Avery v O'Mara Constructions Pty Ltd

[2004] FMCA 462

FEDERAL MAGISTRATES COURT OF AUSTRALIA

AVERY v O’MARA CONSTRUCTIONS PTY LTD [2004] FMCA 462

BANKRUPTCY – Where the bankruptcy notice was served by way of substituted service – whether the order for substituted service should be rescinded and the bankruptcy notice be deemed not to have been served – where applicant challenging whether the bankruptcy notice properly served – where previous bankruptcy notice set aside on basis that it was issued more than 10 years after the date upon which the judgment became effective – where leave to issue execution subsequently obtained and bankruptcy notice subsequently issued – whether application for substituted service is a proceeding brought in breach of s.17 Limitation Act – whether proceedings for an order for substituted service constitute an action on a cause of action on a judgment – whether the Limitation Act prevents a bankruptcy notice being issued – whether the bankruptcy notice should be set aside on the basis that the judgment debt not capable of being the subject of a proof of debt under s.82 Bankruptcy Act.

Bankruptcy Act 1961 (Cth), ss.37, 82
Limitation Act 1969 (NSW), s.17
Acts Interpretation Act 1901 (Cth), s.15A

Avery v O’Mara Constructions Pty Ltd (2003) 198 ALR 518
Dennehy v Reasonable Endeavours Pty Ltd [2003] FCAFC 158
ASIC v Forge [2003] FCAFC 274
WT Lamb & Sons v Rider [1948] 2 KB 331
In re A debtor (1997) Ch 310
Chohan v Times Newspaper Ltd (2001) 1 WLR 184
Reasonable Endeavours v Dennehy  [2002] FCA 1472
Re Wheeler & Reynolds; Ex parte Kerr v Crowe (1988) 20 FCR 185
Forge v ASIC [2003] FMCA 58
Raymond Levy v Legal Services Commission [2000] EWCA Civ 285
ASIC v Forge [2003] FCAFC 274

Applicant: LANGER EDWARD AVERY

Respondent: O’MARA CONSTRUCTIONS PTY LIMITED

File No: SZ 1180 of 2004

Delivered on: 27 July 2004

Delivered at: Sydney

Hearing date: 16 July 2004

Judgment of: Raphael FM

REPRESENTATION

Counsel for the Applicant: Mr J Johnson

Solicitors for the Applicant: Deacons

Counsel for the Respondent: Mr M Aldridge

Solicitors for the Respondent: Colin Biggers & Paisley

ORDERS

1. Application dismissed.

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

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ 1180 of 2004

LANGER EDWARD AVERY

Applicant

And

O’MARA CONSTRUCTIONS PTY LIMITED

Respondent

REASONS FOR JUDGMENT

1. On 8 March 2004 bankruptcy notice NN2829/2003, which had been issued on 12 November 2003, was served upon the applicant pursuant to an order for substituted service made on 8 March 2004. Service was deemed to have been effected on 2 April 2004. The applicant comes before this court seeking an order pursuant to s.37 Bankruptcy Act 1961 that the order for substituted service be rescinded, a declaration that the bankruptcy notice has not been served and an order against the second respondent that he be restrained until further order from issuing a bankruptcy notice on the application of the first respondent against the applicant grounded on the judgment obtained by the first respondent against the applicant in proceedings no. 16682 of 1991 commenced in the Supreme Court of NSW, which judgment took effect on 21 February 1992.

2. On 9 April 2003 I had set aside a previous bankruptcy notice issued by the first respondent  against the applicant on the grounds that it, having been issued more than 10 years after the date upon which the judgment became effective and without the leave of the Supreme Court to apply for a warrant of execution, was invalid: Avery v O’Mara Constructions Pty Ltd (2003) 198 ALR 518. The respondent obtained the necessary leave to issue execution from the Supreme Court of NSW and thereafter issued the bankruptcy notice numbered NN2829 of 2003 which is the subject matter of these proceedings.

3. The applicant argues that the application for substituted service of the bankruptcy notice is a proceeding brought in breach of s.17(1) of the Limitation Act 1969 (NSW) which provides as follows:

   17 Judgment

   (1)  An action on a cause of action on a judgment is not maintainable if brought after the expiration of a limitation period of twelve years running from the date on which the judgment first becomes enforceable by the plaintiff or by a person through whom the plaintiff claims.

   (2)  A judgment of a court of a place outside New South Wales becomes enforceable for the purposes of this section on the date on which the judgment becomes enforceable in the place where the judgment is given.

   (3)  Subsection (2) does not apply to a judgment of a court of the Commonwealth, not being a court of a Territory of the Commonwealth.

4. The applicant argues that the proceedings for an order for substituted service being matter no SZ480 of 2004 constitute an action on a cause of action on a judgment. He argues that the purpose or object of s.17 is to bar any action upon a judgment after 12 years and therefore there is no right to seek substituted service of a bankruptcy notice based upon that judgment. He says that this is the clear interpretation of s.17(1) and that I should apply s.15A of the Acts Interpretation Act 1901(Cth) to set aside the order of the registrar granting substituted service.

5. The applicant also argues that at the date of service of the bankruptcy notice under the order for substituted service the period of 12 years had expired from “the date on which the judgment first became enforceable”. On that date, namely 21 February 2004, the amount of the judgment debt ceased to be capable of founding a proof of debt within the terms of s.82 Bankruptcy Act 1961 and therefore could not be the subject of a valid bankruptcy notice. Finally the applicant argued that at the time of service of the bankruptcy notice there was a notional stay of execution upon the judgment by operation of the Limitation Act because any action upon the judgment was barred.

6. These arguments, put so persuasively by Mr Johnson, seem to me to be bound to founder (at least so far as this Court is concerned) on the twin rocks of Dennehy v Reasonable Endeavours Pty Ltd [2003] FCAFC 158 and ASIC v Forge [2003] FCAFC 274.

7. In Dennehy the Full bench dealt with an application to set aside a sequestration order based upon an act of bankruptcy being the non-compliance with a bankruptcy notice based upon a judgment the enforcement of which had been barred by the Victorian limitations statute. The leading judgment was given by Finkelstein J with whom Dowsett and Madgwick JJ agreed. His honour went through the history of the legislation in both Victoria and NSW with particular reference to the decision in WT Lamb & Sons v Rider [1948] 2 KB 331 and the Court of Appeal judgment in that matter delivered by Scott LJ where his Honour reached the conclusion at [337]

   “ … the right to sue on a judgment has always been regarded as a matter quite distinct from the right to issue execution under it and … the two conceptions have been the subject of different treatment. Execution is essentially a matter of procedure – machinery which the court can, subject to the rules from time to time in force, operate for the purpose of enforcing its judgment or orders.”

   Scott LJ held at [338] that s.2(4) of the English 1939 Limitation Act dealt with

   “the substantive right to sue for and obtain a judgment, and with that alone. The Common Law Procedure Act 1852 and Or.42 of the Rules of the Supreme Court were concerned, and concerned alone, with procedural machinery for enforcing a judgment when obtained.”

8. Finkelstein J then went on to note that in Lowsley v Forbes [1999] 1 AC 329 the House of Lords had disagreed with Scott LJ’s reasoning in Lamb but felt bound to preserve it because s.24 Limitation Act 1980 (UK) which superseded s.2(4) of the 1939 Act had been enacted on the basis that Lamb’s case represented the existing law. Between [14] – [16] Finkelstein J dealt with the situation in Victoria before referring at [17] to the situation in NSW.

   “[17] I am confirmed in this view when regard is had to the knowledge of the English limitations statute by the New South Wales parliament. As with the 1955 Victorian Limitation Act, the New South Wales Limitation Act 1969 consolidated provisions in other legislation in conformity with the model adopted in the United Kingdom. The 1969 Limitation Act was passed following a report by the New South Wales Law Reform Commission into Limitations of Actions which was published in October 1967. Paragraphs 115 and 116 of the Report state:

   "115. See the definition of `judgment' in section 11(1) of the Bill and the notes above (paragraphs 65, 66) on that definition. The present period of limitation for an action or other proceedings to enforce a judgment is twenty years: the period is fixed by section 40 of the Imperial Real Property Limitation Act, 1833. Although section 40 of the Act of 1833 seems to speak only of judgments `charged upon or payable out of any land', the provision applies to judgments generally, whether or not charged on land. For the process by which this position was reached see Lightwood on The Time Limit on Actions (1909) at pp. 164, 165. The Bill follows section 2 (4) of the Imperial Act of 1939 in fixing a limitation period of twenty years.

   116. The present limitation provisions here and in England concerning judgments apply, and section 17 of the Bill would apply, to an action on the judgment, but not to the processes of execution of a judgment: W. & T. Lamb & Sons v Rider ([1948] 2 K.B. 331). When exercising discretions concerning the execution of a judgment after a long period, however, a court has regard to the effect which the statutes of limitation would have if an action were brought on the judgment: Jay v Johnstone ([1893] 1 Q.B. 189)."

9. At [18] his Honour said:

   “In the result, I see no basis upon which we should adopt an approach which is different from that taken by the House of Lords. It is clear that if parliament legislates upon an erroneous view of the law, that view will effect the construction of the legislation.”

10. Mr Johnson urges me not to adopt the views of the Full bench but instead to say that the words of s.17 Limitation Act are clear and unambiguous and should be interpreted in that way and that such an interpretation would cover the new action on the judgment being the application to this Court for substituted service.

11. A bankruptcy petition is an action on a judgment: In re A debtor (1997) Ch 310; Chohan v Times Newspaper Ltd (2001) 1 WLR 184 and a petition will not issue in England if it is based upon a judgment barred by the Limitations Act 1980. This would appear to be the law in Australia as well: Dennehy at [4].

12. But these proceedings are proceedings relating to a bankruptcy notice and its clear from the judgment of Marshall J in Reasonable Endeavours v Dennehy [2002] FCA 1472 at [57] that a bankruptcy notice is not an action and is not prevented from being issued by anything contained in the Limitation Act. I cannot see that the interposition of an application to this Court for leave to serve that bankruptcy notice by way of substituted service should have the effect of invalidating a valid administrative procedure: see also Re Wheeler & Reynolds; Ex parte Kerr v Crowe (1988) 20 FCR 185 at 190 per Spender J.

13. I would therefore follow Dennehy and hold that the bankruptcy notice cannot be set aside by reason that it is based upon a judgment debt which might be subject to s.17(1) Limitation Act 1969 (NSW).

14. The second argument put by the applicant is that the bankruptcy notice should be set aside because as at 21 February 2004 the amount of the judgment debt ceased to be capable of being the subject of a proof of debt within the terms of s.82 Bankruptcy Act 1961. This submission illustrates an interesting paradox in the way in which our courts utilise the decisions of the courts of England and Wales. Dennehy was a case decided by the Full Bench after an exhaustive consideration of English authorities and a decision being made to follow a statutory interpretation based upon an English authority which had already been found to be in error. In Forge v ASIC [2003] FMCA 58 a Federal Magistrate was faced with the question whether a bankruptcy notice based upon a debt which was unprovable in bankruptcy should be set aside. There was no Australian authority on the subject. In England the matter had been considered at appellate level and in his judgment the Federal Magistrate cited in extenso and followed the reasoning of Lords Justices Jonathan Parker and Peter Gibson in Raymond Levy v Legal Services Commission [2000] EWCA Civ 285. Their Lordships were of the view that where there was no realistic prospect of a bankruptcy order being made on a non-provable debt, the statutory demand (the English equivalent of a bankruptcy notice) should be set aside. Lord Justice Peter Gibson said at [58]:

    “The presentation of a petition may have seriously adverse effects on the debtor, and in my judgment it would be wrong to deny him the opportunity at the statutory demand stage to avoid that harm by having the statutory demand set aside when it is based on a non-provable debt which is highly unlikely to lead to a bankruptcy order.”

15. Forge went on appeal to a Full bench: ASIC v Forge [2003] FCAFC 274. The appeal was allowed. Their Honours came to a view diametrically opposed to that of the English Court of Appeal but no reference to the cited cases was made and there was no suggestion that the views of their English counterparts should or would have any persuasive influence upon them. The ability of courts of former colonies of the United Kingdom to pick and choose between the authorities of the former colonial power they will follow and those they will not find persuasive is one of the great liberties of the common law system. This Court is most certainly bound by the Full Court decision in Forge and I am unable to grant the debtor the relief sought upon the basis argued.

16. I dismiss the application. I order that the applicant pay the respondent’s costs to be taxed, if not agreed, according to the Federal Court Act and Rules.

I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date:  27 July 2004