American Express Australia Ltd v Viscariello - [2007] FMCA 1574

FEDERAL MAGISTRATES COURT OF AUSTRALIA

AMERICAN EXPRESS AUSTRALIA LTD v VISCARIELLO

[2007] FMCA 1574

BANKRUPTCY – Creditor’s petition – where stay of execution of judgment relied on in bankruptcy notice obtained after bankruptcy notice issued but before it was served on debtor – whether available act of bankruptcy.

Bankruptcy Act 1966 (Cth), ss.40, 41, 43
District Court Act 1973 (NSW), s.88

Conway v Mogensen [1998] FCA 771
Mogensen v Conway [1998] FCA 1565
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Re a Debtor; Ex parte the Debtor [1908] 1 KB 344
Re a Debtor [1984] 2 All ER 257
Re Conlan; Ex parte Hyde (1888) 20 QBD 690
Re Dennis; Ex parte Dennis (1888) 60 LT 348
Re Moss; Ex parte Tour Finance Ltd (1968) 13 FLR 101
Re Padagas; Ex parte Carrier Air Conditioning Pty Ltd (1976) 30 FLR 170
Re Schekeloff; Ex parte Schekeloff v Hopkins Group Pty Ltd (1989) 86 ALR 645
Re Vittoria Di Giacomo; Ex parte Boral Steel Limited (1983) 68 FLR 106
Walsh v Deputy Commissioner of Taxation of the Commonwealth of Australia (1984) 156 CLR 337

Applicant:

AMERICAN EXPRESS AUSTRALIA LTD

Respondent:

JOHN VISCARIELLO

File Number:

SYG2247 of 2007

Judgment of:

Barnes FM

Hearing date:

4 September 2007

Delivered at:

Sydney

Delivered on:

18 September 2007

REPRESENTATION

Solicitors for the Applicant:

Insight Litigation & Legal Services Pty Ltd

Counsel for the Respondent:

Mr J. Johnson

Solicitors for the Respondent:

Laurence & Laurence Commercial Lawyers

ORDERS

The creditor’s petition presented on 20 July 2007 be dismissed.
The applicant pay the costs of the respondent as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2247 of 2007

AMERICAN EXPRESS AUSTRALIA LTD

Applicant

And

JOHN VISCARIELLO

Respondent

REASONS FOR JUDGMENT

On 20 July 2007 the applicant, American Express Australia Ltd, presented a creditor’s petition in this Court seeking a sequestration order against the estate of the respondent, John Viscariello.
On 24 August 2007 Mr Viscariello filed a notice stating grounds of opposition to the creditor’s petition. That notice relies on a number of grounds. However the matter came before the Court for determination of grounds 1 and 2 as a preliminary issue with the agreement of both parties on the basis that if these grounds were established the creditor’s petition must be dismissed.
Ground 1 in the notice is that at the time of service of the bankruptcy notice the non-compliance on which the applicant relied to establish the condition precedent to being able to present a creditor’s petition under s.43(1)(a) of the Bankruptcy Act 1966 (Cth) there was a stay of the execution of the judgment relied upon. Ground 2 is that there is no available act of bankruptcy upon which the applicant can rely to present the creditor’s petition in these proceedings.
The issue for resolution is, in essence, whether there can be an act of bankruptcy within s.40(1)(g) of the Bankruptcy Act 1966 if a stay of execution in relation to the judgment that forms the basis for the bankruptcy notice comes into force after the bankruptcy notice is issued but before it is served on the debtor.
On 22 December 2006 American Express obtained a default judgment against Mr Viscariello in the Local Court at North Sydney in the sum of $12,228.58. Relevantly, in May 2007 Mr Viscariello filed a notice of motion in the Local Court to set aside the judgment of 22 December 2006. He sought a stay of execution in relation to the judgment pending determination of the application. The precise date on which such notice of motion was filed is not apparent on the material before the Court as the Local Court stamp is indistinct, but Mr Viscariello’s supporting affidavit was sworn on 16 May 2007. On 22 May 2007, the Local Court listed the motion for hearing on 20 July 2007 and granted “an ex parte stay of proceedings in [the] … matter” until the return date of the notice of motion. Such a stay of execution had been sought by Mr Viscariello in the notice of motion.
Meanwhile, on 30 April 2007 a bankruptcy notice addressed to Mr Viscariello was issued claiming a debt was due to American Express based on the Local Court judgment. The bankruptcy notice was served on Mr Viscariello on 18 June 2007 (according to the affidavit of Colin Andrew Dale sworn on 22 June 2007).
The creditor’s petition presented on 20 July 2007 contends that Mr Viscariello committed an act of bankruptcy in that he failed to comply on or before 10 July 2007 with the requirements of the bankruptcy notice served on him on 18 June 2007 or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment (of 22 December 2006) referred to in the bankruptcy notice was obtained.
Section 40(1) of the Bankruptcy Act lists the circumstances in which a debtor commits an act of bankruptcy. It is not in dispute that the only provision relied on in the creditor’s petition is that there was an act of bankruptcy within s.40(1)(g) of the Bankruptcy Act which provides that a debtor commits an act of bankruptcy “if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor … a bankruptcy notice under this Act and the debtor does not … within the time specified in the notice … comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.”
Mr Viscariello contended that the requirements of s.40(1)(g) were not met because at the time the bankruptcy notice was served on him (18 June 2007) there was a stay of execution of the judgment relied upon in force. On this basis it was submitted that, consistent with the approach taken by Evatt J in Re Vittoria Di Giacomo; Ex parte Boral Steel Limited (1983) 68 FLR 106, no act of bankruptcy was committed as required by s.43(1)(a) of the Act for the invocation of the court’s jurisdiction to make a sequestration order.
For American Express it was submitted that there was no authority directly in point in respect of the precise circumstances of this case and that the discussion of authorities by Burchett J in Re Schekeloff; Ex parte Schekeloff v Hopkins Group Pty Ltd (1989) 86 ALR 645 indicated that each case had to be decided on its facts. It was argued that to determine whether or not the bankruptcy notice was effective it was necessary to have regard to the history of proceedings in this matter. It was said that there had been a number of applications to set aside the judgment relied on that formed the basis for the bankruptcy notice, a failure by Mr Viscariello to attend the Local Court on occasion as well as a delay in seeking to set aside the judgment such that it could be concluded that the motion that was filed by Mr Viscariello in the Local Court was “a device” to avoid his responsibilities under the judgment. Reference was made the fact that Mr Dale (who served the bankruptcy notice on Mr Viscariello on 18 June 2007) had attested to the fact that on 22 May 2007 he had had a telephone conversation with Mr Viscariello in which Mr Viscariello was said to have stated that he was away and not really interested in accepting service. It was suggested that the notice of motion had also been filed on that date.
American Express also submitted that it was critical that there was no stay in force at the date of issue of the bankruptcy notice and argued that as a matter of fairness section 40(1)(g) should not be interpreted in a manner that would allow the debtor to avoid service, then to file an application without merit to obtain a stay and hence to seek to rely on the stay in relation to the creditor’s petition.
In Di Giacomo a creditor had obtained a judgment in the District Court of New South Wales against a debtor. On the day a bankruptcy notice was issued the debtor sought to pay the judgment debt by instalments under the then applicable section 88 of the District Court Act 1973 (NSW). A Registrar of that Court subsequently made an ex parte order that the amount of the judgment be paid by instalments. This brought into effect from the date of the order a stay of enforcement of the judgment in respect of which the order was made, pursuant to section 88(8) of the District Court Act. The order was made after the bankruptcy notice in question had been issued but before it had been served on the debtor.
The debtor in Di Giacomo submitted that the bankruptcy notice was “bad” at the date of its service, in the sense that at that date it could not have founded the alleged act of bankruptcy set out in the subsequent creditor’s petition under s.40(1)(g) of the Bankruptcy Act. The creditor in Di Giacomo submitted that the proper meaning of section 40(1)(g) of the Act when read with section 41(3)(a) and (b) was that the proviso in section 40(1)(g) “was speaking” only as at the date of issue of the bankruptcy notice and not as at the date of service, so that section 40(1)(g) was satisfied unless there was a stay of execution in force at the date of issue of the bankruptcy notice.
Evatt J rejected the argument of the creditor. His Honour referred with approval to the obiter views expressed in Re Moss; Ex parte Tour Finance Ltd (1968) 13 FLR 101 at 103 – 104 per Gibbs J and Re Padagas; Ex parte Carrier Air Conditioning Pty Ltd (1976) 30 FLR 170 at 172 per Riley J to the effect that a bankruptcy notice was “bad” if at the time of its service upon the debtor there was in force an order made under section 88 of the District Court Act. His Honour concluded that the instalment order made under section 88 of the District Court Act 1973 on 13 May 1982 operated as a stay of enforcement of the judgment in respect of which it was made and that such order so operated on the date of service of the bankruptcy notice so that the bankruptcy notice could not then have founded the act of bankruptcy alleged in the petition. In reaching this conclusion his Honour stated (at 110): “Clearly the words of par. (g) of subs. 40(1) of the Bankruptcy Act speak as at the time when the notice is served and refer to a stay of execution which has continued in force up to the time of the service of the notice”.
While the present circumstances do not involve an automatic stay on the making of an order pursuant to a provision such as section 88 of the District Court Act, but rather a stay pursuant to an order of the Registrar of the Local Court, I agree that, as Evatt J stated (and as is consistent with the approach to section 40(1)(g) in Re Moss and Re Padagas), it is clear that section 40(1)(g) “speaks as at the time when the [bankruptcy] notice is served”. This is so whether the stay in question arises automatically by virtue of a statutory provision or as a result of a court order.
In that respect it is notable that in contrast section 41(3), which precludes the issue of a bankruptcy notice in certain circumstances, applies if “at the time of the application for the issue of the bankruptcy notice” execution of a judgment or order to which it relates has been stayed (section 41(3)(b)) and thus refers to a stay in force at the time of the application (see Gibbs J at 103 – 104 in Re Moss). While section 41(3)(b) thus has the effect that a bankruptcy notice cannot be validly issued if there is a stay of execution of the judgment in effect at the time of the application for the issue of the notice, in this instance what is in question is not whether a bankruptcy notice can be validly issued but rather whether there is an available act of bankruptcy on which the applicant can rely to present the creditor’s petition in these proceedings.
The act of bankruptcy on which the creditor’s petition purports to rely is a failure to comply with the requirements of the bankruptcy notice under section 40(1)(g). There is no suggestion that the ex parte order made by the Registrar of the Local Court did not operate as a stay on the execution of the judgment. The issue is whether the fact that the stay was not in place at the time the bankruptcy notice was issued, albeit that it came into effect before the time of service of the bankruptcy notice, meant that there could be an act of bankruptcy under section 40(1)(g). While it is relevant to have regard to whether or not there is in existence a stay at the date of application for issue of the bankruptcy notice where section 41(3)(b) is in issue, in section 40(1)(g) the words “the execution of which has not been stayed” are followed immediately thereafter by reference to service of the bankruptcy notice. I am satisfied that it is clear that this refers to a stay of execution which, whether it came into force before or after the issue of the bankruptcy notice, is in force at the time of service of the bankruptcy notice. The words “the execution of which has not been stayed”, “speak as at the time when the notice is served” as Gibbs J stated in Re Moss at 103. As Gibbs J suggested, there is a distinction between section 41(3)(b), which refers to the time of application for the issue of the bankruptcy notice and section 40(1)(g) which speaks of the time of service of the bankruptcy notice (also see Re Padagas at 172 per Riley J).
While the observations in relation to section 40(1)(g) of the Bankruptcy Act in Re Moss and Re Padagas were obiter, in Re Di Giacomo Evatt J agreed with such views, finding that an instalment order made under section 88 of the District Court Act “operated” as a stay of enforcement of the judgment “in respect of which it was made and such order so operated on … the date of the service of the bankruptcy notice” in holding that the bankruptcy notice could not found the act of bankruptcy alleged in the petition. As in this case the stay in Re Di Giacomo came into force after the bankruptcy notice was issued but before it was served on the debtor.
Re Schekeloff; Ex parte Schekeloff v Hopkins Group Pty Ltd (1989) 86 ALR 645 does not assist the creditor. It was acknowledged for both parties that that case was not directly in point, as it concerned a stay of execution which did not come into effect until after service of the bankruptcy notices in issue. Burchett J held that bankruptcy notices were not to be set aside in circumstances where orders for payment by instalment (and a consequential automatic stay of execution) were made after service of the bankruptcy notices but before their expiry. His Honour proceeded on the basis that there was “abundant authority” demonstrating that if an act of bankruptcy occurred before the intervention of the stay of the judgment on which the bankruptcy was founded, a subsequent stay would not prevent the making of a sequestration order. Burchett J also accepted that the prohibition on the issue of a bankruptcy notice in section 41(3)(b) “only strikes at the case where the stay exists at the time of the application for the issue of the notice”. However, as indicated, that section is not in issue in this case.
In the course of his judgment Burchett J canvassed English and Australian authorities in relation to the concept of a judgment or order “the execution of which has not been stayed” within the meaning of section 40(1)(g) of the Bankruptcy Act. The preponderance of authority cited in Re Schekeloff supports the view that in the context of a determination as to whether there is an available act of bankruptcy such as to ground a creditor’s petition (as distinct from the question of whether a bankruptcy notice could be validly issued), the courts have had regard to the state of affairs existing “at the moment of service” (see for example Re a Debtor; Ex parte the Debtor [1908] 1 KB 344 and note that in Re Dennis; Ex parte Dennis (1888) 60 LT 348 Lord Escher MR suggested at 349 that in the context of a statutory provision akin to section 40(1)(g) the issue was whether execution had been stayed before the service on the debtor of the bankruptcy notice. Also see Re Conlan; Ex parte Hyde (1888) 20 QBD 690 at 692 per Fry LJ to the same effect.) It is notable that in Re a Debtor [1984] 2 All ER 257, while Peter Gibson J referred to the time of issue of a bankruptcy notice, his Honour was addressing the question of whether a creditor was entitled to issue a bankruptcy notice. As Burchett J pointed out in Re Schekeloff at 646, both in England and in Australia, the rule as to whether a stay could be relied on where it existed prior to the issue or service of a bankruptcy notice “has been stated in terms which make its application depend upon whether there is a stay at the date of issue of the notice, or at the latest at the date of its service on the debtor”.
Further, as Burchett J observed, while the High Court in Walsh v Deputy Commissioner of Taxation of the Commonwealth of Australia (1984) 156 CLR 337 at 340 suggested that normally it would be expected that the validity of a bankruptcy notice should be tested as at the date of its issue and the “requirements of the notice” for the purposes of section 40(1)(g) of the Act ascertained in that context, nonetheless, as set out above, in Re Moss Gibbs J clarified the distinction between restrictions on issue of a notice under section 41(3)(b) and the operation of section 40(1)(g) in relation to the time at which the notice is served.
What is in issue under section 40(1)(g) is whether or not there is a stay of execution which has continued in force up to the time of service of the notice. While in Re Moss Gibbs J observed that equivalent English provisions were “usually regarded as having the effect that the critical time for consideration of the question of whether the execution of judgment had been stayed was the time at which the notice was issued” it is important to note that after distinguishing sections 40(1)(g) and 41(3)(b) his Honour continued at 103: “The effect of these provisions is that if at the time of the issue or the service of the notice the execution of the judgment on which the notice is founded has been stayed, and the stay is still in force, so that at that time the creditor was not entitled immediately to issue execution on the judgment, the notice will be bad”. (emphasis added)
I also note that in Mogensen v Conway [1998] FCA 1565 the Full Court of the Federal Court accepted as correct the approach of Beaumont J at first instance (Conway v Mogensen [1998] FCA 771) that if at either the date of issue or service of the bankruptcy notice a debtor was able to show an entitlement at general law to the grant of a stay of execution then there was no act of bankruptcy within section 40(1)(g) of the Bankruptcy Act.
On this basis, because a stay of execution of the judgment in issue in this case was in force at the date of service of the bankruptcy notice such notice could not found the act of bankruptcy alleged in the creditor’s petition within section 40(1)(g) of the Act.
Contrary to the contentions for the creditor I am not persuaded that there is an “ambiguity” in section 40(1)(g). In any event, I consider that an interpretation of section 40(1)(g) that accords with the view that if a stay of execution is in force at the date of service no act of bankruptcy is committed is consistent with the language of the provision and the scope and objects of the Bankruptcy Act 1966 (see Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355). The commission of an act of bankruptcy is the foundation for proceeding on a creditor’s petition which gives rise to significant sanctions for a debtor. In that context a construction of the proviso to section 40(1)(g) which has the effect that no act of bankruptcy is committed if a stay of execution is in place at the time of service of the bankruptcy notice is consistent with the purpose of the legislation. I note that while a stay is in force a creditor is not in a position to levy execution.

The argument put by the solicitor for American Express to the effect that such an interpretation would allow or encourage this debtor to avoid his obligations and frustrate the creditor in the exercise of proper rights under the judgment is not persuasive. The statutory language is clear. Moreover I am not persuaded that it would be “fair” or the “right result” as submitted, that section 40(1)(g) should be interpreted so that a stay of execution would only operate to prevent there being an act of bankruptcy if the stay was in force at the time of issue of the bankruptcy notice. Logically, it can hardly be “fair” to require a debtor to comply with a bankruptcy notice which requires payment, where there has been a stay of the execution of the judgment giving rise to the liability to make such payment at the time at which the applicant is served with the bankruptcy notice.
There is nothing in the language of section 40(1)(g) to warrant an enquiry into the circumstances in which it came into effect in a particular case as submitted for American Express. Nor am I satisfied that the proviso to section 40(1)(g) should be interpreted as limited to a stay in force at the time of issue of a bankruptcy notice because it could otherwise be open to a debtor to avoid service of a bankruptcy notice, seek a stay and then seek to rely on such a stay to defeat a creditor’s petition. Such an interpretation would be contrary to the wording of the section and the clear views expressed in Re Moss, Re Padagas and Re Di Giacomo with which I agree.
I make no findings in relation to the contention that the history of the matter and Mr Viscariello’s alleged conduct was such as to warrant a conclusion that the notice of motion and stay application filed on 22 May 2007 was a “device”. Such an argument does not assist in the determination of whether there is an available act of bankruptcy under section 40 as required by section 43 of the Bankruptcy Act 1966.
Accordingly, because at the time of service of the bankruptcy notice a stay of execution was in force in relation to the judgment relied on to establish the only claimed act of bankruptcy, and because an act of bankruptcy is a condition precedent to the presentation of a creditor’s petition under section 43(1)(a) of the Bankruptcy Act, there is no available act of bankruptcy upon which the applicant can rely to present the creditor’s petition in these proceedings. Grounds 1 and 2 in the notice stating grounds of opposition to the creditor’s petition are made out. Hence the creditor’s petition must be dismissed and the applicant creditor should meet the costs of the respondent.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 18 September 2007