CATCHWORDS BANKRUPTCY - application to set aside bankruptcy notice - whether debtor has a set-off or cross demand within the meaning of s.40(1)(g) - whether quantum of claim exceeds judgment debt - whether debtor unable, as a matter of law, to set up claim in Magistrates Court proceedings Bankruptcy Act 1966 ss 40(1)(g), 41(6A) In the Matter of a Bill of Costs of Hill & Taylor unreported decision of Ryan J Supreme Court of Queensland 1 February 1993 Refd Re Macrossan Douglas Bill of Costs unreported decision of de Jersey J Supreme Court of Queensland 15 April 1986 Refd Re Brink; ex parte: The Commercial Banking Company of Sydney Ltd (1979-80) 44 FLR 135 Refd Re James & Anor; ex parte: Carter Holt Harvey Roofing (Australia) Pty Ltd (1994) 123 ALR 342 Refd Walton v National Mutual Life Association of Australasia Limited (1994) 49 FCR 406 Refd Re Franks & Anor; ex parte: GIO Holdings Ltd (1990) 24 FCR 398 Refd Wren v Mahony (1972) 126 CLR 212 Refd Re Andriya Milan Martinovic; ex parte: The Abovenamed No QN 1236 of 1994 Kiefel J Brisbane 23 June 1995 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND No. QN 1236 of 1994 RE: ANDRIYA MILAN MARTINOVIC EX PARTE: THE ABOVENAMED Applicant AND: McCULLOUGH ROBERTSON Respondent JUDGE MAKING ORDER: Kiefel J. DATE OF ORDER: 23 June 1995 WHERE MADE: Brisbane MINUTES OF ORDERS THE COURT ORDERS THAT: 1. The application of the debtor be dismissed. 2. The applicant pay the respondent's costs of and incidental to this application to be taxed. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND No. QN 1236 of 1994 RE: ANDRIYA MILAN MARTINOVIC EX PARTE: THE ABOVENAMED Applicant AND: McCULLOUGH ROBERTSON Respondent CORAM: Kiefel J. DATE: 23 June 1995 PLACE: Brisbane REASONS FOR JUDGMENT The debtor applies to set aside the bankruptcy notice issued on 27 September 1994 on the ground that he has a set-off or cross demand which satisfies the requirements of s.40(1)(g) of the Bankruptcy Act 1966. The bankruptcy notice was founded upon a default judgment for $16,308.75 entered in the Magistrates Court at Brisbane on 5 April 1994. That judgment followed taxation of the creditor's professional fees and outlays incurred in acting for the debtor with respect to an enquiry commenced by the Medical Services Committee of Inquiry into alleged excessive servicing by the debtor, a medical practitioner. During that taxation the deputy taxing officer of the Supreme Court permitted evidence to be led as to the issue of negligence which was raised by the debtor. It was alleged by him that his solicitors had acted contrary to his instructions and negligently in specifically contending on his behalf that certain services were not professional services. As a result, the Health Insurance Commission claimed a refund of monies previously paid and refused to continue payments with respect to those services. The cross examination permitted by the deputy taxing officer raised the question whether those were in any event the instructions given by the debtor and whether the solicitors would have been negligent to have taken another course. The process undertaken was not a challenge as to particular items of work unnecessarily incurred or prolonged as a result of the negligent conduct of the solicitors, which may be a matter proper for a taxing officer (see per Ryan J. in In the Matter of a Bill of Costs of Hill & Taylor unreported decision, Supreme Court of Queensland 1 February 1993). It amounted to a wider claim which might affect the whole of the claim for costs and in respect of which such a procedure is usually considered inappropriate: see Re Macrossan Douglas Bill of Costs unreported decision of de Jersey J., Supreme Court of Queensland 15 April 1986. But in any event these matters, although the subject of submission, are irrelevant to the present application. The costs were certified as due on 10 December 1993 and the matter was not further litigated. On non-payment of those costs, on 28 February 1994 the solicitors issued proceedings out of the Magistrates Court and when the debtor did not appear and defend, judgment was entered. No step was taken with respect to that judgment and no stay was sought. On 27 September 1994 the bankruptcy notice issued and was served on the debtor on 7 October 1994. On 3 November 1994 the debtor filed an application to set aside the bankruptcy notice and at the same time applied to set aside the judgment entered against him in the Magistrates Court. The former was adjourned pending a hearing of the application in the Magistrates Court. When it was heard the debtor sought leave to defend upon the basis of a draft defence and counter-claim exhibited in these proceedings and by which he again raised the claim of negligence. The application was dismissed. No written reasons were placed before me and if short form reasons were noted upon the file no one has searched for them. There was a suggestion that the solicitor appearing for the creditor firm had submitted to the magistrate that the issue of negligence had been determined by the taxing officer and that the magistrate may have accepted that submission. Such a submission would, it seems to me, have been wrong in law if it implies that the creditor was then debarred from pursuing his claim in the Magistrates Court. Given the state of the material one can only speculate as to the reasons for the decision. Amongst the more obvious possibilities is the delay in bringing the application. No appeal has been brought with respect to the decision of the Magistrate. I was informed that the day before I heard this matter District Court proceedings issued, in which the debtor pursues his claim for damages for negligence. With respect to the bankruptcy notice it is necessary, pursuant to s.40(1)(g), that the debtor satisfy the court that he has "a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debtor 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 applicant faces two difficulties. Firstly the quantum of the claim is not deposed to except in a general way and by reference to a downturn of the income to his practice following the decision of the Health Insurance Commission. If one acted upon the scant information available and assumed that the loss remained the same one may be able to draw an inference that it exceeds the amount of the judgment debt but that would leave remaining the question as to whether the whole of this loss is causally connected to the act of negligence. But even assuming that, the claim is not one which the debtor was unable, as a matter of law, to set up in the Magistrates Court proceedings: Re Brink ex parte: The Commercial Banking Company of Sydney Ltd (1979-80) 44 FLR 135; Re James & Anor; ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1994) 123 ALR 342, 348. A suggestion that he may have been wrongly advised, and as a result did not pursue the set-off or cross demand does not make such a claim one which the debtor "could not have set up" within the meaning of the section: see Walton v. National Mutual Life Association of Australasia Limited (1994) 49 FCR 406, 408. And the fact that such a claim may have exceeded the monetary limit of the Magistrates Court does not mean that it could not be "set up" within the meaning of the section, although a later application to transfer it to a higher court, to overcome the jurisdictional limitation, may have been necessary: see Re Franks & Anor ex parte: GIO Holdings Ltd (1990) 24 FCR 398. The solicitor appearing for the debtor also sought an extension of time pursuant to s.41(6A) to comply with the requirements of the notice. Proceedings to set aside the judgment have however been determined and I have now found the application to set aside the bankruptcy notice to have no merit and no order can be made. The question whether the Magistrate may have been misled into entering judgment by default did cause me some concern, although, as I have said, whether that was in fact the case is by no means clear and certainly the material is not such that it could be acted upon. But, in any event, if one were to enquire whether, despite the judgment, there was in truth and reality a debt (see Wren v. Mahony (1972) 126 CLR 212), the answer must be that there is, although a cause of action in negligence survives. The debtor's application is dismissed with costs. I certify that this and the preceding four pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel. Associate Date: 23 June 1995 Solicitors for the applicant: Cleary Hoare Counsel for the respondent: Mr D Bates Solicitors for the respondent: McCullough Robertson Date of Hearing: 20 June 1995 Place of Hearing: Brisbane Date of Judgment: 23 June 1995