FEDERAL COURT OF AUSTRALIA

Elkateb v Lawindi, in the matter of Elkateb [2000] FCA 1624

BANKRUPTCY – 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 affidavit filed in support of application to set aside bankruptcy notice contain sufficient details of the counter-claim, set-off or cross demand

Bankruptcy Act 1966 (Cth) s 41(7)

Federal Court Rules O 77 r 13

Thomas v St George Bank Ltd [1999] FCA 166 referred to

Crimmins v Glenview Home Units [1999] FCA 515 referred to

IN THE MATTER OF MOHAMED SAFWAT ELKATEB

MOHAMED SAFWAT ELKATEB v WASFY LAWINDI

N 7299 of 2000

STONE J

30 OCTOBER 2000

SYDNEY

THE COURT ORDERS THAT:

1)         The application to set aside the bankruptcy notice be dismissed.

2)         The applicant pay the respondent's costs of these proceedings.

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

REASONS FOR JUDGMENT

1                     The applicant in this matter was served with a bankruptcy notice on 24 March 2000.  On 12 April 2000, the applicant filed an application supported by an affidavit sworn by him on the same day.  There have been a number of preliminary skirmishes in this matter, including issues in relation to a subpoena issued by the applicant, which I have dealt with at an earlier stage.

2                     The applicant's claim to set aside the bankruptcy notice is a claim under s 41(7) of the Bankruptcy Act 1966 (Cth) (“the Act”) based on the existence of a counter-claim, set-off or cross demand.  Under s 41(7) of the Act:

“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.”

3                     It is important to note that this section requires the application to the Court for an order setting aside the bankruptcy notice to be made before the bankruptcy notice expires.  In earlier cases in this Court, it has been decided that in order to make an application under s 41(7), there must, at the very least, be a bona fide assertion of a genuine counter-claim, set-off or cross demand.  The matter was considered by Lindgren J in Thomas v St George Bank Ltd [1999] FCA 166 and also by Branson J in Crimmins v Glenview Home Units [1999] FCA 515.

4                     Both of those authorities refer to the necessity of complying with O 77 r 13 of the Federal Court Rules (“the Rules”).  This rule requires that, if there is an application is to set aside a bankruptcy notice on the ground that the debtor has a counter claim, set off, or cross demand, then the affidavit which accompanies that application must contain certain details, namely:

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

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

(c)  the amount of the counter-claim, set-off, or cross demand as well as 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.

5                     The respondent claims that those requirements have not been met and, before me today, has objected to the affidavit sworn by the applicant on 20 October 2000 on a number of grounds, all of which go to this question.  In fact, the relevant affidavit would have been the affidavit which accompanied the application of 12 April 2000.  Mr Freeman, counsel for the respondent, raised the question of whether it would be possible for the applicant to rely on additional evidence that did meet the requirements of s 41(7) of the Act and O 77 r 13 of the Rules, provided that some evidence had been brought at the outset.

6                     Given that I am of the opinion that the affidavit of 20 October 2000 does not itself meet the requirements of s 41 of the Act and O 77 r 13 of the Rules, it is not necessary for me to decide this question.  Without going through all of the objections raised to that affidavit in detail, I will refer to the more important points.  The affidavit does not distinguish between assertion and opinion and material facts.  It states in paragraph 2 that, "I am actually not indebted to the creditor" and continues "The cost orders obtained by the Creditor against me fall foul of the indemnity principle".

7                     There are no facts given in the affidavit which are sufficient to support those assertions.  Paragraph 3 of the affidavit states that the applicant has a counter-claim, set-off or cross demand against the respondent, equal to or exceeding the amount in the bankruptcy notice, and which he could not have set up in the original proceedings.  However, the requirement contained in O 77 r 13(3) of the Rules, that reasons be given for such assertions, is not met.

8                     The applicant also refers to costs orders which the applicant has against the respondent, and annexes a copy of those orders in annexure C to the affidavit.  That annexure is a transcript of the judgment of Bergin J of the Supreme Court of New South Wales given on 3 December 1999 and includes the order that the plaintiff in those proceedings (Mr Lawindi) pay the defendant's (Mr Elkateb’s) costs of that day.  Without additional information as to those costs, I am not satisfied that one day's costs for an unrepresented litigant would be greater than the amount demanded in the Bankruptcy Notice. 

9                     The remainder of the affidavit is largely concerned with the applicant's expectation as to damages that may be recovered in various proceedings. I express no opinion about the plaintiff's likelihood of success in those proceedings.  However, I do note that the evidence as to the amounts to be recovered are statements of opinion. No evidence has been presented that would indicate that the plaintiff is an expert entitled to give such opinion.  For these reasons, it seems to me that the claims in the affidavit are not sufficiently detailed and are largely inadmissible.  In his submissions to this Court, Mr Elkateb spoke with obvious sincerity and urgency about the injustice which would be done were this court to refuse the application to set aside the bankruptcy notice and the non-utility in his being declared bankrupt given the expectations as to amounts to be received from the various actions.

10                  I pointed out to Mr Elkateb that the effect of the Court rejecting the application to set aside the bankruptcy notice would not result in immediate bankruptcy.  That situation would only arise after the creditor has brought a petition under s 43 of the Act and the Court has made a sequestration order against the estate of the debtor.  Without prejudging in any way the result of any such application were it to be made, it is well established that the Court has considerable discretion in such proceedings and that much of the material which Mr Elkateb has attempted to bring before the court in this application might more properly be bought in such proceedings.

11                  For these reasons I dismiss the application to set aside the bankruptcy notice.  It follows that the act of bankruptcy would have occurred on the date when the bankruptcy notice would in the normal course of events have expired. 

12                  I make the following orders:

1)         that the application to set aside the bankruptcy notice be dismissed; and

2)                  that the applicant pay the respondent's costs of these proceedings.

Associate:

Dated:              14 November 2000