Harrison v Schipp - [2001] FMCA 70

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HARRISON v SCHIPP [2001] FMCA 70

BANKRUPTCY – Application to set aside bankruptcy notice and for an extension of time – whether equity proceedings based on alleged new evidence is a proceeding to set aside the judgment upon which the bankruptcy notice was based – whether those proceedings commenced bona fide – prospects of success of those proceedings considered – considerations relevant to the exercise of the Court’s discretion to extend time for compliance with the bankruptcy notice – whether the identity of the applicant as a public figure is a relevant consideration.

Bankruptcy Act 1966 (Cth), ss.30, 41(6A), 41(6C)
Corporations Law, s.459E
Local Government Act 1993 (NSW), s.234(e)
Supreme Court Act (1970) (NSW), s.75A(7)
Supreme Court Rules

Atkinson v Oakleigh Holdings Pty Ltd [2000] FCA 1547
Boylan v Farthing and Anor (unreported, Federal Court of Australia, 23 October 1998, per Mansfield J)
Brunningshausen v Glavanics (unreported, Federal Court of Australia, 3 March 1998, per Emmett J)
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Charles Bright & Co Limited v Sellar [1904] 1 KB 6
Conway v Jackson [2001] FCA 230
Council of City of Greater Wollongong v Cowan (1955) 93 CLR 435
In re Sant Nazaire Company (1879) 12 ChD 88
McDonald v McDonald (1965) 113 CLR 529
Munro Schneider Associates (Inc) & Anor v No 1 Raberem Pty Ltd & Ors
(No 2) (1992) 37 FCR 234
Pak Sun Liew v JNS Technologies (unreported, Federal Court of Australia, 18 October 1999, per Kenny J)
Re Barrel Enterprises & Ors [1972] 3 AllER 630
Re Lentini; ex parte Lentini v CSR Limited (1991) 29 FCR 363
Umina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454

Wentworth v Rogers (No 5) (1986) 6 NSWLR 534

Applicant:

GEORGE ANDREW HARRISON

Respondent:

DELCIE JOAN SCHIPP

File No:

SZ 384 of 2001

Delivered on:

4 September 2001

Delivered at:

Sydney

Hearing Dates:

22 and 23 August 2001

Judgment of:

Driver FM

REPRESENTATION

Counsel for the Applicant:

Mr J Chippindall

Solicitors for the Applicant:

Mr S Drummond
Blake Dawson Waldron

Counsel for the Respondent:

Mr J Hennessy

Solicitors for the Respondent:

Mr M Addison
Dibbs Baker Gosling

ORDERS

The application is dismissed.
The applicant is to pay the respondent’s costs of the application, including any reserved costs. Those costs are payable pursuant to Rule 21.10 of the Federal Magistrates Court Rules, and for the purposes of Rule 21.15 the Court certifies that it was reasonable to employ an advocate to appear in the proceeding.
Settlement and entry of these orders may be effected pursuant to Order 36 of the Federal Court Rules.
Orders 1 and 2 are stayed until 18 September 2001.
Pursuant to section 41(6A) of the Bankruptcy Act 1966 (Cth), time for compliance with the bankruptcy notice is extended until 18 September 2001.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SZ 384 of 2001

GEORGE ANDREW HARRISON

Applicant

And

DELCIE JOAN SCHIPP

Respondent

REASONS FOR JUDGMENT

Introduction

This is an application by GEORGE ANDREW HARRISON seeking an order that bankruptcy notice number 1375/01 served upon him on

24 June 2001 be set aside pursuant to s.30 of the Bankruptcy Act 1966 (C’th) (“the Bankruptcy Act”) and for an order that the time for compliance with the bankruptcy notice be extended pursuant to s.41(6A) of the Bankruptcy Act. The application is opposed by the respondent Delcie Joan Schipp.
The bankruptcy notice is founded upon a judgment in proceedings between the present applicant and respondent, and others. Those proceedings arose out of the involvement of Mrs Schipp in various ventures with which she was associated with Mr Harrison and Mr D R Cameron (who is a deponent in these proceedings) and their corporate entities. The proceedings arose out of the development of two properties, one at Mary Street, Thirroul and one at Kembla Street, Wollongong. The proceedings were bitterly contested and were heard by his Honour Einstein J of the NSW Supreme Court over a period of some 35 days. Judgment was delivered on 17 June 1998 and was a judgment of 340 pages in length. The judgment effectively found that Mr Cameron and his company and Mr Harrison and his company were guilty of unconscionable conduct and breach of fiduciary duties and that they had exercised undue influence over Mrs Schipp. The trial judge eventually directed the entry of judgment against Mr Harrison, his company and Mr Cameron and his company.
The undisputed facts are as follows:
·on 24 December 1991 the respondent commenced proceedings number 6425 of 1991 in the equity division of the Supreme Court of New South Wales (the Schipp proceedings) to which the applicant was joined as the third defendant;
·on 9 September 1998 the first to fourth defendants in the Schipp proceedings were ordered to pay the respondent in those proceedings $230,880.04 by way of equitable compensation, interest in the sum of $394,526.81 and costs on an indemnity basis;
·on 17 December 1998 the applicant and the fourth defendant in the Schipp proceedings appealed to the New South Wales Court of Appeal (“the appeal”);
·the appeal primarily addressed findings of fact by the trial judge that Mr Harrison and Mr Cameron were unreliable and dishonest witnesses and that the plaintiff, Mrs Schipp, gave evidence that was primarily true and acceptable;
·on 20 February 2001 the Court of Appeal dismissed the appeal except in relation to the indemnity costs order;
·on 21 June 2001 Emibarb Pty Limited (“Emibarb”), the fourth defendant in the Schipp proceedings, was served with a statutory demand pursuant to s.459E of the Corporations Law seeking payment of $687,662.23 in respect of judgment obtained in the Schipp proceedings together with interest;
·on 12 July 2001 Emibarb commenced proceedings in the Supreme Court of New South Wales for the statutory demand served on it to be set aside (the Emibarb proceedings);
·on 17 August 2001 the application by Emibarb in the Emibarb proceedings was dismissed by the Supreme Court with costs;
·Emibarb has given instructions to its solicitors to appeal from that decision and, since I heard this application, an appeal has been filed;
·the applicant and Emibarb have commenced further proceedings in the Supreme Court of New South Wales Equity Division (proceedings number 3533 of 2001) (the current equity proceedings) and, by statement of claim, are seeking to set aside the judgment in the Schipp proceedings and the appeal on the grounds that:
(a)fresh facts have been discovered which are of such probative value and significance that, taken with the evidence already given at the trial, they will in all probability be decisive of the issues between the parties in the Schipp proceedings in a sense opposite to that of the verdict.
(b)the fresh facts, either by themselves or in combination with evidence given at the trial:
(i)establish or tend to establish that evidence given by the plaintiff in the Schipp proceedings was false and/or unreliable;
(ii)establish or tend to establish that evidence given by Brian Baird, who was the solicitor for Mrs Schipp, was unreliable;
(iii)establish that Mrs Schipp was not a reliable and honest witness; and
(iv)establish that Mr Baird was not a reliable witness.
(c)the false and/or unreliable evidence of Mrs Schipp and the unreliable evidence of Mr Baird tainted the findings of the trial judge and the orders against the third and fourth defendants in the Schipp proceedings and the appeal.
(d)alternatively, as the findings of the trial judge against the third and fourth defendants in the Schipp proceedings rested on his Honour’s acceptance of Mrs Schipp and Mr Baird as reliable and honest witnesses, and the fresh facts established that Mrs Schipp was not a reliable and honest witness and Mr Baird was not a reliable witness, the interests of justice require that the Court set aside the orders against the third and fourth defendants in the Schipp proceedings and the appeal.
·on 11 September 1999 the applicant was elected Lord Mayor of Wollongong for a term of four years. If he becomes a bankrupt he will be disqualified from continuing in that office by s.234(e) of the Local Government Act 1993 (NSW).

The applicant’s case

The applicant relies upon the following affidavits filed in support of his application:
·the affidavits of George Andrew Harrison, sworn on 12 July 2001 and 22 August 2001;
·the affidavit of Donald Ross Cameron, sworn on 21 August 2001;
·the affidavit of Robert Owen Bourke, sworn on 21 August 2001;
·the affidavit of Barry Murphy, sworn on 22 August 2001; and
·the affidavit of John Peter Comelli, sworn on 21 August 2001.
No objection was taken to these affidavits and the deponents were not cross-examined.
The applicant’s case is that fresh evidence has come to light which would justify this Court going behind the judgment in the Schipp proceedings and the judgment in the appeal and that, because of the fresh evidence, it would be unsafe for this Court to rely upon the judgments in the Schipp proceedings and the appeal as supporting the bankruptcy notice. On that basis, the applicant seeks orders that the bankruptcy notice be set aside and in the interim, or in the alternative, that the time for compliance with the bankruptcy notice be extended until the current equity proceedings have been dealt with. The applicant has tendered a substantial volume of material which comprised submissions and evidence in the Schipp proceedings or in the appeal. Included in that material is a chronology prepared by the applicant as the appellant in the appeal, which usefully draws attention to the disputed findings of the trial judge, his Honour Einstein J, which are further raised in the current equity proceedings.

Appellants’ chronology

DATE	EVENT	DISPUTED FINDINGS OF TRIAL JUDGE
Late 1986	Mrs Schipp receives $360,000 property settlement following her divorce.
Dec 1986	Mrs Schipp purchases home unit at Smith Street, Wollongong, through Mr Cameron as agent for vendor.
17.10.87	Mr Cameron first speaks with Mrs Schipp about Mary Street.	Mr Cameron first spoke with Mrs Schipp about Mary Street in approximately late October or early November.
A few days later	Mr Cameron and Mrs Schipp inspect Mary Street.
About 30.10.87	Mr Cameron and Mr Harrison and Mrs Schipp (“the parties”) inspect Mary Street.	This occurred within a week or so of the initial inspection and payment of the deposit.
06.11.87	Mrs Schipp pays $1,000 deposit.
13.02.88	Parties meet. Mrs Schipp offers to lend $150,000.
24.02.88	Parties meet. Discussion about first joint venture agreement.	This meeting did not occur.
25.02.88	Parties meet and sign first joint venture agreement and contract for sale.
26.02.88	Contracts for purchase of Mary Street exchanged.
25.03.88	Parties meet and sign second joint venture agreement.	The second joint venture agreement was signed on or about 28.03.99.
03.05.88	Purchase of Mary Street settled.
01.07.88	Wollongong Council grants development approval for Mary Street.
09.08.88	Parties meet and agree to sell Mary Street. Mrs Schipp expresses interest in developing Kembla Street Mr Cameron writes to CBA.	At this time Mrs Schipp had not indicated any interest in Kembla Street and the letter was written without her knowledge. Mrs Schipp was persuaded to sell Mary Street on 12 September.
15.10.88	Mary Street sold at auction for $317,000.
30.11.88	Mrs Schipp signs transfer for Mary Street.
07.12.88	Net proceeds of sale of Mary Street deposited with CBA.
08.12.88	Meeting of the parties, Mr French and Mr Murphy (of AGC). Discussion about Kembla Street.	This meeting did not occur.
10.12.88	Meeting of the parties, Mr Zander and Mr French. Mrs Schipp and Mr Zander each say they will invest $100,000 in Kembla Street.	This meeting did not occur.
13-19.12.88	Mrs Schipp is in Queensland.
18.12.88	Mrs Schipp telephones Mr Baird from Queensland.
20.12.88	Meeting of the parties and Mr Zander. Mr French and Robin Skelcher (architect) attend the first part of meeting. Mr Skelcher is asked to review estimated construction cost. During open line telephone conversation Max Bell (valuer) advises that Kembla Street is valued reasonably at $600,000.	This meeting did not occur. The open line telephone conversation with Max Bell occurred in late December or early January.
21.12.88	Mrs Schipp confers with Mr Baird.
22.12.88	Mr Baird writes to Mr Cameron and Max Bell inspects Kembla Street.
23.12.88	Mrs Schipp writes to Mr Baird. Mr Skelcher writes to Mr Cameron confirming estimated construction cost of $1.8m. Mr Baird speaks with Mr Harrison at the Lagoon restaurant.
24.12.88	Mrs Schipp confers with Mr Baird.
27.12.88	Mr Cameron and Mr Harrison prepare letter from Mr Cameron to Mr Baird, with assistance from Mr French.
28.12.88	Mr Cameron delivers letter to Mr Baird’s office. Meeting of Mr Cameron, Mr Harrison and Mr Zander (“Roaring Meeting”). Mr French attends first part of meeting. Mrs Schipp joins meeting and is re-admitted to Kembla Street venture.	This letter was not delivered.
Early January 1989	Mrs Schipp attends a meeting with Mr Cameron and Mr Harrison, while Mr Zander is in the waiting room (“Zander in Waiting Room Meeting”). Mrs Schipp arrives home, telephones Mr Cameron and agrees to invest $100,000 in Kembla Street venture.
03.01.89	Max Bell completes valuation report.
05.01.89	Meeting of the parties, Mr Zander and Mr Murphy (of AGC).
06.01.89	Meeting of the parties, Mr Zander, Mr French and Mr Bourke (accountant). Mrs Schipp terminates Mr Baird’s retainer.
07.01.89	Contract for sale of Kembla Street signed.
9-29.01.89	Mr Cameron is in Queensland.
13.01.89	Tasman Design Group (Mr Skelcher) lodges building plans for Kembla Street with Wollongong Council using funds of $2,404.50 provided by Mr Zander.
23.01.89	Mrs Schipp telephones Mr French and asks whether the venture is risky.
31.01.89	Purchase of Kembla Street settled. AGC lends Pyogrove $420,000.
08.03.89	Wollongong Council grants building approval for Kembla Street.
12.07.89	Mr Cameron and Mr Harrison each acknowledge $20,000 loan.
07.08.89	Directors of Pyogrove consider three quotes for construction at approximately $2.4 to $2.5 million.
21.10.89	Directors of Pyogrove decide to reject offer by Mr Spagnolo to purchase Kembla street for $750,000.
02.04.90	AGC loan increased to $470,000.
21.06.90	AGC sends s.111(2)(b) notices to directors of Pyogrove.
22.06.90	Mr McInerney writes on behalf of Mrs Schipp to Mr Cameron and Mr Harrison demanding repayment of $20,000 loans.
07.05.91	Mr Baird writes on behalf of Mrs Schipp to Messrs Cameron and Harrison demanding repayment of $20,000 loans.
01.08.91	Mrs Schipp commences proceedings in District Court of Wollongong against Messrs Harrison and Cameron for repayment of $20,000 loans.
04.10.91	Kembla Street sold for $400,000.
09.10.01	Barker Gosling on behalf of Mrs Schipp write letter of demand to Mr Harrison.
24.12.91	Mrs Schipp commences proceedings in equity division of Supreme Court against Mr Cameron, Don Cameron Real Estate, Mr Harrison, Emibarb, Pyogrove and AGC.
28.01.92	AGC commences proceedings in commercial division of Supreme Court against Pyogrove, Mr Cameron, Mr Harrison and Mr Zander claiming $163,802.
16.07.92	Pyogrove and Mr Cameron, Mr Harrison and Mr Zander settle proceedings by AGC by payment of $115,000.

In the amended statement of claim filed in the Supreme Court seeking to have the judgment in the Schipp proceedings and the decision of the Court of Appeal set aside, the applicant takes issue with a number of findings by Einstein J in the Schipp proceedings. In particular, the applicant takes issue with findings by Einstein J that Mrs Schipp and Mr Baird were honest and reliable witnesses, that Mrs Schipp lacked previous business experience, the reliability of a letter dated 28 December 1988 giving an accounting to Mrs Schipp of the property dealings in issue between the parties, and the findings by Einstein J in relation to the meetings in December 1988.
In his submissions to me Mr Drummond, for the applicant, explained that there are three main areas of factual dispute:
i)how Mrs Schipp became involved in the Mary Street venture, covering the period between 17 October 1987 until 3 May 1998;
ii)how the property at Mary Street came to be sold, covering the period between 1 July 1988 to 15 October 1988; and
iii)how Mrs Schipp came to participate in the Kembla Street venture, covering the period between 30 November 1988 until 31 January 1989.
Mr Drummond explained that the third area of dispute is the most contentious. Critical to this third area of dispute are disputed facts concerning three alleged meetings in December 1988 prior to Mrs Schipp going into the Kembla Street venture. The trial judge rejected the applicant’s evidence in relation to those alleged meetings. Importantly, the trial judge found that no meeting took place as was alleged by the applicant on 8 December 1988. The trial judge accepted evidence by the plaintiff in those proceedings that a person allegedly at that meeting only met Mrs Schipp for the first time later.
The fresh facts relied upon by the applicant in seeking to set aside the judgments in the Schipp proceedings and the appeal are derived from the affidavits relied upon by the applicant. In his affidavit, John Peter Comelli, who is also a deponent in the current equity proceedings, deposes that he is a licensed business and real estate agent who had business dealings with Mrs Schipp and her husband between 1971 to about 1983. Mr Comelli deposes that in his dealings with Mrs Schipp he found her to be an experienced and capable business woman who was a firm negotiator, in contrast to the findings of Einstein J that Mrs Schipp was naïve in business matters.
In his affidavit, Barry Murphy, who is also a deponent on behalf of the applicant in the current equity proceedings, deposes that he gave incorrect evidence in the Schipp proceedings when he said that he had only met Mrs Schipp once, which was found to be after the alleged meeting on 8 December 1988. Mr Murphy now says that he probably attended the meeting on 8 December 1988, although he does not recall it.
In his affidavit, Donald Ross Cameron, who is also a deponent on behalf of the applicant in the current equity proceedings, says that, because of his dissatisfaction with the decisions of Einstein J and the Court of Appeal, he has conducted further research into the facts and circumstances relevant to the proceedings and that he has discovered that a critical file note relied upon by Mrs Schipp was, he alleges, fabricated. This file note was tendered by the applicant and is a handwritten note bearing the date 31 May 1990. It purports to record a telephone conversation between Mr Baird and Mr Bourke relating to the Kembla Street venture and Mrs Schipp’s interest in it. Mr Cameron says that the file note is not contemporaneous but was prepared sometime subsequently based upon a letter dated 9 July 1991 from Mr Bourke to Phillip Lewis in which he referred to the telephone conversation on 31 May 1990. Mr Cameron says that he believes that the file note was fabricated, based upon the letter, because the letter contains factual errors which are reflected in the file note.

In his affidavit, Robert Owen Bourke, who is also a deponent in the current equity proceedings, says that he has discovered a series of typing errors in his letter to Mr Lewis dated 9 July 1991. In particular, Mr Bourke says that a series of references to events taking place on various dates in April, May and June 1990 should have been references to those events taking place on those dates in 1991. In this respect the affidavit of Mr Bourke is corroborative of the affidavit of Mr Cameron.
In summary, the applicant seeks orders for the bankruptcy notice to be set aside and/or for time to be extended to enable the applicant to have the Schipp judgment set aside in the Supreme Court, because the judgments in the Schipp proceedings, and the appeal, are unsatisfactory, having regard to the alleged new evidence of fabricated evidence in the Schipp proceedings and the alleged unsatisfactory findings by the trial judge as to Mrs Schipp’s lack of business acumen.
However, Mr Drummond conceded that no stay on the orders of Einstein J or the Court of Appeal has been sought or granted and that no trial date has been set in the current equity proceedings. No appeal has been sought against the judgment of the Court of Appeal, apparently because of the advice given to the applicant that separate equity proceedings by statement of claim on the basis of fresh evidence was the preferable procedure to adopt in the circumstances.
Mr Drummond also conceded that there is a pending application by Mrs Schipp to strike out the statement of claim in the current equity proceedings and, assuming that that application fails, that the statement of claim is not expected to be heard within about eighteen months to two years.
Pursuant to leave granted by me on 23 August 2001, the applicant has provided further written submissions in support of his application, prepared by Mr J K Chippindall of counsel. I have been assisted by those submissions. In summary, Mr Chippindall has submitted that:
a)the current equity proceeding(s) is “a proceeding to set aside a judgment” for the purposes of s.41(6A) of the Bankruptcy Act;
b)the current equity proceedings are bona fide proceedings in that sufficient new evidence has been advanced to establish, on a prima facie basis, that a different result would have followed in the Schipp proceedings if that new evidence had been put before the trial judge;
c)this Court should not embark on a detailed examination of the new evidence advanced in the current equity proceedings, but should deal with the matter generally;
d)the commission of an act of bankruptcy will have serious consequences for the applicant, particularly as he is a public figure, and could affect the future conduct of the current equity proceedings;
e)the structure of the Bankruptcy Act is such that provided the “formalities” of s.41(6A) have been complied with and s.41(6C) does not prevent it, there should be a predisposition in favour of extending time for compliance with the notice;
f)the financial affairs of the applicant are relevant in that, but for the liability arising from the Schipp proceedings, (and debts owed to other members of his family), the applicant would be solvent;
g)there is no threat to the recovery of assets by a future trustee if the date of an act of bankruptcy is deferred and there is no evidence of prejudice to the applicant should an extension of time be granted;
h)the applicant could give an undertaking to pursue the current equity proceedings as actively as possible; and
i)costs of the proceedings should follow the event, and costs should be payable in accordance with the Federal Magistrates Court scale.

The respondent’s case

Mr Hennessy, for the respondent, submitted that the current equity proceedings were not instituted bona fide. He also submitted that the statement of claim was in part defective in that the fresh facts referred to in it were at least in part opinion and conclusions. Mr Hennessy submitted that I should conclude that the current equity proceedings were not instituted bona fide because:
·the allegations now made by Mr Cameron were alluded to at the trial before Einstein J but were not pursued;
·there is no satisfactory explanation as to why the alleged new facts could not have been discovered at the time of the trial;
·the issue of Mrs Schipp’s business knowledge occupied nine days of cross-examination at the trial and has already been exhaustively dealt with and the trial judge found, despite that exhaustive cross-examination, that Mrs Schipp was commercially naïve;
·the evidence of Mr Murphy is a recent discovery of questionable veracity;
·Mr Bourke was Mr Harrison’s accountant and his motivation in providing his present evidence is questionable. In addition, it stretches credulity to suggest that he typed the wrong year in his letter four times;
·the proceedings before Einstein J ran for more than 30 days and the applicant has not advanced a plausible explanation as to why due diligence failed to disclose the facts he now seeks to rely upon;
·there is no allegation of fraud and in the circumstances no separate cause of action is available;
·the applicant has failed to appeal against the decision of the Court of Appeal and has failed to seek a stay of that decision and has also failed to make any further application to the Court of Appeal;
·the issues now raised in this Court were also raised in the Emibarb proceedings. On 17 August 2001 Master McLaughlin dismissed that application with costs;
·in dismissing the Emibarb proceedings Master McLaughlin referred to the length of the trial and the appeal; the fact that there was no stay application against the orders of the Court of Appeal and no fresh evidence application in accordance with Part 51, rule 19 of the Supreme Court Rules and s.75A(7) of the Supreme Court Act 1970 (NSW);
·the Master noted that the proceedings before him had been filed at the end of the period for compliance with the statutory demand and expressed the “gravest doubt” about the power of a single judge of the Equity Division of the Supreme Court to grant the relief sought against the judgments of Einstein J and the Court of Appeal;
·the Master expressed the view that in the absence of evidence of fraud the procedure adopted by Mr Harrison was inappropriate;
·the Master expressed himself unpersuaded by the fresh facts now advanced by the applicant and said that those facts, even if proved, would not have any impact on the binding effect of the trial judgment and the appeal judgment;
·importantly, the Master found that all of the alleged fresh facts were available to the applicant at the hearing of the Schipp proceedings and that the evidence complained about was evidence at that hearing;
·the Master said that there was no indication when the alleged fresh facts were discovered and no indication why those facts were not discovered previously;
·the Master found “much force” in Mrs Schipp’s submission to him that the application before him was not made bona fide, referring in particular to the fact that it was made on the 21^st day of the period for compliance with the statutory demand and that there had been no application to stay the orders of the Court of Appeal six months after the decision of that Court;
·the Master found that the statement of claim in the current equity proceedings failed to disclose fresh evidence and he doubted the bona fides of that proceeding, concluding that he should dismiss the application before him with costs.
No written judgment of the Master nor a transcript of the Emibarb proceeding was available at the time of the hearing in this matter. Mr Hennessy, however, made submissions based upon his notes of what the Master had said, and Mr Drummond acknowledged the accuracy of Mr Hennessy’s oral presentation to me.
The respondent relies upon s.41(6C) of the Bankruptcy Act and the affidavit of William Mark Addison (Mrs Schipp’s solicitor), sworn on 21 August 2001, to which was annexed the decision of the Court of Appeal. Mr Addison, in addition to referring to the Court of Appeal decision, deposes that requests for particulars in relation to the statement of claim in the current equity proceedings and the answers to those particulars disclose that the proceedings are not bona fide and must fail. Mr Addison was not cross-examined and no objection was taken to his evidence.
The respondent also seeks an order for costs if she is successful.

Consideration of the issues

The power of the Court to set aside a bankruptcy notice derives from s.30 of the Bankruptcy Act, augmented by other provisions such as s.41. The power to extend time for compliance with a bankruptcy notice carries with it the power to set the notice aside.
Section 41(6A) of the Bankruptcy Act relevantly provides that:
“… where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor or an application has been made to the bankruptcy court to set aside the bankruptcy notice, the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.”
Subsection (6C) relevantly provides that:
“… where a debtor applies to the Court for an extension of 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 the Court is of the opinion that the proceedings to set aside the judgment or order have not been instituted bona fide, or are not being prosecuted with due diligence, the Court shall not extend the time for compliance with the bankruptcy notice.”
It is well settled that s.41(6A) is the sole source of power in the Court to extend time for compliance with the requirements of the bankruptcy notice. The institution of proceedings to set aside the judgment, or the making of the application to set aside the bankruptcy notice under s.30, before the time for compliance with the bankruptcy notice expires, is a jurisdictional requirement, without which the Court cannot extend time for compliance. In the present case, the jurisdictional requirement is met in that the application to set aside the bankruptcy notice was filed in this Court on 13 July 2001 in respect of the bankruptcy notice served upon the applicant on 24 June 2001.
It is, of course, a prerequisite to an application for an extension of time based upon proceeding to set aside the judgment upon which the bankruptcy notice is based, that the proceedings are in reality proceedings to set aside that judgment. The Full Federal Court has recently confirmed that an appeal is such a proceeding: Conway v Jackson [2001] FCA 230. There is no authority available to me as to whether an application to set aside a judgment on the basis of the discovery of fresh evidence is such a proceeding. It is, however, clear to me from the applicant’s statement of claim in the current equity proceedings that he is seeking to set aside the relevant orders of Einstein J and the Court of Appeal, and I find that the current equity proceedings are proceedings to set aside the judgment supporting the bankruptcy notice.
Once the pre-requisite in s.41(6A)(a) or (b) is fulfilled, the discretion conferred on the Court by s.41(6A) to extend time for compliance is “at large”, subject only to the fact that the Court may not extend time if it makes one of the findings of fact provided for by s.41(6C). Nevertheless, orders for extension of time will not be made as a matter of course. Grounds must be shown. The existence of the power to extend time is an aid of the setting aside of the notice itself. The power to set aside the notice and the power to extend time for compliance are necessarily related. As a result, matters relevant to the judgment on which the bankruptcy notice is based, including whether there exists grounds for the Court to go behind the judgment, are relevant in deciding whether to extend time for compliance.
It would be an unusual case which justified the bankruptcy court going behind the judgment on which the bankruptcy notice is based to set aside the bankruptcy notice without waiting for the outcome of proceedings to set aside the judgment supporting the bankruptcy notice. The circumstances in which a bankruptcy court will go behind a judgment to set aside a bankruptcy notice are strictly confined. The usual course, if the Court were minded to accept that there was some problem with the judgment debt, which was to be resolved in proceedings to set aside the relevant judgment, would be to extend time for compliance with the bankruptcy notice until those other proceedings had been resolved. Mr Chippindall, in his written submissions, has conceded that the application is primarily an application for an extension of time.
It is important to bear in mind that the principles to be applied, where the question is whether a petition should be adjourned or dismissed, are not necessarily those which should guide the exercise of the discretion to set aside, or extend time for compliance with, a bankruptcy notice, because the commission of an act of bankruptcy is of a different order of gravity from the change of status brought about by the making of a sequestration order: Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 270. Accordingly, while in the case of a creditor’s petition the existence of a genuine and arguable appeal may be grounds for an adjournment or dismissal, the Court should generally only extend time for compliance with the bankruptcy notice on the ground of the existence of an appeal (or other proceedings to set aside the judgment supporting the bankruptcy notice) where no stay has been obtained or sought in an exceptional case. Nor is it necessarily sufficient that there is a dispute as to the debt genuinely based on substantial grounds.
While considerable weight will be given to the circumstance that no stay has been granted, or even sought, of the judgment supporting the bankruptcy notice, nevertheless, the debtor’s failure to apply for a stay of the judgment pending an appeal will not be fatal, where the debtor can show that he or she has sufficient assets to meet the judgment debt, and there is no evidence that the debtor has attempted to alienate his or her assets or put them beyond the debtor’s power so that they are not available to meet the judgment debt: Brunningshausen v Glavanics (unreported, Federal Court of Australia, 3 March 1998, per Emmett J).
Mr Chippindall has submitted that little or no weight should be given to the absence of a stay in this case, on the basis that different considerations apply when the ground of setting aside, or extending time for compliance with the bankruptcy notice, is the discovery of fresh evidence which, of necessity, comes to light after the original trial and, so it is said in this case, after the completion of the appeal. There is much force in that submission but, to the extent that less weight is given to the absence of a stay, more weight is necessarily given to other factors, such as the merits of the proceedings to set aside the judgment supporting the bankruptcy notice.
Where the application for an extension of time depends upon the existence of an application to set aside the judgment on which the bankruptcy noticed is based, the Court should generally be reluctant to enter into the merits of those other proceedings, at least in depth: Boylan v Farthing & Another (unreported, Federal Court of Australia, 23 October 1998, per Mansfield J at page 14); Pak Sun Liew v JNS Technologies (unreported, Federal Court of Australia, 18 October 1999, per Kenny J at paragraph 13). The merits may be nevertheless relevant to the exercise of the Court’s discretion. The merits are clearly relevant in this case. Where the Court is able to regard the prospects of success as slight, it will be less ready to grant an extension of time. It will be more willing to grant an extension if it considers the prospects of success unusually strong or if a comparatively short period of time will elapse before the other proceedings are heard: Re Lentini, ex parte Lentini v CSR Ltd (1991) 29 FCR 363 at 374.
When determining whether to exercise its discretion to extend time, the Court should take into account prejudice that will be suffered by the debtor or creditor if time is extended or not, the fact that an extension may alter the date of an act of bankruptcy by the debtor, the impact of an extension or lack of one on related legal proceedings, any reliance by a party on the elapse of time and the explanation (or absence of explanation) for any relevant delay. The Court can also take into account whether proceedings have been commenced bona fide to set aside the judgment on which the bankruptcy notice is based or are being prosecuted diligently, even if the application for extension is based upon s.41(6A)(b) rather than on s.41(6A)(a).
The Court will be more than usually reluctant to extend time for compliance with the bankruptcy notice if an appeal against the original judgment has already been dismissed and what is on foot is a further attempt to have the original judgment set aside. That will be especially so if the current attempt to have the judgment set aside depends on a point not taken in the initial appeal that may not provide grounds for having the judgment below set aside in any event: Atkinson v Oakleigh Holdings Pty Ltd [2000] FCA 1547.
It is apparent from the foregoing statement of principles that Mr Harrison’s application faces severe obstacles. First, his current application to set aside the judgment of Einstein J would appear to have little prospect of success. His appeal against that judgment has previously been rejected by the New South Wales Court of Appeal. There has been no application for special leave to appeal from that decision and no application to the Court of Appeal to re-open the appeal on the basis of fresh evidence. The application to the Supreme Court to set aside the statutory demand against Emibarb, based upon substantially the same grounds as the application before me has failed, although I am told that decision is subject to appeal.
It is clear from the decision of the High Court in Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435 that, leaving aside cases where a trial has miscarried through misdirection, misconception or wrongful rejection of evidence or other error, in cases of surprise, malpractice or fraud, it is essential to give effect to the rule that a verdict, regularly obtained, should not be disturbed without some insistent demand of justice. The discovery of fresh evidence in such circumstances can rarely, if ever, be a ground for a new trial unless:
(a)it is reasonably clear that if such evidence had been available at the first trial and had been adduced, there would have been an opposite result;
(b)if it is not reasonably clear that such would have been the outcome, it must have been so highly likely as to make it unreasonable to suppose otherwise; and
(c)reasonable diligence had been exercised prior to the first trial to procure such evidence.
The master of the Supreme Court in the Emibarb proceedings was not convinced that the evidence now sought to be relied upon by Mr Harrison was not available at the trial. Mr Drummond stressed before me that the material before me is more comprehensive than that before the Master. However, even if I were satisfied that the evidence sought to be introduced in the current equity proceedings was not available at the time of that trial, there is little or nothing before me to indicate that reasonable diligence had been exercised prior to the trial to procure the evidence now sought to be relied upon. I was told by Mr Drummond that the evidence indicating the fabrication of the Baird note was not previously available because Mr Bourke had handed over his file in 1992 to Mrs Schipp’s lawyers. On the other hand, I was also told by Mr Hennessy that at the time of the trial there was no effort made on the part of Mr Harrison’s legal advisers to gain access to that file.

Mr Chippindall submitted that the Emibarb proceedings before the Master, under the Corporations Law, proceeded on a different basis to the proceedings before me. That is so, but I cannot ignore the findings of the Master relevant to an assessment of the merits of the proceedings relied upon by the applicant in seeking an extension of time.
There is also real doubt whether the procedure adopted by the applicant in seeking to set aside the judgment of Einstein J is legally appropriate. In Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 537-539 the New South Wales Court of Appeal appeared to restrict the procedure being adopted by the applicant to cases of fraud. No fraud is alleged in these circumstances, only new facts. The same view was taken by the Federal Court in Munro Schneider Associates (Inc) & Anor v No 1 Raberem Pty Ltd & Ors (No 2) (1992) 37 FCR 234 at 238-241.
The applicant relies upon the decision of the High Court in McDonald v McDonald (1965) 113 CLR 529 at 533 as supporting the appropriateness of the procedure being followed by the applicant. In that case, Barwick CJ said that:
“A separate proceeding is clearly the preferable course where fresh evidence does not satisfy all the necessary requirements for a new trial but does tend to establish that the verdict was obtained by fraud or by surprise or that there has been a subordination of witnesses”.
The applicant here, however, simply alleges that key witnesses were untruthful.
The decision of the English Court of Appeal in Re Barrel Enterprises & Others [1972] 3 AllER 630 at 639 indicates that in England there is little or no precedent for a successful action to set aside a judgment on the basis of fresh evidence commenced by separate proceedings. See also In re Sant Nazaire Company (1879) 12 ChD 88; Charles Bright & Co Limited v Sellar [1904] 1 KB 6 at 11-12; and Umina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 at 458, which all indicate that the proper procedure for the applicant to have adopted would have been to seek special leave to appeal against the decision of the Court of Appeal or, possibly, to make application to the Court of Appeal on the basis of fresh evidence. Like the Master of the Supreme Court, I have grave doubt about the capacity of a single judge in equity to grant any effective relief to disturb the judgments of Einstein J and the Court of Appeal.
Added to that are the circumstances that no stay has been sought against the orders of the Court of Appeal and that, if an extension of time were granted to allow the current equity proceedings to run their course, the time for compliance with the bankruptcy notice could be extended by at least eighteen months and possibly several years. It seems that a delay of eighteen months is inevitable even if the applicant were to pursue the proceedings diligently. A delay of that magnitude must prejudice the respondents, who cannot secure a date for the act of bankruptcy until the time for compliance with the bankruptcy notice expires. It is true that I have no evidence before me that the applicant has assets which may be alienated or encumbered to the detriment of the creditors if an extension of time is granted. But an extension of time for a period of years must necessarily entail prejudice to a creditor.
The applicant will clearly suffer prejudice if he is made bankrupt in that he will not be able to remain as Lord Mayor of Wollongong, but that consequence will not follow immediately from the commission of the act of bankruptcy if he fails to comply with the requirements of the bankruptcy notice. That consequence will flow should a sequestration order be made following a creditor’s petition being filed. It will be open to the Court dealing with the creditor’s petition to look again at the issue of whether proceedings on that petition should be stayed or adjourned to permit the current equity proceedings to be dealt with in advance of a sequestration.
Mr Chippindall submitted that the applicant would be prejudiced if he committed an act of bankruptcy in the pursuit of his current equity proceedings and his appeal against the decision of Master McLaughlin, and as a public figure. I accept that an adverse decision by this Court will not assist the applicant in the pursuit of his other litigation, and that the commission of an act of bankruptcy will be at least an embarrassment to him. I do not, however, find that submission a compelling one. If I am not otherwise prepared to grant an extension of time to await the outcome of the other proceedings, then the substance of the submission falls away. Also, the mere identity of the applicant as a public figure, while I am prepared to take account of it, is not a persuasive factor. If high profile debtors could stave off the need to comply with a bankruptcy notice on the grounds of public embarrassment, they would be in a strong position indeed to defeat their creditors.
I am satisfied that the applicant genuinely believes that he was wronged in the judgment of Einstein J and that he should not have to pay the money that he has been ordered to pay. However, the applicant has followed an unusual and possibly irregular procedure in seeking to overturn the judgment at first instance and the judgment of the Court of Appeal. He has also chosen a procedure which will take a long period of time to complete and, in so doing, gives cause for me to doubt whether the current equity proceedings have been commenced bona fide. I put it not higher than that. As noted above, the bona fides of that proceeding are not critical to the extension of time issue before me, given that the availability of my discretion depends upon the filing of the application to set aside the bankruptcy notice, rather than the filing of the current equity proceedings in the Supreme Court. Nevertheless, the bona fides of those proceedings are a relevant consideration. As I have already noted, a further relevant factor of more than usual significance in this case is the prospects of success of those proceedings. It is my view that the prospects of success of those proceedings are very poor. Those factors, together with the considerations of prejudice, and, to a lesser extent, the absence of any stay, are determinative in this case.
Pursuant to leave granted by me on 23 August 2001, the applicant has filed a further affidavit detailing his financial circumstances. I have ordered that that affidavit remain confidential to the parties’ lawyers. Accordingly, it is not appropriate that I disclose the contents of that affidavit in these reasons. I have received the affidavit into evidence, as it is relevant to the issue whether the applicant is able to pay the amount due under the bankruptcy notice. As I have already noted, that is a material consideration in a case where, as here, no stay has been sought or obtained against the judgment upon which the bankruptcy notice is based. The affidavit does not assist the applicant in that regard.
In all the circumstances, therefore, I conclude that I should dismiss the application with costs.

I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 4 September 2001