Duckworth, N.J. v Lockett, A.K.

[1987] FCA 251

2s I

III THE FED!ZkAL CWJET OF AUSTRALIA

)

IiESTEhM AUSTRALIA DISTRICT REGISTRY

I NO. NAG 29 OF 1987

l

I;XJERAL rmrsxotJ

1

ON APPEAL from a sinFle

judqe of the Federal Court

af Australia

- BETWEEN :

EEIL JklES JOHN DUCKWORTH

Appellant

&AN KWIN LOCKEIT and

ELIZABETH EVELYN LOCKETT

Respondents

MINUTE OF ORDER

JUDGES MAKING ORDER:	FOX, JENKINSON AND	WILCOX JJ.
DATE OF ORDER:	22 MAY 1987
WHERE MADE:	Perth.

COURT ORDERS THAT:

L.	The appeal be dlsmlssed.
&.	Tl~e reswondents costs of an1 d il widental to the appeal

be Laxed and pald out of the estate of the appellant

21th the prlorlty uiven by the Act to the costs of the

petitioning credltor.

Note: Settlement and entry of orders 1s dealt wlth In

Order 36 of the Federal Court Rules.

-	IN THE FEDERAL COURT OF AUSTRALIA	1
)
WESTERN AUSTRALIA DISTRICT REGISTRY	) NO. HAG 29 of 1987
)

DIVISION	GENERAL	)
ON APPEAL from a single
judge of the Federal Court of Australia
BETWEEN:
NEIL JAMES JOHN DUCKWORTH

Appellant

m:

ALAN KEVIN LOCKEIT and

E_LIZABETH EVELYN LOCKEIT

Respondents

CORJibJ:	FOX, JENKINSON AND WILCOX JJ.
DAD-:	2 2 MAY 1987

REASONS FOR JUDGMENT

THE COURT:

This is an appeal from the making of a sequestration

order against the estate of the appellant by a judge of this

Court (French J. ) .

On 30 April 1986 the respondents obtained a default

judgment in the District Court for $21,583.12 against the

appellant.

On 2 0 June 1986 a bankruptcy notice issued on the

application of the respondents requirinq the appellant to pay the

amount of the judgment debt to the respondents within 14 days of

2 .

the service of the notlce on him.

The bankruptcy notlce was served on the appellant on 11

September 1986.

On 25 September. within the tune allowed, the appellant

filed an affldavlt in which he asserted that he had a

counter-claim aaalnst the respondents for $23,000, plus interest. This affidavit related to para. 40(l)(g) and sub-S. 41(7) of the Bankruptcy Act 1966 which provide as follows:-

"40.(1) A debtor commit6 an act of bankruptcy in each

of the following cases:-

...

(4) if a creditor who has obtained against the

debtor a final judgment or final order, being a judgment or order the execution of which has

not been stayed, has served on the debtor m

Australia or, by leave of the Court,

elsewhere, a bankruptcy notice under this Act

and the debtor does not -

(1) where the notice was served in Australia

- within the time fixed by the Reglstrar

by whom the notice was issued; or

(ii) where the notice was served elsewhere -

within the time fixed for the purpose by

the order giving leave to effect the

service,

comply with the requirements of the notice or

satisfy the Court that he has a counter-claim,

set-off or CKOSS demand equal to or exceeding

the amount of the judgment debt or sum payable

under the flnal order, as the case may be,

being a counter-claim, set-off or cross demand

that he could not have set up in the action or

proceeding in which the Judgment or order was

obtained;

...

41.(7) Where, before the expiration of the time fixed

for compliance with the requirements of	a
bankruptcy notice, the debtor has filed with

the Reuistrar an affidavit to the effect that

3 .

he has such a counter-claim, set-off or cross

demand as is referred to ln paragraph

40(l)(g). and the Court has not, before the

expiration of that time, determined whether it

is satisfied that the debtor has such a counter-claim, set-off, or cross demand. that time shall be deemed to have been extended,

immediately before its expiration, until and

includina the day on which the Court

determines whether It is so satisfied."

No matter of proof was then proffered.

On 7 October 1986 the respondents filed a petitlon

seeklng a sequestration order agalnst the appellant's estate.

On 4 December 1986 the appellant filed a notice of

intention to oppose the respondents' petition and an application

to have the bankruptcy notice set aside and the time for

compliance with the bankruptcy notice extended pending the

hearlnu of the application. This application related to sub-ss.

41(6A) and (6C) of the Act, which provide as follows:-

"41(6Al 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 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-sectlon (6C),

extend the time for compliance wlth the

bankrutpcy notice. I'

..

(a) a debtor applies to the Court or the

Registrar for an extension of the time

for complying with a bankruptcy notice on

the ground that proceedings to set aside

4 .

the judgment or order in respect of whlch

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 Iudgment 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.”

When the matter came on for hearing before us, three of

the grounds of appeal were abandoned. Those remaining are as

f 0llows : -

“5. The learned trial judge was wrong In the exercise of his

discretion in not grantinq an adjournment of the

proceedings upon the application of the appellant

(debtor) made on the grounds that relevant documentation

was not presently available to show the true nature and

extent of the appellant‘s (debtor‘s) set off.

6 . The learned trial judge was wrong in the exercise of his

discretion in holding that there was no set off because
of paucity of evidence when the appellant’s (debtor’s)
evidence was that relevant documents which would
substantiate his claim were presently unavailable but obtainable.
7 .	The learned trial judge was wronu in law and in the
exerclse of his discretion in making a sequestration
order in circumstances where the evidence was sufficient

to show that the amount owing by the appellant (debtor)

to the respondent (creditor) was less than the sum of

$1.500.00.”

So far as relevant the trial judge decided as follows:-

(i) The appellant‘s counter-claim was not one to which

para. 40(l)(g) and sub-sectlon 41(7) applied;

because

(a) there was insufficient evidence of the

5.

existence of the counter-claim, and

(b) in any event, the appellant had expressly

stated ln his affidavit that he could have

asserted the counter-claim in the District

Court, but failed to do	so because of pressure
of work.

Accordingly, the appellant had committed an act of

bankruptcy ln failing to comply with the bankruptcy

notice (para.40(l)(g)).

(ii) It was not necessary to decide whether or not the

Court had power to extend time to comply with the

bankruptcy notice where failure to comply had

already led to an act of bankruptcy, because the

discretion under sub-section 41(6A) should in any

event be exercised against the appellant due to his

dilatoriness.

(iii) Due to the appellant's dilatoriness, the discretion

not to make a sequestration order against the

debtor's estate, but instead to allow him time to

litigate the issue asserted, would not be exerclsed

in his favour and the order would be made.

The debt for which judgment was signed arose under a

deed executed on 24 December 1984. This deed was not in the

orlginal appeal papers but a copy of it, as tendered before the

learned judge, has been added by consent. Under it the appellant

agreed to pay $21.000 to the respondents by 21 January 1986. Two

affidavits sworn by the appellant, as well as a substantial body

of his oral evidence, were before his Honour. The appellant

6 .

asserted that the deed did not represent the position or the

obligations of the parties but was intended for use by the

respondents in obtaininu credit. The partles had been friends

and had been involved touether in the activities of a number of

companies. As we understand it, the substance of what is said by

the appellant is that the deed was a sham, if not in fact a

fraud. He said that there was not a debt, and never had been.

A surprisin? aspect of the whole matter is that the

appellant did not initiate any court proceedings or pursue a

denial of the debt. His concern has been with an alleued set off

or counter-claim arisinu, as it is said, from moneys lent o the

respondents. or paid for their benefit. In the District Court

the judument aaainst him was in default of appearance. He twice

applied to be let in to defend, but did not on either occasion

file an affidavit in support, and the applications were

dismissed. His notice of intention to oppose the bankruptcy set off, or counter-claim. His interest at that time was to show

petition referred to a set off, but not to a denial of the debt.

that he had at least the beginnings of a substantial claim

against the respondents. He wanted further time to establish

this, with a view apparently of getting the time for compliance

with the bankruptcy notice extended, or at least in order to show

that on a balance the amount of the debt was less than $1500. In

his evidence he gave a rambling account of moneys said to be

owing by the respondents and some documents were tendered, but he

could only mention figures arnountina to $9000.

7.

On 23 September 1986 the appellant had taken out a writ

in the District Court at Perth whlch was Indorsed as follows:

"The plaintiff's claim is for

(a) The sum of $23.000 belng monles paid by the

Plaintiff on behalf of the Defendants to various

creditors by way of repayments on loans taken out

by the Defendants and further monies owing to the

Plaintiff by way of loans advanced by the Plaintiff

to the Defendants and which monles are due and

owlnu to the Plaintiff.

(b) Interest on the said sum of $23,000.00 pursuant to

Section 32 of the Supreme Court Act."

Althouuh there was an appearance to the writ no

statement of claim was filed, nor any further step taken	to
prosecute the action.

It seems likely that if his Honour had granted an

adjournment of the hearing of the petition in order that

the

appellant's counter-claim could be litigated In the District

Court that that Court would not have entertained any further

apallcation for him to be let in to defend or to file a

counter-clalrn against the default judgment. The appellant had

himself filed a claim in the District Court but has not

prosecuted It and if his Honour had granted an adjournment on

condition that the claim be prosecuted with diligence it might

well have been that this would only have led to further delay and

no result. It could well have appeared to his Honour that if he

decided to entertain the dispute himself this would be a long

dram out and unsatisfactory process.

The allegation that the deed was in effect a sham and

that the debt did not exist was a serious allegation and in some

8.

circumstances his Honour mqht have found it approprlate to

explore that matter further. However, the appellant seems

himself to have been ambivalent about the matter. He claimed he dul not ever owe anv money under the deed and that i was entered

lnto in circumstances I have stated. but at the same time did not

seem to resist the claim based on it. provided only that he could

estsbllsh hls own claim for moneys paid to or for the

respondents. The situation to which he deposed is indeed a very

confused one but In all the confusion there is a deed, on its

face reuularly entered Into. whlch is quite clear In what it

says.

It is well established that an appellate court will not

interfere with the exercise of discretion by a Judge unless

satisfied there was some error. In the present case, several

discretions came Into play. but we cannot say i n relation to any

of them that his Honour was wrona. Dilatoriness and confusion

had existed for so lonu that his Honour was quite entitled to

take the vlew that the application for more time to comply with

the bankruptcy notice should be refused and that	a sequestration
order should be made forthwith.

When the trustee becomes possessed of the relevant

documents he may, or may not, feel that the District Court action

commenced by the appellant should be pursued or that some other

course should be taken either in relation to the amounts claimed

by the appellant or to the debt to the respondents.

The appeal should be dismissed and the respondents'

. 9.

costs be taxed and paid out of the appellant's estate.

I certify that this and the

eight (8) preceding pages are

a true copy of the Reasons

for Judgment herein of the

Dated: 22 May 1987

Counsel for the Appellant:	Mr D.R. Clyne
Solicitors for the Applicant:	Messrs. Malone Dziecol . E Co.
Counsel for the Respondents	Mr S . R . Paterniti
Solicitors for the Respondents:	Messrs. Parker & Parker
Dates of hearinu:	19, 2 0 May 1987
Date judqnent delivered:	2 2 May 1987