CAL CEYORDS Bankruptcy Act 1966 - ss.41(7) and 40(1)(g),. "Affidavit as to Counterclaim, Se:-Off or Cross Demand" alleging a partial set-off or cross-demand against the petitioning creditor, held not an affidavit of tne kind contemplated by the sections; order cf sequestration made on creditor's petition. RE: WINIFRED ANNE MADNLALINE BHARRTS EX PARTE: ERNEST HAROING NIL2LANN SWEENEY J. 19 DECEMBER 1975 IN THE FEDERAL COURT OP AUSTRALIA GENERAL DIVISION No. P59 of BANKRUPTCY DISTRICT OF THE STAWIY OF VICTORIA Re Wins fred Anne Madelain? HARRIS a CVebtor Ex parte: LUrnest Harding NITMANN a Creditor REASONS FOR JUDGMENT C.A. Sweeney J. Ty December, 1979 The petitioning creditor issued a petition returnable on 23 Cctober 1979 in which it was alleged: "1. The debtor was at the date of the commission of tne act of bankruptcy specified in paragraph 4 of this petition personall, present in Australia. The debtor 1s just'y and indebted to the cruecitor of $5,023.0€¢ for {a) Ordar obta.red by the Supreme Court aa in truly in the sum the creditor of Victoria on 31/5/1979 for $4,025.05%; Order obtained by the creditor the Suprere Court of Victoria 25/6/1979 $447-98¢; and, Order chtained by the creditor the Supreme Court of Victoria 26/7/1979 for $550-00¢. an an on (b) casa Lox {c) an in on I do not, nor does any person on my behalf, hold any security over the property of the dector, or any part of 1t for the payment of the amount specified in the last preceding paragraph. oe 2/ 4. The debtor, within six nonths before the presentation of this petition, committed the following act of bankruptcy namely that she failed on or before the 17th day of September, » 1979, cither to comply with the requirements of a bankruptcy notice served on her on the Virst day of Septemoer, 1979, or to satisfy the Court that she had a countcr clain, set-off or cross demand ecual to or exceeding the sum specificd an paragraph (a) of the bankruptcy notice." The evidence, including an affidavit by the debtur, established chat the bankruptcy notice referred to in the petition was served on the debtor on 1 September, 1979. The debtor caused to be filed in the Barkruptcy Registry an affidavit sworn 17 Septcmber 1979 and Peaded "Affidavit as to Counterclaim, Sst-Off or Cross Demand" in the following form: "1. I am the debtor nare* in tie Bankruptcy Notice which 1s avnexed to this my Affidavit and marked witn the letter "A". The said Bankruptcy Notice was servec upon me on the evening of €aturday the lst day of Septerzes, 1973. 2. I am not indebted tc tne juscment creditor in the sum claimed in the Bankruptcy Notice. The anount referred to in the said Bac 'ruptcy Notice was obtained by the creditor cinst m2 on the taxing of a bill of costs before the Taxing Master, Supreme Court on the 25th day of July, 1972 3. The costs which are the svujact mattor of this action were awarded against me pursuant to the Order of tr. Justice King of the Supreme Court of Victoria on tne 3lst day of May, 1975, on the hearing of an application brought hy me and the part hearing of eprrals fron the Orders of Master Brett aaa taster Barker by the said Ernest Harding Niemann in October and November, 1978. 1 3/ The order for costs against me arose out of the application No. 9511 of 1976 in the Supreme Court of Vactoria, which concerned a company known as G. & S. Taylor Pty. Ltd., whach until its dissolution was a compiny duly incorporated pursuant to tne lars of Victoria. Ata meeting of creditors cf the said ccirpany on or about the 18th day of October, 1974, it was duly resoived that the said company be voluntarily 'vvound up in accordance witn the Companies Act 1961. At the said mezting a tir. Lewis Luckins was appointed liquidator of the said company. On the said date the cc~pany was indebted to me in respect of arrears of wages and holiday pay and I nad a claim in Gamages against the said company for wrongful dismissal. On the 28th day of Novenher, 1974, IT served on the liquidator a statutory caeclaratzon as to the proof of the said dept and claim in accordance wath tne Conoanies Act 1961. Annered hereto and marked with tne letter '5" is a true copy of the said statutor: Ceclaration. By a notice dated the 20th day of March, 1975, the said liquidator rejected my proof of debt. The said lidu:dater on or about the 10th day of April, 1975, admitted my proofs of deat in part as a preferential debt in the sum of $2,700. On or ascout the 24th aay of January, 1976, the ligvidator zed and Mr. Ernest Harding Niemain was appointed liquidator of the said corpas; to fill the vacancy on cor abLout the 25th da, ci February, 1976. On or about the 10th dav cf Janucry, 1977, I verily believe tnat Ernest Narcind Naicnmann admittcd my ypreof of dept in part as to a prercrential Gast of $2,509. On or about the 19th Gay of October, 1976 I mate arplication to the Supreme Court of Victoria pursuant to Section 279 of the Companies Act 1961 to reverse the said rejection of the balance of the said debt and claim. 1 4/ a ABA as 10. ll. 12. On or about the lst day of December, 1977, I and a Mr. Loewenstein of Counsel on behalf of the said Frnest Haréing N1remann agreed to compromise the said application on the follcswing terms: (a) That the said Ernest Harding Niemann would admit me to rrove as a creditor in addition to tne debt admitted and pa:d of $2,500 as follows:- (i) as an unsecured creditor for the sum of $11,042; (ii) as a preferential creditor for the sum of $1,175, (b) That the said Ernest Harding Niemann and mvself would consent an order in the terms set out in paragraph (a) hereof. rt Oo On the lst day of Decerber, 1977, the Honourable Mr. Jastice Harris (in Chambers) with the consent of myself an@ Nr. Loewenstein on Lenalf of Mr. Yaiorann, ordered in respect of the balance of the Plaintiff's claim rejected by the def over and ahove the sum cf $2,500 acni and paid by the De:zendart, ang the vei Ernest Harding Niemann be directed to myself to prove as a creditor of the as follows:- tic @ fu fy cr O% W (rs QO (a) as an unsecured creditor for tune sum of $11,042; (b) as a preferential creditor for the sum of $1,175 Betyvreen the date of the said order and in or about June 1978, Ernest Harding Kaicmann distributed and disposed of the a_sets of the property of the company to its creditors. In or about September 1978, the said company was dissolved. In purported payment of my said entitlement the said Ernest Harding Nicmann paid in addition to the sum of $2,500 already paid to me the sum of $1,766.90 only and has failed and/or neglected and/or refused to pay me the balance of $2,500 to which I am entitled. 13. 15. In or about the month of August 1978 and after having instructed my solicitor to make demand upon the staid Ernest Harding Niemann for the sai@ sun of $2,500 and there being neglect ard/or refusal to so pay the said sum I tnereapen caused to be issucd througna my su.icitors Writ No. 5087 of 1978. I am informed and verily believe that ny solicitor was able to enter judgment against the said Ernest Harding Nicv™ann and an application was made by the said Ernest Harding Niemann to set aside judgment and this matter care on for hearing before Master brett cn the llta ctober, 1978. Master Brett reserved his decision and it was agreed thar the Defendant would have leave to Gefend ana the Defendant weulc hava to pay tre costs of the application. The costs of $2€0.09 were awarded against the Defenuanc. The said Ernest Harding Ylemann by his solicitors then made an ap to Order 14A of the Rules u of a cause of action. 'his mat for hearing befcre Mastcr Barker wao dismissed Mr. Niemann's application and made an order for costs of $259 in my favour. Mr. Niemann then lodged Notices of Appeal in resztect of the orders of Master Brett ari Master Barker and this acter subsequently care on fer hearing before his Honour Mr. Gustice King cn or about the rirsc day of May, 1979. Gn the nearing of these appsals I rade application pursuant to Order 28 Rule 11 of the Pules of the Supraze Coart or alternatively within the ererc:se of the inherent jurisdiction of a Court to amend zts orduecs an the event of an error to alter tne consent order betore his Honeur tr. Justice Harris on the lst day o% December, 1977. Ac the end ef the naecariny of this matter his Honour Mr. Justice Kino ruled against me and ordered that T pay tne said Eracst Harding Naiemann's tax costs. The questions of the appeals frer Naster Brett and Mister Barker did not core berere the Cour* as his Honour Mr. Justice Kinu nad to leave on circuit. This matter 1s therefore part heard and the amount of $530.00 being costs awarded to me have not yet been paid by the said Ernest Harding Niemann. c ary Pon .26/ 16. A notice of appeal has been lodged by myself and Apyeal Books have now been settled. I verily bclieve that this matter will be heard cn the lst October, 1979, against the order of his Honour Mr. Justice hing. 17. I verily believe that I have a partial set-off and counterclaim against the said Ernest Harding hiemann," By an application dated 26 September 1979 the debtor sought the following orders: "1. That the tine specified in Bankruptcy Netice No. 1497 of 1979 as the tire for compliance witn the Notice be enlarged to the 19th day of September 1979 or alternatively, until the expiration of two clear days after the decision of the Full Court of the Supreme Court of Victoria in respect of the juccment Gcutor's eppesl from the order the subject of the said Notice. 2. Alternatively, a declaration that tne affidavit of the jrdgnent debtor sworn the 17th day of Sentemrer, 1973 was filed on the i7th day of Sentembez 1979. 3. Such further or other orders directiors or relief as to tua Court may sean fit." On 8 October the cebtor's application vas by consent adjourned until 23 Cetober, the return day of the petition, on which day by consent the application and tho petition were stood out of the list generally, liberty be1ac reserved to either party to apply to che Registrar for re- lasting on a dav which would permit tre giving of seven days notice to the other party. Both matters were re-listed on 8 Movember when Mr Beaumont of counsel appeared for the petitioning creditor and Mr Walker, solicitor, announced that he had been acting for the debtor, who was present. Mr Walker stated that the Australian Legal Aid Office had notified him that legal aid would no longer be made available, that he had advised the debtor that he had ceased to act tor her and that she agreed that chis was so. ee T/ The debtor then stated that she knew nothing of the application in her name until 3 October when she was asked to withdraw 1t and refused "to have anything to dow? 21 zt". She sougnt an adjournment of the hearing of the petiticr to enable her to prepare her cas2. Counsel for the petiticning creditor opposed any adjournment and an application ny Mr Walker that he be excused from further attendance. The debtor gave evidence in support ct her application for adjournment. Mr Walker was excused from further attendance and the petition and the debtor's applic. ticn were adjourned to 22 November. were, vy consent, heard together. Nr ueaumont apvearca for the petitioning creditor and the dobtor appeared in porson. In ovening,Mr Boaument conceded that there wore two oLcstancing orders for costs made by Masters an intern "y locutery pEreacesd_ngs in the Suprers Court against h: Y Pp s gn faveur of the debtor in the amounts of $250 and $290, 27 respect of wnich orders the appoals of the petitioning credito: had not yet been heard. Mr Beatmont submithed thet the affidavits ct service of theo bankruptcy notice, a:: tar debtor's cun admission in her aifidavit proved due service ct the bankruptcy notice upon her. He then turned gunerally ts Gavit filed by the debtor and beaded "Affidavit of C laim, Set-Off or Cross Demand" and submitted trea was not "an affidavit to the effect that" she had a counter- Claim, set-c#f or cross demand equal te or exceeding the amount payable under the final order that she could noc have set up in the action or proceeding in which the orders wer2 obtained. Ha conceded that she could not have sect up the Claim referred to an her affidavit in tne action but based his submission wnat 1c did not ansver the statutory descriptie given in s.41(7) and s.40(1)(g) of the Bankrupte' Act L 2. 8/ on the fact that it did not contain any allegation of a Counter-claim, set-off or cross demand equal to cr exceediny the amount payable under the final order, but only referred to a claim for a lesser amount. Miss Harris conceded this fact and the Court, applying the test laid down in Ebert v The Union Trustee Company of Australia Ltd. (1560) 101 C.L.R. 346 at p. 350, upheld Mr Beaumont's submission. The Court then heard the Gcebter's application for enlargement of time for compliance with the bankruptcy notice and dismiss2d1 it on the qround tnat it was not mada until after the expiration of that time, and accordingly could not affect the commission of the act of bankruptcy alleged (see Re Grace; ex parte Castling (1931) 3 A.B.C. 131). Mr Beaumont then read the affidavits verifying the matters stated in tne petition, the service of the zetition an@ the fact that the debts on which the petitioning crediter relied were still owing. By Notice dated 15 November 1579 the dctbtor stated that she jrtended to rely upon the following grounds cf "{a) I do not recognise the Creditor's Signature a3 p2ang kis usucl signature. (b) TI deny havine committed the ac bankruvtcy rererred to in para 4 of tne Petition. oF at £ gr (c) I Zeny beirg ancebted to the crediter in the sum cof $5,023.06 In an affidavit sworn on the same day, the debtor deposed as follows: "]. I strongly oppose the Petition whicn I farmly believe 1s beiny used for an improper motive. 22 9/ 2. The evidence I shall produce to the Coart in support of counter clain, set off or cross demant will Le as follows: {a) $2,500 balance of wayes as per comprenzse reached on ist Decembar 1977. (b) $250 costs ordeicd by Maste Barker 22/11,/78 (c) $280 costs ordered by Master Brett 17/10/78 (a) Overcharged costs taxed on 17/2/78 (e) Supera nuatior as stated on proof of debt 1€/19/74 ana requested by letter dated 28/1/1977.! The debtor also vished to rely upon a second fidavit worn by her on the s fu we day, Gealing with tae o steps taken by her and her then solicitor to file her "affidavit as to counter-claim, set off or cross demand'. The contents of this affidavit bad ne searing on the dertatiea, for the reasons earlier stated in relation to it. Ea The debtor in the course oi the presentation o her case on 22 November raised a furtrer grourd that the: petition was presented for what she described as "an ar. comer motive and that improper motive is to ¢ton re from goinc te trial". She aiso claimed te be entit against tne petictioniny creditor, becavs into a cempromise of a Supreme Court acti his counsel, Mr Loewenstein "failed to direct Ilr Jusvice Sarris to a material fact". It transpired that the debtor had taken preoc-vdings in the Supreine Court seeking to have tha consent order of bx Justice Harris rectified tc make it clear that the relizf granted to her in that order was in addition to her clain against the petitioning creditor fer $2,500. mr Justice King refused to make the order which she sought and he: appeat to the Full Court of the Supreme Court against that refusal was dismissed with costs, after a hearing extending over three days in which both parties were legally represented. The costs so awerded against the debtor had not been taxed to that date. The debtor called Mr Loewenstein as a witness and questioned him about the compcomise made be:ween them on 1 December 1977. When the hearing resunel on 23 Wovember Mr Rees Jones, sclicitor, announced that for the purposes o. seeking an adjournment he apveared on beheif of the debtor. The adjour:ment he sought was for a period of at least fourteen days in order to make an application to the Australian Legal Aid Office on behalf ot the debto., to obtain representation for hes, which would not be by him, as he would not ke appe.uring or acting for the debtor under any circumstances. Mr Rees J consulted on the pre ajd on her behaif and haa c r only officer un the Legal Aid Cffice who had knovledge cf the matter Was absent incerstare n cross-exrminacion he agreed that iocal aid from that cfifice previously given to tae debicr had becn withdra because of adyice given by coun:21 and that ca adjournment of the hearing cf the yctirtion hid carlier been cranted on 8 Novembe-. or. that day tue Gebtor ha? given revrzsontaricns to the ittorney- evicence that she was rakin yo WO General and to members cf Parliuren.t that she shoald ccntinuc » ¥ to receive legal a vr Rees Jones conceded that it w iw u poss.nie that he did not know the full facts of the matt @ r. f The apolication for ad, ,surnincnt was opposed by Mr Beaume' & who relied on the hictory of the petition and Submitted that,on the vicw of the facts most favovrablie to the debtor, there was at all material times an amonat cwing by her to his client of at least $795.08. He further stated that his client was not preparcd to ente: 411.co any ccomeronise of the debt owed to him or to accept any ar.-angement for the payment of it by instalments. ---Ll/ In the light of the facts which have keen outlined refused. When Mr the debtor examined Loewenstein him on the sworn by him on 8 May 1979 ard proceedings. In tne course cf that, for he was prepared to concede uyoo SoPpo announced the f the wat take unto account that Mr Noma give her a credit for that $2,5 owe it, but for the purposes of prepared togive her a crecit in The debtor then r7de prepared te conduct ner ca but on wished to est2 lish as a sum of $2,500. svi In ansver to the Mr Beaumont contents of his two tendered them in ev Th then submissions. dabtor In Mr Loewenstein's he stated: tra "I deny 'the negotiations and was in relatio: Harris' claim of $2,500' the Harris afficar hay CS 'ove "at In his affidavit cf returning to the Supreme Ccurt, of the appeal by the debt or, in first named Applicant": hastory of the case, above, returned contencs fFilel i the applic to the w of an aff n the Supr and the ation was atness bon, fidavit eme Court that examination Mr Beaumont the a3 nn ro) 00. these that idcunce. afficav he balsa 8 May 1979 he stated that havin which bter was " owe her $2 proceedings closed her case and ma rit of entire sertlement the agreercnt reache nce' of Mis negotiate she was des ses of tna bankruptcy proceedings. a" entitled to 7,909 and to We do not admit that we Ww r "and above the amount as set out in paragraph 23 of after da setriement crabed as "the 2.-12/ "I recall anitially outlining to his Honour the terms and basis upon which the first- named Applicent's appeal had been settled ané what orders were betnu sought. Having recently read che tronser:pt of the 'pr-coacings before his Honcur 'Mr Justice Uarris in my cpinion the verms cl tne Orders madc by hiuw were in the identical terres as I outlined ther to him and to whicn tne firstramed Applicant consented. I accepted Mr Loeweistein's evidence. I then stated that I was satisfied wi the proof th cf the matters stated in the petition, with tne proof of servico of the petition and with the tact that the debt on which the petitioning creditor relied was still ow1ng, in the sense that, at all material times, there had bcen and still was an available debt within tne meaning of the bankruptcy law and that I was satisfied that it was a prove case in vlich to mak: an order of seguestration. J was not ficd tuat the debtor was atle :o pay her debts ox th USE 2 324 1e5 tre@zton order ougnt no o have been mace. The debtor taijed to estariish any of t grouncs of opposzticn on whicn spe had relicd. Accordtiagly an order was. mace for the somcstration of hor estate. ft vas further orde red tnat the costs ct the petitioning creditor cf and incide: tal neal to tre debtor's applicatuicns, including c reserved costs, would be in acesrdance with the statute.