In the Matter of Special Cases Referred to the Court Under Rule 119 and In the Matter of an Application by Coast Securities No.9 Pty Ltd for the issue of bankruptcy notices addressed to Kerry James Trapnell, Gary..

[1985] FCA 232

Re: SPECIAL CASES REFERRED TO THE COURT UNDER RULE 119
And: AN APPLICATION BY COAST SECURITIES No. 9 PTY. LTD. FOR THE ISSUE OF
BANKRUPTCY NOTICES ADDRESSED TO KERRY JAMES TRAPNELL (sic PRAPNELL) , GARY
WAYNE AND DEBRA ANN MAROSKE, JOHN LEYTON MAYO, JOHN VINCENT McCONNON, IAN
ROBERT AND SUSAN KIRKHAM AND ROBERT ROLAND AND HILARY FRANCES WESTBROOK (1985)
7 FCR 293

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Spender J.(1)

CATCHWORDS

Bankruptcy - Reference of question of law under Bankruptcy Rule 119 - whether bankruptcy notice can issue against purchaser on an order for specific performance - obligations of vendor - whether order "final" - whether there is a "sum payable under the order" - whether order is one "the execution of which has not been stayed" - effect of 0.47 and 10 of Rules of the Supreme Court of Queensland on specific performance order.

Bankruptcy Act 1966 ss.4, 14, 40 41.

Bankruptcy Rules; rr.7, 119

Service & Execution of Process Act 1901 s.21

Rules of The Supreme Court of Queensland, 0.18A r.1, 0.47 r.10

Ex parte Blanchett, in re Keeling (1886) 17 QB 303

In re Dayman, Ex parte Bargal Pty.Ltd. (1983) FCR 291

In re a Debtor (1912) 3 KB 242

Hall v. The Nominal Defendant (1967-1968) 117 CLR 423

Ex parte Ide, re Ide (1886) 17 QB 755

Jaq Investment Pty.Ltd. v. Strati (1981) 2 NSWLR 600

Johnson v. Agnew (1980) AC 367

Opie v. Opie (1950-1951) 84 CLR 362

In re Panowitz, ex parte Wilson (1975) 38 FLR 185

Pepper v. McNiece (1941) 64 CLR 642

Re Richards, ex parte Sommers (1947) 14 ABC 112

Sudagar Singh v. Nazeer (1978) 3 All ER 817

Ex parte Woodall, in re Woodall (1884) 13 QB 479

Bankruptcy - Reference of question of law under Bankruptcy Rule 119 - Whether bankruptcy notice may issue against purchaser on an order for specific performance - Whether order final - Whether there is a sum payable under the order - Whether order is one the execution of which has not been stayed - Bankruptcy Act 1966 (Cth), ss 4, 14, 40, 41; Bankruptcy Rules rr 7, 119.

HEADNOTE

A bankruptcy notice cannot issue based upon non-compliance with judgments and orders for specific performance including the payment of specified sums of money.

HEARING

Brisbane, 1985, June 5. #DATE 5:6:1985
SPECIAL CASE

Reference of law by the Registrar in Bankruptcy.

G L Davies QC and C J L Brabazon, for Coast Securities No 9 Pty Ltd.

P M Wolfe for McConnon.

No appearance for other parties.

Solicitors for Coast Securities No 9 Pty Ltd: Short Punch & Greatorix.

Solicitors for McConnon: G H Kirby & Co.

GFV

ORDER

Order that: the question referred to the Court by the Registrar be answered as follows:
Question: Is the applicant entitled to the issue of

bankruptcy notices as requested by it against each of the five respondent parties, based on various orders of The Supreme Court of Queensland for specific performance of contracts of sale?

Answer : No.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

JUDGE1

The question this reference seeks to raise is: can a bankruptcy notice issue against a purchaser on an order for specific performance, the vendor having complied as far as he is able with the obligations imposed on him pursuant to the order?

1. Pursuant to rule 119 of the Bankruptcy Rules made under the Bankruptcy Act 1966, the Registrar in Bankruptcy has referred to the court the question whether the applicant, Coast Securities No. 9 Pty Ltd, is entitled to the issue of bankruptcy notices as requested by it against each of the five respondent parties, based on various orders of the Supreme Court of Queensland for specific performance of contracts of sale. The Registrar in Bankruptcy raised queries as to the validity of any such bankruptcy notice, particularly having regard to the comments made by Fitzgerald J. in respect of whether a bankruptcy notice could issue upon a specific performance order. Those comments are noted in In re Dayman; ex parte Bargal Pty Ltd noted at (1983) FCR 291.

2. The course this reference took has not been wholly satisfactory. At the hearing of the reference to the Court, Mr G.L. Davies, Senior Counsel for Coast Securities, sought to tender and rely on an affidavit by Peter Wilford George deposing as to the readiness of the applicant vendor to complete its obligations under the specific performance orders.

3. Rule 119 of the Bankruptcy Rules provides:-
   

"(1) If, either before or after the Registrar has given his decision on an application made to him under these Rules, a question of law arises which the Registrar or a party to the application wishes to have determined by the Court, the Registrar shall -

(a) state the facts in the form of a special case for the opinion of the Court; and

(b) refer the special case for hearing and determination by the Court.

(2) Where a question of law is referred to the Court under sub-rule (1) the Registrar may give directions with respect to the giving of notice of the date on which, and time and place at which, the question of law will be heard by the Court to the parties to the application who have an address for service for the purpose of the proceeding to which the application relates, and the parties shall comply with any such directions.

(3) Where a question of law referred to the Court under sub-rule (1) is heard and determined by the Court, the Court may dispose of the question of law or refer it back to the Registrar with such directions as it may think fit."

1. The nature of the reference to the court appearing from that rule, it seemed to me to be wrong for the court on the reference to receive affidavit material. I stood the original reference down, whereupon the applicant made further application to the Registrar and placed before him the affidavit of Mr George, to which I have earlier referred, whereupon the Registrar immediately referred what has been described as an amended reference, but which does incorporate the question of law which Coast Securities seeks to have resolved, namely whether a bankruptcy notice could issue on a specific performance order, there being material before the Registrar swearing to the readiness of the applicant vendor to complete its obligations on the specific performance order.

2. On that basis, I proceeded to determine the question asked. Mrs P. Wolfe of Counsel appeared for John Vincent McConnon; the other respondents to the reference were not represented before me. I am satisfied that each of the parties was aware of the original reference. Mr Mitchell, solicitor, who appeared for the first named respondent party, advised me that his clients were aware of the reference but wished to make no submissions in respect of it, and withdrew. The question in each of the five applications is the same and it will be convenient, therefore, to refer primarily to the material in the application involving Mr McConnon.

3. On 16 July 1984 Mr Justice Sheahan, in the Supreme Court of Queensland, made an order for specific performance on an application by Coast Securities for summary judgment against Mr McConnen under Order 18A Rule 1 of the Rules of the Supreme Court of Queensland. The order of Mr Justice Sheahan was:-
   

"IT IS THIS DAY DECLARED against the Defendant that the Agreement and Deed mentioned in the Writ of Summons ought to be specifically performed and carried into execution; AND IT IS ORDERED AND ADJUDGED the same accordingly;

IT IS ORDERED that the Plaintiff's costs of this action be taxed and paid by the Defendant;

IT IS ORDERED that the Defendant prepare a transfer of the property referred to in the Agreement referred to in the Writ of Summons between the Plaintiff as Vendor and the Defendant as Purchaser and that it deliver the same to the Plaintiff to be executed by the Plaintiff as an escrow and to be re-delivered to the Defendant as hereinafter provided. And upon the Plaintiff at the office of the Plaintiff's Solicitors at Surfers Paradise on the Thirtieth day of July, 1984 delivering to the Defendant the said transfer accompanied by all instruments of Title free from encumbrances; IT IS FURTHER ORDERED that the Defendant pay to the Plaintiff the sum of ONE HUNDRED AND SIXTY SEVEN THOUSAND FOUR HUNDRED AND FIFTY DOLLARS ($167,450.00) (adjusted as required by the terms of the said agreement); IT IS FURTHER ORDERED that the Plaintiff do give the Defendant vacant possession of the property hereinbefore referred to. Liberty to apply."

1. The application for a bankruptcy notice is not founded on any aspect of the obligation to pay the plaintiff's costs.

2. Mr George, a solicitor and a member of the firm of Short Punch and Greatorix, solicitors for Coast Securities, swore an affidavit on 7 December 1984. That affidavit was part of the material before the Registrar on 6 February 1984. Mr George deposes that "Each of the Applications for Bankruptcy Notice are (sic) in respect of specific performance orders of contracts of sale made by the Supreme Court of Queensland". In respect of the sale to McConnon, Mr George said:-
   

"(a) Settlement of the Contract was due on 4th June 1984.

(b) The Defendant failed to settle on the due date. An action for specific performance was commenced. An Order requiring the Defendant to specifically perform the Contract was made on the 16th July 1984.

(c) The said specific performance order required the Defendant to settle on the 30th July 1984.

(d) On the 24th July 1984 Short Punch & Greatorix notified the Defendant of a time for settlement at the Mortgagee's Solicitors office, Trout Bernays & Tingle, on the 30th July, 1984. In the same letter hereinbefore referred to settlement figures were provided by the Plaintiff to the Defendant. Exhibited hereto and marked with the letter "A" are true copies of the said letter and settlement figures annexed thereto.

(e) On the 30th July 1984 at 2.45 p.m. a clerk attended the offices of Trout Bernays & Tingle to effect settlement. The following documents were available for settlement:-

Certificate of Title volume 6603 folio 110

Partial Release of Mortgage G512339 Release Debenture letter Keys to unit

Statutory Declaration of Non revocation of Vendor's Power of Attorney

Statutory Declaration of Non revocation of Mortgagee's Attorney

(f) There was no attendance by the Defendant for settlement.

(g) The Defendant failed to tender Transfer documents in accordance with the Court Order. To ensure that all steps had been completed for settlement, Short Punch & Greatorix prepared its own Transfer documents and had same executed by the Plaintiff in readiness for settlement. Exhibited hereto and marked with the letter "B" are true copies of the Transfer documents."

1. About this material, three things may be said. First, and least importantly, the letter of 24 July refers to settlement figures; it concerns Lot No. 110 in "Royal Palm" and indicates a sale price of $197,000.00 less a deposit of $29,550.00, making the balance of the purchase price $167,450.00. After adjustments for rates, interest and other matters, the settlement figure was $164,277.97. The sum sought in the bankruptcy notice is $164,450.

2. Secondly, the documents which are "exhibit B" to Mr George's affidavit, have in fact been signed in blank by John David Andrew Punch, as attorney for Coast Securities; they are undated and unwitnessed. They are not "transfer documents ... executed by the plaintiff".

3. Thirdly, the order of Mr Justice Sheahan called for settlement at the plaintiff's solicitor's office on 30 July 1984. The letter "exhibit A" to Mr George's affidavit required settlement at that address and nominated 2.45 p.m. as the time, and so in this case was in conformity with the specific performance order. This is contrary to what is said by Mr George in (d) above. The explanation probably is that in three of the other four cases the letter from the plaintiff's solicitors called for settlement at the office of the mortgagee's solicitor's office, Messrs Trout Bernays and Tingle, 3 Short Street, Southport. In one of these cases, that of the Westbrooks, the letter from the plaintiff's solicitors to the purchasers calling for settlement nominates a place for settlement different from that required by the specific performance order.

4. The material outlined in (e) and (f) above simply does not establish that the condition upon which the sum of money required to be paid from the purchaser to the vendor pursuant to the order has in fact been fulfilled.

5. The material before the Registrar is wholly insufficient in a factual sense to establish that the vendor has complied so far as he is able with the obligations imposed on it under Mr Justice Sheahan's order. It follows in the circumstances here present that none of the five notices sought by Coast Securities should issue. I should, however, deal with the substantive question sought to be resolved by this reference.

6. Section 41(3) of the Bankruptcy Act 1966 ("the Act") provides:-
   

"A bankruptcy notice shall not be issued in relation to a debtor -

(a) except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor."

1. Section 40(1)(g) requires that a creditor have obtained against the debtor a final judgment or final order, the execution of which has not been stayed, and also that there be a judgment debt or sum payable under the order.

2. In my opinion, neither of those requirements is satisfied in the present case.

3. Section 14(4) of the Act provides that a Registrar may take evidence in proceedings before him under the Act, either orally or otherwise. Part II of the Bankruptcy Rules is headed "Proceedings in Connexion with Bankruptcy"; Division 1 of that Part deals with bankruptcy notices and Rule 7 in that division with the application for the issue of a bankruptcy notice. In my opinion, therefore, an application to the Registrar for the issue of a bankruptcy notice is a proceeding under the Act, and on such an application, the Registrar may take evidence, either orally or otherwise.

4. Rule 7(1) provides "application may be made to the Registrar for the issue of a bankruptcy notice by filing an application in accordance with Form 3 with the Registrar." Rule 7(2) requires an applicant, when he files an application, to file one of five specified documents in relation to the final judgment or order in relation to which the bankruptcy notice is to be issued. These requirements direct attention to the means by which a Registrar can be satisfied that an authenticated judgment or order exists to found the issue of a bankruptcy notice.

5. Where a person is relying on a judgment or order which has been registered in a court under s.21 of the Service and Execution of Process Act 1901, Rule 7(3) requires an affidavit to be filed by a person in whose favour the judgment or order was given, or by some other person cognizant of the facts of the case, stating the amount actually due and unpaid under the judgment or order. Save for that requirement, no provision exists expressly for the placing of affidavit material before the Registrar as to circumstances that have occurred subsequent to the judgment or order sought to found the bankruptcy notice.

6. Applications for the issue of bankruptcy notices are made ex parte and there is no opportunity to challenge or contravert assertions contained in affidavit material put before the Registrar on such an application. In particular, when matters of fact are asserted in that material there is no authentication of the correctness of those assertions, similar to the authentication inherent in the requirements of Rule 7(2).

7. These considerations underline the lack of judicial adjudiction on a crucial element of the alleged obligation to pay, in the present cases. In this case, the order of Mr Justice Sheahan is conditional on its face. The crucial part of his order is:-
   

"And upon the Plaintiff at the office of the Plaintiff's Solicitors at Surfers Paradise on the Thirtieth day of July, 1984 delivering to the Defendant the said transfer accompanied by all instruments of Title free from encumbrances; IT IS FURTHER ORDERED that the Defendant pay to the Plaintiff the sum of ONE HUNDRED AND SIXTY SEVEN THOUSAND FOUR HUNDRED AND FIFTY DOLLARS

($167,450.00) (adjusted as required by the terms of the said agreement)

IT IS FURTHER ORDERED that the Plaintiffs give to the Defendant vacant possession of the property hereinbefore referred to".

1. The vendors' obligations under the specific performance order were to deliver to the purchaser the transfer accompanied by all instruments of title free from encumbrance and to give vacant possession of the property. Only on such delivery, does the obligation to pay the $167,450 as adjusted arise. It cannot be that the vendor can have both the property and the debt.

2. On the making of a specific performance order, the contractual rights of the parties do not merge in the decree. As Lord Wilberforce said in Johnson v. Agnew (1980) AC 367 at p 393:-
   

"... if an order for specific performance is sought and it is made, the contract remains in effect and is not merged in the judgment for specific performance."

1. See also Sudagar Singh v. Nazeer (1978) 3 All ER 817 at 831; Jaq Investment v. Strati (1981) 2 NSWLR 600 at 603.

2. Where a purchaser does not fulfil the obligations imposed by a specific performance order, the vendor can go to the Supreme Court to seek to have those obligations enforced by whatever machinery is available for that purpose in the Supreme Court, or it can elect to accept the further repudiation and go back to the Supreme Court for a variation of the decree entitling it to damages, in which case there must be an assessment of damages. Those avenues are all incompatible with the existence of an unconditional debt.

3. As to whether the specific performance order is a "final order, the execution of which has not been stayed", I am satisfied that the order in this case made against Mr McConnon is a "final order". In In re a Debtor (1912) 3 KB 242, in an action against the debtor for specific performance of a contract to purchase real estate an order was made on February 17, 1911, that upon the plaintiffs executing a conveyance, to be settled by the judge in case the parties differed, the defendant should pay to the plaintiffs at such time and place to be agreed upon or fixed by the judge, but not before July 6, 1911, the sum of 2400 l., representing the agreed amount of principal and interest payable under the contrct on March 1, 1911, and it was ordered that the plaintiffs' costs should be taxed and paid by the defendant, and that all further proceedings in the action be stayed except for the purpose of carrying the order into effect.

1. On January 12,1912, the Master certified that the conveyance had been settled and executed, and fixed February 12, 1912, as the date for the payment of the 2400 l.

2. On March 23, 1912, the plaintiffs issued and served upon the debtor a bankruptcy notice to pay the sum of 2400 l. "due on a final judgment or order" dated Feberuary 17, 1911, "whereon execution has not been stayed". It was argued that the judgment was not a "final judgment". At p 245, Cozens-Hardy M.R. said:
   

"First it is said that this is not a final judgment. If this is not a final judgment I cannot conceive anything that is. There is nothing more to be done in this matter. It was a final adjudication of the rights of the parties the result of which was that on a day to be thereafter named, and subject to conditions which had to be fulfilled, and which in fact have been fulfilled, the sum of 2400 pounds became payable."

and at p 246 he said:-

"The judgment is final; it is a complete adjudication between the parties; it is binding and no further question can arise; it is a final adjudication between the parties to a proper litis contestatio ..."

See also Pepper v. McNiece (1941) 64 CLR 642 at pp 646-647 per Rich ACJ.; p 649 per Starke J.; 652 per McTiernan J.; pp 657-658 per Williams J.; Opie v. Opie (1950-1951) 84 CLR 356 at p 372 per Dickson and Williams JJ.; Hall v. The Nominal Defendant (1967-1968) 117 CLR 423 at pp 430,439,433.

1. The order, however, in my opinion, is not one "the execution of which has not been stayed." Order 47 Rule 10 provides:-
   

"10. When a judgment or order is to the effect that any party is entitled to any relief subject to or upon the fulfilment of any condition or contingency, the party so entitled may, upon the fulfilment of the condition or contingency, and upon demand made upon the party against whom he is entitled to relief, apply to the Court or a Judge for leave to issue execution against such party. And the Court or Judge may, if satisfied that the right to relief has arisen according to the terms of the judgment or order, order that execution issue accordingly, or may direct that any issue or question necessary for the determination of the rights of the parties be tried in any manner in which any question or issue of fact in an action may be tried"

1. It is not irrelevant to note the provisions of s.40(3) of the Act. Each of the circumstances contemplated in s.40(3) refer specifically to the power to enforce the award, order or judgment. Section 40(3)(a) refers to leave having been given by a court to enforce an award made on a submission to arbitration. Section 40(3)(b) refers to a judgment or order that is enforceable as, or in the same manner as, a final judgment. Section 40(3)(c) deems that a judgment or order against a married woman that is otherwise final shall be deemed to be a final judgment or final order, notwithstanding that it may not be enforceable at law by execution. Section 40(3)(d) equates the position of a person entitled to enforce a final judgment or final order with a creditor who has obtained a final judgment, or final order, and s.40(3)(e) provides that a judgment or order for the payment of money made by a court exercising bankruptcy jurisdiction is deemed to be a judgment or order, the execution of which has not been stayed, notwithstanding that it may not be enforceable at law by execution. This provision appears subsequent to the decision of Mr Justice Riley in In re Panowitz; ex parte Wilson (1975) 38 FLR 185.

2. In my view, subject to the circumstances contemplated by s.40(3)(c) and (e), a bankruptcy notice cannot validly issue unless there is in the applicant for the bankruptcy notice a right to immediate execution.

3. In Ex parte Blanchett, in re Keeling (1886) 17 QB 303 at p 307, Bowen L.J. said:-
   

"The right to compel a debtor to pay at the risk of committing an act of bankruptcy, by serving on him a bankruptcy notice, is one given only to a creditor who has prosecuted his claim to judgment, and if execution on the judgment has not been stayed - to a creditor between whom and the full fruition of his claim there stands only a process of the law uncompleted. It is only this kind of creditor who is now entitled to issue a bankruptcy notice."

1. In Ex parte Woodall, in re Woodall (1884) 13 QB 479 the Court of Appeal held that an executor of a creditor who had obtained a final judgment could not issue a bankruptcy notice unless he had obtained leave under the Supreme Court Rules to issue execution on the judgment. The court held that under s.4(1)(g) of the Bankruptcy Act 1883 a creditor who issues a bankruptcy notice must be in a position to issue execution on the judgment. At p 482 Baggallay L.J. said:-
   

"... the words ... 'and execution thereon not having been stayed,' ... tend to shew that the creditor spoken of must be a person who is in a position to issue execution upon the final judgment. The original creditor is in that position, if there has been no stay of execution. If the person who applies for the notice is the executor of the original judgment creditor he does not, as I read the sub-section, fill the required character until he has obtained leave to issue execution on the judgment."

Cotton L.J., also at p 482, said:-

"We must also have regard to the words 'execution thereon not having been stayed.' It is true that in the present case execution on the judgment has not been stayed, but those words point to this, that the creditor must be in a position to issue execution. The executrix has not obtained the final judgment, and she is not in a position to issue execution on it."

And Lindley L.J. said at p 483:-

"The words 'execution thereon not having been stayed' shew clearly what sort of a creditor is intended. It must be a creditor who is in a position to issue execution on the judgment; it is assumed that execution might have been stayed."

1. In ex parte Ide, re Ide (1886) 17 QB 755, a creditor had obtained judgment against a firm but did not get the necessary leave of the court to issue execution against the member of the firm on whom he served a bankruptcy notice. It was held that he could not issue a bankruptcy notice because he could not then issue execution. Lord Esher, M.R., said of Mr Ide at pp 758-759:-
   

"He is a person against whom a creditor had obtained a final judgment, but against whom the creditor could not issue execution without leave. Under these circumstances is he a person against whom under s.4, sub-s.(1)(g) of the Bankruptcy Act, a bankruptcy notice can issue upon failure to comply with which he can be made a bankrupt? ... It is true that in the present case execution upon the judgment has not been stayed, but the words seem to me necessarily to imply that the judgment must be one upon which execution could go immediately, unless it was stayed. But here execution cannot go immediately whether it is stayed or not; it cannot go without the leave of the Court. I think, therefore, that this was not a final judgment such as is described in sub-s.

(1)(g) on which a bankruptcy notice could issue."

Bowen L.J. said at p 760:-

"We must look carefully at the words to see if there is not an implication to be found in them, and it seems to me that, from the collocation of the words 'final judgment' and 'execution thereon not having been stayed', a necessary implication arises of this character, viz., that the creditor must not merely have obtained a final judgment but must be in a position to issue immediate execution upon it."

Fry L.J. was of the same view. He said at p 760:-

"It would be very strange if the enactment were that a bankruptcy notice could not be issued when execution on the judgment had been stayed, and yet that a bankruptcy notice could be issued when execution could not go at all without the leave of the Court and the proceedings have not been stayed simply for that reason."

1. Ide's Case was followed in Re Richards; ex parte Summers (1947) 14 ABC 112 where it was held that an assignee of an order for costs can issue a bankruptcy notice against the judgment debtor only if he has first obtained the leave of the court to issue execution thereon.

2. In all of these cases the party seeking the issue of the bankruptcy notice was not in a position to issue execution immediately. In none of them had execution been stayed by any express order of a court.

3. The statement "for this purpose execution is considered to be stayed if, at the date of the issue of the notice, the judgment creditor is not entitled to issue immediate execution on the judgment" in 3 Halsbury, 4th ed., para. 262, in my view accurately summarises the law.

4. At the time of the application for a bankruptcy notice, the present applicant was precluded by the provisions of Order 47 Rule 10 from issuing execution without leave.

5. It follows that the order in each case was not one "the execution of which had not been stayed" and a bankruptcy notice could not validly issue in respect of it.