JUDGMENT No. 731 7.822 CATCHWORDS BANKRUPTCY - bankruptcy notice - judgment creditor also mortgagee ~ uncompleted sale of debtor's property - allegation of breach of mortgagee's duty on power of sale - affidavit alleging counter-claim, set-off or cross demand - requirement for - insufficrent evidence - uncontradicted evidence for creditor - Court not satisfied that affidavit shows counter-claim. Bankruptcy Act s.40, s.41 Ebert v The Union Trustee Co. of Australia Ltd (1960) 104 CLR 346 Re; Billinghurst; Ex parte Australia and New Zealand Banking Grou Ltd (1978) 36 FLR 62 Re: Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 Vogwell v Vogwell (1939) 11 ABC 83 Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91 Cachalot Nominees Pty Ltd v Prime Nominees Pty Ltd (1984) WAR 380 RE: REMA DOLORES GOMM Ex Parte: POLICE CREDIT SOCIETY OF W.A. LIMITED NO. B239 OF 1987 FRENCH J. PERTH 17 DECEMBER 1987 IN THE FEDERAL COURT ) OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT ) OF THE STATE OF ) ) WESTERN AUSTRALIA NO. B239 of 1987 RE: REMA DOLORES GOMM Debtor EX PARTE: POLICE CREDIT SOCIETY OF W.A,. LIMITED Creditor MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 17 DECEMBER 1987 WHERE MADE: Perth THE COURT ORDERS THAT: 1. The Court 18S not satisfied that the debtor has a counter-claim, set-off or cross demand of the kind contemplated by para.40(1)(g) of the Bankruptcy Act. 2. The time for compliance with the bankruptcy notice 1s extended to midnight on 24 December 1987. 3. The debtor is to pay the judgment creditor's costs of the hearing. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. foal ial IN THE FRDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA NO. B239 of 1987 RE: REMA DOLORES GOMM Debtor EX PARTE: POLICE CREDIT SOCIETY OF W.A. LIMITED Creditor CORAM: FRENCH J. 17 DECEMBER 1987 REASONS FOR JUDGMENT On 9 September 1987 the Police Credit Society of W.A. issued a bankruptcy notice to Rema Dolores Gomm demanding payment of $7,128.11 made up of a Local Court judgment debt of $5,774.91 and costs in the same proceedings totalling $1,353.20. Under the notice Mrs Gomm was given 14 days from the date of service to pay the sum demanded. She has filed an affidavit, sworn on 25 November 1987, by which she seeks to satisfy the Court that she has a counter-claim, set-off or cross demand, equal to or exceeding the sum of the judgment debt and costs which she could not have set up in the action or proceeding in which the judgment was obtained. The issue at this hearing is whether the Court 1S so satisfied. The need for such a determination arises' from para.40(1)(g) of the Bankruptcy Act which provides:~ Se a 2. "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 - (i) where the notice was served in Australia - within the time fixed by the Registrar by whom the notice was 1Ssued; or (11) 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 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 time for compliance with the notice is extended by the filing of the debtor's affidavit until the Court makes a determination. This appears from sub-s. 41(7):- "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 40(1)(g), and the Court has not, before the expiration of that time, determined whether 1t 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 1s so satisfied." 3. In her affidavit Mrs Gomm says she is the registered proprietor of Unit 5/5 Pelicans Road, South Yunderup. There 1S a mortgage on the title in favour of the Police Credit Society, securing an amount in excess of $48,000.00. In the middle of 1986 the land was put up for public auction by the Bailiff pursuant to a warrant of execution. Attalus Pty Ltd, a company partly owned by the applicant, purchased the land subject to the mortgage and paid the Bailiff some $6,000.00 for the equity. According to Mrs Gomm the company then proceeded to arrange finance in the sum of $48,000.00, being the amount due to the Society. But the Society, she said, would not discharge the mortgage until it had been paid a sum of $59,000.00 which sum, she alleged, included not only the money due under the mortgage but sums owed by other companies of which she was a director. Attalus in the meantime negotiated an on-sale of the land to another unspecified purchaser for $69,000.00. een ye rory Snr tt mane ne na ose 4. The sale did not proceed because of alleged obstruction by the Society which ultimately sold the property in the exercise of its mortgagee's power of sale for $43,500.00. Settlement on that sale has not yet been effected as, according to the Society's evidence, the purchaser 1s in default. This, according to Mrs Gomm, was a sale at a gross undervalue. She alleges that the Society has acted recklessly and breached its duty to her as mortgagor. She asserts a right of action for damages against it for that breach. In an affidavit sworn by its solicitors, the Society has denied that it refused to allow settlement to proceed in favour of Attalus Pty Ltd. A letter was exhibited to the affidavit, being from the solicitors to Mrs Gomm indicating a readiness to have the transfer registered. The Society also denied that it had failed in its duty in connection with the mortgagee sale. The property, it says, was first offered for sale by the mortgagee by public auction on 14 December 1986 without success. Since that time it has been multi-listed for sale with 12 local land agents in Mandurah. It was not until 21 October 5. 1987 that an offer was secured to purchase 1t by private treaty. Mrs Gomm, it 1S said, has made no payments under the mortgage since March 1986. In respect of its supposed obstruction of the on-sale from Attalus, the Society says that 1t would have been delighted with a sale at the alleged price which would have assured sufficient funds to clear the mortgage debt. To satisfy the Court of the existence of a counter-claim, set-off or cross demand for the purposes of para.40(1)(g), the debtor must show a prima facie case. This does not require the production of admissible evidence which would make out a prima facie case before a Court trying the issues - Ebert v The Union Trustee Co. of Australia Ltd (1960) 104 CLR 346, 350; Re: Billinghurst; Ex parte Australia and New Zealand Banking Group Ltd (1978) 36 FLR 62; Re: Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135. In Vogwell v Vogwell (1939) 11 ABC 83, a decision of the High Court concerned with s.52(j3) 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 counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt." In the first place it is accordingly clear that the counter-claim, set-off or : cross demand must be something sounding in money. It 1s t 6. 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 1f there had been a counter-claim 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 is a claim to the enforcement of a right sounding 1n money. It must be a real claim; 1t 15s 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 1t 1s proper and reasonable to litigate. That 1s the effect of the decisions in Re Rivett; Ex parte Edward Faye Ltd ((1932) 5 ABC 182) and Re Duncan; Ex parte Modlin ((1917) 17 SR (NSW) 152). Therefore, there must appear to be some substance in the counter-claim, set-off or cross demand which 1s relied upon." It 1S not good enough that the affidavit contain merely an assertion that the debtor has a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment or order was obtained. That approach 1s consistent with a recognition that temporal constraints will often permit no more than a mere outline of the debtor's case in the affidavit. - Re: Brink (supra) at 142, Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91 at 93. Mrs Gomm's affidavit does not reveal the identity of the purchaser from Attalus Pty Ltd. She asserts a breach of duty on the part of the mortgagee and bases that assertion upon the discrepancy between the $69,000.00 allegedly secured by Attalus Pty Ltd and the $43,500.00 purchase price obtained by the Society. 7. That discrepancy might lay the foundation for such a claim 1f£ something more were known about the on-sale by Attalus Pty Ltd, from which some inference could he drewn about its utility as an indicator of market value. The nature and extent of the mortgagee's duty to the mortgagor in the exercise of the power of sale has been the subject of judicial and academic debate. - For a recent review see Cachalot Nominees Pty Ltd v Prime Nominees Pty Ltd (1964) WAR 380. But whether 1t 18 necessary to establish recklessness or sufficient to show mere negligence, the debtor has, 1n my opinion, failed to lay a basis for either in this case. Further the uncontradicted affidavit evidence from the Society indicates that steps were taken which would negative the assertion of recklessness upon which Mrs Gomm relies and almost certainly, negatives negligence if that were propounded. But relying upon Mrs Gomm's affidavit alone, the Court 1S not satisfied that she has a counter-claim, set-off or cross-demand of the kind contemplated by para.40(1)(g). In saying that I may say that contrary to the creditor's submissions, I am not persuaded that if there had been a breach of the mortgagee's duty, the sale to Attalus Pty Ltd deprived her of the standing to bring any action. 8. I will hear the parties as to appropriate orders. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment of his Honour Justice French. Associate: Dalya. UjOuKs. Date: (7) GpacdmmWler \487. Counsel for the Debtor: Mr R. Gillon Solicitors for the Debtor: Messrs. Lawton Gillon Counsel for the Creditor: Mr B.N. de Lestang Solicitors for the Creditor: Benjamin & de Lestang Date of Hearing: 14 December 1987 Date of Judgment: 17 December 1987 wegen mise nos wen oe