FEDERAL COURT OF AUSTRALIA Bankruptcy – application to set aside bankruptcy notice – counter-claim, set-off, or cross-demand exceeding limits of jurisdiction of Local Court – whether fact that proceedings could have been transferred to District Court or Supreme Court, where cross-claim was within jurisdiction, meant that the cross-claim could have been set up when the judgment was obtained for the purposes of s 40(1)(g) of the Bankruptcy Act 1966. Bankruptcy Act 1966 – s 40(1)(g) Local Courts (Civil Claims) Act 1970 (NSW) - ss 21B(1), 21E(1) District Court Act 1973 (NSW) - s 145 Re Racheha; Ex parte Antonios (1980) 49 FLR 423 – foll. Re Franks; Ex parte GIO Holdings (1990) 24 FCR 398 – foll. LORRAINE HELEN BESSEMER V THE OWNERS - STRATA PLAN NO. 6925/35054 NG 7370 of 1998 JUDGE: BEAUMONT J. PLACE: SYDNEY DATE: 10 JUNE 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7370 of 1998 BETWEEN: LORRAINE HELEN BESSEMER APPLICANT AND: THE OWNERS - STRATA PLAN NO. 6925/35054 RESPONDENT JUDGE: BEAUMONT J. DATE OF ORDER: 10 JUNE 1998 WHERE MADE: SYDNEY ORDERS: 1. Application to set aside the bankruptcy notice dismissed with costs. 2. Suspend the operation of this order up to and including 1 July 1998 . 3. Reserve liberty to apply to vary or discharge this order on two days written notice to the other party. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7370 of 1998 BETWEEN: LORRAINE HELEN BESSEMER APPLICANT AND: THE OWNERS - STRATA PLAN NO. 6925/35054 RESPONDENT JUDGE: BEAUMONT J. DATE: 10 june 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: Before the Court is an application to set aside a bankruptcy notice. The application is made in the following circumstances. By bankruptcy notice dated 4 March 1998, The Owners - Strata Plan Number 35054, as judgment creditors, claimed that Lorraine Helen Bessemer, as judgment debtor, owed them a debt of $15,090.34, being the amount of a judgment obtained in the Local Court dated 11 February 1998 in the sum of $15,028.58, together with interest. The judgment was obtained, it appears, upon the cause of action of moneys owed by way of levies made upon Mrs Bessemer as the holder of a strata title in the strata plan mentioned. The bankruptcy notice was served upon Mrs Bessemer on 17 March 1998. On 6 April 1998 Mrs Bessemer filed an application to set aside the bankruptcy notice. She accompanied her application with her affidavit sworn on that day. The affidavit was prepared by herself and she has not at any point of time during the present proceedings had the benefit of legal representation. In her affidavit she said: 1. I have a cross-claim against the owners - Strata Plan No 6925-35054 as set out in the document attached and marked with the letter A. Annexure A is as follows: "Particulars of the claim made by Lorraine Bessemer against the owners - Strata Plan No 6925/35054: 1. In accordance with the claim lodged separately at the District Court in the sum of $674,000 plus costs plus damages. 2. The sum of the above claim is in excess of limits dealt with in the Local Court." So far as concerned the statement in para 1 above, that a claim had been lodged separately at the District Court, it is common ground that such a claim has never been lodged. However, the point sought to be relied upon by Mrs Bessemer, for present purposes, is that stated in para 2 above. Mrs Bessemer has sought to supplement her affidavit by a further affidavit (actually in the form of a statutory declaration, but nothing turns on this) filed by her on 15 May 1998. The solicitor for the judgment creditors submits that Mrs Bessemer should not be permitted to rely upon the material in this further affidavit and that Mrs Bessemer must be confined to her first affidavit. However, I need not decide whether Mrs Bessemer should, in fact, be so confined having regard to the conclusion I have reached in respect of the fate of the application itself. I will therefore refer to the further affidavit as it does throw some light on the nature of the claims sought to be made by Mrs Bessemer. The affidavit filed on 15 May 1998 is quite a lengthy document and I will not attempt to summarise it. In it Mrs Bessemer makes a number of claims against the owners of the strata plan for what may be described in very general terms as the misconduct of the executive committee, the managing agent and others. The claims made are serious. They include an allegation that the misconduct contended for included "framing Lorraine Bessemer and having her convicted of four offences of which she was not guilty". Other claims are made, including what appears to be an allegation of defamation and intimidation. Substantial damages are claimed in respect of each of these charges, totalling in excess of $1 million. I need not catalogue each claim. The bankruptcy notice stated, as the Bankruptcy Act 1966 ("the Act") required, that Mrs Bessemer could file an application for an order to set aside the notice on the ground that she had a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in the bankruptcy notice as owing to the judgment creditors and in the action or proceeding in which the judgment relied upon by the judgment creditors was obtained, she could not have set up that counter-claim, set-off or cross-demand. This accords with the substantive provisions of s 40(1)(g) of the Act. It is common ground that a cross-claim as substantial as that sought to be raised by Mrs Bessemer, or prima facie at least, was beyond the ordinary limits of the jurisdiction of the Local Court. However, on behalf of the judgment creditor, reliance is placed upon a line of authority (Re Racheha; Ex parte Antonios (1980) 49 FLR 423; Re Franks; Ex parte GIO Holdings (1990) 24 FCR 398) to support a proposition that Mrs Bessemer could have the action, including her cross-claim, transferred either to the District Court or, ultimately, to the Supreme Court of New South Wales and could then have contested her counter-claim, set-off or cross-demand in the action with the consequence that her affidavit failed to satisfy the requirements of s 40(1)(g) of the Act. The judgment creditors make this submission as their primary contention but in the alternative they have other arguments as well. They submit, for instance, that if Mrs Bessemer is confined to her first affidavit and, even if regard is had to her second affidavit, there is no material before the Court sufficient to satisfy the Court, for present purposes, that there is evidence of a prima facie claim by way of cross-demand. However, having regard to the conclusion I have reached on the judgment creditors' primary contention, I need not address the alternative argument. By s 21B(1) of the Local Courts (Civil Claims) Act 1970 (NSW) it is provided that: "If an action is pending in a court, the District Court may, on application by a party to the action, order that the action, including any cross-claim brought in relation to the action, be removed into the District Court..." By s 21E(1) of that Act it is provided that: "Where an order under s 21B(1) for removal into the District Court of an action in a court takes effect, the action ceases to be an action in the court, but proceedings in the action continue, in accordance with rules made under the District Court Act 1973 in the District Court as if the action had been duly commenced, and any cross-claim brought in relation to the action had been duly pleaded, in the District Court at the proclaimed place specified in the order on the date on which the action was commenced, or the cross-claim was brought, as the case may be, in the court. It is further accepted, on behalf of the judgment creditors, that a claim as substantial in amount as Mrs Bessemer's appears to be, might even exceed the jurisdictional limits of the District Court but, in that event, the judgment creditors rely upon the provisions of s 145 of the District Court Act 1973 (NSW). By s 145(1) of that Act: "Proceedings may upon the application of a party be removed into the Supreme Court by order of the Supreme Court upon such terms as to payment of costs giving security for the amount claimed or costs, or otherwise, as the Supreme Court thinks fit." In Re Racheha, above, Lockhart J held, in circumstances similar to the present case, that the debtor could have applied to have "the action" in the Court of Petty Sessions, as the Local Court then was, transferred to the District Court and he could then have contested his counter-claim, set-off or cross-demand in "the action". Thus his affidavit failed to satisfy the requirements of s 40(1)(g) of the Act. His Honour made the point (at 429) that if s 40(1)(g) had used the words "being a counter-claim, set-off or cross-demand that he could not have set up in the court in which the judgment or order was obtained" (emphasis added), probably the result would be different; but this was not the language of para (g). In Re Franks, above, I followed Racheha again in circumstances essentially similar to the present case. In all the circumstances, I am of the view that the judgment debtor's primary contention should be upheld and that, on this ground alone, the application to set aside the bankruptcy notice should be dismissed with costs. I propose to so order. However, as I've indicated in the course of argument, although this matter has been before me on a number of occasions, Mrs Bessemer has never been represented, notwithstanding my urging her to obtain the benefit of legal representation. I propose then to give her one final opportunity to obtain the benefit of legal advice and, for this purpose, although I will make the orders I propose to make, I will suspend their operation for a period of three weeks and reserve liberty to any party to apply to vary or discharge these orders on two days notice. ORDERS The orders I make then are as follows. The application to set aside the bankruptcy notice is dismissed with costs. I suspend the operation of this order up to and including 1 July. I reserve liberty to apply to vary or discharge this order on two days written notice to the other party. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont Associate: Dated: 10 June 1998 Applicant: Mrs Bessemer appeared in person Solicitor for the Respondent: J S Mueller & Co Date of Hearing: 10 June 1998 Date of Judgment: 10 June 1998