Boros v Pages Property Investments Pty Ltd, in the matter of Boros
[2021] FedCFamC2G 118
•6 October 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)Boros v Pages Property Investments Pty Ltd, in the matter of Boros [2021] FedCFamC2G 118
File number(s): MLG 1307 of 2021 Judgment of: JUDGE A KELLY Date of judgment: 6 October 2021 Catchwords: BANKRUPTCY – application to set aside bankruptcy notice – application to extend time within which to comply with bankruptcy notice – where parties engaged in protracted litigation – where interlocutory order made that debtor pays costs of two motions and of nine hearings in Supreme Court proceedings – interlocutory order not stayed and not subject of any appeal – where final judgment given against debtor is subject of appeal and appeal has been heard with judgment reserved – where, before appeal, creditor issues bankruptcy notice – where debtor applies to set aside first notice and extend time for compliance pending determination of appeal – where debtor’s application finally resolved on terms extending time for compliance until after determination of appeal but otherwise dismissing the application to set aside the first bankruptcy notice – where NSW Court of Appeal dismisses creditor’s application to stay appeal pending satisfaction with costs orders and final judgment – where costs orders subject of determination – no application for review of costs determination – costs determination registered in Local Court – where registration deems cost determination to be a judgment of that court – where second bankruptcy notice issued on basis of Local Court judgment – where debtor accepts second notice not defective in form or content – where debtor applies to set aside second notice but does not apply for extension of time pending determination of appeal – where registrar makes order dismissing application – application for review of exercise of power by registrar – de novo hearing – whether second notice should be set aside – whether second notice and abuse of process – whether extension of time should be granted – applicable principles – application dismissed. Legislation: Bankruptcy Act 1966 (Cth) ss 40, 30, 41, 52
Corporations Act 2001 (Cth) s 180
Legal Profession Act 2004 (NSW) s 368
Legal Profession Uniform Law Application Act 2014 (NSW) s 71
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) r 3.02
Uniform Civil Procedure Rules 2005 (NSW) rr 36.15, 42.7Cases cited: Abignano v Wenkart [1998] FCA 1468
Adamopoulos v Olympic Airways SA (1990) 95 ALR 525
Ahern v Deputy Commissioner of Taxation(Qld) (1987) 76 ALR 137
Amos v Brisbane TV Ltd (2000) 100 FCR 82
Ashby v Commonwealth (No 4) (2012) 209 FCR 65
Bechara v Bates (2021) 388 ALR 414
Boros v Pages Property Investments Pty Ltd [2021] NSWCA 50
Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
CFB18 v Reader Lawyers & Mediators (2018) 16 ABC(NS) 26
Guss v Johnstone (2000) 171 ALR 598
Hunter v Chief Constable of West Midlands Police (1982) AC 529
James v Abrahams (1981) 51 FLR 16
Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75
Killoran v Duncan, in the matter of Killoran [1999] FCA 1574
Luck v University of Southern Queensland [2015] FCA 286
Pages Property Investments Pty Ltd v Attila Boros & Ors [2020] NSWSC 1474
Pages Property Investments Pty Ltd v Boros [2019] NSWSC 1778
Patane v Asteron Life Ltd (2004) 2 ABC(NS) 85
Re Athans; Ex parte Athans (1991) 29 FCR 302
Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310
Re Dalco; Ex Parte Dalco v Deputy Commissioner of Taxation (Cth) (1986) 87 FLR 334
Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253
Re Ganke; ex parte Ganke v Somerset [1995] FCA 195
Royal v Nazloomian, in the matter of Royal [2019] FCA 555
Sarks v Cassegrain (2015) 321 ALR 28
Sharpe v W H Bailey & Sons Pty Ltd (2014) 317 ALR 738
Singh v Fobupu Pty Ltd (2021) 17 ABC(NS) 592
Slack v Bottoms English Solicitors [2002] FCA 1445
Walton v Gardner (1993) 177 CLR 378Williamson v Bendigo and Adelaide Bank Ltd [2021] FCA 451
Division: Division 2 General Federal Law Number of paragraphs: 92 Date of hearing: 5 October 2021 Solicitor for the Applicant: Craddock Murray Neumann Counsel for the Respondent: Mr R. Gration Solicitor for the Respondent WMD Law ORDERS
MLG 1307 of 2021 IN THE MATTER OF ATTILA BOROS
BETWEEN: ATTILA BOROS
Applicant
AND: PAGES PROPERTY INVESTMENTS PTY LTD
Respondent
ORDER MADE BY:
JUDGE A KELLY
DATE OF ORDER:
6 OCTOBER 2021
THE COURT ORDERS THAT:
1.Pursuant to ss 202-203 of the Federal Circuit and Family Court of Australia Act2021 (Cth), direct that the parties be allowed to appear and to make submissions before the Court by video and audio link.
2.The application for review filed on 10 September 2021 be dismissed.
3.Paragraph 2 of the Order made on 19 August 2021 be affirmed.
4.The application for an extension of time within which to comply with the bankruptcy notice issued on 27 May 2021 be dismissed.
5.By 4.00 pm on Tuesday, 12 October 2021, the parties file and serve any submissions in relation to the costs of this application, including upon the quantum thereof (not to exceed three pages).
6.Any application for costs be decided on the papers.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE A KELLY
Introduction
By application filed 10 September 2021, review is sought of the exercise of power by a registrar who on 19 August 2021 made orders extending the time for compliance with bankruptcy notice BN 253121 (second notice) to 26 August 2021 but otherwise dismissed, with costs, the debtor’s application filed on 18 June 2021 that the second notice be set aside pursuant to s 30(1) of the Bankruptcy Act 1966 (Cth) (Act). The application should be dismissed.
By way of overview, since 2016 the parties have been engaged in proceedings in the New South Wales Supreme Court in which a number of interlocutory orders have been made, relevantly, against the applicant, and where issues brought forward in that proceeding were finally determined by Black J who first delivered judgment on 17 September 2020 and a further judgment on 23 October 2020, being the subject of an appeal that was heard on 11 August 2021 and in which judgment from the NSW Court of Appeal is pending (NSW proceeding).
Pursuant to the judgment given on 23 October 2020, the debtor was held liable to the creditor for damages in the sum of $2,538,656 together with an order for costs. Although it was not in evidence, it is common ground that on 22 January 2021, a bankruptcy notice BN 251363 (first notice) was issued and served on the debtor, such notice being grounded upon the final judgment given by Black J on 23 October 2020. The second notice was based upon an order made by Rees J made on 13 December 2019 in the NSW proceeding. There has been no application for a stay of that interlocutory order and no appeal has been made against the exercise of the discretionary power conferred on Rees J to make those costs orders.
On 12 February 2021, the debtor filed an application in the South Australian registry seeking to set aside the first notice. Alternative relief also sought was that the time for compliance with that notice be extended pending the hearing and determination of his appeal. As will appear, on 16 June 2021, the parties’ finally resolved the issues in that application doing so, it was submitted, on the pragmatic basis that the debtor may obtain relief, including pursuant to s 41(6A) of the Act extending the time for compliance with the notice pending determination of the appeal. The circumstances in which that application was resolved are addressed below.
On 29 March 2021, Meagher JA, sitting as a single Justice of the Court of Appeal heard argument on a number of issues including a stay of the proceeding pending the provision of security for costs. Judgment was delivered on that application on 1 April 2021: Boros v Pages Property Investments Pty Ltd [2021] NSWCA 50. As to the claims which had succeeded before Black J, his Honour observed at [1] that the first claim was for a breach by the debtor of his duty to exercise care and diligence in taking steps to ensure that a first company, as lessor, received the benefit of certain rent payments from a second related company and that the second claim involved a breach of fiduciary duty in causing the first company to pay monies to a bank for the benefit of the second company in repaying the balance of a finance facility. His Honour also accepted that the appeal was incompetent by reason of the absence of a necessary party but made orders affording the debtor an opportunity to rectify this issue.
As to the application that the appeal be stayed, his Honour noted the creditor had issued the first notice and that consideration of whether an extension of time should be granted fell to be decided in another court upon well-settled principles. Meagher JA declined to stay the appeal pending satisfaction of the debtor’s costs obligations or the judgment but in the exercise of his discretion made an order that the debtor provide security for the creditor’s costs of the appeal in the sum of $60,000 and that he pay the costs of the creditor’s motion. In reaching the conclusion it was appropriate to make such orders, his Honour: considered the prospects of success were reasonably arguable; had regard to the debtor’s financial position including evidence of the recent transfer of assets for nominal consideration; addressed stultification of the appeal, and; held the circumstances were sufficiently special stating:
Mr Boros claims to be impecunious, and is, to the extent that he will not be able to satisfy the judgment sum and the outstanding costs orders in the event that the appeal is unsuccessful. However, the making of an order for security is not likely to prevent his prosecution of the appeal because of his access to other assets, including those in the superannuation fund. Thus, the essence of the “special circumstances” is that if ‘push comes to shove’, Mr Boros has access to assets which would not be available to PPI in enforcing any order for costs of the appeal. Whilst Mr Boros’ case on appeal is reasonably arguable, there remains the prospect that it will fail. In the face of that prospect there should be an order for security, which ought not prevent the pursuit of the appeal.
Before the application to set aside the first notice had been resolved, on 22 April 2021, certain certificates of determination were issued quantifying the costs ordered to be paid by the debtor to the creditor, including those payable pursuant to the order made on 13 December 2019. The debtor did not seek to exercise the right of review upon those costs determinations.
On 27 May 2021, the following events occurred: (1) the certificate pursuant to which costs had been quantified by a determination in the sum of $68,504.11 was registered with a Local Court in New South Wales; (2) upon registration, the certificate took effect as a judgment of that court; (3); the second bankruptcy notice was issued; (4) the second bankruptcy notice was served by email (as acknowledged in the applicant’s submissions and affidavit). Later, on 2 June 2021, the solicitors now acting for the debtor accepted service of the second notice.
On 7 June 2021, orders were made listing the debtor’s appeal for hearing on 11 August 2021.
On 11 June 2021, a registrar in the South Australian registry of the court communicated with the parties’ lawyers apparently seeking an indication whether the application to set aside the first notice would proceed. In the period Friday, 11 June 2021 to Wednesday, 16 June 2021 the parties’ lawyers exchanged a series of emails in which the final resolution of the application was explored. For the avoidance of doubt, at that stage the debtor was represented by a firm of solicitors in Adelaide and not the solicitors now acting in the present application. For the sake of clarity, although the chain of emails record the day, date and time of transmission, it will be recalled there is a time difference between Adelaide and Sydney.
Although there is debate as to the effect of these emails, in the circumstances in which the present application arises for determination, I do not set out each email in the train but instead provide my summary of the substantive content of those communications to the extent relevant.
On the afternoon of Friday, 11 June 2021, the debtor’s solicitor sent an email to the respondent’s solicitor which was copied to several other parties bearing the subject heading: “FW: Hearing 16.06.2021 SAD 15/2021 BOROS v PPI”. This subject heading was employed in each successive email comprising the chain and, as submitted for the respondent, served to confirm that, aside from the reference to the fixing of a date for the hearing of the appeal, the only subject with which the email chain was concerned was the application to set aside the first notice. In this first email, the debtor’s solicitor proposed “that these proceedings be adjourned till after [the] date [of the hearing of the appeal] with liberty to apply” and offered to file an affidavit exhibiting a copy of orders giving effect to that proposal.
The remainder of the email chain comprises communications on Wednesday, 16 June 2021 (being the return date of the application to set aside the first notice), and was as follows.
First, at 7:02 am the creditor’s solicitor wrote to the debtor’s solicitor advising of the creditor’s instructions to consent to the making of three orders to finally resolve the application being that: (1) the time for compliance with the first notice be extended until seven days after delivery of judgment by the Court of Appeal or the final disposal of that appeal (whichever be the sooner); (2) the application filed on 12 February 2021 be otherwise dismissed; (3) there be no order as to costs. In the event, on 16 June 2021 orders substantially to this effect were made.
Secondly, at 8:27 am the debtor’s solicitor replied stating “We are in agreement with the proposed orders save and except for order two. Order two could be construed in a manner that would have the effect of our cline (sic) commuting (sic) an act of bankruptcy. If you are in agreement that order two is currently unnecessary we can proceed accordingly.” Contextually, by 16 June 2021, the second notice had been issued and served on the debtor. On the face of the second notice it was also apparent that the costs determination pursuant to which the costs ordered by Rees J had been quantified had been registered with a Local Court. Nothing was said in the response from the debtor’s solicitor addressing the second notice.
Thirdly, at 8:16 am in Sydney, the creditor’s solicitor responded stating “That is acceptable provided the Applicant doesn’t press Paragraph 1 of the Details of Claim in the Application (that is that the Bankruptcy Notice be set aside).”
Fourthly, at 9:05 am in Adelaide, the debtor’s solicitor replied stating “That is accepted. The outcome of the appeal will inform the way forward in this matter.” The debtor’s solicitor requested the creditor’s solicitor to prepare amended orders to be sent to the court. To this the creditor’s solicitor responded “Agreed” but asked the debtor’s solicitor to prepare the orders (by reason of his need to address other conflicting obligations at that time). Then followed further dialogue as to the precise form of the orders. While the debtor’s solicitor was proposing a mechanism that there be liberty to apply, the creditor’s solicitor expressed that the intended purpose of the orders was to finalise the application. This is what occurred.
Finally, at 10:41 am Sydney time, the creditor’s solicitor wrote as follows:
We are not seeking to have the matter listed.
Our proposed orders were to consent to the extension of time to comply with the bankruptcy notice in settlement of your client’s application.
If the Appeal is dismissed and the bankruptcy notice not complied with, then our client can file a creditor’s petition. If the appeal is successful and the judgment overturned, then the bankruptcy notice falls away in any event.
Orders were made on 16 June 2021, by consent that the time for compliance with the first notice be extended for a period of seven days after delivery of judgment in the appeal with no order as to the costs of the application.
Two days later, on Friday, 18 June 2021, the debtor commenced this proceeding in the Melbourne registry. Although this application was filed by the debtor at a time when he was self-represented, the form of his application, supporting affidavits and submissions throughout indicate a high degree of familiarity with the court process.
By his originating application, the debtor claimed as final relief that the second notice “which was served on the Applicant Debtor on 28 May 2021, be set aside pursuant to section 30(1) of the [Act]” and interim relief that the time for compliance with the second notice “which was served on me on 28 May 2021 be extended up to and including the determination of this application.” In contrast with the application to set aside the first notice, in this proceeding no application was made for relief pursuant to s 41(6A) of the Act to extend the time for compliance with the second notice until the determination of the appeal.
On the same date, the applicant filed the first of several affidavits in support of his application. From this affidavit, the debtor deposed to a number of matters including the following:
a)he had been served with the second notice on 27 May 2021 and exhibited a copy of the notice which notice stated the amount of the final judgment, the 21 day period within which to comply with its requirements; the availability of bankruptcy proceedings, including to extend the time for compliance and to set aside the notice;
b)the order made by Rees J on 13 December 2019 provided that the defendant’s pay the plaintiff’s costs of two notices of Motion and nine hearings spanning the period 3 September 2018 – 24 June 2019;
c)the creditor had obtained a judgment in a Local Court for the said sum of $68,504.11;
d)the debtor exhibited a document entitled “Breakdown of Rigby Cooke Accounts” for the period October 2016 – February 2020 being for a total sum of $954,011.42;
e)the debtor also exhibited the copy of a certificate of title showing that he and his spouse are registered as joint proprietors of land which is encumbered by a mortgage to the Commonwealth Bank together with a letter from that bank stating the only debt then secured by the mortgage was a sum of $466,39.64;
f)further documents exhibited by the debtor include website details of recent property sales and an exclusive option authority given for the sale of the property.
I observe that by no later than 18 June 2021, the debtor and his solicitors well understood the creditor had registered the costs certificate in the Local Court thereby obtaining a judgment. As the solicitors acting for the debtor accepted service of the second notice on 2 June 2021, I infer that they too were seized of the same knowledge. As will appear, it was not until four months later that an ex parte application was made to stay the judgment.
While the position was far from clear, on the basis of the documents exhibited to that affidavit it appeared the debtor was contending, in effect, that having regard to the total sum of the legal costs incurred to Rigby Cooke he therefore had a set-off or cross-claim exceeding the sum for which the second notice had been issued. The debtor deposed that “This claim has been known and understood by the Respondent Creditor and continues to be subject to an offset claim or counter-claim subject to appeal set down for Hearing on 11 August 2021.”
Although an objection was taken to the relevance of further evidence, the debtor deposed that he had listed his property for sale and, since he intended to sell the property, he was “solvent pursuant to 52(2)(a) of the [Act].” This evidence was admitted on a limited basis.
Otherwise, the debtor’s first affidavit said nothing further as to why the second notice should be set aside or constituted an abuse of process.
On 11 July 2021, the debtor filed a further affidavit exhibiting a swathe of documents that have been considered and addressed insofar as they bear on matters, the subject of this application.
On 14 July 2021, the creditor filed a notice of grounds of opposition stating the seven grounds upon which the application was opposed together with an affidavit in support. By that affidavit other matters were deposed which further informed the chronology of events. Amongst the matters addressed by this affidavit were that:
a)insofar as the debtor relies upon the statement prepared which provides a summary of costs incurred to Rigby Cooke, no evidence had been supplied to suggest the debtor had incurred those costs personally;
b)a substantial number of other invoices from Rigby Cooke were exhibited and which had been paid by Page Sales Pty Ltd (In Liquidation).
The application to set aside the second notice was listed for a hearing on 15 July 2021, however, it was adjourned to, listed for hearing and dismissed on 19 August 2021. From the exercise of power by the registrar in making that order the debtor seeks review, doing so by application filed on 10 September 2021. In contrast with the originating application, the relief sought was that the second bankruptcy notice be set aside pursuant to s 30 of the Act and further, pursuant to s 41(6A), that the time for compliance with the second notice be extended for a period expiring seven days after delivery of judgment by the NSW Court of Appeal.
On 11 August 2021, the appeal from the orders of Black J was heard and judgment reserved.
On 12 August 2021, the debtor filed an affidavit made on 10 August 2021 in which he adduced further evidence “in support of my assertion to an offset claim relating to costs incurred in Supreme Court Proceedings” which he sought to read in conjunction with his submissions. Exhibited to that affidavit were tens of pages of invoices, accounts and communications with the solicitors who had formerly acted for all defendants in the NSW proceeding.
On 19 August 2021, a registrar made an order that the time for compliance with the second notice be extended to 26 August 2021 and otherwise dismissed the application with costs.
The debtor did not comply with the second notice by the extended date of 26 August 2021. Consequently, on that date, the debtor committed an act of bankruptcy: Act, s 40(1)(g). Upon the principles considered below, this did not foreclose the debtor from applying for an order pursuant to s 41(6A) extending the time for compliance with the second notice.
On 27 August 2021, the creditor filed in the Sydney registry of the court a petition for the sequestration of the debtor’s estate and which is listed for a directions hearing on 7 October 2021. On 7 September 2021, the debtor’s solicitors accepted service of the petition.
On 9 September 2021, the debtor filed an application for review which was returnable on Monday, 4 October 2021. On Friday, 1 October 2021, without any prior indication or notice to the creditor, the debtor made an ex parte application to a Local Court of NSW which granted a stay against enforcement of the Local Court Judgment. An application to set aside the Local Court Judgment has been listed before the Local Court on 28 October 2021.
When the matter was called on for a directions hearing on 4 October 2021, I explored the metes and bounds of the parties’ competing contentions and made an order that the matter be listed for hearing the following day. Each party confirmed no further evidence was to be relied upon.
The applicant has filed submissions on 11 July, 12 August, 18 August, 19 August and 1 October 2021. He has filed three affidavits and two “Tender Bundles” all of which were read save as to some parts of the first two affidavits to which objection was taken.
No objection was taken to the affidavits read by the creditor.
Review of registrar’s order
There was no dispute as to the applicable principles and that the court is required to hear afresh the application which was before the registrar and upon which power was exercised.
I agree in the debtor’s submission it is not a requirement upon the application for review that error must be demonstrated in the process adopted or decision made by the registrar. The right of review is an imperative requirement for the delegation of power to a registrar such that the validity of a decision made by a registrar is secured by the guaranteed constitutional entitlement to obtain review by a judge of the Court: Bechara v Bates (2021) 388 ALR 414.
Since the review is a hearing de novo, the party with the carriage of the application before the registrar has the carriage of the application for review. In the case of an application for review of an order made by a registrar for the sequestration of a debtor’s estate, the creditor has the carriage and onus of satisfying the Court of the matters required by s 52 of the Act. By contrast, a debtor seeking the review of an order dismissing an application to set aside a bankruptcy notice has the burden of persuading the court afresh of his or her entitlement to relief. As was emphasised by counsel for the creditor, the burden of the debtor’s submissions focused upon matters relating more upon whether a sequestration order should be made, rather than to confront the principles upon which a bankruptcy notice could be set aside and how the facts of this case informed whether an order should be made to grant that relief.
Set aside bankruptcy notice
The Act does not expressly confer power on the court to set aside a bankruptcy notice but it has long been accepted that the power to do so derives from s 30(1) and upon “the principle that a power conferred by parliament carries with it the power necessary for its performance or execution, so that the express power to extend time for compliance with the requirements of a bankruptcy notice, when an application to set it aside has been filed, carries with it the power to set aside the bankruptcy notice itself”: Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310, [6], (Toohey J): Williamson v Bendigo and Adelaide Bank Ltd [2021] FCA 451 (Griffiths J), citing Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251, 253 (Davies, Foster and O’Loughlin JJ). The grounds upon which a bankruptcy notice may be set aside must relate to the form or contents of the notice, the existence of the debt on which it is based, or abuse of process: Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310, 312, (Toohey J).
However, solvency is not a ground upon which a bankruptcy notice may be set aside: Amos v Brisbane TV Ltd (2000) 100 FCR 82, [15] (Drummond J); Re Athans; Ex parte Athans (1991) 29 FCR 302, 301. There, Hill J stated:
The mere fact that the debtor is solvent is not a ground for the court to set aside a bankruptcy notice. The Act gives no general discretion to the court to set aside bankruptcy notices valid in form which are not an abuse of the process and I know of no case where a bankruptcy notice has in such circumstances been set aside. The Act permits the issue of a bankruptcy notice and if valid in form prescribes the consequences to the bankrupt of non-compliance. The court’s jurisdiction to set aside a defective notice stems from s 30 of the Act but it is not a general discretionary jurisdiction. In this sense, it differs from, for example, the jurisdiction to make a sequestration order under s 52(1) which is expressly discretionary
By the written and oral submissions advanced on behalf of the debtor, two grounds were relied upon in support of the relief sought. First was that the issue of the second notice, in and of itself, was an abuse of process. Secondly, it was submitted the combined effect of the debtor’s appeal coupled with his application to set aside the Local Court judgment was sufficient to engage the court’s discretion to extend the time for compliance with the notice under s 41(6A).
Before addressing those grounds, it is convenient to say something further of the judgment of Black J given on 23 October 2020: Pages Property Investments Pty Ltd v Attila Boros & Ors [2020] NSWSC 1474. First it may be noted that separate judgements were given against the first and second defendants, with the debtor being held liable to the plaintiff for the sum of $2,538,656 and judgment being given for the plaintiff against the second defendant in the sum of $2,617,085. Secondly, I note the defendants were ordered to pay 60% of the plaintiff’s costs together with the reasonable costs of having engaged an expert. Thirdly, the judgment confirms that on 17 September 2020, his Honour ordered that liquidators be immediately appointed to four defendant companies. Fourthly, the parties were directed to provide draft minutes including as to costs. Fifthly, while the parties did not agree on orders, I note the debtor’s short minutes proposed the judgment be entered against him for ~$2.48M as opposed to the sum sought by the plaintiffs of ~$2.55M. Sixthly, insofar as the defendants were ordered to pay 60% of the plaintiff’s costs, this reflected a concession by the plaintiff’s that there be a 40% reduction in its cost on account of certain claims. Seventhly, in a statement which had been echoed in earlier judgements in the proceeding, Black J stated at [15] “PPI also submits, and I accept, that PPI faced ongoing difficulties throughout the proceedings in obtaining relevant books and records from Mr Boros and other Defendants, and that a substantial amount of time during the hearing (and, necessarily, in preparation for it), was directed to issues on which PPI succeeded, namely Mr Boros’ failure to keep proper books and records and the application to wind up the several corporate Defendants on just and equitable grounds.”
In the same vein, the creditor drew attention to the reasons of Rees J being a judgment given on the papers solely in relation to costs: Pages Property Investments Pty Ltd v Boros [2019] NSWSC 1778. Her Honour’s reasons indicate the two motions had ultimately been dismissed by consent, but described the proceeding as having had a tortured history which had its origin in a summons seeking the delivery up of books and records of a company then under the sole control of the debtor together with payment of the proceeds of sale of the property to a controlled monies account. Orders were made that the debtor pay the creditor’s costs of nine hearings involving interlocutory applications involving claims by the debtor for summary dismissal of the claim and an application by the plaintiff for further discovery said to be necessary in order for a forensic accountant to furnish an expert opinion. Without descending into the myriad issues addressed in the extensive judgment, it is sufficient to record Rees J’s statement at [41] in which her Honour described the interlocutory skirmishes as “the long and painful history of the plaintiff’s efforts to extract documents from the defendants, was something of a war of attrition reminiscent of the days before the Civil Procedure Act 2005 (NSW) and its mandate to conduct litigation in a manner which is just, quick and cheap. It would appear that Lindsey J formed the same impression . . . on 8 February 2019.” Her Honour further stated at [42] “In total, efforts to extract documents – being documents identified by an expert witness as necessary to prepare her report – have largely occupied these proceedings for two years. This Court and its officers – registrars and judges alike – work tirelessly to avoid just this scenario.” The observations of both Black and Rees JJ are instructive of the protracted history of the litigation and the manner in which it had been conducted.
The debtor exhibited a copy of his notice of appeal from which it appears six grounds were advanced in relation to suggested errors by the trial judge in construing s 180 of the Corporations Act2001 (Cth) as it applied so as to impose liability on the debtor together with disputes respecting the proper calculation of outstanding rent and a challenge to the measure of compensation. Orders sought in the appeal included that time be extended for filing an appeal, certain orders of Black J be set aside and the proceeding be remitted “for any order for compensation to be calculated in accordance with the judgment of this Court.” As Meagher JA noted, none of the grounds of appeal challenged Black J’s exercise of discretion in awarding costs to the plaintiff: Boros v Pages Property Investments Pty Ltd [2021] NSWCA 50. However, I have assumed in the debtor’s favour that this issue was raised in the appeal.
It is common ground the second bankruptcy notice has been served on the debtor and that apart from the issues raised on this application, no challenge is made in relation to the form or content of that second notice. As confirmed with the debtor’s advocate on both 4-5 October 2021, no issue is taken in relation to the form or content of the second notice.
The interlocutory order made on 13 December 2019 was that the debtor pay the creditor’s costs of certain applications. There has been no appeal from, or stay of, that order. It was submitted the interlocutory nature of the order was of particular importance as the commission of an act of bankruptcy for want of compliance with the requirements a bankruptcy notice issued pursuant to par 40(1)(g) required there to be a final judgment or order and further that by operation of the applicable rules of court, the interlocutory order did not become payable unless and until the NSW proceeding had been ‘concluded’.
By the debtor’s various submissions, it is also suggested he has an offsetting claim on a basis which depends on the success of his appeal. Various submissions advanced by the debtor at the time he was self-represented were not advanced by the advocate who represented him on the application for review and in my assessment it was commendable that the submissions which were advanced were those perceived to have better prospects of success. For example, somewhat remarkably, the debtor submitted that Rees J had not made costs orders at all and further that the creditor was, in effect, attempting to re-litigate the ruling of Rees J.
As I understood them, the debtor’s submissions as developed on the application sought to destroy the foundation for the Local Court judgment on the basis that if the appeal was upheld from the judgment of Black J and if the proceeding was remitted, the NSW proceedings would not, in those events have ‘concluded’ within the meaning of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), such that the creditor had no present entitlement to enforce the costs order made by Rees J. The debtor contended that until the NSW proceeding had concluded, the costs payable pursuant Rees J’s order could not be recovered and so the creditor had no present entitlement to do so. While the bankruptcy jurisdiction is not concerned with execution, upon the debtor’s argument the success of the appeal unwound all that had occurred in obtaining the Local Court judgment. This seemed somewhat remarkable.
UCPR r 42.7(2) relevantly provides that unless the court otherwise orders, costs payable under an interlocutory order “do not become payable until the conclusion of the proceedings.” It was not suggested the court had ‘otherwise’ ordered and so the rule would operate according to its terms. Although it was somewhat difficult to isolate the precise submission being made on behalf of the debtor, it was accepted that Black J had given final judgment on 23 October 2020.
Considerable energy was dedicated to the operation of this rule with the result that the debtor’s submissions evolved over the course of the application. Ultimately the debtor accepted the order of Black J had ‘concluded’ the proceedings but advanced the proposition that if the appeal was successful and the order set aside with the proceeding being remitted then, as the argument ran, the proceeding was no longer concluded and the operation of the rule thereby, in effect, reinstated. No authority was cited for this proposition and I reject it.
Although the order of Rees J did not quantify the debtor’s liability for the costs which he was ordered to pay, it provided the foundation for such liability. The order of Black J did quantify the debtor’s liability for compensation for his contravention of s 180 of the Corporations Act. I agree in the submission on behalf of the creditor that the orders created separate debts.
The interlocutory order made by Rees J is a free standing order in respect of which no relief was sought by the debtor in his notice of appeal. Only the final order of Black J is the subject of that appeal. The order of Rees J conferred on the creditor an entitlement and imposed on the debtor a corresponding liability for all of the costs of the nine hearings and motions. Attempts were made to suggest that if the appeal was successful, the operative effect of r 42.7(2) would mean that the costs payable under the orders made by Rees J would thereby not be payable until the conclusion of the proceeding on remitter. It was further submitted that because of this revivified operative effect of that rule the creditor was foreclosed from relying on the costs determinations or registering them in a Local Court or, as I understood it, obtaining the benefit of the ministerial act occurring by force of s 71 of the Legal Profession Uniform Law Application Act 2014 (NSW) by obtaining a deemed judgment from that court.
In Sarks v Cassegrain (2015) 321 ALR 28, the Full Court rejected as totally misconceived an argument that costs orders were not judgments for the purposes of par 40(1)(g) stating at [39]:
In our view, this argument is totally misconceived. The fact the judgments/orders entered after an assessment as to costs and a review process was conducted are not judgments of the court and take their force from statute – s 368(5) of the Legal Profession Act 2004 (NSW) – and are merely taken to be a judgment of [the] court” in the registry of which the certificate of costs is filed – no longer means, if it ever did, that it cannot found a bankruptcy notice in reliance on s 40(1)(g). The judgments/orders attached to the bankruptcy notices are not mere certificates of taxation; while “the entry of judgment on a filed certificate is a ministerial act[,] [i]t makes the certificate enforceable as a judgment”: per Handley JA in Frumar at [42]. By s 40(3)(b) of the Bankruptcy Act, it is deemed to be a final judgment obtained in an action.
So much is to be drawn from what the Full Court said in Worchild v The Drink Nightclub (Qld) Pty Limited (2005) 224 ALR 339, an authority on which the appellants relied at [8]–[10]: . . .
The reasoning lends no support for the debtor’s submission on this issue.
The reasoning in Sarks v Cassegrain (2015) 321 ALR 28, [39] above was recently endorsed in Singh v Fobupu Pty Ltd (2021) 17 ABC (NS) 592 (Rares, Farrell and Stewart JJ).
Despite the energy dedicated to the point, I was quite unpersuaded by that submission. Absent authority in support of it, I cannot construe the rule as having such a broad construction. To construe it in that way would be productive of wholly unintended and remarkable outcomes. As raised by counsel for the creditor, it would potentially unravel all that had occurred in a case where the recipient of an interlocutory order which had not been the subject of any appeal or stay would nonetheless be exposed to the prospect that the costs and expenses of securing a costs determination, participating in any application for review of that determination, obtaining the registration of the determination in a Local Court or executing upon the deemed judgment obtained in that court would be set at nought. Had those responsible for drafting UCPR r 42.7 intended the rule to confer such far reaching entitlements or consequences it would have been a very easy thing to have said so in express terms. I am not prepared to read into the rule words which do not appear in it as having the consequence for which the debtor contended.
In Sarks v Cassegrain (2015) 321 ALR 28, the Full Court considered the operation of a final order made by Bergin CJ in Eq which included an order for an inquiry as to the existence and quantum of any loss to be undertaken as an adjunct to orders for equitable compensation. Her Honour had also made orders for costs. The orders for costs had been quantified for a sum in excess of $1.4M and when they were not paid a bankruptcy notice was served. The second of the four arguments advanced unsuccessfully before the trial judge for the setting aside of the bankruptcy notices was that the proceeding had not been concluded within the meaning of UCPR r 42.7: (2015) 321 ALR 28, [18]-[23].
Edmonds, Pagone and Gleeson JJ dismissed the appeal from a decision dismissing applications to set aside bankruptcy notices that had been issued in reliance upon par 40(1)(g). The same three arguments were advanced on the appeal. The orders of Bergin J were held to be final: [32]. The Full Court at [38] rejected a submission that, for the purposes of UCPR r 42.7, the proceeding was not concluded. In rejecting the submission, the Court accepted as being undoubtedly correct that when proceedings had been disposed of by a final order which had been entered, the proceeding was at an end: [31]. Extensive authority was cited. Upon the reasoning of the Full Court the circumstance that the order made for an inquiry upon the existence and quantum of loss required further steps to be taken before compensation was quantified did not strip the order from the character of being ‘final’. While the debtor submitted that the decision of the Full Court in Sarks had nothing to say to the present case, I do not agree. Although not precisely on all fours with the present case, the path of reasoning adopted by the Court provides no support for the construction contended for by the debtor and, to the contrary, comfortably aligns with the construction advanced by the creditor. To the extent it matters, if at all, I note an application for special leave to appeal from the decision was refused.
For the debtor it was correctly submitted that the judgment debt underlying the second notice was a judgment of the Local Court of NSW (Proceedings Number 2021/0051652) which was taken to have been made by the Local Court upon the filing of a costs certificate and the costs of a costs assessment: Legal Profession Uniform Law Application Act 2014 (NSW), s 71. While the nature of that judgment as the product of a ministerial act is addressed below, the foundation of that judgment was the product of the following combined circumstances: (1) the order made by Rees J on 13 December 2019; (2) the costs determinations which resulted in the quantification of the costs ordered to be paid by Rees J; (3) registration of the determinations; (4) the operation of s 71 of the period Legal Profession Uniform Law Application Act.
For the purposes of establishing the commission of an act of bankruptcy pursuant to par 40(1)(g) of the Act, a creditor may only rely upon a final judgment or final order, the execution of which has not been stayed. By par 40(3)(b), for the purposes of par 40(1)(g), a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained. Upon my consideration of UCPR r 42.7(2) in the circumstances of this case, once Black J had delivered final judgment the NSW proceeding was concluded within the meaning of that rule, any costs quantified pursuant to an assessor’s determination thereby became payable and enforceable upon a judgment given by the Local Court. By operation of par 40(3)(b) of the Act, the order of Rees J became enforceable as a final order for the purposes of par 40(1)(g).
Execution upon the order of Rees J has not been stayed, however, the judgment obtained by registration of the costs determinations has now been stayed by operation of the ex parte order obtained on 1 October 2021. In this context it is important not to conflate the three judgments. At the time the second bankruptcy notice was issued, no stay of the Local Court judgment had been sought or granted. That the debtor applied without notice and obtained, ex parte, an order staying the operation of the judgment obtained in the Local Court on the last business day before the return of his application for review of the registrar’s exercise of power does not deny the validity of the bankruptcy notice at the time of its issue. Nor indeed, on the extended date provided by the order of the registrar allowing the debtor until 26 August 2021 to comply with that notice had any order been made for the stay of the Local Court judgment. The somewhat unusual circumstances that a stay of the judgment was granted ex parte after the commission of an act of bankruptcy is addressed below in relation to par 41(6C) of the Act.
There was substance in the creditor’s submissions that the issues ventilated by the debtor on the application to set aside the second notice were matters that relate to his opposition to the grant of relief sought in the creditor’s petition. It was common ground that the same point had been made and explained to the debtor by the registrar on 19 August 2021. Further, as an act of bankruptcy has already been committed by the effluxion of time and failure to comply with the second notice, no prejudice flows to the debtor from the refusal to set aside the notice.
Abuse of process
It was not in issue that the court is seized of power to make orders to prevent an abuse of its process. By his submissions filed on 18 August 2021, the debtor submitted issue of the second notice was an abuse by reason, it was said that “there was no order by Rees J that justified the bankruptcy notice in the Lower Courts determination as it related to the substantive hearing which is on foot and has now been heard as at 11 August 2021.” In support of the submission that the notice was an abuse of this court process, the debtor cited a series of authorities including Ashby v Commonwealth(No 4) (2012) 209 FCR 65 (Rares J); Walton v Gardner (1993) 177 CLR 378; Hunter v Chief Constable of West Midlands Police [1982] AC 529; Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75.
By further submissions filed on 19 August 2021 (being the date on which the application was dismissed), the debtor reiterated his reliance upon abuse of process asserting the creditor would appoint a trustee who could be influenced by the creditor’s lawyers.
Reliance was placed on Abignano v Wenkart [1998] FCA 1468 for the principle that where a creditor had issued two bankruptcy notices an election was required to be made by a creditor as to which of the notices a debtor must comply. I agree that such an election is required where the same debt is the foundation for a succession of bankruptcy notices. The facts of that proceeding were somewhat complicated but involved several overlapping considerations. A bankruptcy notice served on the respondent, Dr Wenkart, relied upon a judgment that had been given at trial, with interest, for sums exceeding $1.37M. Dr Wenkart, who was a cross respondent upon a cross-claim was declared to be liable to indemnify a party, Pitman, in respect of that party’s liability to Gennaro Abinano. As the Full Court’s reasons disclose, the order made that Dr Wenkart pay a sum of $1.3M was conditioned upon an undertaking given by Pitman to pay that sum to Gennaro Abinano. On an application to set aside this bankruptcy notice it was found the formal undertaking had not been given as at the date of judgment. Further, the judgment debt was assigned by Pitman to the appellants Gennaro Abinano and a related company who took steps to enforce the judgment against Dr Wenkart.
Upon Dr Wenkart’s application to set aside the bankruptcy notice, Branson J concluded that the order made in the terms described above did not create debt immediately due and payable but that it only became so upon the undertaking being given. Her Honour set aside the bankruptcy notice. Thereupon the assignees immediately issued a second bankruptcy notice that was based on the same judgment debt and which, as Ryan, Heerey and Tamberlin JJ stated was unarguably due and payable as the undertaking had by then been given. Dr Wenkart then issued an application to set aside the second bankruptcy notice, which application was dismissed by Hill J on 20 August 1998. Upon becoming appraised of the second bankruptcy notice in the order made by Hill J, the Full Court invited submissions whether it should entertain the appeal against the decision of Branson J to set aside the first bankruptcy notice. The Court came to the clear view, and without entertaining submissions, that it “should not continue to entertain this appeal because to do so would leave open the possibility of orders being made which cut across those made by Hill J to which we have just referred.”
It was in those circumstances that Ryan, Heerey and Tamberlin JJ observed, obiter, that where a creditor issued two bankruptcy notices, an election was made as to which notice the debtor was required to comply with. In support of that statement, the Court referred to in Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253, 261 where Sargant LJ said:
If, while an earlier bankruptcy notice were still available for a petition, a second notice were given in bad faith or to embarrass the debtor, the Court could prevent oppression by declining to act. But in my view there has been nothing of this sort here. The first bankruptcy notice had been withdrawn, objections had been taken to the second notice which had not been conclusively satisfied, and I think that the third notice was served to escape from those objections, and to place the petitioning creditors in a stronger and less challengeable position than they had previously occupied. The failure to comply with this third notice was attributable not to the existence of the second notice, but to the entire inability of the debtors to pay the remainder of their debt. The petitioning creditors have complied with the statutory formalities necessary to establish the insolvency of the debtors; and I see no sufficient reason for refusing the statutory consequences of the insolvency so established
Ryan, Heerey and Tamberlin JJ then stated:
In our view, his Lordship in that passage recognised that it is open to a creditor to issue a fresh bankruptcy notice for the purpose of circumventing or overcoming a challenge or a possible challenge to an earlier notice. We consider that to have happened here. The deficiency in the earlier notice was exposed by the reasons of Branson J which, incidentally, were adopted by Hill J when he came to consider the subsequent bankruptcy notice and steps were taken to overcome that difficulty as they could be since the undertaking had been given between the time of the issue of the first bankruptcy notice and the publication of her Honour’s reasons.
In those circumstances, the course taken by the creditors as assignees of Mr Pitman was entirely open to them but it was a course which could not be pursued in parallel with the prosecution of the present appeal. We consider that the prosecution of the present appeal in the events that have happened is tantamount to an abuse of process and, accordingly, we decline to entertain it.
The appeal against the order of Branson J setting aside the first bankruptcy notice was dismissed with costs, including in the circumstance that Hill J had subsequently dismissed the debtor’s application to set aside the second bankruptcy notice. However, the reasoning above confirms that the Full Court was concerned with a single judgment debt and successive notices, not with separate debts as is the case in this application for review. Moreover, their Honours affirmed that it was entirely open to the creditors as assignees to issue a series of notices (which had occurred to rectify the difficulty flowing from the conclusion of Branson J’s order), but that they could not rely at one and the same time on both notices for the same debt. The long settled concern to avoid confusion and embarrassment to a debtor underpinned this conclusion.
The reasoning in Abignano v Wenkart was applied in Singh v Fobupu Pty Ltd (2021) 17 ABC(NS) 592, where the creditors had issued two notices, the second rectifying a material error contained in the first of those notices. Rares, Farrell and Stewart JJ at [27]-[28] rejected an abuse of process submission by the debtor since the trial judge had put the creditors to their election. Unsurprisingly, the creditors elected not to rely upon the first notice. The Full court concluded the debtor had not sustained any relevant injustice or been foreclosed from advancing any recognisable legal argument. The appeal from orders refusing to set aside the bankruptcy notice was dismissed. I observe the bankruptcy notices in that appeal were based upon two judgments that had been registered in the NSW Local Court on separate dates.
This case is entirely distinguishable from the circumstances which confronted Dr Wenkart. It is also distinguishable from those which confronted Mr Singh. Here, the debtor is liable under separate debts to the same creditor. There is no relevant confusion or embarrassment. Nor is there any relevant kind of prejudice.
The debtor further submitted the parties’ lawyers had agreed on 16 June 2021 that “the Appeal Proceedings will be determinative of the rights of the parties between them.” Upon this basis it was suggested the ‘agreement’ reached on that date foreclosed the creditor from issuing the second notice. Upon my consideration of the parties’ communications on that date viewed in the context of the matrix of fact which were mutually understood by them including the long history of their NSW litigation, I do not accept the submission in the broad terms in which it was stated. I do accept the parties agreed on 16 June 2021 to finally resolve all issues in dispute between them in the debtor’s application to set aside the first notice which was returnable on that date before a registrar in the Adelaide registry of the court. The order made by consent on that date reflected that agreement. Reading the parties’ communications as two honest business persons would, in light of the matters mutually known by them, I do not accept the subject of their agreement involved the second notice or what was to be done in relation to it.
As at 16 June 2021, the debtor had been in possession of the second notice for some three weeks and within two days filed his application and supporting affidavit seeking to set aside that notice. Nothing in the parties’ communications in the period 11-16 June 2021 involved any discussion to the effect the debtor should not be exposed to the risk of the commission of an act of bankruptcy by failure to comply with the second notice. Contrastingly, an express subject of those communications included negotiation over the precise terms of the orders to be submitted by consent to finally resolve the application to set aside the first notice. A matter raised expressly by the debtor’s Adelaide solicitor involved his concern that the proposed consent order should not expose the debtor to the risk of the commission of an act of bankruptcy by failure to comply with that notice. Nothing was said respecting an equivalent risk in relation to a failure to comply with the second notice. Accepting that it was the parties’ respective communications which spoke to the addressee, in my view a reasonable, honest person in the position of the debtor appraised of the matters referred to above would be in no doubt the parties were dealing at arms-length in a protracted piece of litigation and that the terms of the order which had been negotiated and agreed represented neither more nor less than the terms upon which the debtor’s application to set aside the first notice would be finally determined. While a spirited attempt was made to suggest the debtor had been lulled by the communications as raised in the course of argument, in all of the circumstances, it was equally the case that the debtor’s lawyer had also not averted to the second notice at any time or sought clarification (as he had done in relation to the first notice), the risk of a commission of an act of bankruptcy arising from non-compliance with the second notice.
Insofar as it was said to be against good conscience that the creditor should be permitted to issue a second bankruptcy notice while the first notice was in abeyance by operation of the parties’ agreement and consent order made on 16 June 2021, I do not agree.
As Hill J stated in Re Athans above, the Act permits the issue of a bankruptcy notice and if, as here, it is valid in form, the consequences of non-compliance are prescribed by the Act. As stated, the debtor does not take issue with the form or content of the second notice. Despite the extension of time afforded to him to do so by the registrar, the notice has not been complied with. I am satisfied on the evidence and submissions before me that, having presented a petition that is returnable on 7 October 2021, the creditor genuinely intends to pursue the matter and does not do so for any collateral purpose or by reason of having placed undue pressure upon the debtor: Slack v Bottoms English Solicitors [2002] FCA 1445, [15]-[21]. More recently, in Royal v Nazloomian, in the matter of Royal [2019] FCA 555 [29] Stewart J stated:
The issuing of a bankruptcy notice is a legitimate mechanism to secure payment of a debt – it is legitimate to issue a notice with the intention that the debt be paid, and in the event of default, to proceed by way of petition for sequestration: Slack v Bottoms English Solicitors [2002] FCA 1445 at [15]-[21] per Spender J; Young v Cooke [2017] FCA 26 at [105] per Gleeson J.
As Stewart J further held at [30], the time at which to judge an asserted abuse of process is the time at which the bankruptcy notice is issued; subsequent events have only slight relevance to the circumstances foreseen at the time of the issue of the notice: citing Killoran v Duncan, in the matter of Killoran [1999] FCA 1574, [13] (Gyles JA).
From my consideration of the facts and circumstances of this matter, when the second notice was issued there was every reason for the creditor to determine that the issuing of the notice was a step it was entitled to pursue. Events occurring thereafter do not alter that conclusion. Considerations of the kind examined by Stewart J in Nazloomian at [67]-[78] are not present here. To the contrary, I am satisfied the creditor’s purpose is to genuinely invoke the court’s jurisdiction in relation to bankruptcy by reason of the debtor’s alleged insolvency.
Set-off or counterclaim
By his submissions filed on 19 August 2021, the debtor acknowledged that by s 40(1)(g) of the Act any counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment must be of a kind that he could not have set up in the proceeding in which the judgment was obtained. The debtor submitted he could not have commenced his “offset claim” as it related to matters which would flow from his appeal. In the same submission it was suggested that the offset claim was for $145,533.71 and later said to be a claim which exceeded the amount of the debt by $77,029.60. It was suggested that the “offset claim” was bona fide by reason that the appeal had been commenced within time.
I agree in the creditor’s submission that the present case is relevantly indistinguishable from Luck v University of Southern Queensland [2015] FCA 286, [25]-[26] where Davies J held that the debtor did not have a presently existing counter-claim, set-off or cross-demand by reason that it was predicated upon the success of an appeal which has not been determined. It is the date of the application to set aside a bankruptcy notice that is the date by reference to which the existence of a counter-claim, set-off or cross-demand is to be ascertained: Re Ganke; ex parte Ganke v Somerset [1995] FCA 195, [32]; Patane v Asteron Life Ltd (2004) 2 ABC(NS) 85 (Lander J); Guss v Johnstone (2000) 171 ALR 598, 607. This principle is well-settled.
I agree in the submission on behalf of the creditor that the debtor has not filed an affidavit in accordance with r 3.02(3) of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 which should have set out the full detail of the counter-claim, set-off or cross-demand, the amount thereof and the amount by which it exceeded the sum claimed in the second notice. At best the debtor’s evidence was assertive or conclusory as to these issues.
Upon the facts relied upon for this application it is apparent the debtor seeks to elevate an alleged contingent future cross-claim grounded upon the success of his appeal. This does not constitute a presently existing cross-claim for the purposes of s 40(1)(g).
Extension of time
As the reasoning in Bechara v Bates confirms, the making of an order for the sequestration of a person’s estate effects a substantive and adverse change in their status. The making of such an order also carries potentially adverse consequences for other unsecured creditors who are thereupon foreclosed from seeking to execute to recover their full entitlement under any liability owed by the debtor to them. Instead they must share rateably in the bankrupt estate. The circumstance that such an order carries such consequences underscores the importance of adherence to the requirements of the Act and applicable rules of court which govern the determination of such an application. In turn, strict compliance with the requirements respecting the issue of a bankruptcy notice will generally be required. Those requirements are stated both in s 41 of the Act and in the regulations. Those matters notwithstanding, it is clear the commission of an act of bankruptcy is qualified in as much as time for compliance with a notice may be extended even though time has expired, provided that conditions in s 41(6A) are otherwise satisfied: Guss v Johnstone (2000) 171 ALR 598, [58], [63]; CFB18 v Reader Lawyers & Mediators (2018) 16 ABC(NS) 26, [75] (Colvin J). That is because the power to extend time is in aid of the power to set aside the notice: Sharpe v W H Bailey & Sons Pty Ltd (2014) 317 ALR 738, [36] (Gleason J).
The time for compliance with a bankruptcy notice is prescribed at 21 days, however, the court may extend time in which to so comply: Act, s 41(6A). It was common ground that the power conferred by the Act to extend time is constrained by s 41(6C). Those provisions read:
(6A)Where, before the expiration of the time fixed for compliance with a bankruptcy notice:
(a)proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
(6C)Where:
(a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and
(b)the Court is of the opinion that the proceedings to set aside the judgment or order:
(i) have not been instituted bona fide ; or
(ii) are not being prosecuted with due diligence;
the Court shall not extend the time for compliance with the bankruptcy notice.
The creditor submitted, accurately, the debtor had not sought an extension of time in the originating application and formally opposed the application being considered on that basis. I note that by his submissions filed on 11 July 2021, the debtor sought by [1] that the time for compliance with the second notice be extended for a period expiring seven days after delivery of judgment on his appeal by the Court of Appeal. In addition, by the application for review filed by his current solicitors, the same relief was also sought. For the debtor it was submitted an order for an extension of time was self-evidently not a final order application such that, as is the argument ran, it was immaterial the relief had not been sought when the originating application was filed. The submission did not meet the creditor’s objection that the debtor had not sought relief in the originating application to extend time for compliance with the second notice until after the determination of his appeal. Given the somewhat pressing nature of the application, I prefer to decide the question upon the substantive merits of the case.
By his submissions filed on 19 August 2021, the debtor relied upon s 41(6A) of the Act and started several authorities in support: James v Abrahams (1981) 51 FLR 16; Re Dalco; Ex Parte Dalco v Deputy Commissioner of Taxation (Cth) (1986) 87 FLR 334; Guss v Johnson (2000) 171 ALR 598, [62]. By those submissions, the debtor sought the extension of time in order that the NSW Court of Appeal could deliver judgment. He further submitted that the creditor was “conducting this application as a standalone judgment for costs.” He was right.
As applied to this case, before expiration of the time for compliance with the second notice, the debtor had not commenced proceedings to set aside the judgment of Rees J. However, the debtor had commenced the application to set aside the bankruptcy notice, which application was dismissed by the registrar on 19 August 2021 and whose exercise of power is the subject of the present application for a de novo review. As the language of s 41(6A) states, the power to extend the time for compliance is conferred in discretionary terms but is not unfettered. In particular, exercise of the power is expressly made subject to subsection 41(6C).
The debtor further submitted, correctly, it was trite that the court could exercise power to extend the time for compliance with a bankruptcy notice where the judgment upon which the notice was grounded was the subject of an appeal which had not been determined: Ahern v Deputy Commissioner of Taxation(Qld) (1987) 76 ALR 137; Adamopoulos v Olympic Airways SA (1990) 95 ALR 525. Attention was properly drawn to the authorities which accept s 41(6A) is not to be given a narrow construction and that the power it confers may be applied in relation to “an appeal from the judgment or order in respect of which the bankruptcy notice was issued where that appeal does in reality C to have the judgment or order set aside”: Seller v Deputy Commissioner of Taxation [2011] FCA 865, [40] (Flick J) citing Conway v Jackson (2001) 107 FCR 201, [18]-[19] (Moore, Matthews and Mansfield JJ). The difficulty with the submission, however, is that the debtor has not appealed from the order of Rees J. In those circumstances it is unnecessary to address the further principles raised in those authorities which entitle the court on an application to extend time to evaluate the relative merits of the proposed appeal.
With particular reference to s 41(6C), it was submitted the combined effect of the debtor having instituted an appeal and that that appeal had been heard with judgment reserved denied any suggestion that this appeal proceedings had not been instituted in a bona fide manner or prosecuted with due diligence. Again, the difficulty with the submission is that the appeal in the NSW Supreme Court is only from the judgment and orders of Black J and is not an appeal from the order of Rees J. I address below the bona fides of the ex parte application.
It is suggested the existence of a stay of enforcement is a matter which weighs in favour of the exercise of discretion to extend the time for compliance with a bankruptcy notice. Reliance was placed upon Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264. I do not accept the submission in the broad terms in which it is advanced, particularly in the circumstances that have occurred in this case. Having regard to all that is considered above I am not satisfied, and not of the opinion, that the ex parte application for the stay and to set aside the judgment in the Local Court was instituted in a bona fide manner. In those circumstances, by force of s 41(6C), the court is proscribed from granting the extension of time. Relatedly, there was no evidence filed since 1 October 2021 which might, and should, have addressed the bona fides of the belated application to set aside the judgment obtained in the Local Court.
Further, I accept the creditor’s submission that by dent of UCPR r 36.15(1), being the only source of power for the setting aside of the Local Court judgment is that such judgment had been given or entered “irregularly, illegally or against good faith.” There is no, or no sufficient, basis in the evidence on this application to support any such conclusion. Regardless of the operation of s 41(6C), for the reasons above I would not have been persuaded to exercise the discretion conferred by s 41(6A) to grant an extension of time.
Conclusion
For the reasons above, the applications to set aside the notice and for an extension of time in which to comply with it should be refused.
The creditor’s solicitor has filed an affidavit to which was exhibited an open Calderbank offer and sought to be heard on the question of costs. In those circumstances, orders will be made affording the parties a limited opportunity to make submissions on costs which will then be determined on the papers.
I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment of Judge A Kelly. Associate:
Dated: 6 October 2021
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