Cole v Lafferty - [2002] FMCA 46

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COLE v LAFFERTY

[2002] FMCA 46

BANKRUPTCY – Application for extension of time for compliance with Bankruptcy Notice – application to set aside Bankruptcy Notice – appeal pending – proceeds of arbitration costs order pending.

PRACTICE AND PROCEDURE –Ruling – Bankruptcy – leave refused to file further affidavit unrepresented applicant.

Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Prior v Commonwealth Bank of Australia (1995) FCA 971

Bankruptcy Act 1966

Applicant:

GERHARD JOSEPH COLE

Respondent:

PHILIP LAFFERTY

File No:

WZ 7 of 2002

Delivered on:

19 February 2002

Delivered at:

Perth

Hearing Date:

19 February 2002

Judgment of:

McInnis FM

REPRESENTATION

Applicant:

Mr G J Cole Applicant in person

Counsel for the Respondent:

Mr G R Dean

Solicitors for the Respondent:

Gary Dean & Associates

ORDERS

(1)The application filed 22 January 2002 be dismissed.
(2)The applicant pay the respondent's costs of the application pursuant to order 62 of the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

WZ 7 of 2002

GERHARD JOSEPH COLE

Applicant

And

PHILIP LAFFERTY

Respondent

REASONS FOR JUDGMENT

This is an application by GERHARD JOSEPH COLE (the applicant) to obtain an extension of time to comply with a bankruptcy notice or, in the alternative, to seek an order setting aside a bankruptcy notice. The application by Mr Cole was filed in this court on 22 January 2002. In support of that application he has filed and served an affidavit filed the same day, and it is clear from that affidavit that the bankruptcy notice which is the subject of the application is a bankruptcy notice relied upon by the creditor PHILIP LAFFERTY (the respondent) which is founded upon a summary judgment entered in the Magistrates Court in the sum of $26,701.69 together with costs, making a total judgment of $26,733.69.
That judgment was entered or, as I understand it, given on the 10th day of October 2001. It is common ground that after that judgment was entered and based as it was on proceedings which had been filed earlier, the applicant had not taken any steps to set aside or otherwise deal with that judgment. In fact it is clear from the other affidavit material to which I will refer that such steps were not taken until after the bankruptcy notice was served. By way of background that the bankruptcy notice was issued on the 21st day of November 2001, and it is common ground that it was served on the 2nd day of January 2002.
The applicant before this court has also filed, and no objection has been taken, an affidavit on 12 February 2002. A further affidavit was filed to correct a mistake in his previous affidavit on 13 February 2002, and then another affidavit filed on 18 February 2002. It is said by the applicant that he should be granted an extension of time within which to comply with the bankruptcy notice or indeed that the bankruptcy notice should be set aside, based upon certain affidavit material which in brief times, I should indicate, covers arguments that first of all as a consequence of a successful arbitration which had been conducted in part at least by the creditor for an on behalf of what is described in the material as the `Hotrox Charcoal Co’ that funds, upon reaching a second stage of arbitration, namely damages and award of costs, will become available in the foreseeable future.
I use the term "in the foreseeable future" advisedly because it is difficult to be more precise than that save and except to say that it is common ground that the arbitration which resulted in a favourable award was delivered on 1 May 2000, and that since that time it is agreed that there is at least an outstanding issue of damages to be assessed, and costs, which might flow. Beyond that though, it is clear that there are in fact no precise details about the date upon which the further arbitration will be conducted let alone concluded. In his first affidavit to which I have referred, the applicant says in paragraph 54:
“I do not presently have access to any further funds to lend to the Hotrox Charcoal Company, or to pay the debt owed to the Creditor for its work carried out in the Arbitration of the matter for the Hotrox Charcoal Company”.

He goes on to say he will receive significant funds from both the repayment of an amount of 1.3 million owed to him by Hotrox Charcoal Company and additionally he says through unrelated `unspecified business activities’ which he is presently negotiating. He asserts in the same affidavit that the lawyers representing Hotrox Charcoal Company in the arbitration, which of course are now longer the creditor, have agreed to be paid at the conclusion of the arbitration.
In addition to the argument that there are at least potential funds which may be made available to the applicant, he has asserted in any event that he has in fact a good prospect of successfully appealing against the summary judgment which forms the basis of the bankruptcy notice in this matter. He has argued in that context that he has at least a prospect of succeeding in the argument that the solicitor who claimed the costs did so on the basis of material which he ought not to be able to rely upon, namely a solicitor client agreement which is in a standard form and which is annexed to the first affidavit of the applicant and marked `GJC23’.
In that client/lawyer agreement which forms the basis of the judgment in the Magistrates Court, which as I have indicated is the foundation for the bankruptcy notice, it is not in dispute that the applicant, along with his then business partner, a Mr Mullaley, had signed the agreement and did so on the face of the document in a personal capacity. It is appropriate that I should indicate that that agreement, as signed in that manner, provided in clause 6 the following paragraph under the heading, “Non-Payment”.
“If you do not pay an invoice sent by a Lawyer or comply with a request for payment in advance within 14 days after the invoice is sent or the request is made, the Lawyer may immediately stop acting for you. If litigation has begun, the lawyer may inform the Court that he or she is not longer representing you”.
It appears to be common ground that the creditor had acted upon that clause claiming that there had been default in payment of requests for payment within 14 days of invoices being sent but as I understand it the applicant asserts that in fact the client/lawyer agreement was executed by him as trustee for the unit trust of the Hotrox Charcoal Company and that he should not be personally liable or in the alternative, by further agreement which was purportedly entered into on 11 August 2000, that there had been agreement with the creditor to defer payment, contrary to that solicitor/client agreement, until the conclusion of the arbitration. It is obvious, and common ground, that the arbitration is not concluded in the sense that the assessment of damages has not yet been completed.
As I understand the applicant's material in support of this application, he has asserted that I should exercise my discretion to extend the time for compliance with the bankruptcy notice, or set it aside, based upon, as I have indicated, those grounds - either that there is money which is forthcoming as a consequence of the favourable arbitration award which is yet to be determined in terms of quantum or that in any event the creditor did not have a right to obtain the judgment which was obtained in the summary matter before the Magistrates Court..
It should be stressed, and I accept, that before the magistrate the issue of whether or not the applicant was personally liable was agitated and ruled upon in a manner which was adverse to the applicant. The applicant had not, within the period of 21 days in accordance with the District Court Rules and in particular order 8 rule 5, filed and served any notice of appeal.
The court, in receiving the affidavit of the applicant filed 12 February 2002, became aware that in fact there is a notice of appeal, now dated 11 February 2002, which has been filed and I understand served and which seeks from the District Court of Western Australia a number of orders but essentially seeks to set aside the order made by the magistrate on 10 October 2001. In the notice of appeal which is exhibit GJC3 to the affidavit of the applicant filed 12 February 2002, the applicant further seeks the following, "(1) that the time for the appellant to file and serve this appeal be extended up to the date hereof."
He goes on to say in that appeal that the magistrate had erred in law and failed to properly consider and therefore failed to recognise that the judgment debt was not incurred by the appellant personally but was an alleged debt incurred by the Hotrox Charcoal Unit Trust, trading under the business name the Hotrox Charcoal Company which is the registered business name owned and operated by the Hotrox Charcoal Company Unit Trust.
In ground 4 it is claimed the Magistrate erred at law in his incorrect finding that the business name the Hotrox Charcoal Co is not owned and operated by the Hotrox Charcoal Unit Trust. The applicant claims the Magistrate has erred in law in dismissing the appellant's application for a stay of the proceedings under the Commercial Arbitration Act and erred in failing to permit the appellant to exercise the appellant's rights to arbitration of the dispute under clause 17 of the Disputes of the Law Society of Western Australia Client-Lawyer Agreement.
Further allegations are made there of a breach of the provisions of the Legal Practitioners Act, which I do not need to address at this stage. Also attached to the affidavit filed on 12 February 2002 is a defence and counterclaim dated 30 August 2001 which clearly was before the Local Court of Western Australia which heard and determined the issue of the claim for summary judgment on 10 October 2001 and technically that defence and counterclaim remains on foot.
It is relevant for the present purposes in deciding whether to exercise its discretion to grant an extension of time in which to allow compliance with a bankruptcy notice or to set aside a bankruptcy notice for the Court to consider issues of whether or not there is in fact a counterclaim which if successful may result in damages which exceed the amount of the claim which forms the basis of the bankruptcy notice and the amount which is now the subject of a favourable judgment for the creditor.
That defence and counterclaim seeks declaratory relief. It seeks in general terms damages and refers not to a monetary amount but simply refers to the damages arising out of what is said to be a significant loss and costs to the Hotrox Charcoal Co and the costly delays that have occurred in proceedings of the arbitration between the Hotrox Charcoal Co and Jabow Nominees Pty Ltd.
The applicant has urged this court to exercise its discretion as indicated to allow an extension of time within which to comply with the bankruptcy notice or otherwise to set aside the bankruptcy notice based on the material to which I have referred. In addition, the applicant has sought to rely upon the fact that he has by a document dated 11 February 2002 in the Supreme Court of Western Australia by originating summons sought orders in relation to various agreements and in that originating summons specifically seeks from the court the following:
1, that the following agreements made between the plaintiff and the defendant be reviewed and, if thought fit, be cancelled by this honourable court.
1.1, client-lawyer agreement dated 2 November 1999.
1.2, mortgage dated 20 March 2000.
1.3, agreement to pay dated 13 April 2000.
2, such further or other orders as the honourable court shall see fit.
Then he seeks an order in relation to costs. The court has also noted that in support of that originating summons the applicant has filed in the Supreme Court an affidavit dated 11 February 2002. In that affidavit the applicant refers to further agreements, which are not annexed, where appropriate details are not provided. Objection was properly taken to reference to those further agreements but I note in passing one of those agreements is said to be a new agreement on 11 August 2000 which was allegedly reached regarding the payment of legal fees. That matter is obviously before the Supreme Court in the sense of affidavit material in support of the originating motion to which I have referred.
It is fair to say, however, that there is insufficient evidence before this court about the nature of that agreement save that I accept for present purposes that it is not suggested there is a written agreement but, rather, it is if anything an oral agreement the terms of which are not clear. I should stress at the outset that the applicant is unrepresented and during the course of this application I made a ruling annexed hereto that he not be permitted to provide further affidavit material and in particular not be permitted to simply file, serve an rely upon a voluminous affidavit which has in fact been filed on 18 February 2002 in the Supreme Court.
My reasons for that ruling have been delivered separately. It should be stressed that I was concerned in the present case that where orders were made by the court which included liberty to apply on 23 January 2002, where the issues before this court were clearly addressed in general terms in the affidavits which have in fact been filed, despite them being filed late in the case of the affidavit of 12 February 2002 and one filed thereafter, it is unwise for a court to simply allow further affidavits to continue to be provided or, indeed, reference by an unrepresented litigant to facts not supported by affidavit material where clearly that material appears to be in direct response to criticisms raised about the existing material on file.
In a sense it seems to me that the opportunity for any litigant, represented or otherwise, to conduct the action, to use a colloquial term, `on the run’ and to supplement material as and when it is required in response to submissions made as to the deficiency of the current material would not be in the interests of justice and would constitute procedural unfairness and prejudice to the other party. Hence despite making significant allowances to the applicant in the course of making submissions, I was not prepared to allow that further material to be produced or relied upon. In any event, it seems to me that the applicant makes the valid point that he does now currently have an appeal which is pending in the sense that there is at least a document which purports to be an appeal.
The application by the applicant has been strongly opposed by Mr Dean for and on behalf of the creditor. In relation to the notice of appeal he has submitted that that in fact is a nullity. He submits it is a nullity because there has not yet been any separate application for extension of time within which to appeal. He submits that despite the fact that the notice of appeal to which I have referred contains a reference by way of notice that the time for the appellant to file and serve the appeal be extended up to the date hereof, it is not sufficient to overcome the submission that it is a nullity. To the extent that it is a nullity he submits that there therefore is no notice of appeal upon which this court can rely and nor should this court then apply the normal principles which would apply in the event that there is a notice of appeal and that that appeal is pending and it relates directly to the subject matter of the bankruptcy notice.
For the purpose of this application, however, I am prepared to accept that there is at least a notice of appeal which has the potential of being heard and determined by the District Court of Western Australia. I further accept that there is at least on foot an originating summons before the Supreme Court of Western Australia which may have some impact upon the basis upon which the creditor relies in terms of the judgment debt.
In relation to the notice of appeal I am prepared to accept that there is a notice of appeal that I should consider simply on the basis that it seems to me that the Supreme Court and the District Court are both courts which have power to dispense with compliance of rules. In relation to the notice of appeal before the District Court it seems to me that it is at least possible for that court to consider, and I say no more about it than that, whether or not it will dispense with its rules to the extent that it would enable the applicant to then make an application for extension of time and for that extension of time application to be dealt with on a nunc pro tunc basis. It may then deal with the appeal either at the time, instanter, or it may delay consideration of the appeal. In any event, there is at least the possibility of that appeal being considered and therefore I do not consider that I should accept the submission by Mr Dean that that appeal should be disregarded at this stage for these purposes as simply a nullity.
When the court considers whether an application to grant an extension of time for compliance with a bankruptcy notice should be granted, it is entitled to look at the existence of an appeal against the judgment upon which the bankruptcy is based. There are plenty of authorities which would support the proposition that the courts should be reluctant to enter into a detailed analysis of the merits of appeal but nevertheless the merits, it has been held, may be relevant to the exercise of the court's discretion. See Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264, per Lehane J, at 270 to 271.
It is also true to say that if the court is able to regard the prospects of success as slight, it will be less ready to grant an extension of time. See Prior v Commonwealth Bank of Australia (1995) FCA 971.
In the present case it is submitted that if I were to have regard to the notice of appeal that in any event the appeal is without merit, that the issue of the client/lawyer agreement is one about which there can be very little doubt. It is submitted that the applicant had signed the agreement, did not represent in that agreement that he was acting in his capacity as trustee but in any event reliance was placed upon that agreement and it was not varied and therefore whatever notice of appeal and other documents that may be before the District Court or indeed the originating summons before the Supreme Court, whatever the purported claims that are made in those documents may be, the prospects of success are slight.
In my view the court in considering whether or not to grant an extension of time in which to comply with the bankruptcy notice can have regard, though, to the issue of the prospects of moneys being received as a consequence of further proceedings which may provide a debtor with an opportunity to pay the debt and to otherwise comply with the requirements of the bankruptcy notice if given adequate time.
In the present case, however, I find that there is insufficient evidence upon which the court can rely with any degree of certainty to conclude that within any foreseeable time which could with a degree of certainty be specified there will be funds available for that purpose. I also consider that in the present case there is insufficient evidence that would explain, save for the fact there were some negotiations being undertaken to resolve the matter, the delay between the date of the judgment on 10 October 2001 and the date upon which the bankruptcy notice was served and indeed no evidence upon which I can rely to explain either the 21-day delay between the date of judgment or the further delay that occurred thereafter. The notice of appeal has been lodged after service of the bankruptcy notice and in those circumstances it is reasonable, in my view, to conclude it has been lodged in a sense in response to the service of the bankruptcy notice.

In any event, I am further satisfied on the material before me and having regard to the submissions that have been made that despite the voluminous material that has been provided by way support of the applications before both the District Court and the Supreme Court that the prospects of success are slight and the prospects indeed of success in terms of an extension of time not great. I say no more about either of those cases as to do so would be presumptuous. They are clearly matters for both courts to consider on the material then before them.
It should also be mentioned in passing that the considerations which a court will take into account on an application of this type may indeed be different to the considerations which a court may take into account in the consideration of a creditors' petition, given that hearing has the very significant consequence of a potential sequestration order. It seems to me that a court in considering whether to grant an extension of time within which to comply with a bankruptcy notice and/or whether to set aside the bankruptcy notice does need to consider the material in a slightly different manner to the manner in which the material may be considered on a creditors' petition where a court at least has to face the prospect of a sequestration order.
In the present case having regard to the different role the court is required to perform in this application compared with an application by way of creditors' petition and possible sequestration order, it is my view that on the material before me there is insufficient basis upon which I should accede to either request in the application; that is, I am not satisfied that there is indeed an appeal which has reasonable prospects or indeed even slight prospects of success. I am not satisfied there has been evidence which would justify or explain the delay or indeed constitute an appropriate basis upon which an extension of time would be granted.
I am not satisfied there is sufficient evidence before me which would persuade me that there is at least an immediate prospect of damages being obtained by the applicant which would otherwise assist the applicant in meeting the requirements of the bankruptcy notice, and for the sake of completeness, it is clear to me that in any event there is also insufficient material before me that the monetary amount which might be sought on the counterclaim and defence to which I have been referred would be at least an amount which can be ascertained with a degree of certainty as a sum which would exceed the sum of the amount which is the subject of the bankruptcy notice. For those reasons, it is my view that the application should be dismissed and I make the following orders:
(1)The application filed 22 January 2002 be dismissed.
(2)The applicant pay the respondent's costs of the application pursuant to order 62 of the Federal Court Rules.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 19 February 2002