditor chose not to give evidence in these proceedings. Mr Rogers submitted that any claim made by the debtor was not bona fide because she did not intend to pursue it. His cross-examination of the debtor did not establish any such proposition. The history of the matter, recounted earlier in this judgment, belies any such submission. I think it is without substance. Quantum of the Claim The creditor submitted that there was nothing to justify finding that the debtor's claim is for an amount greater than the judgment debt. As I have explained, it is not necessary to show that the debtor will succeed in recovering a greater amount than that due to the creditor. It is enough that, if the claim for breach of duty were made out, there is a fair chance that the damages would exceed the amount of the judgment debt. I have already dealt with this question in relation to the affidavit filed on 29 October 1996. It is now necessary to consider the totality of the evidence on this issue. The evidence of loss adduced on behalf of the debtor is far from complete, even allowing for the later affidavits. However, it is necessary to bear in mind the nature of these proceedings and the difficulties facing a debtor of very limited means in establishing the quantum of loss flowing from a solicitor's alleged breach of duty in the conduct of litigation. It seems to me that the evidence warrants the following conclusions: · If the case against the creditor is made out, the damages are likely to include the whole or a substantial part of the amount claimed by the solicitor in his memorandum of costs (including fees already paid by the debtor). Had the debtor pursued the litigation to a successful conclusion, she could have expected a costs order in her favour against Mr Maloney. (It should be remembered that, on the barrister's own account of events, he did not explain the provisions relating to costs in the short minutes of order.) · There is evidence that may well be capable of supporting a finding that the value of the debtor's claim in the Equity Division proceedings was in the order of $92,000 to $95,000. The debtor's evidence is that she was told by her barrister (in her oral evidence she thought it was her solicitor) that her claim was worth $92,000. I have referred to the barrister's evidence on this point, which is by no means inconsistent with that of the debtor. The debtor's claim was compromised on the basis that she was to receive $55,000 under the terms of the consent orders, some $37,000 to $40,000 less than the claim may well have been worth (if the debtor's evidence were to be accepted). · There was uncontradicted evidence that the debtor was evicted from her home and lost possessions in consequence of the consent orders. Issues of causation and the like undoubtedly would arise in relation to a claim for damages based on these events. Nonetheless, there may be significant compensable loss arising from the circumstances of the debtor's eviction. In my view, the debtor has satisfied the requirement that she showed a claim equal to or greater than the judgment debt. Could the Claim Have Been Set Up in the Local Court Proceedings? The authorities have accepted the test laid down by Lukin J in Re Stokvis (1934) 7 ABC 53, at 57, of whether a claim could have been set up in the proceedings in which the judgment debt was obtained: "I take a counter-claim, set off, or cross demand which could not be set up as one which, from point of time, or from its nature, or from the absence of empowering provisions, or from positive inhibition so to do, could not be set up in the particular case in which judgment was obtained.... Mere failure to take advantage of the opportunity can hardly be said to be inability." See Re Brink, at 139; Re Willats; Ex parte Nissan Finance Corporation Limited (1991) 31 FCR 206 (Fed Ct/O'Loughlin J), at 211; Re Scott; Ex parte Scott v Beneficial Finance Corporation Limited (1994) 53 FCR 324 (Fed Ct/Einfeld J), at 327. This has been interpreted as meaning that the claim could not by law have been set up in the action: Re Brink, at 139. Practical reasons for not bringing the claim are not enough: Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (1993) 46 FCR 183 (Fed Ct/Hill J), at 189. The creditor obtained the default judgment against the debtor in the Local Court. That Court had jurisdiction to hear and determine actions for the recovery of any debt, demand or damage, whether liquidated or unliquidated, "in which the amount claimed is not more than $40,000": Local Courts (Civil Claims) Act 1970 (NSW) ("Civil Claims Act"), s 12(1). A plaintiff who had a cause of action for more than the jurisdictional limit of $40,000 could bring the claim in the Local Court by abandoning the excess over $40,000 in the initiating process: Civil Claims Act, s 14. In these circumstances, if the claim were ultimately proved, it was reduced by the amount of the excess over the jurisdictional limit. Any judgment obtained by the claimant was in full discharge of all demands in respect of that cause of action: Civil Claims Act, s 14(a),(b). The defendant in an action could bring a cross-claim against the plaintiff if "the amount claimed in the cross-claim does not exceed the amount for which an action may be brought under this Act on the cause of action on which the cross-claim is brought": Civil Claims Act, s 15(1). If a defendant's cause of action exceeded the jurisdictional limit of the Local Court, he or she could bring a cross-claim by abandoning the excess over that limit: Civil Claims Act, s 15(3),(4). For reasons I have already given, I think that any claim by the debtor for damages against the creditor would have been brought for an amount exceeding the Local Court's jurisdictional limit of $40,000. On the evidence, I would regard any such claim as a genuine one. Thus, while the debtor could have filed a cross-claim in the Local Court proceedings, the Court would have had jurisdiction to entertain it only if the debtor abandoned the claim for any excess over $40,000. In my view, a genuine claim for an amount exceeding the jurisdictional limit of a court, which can be brought as a cross-claim in proceedings within that court only by abandoning the excess over the limit, is a claim that could not have been set up in those proceedings. This conclusion seems to me to be consistent with the authorities insofar as they require that the claim could not by law have been set up in the action. A contrary conclusion would inflict injustice upon a party required to abandon perhaps the bulk of his or her claim as the price for later being able to satisfy s 41(7) of the Bankruptcy Act. I think that there may be an additional reason why the debtor's claim against the creditor could not have been "set up in the action or proceedings in which the judgment or order was obtained". As I have explained, the judgment obtained by the creditor against the debtor, and which provided the foundation for the bankruptcy notice, did not simply reflect the terms of the default judgment obtained on 1 May 1995. That judgment was amended in consequence of the orders made by the magistrate on 9 August 1995 that the creditor file further particulars of debt. Moreover, the judgment debt of $18,785.30 referred to in the bankruptcy notice seems to include a component representing the creditor's costs of the debtor's unsuccessful application to set aside the original default judgment, although the mechanism by which this occurred is not clear. (I discount the possibility that the revised particulars of debt actually increased the amount of the judgment debt, since that clearly would have been contrary to the intention underlying the magistrate's order.) Section 41(7) requires, inter alia, that the debtor's claim be one that could not have been set up in the action or proceeding in which the judgment was obtained. This implies that the relevant "action or proceeding" be identified. If the debtor could not have brought his or her claim in the action or proceeding so identified, the requirement in s 41(7) is satisfied. Thus, it has been held in a series of cases that, where a creditor relies on a costs order in interlocutory proceedings, the relevant proceedings are not those in which the final relief is claimed, but the application for interlocutory relief. It has also been held that a cross demand could not have been brought in the interlocutory proceedings, as distinct from the principal proceedings: see Chesson v Smith (1992) 35 FCR 594 (Fed Ct/FC), at 596-597, and authorities cited there. In the present case, the creditor relies, in part, on orders made in or in consequence of the proceedings to set aside the original judgment debt. It is true that the creditor was not the applicant in those proceedings. Nonetheless, the judgment debt on which the bankruptcy notice was founded includes a sum payable in consequence of the orders made on the application to set aside the judgment specifically, so it seems, the costs of that application. The debtor could not have set up her claim for damages, based on the creditor's alleged breach of duty, in the application to set aside the default judgment. Of course, she could have set up the claim in the principal proceedings in the Local Court, by filing a cross-claim in a timely fashion (provided she was prepared to abandon her claim to the extent it exceeded $40,000). However, the application to set aside the judgment would appear to have been discrete proceedings for the purposes of applying s 41(7) of the Bankruptcy Act. For these reasons, I think that there is a plausible argument that the debtor's claim could not have been set up in the proceedings in which the creditor obtained his judgment or order, those proceedings being, relevantly, the application to set aside the default judgment. However, because the point was not argued, I refrain from expressing a final opinion. Conclusion In James v Abrahams (1981) 34 ALR 657 (Fed Ct/FC), Deane and Lockhart JJ (at 661) said this "The filing, within the time specified in s 41(7), of an affidavit to the effect that a debtor has a counter-claim, set-off or cross demand of the type mentioned in s 40(1)(g), does not constitute an application to set the bankruptcy notice aside. It operates as an automatic extension of time for compliance with the bankruptcy notice until the court can determine whether it is satisfied by the debtor that the debtor has a counter-claim, set-off or cross demand of the type referred to in s 40(1)(g). If the court is so satisfied, it is neither required nor empowered to make an order setting aside the bankruptcy notice. The result of the court's being so satisfied, within either the time originally fixed by the bankruptcy notice for compliance or the extended time resulting from the operation of s 41(7), is that failure to comply with the requirements of the bankruptcy notice does not constitute an act of bankruptcy. After the court has been so satisfied, the bankruptcy notice is spent." In the light of the conclusions I have reached, the bankruptcy notice in the present case is spent. In Pollnow v Queensboro Pty Ltd (Fed Ct/Burchett J, 19 October 1988, unreported) a case involving similar issues to those in the present case, Burchett J made a declaration that the Court was satisfied that the debtor had a cross demand of the type referred to in s 40(1)(g) of the Bankruptcy Act. I think that the better course, in the light of the observations in James v Abrahams, is to declare that the bankruptcy notice served on the debtor on 18 October 1996 is spent. The creditor should pay the debtor's costs of the proceedings consequential on the filing of the debtor's affidavit of 29 October 1996.