FEDERAL COURT OF AUSTRALIA

James v Hill [2005] FCA 981

BANKRUPTCY – appeal – application to set aside bankruptcy notice – judgment debt – counter-claim, set-off or cross-demand – assignment of action in injurious falsehood – whether appellant as assignee demonstrated a prima facie case to recover damages equal to or in excess of the judgment debt

APPEAL – evidence – application for evidence to be received on appeal – whether open to appellant to establish a counter-claim, set-off or cross-demand that did not exist when application to set aside bankruptcy notice was first heard

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

Evidence Act 1995 (Cth)

Federal Court of Australia Act 1976 (Cth) par 24(1)(d), subs 25(1A)

Federal Court Rules O 52 r 36

Federal Magistrates Court Rules r 30.02

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

K Mart Australia Limited v Commissioner of Taxation [1995] FCA 760 cited

Patane v Asteron Life Ltd [2004] FCA 232 followed

Poulton v The Commonwealth (1953) 89 CLR 540 referred to

DAVID ANTHONY JAMES v TERRY DONALD HILL

NSD 949 of 2005

BRANSON J

19 JULY 2005

SYDNEY

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  The cross appeal be dismissed.

3.                  The appellant pay the respondent’s costs of the appeal.

4.                  The respondent pay the appellant’s costs of the cross appeal, if any, such costs, if any, to be set off against the costs payable pursuant to order 3 hereof.

5.                  If a sequestration order against the estate of the appellant is made consequent upon the appellant’s failure to comply with the requirements of the bankruptcy notice numbered NA 3422/04, the costs to which the respondent is entitled be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

REASONS FOR JUDGMENT

INTRODUCTION

1                     On 13 July 2005 I made orders on this appeal as follows:

1.                  The appeal be dismissed.

2.                  The cross appeal be dismissed.

3.                  The appellant pay the respondent’s costs of the appeal.

4.                  The respondent pay the appellant’s costs of the cross appeal, if any, such costs, if any, to be set off against the costs payable pursuant to order 3 hereof.

5.                  If a sequestration order against the estate of the appellant is made consequent upon the appellant’s failure to comply with the requirements of the bankruptcy notice numbered NA 3422/04, the costs to which the respondent is entitled be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

2                     I indicated at that time that I would publish reasons for judgment as soon as conveniently possible.  These are my reasons for making the above orders.

background

3                     On 14 April 2005 the appellant applied to the Federal Magistrates Court for, amongst other orders, an order setting aside a bankruptcy notice deemed to have been served on him on 25 March 2005 (‘the bankruptcy notice’).  The bankruptcy notice was issued on the application of the respondent and required payment to the respondent of a judgment debt of $383 271.36.

4                     The appellant’s application to the Federal Magistrates Court was made on the ground that the appellant had a counter‑claim, set‑off or cross‑demand of the kind referred to in paragraph 40(1)(g) of the Bankruptcy Act 1966 (Cth) (‘the Act’).  That is, a counter‑claim, set‑off or cross‑demand:

(a)                equal to or exceeding the amount of the judgment debt of which the bankruptcy notice required payment; and

(b)               that the appellant could not have set up in the action or proceeding in which the judgment was obtained.

5                     Before the Federal Magistrates Court no reliance was placed on subs 41(6A) of the Act.

6                     Part 30 of the Federal Magistrates Court Rules is headed ‘Bankruptcy Notices’.  Rule 30.02 relevantly provides:

‘Requirements of application to set aside, or extend time for complying with, notice

(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)        ….

(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 and accompanying documents must be served on the respondent creditor within 3 days after the application is filed.’

7                     The appellant did not comply with the requirements of Rule 30.02 or seek an order from the learned Federal Magistrate waiving the requirement for compliance with the rule.  It may well be that in these circumstances the deemed extension of time for compliance with the bankruptcy notice for which subs 41(7) of the Act provides did not come into effect.  As I discussed in Crimmins v Glenview Home Units [1999] FCA 515, where a rule of court governs the procedure to be followed when making a particular application, a litigant is obliged to follow that procedure or alternatively, obtain an order excusing him or her from doing so.  However, neither before the Federal Magistrates Court nor on this appeal has the respondent placed reliance on the appellant’s failure to comply with Rule 30.02.  An order was made in the Federal Magistrates Court extending the time within which the appellant was required to comply with the bankruptcy notice until judgment or further order.  Although it is not clear what was the source of power in the Federal Magistrates Court thereby invoked, no application has at any time been made to have the order set aside.  For this reason it has never been necessary for the appellant to place reliance on the deemed extension of time for which subs 41(7) of the Act provides.

appellant’s case before the federal magistrates court

8                     Before the Federal Magistrates Court the appellant asserted a cross‑claim against the respondent constituted of three separate elements as follows:

(a)                certain costs orders against the respondent made in the Supreme Court of New South Wales either in favour of the appellant or in favour of parties who have assigned the benefit of the orders to the appellant;

(b)               a claim for damages arising out of an allegedly defamatory communication concerning the appellant made by or on behalf of the respondent; and

(c)                the alleged assignment to the appellant of the benefit of a right of action against the respondent for injurious falsehood.

9                     It was conceded before the Federal Magistrates Court that no element of the asserted cross‑claim could have been set up in the proceeding in which the judgment giving rise to the judgment debt was obtained.  The critical issue to be determined by the learned Federal Magistrate, Raphael FM, was therefore whether he was satisfied that, by reason of one or more of the above elements of the asserted cross‑claim, the appellant had a counter‑claim, set‑off or cross‑demand equal to or exceeding $383 271.36.

decision of the federal magistrates court

10                  Raphael FM accepted the first element of the cross‑claim asserted by the appellant and placed a value on it of $284 232.52.

11                  His Honour was not satisfied that there was any value in the claim for damages arising out of the allegedly defamatory communication.

12                  In respect of the alleged assignment of the benefit of the right of action for injurious falsehood, his Honour identified the following difficulties facing the appellant:

(a)                the decision of the High Court in Poulton v The Commonwealth (1953) 89 CLR 540 that a right of action in tort cannot be assigned at law or in equity;

(b)               there was no evidence that the damage allegedly suffered flowed from the allegedly tortious conduct; and

(c)                there was no evidence that established the quantum of the damage allegedly suffered.

13                  Raphael FM was therefore not satisfied that the appellant had a counter‑claim, set‑off or cross‑demand equal to or exceeding the amount of the judgment debt.  The counter‑claim, set‑off or cross‑demand of which his Honour was satisfied was less than the amount of the judgment debt by approximately $100 000.

14                  The orders of the Federal Magistrates Court were as follows:

‘1.        Application be dismissed.

2.         Time for compliance with the bankruptcy notice be extended until 17 June 2005.

3.         Applicant pay the respondent’s costs to be taxed if not agreed according to the Federal Court Act and Rules.’

proceedings in this court

Exercise of Appellate Jurisdiction

15                  The appellant appealed to this Court from the whole of the judgment of the Federal Magistrates Court (par 24(1)(d) of the Federal Court of Australia Act 1976 (Cth) (‘the Federal Court Act’).  The Chief Justice considered it appropriate for the appellate jurisdiction of the Court in relation to the appeal to be exercised by a single judge (subs 25(1A) of the Federal Court Act).

Application for Evidence to be Received on Appeal

16                  The appellant, with leave, filed and served an amended notice of appeal dated 11 July 2005.  The amended notice of appeal makes clear that the appellant’s challenge to the judgment of the Federal Magistrates Court concerns his Honour’s failure to be satisfied that the appellant had a counter‑claim, set‑off or cross‑demand against the respondent in an amount of $100 000 or more arising from the alleged right of action for injurious falsehood.

17                  The appellant applied pursuant to O 52 r 36 of the Federal Court Rules for the Court to receive evidence on the appeal.  An application pursuant to O 52 r 36 is required to be made by motion on the hearing of the appeal.  The rule makes plain that a notice of motion need not be filed (see O 52 r 36(3)).  The explanation for this may be presumed to be found in the requirements that the grounds of the application be stated in an affidavit and that any evidence necessary to establish the grounds of the application, and the evidence that the applicant wants the Court to receive, be given by affidavit.

18                  The evidence that the appellant ultimately applied to have the Court receive pursuant to O 52 r 36 was contained in two affidavits.  The first affidavit contained evidence with respect to the appellant’s claim for damages for defamation.  The second affidavit contained evidence concerning an agreement entered into after the date of the judgment the subject of this appeal.  By this agreement certain companies in liquidation and their respective liquidators conditionally assign to the appellant a debt owed to them by the respondent.  The conditions under which the assignment will occur have not, and may not, occur. 

19                  As the appellant did not challenge the Federal Magistrate’s failure to be satisfied that the appellant’s claim for damages against the respondent for defamation had any value, the additional evidence sought to be introduced on the appeal concerning this claim was of no relevance to the appeal.  The application to the Court to receive the evidence in the affidavit concerning the appellant’s claim for damages for defamation was refused on this basis. 

20                  In respect of the affidavit concerning the conditional assignment of a debt owed by the respondent, the appellant was required to argue that it was open to him, on appeal from the judgment of the Federal Magistrates Court, to establish a counter‑claim, set‑off or cross‑demand that did not exist at the time when his application to set aside the bankruptcy notice was heard and determined in the Federal Magistrates Court.  This question was considered by Lander J in Patane v Asteron Life Ltd [2004] FCA 232.  His Honour at [74] concluded that the time at which it is to be determined whether a person served with a bankruptcy notice has a counter‑claim, set‑off or cross‑demand of the kind referred to in par 40(1)(g) of the Act is the date when the application to set aside the bankruptcy notice is first heard.  It is appropriate for me to follow the approach adopted by his Honour unless I am satisfied that the approach adopted by him was clearly wrong (see K Mart Australia Limited v Commissioner of Taxation [1995] FCA 760).  I am not so satisfied.  For this reason the application to this Court to receive the evidence in this affidavit was also refused.

Cross Appeal

21                  The respondent filed a notice of cross appeal from order 2 of the orders made by the Federal Magistrates Court.  The notice of cross appeal was founded on a contention that there was, in the circumstances of this case, no power in the Federal Magistrates Court to make an order extending the time for compliance with the bankruptcy notice.  However the respondent conceded that, because of a later unchallenged order made in this Court that extended the time for compliance with the bankruptcy notice, the cross appeal could not be maintained.  The cross appeal was therefore dismissed with costs, if any.

Challenge to His Honour’s Determination

22                  To sustain the challenge to his Honour’s determination that he was not satisfied that the appellant had a counter‑claim, set‑off or cross‑demand equal to or exceeding $383 271.36 the appellant was required to show that his Honour should have found that, as the assignee of the right of action against the respondent in injurious falsehood, he had a prima facie case to recover damages of at least $99 038.84. 

23                  It is convenient to consider first the evidence touching on the damages, if any, suffered by Liquor National Wholesale Pty Ltd, the alleged assignor of the right of action, by reason of the conduct relied upon as constituting the tort of injurious falsehood.  That conduct was the sending of a letter dated 24 June 2004 to the solicitors for Southcorp Wines Limited and Carlton & United Breweries Pty Ltd.  The letter inaccurately asserted that the appellant had failed to comply with a bankruptcy notice served on him.  The appellant is the sole director and shareholder of Liquor National Wholesale Pty Ltd.  He contends that as a result of the sending of the letter dated 24 June 2004 the major suppliers to Liquor National Wholesale Pty Ltd reduced that company’s credit limits.

24                  The appellant swore an affidavit that was filed in the Federal Magistrates Court in which he asserted that reductions in the credit limits of Liquor National Wholesale Pty Ltd in about mid-2004 had the effect of causing a reduction of approximately 20% in its turnover with a corresponding loss of profit of $50 000 per month.  Raphael FM refused to allow the paragraphs of the appellant’s affidavit in which this and related assertions were made to be read.  The appellant faintly suggested that his Honour’s ruling in this regard was erroneous.  However, he identified no provision or provisions of the Evidence Act 1995 (Cth) that would render admissible the paragraphs in the appellant’s affidavit that his Honour refused to allow to be read.  These paragraphs contain  assertions which may be assumed to be in part an expression of opinion by the appellant and in part hearsay evidence of the content of the financial records of Liquor National Wholesale Pty Ltd.  His Honour’s ruling has not been shown to be erroneous.

25                  In any event, his Honour allowed the appellant to give oral evidence.  Over the objection of counsel for the respondent the appellant gave evidence, during his examination in chief, that after 24 June 2004 Liquor National Wholesale Pty Ltd experienced a drop in revenue of $50 000 per month.  In cross‑examination the appellant said that it was in late July or early August 2004 that Liquor National Wholesale Pty Ltd experienced a drop in its credit limits.  He was then taken to a profit and loss summary for the liquor business operated by Liquor National Wholesale Pty Ltd for the months of July to October 2004.  He agreed that it did not show a reduction of revenue of $50 000 per month.  The profit and loss summary in fact shows total gross sales for each of the months August, September and October 2004 in excess of the total gross sales for July 2004. 

26                  There was evidence before the Federal Magistrate which showed that the liquor business operated by Liquor National Wholesale Pty Ltd made significantly lower monthly purchases from Carlton United Breweries Pty Ltd in the months of September to December 2004 than it had made in the months March to August 2004.  However, graphs placed before his Honour showing gross profit and total sales respectively of the business for the years 2003 and 2004 provided no clear support for a conclusion that this drop in purchases was reflected in a decline in profitability.

27                  It is appropriate to record that the appellant did not press the ground of appeal by which a challenge was made to the rejection of certain evidence contained in an affidavit of David George Brooks sworn 30 May 2005.  The accuracy of the transcript of the hearing before Raphael FM was not challenged.  That transcript shows that the evidence claimed to have been rejected by his Honour was either received or not sought to be adduced in evidence.

28                  Having regard to the evidence adduced before his Honour it is, in my view, impossible to attribute any error to his Honour in respect of his failure to be satisfied that Liquor National Wholesale Pty Ltd had suffered any damage by reason of the alleged injurious falsehood.  The challenge to his Honour’s failure to be satisfied that there was a prima facie case that Liquor National Wholesale Pty Ltd had suffered damage by reason of the alleged injurious falsehood in an amount of approximately $99 038.84 or more fails. 

29                  The above conclusion means that it is unnecessary to give consideration on this appeal to the appellant’s other complaints concerning his Honour’s consideration of the alleged right of action for injurious falsehood. 

conclusion

30                  As the challenge to the determination of Raphael FM that he was not satisfied that the appellant had a counter‑claim, set‑off or cross‑demand of the kind referred to in par 40(1)(g)

of the Act failed, I made the orders set out in [1] above.

Associate:

Dated:              19 July 2005