FEDERAL COURT OF AUSTRALIA Capsanis, in the matter of Capsanis v Owners – Strata Plan 11727 [2000] FCA 1262 BANKRUPTCY – application to set aside bankruptcy notice – judgment debt ordered in proceedings for arrears of maintenance levies against owner of unit - applicant argued that he had a counter claim or cross demand, which could not be set up in the original action – whether the debtor has a fair chance of success on the counter claim or cross demand, equal to or exceeding the amount of judgment debt – whether, to discharge the onus under Bankruptcy Act 1966 (Cth) s 40(1)(g), there is evidence as to the likely quantification of the claim – whether the counter claim or cross demand could have been set up in the Local Court proceedings PRACTICE AND PROCEDURE – compliance with Order 77 rule 13 dispensed with pursuant to Order 1 rule 8 Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(7) Local Courts (Civil Claims) Rules Part 18 rule 1(1), Part 26 rule 1 Re Brink; Ex parte Commercial Banking Company of Sydney Limited (1979-1980) 30 ALR 433 applied Re Donkin; Ex parte AGC Advances Limited (1994) 125 ALR 293 applied Crimmins v Glenview Home Units [1999] FCA 515 applied Gould, in the matter of Gould v Day [1999] FCA 1650 applied IN THE MATTER OF JOHN PETER CAPSANIS JOHN PETER CAPSANIS v THE OWNERS – STRATA PLAN 11727 N 7601 OF 2000 HELY J 7 SEPTEMBER 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 7601 OF 2000 BETWEEN: JOHN PETER CAPSANIS APPLICANT AND: THE OWNERS - STRATA PLAN 11727 RESPONDENT JUDGE: HELY J DATE OF ORDER: 7 SEPTEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed with costs. 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 N 7601 OF 2000 BETWEEN: JOHN PETER CAPSANIS APPLICANT AND: THE OWNERS – STRATA PLAN 11727 RESPONDENT JUDGE: HELY J DATE: 7 SEPTEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The applicant seeks an order that the bankruptcy notice served on him on 26 June 2000 be set aside. That notice was based upon a judgment obtained in the Local Court on 14 April 2000 in the sum of $24,226.51. The application to set aside the bankruptcy notice is made on the basis that the applicant has a counter-claim or cross demand equal to or exceeding the amount of the judgment debt which could not be set up in the original action: Bankruptcy Act 1966 (Cth) ("the Act") s 40(1)(g); s 41(7). The application was accompanied by an affidavit of Mr Capsanis sworn on 11 July 2000. Mr Capsanis filed a further affidavit on 18 August 2000. Pursuant to Order 1 rule 8 I dispensed with compliance with the requirements of Order 77 rule 13 to the extent necessary to allow reliance to be placed on the affidavit of 18 August 2000, as well as the affidavit of 11 July 2000, in support of the application. 2 The applicant is and has been since prior to 1993 the owner of Unit 38/360 Bourke Street, Darlinghurst. The respondent is the body constituted under the Strata Schemes Management Act 1996 (NSW) or its precursor in relation to the unit block of which the applicant's unit forms part. On 17 November 1998 the respondent instituted proceedings by means of a statement of liquidated claim in the Local Court seeking to recover the sum of $11,997.81 from the applicant for arrears of maintenance levies pursuant to the Strata Schemes Management Act as at 1 October 1998. On about 21 December 1998 the applicant filed a Notice of Grounds of Defence to that claim. The sole ground of defence relied upon was that the statement of liquidated claim disclosed no cause of action. 3 On 5 August 1999 an Amended Statement of Liquidated Claim was lodged. The amendment claimed arrears of maintenance levies in the sum of $16,840.51 as at 1 July 1999. 4 The matter was listed for call over in the Local Court on 18 October 1999. On that date it was ordered by consent that any cross claim by the present applicant was to be filed and served within fourteen days. By letter dated 18 September 1998 the applicant had notified the respondent's then solicitors as follows: "As you may be aware, the subject unit has been afflicted with water penetration problems for many years due to the failures of the Body Corporate, and more recently, the Owners Corporation to attend the causes of the problem. I have a significant counter-claim arising from the above, quantum of which I'm still deciding." More recently, both the Owners Corporation and the Chairman have made defamatory remarks concerning myself and this, too, will attract a claim for compensation." Presumably, the consent order was made in order to enable the counter-claim referred to in this letter to be propounded. 5 On 2 December 1999 an award was made under the Arbitration (Civil Actions) Act 1983 (NSW) in favour of the present respondent in the sum of $19,381.40. The arbitrator noted that the defendant appeared in person and chose not to give evidence. The only defence relied upon in the Notice of Grounds of Defence was that the plaintiff's pleading discloses no cause of action. The arbitrator found against the present applicant so far as that defence was concerned. 6 The present applicant sought a re-hearing of the matter. On 5 April 2000 a Further Amended Statement of Liquidated Claim was lodged with the Local Court claiming the sum of $23,714.32 as at 5 April 2000. On 13 April 2000 the applicant forwarded a facsimile to the respondent notifying that he did not consent to the further amendment of the claim. The notification included the following: "As you are aware, it's my intention to take proceedings for damages against the owners for failure to maintain the common property which resulted in a severe water penetration problem for many years." The applicant also notified that he did not propose to give evidence in the proceedings, and that would be a matter for the present respondent to prove its case. The notification also stated: "My expert reports from a (1) Valuer, (2) Property Manager, (3) Builder and (4) Plumber will comprise part of my preparation and evidence at the hearing of my intended action ($40,000). Those experts will cost up to $8,000 to prepare reports and attend on hearing. Please advise in due course whether you are authorised to accept service of my intended Statement of Claim." 7 As earlier indicated, judgment was entered in the Local Court on 14 April 2000 in the sum of $24,226.51. 8 The two affidavits filed by the applicant in these proceedings assert that between 1993 and 14 April 1999 the applicant's unit experienced recurring damage through water penetration from the common property on the roof area of the building which caused damage to the ceiling area and electricals in the applicant's unit. The problem was exacerbated on 14 April 1999 when the devastating hailstorm hit Sydney, and damaged or wrecked the main roof area of the unit block. As a consequence of the hailstorm on 14 April 1999 the ceilings in the unit had to be replaced. A letter from a firm of property consultants of 27 October 1999 indicates that the contractors were then ready to replace the ceilings in the applicant's unit, but were having difficulty doing so because the tenant of the unit was not willing to vacate the premises whilst the work was carried out. The applicant contends that the respondent failed to see to the work being carried out until January 2000. 9 The applicant claims that he is entitled to recover from the respondent loss of rent in the period 14 April 1999-1 February 2000 which, during the course of submissions, he particularised as follows: - 14/4/99 – 3/10/99 (22 weeks) @ $135 pw = $2,970 - 4/10/99 – mid December 1999 (9 weeks) @ $70 pw = $ 630 - mid-December 1999 – 1/2/2000 (6 weeks) @ $200 pw = $1,200 $4,800 plus interest. Further, the applicant claims unliquidated damages in relation to the respondent's breach of statutory duty and duty of care in failing to effect repairs over the period commencing in 1993, and ending in February 2000. No evidence was placed before me, beyond the information as to loss of rental to which I have earlier referred, as to what that damage was, nor was any material placed before me as to the quantification of the claim. 10 In addition, the applicant asserts that in January 2000, the respondent communicated with the Law Society of New South Wales to the effect that bankruptcy proceedings had been commenced against the applicant, whereas the truth is that no such proceedings were instituted until the bankruptcy notice was served on the applicant on 26 June 2000. Nor was it explained to the Law Society that the bankruptcy proceedings had their origin in the dispute between the applicant and the Body Corporate as to whether on the balance of account, any monies were owing by the applicant to the respondent. I am prepared to assume that a communication to the effect of that alleged is capable of founding a claim in defamation. However, no information was placed before me as to the value of this claim. The applicant simply stated that he intends to sue the respondent in the District Court for $90,000. There is no specific reference in the applicant's affidavits to the defamatory comments referred to in the letter of 18 September 1998. 11 The authorities make it plain that in order to comply with Order 77 rule 13, and in order to establish the ground referred to in s 40(1)(g) of the Act, it is necessary for the evidence to do more than merely assert the existence of a counterclaim set off or cross demand of the relevant value. It is necessary for the evidence to contain sufficient details to show that the debtor is bona fide in his contention that the counter-claim, set off or cross demand existed. Further, the Court needs to be satisfied that the counter-claim, set off or cross demand, is for a sum equal to or exceeding the amount of a judgment debt: see, eg Re Brink; Ex parte Commercial Banking Company of Sydney Limited (1979-1980) 30 ALR 433; Re Donkin; Ex parte AGC Advances Limited (1994) 125 ALR 293; Crimmins v Glenview Home Units [1999] FCA 515. The Court has to be satisfied that the debtor has a fair chance of success on a counter-claim, set off or cross demand equal to or exceeding the amount of the judgment debt: see, eg Gould, in the matter of Gould v Day [1999] FCA 1650 par 27, 28. 12 Taking the applicant's evidence at its highest, the applicant may have a claim against the respondent for loss of rent, which, when interest is taken into account, would be of the order of $6,000. He may also have an unquantified claim against the respondent for unparticularised damage to the home unit and for defamation in an unquantified sum. A counter-claim may include a claim for damages of tort, including in defamation. But if the applicant is to discharge the onus which s 40(1)(g) imposes upon him, there must be some material placed before the Court as to the likely quantification of the claim. Except for the lost rent claim, no such material has been placed before me. Thus, I am not able to be satisfied that the applicant has a counter-claim against the respondent which equals or exceeds the amount of the judgment debt. On that basis alone the application must be dismissed. 13 The applicant also needs to establish that the counter-claim or cross demand could not have been set up in the Local Court proceedings. In this respect, the applicant points to Part 18 rule 1(1) of the Local Courts (Civil Claims) Rules which require a cross claim to be filed not later than the filing of the Notice of Grounds of Defence in the action. In the applicant's contention, as at that date the cross claim for defamation had not arisen, and the cross claim for damage to the property had not been crystallised. 14 There are a number of difficulties in the path of this argument. First, the applicant was able to assert and articulate the existence of the cross claim for damage to property in the letter of 18 September 1998 and in the notification of 13 April 2000. At the call over on 18 October 1999 a consent order was made that any cross claim be filed within fourteen days, yet no cross claim was filed within that period or at all. The Local Court has power over its own procedures, and is able to extend times, but there is no evidence of any application being made to the Local Court, prior to the entry of judgment on 14 April 2000, for leave to file a cross claim, assuming that leave was required. In those circumstances, the applicant cannot rely upon the provisions of the Local Court rules as a disabling factor with respect to the setting up of cross claims. 15 It is also said even if there was a theoretical entitlement to propound a cross claim in those proceedings, the practical realities of the situation were such that the applicant could not reasonably be expected to propound a cross claim in response to the Further Amended Statement of Claim, as that would involve an application to vacate the hearing date, then fixed to take place on 14 April 2000. There are at least two answers to this contention. First, the authorities referred to by Lockhart J in Re Brink (supra) at 437 establish that the words "that he could not have set up in the action or proceeding in which the judgment or order was obtained" mean "which he could not by law set up in the action". Practical difficulties in propounding a claim do not mean that the applicant could not have set the cross claim in the Local Court proceedings. Second, the applicant cannot rely upon the supposed proximity of the hearing date to the filing of the Further Amended Statement of Claim as a reason why the cross claim could not have been set up in the Local Court proceedings, when no application was made to the Local Court in that respect. The Butterworths Commentary to Part 18 rule 1, refers to Part 26 rule 1 of the Local Court Rules which provides that the Court may at any stage of the proceedings give such judgment or make such order as the nature of the case requires, notwithstanding that the applicant does not make a claim extending to that judgment or order in any originating process. The commentators state: "It would therefore appear that the Court has the power to give a judgment or make an order in favour of the defendant notwithstanding the fact that he has not filed a cross claim: District Court Procedure NSW, Butterworths, looseleaf, 1990 [Part 20 r 1.2]. However, it is suggested that the better course is to grant leave to a defendant to file a cross claim even after reasons for judgment have been delivered." Whether this be so or not, a mere failure to take advantage of an opportunity to raise a cross claim does not result in an inability to do so. 16 Accordingly, I am not satisfied that any cross claim available to the applicant could not have been set up in the proceedings in the Local Court, and for this further reason, the application must be dismissed. 17 The application is dismissed with costs. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: 7 September 2000 The applicant appeared in person Counsel for the Respondent: Mr B Skinner Solicitor for the Respondent: Dobes & Andrews Date of Hearing: 4 September 2000 Date of Judgment: 7 September 2000