Thomas v St George Bank Ltd [1999] FCA 166

FEDERAL COURT OF AUSTRALIA

Thomas v St George Bank Ltd [1999] FCA 166 MARK BERNARD THOMAS v ST GEORGE BANK LIMITED

NG 8442 of 1998 LINDGREN J 18 FEBRUARY 1999 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 8442 OF 1998

BETWEEN: MARK BERNARD THOMAS

Applicant

AND: ST GEORGE BANK

Respondent

JUDGE: LINDGREN J

DATE OF ORDER: 18 FEBRUARY 1999

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The application be dismissed. 2. The respondent to the motion (applicant in the proceeding) pay the costs of the applicant on the motion (respondent in the proceeding) of the proceeding. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 8442 OF 1998

BETWEEN: MARK BERNARD THOMAS

Applicant

AND: ST GEORGE BANK LIMITED

Respondent

JUDGE: LINDGREN J

DATE: 18 FEBRUARY 1999

PLACE: SYDNEY

REASONS FOR JUDGMENT Introduction 1 There is before the Court a motion brought by notice of motion filed 5 February 1999 by the respondent ("the Bank") for summary dismissal of Mr Thomas's application for an order setting aside a bankruptcy notice. The Bank must satisfy the test for summary dismissal, recognised in many cases, of establishing clearly that the proceeding does not deserve a final hearing because it plainly will not succeed. Procedural background 2 The Bank issued a bankruptcy notice on 21 September 1998, No 1895 of 1998 which was based on a judgment in the Local Court at Kogarah for $7,600.88 obtained on 21 July 1998. The amount claimed in the bankruptcy notice was $7,713.95. The debt was a credit card debt. 3 The bankruptcy notice was served on 11 December 1998 and expired on 1 January 1999. On 23 December 1998 Mr Thomas filed his application by which the present proceeding was commenced. The application was returnable on 6 January 1999. At the same time Mr Thomas filed an affidavit in support. Also on 23 December 1998 a Registrar made an order extending the time for compliance with the bankruptcy notice to 6 January 1999, that is, the return date of the application. 4 On 6 January 1999 Mr Thomas consulted solicitors Bruce and Stewart. On that day, over the Bank's objection, I stood over the application to 11 February 1999, but no further order extending the time for compliance was made and the matter has proceeded throughout on the footing that there either was or was not an effective invocation of subs 41(7) of the Bankruptcy Act 1966 (Cth) to which I shall refer further below. 5 On 6 January 1999 I gave the Bank leave to file by 5 February a notice of motion returnable on 11 February seeking summary dismissal. I also directed Mr Thomas to file and serve by 29 January 1999 a document identifying by points of claim the nature of the counter-claim, set-off or cross demand on which he relied and an affidavit in support. Finally, I noted that the Court had not determined as at 6 January whether the Court was satisfied that the debtor had a counter-claim, set-off or cross demand as required by the Act. 6 On 5 February, the Bank filed its notice of motion returnable on 11 February, but on that date, by consent, the hearing was vacated and the motion stood over to be heard on a date to be fixed. The motion was heard on 16 February when counsel appeared for both parties. Background facts 7 It is now appropriate to go to the evidence. The relevant part of Mr Thomas's affidavit filed on 23 December last was as follows: "With the assistance of the Law Society and its members, I am currently finalising a major claim against St George Bank Limited and its servants/subordinates which the relative funds to payout this credit card debt (at the agreed amount) shall be released with pleasure. I confirm I am aware and have always been aware of the credit card debt which fell into Mr Stuart Thomas Cram's so-called management during December of 1997 at the amount of $6,686.29 with accruing interest stopped at the point of claim. I confirm that the hearing in the Federal Court (date yet to be set) shall confirm this matter in its entirety and will extinguish any Bankruptcy Proceedings against myself on behalf of St George Bank Limited and its servants." 8 Copies of various documents were annexed to the affidavit. They show a course of controversy between Mr Thomas and the Bank. On 22 December 1997 Mr Thomas apparently offered to purchase a property which had been mortgaged by him to the Bank. He offered $595,000. This included the bankcard debt. The Bank replied on 30 December 1997 rejecting the offer and asserting that the indebtedness to it was approximately $650,000 which was the figure the Bank was looking to receive either from Mr Thomas or from the sale of the mortgaged property. On the same day, 30 December, Mr Thomas replied asking for particulars of the sum of $650,000. There was also a dispute about the vacating of the property by Mr Thomas. 9 The affidavit did not elucidate the nature of any claim which Mr Thomas might have. However, on 29 January 1999 Mr Thomas's solicitors, Bruce and Stewart, wrote to the solicitors for the Bank asserting "an equitable claim for set-off [sic]". Counsel for Mr Thomas has said that he no longer seeks to support the proposition that the nature of the claim is a set-off; rather, he relies on the language in the Act, "cross demand". The letter from Mr Thomas's solicitors asserted that his house had been sold in July 1988 "substantially under the valuation price". As well, they asserted that certain charges had been debited to Mr Thomas's account at the Bank which had not been itemised, and, in particular, that a sum of approximately $40,000 had been debited to the account and characterised merely as "sundry expenses". 10 In the result, from the solicitors' letter it may be inferred that Mr Thomas's claim relates to the sale of the mortgage property for less than its true value and the possibility that some $40,000 has been debited to his account without justification. 11 On the hearing a statement of account was admitted into evidence which showed the debit balance at 30 June 1998 to be $714,878.71. This was after the entering of various debits including $41,206 on 16 June 1998. Even after that amount is deducted, however, Mr Thomas would have been indebted as at 30 June 1998 for $673,672.71. As I understand it, Mr Thomas's claim would have to be that the Bank should not have debited the sum of $41,206 and that on the sale it should have realised an amount exceeding $673,672.71 by an amount larger than the Bank's judgment debt underlying the bankruptcy notice. Reasoning 12 Subsection 41(7) of the Act provides as follows:

"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." 13 Cases decided under predecessor provisions make it clear that in order for those provisions to be activated, the application must be supported by an affidavit which, while it need not actually establish the entitlement of the debtor, must show that the debtor does have a genuine counter-claim, set-off or cross demand which is made in good faith. The cases include Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346 at 350, Re James; ex parte Carter Holt Harvey Roofing (Australia) Pty Limited (1993) 46 FCR 183 (Hill J) at 188-189 and Re Donkin; ex parte AGC Advances Limited (1994) 125 ALR 293 (FCA/Drummond J) at 298 and following. 14 The relevant provision has not always been in the same form as the current one, although it was not submitted for Mr Thomas that this makes any difference. Moreover, the cases to which I have referred above were followed by Finn J in Johnstone v Guss [1998] FCA 117, a decision under the present subs 41(7). The requirement of a supporting affidavit which previously appeared in the statute is now found in the Federal Court Rules, O 77 subrr 13(2) and (3) which are as follows:

"(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." 15 Counsel for Mr Thomas submits that I ought not, on an application for summary dismissal, determine the matter on the basis that his client did not comply with the rules and did not comply with the Court's direction. I agree that non-compliance alone would not necessarily lead to summary dismissal. 16 I do not think that subs 41(7) is activated by nothing more than the filing of an application which meets the literal terms of the subsection. There must at the very least be a bona fide assertion of a genuine counter-claim, set-off or cross demand. Counsel for Mr Thomas concedes that if his client's application to set aside the bankruptcy notice were to be heard now, it would fail on the existing evidence. In substance, he submits that notwithstanding this, his client should be allowed a chance to make out a case. But the onus is upon a debtor, in order to avoid the ordinary effect of a bankruptcy notice, to satisfy the Court that a bona fide claim is being made. 17 Mr Thomas has not filed evidence, at least of present relevance, beyond his original affidavit. There is no evidence of the value of the property, the price for which it was sold, the circumstances of the sale or of the nature of any complaint made about the sale. So far as the allegedly wrongful debiting of $41,206 to the Bank account is concerned, this would, as I indicated earlier, do no more than reduce the debit balance from $714,878.71 to $673,672.71. 18 Mr Thomas's counsel does not contend that the judgment debt was improperly obtained for the credit card debt. Further, he does not submit that Mr Thomas's claim impeaches the Bank's title to obtain that judgment. The nature of the cross demand is a totally independent claim unrelated to the credit card debt. All that I have in relation to that claim is a letter from Mr Thomas's solicitors to the Bank's solicitors asserting that the mortgaged property had been sold for "substantially under the valuation price". 19 In my view, in the light of all the evidence, the filing by Mr Thomas of the application to set aside is not shown to have been based on a bona fide assertion of a genuine cross demand. 20 In these circumstances, subs 41(7) was not activated, and on that ground, alternatively on the ground that the circumstances mentioned constitute an abuse of process, I would grant the relief sought in the motion. Conclusion 21 For the above reasons, the Court orders that: 1. the application be dismissed; 2. the respondent to the motion (applicant in the proceeding) pay the costs of the applicant on the motion (respondent in the proceeding) of the proceeding. I certify that the preceding twenty one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice .

Associate: Dated: 18 February 1999 Counsel for the Applicant: Mr K Smark

Solicitor for the Applicant: Bruce & Stewart Solicitors

Counsel for the Respondent: Mr M Aldridge

Solicitors for the Respondent: Gadens Lawyers

Date of Hearing: 16 February 1999

Date of Judgment: 18 February 1999