1 wea, éCATCHWORODS BANKRUPTCY - Bankruptcy Notice - Application to set aside - Sufficiency of affidavit under 5.41(7) - Necessity to satisfy court that debtor has requisite counter-claim, set-off or cross demand - Whether counter-claim could not have been set up in the action in which the. judgment was obtained. ! Bankruptcy Act 1966 (Cth) ss.40(1)(q) and 41(7) Local and District Criminal Courts Act 1926 (S.A.) ss.79(1) & (2) RE: BARRY PATRICK HODBY Debtor EX PARTE: JOHN KENNY Creditor FISHER J. ADELAIDE 14 OCTOBER 1986 IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY ) No.166 of 1986 ) GENERAL DIVISION ) BETWEEN: Re: BARRY PATRICK HODBY Debtor Ex Parte: JOHN KENNY Creditor MINUTE OF ORDER JUDGE MAKING ORDER : FISHER J. WHERE MADE : ADELAIDE DATE OF ORDER THE COURT ORDERS THAT: 1. Pursuant to s.41(7) of the Bankruptcy Act 1966 14 OCTOBER 1986 (Cth) time for compliance with the bankruptcy notice extended to, and including the 14th day of October 1986. 2. The application to set aside the bankruptcy notice dismissed. 3. The debtor pay to the creditor his costs proceedings, the same to be taxed if not agreed. of the Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124. IN _ THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY) GENERAL DIVISION No. 166 of 1986 BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA Re: BARRY PATRICK HODBY Debtor Ex Parte: JOHN KENNY Creditor REASONS FOR JUDGMENT FISHER J. : On 11 September 1985 John Kenny ("the creditor") obtained judgment by consent against Barry Patrick Hodby ("the debtor") in the Local Court of Adelaide in the sum of $30,000. On 25 February 1986 the Registrar issued a bankruptcy notice directed to the debtor which vas served on him on 6 March 1986. Time for compliance with the bankruptcy notice was fixed for 14 days from the date of service. On 20 March 1986, within the said period of 14 days, the debtor filed with the Registrar an affidavit. It was intended that this affidavit satisfy the requirements of sub.s.41(7) of the Bankruptcy Act 1966 (Cth) ("the Act") which subsection operates to extend the time for compliance by the debtor with the bankruptcy notice. On the same day the debtor made application to this Court for an order that the bankruptcy notice be set aside. 2. Two provisions of the Act fall for consideration in these proceedings. Sub-paragraph 40(1){g), to the extent here relevant, provides: "40(1) A debtor commits an act of bankrupcy in each of the following cases:- eae {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-clain, 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;" Subsection 41(7) is in the following terms: "41(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankrupty 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 40(1)(g), 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 50 satisfied." The two principal issues which this Court must determine are whether the affidavit, filed on 20 March 1986 complied with - 3. the requirements of sub.s.41(7) and, if it was such an affidavit, whether the Court is satisfied that the counter-claim, set-off or cross demand which the debtor alleged he had, could not have been set up in the action in which the judgment was obtained. In respect of the first issue, in Re Brink; Ex Parte The Commercial Banking Company of Sydney Ltd. (1980) 30 A.L.R. 433 G 440 Lockhart J. expressed his opinion, with which I agree, that the affidavit, for the purpose of determining compliance, should be construed benevolently. He said on that page: "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, (£19631 1W.L.R. 51 per Upjohn L.d. at p.56. The fact that it is within the power of the court to determine when the hearing of a matter under 5.41(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 case(s), 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." This approach was approved and adopted by a Full Court of this Court in Eastick v Australian and New Zealand Banking Group Ltd. (1981) 53 F.L.R. 91. In the present matter the debtor filed two affidavits and sought to rely on both for the purpose of establishing 4. compliance with sub.s.41(7). The first was filed, as previously related, prior to the expiration of the time for compliance with the bankruptcy notice. A second affidavit was filed subsequent to that time. Furthermore the debtor also sought to rely on an affidavit sworn by his solicitor, and two affidavits sworn by the solicitor for the creditor. The three last-mentioned affidavits were also filed subsequent to the time fixed for compliance by the debtor with the bankruptcy notice. Counsel for the creditor contended that the Court should, for the purpose of determining whether the requirements of sub.s.41(7) have been satisfied, limit its consideration to the first affidavit filed by the debtor. I agree with this submission as it is in my opinion the sufficiency of this affidavit which determines whether time for compliance was automatically extended. Lockhart J. in Re Brink supra did not expressly advert to the question whether the original affidavit only can be considered by the Court when having regard to sub.s.41(7). However at page 439 his Honour said the following: "Upon the hearing of a matter under sub.s.41(7) the court has before it the initial affidavit which brings the sub-section into play. There may, of course, be no other evidence. On the other hand there may be a great deal of evidence. This will depend upon the circumstances of each case. Plainly this court has power to permit the debtor to supplement his case by additional evidence. The initial affidavit filed under s.41(7) operates to extend time for compliance with the requirements of the bankruptcy notice until the court determines whether it is satisfied that the debtor has the requisite counter-claim, set-off or cross demand." 5. Counsel for the debtor relied upon this statement as indicating that the Court should have regard to further evidence when considering whether he had complied with sub.s5.41(7). In my opinion however the context indicates that His Honour was rather referring to the Court's consideration of the question whether the debtor had for the purpose of para.40(1)(g) the requisite counter-claim. His Honour was at pains in his judgment to direct his comments to what he called "the original affidavit". Subsection 41(7) operates to extend the time for compliance up to the time that the Court makes a finding pursuant to para.40(1)(g). An affidavit filed within the time and in accordance with sub.s.41(7) is the one upon which the debtor must rely as answering the description of "an affidavit to the effect" that he had a counter-claim, set-off or cross demand which could not have been set up in the action in which the judgment had been obtained. This affidavit need not contain or indicate the evidence on which the judgment debtor will rely upon in his attempt to have the bankruptcy notice set aside: Eastick v Australian & New Zealand Hanking Group, supra at p.95, Therefore, in my opinion I should limit my consideration to the debtor's affidavit filed on 20 March 1986 for the purpose of determining compliance with sub.s.41(7) and, if s0, the consequential extension of time. 6. Counsei for the creditor submitted that that affidavit did not satisfy the requirements of the subsection because it merely asserted that a counter-claim, set-off or cross demand existed and that it could not have been set up in the action where the judgment was obtained. The debtor had sworn in this affidavit filed prior to expiration of the time fixed for compliance with the bankruptcy notice as follows: "3. QI believe that I have a counter-claim exceeding the amount claimed in the said Bankruptcy Notice, namely $30,000.00. 4. The counter-claim is for monies due to me by the creditor herein John Kenny (hereinafter called "Kenny") Pursuant to an agreement between myself and Kenny made on or about 8th March 1978. 5. The agreement related to the purchase of shares in a company called Wiltshire Holdings Pty. Ltd. which later changed its name to Elm tree Lodge Pty. Ltd. (hereinafter called "the company"). 6. The principal terms of the agreement were that I would finance the purchase of all of the shares in the company to be held equally by or under the control of myself and Kenny and that Kenny or a company under his control called Eljay Pty. Ltd. would repay be in due course for his half portion of the shares. 7. The purchase price of all the shares was approximately §404,000 and therefore the sum due to me by Kenny or his company was approximately $202,000.00. 8. Kenny and Eljay Pty. Ltd. agreed to pay to me interest on the sum of $202,000.00 at the rate of 12.5% per annum until such time as he paid for his half of the shares. 9. Kenny never paid me for his half of the shares and eventually the shares were transferred to me. This occurred on or about the 3rd day of July 1981. 10. Kenny or Eljay Pty. Ltd. has not paid to me any of the interest due to me pursuant to the agreement described above. The amount which Kenny and Eljay Pty. Ltd. owes me pursuant to the terms of the agreement is 7. approximately Eighty three thousand seven hundred and seventy-five dollars ($83,775.00). 11. I believe it was not possible for me to have set up my counter-claim in the action in which the judgment referred to in the Bankruptcy Notice was obtained. That action was concerned only with money allegedly loaned by Kenny to the company and was not related to the share dealings in the company between myself and Kenny. Those share dealings are now the subject of Action No.2535 of 1984 in the Supreme Court of South Australia in which Eljay Pty. Ltd. is the plaintiff and Iam the defendant." In Brinks case, Lockhart J. stated as follows at p.440: "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 counter-claim, 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." In my opinion the initial affidavit of the debtor satisfies the requirements of 5.41(7). It was not disputed that the alleged counter-claim exceeded the amount of the judgment debt. Qn the question whether that counter-claim could not have been set up in the Local Court action the debtor has sworn that that action was concerned only with money allegedly loaned by the creditor to Elm Tree Lodge Pty. Limited. He further relied upon the fact that it was not related to dealings between himself and the creditor in relation to shares in that company. This contention on its face could well be correct and, as ultimately 8. happened, it required much investigation of complex facts as well as the provisions of the Local and District Criminal Courts Act 1926 (S.A.) to determine otherwise. In my opinion the affidavit contained facts which in the circumstances of this matter are sufficient to satisfy the requirements of sub.s.41(7) of the Act. In consequence, time for compliance with the bankruptcy notice has automatically.been extended. The next question is whether I am satisfied that the counter-claim, set-off or cross demand which the debtor alleged he has, could not have been set up in the action in which the judgment was obtained. In this regard it is necessary to recite the facts and the provisions of the legislation upon which counsel for the creditor relied. The circumstances in which the dispute arose are as follows. On 9 September 1983 the creditor commenced proceedings in the Local Court of Adelaide claiming the sum of $24,844 from the defendant Elm Tree Lodge Pty. Ltd ("the first defendant"). This amount was increased to $29,844 by leave granted on 28 October 1983. In his particulars to the summons the creditor identified his claim as being for the balance of monies due and owing by the first defendant to himas plaintiff on a running loan account for monies lent by him to that defendant at that defendant's request. The first defendant by its amended defence for which leave was granted on 28 October 1983 denied its indebtedness. On 6 July 1984 leave was granted to the creditor 9. to join the debtor as an additional defendant and on the same date leave was also granted to file amended particulars of claim. These particulars, dated 13 July 1984, in so far as they related to the claim against the debtor as second defendant were as follows: "2. As against the Second Defendant, the Plaintiff pleads as follows:- 2.1- The First Defendant by paragraph 4 of its Amended Defence has Pleaded an alleged agreement between the Plaintiff and the First Defendant whereby the Plaintiff's Loan Account was debited against the amount owing to him by the First Defendant. 2.2 The Plaintiff has requested the First Defendant to provide further and better particulars of the said alleged agreement and in reply to the Plaintiff's said request the First Defendant has supplied a copy of a purported agreement between the Plaintiff and the Second Defendant dated the 18th day of November, 1982, whereby the Plaintiff and the Second Defendant agree to indemnify the First Defendant against any monies paid by it to one Margaret Gibbs pursuant to a certain out of Court settlement. 2.3 The Plaintiff denies and by his Reply herein has denied that the said agreement binds him or that it renders him liable to indemnify the First Defendant. 2.4. In the event that the said agreement does bind the Plaintiff (which is denied) and the Plaintiff is thereby liable to indemnify the First Defendant (which is denied) then the Plaintiff claims contribution from the Second Defendant as a joint or joint and several co-indemnifier pursuant to the said agreement in respect of any sum which by virtue of the said agreement the First Defendant is entitled to set-off against the Plaintiff or otherwise to reduce its liability to the Plaintiff on his claim against the First Defendant herein." 10. On 16 October 1984 the debtor as second defendant filed a defence to the creditor's claim and also, significantly, a counter-clain. The defence and counter-claim were in the following terms: The second defendant denies that the plaintiff is entitled to contribution from him as a joint or joint and several co-indemnifier pursuant to the agreement referred to in paragraph 2.2 of the Amended Particulars of Claim or at all. The second defendant says that:- (i) By Deed dated the 18th day of November 1982 executed by the plaintiff and the second defendant, the plaintiff and the second defendant agreed to indemnify the first defendant against any monies paid by it to one Margaret Gibbs pursuant to a certain out of Court settlement. (11) The sum of §25,000 paid to the said Margaret Gibbs in July 1983, being the whole of the monies agreed to be paid in respect of the said out of Court settlement, was paid by and on behalf of the second defendant for and on behalf of the first defendant. (iii) By reason of the said payment the liability of the second defendant pursuant to the said Deed was discharged. COUNTER-CLAIM On the lst day of March 1978 to the 14th day of January 1983 the second defendant was a director and shareholder of the first defendant, Elm Tree Lodge Pty. Ltd. From the lst day of March 1978 until the llth day of November 1982 the Plaintiff was a director of the first defendant. By Deed dated the 18th day of November 1982 executed by the plaintiff and the second defendant, the plaintiff and the second defendant jointly agreed to indemnify the first defendant against any monies paid to one Margaret Gibbs pursuant to a certain out of Court settlement. On or about the 7th day of July 1983 the sum of The superseded hy November 1984 ll. $25,000 was paid by and on behalf of the second defendant at the request or and for and on behalf of the first defendant to the said Margaret Gibbs in settlement of a claim made by her against the first defendant in Local Court of Adelazrde action no. 37920 of 1982. Pursuant to the terms of the said Deed the second defendant hereby claims contribution in the sum of $12,500 from the plaintiff as a joint or co-indemnifier with the second defendant of the said liability of the first defendant to the said Margaret Gibbs. DATED the 16th day of October 1984." creditor's particulars of 13 July 1984 were further amended particulars of claim dated 14 in which the complexity of the dispute between the creditor and debtor became apparent. As against the debtor the creditor pleaded and particularised his claim as follows: "Plaintiff's Claims Aqainst the Second Defendant 2. By agreement signed and dated the 18th day of November, 1982, ("the agreement") the Plaintiff and the Second Defendant agreed to indemnify the First Defendant in the following terms: 'WHEREAS BARRY PATRICK HODBY of 79 Light Square Adelaide 5000 and JOHN CYRIL KENNY of 2 Gladstone Street Fullarton 5063 are in disagreement as to the amount of money (1f any) due to Margaret Gibbs by Elm Tree Lodge Pty. Ltd. (hereinafter called the Company) and whereas the audited accounts of the Company signed by both of them as a true and correct record of the Company's affairs as at the 30th of June, 1982 reveal no debt exists at all now this deed witnesseth that it is hereby agreed that the said BARRY PATRICK HODBY and JOHN CYRIL KENNY indemnify the said Company against any monies paid to Margaret Gibbs pursuant to the out of court settlement and the Company shall have a first charge over any monies due by it to BARRY PATRICK HODBY and JOHN CYRIL KENNY until satisfaction of the indemnity by the said BARRY PATRICK HODBY and JOHN CYRIL KENNY.' 10. 12. The aforesaid out of Court settlement was for the sum of $25,000.00. The Plaintiff has claimed from the First Defendant the sum of $29,844.00 due and owing on a running loan account and the First Defendant has claimed to set off against any sum which it owes the Plaintiff the sum of $25,000.00 which it alleges it paid pursuant to the aforesaid out of Court settlement. On the 18th day of November, 1982, and at ail other material times the Second Defendant was a director of the First Defendant. At or prior to the time of the Plaintiff signing the agreement, the Second Defendant expressly and/or implied represented to the Plaintiff that: 6.1 The Plaintiff was a director and beneficial owner of one half of the issued capital of the First Defendant and accordingly had a material financial interest in the well-being of the First Defendant; 6.2 The Plaintiff was required to sign the agreement 50 that the First Defendant's banker would make a loan thereby avoiding acute financial difficulties for the First Defendant. The Plaintiff signed the agreement at the rqeust of the Second Defendant and in reliance upon the said representations. The Plaintiff has since discovered that the Second Defendant has caused to be lodged with the Corporate Affairs Commission documents apparently effectingyhe Plaintiff's removal as a director of the First Defendant on and from 11th November, 1982. The Plaintiff has continued to claim beneficial ownership of one half of the issued capital of the First Defendant but the Second Defendant has since 18th November, 1982, maintained and continues to maintain that at all material times he owned or controlled the entire issued capital of the First Defendant to the exclusion of the Plaintiff and has sold all or a majority of the shares in the First Defendant without accounting to the Plaintiff. In the event that it be found as the Second ll. 12. 13. Defendant now alleges that the Plaintiff was not on the 18th day of November, 1982, or at any other material time, a director of the First Defendant, not beneficially interested in the First Defendant, the Second Defendant made the said representations well knowing they were false or recklessly not caring whether they were true or false. Alternatively, the said representations were innocent misrepresentations and the Plaintiff will rely so far as applicable upon the provisions of the Misrepresentation Act, 1971-1972. In the premises, the Plaintiff claims: 12.1 As against the First Defendant, the sum of $29,844.00; 12.2 As against the Second Defendant: 12.2.1 A declaration and/or order that the Plaintiff is entitled to damages against the Second Defendant in such sum, 1f any, as the first Defendant May be entitled by reason of the agreement to deduct from the monies it otherwise owes the Plaintiff; 12.2.2 A declaration and/or order that the Plaintiff is entitled to such contribution from the Second Defendant as a co~indemnifier as the Court deems just and equitable in respect of such sum, if any, as the First Defendant may be entitled by yeason of the agreement to deduct from the monies it otherwise owes the Plaintiff; 12.3 Interest; 12.4 Costs. DATED the 14th day of November 1984." The following year Court action r next significant step was an application the by Elm Tree Lodge Pty. Ltd. to have the Local emoved into the Supreme Court and heard together 14. with a Supreme Court Action commenced in the preceding year wherein Eljay Pty. Limited was the plaintiff and the debtor was defendant. The debtor was represented on the hearing of this application but made no submissions in support thereof. This application was refused on the ground that the Local Court had no jurisdiction to remove matters to the Supreme Court, and that the application should have been made in that latter Court. It is pertinent to note at this stage the pleading in these Supreme Court proceedings. Eljay Pty. Limited had on 22 August 1984 issued out of that Court a writ claiming against the debtor as follows: "Damages for conversion and further or in the alternative for detinue and further or in the alternative for breach of trust in relation to the Plaintiff's shares in Elm Tree Lodge Pty. Ltd., which shares were disposed of by the Defendant unlawfully and without the knowledge or consent of the Plaintiff in or about 1982." The debtor entered an appearance on 11 February 1985 and a statement of claim was subsequently filed. On 24 October 1985 the debtor filed a defence in the Supreme Court in which he denied Eljay's essential allegations in the statement of claim. On 1 August 1986 during the currency of the proceedings in this Court the debtor obtained leave to amend this defence and file a counter-claim and cross-claim against Eljay Pty. Ltd and the creditor. This counter-claim spelt out for the first time the nature of the claim which the debtor alleged he could not have set up in the Local Court proceedings. 15. It was as follows: DEFENCE The defendant denies the allegations contained in paragraph 1 of the Statement of Clain. The defendant admits the allegations contained in Paragraph 2 of the Statement of Clain. The defendant denies the allegations contained in Paragraphs 3 -5 inclusive of the Statement of Clain. COUNTER-CLAIM In or about March 1978 the defendant agreed at the request of John Cyril Kenny (hereinafter referred to as 'the defendant by cross-claim') to loan jointly and severally to the plaintiff and the defendant by cross-claim the sum of approximately $202,000 (hereinafter referred to as 'the principal sum') to enable the plaintiff and the defendant by cross-claim to purchase 200 ordinary shares in a company then called Wiltshire Holdings Pty. Ltd. but which subsequently changed its name to Elm Tree Lodge Pty. Ltd. It was aterm of the said agreement that the plaintiff or the defendant by cross-claim would re-pay to the defendant the principal sum. It was a further term of the said agreement that the plaintiff or the defendant by cross-claim would pay interest on the principal sum at the vate of 12.5% per annum, such interest to be paid at or about the time that the principal sum was repaid or failing repayment of the principal sun, upon demand. In breach of the said agreement the plaintiff and the defendant by cross-claim failed to repay the principal sum to the defendant and the said shares were subsequently transferred to the defendant by the plaintiff on or about the 3rd day of July 1981. On a number of occasions after 3rd July 1981 the defendant demanded by verbal request payment from the plaintiff and defendant by cross-claim of the interest due to the defendant pursuant to the terms of the agreement referred to above. 16. 9. The plaintiff and the defendant by cross-claim have failed to pay to the defendant any of the interest due to the defendant pursuant to the terms of the said agreement. AND the plaintiff claims as against the plaintiff and the defendant by cross-claim: 1. The sum of $84,119.57 being interest on $202,000.00 from March 1978 to 3rd of July 1981 at the rate of 12.5% per annum. 2. Interest. 3. Costs. DATED this lst day of August 1986." It is apparent therefore that, stated shortly, the debtor's counter-claim was for $84,119.57 being interest due and payable by the creditor to the debtor in the circumstances set out in the counter-clain. This claim was identified in Paragraphs 8 and 10 of the debtor's affidavit filed in this Court on 20 March 1986. Counsel for the debtor contended that this claim for interest could not have been set up in the Local Court on two grounds, namely because of the provisions of the Act establishing and regulating that Court and the pendency of the action in the Supreme Court. It was not disputed that the debtor was entitled to contend that he had had a counter-claim against the creditor for an amount exceeding the judgment debt. This amount was within the monetary jurisdiction of the Local Court. The point in issue was whether this counter-claim could have been set up in the creditor's action in the Local Court. Judge Lukin 17. in Re Stokvis (1933-34) 7 A.B.C. 53 @ p.57 made reference to such a counter-claim. He said: "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 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. Here, from the point of view of time, from its nature, and from the empowering provisions of the Act and rules, the counter claim might have been set up if Stokis had wished, or chosen, to do s0. Mere failure to take advantage of the opportunity can hardly be said to be inability." The relevant provisions of the lhocal and District Criminal Courts Act 1926 (S.A.) upon which the debor relied are as follows: "79. (1) Subject to subsection (2) hereof, a defendant may set-off or set-up by way of counter-~-clain, against the claims of the plaintiff, any right or claim against the Plaintiff, or against the plaintiff and one or more persons jointly answerable, whether such set-off or counter-claim sound in damages or not, and such set-off or counter-claim shall have the same effect as a claim ina cross-action, 50 as to enable the court to pronounce a final judgment in the same action, both on the claim and on the counter~clain. (2) The court, or before trial a Judge or special magistrate, on the aplication of the plaintiff or any person joined with the plaintiff in the set-off or counter-claim may, if of opinion that such set-off or counter-claim cannot be conveniently disposed of in the pending action, or ought not to be allowed, refuse permission to the defendant to avail himself thereof, and make such other order as it is or he may think fit." The debtor contended that he could not have set up his claim against the creditor for payment of outstanding interest in the Local Court proceedings as that Court had a discretion 18. which it would have without doubt exercised to refuse an application to this effect by the debtor. Any attempt to do s50 would have been refused under the inherent powers of the Court or sub.s.79(2). To make an application in the circumstances was, it was submitted, a waste of time as it was obvious that the counter-claim could not be conveniently disposed of in the pending action I must reject this submission. Section 79(1) gave to the debtor a right to set up a counter-claim, which right he had already in fact taken up. This right is subject only to the provisions of sub.s.(2). It is pertinent to note that it is for the plaintiff to make application under that subsection and upon his application the Court may make an order refusing the defendant permission to counter-claim. It is my opinion that it is not for this Court to speculate whether the creditor would have made such an application and further, if he had, whether the Court, or a Judge or Magistrate thereof would refuse the debtor permission to set up the counter-claim. The fact is that the debtor made no attempt to set up the counter-claim for interest in the Local Court, which Court was the Court in which, for the purpose of para.40(1)(g) of the Act the judgment was obtained against him by the creditor. It does not assist the debtor to —$$SSSo Sr contend, maybe correctly, that the Court could itself, in the ve absence of an application by the plaintiff creditor, refuse to cieniemmntandiietinmie tel AN ronan on man arrest eerie Im hear the counter-claim for interest. It has not done so. inane Ee STATENS lane oA SINR ER TEE BS REN MC LAR Oe meres » Ae UU 19. In my opinion the debtor has failed to satisfy me that he could not have set up his claim for interest in the Local Court action. Doubtless it would have been necessary for him to obtain leave to amend his existing counter-claim filed on 16 Qctober 1984 to add this claim for interest. If this application for leave to amend had been refused, he would have, in my opinion, satisfied the requirements of para 40(1)(g). Furthermore if the creditor had made application under sub.s.79(2) either before or at trial, the Court might have in its discretion refused him the right to set-up the counter-claim in the creditor's action on the ground that the counter-claim could not be conveniently disposed of or ought not to be allowed. In these circumstances also the debtor would have satisfied this Court that he could not have set up his counter-claim in the creditor's Local Court proceedings. The debtor does not satisfy these requirements by contending that in all probability he would —_—— EL eR Pec at /FecsaPEAT PLT have been refused any attempt to do so. CL A It was also said that the existence of the Supreme Court action would have denied the debtor the right to set up his claim for interest in the Local Court. On 22 August 1984 the Supreme Court proceedings were commenced by Eljay Pty. Limited. However the debtor's initial defence was not filed in these proceedings until 24 October 1985 and his counter-claim until 1 August 1986. Judgment had already been entered in the Local Court proceedings on 11 September 1985, that is prior to the time that the debtor had filed him defence in the Supreme Court. It may well be that wave . 20. the subject matter of the Supreme Court proceedings was more akin to the debtor's claim for interest, as these proceedings concerned shares in Elm Forest Lodge Pty. Ltd. However this fact did not necessarily require that the claim for interest be made only in the Supreme Court and the essential fact is that the debtor made no attempt to set up that claim in the Local Court. It was always open to him to make application, for leave if such was necessary, to do so. I reject the debtor's contention that he has complied with the requirements of para.40(1)(g) of the Act. I also reject his application to set aside the bankruptcy notice. It follows that he will have committed an act of bankruptcy if he fails to comply with the bankruptcy notice, time for compliance with which has been extended by sub.s.41(7) to this day. The debtor must Pay the creditor's costs of these proceedings. ~ I certify that this and the /7 preceding pages are a true copy of the Reasons for Judgment of Mr Justice Fisher. associate AKA Cpe Dated: 147 Octo 786