FEDERAL COURT OF AUSTRALIA

Crimmins v Glenview Home Units [1999] FCA 515

BANKRUPTCY – Bankruptcy Act 1966 (Cth) – application to set aside bankruptcy notice of on  the basis  of  counter-claim,  set-off  or  cross demand –  significance of requirements of O 77 r 13 of the Federal Court Rules -  whether affidavits accompanying application to set aside bankruptcy notice contain full details and of the counter-claim, set-off or cross demand - whether affidavits accompanying application to set aside bankruptcy notice contain the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice

PRACTICE AND PROCEDURE – Federal Court Rules – applicability of Federal Court Rules in bankruptcy proceedings – requirement to comply with Rules where dispensation not sought

Bankruptcy Act 1966 (Cth), ss 40(1)(g), 41(7)

Federal Court Rules, O 77 r 13

Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433, cited

Re Donkin; Ex parte AGC Advances Ltd (1994) 125 ALR 293, cited

Ebert v The Union Trustee of Australia Ltd (1960) 104 CLR 346, cited

PATRICIA CRIMMINS v GLENVIEW HOME UNITS PTY LTD (ACN: 000-232-075)

No. NG 8398 of 1998

BRANSON J

SYDNEY

29 APRIL 1999

IN THE MATTER OF PATRICIA LOUISE CRIMMINS

THE COURT ORDERS THAT:

The application be dismissed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE MATTER OF PATRICIA LOUISE CRIMMINS

REASONS FOR JUDGMENT

Introduction

1                     The applicant seeks to have set aside a bankruptcy notice (“the Notice”) served on her on 22 November 1998.  The Notice claims that the applicant owes the respondent a debt of $19,129.45.  The amount claimed by the Notice is based on a certificate of judgment issued in respect of the costs of a Supreme Court proceeding commenced by the applicant against the respondent and eight shareholders of the respondent.  By that proceeding the applicant sought declaratory and other relief concerning the home unit building owned by the respondent in which the applicant lives.  The applicant claims to have a counter-claim, set-off or cross demand of the kind referred to in s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (“the Act”). Although a notice was given pursuant to s41(5) of the Act, the applicant chose not to pursue the issue of an alleged misstatement of the amount due to the creditor.

2                     Section 40(1)(g) provides, so far as is here relevant, as follows:

“40(1)A debtor commits an act of bankruptcy in each of the following cases:

(g)               if a creditor who has obtained against the debtor a final judgment …, being a judgment … the execution of which has not been stayed, has served on the debtor in Australia … a bankruptcy notice under this Act and the debtor does not:

(i)     … within the time specified in the notice; or

(ii)               …

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim set-off or cross demand equal to or exceeding the amount of the judgment debt … being a counter-claim, set-off or cross demand that he or she could not have set up on the action or proceeding in which the judgment or order was obtained.”

3                     Section 41(7) of the Act provides as follows:

“(7)     Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor 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.”

4                     Before s 41(7) was amended in 1996 it required, not that the debtor have applied to the Court for an order setting aside the bankruptcy notice on the ground specified in the subsection, but that the debtor have “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)”.  The authorities made it plain that to comply with the requirement so expressed it was necessary for the affidavit do more than merely assert the existence of a counter-claim, set-off or cross demand of the relevant value.  It was necessary for the affidavit to contain sufficient details to show that the debtor was bona fide in his or her contention that the counter-claim, set-off or cross demand existed (Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433; Re Donkin; Ex parte AGC Advances Ltd (1994) 125 ALR 293).

5                     The applicant contends that a consequence of the amendment of s 41(7) of the Act is that the section is now enlivened by the mere filing of an application in the Court.  If this contention is correct, the previous practice of looking at an application of this kind in two stages will no longer be appropriate.  The first stage under the previous practice was for the Court to determine whether the affidavit material filed within the time limited by the bankruptcy notice for compliance with the demand therein met the requirements of s 41(7) so as to lead to an automatic extension of the time for compliance.  The second stage was for the Court to determine on the basis of all of the material before it whether it was satisfied that the debtor did have a cross-claim, set-off or cross demand of the kind referred to in s 40(1)(g) of the Act.

6                     However, the applicant’s contention pays no regard to the terms of O 77 r 13 of the Federal Court Rules which is concerned with the requirements of an application to set aside and extend time for complying with a bankruptcy notice.  Order 77 r 13 provides as follows:

“13(1)This rule applies to:

(a)               an application to set aside a bankruptcy notice; or

(b)               an application for an extension of the time for complying with a bankruptcy notice.

(2)       An application must be accompanied by:

(a)               a copy of the bankruptcy notice; and

(b)               an affidavit stating:

(i)         the grounds in support of the application; and

(ii)               the date when the bankruptcy notice was served on the applicant; and

(c)                a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.

(3)               If the application is to set aside a bankruptcy notice on the ground that the debtor has a counter-claim, set-off or cross demand mentioned in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:

(a)               the date when the bankruptcy notice was served on the debtor; and

(b)               the full details of the counter-claim, set-off or cross demand; and

(c)                the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and

(d)               why the counter-claim, set-off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.

(4)               The application must be served on the respondent creditor within 3 days after it is filed.”

7                     I understand the applicant to have submitted that the Federal Court Rules are not part of the law to be applied by this Court and it is sufficient in the present case for the applicant to comply with the requirements of the Act.  This submission must be rejected.

8                     The Federal Court Rules are made pursuant to s 59(1) of the Federal Court of Australia Act 1976 (Cth) (“The Federal Court Act”) which authorises the making of Rules of Court -

“for or in relation to the practice and procedure to be followed in the Court … and for or in relation to all matters and things incidental to any such practice or procedure, or necessary or convenient to be prescribed for the conduct of any business of the Court”.

9                     Section 59(3) of the Federal Court Act provides:

“(3)     Rules of Court under this Act have effect subject to any provision made by another Act, or by rules or regulations under another Act, with respect to the practice and procedure in particular matters.”

10                  Section 48 of the Acts Interpretation Act 1901 (Cth), which requires, amongst other things, that regulations made under an Act must be notified in the Gazette and laid before each House of the Parliament, applies to Rules of Court made under s 59(1) of the Federal Court Act as if references in s 48 to regulations were references to Rules of Court (s 59(4) of the Federal Court Act).  It is plain that the Federal Court Rules are a category of delegated legislation.

11                  While the substantive law of bankruptcy is to be found in the Act, the procedural aspects of the law of bankruptcy are now largely to be found in O 77 of the Federal Court Rules.  Unless the Court in any case exercises the discretion given to it by O 1 r 8 of the Federal Court Rules to dispense with compliance with any of the requirements of the Rules, parties to litigation before the Court are bound by the Federal Court Rules.

12                  Despite my having drawn to the attention of counsel for the applicant the power of the Court to dispense with compliance with any of the requirements of the Federal Court Rules no application for any dispensation was made in this case. It is thus necessary for me to give consideration to the requirements of O 77 r 13(2) and (3) of the Federal Court Rules.

13                  The time fixed by the Notice for compliance with the requirements of the Notice expired on 13 December 1998. As at that date the applicant had filed an application accompanied by two affidavits: one sworn by her on 11 December 1998 and the other sworn by her solicitor on the same day. The affidavits plainly satisfied the requirements of O 77 r 13 (2) and O 77 r 13(3)(a) and (d) of the Federal Court Rules. However, the only material in those affidavits which might be characterised as meeting the requirements of O 77 r 13(3)(b) and (c) and is contained in the following paragraphs of the solicitor’s affidavit:

“8.       I have been instructed by the applicant to claim damages from the respondent company in respect of:

(a)               the respondent company’s failure to maintain and repair the home unit building in accordance with its obligations under its Memorandum of Association; and

(b)               personal injuries sustained by the applicant as a result of the respondent company’s said failures.

9.                  These causes of action arose on or about March 1998 and 9 November 1998 respectively.

10.              These causes of action are unrelated to the respondent company’s claim for costs and could not have been set up in response to the respondent company’s claim for costs.

            …

15.              I anticipate that the damages which the applicant is entitled to recover from the respondent company for personal injuries allowing her discounts for an existing condition will fall between $20,000 and $30,000 and that a significant amount will be recovered for damages (including exemplary damages for unjustifiable delays) in respect of repair obligations.

16.              I estimate that the damages which the applicant is entitled to recover from the respondent company are likely to exceed the amount claimed in the bankruptcy notice by at least $20,000.00.”

14                  Annexed to the solicitor’s affidavit of 11 December 1998 is certain correspondence between the solicitors for the parties which discloses that the applicant has made complaint concerning her inability to park her car in her allocated parking space and that she has alleged that she suffered injury to her right leg and right shoulder following a fall.  The letter concerning the fall states as follows:

“We are instructed by Ms P. Crimmins who occupies Unit 6 of the above-mentioned premises [ie 696 Pacific Highway, Killara].

We are further instructed that on 9 November 1998 at around 8.50am our client sustained injury to her right leg and right shoulder following a fall.

Our client understands that water entered her unit under a door which leads to a garden/path on the northern side of our client’s unit.

We understand the company has been aware of the problems of inadequate drainage of water and of water that has been escaping from gutters, down pipes and drains and that the company has failed to properly address these ongoing problems.

Accordingly our client holds the company responsible for the cost of medical treatment and claims damages for injuries sustained as a result of the subject fall.”

15                  Also annexed to the solicitor’s affidavit of 11 December 1998 is a draft statement of claim (“the draft statement of claim”).  The solicitor deposes in his affidavit to holding instructions to file the draft statement of claim in the District Court of New South Wales if the applicant does not receive a satisfactory response from the respondent.  By the draft statement of claim the applicant claims damages for injuries suffered to her right leg, her right shoulder/arm and for laceration and bruising.  Curiously the draft statement of claim makes no express reference to the applicant’s having fallen or to water entering her unit under a door.  The draft statement of claim refers to the erection of a pier which obstructed and prevented use of the car park adjacent to unit 6.  It also refers, to the respondent’s failure to rectify damage and disrepair to the home units.  However, the particulars given of the allegation of the applicant in the draft statement of claim that she has “by reason of the matters aforesaid … suffered injury, loss and damage” are as follows:

“Particulars of Injury

(a)               Injury to right leg

(b)               Injury to right shoulder/arm

(c)               Lacerations and bruising

Particulars of Disabilities

(a)               On going pain in right shoulder

(b)               Difficulty using right arm/shoulder for extended periods of time

(c)               Difficulty raising right arm above shoulder height

(d)               Difficulty sleeping

(e)               Difficulty performing work activities

(f)                Intermittent pain in neck

(g)               Pain in left shoulder

(h)               Anxiety/frustration.”

That is, the particulars make no reference to damage to and disrepair of the home unit or to any loss or damage resulting from obstruction of the car park.

16                  The final paragraphs of the draft statement of claim reads:

“23.     The Plaintiff claims:

23.1          Damages

23.2          Interest pursuant to Section 83A of the District Court Act.

23.3          Costs.”

17                  The applicant did not by her affidavit of 11 December 1998 verify any of the matters alleged or particularised in the letters written by her solicitor or in the draft statement of claim.

18                  No medical evidence of any kind to support the applicant’s claim that she suffered injury to her right leg and right shoulder on or about 9 November 1998, or to assist the Court in evaluating her solicitor’s estimate that she may recover between $20,000 and $30,000 damages for the personal injuries suffered by her in the fall, was included in or annexed to the affidavits which accompanied the application.  Nor did the affidavits which accompanied the application show the basis upon which the applicant’s solicitor formed the view, expressed in his affidavit, that the applicant will recover “a significant amount … for damages (including exemplary damages) in respect of repair obligations.”

19                  It seems to me to be appropriate to construe the requirements of O 77 r 13(3)(b) of the Federal Court Rules in the light of the authorities on the obligation imposed on debtors by     s 41(7) of the Act before it was amended in 1996.  In particular, I conclude that the requirement of O 77 r 13(3)(b) that “full details of the counter-claim, set-off or cross demand” be stated in the affidavit which accompanies the application will be satisfied if the details stated are sufficient to show the nature and substance of the cross action and to demonstrate that the debtor is bona fide in his or her contention that the cross action exists (see Re Brink; Re Donkin).

20                  Applying that construction of the rule, I conclude, albeit with some hesitation, that the application and accompanying affidavits complied with the requirements of O 77 r 13(3)(b) so far as the applicant’s personal injuries claim and her car park claim are concerned.  I find, however, that they did not comply with the rule so far as the asserted claim “in respect of repair obligations” is concerned.  No real particulars of such claim can be identified in either of the affidavits which accompanied the application or in the annexures thereto.  There is insufficient material in the affidavits to demonstrate that the applicant has even a prima facie claim in respect of any particular repair obligation.

21                  The affidavits which accompanied the application did not, in my view, comply strictly with O 77 r 13(3)(c).  Although no application was made to the Court for the Court to dispense with strict compliance the requirements of O 77 r 13(3)(c), it seems to me that this is an appropriate case, so far as the applicant’s personal injuries claim is concerned, for the Court to give such a dispensation.  Not only is the claim an unliquidated one, it appears that the applicant’s injuries may not have stabilised in December 1998.  For that reason it may then have been premature for an accurate estimate of her recoverable damages, should liability in the respondent for such injuries be established, to have been made.  I conclude with some hesitation that in the circumstances, the expression of opinion of the applicant’s solicitor should be accepted as sufficient compliance, so far as the applicant’s personal injuries claim is concerned, with O 77 r 13(3)(c).

22                  However, it is far from self evident that it would be appropriate for the applicant to receive a similar dispensation so far as her asserted claims concerning the car park and “repair obligations” claims are concerned.  No such dispensation having been sought, it is necessary to determine whether the requirement of O 77 r 13(3)(c) were in fact met in respect of these claims.

23                  The only evidence concerning the quantum of these claims provided by the affidavits which accompanied the application was the expression of opinion by the applicant’s solicitor that a “significant amount” would be recovered in respect of the repair obligations and that the total damages which the applicant is entitled to recover from the respondent is “likely to exceed the amount claimed in the bankruptcy notice by at least $20,000”.  In the light of the opinion expressed by her solicitor that the applicant is likely to recover between $20,000 and $30,000 in respect of her personal injuries, this implies that the other two claims were considered by him to have an aggregate value of between $10,000 and $20,000.  This evidence is, in my view, too vague and general to satisfy the requirements of O 77 r 13(3)(c) that the affidavit accompanying the application state the amount of the cross-claim, set-off or cross demand.

24                  For the above  reasons, I conclude that  a valid  application  of  the kind referred to in s 41(7) of the Act was made to the Court only in respect of the applicant’s asserted personal injury claim.

25                  I turn to consider whether I may be satisfied that the applicant has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g) of the Act.  Having regard to my above finding, this consideration will in the first instance be limited to the asserted personal injuries claim.  For this purpose it is appropriate for me to have regard to the additional affidavit evidence filed and served after the expiration of the time for compliance with the Notice (Re Brink at 439). The whole of the evidence before me must be such as to demonstrate that the debtor has a prima facie case in respect of the cross action (Ebert v The Union Trustee of Australia Ltd (1960) 104 CLR 346).

26                  In an affidavit dated 16 March 1999 the applicant gives details concerning her fall, and discloses that she consulted her general practitioner the day after her fall and subsequently also consulted an orthopaedic surgeon.  The orthopaedic surgeon it appears has had the benefit of an ultra-sound examination of both of the applicant’s shoulders and also of relevant x-rays.  In this affidavit the applicant also discloses that she is receiving physiotherapy, apparently for her right shoulder.

27                  Affidavit evidence was also filed after the expiration of the time for compliance with the Notice by a solicitor who now has the conduct of the applicant’s personal injuries claim.  He is not the solicitor on the record in respect of this application.  By his affidavit he discloses that he made arrangements for the applicant to see an orthopaedic surgeon on 15 March 1999 for the purpose of the orthopaedic surgeon providing an expert report as to the applicant’s injury.  He concedes that he will be assisted in giving a “more meaningful assessment” of the value of the applicant’s personal injuries claim (which he states “could quite reasonably have a value which exceeds $20,000) when he has had the benefit of examining:

“(a)     The treating doctors’ notes and reports;

  (b)     Ms Crimmins’ prior medical history;

  (c)      An expert report from an orthopaedic surgeon; and

  (d)     Counsel’s advice.”

28                  Notwithstanding the medical and para-medical treatment and advice apparently received or sought by the applicant, no expert medical evidence of any kind has been placed before the Court on this application.  It also appears that the estimates of the value of the applicant’s personal injury claim made by her solicitors have each been made without the benefit of expert medical advice.  The absence of expert medical advice assumes particular significance in this case because of the applicant’s frank concession that she had experienced problems with her right shoulder before her fall.

29                  Having regard to the limited evidence placed before me, and the appropriately qualified expression of opinion of the solicitor who now acts for the applicant in respect of her personal injuries claim as to the value of her claim, I am unable to be satisfied that the applicant’s personal injuries claim against the respondent is “a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” within the meaning of          s 40(1)(g) of the Act.

30                  Although on the view that I have taken it is not necessary for me to do so, I indicate that, even if I had been prepared to take into account the applicant’s claims concerning the car park and repair obligations, I would not have been satisfied that the applicant’s claims against the respondent are equal to or exceed the amount of the judgment debt.  Nothing before me suggests that the car park claim has other than a modest value, if it has any monetary value. The solicitor representing the applicant on her personal injuries claim has filed a statement of claim in the District Court on her behalf.  That statement of claim addresses the deficiencies noted above in respect of the draft statement of claim.  However it does not particularise the loss and damage claimed by the applicant in respect of the car park of which she was deprived or the repair obligations allegedly not met by the respondent. The applicant has estimated the cost of repairing and replacing various items in her unit which have been damaged by water penetration at $3,848.00.    However, there is insufficient material before me upon which I could realistically attempt to place a value on the total loss and damage claimed to have been suffered by the applicant under these two heads. I do not find the apprehension of the applicant’s solicitors that the applicant’s shareholding in the respondent may have lost $25,000 of value by reason of the “corporate caprice of the kind now being experienced by the Applicant” of great assistance to me in this regard.

31                  In the circumstances, and on the assumption that it would be appropriate for me to consider all of the heads of claim against the respondent put forward by the applicant, I am still unable to be satisfied that the applicant has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt upon which the Notice is founded.

32                  The application is dismissed.

Associate:                                            

Dated:              29 April 1999