JUDGMENT No. 6.22... FZ722 _CATCHWORDS BANKRUPTCY - setting aside bankruptcy notice - notice founded on interlocutory judgment in respect of costs - decision in principal proceeding reserved - whether principal proceeding involved a "counter-claim" within s. 41(7) - whether it was just to set aside bankruptcy notice. Bankruptcy Act 1966, s. 41(7) Re Pollnow (1994) 12 ACLC 88 Bradbrook v Farrow Mortgage Services Pty Limited (in Liquidation), unreported, von Doussa J, 9 February 1994 Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363 Chesson v Smith (1992) 35 FCR 594 RE: GEORGE EVERETT STONE; EX PARTE: GEORGE EVERETT STONE -V- FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) NN 3536 of 1996 Burchett J Sydney 6 May 1997 FEDERAL COURT OF AUSTRALIA 21 JAN 27-7 LIBRARY IN THE FEDERAL COURT OF AUSTRALIA ) BANKRUPTCY DISTRICT OF THE STATE ) OF NEW SOUTH WALES ) NN 3536 of 1996 GENERAL DIVISION ) RE: GEORGE EVERETT STONE EX PARTE: GEORGE EVERETT STONE Debtor FARROW MORTGAGE SERVICES PTY LTD UN LIQUIDATION) Creditor CORAM: Burchett J PLACE: Sydney DATE: 6 May 1997 MINUTE OF ORDER OF THE COURT THE COURT ORDERS THAT the bankruptcy notice be set aside, and that there be no order as to costs. 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 STATE ) OF NEW SOUTH WALES ) NN 3536 of 1996 GENERAL DIVISION ) RE: GEORGE EVERETT STONE Debtor EX PARTE: GEORGE EVERETT STONE Debtor FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) Creditor CORAM: Burchett J PLACE: Sydney DATE: 6 May 1997 REAS FOR MENT BURCHETT J: In this matter, the debtor seeks to have set aside a bankruptcy notice which is founded on a costs order. That order was made upon an application to vacate a hearing date, with a view to the fixing of a different hearing date, in the Supreme Court of New South Wales in the Commercial Causes Division. The costs have been fixed in some manner under procedures utilised currently in the Supreme Court in the Commercial Causes Division, and judgment has been entered for some $6000. In the meantime, the fresh hearing date arrived, the matter was heard over a period of three days, and the decision of Bainton J has now been reserved in respect of that hearing for a great many months. The evidence indicates that the proceedings involved both a claim by the judgment creditor for a very substantial sum and a cross-claim by the debtor for a sum vastly exceeding the mere $6000 with which I am concerned. There is, at the outset, a possible difficulty. Under the rules of this Court, of course, unless a special order were made, an interlocutory costs order would not be enforceable until the conclusion of the principal action. I have not been referred to any rule of the Supreme Court which makes clear what the position in that court was at the time when the interlocutory costs order was made. What I have been referred to is a practice note, number 89, headed "Commercial Division and Construction List", which issued at some time following the making ot the order. This practice note commences by an introductory paragraph, 1: "(a) This practice note relates to proceedings in the Commercial Division and proceedings entered or to be entered in the Construction List. (b) This practice note will commence on 25 March 1996 and thereafter will apply to all such proceedings." It is apparent that the practice note was not intended to apply, or at least was not made by those terms to apply, prior to 25 March 1996, a number of months prior to which date the costs order involved in this bankruptcy notice was made by the judge in Commercial Causes. Furthermore, the language of the costs provision contained in the practice note, in paragraph 24, is consistent with it being applicable to proceedings on and after its own date, for that paragraph reads: "Unless otherwise ordered, a party in whose favour an order for costs is made may proceed to assessment of such costs forthwith." (Emphasis added.) I draw attention to yet another difficulty. The note says "may proceed to assessment of such costs forthwith'. It does not say "may issue execution in respect of such costs", and again, I have not been referred to any provision which would justify that. However, all this is merely by way of introduction to the real issues in the case. Had Mr Stone been fully and correctly advised on the bankruptcy law, it seems to me there is no doubt whatever that he could have filed the appropriate affidavit under s. 41(7) of the Bankruptcy Act 1966, which would have been a complete answer to the bankruptcy notice. I held that that was the position in Re Polinow (1994) 12 ACLC 88 at 95 -96, a decision which was followed by von Doussa J in Bradbrook v Farrow Mortgage Services Pty Limited (in Liquidation) (unreported, 9 February 1994). I am unable to distinguish the present case from the decision of von Doussa J. In the course of that decision, I note his Honour indicated that the view of the law which I took in Re Pollnow was also the view taken by a Full Court in Chesson v Smith (1992) 35 FCR 594. It seems to me that when I come to a consideration of the exercise of my discretion, it is highly relevant that the bankruptcy notice which Mr Stone seeks to have set aside is one which, on the evidence before me, could have been set aside upon the filing of an application based on facts which are really not in dispute in the present proceeding. (It is not material to the substance of this point, but it should be noted that s. 41(7) was amended as from 16 December 1996 in respects going to the procedure to be adopted in its utilization: see Komesaroff v Law Institute of Victoria (unreported, Spender, Drummond and Nicholson JJ, 7 April 1997) at 11.) As to the breadth of the discretion I have on such an application as that which Mr Stone has brought, I refer to Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363, and particularly to the discussion there by Neaves J at pages 371 and following. His Honour says at 372: "It must be accepted that the court has a wide discretion to set aside a bankruptcy notice where it is satisfied that the interests of justice require it to do so." In my opinion, the interests of justice require that this bankruptcy notice be set aside. It would seek to enforce a relatively minuscule amount of costs, by the quasi-penal procedures of bankruptcy, against a debtor who may at any time in the next few weeks or months be held to be entitled to a vastly greater sum against the judgment creditor. We simply do not know, and while the position is that we do not know, and that either party may ultimately be found to owe a very large sum of money to the other, it would not be in accordance with justice for this Court to allow the bankruptcy proceedings, laden with potential for serious harm to Mr Stone, and indeed, to other creditors, to be proceeded with on the blind, as it were, and before the true and substantial rights of the parties, on the balance of the proceedings in the Supreme Court, are able to be ascertained by the judgment of that Court. Indeed, if the proceedings in the Supreme Court, which after all are only at first instance, go on appeal, I would think there would be much to be said for the proposition that the same considerations would demand that it should be only after the final resolution of the disputes between these parties that this tiny aspect of those disputes should be permitted to be enforced in the coercive manner for which the jurisdiction in bankruptcy provides. Accordingly, the order of the Court is that the bankruptcy notice be set aside. I make no order as to costs. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Burchett. Associate: Etler 2) ]5|97 Date: Debtor: Appeared in person Solicitor for the Creditor: Mr D. Leamey of Abbott Tout Date of hearing: 6 May 1997