: Wd For Conerd QM "T4777 IN THE FEDERAL COURT ) OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT ) ) ) OF THE STATE OF WESTERN AUSTRALIA NO. B4 OF 1987 RE: RENWICK CHARLES MOMBER Debtor EX PARTE: CORREIA FISHING CO (WA) PTY LTD Creditor CORAM: FRENCH J. 23 March 1987 EX TEMPORE REASONS FOR JUDGMENT On 7 January 1987 the creditor procured the issue of a bankruptcy notice against the debtor in respect of a judgment of $22,683.86 being a judgment that the creditor had obtained in action number 2723 of 1986 on 17 September 1986 in the District Court. The judgment was in fact for the amount of $18,866 plus $3,212.91 interest and costs to be taxed which were ultimately allowed at $604.95. The debtor seeks to set aside the bankruptcy notice so 1ssued and has filed an affidavit sworn 17 February 1987 in Support of tnat application. The affidavit indicates that in or about 1974 the debtor began dealing with the creditor which was then operbeitg 'three FEDERAL 2c J=7 CF AUSTAAL * PRINCIPAL REGISTPY * 2 ' ey ote et 2. fishing vessels. He purchased prawns from the creditor and established a market for those prawns in Sydney over a period of time. He claims to have had an agreement with the creditor in that he would supply the creditor's prawns exclusively to a number of interstate purchasers, among them Vincento Musumeci, trading as Waterfront Fisheries and a company Chien Wah and Co. Ltd in Melbourne. That agreement was said to have been made in 1974 and thereafter according to the debtor he supplied the creditor's prawns to those two buyers, among others, on an exclusive basis. The nature of the exclusivity 1s not elaborated. In or about April 1985 the debtor says he entered into a contract to supply Waterfront Fisheries with a quantity of prawns and thereafter entered the contract with the creditor for the purchase of those prawns which were duly transported to the premises of Waterfront Fisheries in Sydney. Waterfront Fisheries evidently complained to the debtor about the price of the prawns that he was selling and expressed a wish to deal direct with the creditor. The debtor so informed Manuel Correia, a principal of the creditor company. In or about May or June 1985 Corre1a, according to the debtor, went to Sydney and told Waterfront Fisheries that the creditor would supply prawns to Waterfront Fisheries directly and bypass the debtor. 3. This arrangement was put into effect and according to the debtor he has since sold no prawns to either Masumeci or Chien Wah and Co. Ltd until a recent agreement to take 100 cartons per month from 1 March 1987. His arrangement with Musumeci of Waterfront Fisheries had continued for many years and he says, was earning him a net monthly profit of about $880. The arrangement with Chien Wah and Co. Ltd was earning a net monthly profit of approximately $220. The debtor contends, that by reason of the creditor's breach of the contract made between them in 1974 whereby he was to act as the creditor's agent for the supply of prawns to Waterfront Fisheries and Chien Wah and Co. Ltd, he had an action for damages against the creditor, the value of which would exceed _ the creditor's claim against him. After instituting the proceedings in the District Court sae the creditor made application for summary judgment. On Friday, 12 September 1986 the debtor consulted solicitors in relation to the summary judgment application which was to be heard on 17 September at 9.45 am. He says that the solicitors were instructed to appear at the court and to apply for an adjournment on his behalf so that an affidavit in reply could be filed. 4. On Wednesday, 17 September he says, the solicitor whom he had instructed to appear on the chamber summons did not appear due to an oversight on her part and accordingly judgment was 1ssued against him in the sum of $18,866 with a further order for costs to be taxed and interest to be paid. At the date of hearing of the judgment, the solicitors instructed were not on the record for him in the District Court. The debtor says that by reason of these events, his counterclaim could not have been set up in the action in which the judgment was obtained. By way of reply affidavit, Mr Manuel Fernandez Correia, the managing director of the creditor denies that there was ever any exclusive agreement between the creditor and debtor in relation to the supply of prawns to Waterfront Fisheries and says that he was unaware of any relationship between the debtor and Chien Wah and Co. Ltd. At the time of the creditor's dealings with the debtor he says the creditor was already supplying prawns to a number of large wholesalers in the east, and was quite prepared to deal with the debtor as an agent although the creditor did not know who the debtor's principals were. He says that when he was approached by Waterfront Fisheries to supply prawns he was aware of a dispute between the 5. debtor and Waterfront Fisheries and advised them that he would only supply prawns to them 1f they resolved their dispute with the debtor and if they had suitable credit references. As far as he knew the dispute was never resolved and his company never supplied prawns to Waterfront Fisheries. tHe says therefore that there was no breach of any contract by the creditor. There 1s a conflict of evidence on the affidavits which cannot be resolved by mere reference to the materials filed in this Court. However, I think notwithstanding that, that the application is able to be dealt with on those materials. As was observed by Lockhart J. in Re Sterling; Ex parte Esanda Limited (1980) 44 FLR 125, there 1s nowhere in the Act that the Court 1s expressly empowered to set aside bankruptcy notices, however I respectfully agree with his Honour's view that a source of the power 1s to be found in sub-s.(1) of s.30 of the Bankruptcy Act 1966 which provides:- "The Court - (a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any Matter under Part X or Part XI coming within the cognizance of the court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter." 6. The application to set aside the bankruptcy notice in this case relies upon the criterion in s.40 of the Bankruptcy Act which provides:- "A debtor commits an act of bankruptcy in each of the following cases:- (g) 1f 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- (1) where the notice was served in Australia - within the time fixed by the Registrar by whom the notice was issued; or (2) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service comply with the requirements of the notice or satisfy the Court that he has a counterclaim, 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 counterclaim, 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." If the debtor can so satisfy the Court then there is a basis for setting aside the bankruptcy notice. To satisfy the Court of the existence of the relevant counterclaim, set-off or cross demand it 1S not necessary that the debtor establish its validity to the hilt. 7. ""...ethe debtor must show that he has a prima facie case, even 1f 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 the counterclaim, set-off or cross demand." Ebert v Union Trustee Co. of Australia Limited (1960) 104 CRLR 346 at 350. In Voqwell v Vogwell (1939) 11 ABC 83, a decision of the High Court concerned with s.523 of the Bankruptcy Act 1924, Latham CJ with whom Starke and McTiernan JJ agreed, said at 85:- "The words of the section are that the debtor must satisfy the court that he has a "counterclaim, set-off or cross demand which equals or exceeds the amount of the judgment debt". In the first place it 1s accordingly clear that the counterclaim, set-off or cross demand must be something sounding in money. It 1s also obvious that the section does not apply or refer to an already established right. If there were an already established set-off, for example, the judgment debt would have been reduced pro tanto and if there had been a counterclaim or cross demand which had already been applied as against the amount of the judgment the position would have been entirely different. What the section contemplates 1s a claim to the enforcement of a right sounding in money. It must be a real claim; it 1s insufficient that the debtor believes that he has a claim and the authorities show that the matter to which the court looks 1s this - whether it 1s just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it 1s a claim which it 1s proper and reasonable to litigate. That is the effect of the decision in Re Rivett; Ex parte Edward Fay Ltd ((1932) 5 ABC 182) and Re Duncan; Ex parte Modlin ((1917) 17 SR(NSW) 152). Therefore, there must appear to be some substance 1n the counterclaim, set-off or cross demand which is relied upon." In Re Brink (1980) 44 FLR 135 at 142, Lockhart J. said:- "...the affidavit can not 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." &. His Honour did however accept that in many cases it would be difficult in the time available for the debtor to present more than an outline of his case. His observations were approved by the Full Court in Eastick v Australia and New Zealand Banking Group Limited (1981) 53 FLR 91 at 93. The affidavit filed by the debtor in the present case gives a fairly patchy outline of the basis upon which he contends that he has a counterclaim against the creditor. Nevertheless it might be that the material set out in that affidavit would be sufficient in the light of the observations made by Lockhart J., to establish that there was a bona fide dispute giving rise to a counterclaim against the creditor in this case. However having reached that point, that 1s not the end of the matter. The counterclaim must be one which could not have been set up in the action in which the judgment was obtained. In this case, the basis upon which it 1s contended by the debtor that the counterclaim could not have been set up in this action, is that his solicitors failed to appear at a summary judgment application to be heard on 17 September 1986. 9. It 1s not suggested that there 1s any other bar to the setting up of the counterclaim in the proceedings and indeed, Mr Metaxas for the debtor, expressly conceded that the claim for damages adverted to 1n his client's affidavit would have been able to be pleaded as a counterclaim within the rules of the District Court. It seems to me that whatever the full scope of the class of counterclaims and set-offs contemplated by the words "that he could not have set up in the action" as used in para. (g) of s.40, they do not extend to cover the case of a counterclaim that the debtor failed to set up in the action where had the opportunity to do so, whether that failure be attributable to his own default or the default of his solicitors. I note that the commentary on that provision in McDonaid Henry and Meek at para. 204 dealing with the words "he could not have set up in the action", says that they refer to a counterclaim 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 action in which judgment was issued. Authority for that 1s cited, being Re Stocklist (1934) 7 ABC 53; Re Stevenson (1929) 2 ABC 9 and Vassini Ex parte E.A. Sealy and Co. 64 FLR 323. eT reyper nema Ste es 10. In my opinion, whatever the full scope of the meaning of those words, they do not extend to a case of the present kind. The fact 1s not that the debtor could not set up his counterclaim, but that for reasons which one can accept may not be attributable to his own fault, did not set up the counterclaim. In the circumstances, the application to set aside the bankruptcy notice will be dismissed and the debtor is to pay the creditor's costs of the application. I hereby certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice French. Date: ca hhygaC / VET Associate: Counsel: . for the Debtor Mr A. Metaxas instructed by Phillips Fox - for the Creditor Mr de Lestang instructed by Benjamin & de Lestang Date of Hearing: 23 March 1987 Date of Judgment: 23 March 1987 A meee - ee ae -