FEDERAL COURT OF AUSTRALIA

Howell v Fine Real Estate Network Pty Ltd, in the matter of Howell (Bankrupt) [1999] FCA 1654

PAUL ROCH HOWELL v FINE REAL ESTATE NETWORK PTY LTD

N8121 of 1999

MATHEWS J

SYDNEY

18 NOVEMBER 1999

THE COURT ORDERS THAT:

1.         I refuse the orders sought in paragraphs 2 and 3 of the notice of motion dated 15 November 1999.

2.         I refuse the orders sought in the original application to set aside the bankruptcy notice.

3.         I order the applicant to pay the respondent’s costs in both these matters.

4.         By consent, I declare that the act of bankruptcy consequent upon the service of the bankruptcy notice occurred on 26 October 1999.

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

REASONS FOR JUDGMENT

1                     On 21 September 1999, a bankruptcy notice was served on the present applicant, Paul Howell.  The judgment creditors named in the bankruptcy notice were Fine Real Estate Network Pty Limited, Mervin Keith Fine and Patricia Joan Fine.  The notice required payment within 21 days of a judgment debt amounting to $312,537.55.  The 21 days expired on 12 October 1999.  In the meantime Mr Howell obtained an order from the Registrar extending time for compliance with the requirements of the notice until 26 October.  On 11 October, within the time stipulated in the Bankruptcy Act 1966 (Cth) (“the Act”), Mr Howell filed an application in the court seeking an order that the bankruptcy notice against him be set aside and that time for compliance with the requirements be extended up to and including the hearing of his application.

2                     The respondent to the motion as filed was said to be Fine Real Estate Network Pty Ltd.  It was only after the 26 October, when the matter came before the court, that Mr Howell’s representatives apparently realised that the respondents should have included the two individual judgment creditors as well as the company.  Hence the application before the court today to amend the notice of motion so as to add the individual respondents.  It is conceded by Mr Johnson, who appears for the respondent and the putative respondents, that there is a discretion in the court to make such an order, but he has urged that in the circumstances of this case that discretion should not be exercised.

3                     The second order sought today is Mr Howell have leave to file an amended affidavit in support of his application.  Mr Howell’s original application faces a number of difficulties. One of them (which has not been properly explored today) relates to a question as to whether the original affidavit which was filed with the application on 11 September, meets the requirements of Order 77, rule 13 of the Federal Court Rules.  Under subrules 13(2) and (3), an application must be accompanied by a copy of the bankruptcy notice (which did not happen in this case) and also by an affidavit setting out various matters relating to the claimed counter-claim, set off or cross-demand. In this case there is a real question as to whether the affidavit filed with the notice of motion complied with the requirements of this rule.  However, both counsel agreed that it was appropriate to debate the merits of the application before looking at this issue, for if the applicant had no chance of success on the substantive motion, then there would be little point in the court exercising its discretion to make the orders sought in the notice of motion.

4                     As it transpires, this is what has occurred.  Mr Howell’s most recent affidavit, upon which Mr Hodgekiss (who appears for him) primarily relies in these proceedings, has been shown during the course of the proceedings today to raise matters which cannot, as a matter of law, be relied upon in proceedings of this nature.

5                     In order for a counter-claim set-off or cross-demand to meet the requirements of s 40(1)(g) of the Act, it must be a claim “in the same right” as the claim upon which the bankruptcy notice is based.  In this case the judgment creditors named in the bankruptcy notice are the company and the two individuals. The judgment debt arose out of proceedings in the Supreme Court of New South Wales between those three on the one side and Mr Howell on the other.  However most of the apparent “cross-claims” relied upon by Mr Howell in his affidavit arise from entirely different proceedings between himself and the company alone.  Mr Johnson has referred me to the recent decision of Stec v Orfarnos [1999] FCA 457 (“Stec”).  In it the Full Court made the following observations:

“The primary judge then said that there was a more general answer to all the alleged cross demands.  This was that in answer to a bankruptcy notice issued by several joint creditors, the debtor may not raise a debt owed by one or some of them individually.  Mr Stec’s claims were not against all those described in the notice as “the creditor”.  His Honour relied on James at 643 and on an earlier decision of his own, Emanuele v Grey (unreported 17 December 1997), which also relied on the passage in James. Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgement or order on which the bankruptcy notice is founded, the judgement on the one hand and the cross demand on the other must be mutual and due in the same right:  Re Anderson; Ex parte Alexander(1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27.  The requirement that the two claims be “in the same right” is directed to the capacities in which the claimants claim.  Thus a claim by a judgement creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee.  See Re Wedd; Ex parte Wedd (1961) 19 ABC 36; Re Molesworth (1907) 51 Sol J653; Vogwell v Vogwell (1939) 11 ABC 83 at 89.  But the requirement relevant to the present case is that the claims be mutual; that is that they be of the same kind or nature.  Thus joint debts cannot be set off against several debts: Middleton v Pollock (1875) LR 20 Eq 515 at 518.  Here three of Mr Stec’s claims were against ERI alone.  There is thus no mutuality in relation to these claims.  His other claim was against Messrs Conroy, Rybak and Georgopolos.  Again there is no mutuality because one of the joint creditors, ERI, is not the subject of the cross claim.”

6                     On 24 September 1999 Whitlam J in Xu v Wincopy Pty Ltd [1999] FCA 1335 applied the principles enunciated in Stec in a case which, to all intents and purposes, is indistinguishable from the present one.  It follows that the claims raised by Mr Howell against the company alone cannot avail him in these proceedings.  Once they are removed from his affidavit all that is left is a dispute as to the quantification of his debt to the judgment debtors.  This is quite insufficient to satisfy the requirements of ss 40(1)(g) and 41(7) of the Act.  Accordingly, it would appear that the appropriate way of dealing with the issue is to refuse the orders sought in the notice of motion returnable today.

7                     The formal orders I make are:

1.         I refuse the orders sought in paragraphs 2 and 3 of the notice of motion dated 15 November 1999.

2.         I refuse the orders sought in the original application to set aside the bankruptcy notice.

3.         I order the applicant to pay the respondent’s costs in both these matters.

4.         By consent, I declare that the act of bankruptcy consequent upon the service of the bankruptcy notice occurred on 26 October 1999.

Associate:

Dated:              25 November 1999