Re Baddeley Ex parte Emil Lux (Australia) Pty Ltd [1995] FCA 800

C A T C H W O R D S BANKRUPTCY - bankruptcy notice - whether the Court is satisfied that the debtor has a counter-claim, set-off or cross-demand. Bankruptcy Act 1966 (Cth) - ss.40(1)(g), 41(7) Bankruptcy Rules - r.10 RE: ROGER STUART BADDELEY and BEVERLEY CHERYL BADDELEY AND: EMIL LUX (AUSTRALIA) PTY LTD No NN 1250 of 1995 Davies J. 26 July 1995 Sydney

IN THE FEDERAL COURT OF AUSTRALIA ) ) BANKRUPTCY DISTRICT OF THE ) No NN 1250 of 1995 ) STATE OF NEW SOUTH WALES ) ) GENERAL DIVISION ) RE: ROGER STUART BADDELEY and BEVERLEY CHERYL BADDELEY Judgment Debtors AND: EMIL LUX (AUSTRALIA) PTY LTD Judgment Creditor Coram: Davies J. Date: 26 July 1995 Place: Sydney MINUTES OF ORDER THE COURT DECLARES THAT: 1. It is not satisfied that the firstnamed judgment debtor has a counter-claim, set-off or cross-demand as referred to in s.40(1)(g) Bankruptcy Act 1966 (Cth). THE COURT ORDERS THAT: 2. The application of the firstnamed judgment debtor to adjourn the hearing of the application in order that further evidence as to quantum might be adduced is refused. THE COURT NOTES THAT: 3. Counsel are agreed that time for compliance of the firstnamed judgment debtor with the bankruptcy notice was extended up until this day. THE COURT ORDERS THAT: 4. The firstnamed judgment debtor pay the judgment creditor's costs of the application. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) ) BANKRUPTCY DISTRICT OF THE ) No NN 1250 of 1995 ) STATE OF NEW SOUTH WALES ) ) GENERAL DIVISION ) RE: ROGER STUART BADDELEY and BEVERLEY CHERYL BADDELEY Judgment Debtor AND: EMIL LUX (AUSTRALIA) PTY LTD Judgment Creditor Coram: Davies J. Date: 26 July 1995 Place: Sydney REASONS FOR JUDGMENT This matter arises under s.41(7) of the Bankruptcy Act 1966 (Cth). The subsection provides: "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 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 so satisfied." Rule 10 expands this by providing:- "10(1) A debtor on whom a bankruptcy notice has been served may file an application to the effect that he or she has a counter-claim, set-off or cross demand of a kind referred to in paragraph 40(1)(g) of the Act. 10(2) An application must contain details of the counter-claim, set-off or cross demand, as the case requires, and the reasons why the debtor was unable to set up the counter-claim, set-off or cross demand. 10(3) If a debtor files an application, the Registrar must consider whether, on the face of it, the application: (a) raises a counter-claim, set-off or cross demand; and (b) gives sufficient particulars of the counter-claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim, set-off or cross demand. 10(4) If the Registrar is satisfied that an application: (a) raises a counter-claim, set-off or cross demand; and (b) gives sufficient particulars of the counter-claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim, set-off or cross demand; he or she must: (c) fix a date, time and place at which the debtor may appear before the Court to satisfy the Court that he or she has the counter-claim, set-off or cross demand referred to in the application; and (d) endorse a copy of the application with that date, time and place and return it to the debtor." There were two proceedings in the Supreme Court of New South Wales between the debtors, Mr and Mrs Baddeley, and the creditor, Emilux (Australia) Proprietary Limited. The first of the proceedings was No. 2932/1994. The Baddeleys sued a Mr and Mrs Falkiner and a company named Censun Pty Limited alleging a number of matters. The two most significant claims were misleading and deceptive conduct on behalf of Mr and Mrs Falkiner and the companies with which they were associated including Emilux, and further, that there had been an agreement reached between Mr and Mrs Baddeley and Mr and Mrs Falkiner that a certain property at Lindfield, which came to be purchased by Emilux, would be held on trust so that Mr and Mrs Baddeley would have a 40 per cent interest therein. In addition, claims were made against Mr and Mrs Falkiner for breach of fiduciary duties. That matter has yet to come on for hearing but it has been referred to the expedition list of the Supreme Court. There was a further proceeding, No. 3530/94, in which the issue with respect to the Baddeleys' alleged interest in the property at Lindfield was the subject of the debate. Bryson J gave judgment in December of 1994 dismissing the claim of Mr and Mrs Baddeley in that respect. What is still left, however, so far as Emilux is concerned, is the claim made in proceedings No. 2932/94. When he dismissed the claim in proceedings No. 3530/94, Bryson J awarded costs in favour of Emilux. Those costs were subsequently assessed at $22,429 and they were filed on 24 April 1995 in the Local Court at North Sydney. The effect of the filing was to permit execution on the assessment as if it were a judgment of the Local Court. After the filing of the judgment in the Local Court, Emilux issued a bankruptcy notice based upon the sum of the costs. Bankruptcy notices were served upon Mr and Mrs Baddeley. Within the time limited for compliance, Mr Baddeley swore an affidavit dated 23 May 1995 in which he said, and I quote: "I say that the judgment debtor and its directors are indebted to me for an amount to be determined by the Supreme Court of New South Wales and that I have a counter claim and set off against the judgment creditor and its directors which could not have been pursued in the Local Court at North Sydney ..." Mr Baddeley annexed the affidavit to the statement of claim in the Supreme Court proceedings No. 2932/1994. That was an extremely brief affidavit but it should be given a benevolent construction as Lockhart J indicated in Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 440. I am satisfied as to two relevant issues. Firstly, the claim made in the Supreme Court for damages for misleading and deceptive conduct is a counter-claim, set-off or cross demand for the purposes of s.40(1)(g) and s.41(7) of the Act. Secondly, the counter-claim, set-off or cross demand could not have been made either in the Local Court or in the proceedings before Bryson J. The order made by Bryson J was an order for costs and such an order is not susceptible to the making of a counter-claim, set-off or cross demand. It was submitted by Mr Skinner for the judgment creditor that the affidavit did not specify in terms that the amount of the claim in the Supreme Court equalled or exceeded the amount of the judgment debt. The affidavits certainly did not do so expressly but, adopting a benevolent construction of the initial affidavit, I would have implied from it that, the proceedings having been instituted in the Supreme Court, the amount claimed was in excess of the $22,429 which was the amount of the judgment debt. The matter has, however, proceeded further than the stage of the initial affidavit. The registrar has acted under Rule 10 subrule (4) of the Bankruptcy Rules and has referred the matter to the Court so that the debtor may appear before the Court to satisfy the Court that he or she has the counter-claim, set-off or cross demand referred to in the application. The registrar also provided for the filing of certain affidavits. Neither the further affidavit which has been filed on behalf of Mr Baddeley nor any of the material which has been tendered before me this morning shows the quantum of the claim sought to be made against Emilux. Indeed the only specific reference to the amount claimed is an affidavit of Mr Baddeley sworn on 28 June 1995 which sets out certain sums said to have been spent by a company, Censun Pty Limited, for maintenance and renovation works. Those sums are, however, all relatively small and in total come nowhere near the amount of the judgment debt. It seems to me that at this stage there is no prima facie material before the Court of the existence of a claim which equals or exceeds the amount of the judgment debt. As Lockhart J said in Re Brink at 439: "[The] Court must be satisfied that the debtor has a fair chance of success." The evidence before the Court at this point does not enable the Court to conclude that the amount which is likely to be recovered by Mr and Mrs Baddeley as against Emilux Pty Limited is of a sum which equals or exceeds $22,429. There is simply no evidence about that whatever. It seems to me that at this stage I should rule that the Court is not satisfied that Mr Baddeley has a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g) of the Act and I so hold. There is no claim in relation to Mrs Baddeley in respect of this matter as no affidavit has been filed on her behalf. I note that counsel are agreed that the time for compliance with the bankruptcy notice was extended up until today. My own view of the matter is that the initial affidavit was sufficient and that time was automatically extended until such time as the Court determined whether or not it was satisfied as to the matters which s.41(7) provides. Mr Baddeley should pay the judgment creditor's costs of this application. I certify that this and the 5 preceding pages are a true copy of the reasons for judgment herein of the Honourable Justice Davies. Associate: Date: 26 July 1995 Counsel for the judgment debtor: J.K. Chippindall Solicitors for the judgment debtor: Carneys Counsel for the judgment creditor: B. Skinner Solicitors for the judgment creditor: Somerville & Co. Date of hearing: 26 July 1995 Date of judgment: 26 July 1995