. , ) log Restricted Distribution IN THE FEDERAL COURT OF AUSTRALTA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT OF THE SOUTHERN } DISTRICT OF THE STATE OF QUEENSLAND ) QLD BN925 of 1985 RE: David Trevor SELTH EX PARTE: David Trevor SELTH Applicant BLRIC PTY LIMITED Respondent SPENDER J. 17 MARCH, 1986 REASONS FOR JUDGMENT This is anapplication by David Trevor Selth under s.41(7) of the Bankruptcy Act 1966 directed to satisfying the Court that he has a counter-claim, set-off or cross-demand as 1s referred to in paragraph 40(1)(9) of the Act, that is, a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt referred to in the Bankruptcy Notice which has been served on him, being a counter-claim, set-off or cross demand that he could not have set up inthe actual proceeding in which the judgment or order was obtained. On 7 May, 1985, a Bankruptcy Notice directed to Mr. Selth was issued on the request of Elric Pty. Limited (Elric). The Bankruptcy Notice claimed the sum of $5.099.67, said to be a - ears oe eerser cee >. Dames yee op oe ; TT ee ee amount due to Elric as the balance outstanding under a judgment obtained by it against Mr. Selth in the Supreme Court of Queensland on 15 February, 1985. In that action, No.5032 of 1983, the Writ of Summons by Elric against Mr. Selth was issued on 24 November, 1983 claiming $113,309.91, moneys paid by Elric to a third party for and on behalf of Mr. Selth and at his request. On 6 December, 1983, a judgment in default of appearance was entered against Mr. Selth in that sum and costs of $230.90. On 31 January, 1984, on Mr. Selth's application, the default judgment was set aside by consent and the judgment creditor's costs of obtaining judgment and in respect of the application to set aside the judgment by default were awarded against Mr. Selth. On 2 March, 1984, Mr. Selth delivered a defence in the action. On 21 March, 1984, Elric applied for summary judgment against Mr. Selth on the basis that the defence delivered on 2 March, 1984 disclosed no proper defence. On that day, Master Lee Q.C., granted leave to Mr. Selth to file an amended defence and ordered that he pay the judgment creditor's costs of the application to be taxed. On 11 April, 1984, Mr. Selth delivered an amended defence. On 17 October, 1984, he delivered a further amended defence and counter-claim, pursuant to leave granted to him by the judge of the Supreme Court of Queensland sitting in the Commercial Causes jurisdiction. On 22 October, 1984, application was made for the whole of the counter-claim to be struck out. Such application was heard and determined by Mr. Justice Moynihan who, after hearing argument for counsel for both parties, ordered that paragraphs 3, 5, 6, 7, 8 and 9 of the amended defence and counter-claim yi = aaa = . 7 —— yt nee we yee delivered on 17 October, 1984 be struck out and refused the defendant's application to re-plead in the action and ordered Mr. Selth to pay the plaintiff's costs of and incidental to the application, including reserved costs. The trial of the action was heard by his Honour, Mr. Justice De Jersey on 6, 7, and 8 February, 1985 and he gave judgment which founds the present Bankruptcy Notice No.925 of 1985. On 31 July, 1985, Mr. Selth instituted proceedings in the Supreme Court against Elric, those proceedings being 2533 of 1985. The Statement of Claim in proceedings No.2533 of 1985 was delivered on 4th October, 1985. There has been no application by Mr. Selth to stay the execution of the judgment of De Jersey J. on the basis that he has a separate action which is now on foot. Two questions fall for determination. The first 1s whether on examination of the material as filed and the nature of the proceedings in the Supreme Court, Mr. Selth has a "fair chance" of succeeding in his claim against Elric: see the review of the authorities by Lockhart J. in Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd. (1980) 44 F.L.R. 135, and his conclusion at p.141 that "this Court must be satisfied that the debtor has a fair chance of success". The second is whether such claim is one which could not have been set up in the action in which the judgment was obtained. On the first question, while it is unnecessary to reach a concluded view, there are very real difficulties in the way of Mr. Selth's success. Various formulations of his claims against Elric involve what are said to be losses incurred by a company, Co-ownership Land Development Pty.Ltd. Essentially, his claim alleges breaches by Elric of its fiduciary duty leading to the frustration of an alleged joint venture development of land on Stradbroke Island. In addition there are other claims but those claims seem to me to be against parties other than Elric. What is the nature of the loss alleged to have been suffered by Mr. Selth has never been clearly defined. The material does not show whether his claim is based on the diminution in the value of his shares in Co-ownership Land Development Pty.Ltd. ("COLD") as a result of the activities of Elric, or whether in some way he is entitled to all or some part of the Company's loss. In relation to Mr. Selth's entitlement in respect of the development of South Stradbroke land by COLD, he accepted that he personally owned none of the land, that land was owned by COLD and was to be developed by COLD, so that when sold the profit would be made by COLD. In relation to that he was asked, "How was it that you stood to make a profit from the development of Cold's land?", to which he answered (at p.24) "The sale of my shareholding which was and still is an equal alternative to the sale of the dealing of the assets of Co-Ownership Land Development". I strongly suspect that his alleged claim is contrary to the general principle, as expressed in Prudential Assurance Co.Ltd. v. Newman Industries Ltd. (No.2) £1982] Ch 204 at 210:- es ar fa roe . > a ",.-A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to on C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested." See also Gould v. Vaggelas (1984) 56 A.L.R. 31. On the second limb, I amclearly of the view that whatever claim Mr. Selth has against Elric is a claim which, on the authorities, he could have pursued in the action leading to the judgment against hin. Indeed, while there is a different basis suggested in some of the material, in his evidence before me Mr. Selth made it plain that his claims against Elric which he 28 now pursuing in proceedings No.2533 of 1985, are the claims that he attempted to put before the Court by way of counter-claim in proceedings No.5033 of 1983. Mr. Selth, in December, 1983, in support of his application to set aside judgment by default, swore that he had instructed his solicitors to prepare and draw a defence and counter-claim in the action and he anticipated that that pleading would be settled by counsel in one week. The defence which was delivered in March, 1984, raised the question of the joint venture in relation to the development of Stradbroke Island land and COLD's inability to complete that project and to the alleged hindrance of one Lord in relation to that development. In the course of his evidence before me, he was asked, "Can you tell us why solicitors acting apparently on your a instructions put in a defence raising some of the issues you now rely on but did not put ina counter-claim?". To which he answered, "I told you there were simply not enough funds to pay them to do the detailed preparation of the statement of claim". (This appears at 16-17). He was asked, "Are you telling us that Morris, Fletcher & Cross filed a defence or delivered a defence on your behalf but refused to deliver a counter-claim because of lack of funds on your part, because you would not pay? - "I am not saying they specifically refused to deliver a counter-claim. I am simply saying the work stopped in all its aspects, and part of the work would have been the drawing, engrossing, and settling of a statememt of claim." He was asked why mo counter-claim was delivered although two defences were, to which he said that because of the amount of work which was involved in the preparation of the counter-claim, with all the goodwill in the world, he said, he was not able to get the statement of claim to a point where counsel could be briefed to settle it. In respect of the counter-claim delivered in October 1984, he admitted, that it was done at the last moment and it was just a pleading "which might not have led to this occasion had it been done more thoroughly and fees properly available." Mr. Selth was not allowed to re-plead his counter-claim because it had been defectively formulated, not because of reasons of convenience or efficient disposal of the business of the Court or because it would embarrass other parties. wy MONTY TEED Oe mT tee gc coma Tome aaa In Re Waterhouse (1960) 18 A.B.C. 147, Clyne J. dealt with a situation where a first instance judgment by default had been signed against a debtor in the sum of£7070.00. Later, a judge of the Supreme Court ordered that an application by the debtor to set aside this judgment be dismissed unless within twenty-one days he paid into Court the sum of£3,000.00 as security for the amount claimed and costs; if this be done the judgment should be set aside and the debtor let in to defend. The sum of £3,000.00 was not paid into court within the time limit or at all and the judgment accordingly remained. Clyne J. said, at p.149:- "The applicant is at the outset on this application confronted with an obstacle which, in my opinion, is fatal to his application. If he was unfortunate and prejudiced by the fact that a judgment was obtained against him by default, he was given an opportunity of contesting the claim as set out inthe writ of the respondent, but subject to a condition that he pay into court a sum of £3,000.00. That he did not or could not pay this sum into Court may be another misfortune suffered by the applicant but the order of Manning J. I cannot disregard." He referred to In Re Isaac: Ex parte Isaac (1885) 2 Mor. 258, where a debtor against whom judgment had been obtained by default had obtained leave to defend on payment of a sum of money into court which he neglected to do. Judgment was therefore signed and a bankruptcy petition issued, on which a receiving order was made. It was held on appeal that the debtor had had ample opportunity to set up the alleged set-off in the action which he had neglected to do, and that the order of the County Court was a right order. Ve ck owe * a a ~ In Re Brink: Ex parte The Commercial Banking Company of Sydney Ltd., (supra), Lockhart said at 139:- "The words 'that he could not have set up in the action or proceeding in which the judgment order was obtained', mean 'which he could not by law set up in the action': see Re Jocumsen (1929) 1 A.B.C. at 85; Re a Debtor per Avory J. [19143 3 K.B. at 730; and Re Stockvis (1934) 7 A.B.C. 53, especially per Lukin J. where his Honour said: 'I take a counter claim, set off or cross demand which could not be set up as' one which, from the point of time, or from its nature, or from absence of empowering provisions, or from a _ positive inhibition so todo, 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' (at 57)." Here, there was no legal impediment to the setting up of Mr. Selth's claim in the action. In my opinion, mere lack of funds or lack of time or lack of expertise or a combination of those is not a proper basis for concluding that the claim is one which he "could not have set up in the action." It follows that I am not satisfied that Mr. Selth has such a claim as is referred to in s.40(1)(g). bocaly Gant dV cd ds F preceding rie ni Quen oi tig reasens 107 eorper. To. ob reg Foncur Peo gst go D208? 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