Case: Re Ling; Ex parte Ling v Commonwealth [1995] FCA 1410 ; (1995) 58 FCR 129
Outcome: followed
This provision exists for the benefit of the debtor: Re Willats; Ex parte Nissan Finance Corp Ltd [1991] FCA 407 ; (1991) 31 FCR 206. O'Loughlin J there observed (at 212): The reference in s 40(1)(g) of the Act to a counterclaim that could not have been set up in the proceedings exists for the protection of the debtor. Notwithstanding that his creditor may have obtained a judgment against him, that judgment cannot be used to found a bankruptcy notice if there is -- outside the spectrum of those legal proceedings -- a counterclaim of equal or greater size. But the Act intends a debtor, at the earliest opportunity, to raise against his creditor such counterclaim, if any, as he may have and which can be properly raised in the creditor's proceedings; if he does not he cannot complain (by way of raising that counter-claim) when the creditor applies to this court to issue a bankruptcy notice. The statutory phrase " must not be narrowed ". A judgment debtor is " not to lie by with his cross-demand, but must prosecute it with due diligence ": Re Brown, Ex parte Peisley Brothers (1892) 3 BC (NSW) 13 at 14 per Manning J. " A debtor having a claim against his or her creditor can not just stand by while judgment is obtained and later seek to use that claim to set aside a bankruptcy notice founded upon that judgment ": Re Ling; Ex parte Ling v Commonwealth [1995] FCA 1410 ; (1995) 58 FCR 129 at 137 per Hill J. 29 Whether a claim " could not have been set up " is thus to be determined by reference to legal considerations and not by reference to " practicalities ": Re Ling; Ex parte Ling v Commonwealth [1995] FCA 1410 ; (1995) 58 FCR 129 at 132. These comments have since been approved by the Full Court: Smart v Esanda Finance Corp Ltd [2000] FCA 235 at [17] per Lee, Goldberg and Kenny JJ. See also: Tzovaras v Nufeno Pty Ltd [2003] FCA 1152 at [34] [35] per Jacobson J. In Re Ling , Hill J concluded that a claim could be set up in the Federal Court as against the Commonwealth even though to do so the judgment debtor would have had to have commenced proceedings in the High Court of Australia and to have had those proceedings remitted to the Federal Court. The fact that such a " tortuous route " had to be followed did not mean that the proceeding could not have been set up in the Federal Court. His Honour reviewed some of the authorities and concluded (at 137): 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. That the debtor has not done in the present case. In Nath v Clipway Pty Ltd [1999] FCA 625 at [4] Spender J agreed with these observations of Hill J. Kiefel and Hely JJ agreed with Spender J. See also: Lau v Accord Pacific Properties Pty Ltd [2003] FCA 795 at [9] [10] per Branson J.