Dittes, v Clyde Industries Ltd

[1992] FCA 929

Re: VICKIE and FRITZ KARL DITTES
And: CLYDE INDUSTRIES LIMITED
Nos. B3066 and B3067 of 1992
FED No. 929
Number of pages - 9
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Einfeld J.(1)

CATCHWORDS

Bankruptcy - whether the Court has jurisdiction to extend time for compliance with bankruptcy notice where an appeal instituted against judgment in respect of which bankruptcy notice is issued - whether an appeal is a proceeding to set aside judgment

Bankruptcy Act 1966 ss 33(1)(c), 41(6A)(a),(b), 41(6C)

Re Lentini ex parte Lentini and Another v CSR Limited trading as The Readymix Group (1991) 29 FCR 363

Clyne v Deputy Commissioner of Taxation (NSW) (1982) 42 ALR 203

Lipov v Alexander Fraser and Son Ltd (1978) 36 FLR 126

Re Sterling ex parte Esanda Ltd (1980) 44 FLR 125

James v Abrahams (1981) 51 FLR 16

Re Taylor ex parte Deputy Commission of Taxation (1983) 74 FLR 377

Re Maddox Neaves J unreported 12 May 1987

Bond v Hong Kong Bank of Australia Foster J unreported 24 October 1991

HEARING

SYDNEY

#DATE 10:12:1992

Counsel and solicitor Mr D. Williams instructed by
for the applicants/debtors Mr Alan Jessup

Counsel and solicitor Mr Angyal instructed by
for the creditor/respondent Gilbert and Tobin Solicitors

ORDER

1. The application for extension of time to comply with the bankruptcy notice in each case is granted.

2. The applications to set aside the bankruptcy notices are adjourned to a date to be fixed after the Court of Appeal of the Supreme Court of New South Wales delivers judgment.

3. Orders 1 and 2 are conditional upon the appeal being prosecuted expeditiously.

4. The debtors are to pay the creditor's costs of the applications to extend time.

5. All other costs are reserved to the hearing of the applications to set aside the bankruptcy notices.

6. Liberty to apply after the Court of Appeal delivers judgment or beforehand if order 3 is not being complied with.
Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.

JUDGE1

EINFELD J. On 19 June 1992 summary judgment was given, and on 22 July 1992 it was entered, in the Supreme Court of New South Wales in favour of the respondent Clyde Industries Limited (creditor) against the applicants Fritz and Vickie Dittes (debtors). The judgment, which had been reserved following a contested hearing before Justice Cole, was stayed for 28 days by Justice Giles pending an appeal. On 9 July 1992 an appeal to the Court of Appeal was lodged. There are 18 grounds of appeal although many are repetitious. No further stay has been sought or granted. On 12 August 1992 bankruptcy notices were issued against the debtors out of this Court, the amount said to be owed by Fritz Dittes being $589,975.82 and by Vickie Dittes $226,547.62.

1. By applications filed on 8 September 1992, the debtors sought orders extending the time for compliance with the bankruptcy notices to a date 21 days after the Court of Appeal's judgment. This is not expected for about 12 months. On 8 September time for compliance was extended by a registrar to 15 September 1992 on which date the matter came before me to hear applications by the debtors for a further extension. The applications were opposed on the grounds that subsection (6A)(a) of section 41 of the Bankruptcy Act limits the basis on which extensions of time may be granted. The subsection provides:
   

Where, before the expiration of the time fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice -

(a) proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

(b) an application to set aside the bankruptcy notice has been filed with the Registrar, the Court may, subject to sub-section (6C), extend the time for compliance with the bankruptcy notice.

1. The creditor's argument is that an appeal from the judgment of debt on which the bankruptcy notice is based is not a proceeding to set aside the judgment. If that is the case, the debtors' application as presented could not have succeeded. Hence when the matter came before the Court on 15 September 1992, the debtors, without conceding the point, sought an amendment to the application to add a request for the bankruptcy notice to be set aside and asked for that application to be adjourned until after the Court of Appeal gives judgment. The amendment was sought to enable the debtors to rely if necessary upon section 41(6A)(b) which the creditor does not dispute would empower the Court to extend time for compliance. The amendment was not in truth opposed.

2. In the circumstances and for the reasons explained in my judgment of that date, I allowed the amendment and extended time for compliance until this judgment on the application based on section 41(6A)(a). Without that extension of time, an act of bankruptcy would have been committed by the debtors. By section 33(1)(c) the time for compliance with a bankruptcy notice has, since 1980, been expressly excluded from the general provision permitting extension of times under the Act: James v Abrahams (1981) 51 FLR 16.

3. In Lipov v Alexander Fraser and Son Ltd. (1978) 36 FLR 126, Justic e Sweeney thought that an appeal was a sufficient basis for extending time for compliance but that was before the 1980 enactment of section 41(6A) and the restriction of section 33(1)(c). In Re Sterling ex parte Esanda Ltd (1980) 44 FLR 125, Justice Lockhart held that the Court's power to extend time could only be exercised where the proceedings said to energise the power were taken within the time fixed for compliance with the notice. His Honour held further that whatever the energising proceedings, the applicants must show an arguable case on the merits.

4. However, Re Lentini ex parte Lentini and another v CSR Limited trading as The Readymix Group (1991) 29 FCR 363 is the case principally relied on by the creditor here. It was argued in Lentini that an appeal against a judgment of the Australian Capital Territory Supreme Court on which a bankruptcy notice was based is a proceeding to set aside the judgment within section 41(6A)(a). In rejecting that proposition, Justice Neaves applied his own previous decision in Re Maddox, unreported 12 May 1987, in which he had said:
   

In reliance upon s 41(6A)(a), it is submitted that the institution of the proceedings in the Supreme Court by way of appeal against the judgment of the Magistrates Court is properly to be considered as the institution of proceedings to set aside the judgment in respect of which the bankruptcy notice was issued. It is further submitted that, as the appeal was instituted before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, the condition precedent to the exercise of the court's discretion under that provision is established. I am unable to accept this submission. The language of s 41(6A)(a) is clearly apt to refer to proceedings by a judgment debtor in the court where judgment was entered against him to have the judgment set aside. What the provision contemplates is an application to have the court by which the judgment was pronounced revoke the expression of its coercive power where there has been a failure to follow the rules of procedure or where there is shown to be some defect or irregularity or some other circumstance which renders it desirable that the debtor should be given an opportunity to have the issue further litigated. It may be that, the language of the provision is not, in my opinion, apt to refer to proceedings which are properly characterised as an appeal from the judgment in respect of which the bankruptcy notice was issued.

1. Accordingly his Honour held that the application for an extension of time for compliance could not be granted. However, the debtors then sought to have their application for extension to await the appeal considered as an application to set aside the bankruptcy notice on the grounds that the applicants' appeal disputed the correctness of the judgment upon which the bankruptcy notice was founded.

2. Despite the fact that there was "certainly no material before the court that would justify the making of an order setting aside the bankruptcy notice", Justice Neaves thought it proper to treat it as such an application even though it was on "unspecified grounds". Assuming that the appeal was bona fide, that it raised arguable issues and that it was being pursued expeditiously, his Honour adjourned the application to await the appeal and extended the time for compliance in the meantime.

3. While I accept that the terminology of "appeal" and "proceedings to set aside judgment" is distinct, as I see the position, there are with respect some conceptual problems with the conclusion of Lentini that the two are not interlocked in this section of the Act. First of all is the principle stated by Justice Lockhart in Clyne v Deputy Commissioner of Taxation (NSW) (1982) 42 ALR 703 at 708 where his Honour said, in dealing with the power to set aside bankruptcy notices:
   

A bankruptcy notice is the foundation of a bankruptcy and involves quasi-penal consequences. The court must be able to supervise bankruptcy notices at all stages of their existence. If an alternative source of power were needed, however, it would be found in the court's inherent jurisdiction. In my opinion fairness requires that the bankruptcy notice be set aside.

1. Secondly, the first order sought in almost every appeal is that the first instance judgment be set aside. Thirdly, as a general rule, appeals are more substantial and difficult proceedings than applications to set aside judgments. To be successful, appeals mostly require either errors of law, substantial errors of fact or major miscarriages of discretion. Applications to set aside more often turn on procedural error, the availability of fresh evidence, or the fact that the judgment was obtained ex parte when a defence was intended and available. It would be strange indeed if the legislature had intended that time for complying with bankruptcy notices could be extended for the easier less substantial proceeding but not when the debtor could show an arguable serious miscarriage of justice that may herald a successful appeal and an overturning of the verdict.

2. Furthermore, the provisions of subsection (6C) of section 41 would generally be unnecessary if an appeal was not contemplated, viz:
   

Where -

(a) a debtor applies to the Court of the Registrar for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and

(b) the Court or the Registrar, as the case may be, 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 or the Registrar, as the case may be, shall not extend the time for compliance with the bankruptcy notice.

1. This is because what are generally contemplated as applications to set aside judgments are normally summary affairs which depend on speed to have much chance of success.

2. The alternative argument is that after a full hearing below, the parliament intended that the unsuccessful debtor should not be able to frustrate the creditor from the spoils of victory by the delays involved in an appeal. This concept was not put to Justice Sheppard in Re Taylor ex parte Deputy Commission of Taxation (1983) 74 FLR 377, where his Honour assumed that an appeal from the judgment debt was within section 41(6A)(a) but was so unimpressed by the cogency of the appeal in the particular case and by the rest of the debtor's conduct in the matter that he declined to exercise the discretion to extend time.

3. I respectfully agree with Justice Sheppard that unless the matter is very obvious, the Bankruptcy Court should not be asked to consider the correctness of the judgment under appeal and I have not done so here. The matter does not turn only on the presence or absence of formal evidence. It would for example be unlikely that a case could be made out if a solicitor filed an affidavit saying that counsel had advised that the appeal had reasonable prospects of success but not if the same counsel said so from the bar table without such an affidavit being filed, as here. If it was necessary for the debtor to present an affidavit of facts indicating that the judgment below was erroneous, it would invite a type of mini-retrial of the matter.

4. Furthermore, when a contested case is disposed of summarily as with this judgment debt, a further issue intervenes as to whether the matter should have been allowed to go to trial. To the very limited extent that I have looked at the matter, all I need to say is that the appeal appears substantial both as to the matter in issue and as to whether the case should have been disposed of summarily. The creditor did not really argue to the contrary.

5. In view of the amendment to the application, it is not necessary to determine whether the original unamended application could permit the extension of time - that is whether an appeal is a proceeding to set aside a judgment. This is because there is no doubt that time can be extended under the amended application.

6. Since the hearing in this matter, my attention has been drawn by counsel for the creditor to an ex tempore decision by Justice Foster in Bond v Hong Kong Bank of Australia unreported 24 October 1991. Like Justice Sheppard in Taylor, his Honour seems to have assumed that the institution of an appeal provides jurisdiction for an order under section 41(6A)(a) although the matter was not argued and his Honour's attention was apparently not drawn to Lentini. I must say that if forced to do so now, I should be inclined to take the same view.

7. Conditional upon the appeal being prosecuted expeditiously, I grant the application for extension of time to comply with each of the bankruptcy notices and adjourn the applications to set them aside until a date to be fixed after the Court of Appeal's judgment is published. The debtors will pay the creditor's costs of the applications to extend time. All other costs will be reserved to the hearing of the applications to set aside the bankruptcy notices.