Gullotti v Coad
[2007] FMCA 525
•11 April 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GULLOTTI v COAD | [2007] FMCA 525 |
| BANKRUPTCY – Application to extend time for compliance with Bankruptcy notice – appeal from and application for stay of judgment on which bankruptcy notice based – holding appeal – stay not heard – judgment appealed from ex tempore – nature of and sufficiency of reasons in ex tempore judgment – other relevant factors – application dismissed. |
| Bankruptcy Act 1966 (Cth), s.41(6A) and (6C) |
| Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Justice M Kirby, “Ex Tempore Judgments – Reasons on the Run” (1995) |
| Applicant: | PAUL GULLOTTI |
| Respondent: | RACHEL ANNE COAD |
| File number: | (P)PEG52 of 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 5 April 2007 |
| Date of last submission: | 5 April 2007 |
| Delivered at: | Perth |
| Delivered on: | 11 April 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr J G Kitto |
| Solicitors for the Applicant: | Kitto & Kitto |
| Counsel for the Respondent: | Mr G Douglas |
| Solicitors for the Respondent: | Hotchkin Hanly |
ORDERS
The application for interim orders extending time for compliance with the Bankruptcy Notice be dismissed.
The application to set aside the Bankruptcy Notice be listed for hearing at 10.15am on 18 May 2007.
That the Applicant file and serve:
(a)particulars of the grounds of the application to set aside the Bankruptcy Notice; and
(b)affidavits in support of the set aside application
by 4.00pm on 27 April 2007.
That the Respondent file and serve:
(a)particulars of the grounds of opposition to the application to set aside the Bankruptcy Notice; and
(b)affidavits opposing the set aside application
by 4.00pm on 7 May 2007.
That the Applicant and Respondent file and serve a written outline of submissions, and one copy of each authority to be relied upon, by 4.00pm on 11 May 2007.
That the Applicant debtor pay the Respondent’s creditor’s costs of the interim application hearing to be agreed, or if not agreed, taxed according to the Federal Court Rules (0.62).
FEDERAL MAGISTRATES |
(P)PEG52 of 2006
| PAUL GULLOTTI |
Applicant
And
| RACHEL ANNE COAD |
Respondent
REASONS FOR JUDGMENT
(As corrected)
(Revised from the Transcript)
The substantive application in this matter is an application to set aside a bankruptcy notice. There is also an application for interim orders for extension of time in which to comply with the bankruptcy notice. It is that application (“the Interim Application”) which is the subject of this judgment.
The matter was in the Registrar's list last Thursday morning, 5 April 2007. It was adjourned to a hearing before this Court at 2.15 pm on that day. The matter was urgent because time for compliance with the bankruptcy notice was due to expire at 4 pm that day. Having heard arguments from the parties on the Interim Application, the Court made orders to:
(a)extend time for compliance with the bankruptcy notice to 11 am on 11 April 2007 or until further order; and
(b)adjourn the matter for judgment to 10 am on 11 April 2007.
Various affidavits have been filed on behalf of the Applicant in support of the Interim Application. They are an affidavit of Johnson Grey Kitto sworn 23 March 2007 (“First Kitto Affidavit”); a further affidavit of Johnson Grey Kitto sworn 4 April 2007 (“Kitto’s Second Affidavit”); and an affidavit of Paul Gullotti sworn 4 April 2007 (“Applicant’s Affidavit”). An appeal has been filed with the District Court of Western Australia against the judgment and orders of the Magistrates Court of Western Australia made on 14 February 2007 (“Primary Action Judgment”). The reasons for the Primary Action Judgment were given ex tempore immediately upon conclusion of the submissions: Applicant’s Affidavit, Annexure PG1, pages 172-173 (being the transcript of those proceedings before the Magistrates Court of Western Australia – hereinafter “Transcript”).
Appeal grounds have been drafted. They are described as holding grounds with the right to amend them reserved: Kitto’s First Affidavit, annexure JGJK4 and paragraph 8. The Applicant's counsel, who is the deponent of the affidavit, endeavoured to submit that the appeal grounds were not holding, but conceded that they may require further amendment, and, in the course of argument with respect to the Primary Action Judgment, indicated that they were likely to be amended, having regard for the nature of that Judgment.
The Applicant's solicitor, who was also counsel before the Magistrates Court of Western Australia and on the hearing of the Interim Application, says that the appeal has merit: Kitto’s First Affidavit, paragraph 10 and submitted that the appeal was arguable.
The Respondent's solicitor says that there are no reasonable grounds for appeal: Kitto’s First Affidavit, annexure JGK3. The Respondent's counsel on the Interim Application made submissions to that effect.
The timetable, estimated in submissions by the Applicant's counsel, means that the appeal, and a cross-appeal filed by the Respondent, are not likely to be heard for four to eight months; that is, between August and December 2007. On that basis it is unlikely that there will be a decision on the appeal before the final quarter of 2007 or the first quarter of 2008.
An application to the District Court of Western Australia for a stay of the Primary Action has now been made, but made some time after the application in this matter was filed. The Court was informed by the Applicant's counsel that the stay is listed before a Registrar of the District Court on 20 April 2007. If the Registrar of the District Court does not then order a stay then it is estimated that the stay application is not likely to be heard before mid-June 2007 at the earliest: Kitto's Second Affidavit, paragraph 6.
The appeal to the District Court of Western Australia is a proceeding to set aside the Primary Action Judgment: Conway v Jackson (2001) 107 FCR 201 at 207 to 210 per Moore, Matthews and Mansfield JJ. The jurisdictional prerequisite in s.41 (6A) of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) has therefore been met.
This Interim Application is to be resolved by the exercise of the Court's discretion as to whether there ought to be an extension of time for compliance with the bankruptcy notice. Factors relevant to an exercise of this discretion (bearing in mind that there is not a closed list of factors) include those set out by this Court in McPhee v Glentham [2006] FMCA 1508 at para 19 and 20 per Lucev FM (“McPhee”), and adopted and applied in Morien v Johnston [2006] FMCA 1918 at para 10 per Lucev FM. In McPhee the Court said at paragraphs 19 and 20:
The discretion conferred is “at large”, subject to s.41(6C) of the Bankruptcy Act: Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at pp.270-271 per Lehane J (“Byron”). However, grounds must be shown: Conway at pp.206 and 210 per Moore, Matthews and Mansfield JJ.
Where proceedings to set aside a judgment debt and order have been instituted by way of an appeal factors to be taken into account when determining whether to exercise the discretion include:
(a) whether there is an arguable case on appeal;
(b) whether a stay of execution has been sought or
obtained;
(c) prejudice to the debtor;
(d) prejudice to the creditor and other creditors;
(e) the impact on the date of bankruptcy;
(f) the impact on any related legal proceedings;
(g) delay; and
(h) whether or not undertakings have been given, or conditions can be imposed, in relation to, for example:
(i) payment of monies on trust by the debtor;
(ii) non-disposal of assets by the debtor;
(iii) notification of significant expenditure by the debtor; and
(iv) further borrowings on real property owned by the debtor,
and the debtor’s ability to fulfil or comply therewith.
See Re Horwarth; ex parte Mortgage Acceptance Nominees Ltd (1993) 43 FCR 587 at pp.592-593 per Einfeld J; Valassis v Bernard [2001] FCA 477 per Beaumont J; O’Loughlin v Glenmont Investments Pty Ltd [2001] FCA 925 at par [17] and [19], per Mansfield J.
The existence of an appeal and the fact that there is or is not an arguable case are factors to be considered on an extension of time application: Byron at pages 270 - 271 per Lehane J. The Applicant asserts that there is an arguable case on appeal. The Respondent argues that is not the case. It is not appropriate for the Court to make a preliminary assessment of the merits of the appeal, but rather to simply form a view as to whether the appeal may be arguable or not: Elliott v Water Wheel Holdings Limited [2004] FMCA 37 at para 49 per McInnis FM (“Water Wheel”). An arguable case is but one factor in the overall assessment, Sidhom v Euphoric [2006] FMCA 827 at para 16 per Barnes FM (“Sidhom”). The Court notes that any appeal is unlikely to be determined before the last quarter of 2007 or the first quarter of 2008. The date of hearing of the appeal is also a factor to be weighed at this stage: Water Wheel at paragraph 61 per McInnis FM.
In relation to the appeal, two principal issues were argued before the Court last Thursday. They were, first, the learned Magistrate's decision with respect to liability; and, secondly, in the course of argument, a developing argument as to the allegedly inadequate reasons given in the ex tempore Primary Action Judgment. The latter is not a matter which has been presently pleaded as the Court reads the current appeal grounds. The Primary Action Judgment is at Transcript page 172. The Magistrate dealt with the issue of liability in the following terms:
“The issue as to who is liable. I accept the submissions made by the claimant's counsel in respect to the authorities pertaining to the need to a party to make known the - from the circumstances of the claimant in dealing with Gullotti, no reference by him to the existence of the company, no communication alluding to the company, the contract and intention when objectively assessed and the events that occurred, consistent indeed with the state of mind of Mr Gullotti at the initial stages of these proceedings that the claimant has shown that he had entered into the contract and is therefore liable for the outcome of it, and alternatively as an agent for an undisclosed principal, the principal being the entity Art Promotions Proprietary Limited.”
Art Promotions Proprietary Limited (“Art Promotions”) is a company of which Mr Gullotti, the Applicant, is a sole director and shareholder.
Submissions were made as to the law by the current Respondent before the Magistrate, in particular at Transcript pages 6 and 7 and passages were put to the Magistrate from the decision in HG Lyons & Sando Limited v Haulson (1963) SASR 29 (“HG Lyons”). At Transcript page 6 it was put to the Magistrate that:
“The prima facie position is that when a man orders work to be done, he impliedly undertakes to pay for it and if he desires to avoid the liability so undertaken by setting up that he was acting purely as agent for another person, he must have made that position clear to the other contracting party.” (HG Lyons at 31 per Chamberlain J)
And at page 7 from the same decision, there is a further quote:
“But what must be borne in mind is that in order to escape personal liability, the agent must do more than disclose the identity of the principal. He must make it clear that he is contracting on the principal's behalf and not on his own. No rule of law is better ascertained or stands on a stronger foundation than this, that where an agent names his principal, the principal is responsible, not the agent. But for the application of that rule, the agent must name his principal as the person to be responsible.” (HG Lyons at 31 per Chamberlain J)
Various evidence was referred to by both counsel in the course of Thursday's hearing and the Court has had regard to that, but in particular the Court has had regard to the transcript of Mr Gullotti's cross-examination at Transcript pages 112 through to 115, and to the fact that at the initial stages of the proceedings before the Magistrates Court of Western Australia, the Applicant identified himself as the sole defendant in those proceedings prior to the second defendant, which is Art Promotions, becoming involved. Also at Transcript 115, the Applicant concedes that he did not ever discuss with the Respondent in these proceedings (Ms Coad), the fact that she was doing business with a company, namely Art Promotions.
The ex tempore judgment of the Magistrate is very short. However, the essence of the decision is that the Magistrate has considered the relevant facts and the relevant authorities put to him by the current Respondent in its submissions and arrived at a decision which on the facts found appears to have been open to him on the authorities: HG Lyons at 31 per Chamberlain J; see also Re Heritage Business Systems Pty Ltd [1998] QSC 6.
As the Court indicated in argument on Thursday, it was initially concerned at the relative brevity of the judgment and the wholesale adoption of the submissions of the current Respondent. However, having considered the matter, the Court is of the view that as it was an ex tempore judgment, some allowance must be made for that fact: Justice M Kirby, “Ex Tempore Judgments – Reasons on the Run” (1995) 25 UWAL Rev 213 at 226 (“Kirby, Ex Tempore Judgments”). Also, the adoption of the submissions of one party is allowable provided that the submissions are properly attributed and the matter otherwise properly reasoned by the presiding judicial officer: contrast Moylan & Ors v The Nutrasweet Company & Ors [2000] NSWCA 337. That was done in this case. The Magistrate referred, albeit briefly, to the essential facts which were open for him to find and reached a finding based on an application of the proper authorities taken from the Respondent's submissions to those facts. Reasons need not be lengthy, provided they cover the essential facts, law and reasons: Kirby, Ex Tempore Judgments at 226; Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 145 at paras 28-29 per Steytler, Templeman and Simmonds JJ. The Court considers, in the context of a two day action in a magistrates court for a comparatively small sum, that the reasons in the Primary Action Judgment cover the essential facts, law and reasons, albeit only just.
In the Court's view, it is unlikely that there are arguable grounds of appeal, as the appeal is presently pleaded. That factor goes against an extension of time for compliance with the bankruptcy notice.
The principles concerning a stay of execution were summarised by this Court in McPhee at paras 27 to 29 per Lucev FM in the following terms:
“Where a stay has not been applied for that is a factor against extension of time: Byron at page 270 per Lehane J.
In the absence of other relevant factors it requires an exceptional case or at least quite special circumstances for time to be extended where no stay has been obtained: Sidhom at paragraph 35 per Barnes FM.
Where a stay has been applied for and granted that is a factor for extension of time: Jackson v Conway (2000) FCA 1530 at paragraphs 24 to 26. “
In this case no stay has yet been obtained. Apart from the materials concerning and what is said in relation to the arguability of the appeal, no other material which might have assisted the Court in determining whether there was an arguable case in the stay application was put before the Court. There is no precise indication of when the stay application might be determined. On a very best but not necessarily usual scenario it may be determined by a Registrar of the District Court of Western Australia, on 20 April 2007. More likely though, it will be determined in about mid-June 2007, some 10 to 11 weeks away.
The seeking or obtaining of a stay is again but one factor in the determination of an application for extension of time for compliance: Sidhom at paragraphs 33 and 35 per Barnes FM. However, in this case:
(a)a stay has not been obtained;
(b)very little material has been tendered which might assist the Court in determining whether there is an arguable case for a stay;
(c)the stay was not applied for before this application, including the application for interim orders was made, and indeed, not until seven or eight days after the matter had been before Registrar Stanley on 28 March 2007; and
(d)the hearing of the stay application most likely will not be held before mid-June 2007.
The stay factor is one which, in the Court's view, weighs, on balance, slightly against an extension of time.
Apart from the usual and obvious difficulties which are attendant upon an act of bankruptcy having been committed there is an absence of evidence of significant prejudice to the Applicant debtor in this matter. The evidence and submissions indicate that the Applicant must advise his creditors and/or creditors of the company, Art Promotions, of which he is sole director and shareholder, of the bankruptcy notice and these proceedings, and that both he and the company are reliant on ongoing credit facilities from the National Australia Bank, Westpac and BankWest: Applicant’s Affidavit at paras 4-6.
Counsel for the Applicant was, quite properly, very careful to eschew any suggestion that the bankruptcy notification alone would trigger adverse consequences, including the withdrawal of the Applicant’s and/or Art Promotions credit facilities. Indeed, it is said in the Applicant’s Affidavit that Art Promotions continues and can continue to trade profitably: Applicant’s Affidavit, paragraph 7. In those circumstances it appears that the issue of bankruptcy per se will only be an issue if and when, if ever, a sequestration order issues and triggers the foreshadowed adverse consequences for the Applicant debtor. This is not and may never be a matter in which a sequestration order issues: only time will tell in that regard.
The Court again cites the decision in McPhee at paras 35 to 37 per Lucev FM:
“Where there is an absence of evidence of irreparable damage to the debtor that is a factor against extension of time: Hovan v Goycolea-Silva [2003] FCA 234 at paragraph 9 per Emmett J.
The gravity of the commission of an act of bankruptcy is of a different and lesser order than that which flows from the making of a sequestration order: Byron at page 270 per Lehane J, Warner v Frost (1999) FCA 830 at paragraph 8 per Hely J and Sidhom at paragraph 34 per Barnes FM. The point is neatly encapsulated by Barnes FM in Sidhom at paragraph 36:
“However, as discussed, there is a clear distinction between the exercise of the discretion to extend the time for compliance with the bankruptcy notice and the question of whether to proceed with the hearing of a creditor's petition. This is not the hearing of a creditor's petition, the debtor's status would remain unaffected by a refusal to extend the time for compliance except that an act of bankruptcy would be committed at an earlier time than would be the case if the application for an extension of time were granted.”
Further, the Court notes that in the event that a creditor's petition is presented, the act of bankruptcy being its basis, the issuance of a sequestration order is not guaranteed. Adjournment of the petition pending the hearing and determination is a possibility: Warner at paragraph 9 per Hely J. An adjournment of the petition might also be granted on the basis of undertakings given or conditions imposed: Sidhom at paragraphs 2 and 30 to 31 citing the approach adopted by Allsop J in Shepherd v Chiquita Brands (South Pacific) Ltd [2001] FCA 1394.”
There is in this matter, in the Court's view, an absence of prejudice to the debtor beyond that which is normal when a bankruptcy notice issues. There is an absence of evidence of irreparable damage arising from a refusal to extend time for compliance with the bankruptcy notice. Those factors weigh against, or at least are not in favour of, an extension of time for compliance with the bankruptcy notice.
There is no particular evidence of prejudice to the Respondent as a creditor of the Applicant, other than what is normal in bankruptcy proceedings. There is evidence that there may be other creditors of the Applicant, namely the three banks referred to earlier in these reasons for judgment.
Generally, it is the case that to grant an extension of time would delay the time at which the act of bankruptcy occurs and that it is in the interests of creditors generally where a sequestration order ultimately follows that the act of bankruptcy be earlier, not later: Warner at para 8 per Hely J, because there are "potential adverse consequences" if the act of bankruptcy is delayed: Water Wheel at para 59 per McInnis FM. See also La Pegna v Deputy Commissioner of Taxation [2006] FMCA 1643 at para 27 per Lucev FM.
The most that can be said here is that it is in the interests of creditors, including the Respondent, that the act of bankruptcy be earlier, not later. That is a factor which is not in favour of an extension of time for compliance with the bankruptcy notice.
The issue of impact on the date of bankruptcy is sufficiently dealt with above and provides no sufficient reason to extend time.
The extension or non-extension of time for compliance with the bankruptcy notice will have no impact upon the hearing of the stay or the appeal from the Primary Action Judgment. Those proceedings will continue to be dealt with in the normal way even if an act of bankruptcy is committed. There is no effect on the Applicant until a sequestration order issues, if one ever does.
Therefore impact on related legal proceedings is no sufficient reason to extend time for compliance with the bankruptcy notice.
The appeal against the judgment and final order was instituted within a reasonable time. The application for a stay was not excessively delayed in its institution although not lodged until after this application was filed. On balance, delay tells neither for nor against extending time for compliance with the bankruptcy notice.
There is no evidence of undertakings or conditions either at all or which provides sufficient reason to extend time for compliance with the bankruptcy notice.
In conclusion, the Court has before it an Interim Application for an order for an extension of time to comply with the bankruptcy notice. There is a holding appeal. The appeal is one which the Court considers unlikely to be arguable as presently pleaded and taking into account the extempore nature of the Primary Action Judgment. There is an application for a stay but no stay granted. There is no evidence of particular prejudice to either the Applicant debtor or Respondent creditor or other creditors beyond that ordinarily associated with an act of bankruptcy apart from the usual interest of creditors in the act of bankruptcy being earlier not later. There is no evidence of impact on any related legal proceedings and no evidence of delay telling either for or against the Applicant and no relevant undertakings or conditions.
The Court, having weighed all of the available evidence and considered the evidence in light if the factors set out above, has concluded that the Interim Application for extension of time for compliance with the bankruptcy notice must be dismissed.
The Court adds that even if it had found the appeal to be arguable, the other factors would have prevailed and the result, that is, the dismissal of the Interim Application would have been the same. The Court has also had some regard for the fact that it will be able to hear the substantive application to set aside the bankruptcy notice within five weeks.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: M Hewitt
Date: 11 April 2007
Correction
The Counsel for the Respondent in the Representation section on page 2 of the Cover sheet and Orders was changed from “Mr S Pentony” to “Mr G Douglas”.
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