Hows v Richmastery Limited - [2007] FMCA 1606

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HOWS v RICHMASTERY LIMITED

[2007] FMCA 1606

BANKRUPTCY – Application to set aside bankruptcy notice – foreign bankruptcy – whether judgment stayed.

BANKRUPTCY – Application to set aside bankruptcy notice – abuse of process.

Bankruptcy Act 1966, ss.29, 30, 58

Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589
Wiltshire-Smith v Olsson (1995) 57 FCR at 584-5; citing
Re Solomon; ex parte Reid (1986) 10 FCR 423
Radich v Bank of New Zealand (1993) 45 FCR 101
Ex parte McCulloch (1880) 14 Ch D 716
Hall v Woolf (1908) 7 CLR 207
Slack v Bottoms English [2002] FCA 1445
ASIC v Forge (2003) 133 FCR 487

Applicant:

DAVID BRYCE HOWS

Respondent:

RICHMASTERY LIMITED

File number:

BRG 768 of 2007

Judgment of:

Wilson FM

Hearing date:

14 September 2007

Date of last submission:

20 September 2007

Delivered at:

Brisbane

Delivered on:

21 September 2007

REPRESENTATION

Counsel for the Applicant:

Ms Chapple

Solicitors for the Applicant:

Holding Redlich

Counsel for the Respondent:

Mr Peden

Solicitors for the Respondent:

Hopgood Ganim Lawyers

ORDERS

That the application filed 6 September 2007 is dismissed.
That the applicant pay the respondent’s costs of and incidental to the application, to be taxed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 768 of 2007

DAVID BRYCE HOWS

Applicant

And

RICHMASTERY LIMITED

Respondent

REASONS FOR JUDGMENT

On 13 June 2007, the applicant was made bankrupt in New Zealand on the petition of a creditor other than the respondent. Prior to his bankruptcy, the respondent had obtained a judgment against the applicant, in New Zealand.
The respondent registered the New Zealand judgment in the Supreme Court of Queensland on 24 May 2007, pursuant to the Foreign Judgments Act 1991 (Cwth). The effect of this was that the judgment could thereafter be enforced as if it had been given in Queensland on the day of registration.
On 27 July 2007, on application by the respondent, the Official Receiver issued a bankruptcy notice directed to the applicant. That bankruptcy notice was served on the applicant on 16 August 2007.
The bankruptcy notice was applied for, and issued, based upon the judgment registered in Queensland by the respondent.
The applicant argues that the bankruptcy notice should be set aside because:
a)The Official Receiver had no power to issue it; or
b)It constitutes an abuse of process.
Section 41(1)(a)(i) Bankruptcy Act1966 provides:
41(1)     An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:
(a)     a final judgment or final order that:
(i)     is of the kind described in paragraph 40(1)(g)
The kind of judgment described in s. 40(1)(g) is one, “the execution of which has not been stayed”. The applicant submits that because the applicant has been made bankrupt in New Zealand, and judgment was obtained by the respondent against the applicant in New Zealand, the respondent’s right is to prove in the applicant’s bankruptcy, and cannot execute on its judgment. It is submitted that the respondent’s rights against the applicant “merged” in the bankruptcy. The applicant relies on Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 to advance the unremarkable proposition that once bankrupt, a pre-bankruptcy debt cannot be enforced against the debtor, and the creditor’s right is substituted by a right to prove in the bankruptcy.
That is certainly so, if the applicant were made bankrupt in Australia: s.58(3)(a) Bankruptcy Act 1966 (“the Act”). No sequestration order has been made in Australia.
It is accepted by both parties that a judgment may be regarded as stayed, notwithstanding that there is no formal order of a court to that effect, if the judgment creditor is, by operation of law, incapable of issuing immediate execution on the judgment, at the time application is made for the issue of the bankruptcy notice: Wiltshire-Smith v Olsson (1995) 57 FCR at 584-5; citing Re Solomon; ex parte Reid (1986) 10 FCR 423 at 425-6.
Can the judgment registered in Queensland be enforced against the applicant? At the time of its registration in Queensland, the New Zealand judgment could have been enforced by the respondent against the applicant. The answer to the question posed is partly given by rejecting the proposition, which lies at the heart of the applicant’s submissions, that once bankrupt in New Zealand, all property of the applicant wherever situate vests in his New Zealand trustee in bankruptcy, and that the applicant cannot be made bankrupt in Australia. A sequestration order made in New Zealand is an order of the New Zealand court, just as a sequestration order made in Australia is an order of this country’s court. The extra territorial operation of such orders depends upon the rules of private international law applicable in the country in which such order is sought to be enforced.
The making of a sequestration order in New Zealand does not, of itself, make the applicant bankrupt in Australia. That would require an order to be made under the Bankruptcy Act1966. In Radich v Bank of New Zealand (1993) 45 FCR 101 at 114, the Full Federal Court held that it was not open to doubt that the court has jurisdiction to make an order of sequestration even though there is an earlier foreign bankruptcy (per Einfeld J citing Ex parte McCulloch (1880) 14 Ch D 716).
Nor does the making of a sequestration order in New Zealand vest all of the applicant’s property in the New Zealand trustee. In Radich, the Full Federal Court accepted that a foreign sequestration order will not be recognized by an Australian court as vesting title in the foreign trustee to moveables in Australia acquired by the bankrupt after the commencement of the foreign bankruptcy if the debtor ceased to be domiciled in the foreign country before acquiring those moveables.
The applicant, in his affidavit filed 6 September 2007, gives his address as being in Australia. He may now be domiciled in Australia. That will require further evidence. At paragraph 9 he refers to what may, on further investigation, amount to after-acquired moveables. The judgment registered in Queensland may, therefore, depending on further evidence, be executed against these assets.
In my view, it is sufficient to conclude that the Queensland judgment is not automatically stayed by the New Zealand bankruptcy, as there is a body of assets against which it could be executed, if they were acquired within the parameters of Hall v Woolf (1908) 7 CLR 207.
That is not to say that a subsequent application for a sequestration order would necessarily be successful. The Australian courts are required, by s.29 Bankruptcy Act, to act in aid of and be auxiliary to the New Zealand courts, if requested to do so. That statutory scheme is not, however, inimical to a person being bankrupt in two jurisdictions. The learned authors of Australian Bankruptcy Law & Practice when discussing the history of s.29 of the Act, observe, at [29.0.10]:
“Under the repealed English section it was held that the court must give such assistance as it could, subject, of course, to the consideration which would arise if there were also a bankruptcy in the country of the court asked to give assistance, as to the rights of the creditors and other persons there: Re Osborn; ex parte Trustee [1932] B & CR 189”
Further, at [29.1.10] after referring to Hall v Woolf and Radich v Bank of New Zealand the learned author says:
“Accordingly, it is inappropriate for the assistance granted to include the appointment of a second (Australian) trustee in bankruptcy, in the absence of a further sequestration order or an Australian bankruptcy.”
Each of these passages supports my conclusion that the Australian courts retain jurisdiction to make a second sequestration order. Of course, whether such an order will be made is a matter for another occasion. However, it is not correct to say, as the applicant submits, that upon the applicant being adjudicated bankrupt in New Zealand, the respondent’s right to execute on the judgment registered in Queensland was thereupon taken away and converted to a right to prove in the New Zealand bankruptcy.
No application has been made by the applicant to set aside the Queensland judgment, nor to have it formally stayed, in reliance on the applicant’s New Zealand bankruptcy and the comity afforded by s.29 of the Act.
In those circumstances, in my view, at the time the bankruptcy notice was issued, the judgment relied upon, namely the Queensland judgment, was not one the execution of which had been stayed. The Official Receiver therefore had power to issue the bankruptcy notice.
Neither party disputes that this court has jurisdiction to set aside a bankruptcy notice, if satisfied that notice was issued as an abuse of process.
The applicant refers to the well known cases dealing with the propriety of issuing a bankruptcy notice as an exercise in debt collection. The effect of those cases was summarized by Spender J in Slack v Bottoms English [2002] FCA 1445. However, it cannot be said in the present case, on the evidence presently available, that the respondent is seeking to have recourse to bankruptcy proceedings for a collateral purpose.
It is not clear whether the applicant relied on the grounds of “futility” and “no assets” as part of the abuse of process argument. Once satisfied that a bankruptcy notice was validly issued, the court has no general discretion under s.30(1) of the Act, or otherwise, to set aside a bankruptcy notice which is valid in form and not an abuse of process: ASIC v Forge (2003) 133 FCR 487.
Whilst the respondent may have lodged a proof of debt in New Zealand, it cannot be said that the issue of a bankruptcy notice in Australia is an abuse of process if the court retains jurisdiction to make a second sequestration order, and there is potentially a class of assets that can be realized by a trustee in bankruptcy appointed in Australia.
I accept the submission of the respondent that many of the arguments sought to be advanced by the applicant at paragraphs 12, 16 and 17 of his submissions are more appropriately considered at the time a sequestration order is sought.
On the hearing of the application, a question arose as to the effect of the relevant provisions of the New Zealand Insolvency Act 1967 (referred to in Radich, supra). Formal proof of that statute is not required: Evidence and Procedure (New Zealand) Act 1994 (Cwth). A copy of relevant extracts of the legislation has been provided to the court. However, nothing in that legislation affects the principles discussed at paragraphs [10], [12] and [14] above. The New Zealand parliament cannot legislate to overcome the effect of the decision of the High Court of Australia in Hall v Woolf.
In the circumstances, the application must be dismissed.

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 21 September 2007