De Angelis v Cusack - [2007] FMCA 1884

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DE ANGELIS v CUSACK

[2007] FMCA 1884

BANKRUPTCY – Application to extend time for compliance with bankruptcy notice – application for special leave to appeal to High Court – whether court has jurisdiction to entertain application to extend time – factors involved.

Bankruptcy Act1966: ss 41(6A)

Re Dalco;ex parte Dalco v Deputy Commissioner of Taxation (Cth) (1986) 67 ALR 605;
James v Abrahams (1981) 34 ALR 657
Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Re Baker; ex parte Baker v Staples [1995] FCA 15 September 1995

Applicant:

AGOSTINO DE ANGELIS

Respondent:

MARJORIE JOYCE CUSACK

File number:

BRG 334 of 2007

Judgment of:

Wilson FM

Hearing date:

12 October 2007

Date of last submission:

12 October 2007

Delivered at:

Brisbane

Delivered on:

16 November 2007

REPRESENTATION

Counsel for the Applicant:

Mr Christie

Solicitors for the Applicant:

Aitken Wilson Lawyers

Counsel for the Respondent:

Mr Coulsen

Solicitors for the Respondent:

Flower & Hart Lawyers

ORDERS

The application to extend time for compliance with the Bankruptcy Notice is dismissed.
The applicant shall pay the respondent’s costs of and incidental to that application to be taxed, if not agreed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 334 of 2007

AGOSTINO DE ANGELIS

Applicant

And

MARJORIE JOYCE CUSACK

Respondent

REASONS FOR JUDGMENT

On 12 December 2006 the respondent obtained default judgment against the applicant in the Supreme Court of Queensland in the sum of $640,442.15.
An application to set aside the judgment was unsuccessful, although the amount of the judgment was reduced to $504,234.91. An appeal to the Queensland Court of Appeal was dismissed on 28 September 2007. The applicant has filed an application seeking special leave to appeal to the High Court of Australia. It is not known when that application will be heard. The application for special leave was only filed on 12 October 2007.
In the meantime, the respondent, relying on the amended judgment in her favour, caused a bankruptcy notice to be issued. That bankruptcy notice was served on the applicant on 11 April 2007. Within the time for compliance with the bankruptcy notice, on 1 May 2007 the applicant filed an application in this court seeking an order that the bankruptcy notice be set aside. No particulars were given of the basis upon which the application was made. An interim order was also sought that the time for compliance with the bankruptcy notice be extended.
On 11 May 2007 an order was made by a Registrar that time for compliance with the bankruptcy notice be extended up to and including 31 August 2007. On that date a further order was made by a Registrar that time for compliance be extended up to and including 4 October 2007. On that date a further order was made by a Registrar that time for compliance be extended up to and including 12 October 2007.
The respondent opposed a further extension of time on two bases:
a)The court has no jurisdiction to further extend time. It was argued that because there were no longer proceedings on foot between the parties to set aside the judgment, the court did not have power, pursuant to s.41(6A) Bankruptcy Act1966 (“the Act”), to further extend time;
b)In the exercise of its discretion the court should not further extend time because the applicant’s prospects of obtaining special leave, and overturning the judgment in the respondent’s favour were poor. Further submissions were made on the exercise of the discretion, to which I refer below.
It is necessary to first deal with the jurisdiction to grant a further extension of time. Despite the interesting arguments presented as to whether an application for special leave to appeal to the High Court can amount to a proceeding to set aside a judgment, in my view it is unnecessary to resolve the dispute.
Section 41(6A) of the Act provides:
(6A) Where, before the expiration of the time fixed for compliance with the requirements of 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.
It is accepted that s. 41(6A) is the sole source of power to extend time for compliance with a bankruptcy notice: Re Dalco;ex parte Dalco v Deputy Commissioner of Taxation (Cth) (1986) 67 ALR 605; James v Abrahams (1981) 34 ALR 657. However, the subsection has two limbs, either of which is sufficient to enliven the court’s jurisdiction. Here the parties have focussed on subparagraph (a). However, it is clear that subparagraph (b) has been satisfied. The application to set aside the bankruptcy notice was filed within time. In my view, that is sufficient to invoke the court’s jurisdiction even if no application was made to set aside the judgment upon which the bankruptcy notice relies. That is also the view of the learned authors of Australian Bankruptcy Law and Practice, 5^th ed, Darvall & Fernon, at [41.6A.10].
It is of course one thing to conclude that the court has jurisdiction, but quite another to accede to the application to extend time. Having concluded that one of the prerequisites to jurisdiction in s.41(6A) has been fulfilled, it is an exercise of discretion whether to extend time for compliance with the bankruptcy notice. Section 41(6A)(c) of the Act is inapplicable because here the ground for extension of time is that there is on foot an application to set aside the bankruptcy notice. However, because the purpose of extending time is for the purpose of challenging the bankruptcy notice itself, the court must necessarily look at whether there are grounds for challenging the bankruptcy notice.
The applicant makes no complaint about the form or contents of the bankruptcy notice or as to service. The applicant’s attack on the bankruptcy notice is confined to an attack on the judgment upon which it is based. Therefore, the court is drawn back to a consideration of the merits of that attack, not as a jurisdictional matter, but as one of the factors to be considered in the exercise of the court’s discretion.
The proceedings brought against the applicant were as guarantor of a loan made to a company controlled by him. Default judgment was entered against him in the Supreme Court of Queensland. Before Byrne J, the arguable defence sought to be raised was that the guarantee was induced by misrepresentations. It was also sought to be argued that the interest claimed by the respondent was a penalty. Both the applicant and the respondent were cross examined. In the Court of Appeal McMurdo P recorded, at [4]:
“In his reasons for judgment, the judge noted that, as Mr De Angelis’s barrister correctly conceded, Mr De Angelis’s cross examination revealed that the alleged representations were not made out. In the light of that concession, the judge unsurprisingly concluded that Mr De Angelis had failed to demonstrate an arguable defence on the merits warranting the setting aside of the default judgment.”
At paragraph [8] her Honour said:
“Significantly, it was not seriously submitted that Mr De Angelis now has any meritorious defence to Ms Cusack’s claim”.
By this it was meant that any argument advanced by the applicant was technical. He sought to argue, in the Court of Appeal, that Byrne J had no power to vary the default judgment, and that the default judgment was wrongly entered (because the amount was excessive) and therefore ought to be set aside ex debito justitiae. Both arguments were rejected.
Muir JA at [17] said:
“As was remarked by the primary judge in the course of the hearing, the allegations of misrepresentations and reliance had an air of improbability about them. The appellant was cross-examined, briefly, in relation to the representations. The respondent was also cross-examined. After the conclusion of the evidence, the primary judge asked the appellant’s counsel if he was pursuing the application. He responded that he was, stating that he did not have instructions to do anything else but that he did not have any further submissions he wished to make. He accepted that, in the light of his client’s evidence in cross-examination, there was no substance in the case based on the alleged misrepresentations.”
In his application for special leave the applicant seeks to argue, for the first time, that the demand issued under the guarantee was defective, with the result that his liability to the respondent did not arise.
The applicant relies upon the observation in Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 that:
“a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided the appeal is based on genuine and arguable grounds.”
There is of course a difference to be drawn between an application for a sequestration order, and an application to set aside a bankruptcy notice. This is a distinction thought to be important by Lindgren J in Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264.
In Re Baker; ex parte Baker v Staples [1995] FCA 15 September 1995, Kiefel J considered whether to extend time in a case where there was an appeal, as of right, against the primary judgment. Relevantly, and in my view importantly, her Honour observed that on an application for a stay of the judgment counsel for the judgment creditor conceded that the appeal was arguable. That concession puts in context the balance of her Honour’s judgment, and in particular the passages relied upon by the respondent. Her Honour was faced with only one factor, the existence of a bona fide and arguable appeal. Given the concession made, it is difficult to see how her Honour could have done anything but extend time for compliance with the bankruptcy notice. Against the background I have identified, her Honour said:
“In such a case I can see no warrant for inquiring into the relevant merits of the grounds of the appeal and forming a view as to its outcome. I can think of sound practical considerations why that course should not be pursued, not the least of which is that what is presented to this court under the guise of this “factor” going to discretion is not even a fully argued case. If the grounds of appeal were hopeless and completely without merit then a finding could fairly readily be made that it is not an arguable appeal and indeed the view may be taken that it was not instituted bona fide but for the purposes, for instance, of delay.”
Her Honour thought that in assessing the prospects of success of any appeal, the court should restrict itself to deciding whether the appeal was arguable. This lead the applicant to submit that the mere fact of an arguable appeal in good faith and diligently prosecuted produces the consequence that an extension of time will be granted.
Lehane J took a different view in Byron v Southern Star Group Pty Ltd. His Honour thought that weight should be given to the factor that a stay of the judgment was neither requested nor granted.
I start with the uncontroversial proposition that the discretion to extend the time for compliance with the bankruptcy notice is at large. The first factor to consider is whether the judgment upon which the bankruptcy notice depends is susceptible to being set aside. In this case, the applicant has been unable to persuade the Supreme Court, at first instance, or on appeal, that he has any arguable defence to the respondent’s claim. There is a further added complication in that now the applicant must show not only is the judgment of the Court of Appeal arguably wrong, but also that he enjoys arguable prospects of obtaining special leave to appeal from the High Court.
Three grounds were identified as attracting a grant of special leave (although the special leave application was put before me, an outline of argument was not put before the court). First, it was said that Byrne J erred in varying the quantum of the judgment entered by default, in that he lacked power to do so. Secondly, it was said that the judgment entered by default was irregularly entered (because it was for an excessive amount), and so should be set aside ex debito justitiae. Both of these arguments have been comprehensively dealt with, and rejected. Both are arguments dealing with matters of procedure. It is highly unlikely that the High Court will grant special leave to debate matters of procedure. The third basis upon which special leave is sought relates to the notice of demand issued by the respondent. As earlier pointed out, this argument has not been raised either at first instance, or on appeal. The allegedly defective notice has not yet been put before the court. It is difficult to envisage the High Court either giving leave to adduce further evidence, nor granting special leave where the point is sought to be argued for the first time in the High Court.
In my view, nothing put before the court by the applicant persuades me that the application for special leave to appeal enjoys any prospects of success. Given that the applicant’s arguments (other than the argument concerning the notice, which was not put before me) have been comprehensively rejected by Byrne J, and by the unanimous judgment of the Queensland Court of Appeal, I conclude that in the unlikely event leave to appeal was granted, the appeal is unlikely to enjoy any reasonable prospects of success.
There are other factors that must be considered in the exercise of my discretion. The applicant has not adduced any evidence of other creditors, or of solvency. I therefore do not know whether the delay in determining the bankruptcy matters is likely to potentially prejudice other creditors. Any extension of time, to await the outcome of the special leave application, is likely to be of some length. Given the recency of its filing, the applicant was unable to advice the court of when the special leave hearing was likely to be listed.
Further, it is relevant, as observed by Lehane J in Byron v Southern Star Group Pty Ltd, that no stay of the judgment has been sought.
The respondent therefore has the benefit of a judgment for a significant amount, the execution of which has not been stayed. The applicant has unsuccessfully sought to challenge that judgment in an intermediate court of appeal. He now has to obtain special leave to appeal to the High Court. Given the special leave points identified, that application is, in my view, unmeritorious. In those circumstances, I decline to further extend the time for compliance with the bankruptcy notice. I am mindful of the fact that, should the applicant succeed in his application to set aside the bankruptcy notice, it will not matter that time for compliance with the notice has already expired.
Before me, the parties appeared to argue only the extension of time point, and did not fully address the application to set aside the bankruptcy notice. I will hear the parties as to how that application should now be dealt with.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 16 November 2007