FEDERAL COURT OF AUSTRALIA

Lau v Accord Pacific Properties Pty Ltd, in the matter of Lau [2003] FCA 795

BANKRUPTCY – application to set aside a bankruptcy notice – whether the applicant has a counter‑claim within the meaning of s 40(1)(g) – whether the applicant could not have set‑up the cross‑claim in the proceeding in which the judgment or order was obtained.

Bankruptcy Act 1966 (Cth) ss 40, 41

Re Ling; Ex Parte Ling v Commonwealth of Australia (1995) 58 FCR 129 followed

Re Phyllis Graves; Ex Parte Phyllis Graves v Kevin Seggie (unreported, Sackville J, 29 August 1997) referred to

Nath v Clipway Pty Ltd [1999] FCA 625 (FC) followed

DAVID WAI KWOK LAU v ACCORD PACIFIC PROPERTIES PTY LTD (ACN 062 998 618) IN THE MATTER OF DAVID WAI KWOK LAU

N 7127 of 2003

BRANSON J

31 JULY 2003

SYDNEY

THE COURT ORDERS THAT:

1.                  The application be dismissed;

2.                  The time within when the applicant may comply with the bankruptcy notice be extended to 5 pm on Monday, 28 July 2003;

3.                  The applicant pay the respondent’s costs of the application.

REASONS FOR JUDGMENT

introduction

1                     By an application dated 24 April 2003 the applicant sought an order under s 41(7) of the Bankruptcy Act 1966 (Cth) (‘the Act’) setting aside a bankruptcy notice served on him on 7 April 2003.  The only ground of his application that was pressed was that he has a counter‑claim, set‑off or cross demand of the kind referred to in s 40(1)(g) of the Act.  A counter‑claim, set‑off or cross demand of the kind referred to in s 40(1)(g) is a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment or order upon which the bankruptcy notice is based that the applicant could not have set up in the action or proceeding in which the judgment or order was obtained.

2                     The application dated 24 April 2003 was heard by me as duty judge on 15 July 2003.  At the conclusion of the hearing I made the following orders:

‘1.        The application be dismissed;

2.                  The time within when the applicant may comply with the bankruptcy notice be extended to 5 pm on Monday, 28 July 2003;

3.                  The applicant pay the respondent’s costs of the application.’

My reasons for making the above orders are set out below.

consideration

3                     For the applicant’s above application to succeed it was necessary for him to satisfy the Court of two things:

(a)                that he has a counter‑claim, set‑off or cross‑demand that is equal to or exceeds the amount of the judgement or order upon which the bankruptcy notice is based; and

(b)               that he could not have set up the cross‑claim, set‑off or cross‑demand in the proceeding in which the judgment or order was obtained.

It is the second of the above two things that is fatal to the applicant’s application.

4                     The proceeding in which the creditor’s judgment was obtained was a proceeding in the District Court of New South Wales.  The cross‑claim upon which the applicant placed reliance was identified as the claim now advanced in the New South Wales Supreme Court proceeding 20590/02.  The only basis upon which the applicant contended that this claim could not have been set up as a cross‑claim in the District Court proceeding was that, at the relevant time, he believed that the value of the claim exceeded the jurisdictional limit of the District Court.  It is now conceded on the applicant’s behalf that his earlier belief was inaccurate and that the true value of his claim, assuming it to have merit, is below the jurisdictional limit of the District Court.

5                     A debtor seeking to come within s 41(7) must satisfy the Court that he ‘has’ a cross‑claim, set‑off or cross demand of the kind referred to in s 40(1)(g).  As Hill J pointed out in Re Ling; Ex Parte Ling v Commonwealth of Australia (1995) 58 FCR 129 at 132, the question of whether a debtor ‘has’ such a cross‑claim, set‑off or cross demand is to be determined by reference to legal considerations.  The applicant’s belief, even were it a continuing belief, is therefore an irrelevant consideration.  I am not satisfied that the applicant has a cross‑claim that exceeds the jurisdictional limit of the District Court.  I am satisfied, on the basis of the concession referred to in [4] above, that the claim upon which the applicant relies does not exceed that jurisdictional limit.

6                     Even if I were satisfied that the cross‑claim upon which the applicant relies exceeds the jurisdictional limit of the District Court, that would not entitle the applicant to the relief which he seeks.

7                     The applicant drew the Court’s attention to Re Phyllis Graves; Ex Parte Phyllis Graves v Kevin Seggie (unreported Sackville J, 29 August 1997) (‘Re Graves’).  In Re Graves Sackville J said:

‘In my view, a genuine claim for an amount exceeding the jurisdictional limit of a court, which can be brought as a cross-claim in proceedings within that court only by abandoning the excess over the [jurisdictional] limit, is a claim that could not have been set up in those proceedings.

8                     It is not necessary to determine whether, as the respondent contended, the view expressed by Sackville J in Re Grave is inconsistent with a well‑established line of authorities.  I accept that in the circumstances of this case, s 145(1) of the District Court Act 1973 (NSW) would have allowed the applicant to apply to have the proceeding in the District Court removed to the Supreme Court.  That is, I am not satisfied that this is a case in which the applicant would only have been able to prosecute his claim in the earlier proceeding by abandoning part of his claim.

9                     In Nath v Clipway Pty Ltd [1999] FCA 625 (FC) Spender J, with whom Kiefel and Hely JJ agreed, noted with approval the approach adopted by Hill J in Re Ling.  In Re Ling Hill J at 137, after referring to a number of authorities, said:

‘These cases, it seems to me, establish that a cross claim will be one which could be set up in the action, notwithstanding that to do so the debtor may need to transfer the proceedings first to another court, or may need to obtain in his or her favour the exercise of a discretion before doing so.  The onus of showing that the claim is not one that could have been set up in the creditor's proceedings lies upon the debtor.  That onus will not be satisfied merely by showing that some indirect course may need be followed (that course being in the discretion of the debtor) nor by showing that there existed a discretion which could have been exercised against the setting up of the claim as a cross claim.  To satisfy that onus the debtor must show that, as a matter of law and in the circumstances prevailing, he or she could not have set up the cross claim.’

10                  Having regard to the Full Court’s approval of the statement of Hill J, I regard myself as bound by his Honour’s observations.

11                  In the circumstances it is immaterial, in my view, that the applicant may have attempted, unsuccessfully as it happened, to file a cross‑claim in the District Court, or that he successfully commenced a proceeding in the Supreme Court before the respondent obtaining judgment in the District Court.

12                  The applicant did not press a foreshadowed contention that the bankruptcy notice constituted an abuse of the process of the Court.

13                  The applicant failed in his endeavours to satisfy the Court that he has a counter‑claim, set‑off or cross demand of the kind referred to in s 40(1)(g) of the Act.  For that reason on 15 July 2003 I made the orders set out in [2] above.

Associate:

Dated:              31 July 2003