Case: Glew v Harrowell of Hunt and Hunt Lawyers [2003] FCA 373
Outcome: followed
Federal Magistrate quoted as follows from my judgment in Glew v Harrowell of Hunt and Hunt Lawyers [2003] FCA 373 ( Glew ) at [8]-[9]: In order to avoid committing the act of bankruptcy identified in par 40(1)(g) of the Act, Glew and Tresider [the recipients of the bankruptcy notice] must satisfy the Court that they have a counter-claim, set-off or cross demand against Hunts of the kind described in that paragraph. What they must do in order to "satisfy the Court" for the purposes of par 40(1)(g) of the Act that they have the asserted counter-claim, set-off or cross demand has been variously described. The descriptions do not necessarily purport to be comprehensive definitions. To state that a debtor in receipt of a bankruptcy notice must show X does not necessarily imply that he or she need not also show Y, or that he or she will not be defeated if the creditor shows Z. There are authorities suggesting that Glew and Tresider must satisfy me of the following interrelated and sometimes overlapping matters: that they have a "prima facie case", even if they do not adduce evidence which would be admissible on a final hearing making out that case ( Ebert v The Union Trustee Co of Australia Ltd [1960] HCA 50 ; (1960) 104 CLR 346 (" Ebert ") at 350; Re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 (" Brink ") at 141; Gomez v State Bank of NSW Ltd [2002] FCAFC 101 at [17], [18]); that they have "a fair chance of success" or are "fairly entitled to litigate" the claim: Brink at 141; Re Gould; Gould v Day [1999] FCA 1650 at [27] , [28]; Re Capsanis; Capsanis v The Owners Strata Plan 11727 [2000] FCA 1262 at [11] ); and that they are advancing a "genuine" or "bona fide" claim ( Re Capsanis; Capsanis v The Owners Strata Plan 11727 [2000] FCA 1262 at [11] ). It may be that the first and second formulations are intended to cover the same ground. In Brink Lockhart J treated (at 141) the reference to a " prima facie case " in Ebert as a reference to "a fair chance of success". The critical paragraph of the Federal Magistrates Reasons for Judgment is [58] which stated: As per Glew the essential element that I am required to be satisfied of is that there is a prima facie case. Before that can be established it will be necessary for a final determination as to the validity of the Deed of Assignment as the total claim depends on that effective transfer to Mr Young to enable him to mount his cross-claim. If the deed of assignment is found to be defective, Mr Young has not provided a second or alternative basis for a counter claim or set off. If the secondary claim did exist independent of the Deed then the failure to raise that claim in the District Court may be estopped by the principles in the Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45 ; (1981) 147 CLR 589. If the Deed is found to be valid and effective then the "Contract Confirmations" annexed to the second affidavit of Mr Young indicates that ICM Agriculture and entities other than AAC or its nominees have breached the licence agreement. As there has been no challenge as to the admissibility of those documents I am satisfied that a claim would exist and that Mr Young has a prima facie case for damages. The Federal Magistrate's reference to "Contract Confirmations" is a reference to seven documents so named by which ICM sold Kabuli Chickpeas to Agrinational Pty Ltd over the period 18 to 21 August 2003. The "prima facie" claim for damages referred to is no doubt a claim for damages by AAC for breach by ICM of clauses 2, 3, 8 and 9 of the Grower's Licence, referred to at [15] - [17] above. In sum, the Federal Magistrate noted, without attempting to resolve, the issue of the validity of the assignment, and considered that ICM's sale of the chickpeas raised a prima facie case of breach of the Grower's Licence by ICM. If an attempt had been made to read the affidavit as evidence of any facts under the heading "Claim for relief", there would have been an objection and the affidavit would have been rejected. First, the affidavit was nothing more than a statement of Mr Young's "belief"; his state of belief was not evidence of any of the primary facts, and was not able to satisfy the test discussed in Glew (set out at [67] above and [79] below). Second, and more importantly, if Mr Young had sworn that the allegations of fact in the statement of claim were true, his affidavit would still have been inadmissible because of the nature of the material in the statement of claim. It was an amalgam of conclusions, rather than a statement of facts. Indeed, before the Federal Magistrate Mr Young did attempt to read an affidavit sworn by him on 21 December 2007 which contained in paragraphs 18 and 19 the very material that appeared under the heading "Relief claimed" in the statement of claim. When objection was taken to the two paragraphs, they were not read. Counsel then appearing for Mr Young (not the Counsel who appeared for him on the present appeal) said that the non-reading of them was of little consequence at that stage because he proposed to tender the statement of claim which would show the monetary value of the counter-claim. Counsel appears to have thought that it sufficed to show how the counter-claim was calculated. In Glew , immediately following [8] and [9] quoted by the Federal Magistrate and set out at [67] above, I said: In Brink Lockhart J said (at 141) that the Court is not required to "undertake a preliminary trial of the counter-claim, set-off or cross demand". But, clearly, the application of the criteria above requires the Court to make some kind of preliminary assessment, though obviously not to determine the counter-claim, set-off or cross demand finally. And in Guss v Johnstone [2000] HCA 26 ; (2000) 171 ALR 598 , Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated (at 606): "40 The state of satisfaction referred to in s 40(1)(g) , and s 41(7) , involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim." Plainly, in order to "satisfy" the Court for the purposes of par 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor's claim was being finally determined, but by reference to the question whether the Court should be satisfied that the debtor has a claim deserving to be finally determined. Perhaps little more can usefully be said than that a debtor must satisfy the Court that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy. Mr Young's supposed affidavit verifying the material quoted at [57] above could not even begin properly to satisfy the Federal Magistrates Court that Mr Young had a counter-claim against ICM in an amount equal to or exceeding the amount of ICM's judgment against him. Mr Young submits that the point raised by the first ground of appeal was not raised before the Federal Magistrate until closing submissions, by which time it was too late for it to be raised. The notice stating grounds of opposition to the application to set aside the Bankruptcy Notice stated as a ground that Mr Young did not have a prima facie counter-claim, set-off or counter demand [sic] "within the meaning of s 40(1)(g) of the [Bankruptcy Act]". In order to be within s 40(1)(g) , a counter-claim, set-off or cross demand must be for an amount that is equal to or exceeds the amount of the judgment debt. Accordingly, there is no substance in Mr Young's argument that the point was raised too late below. ICM's first ground of appeal succeeds, subject to resolution of Mr Young's application to lead evidence on the appeal (see [130] below). Ground 2(a): Did the alleged counter-claim have insufficient legal or factual merit?