Kehoe v Williams
[2008] FMCA 1371
•3 October 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KEHOE v WILLIAMS | [2008] FMCA 1371 |
| BANKRUPTCY – Application to set aside bankruptcy notice or to extend the time for compliance – certificate of judgment based on costs assessment – where debtor unsuccessfully sought leave to extend the time in which to appeal from the costs assessment and has filed summons seeking leave to appeal from refusal to extend the time – application dismissed. |
| Bankruptcy Act 1966 (Cth), ss.40, 41 |
| Bryant v Commonwealth Bank of Australia [1994] FCA 1474 Hubner v ANZ Banking Group Ltd (unreported Federal Court of Australia, Dowsett J, 7 December 1998) Shepherd v Chiquita Brands (South Pacific) Ltd [2003] FCA 841 |
| Applicant: | STEPHEN BERNARD KEHOE |
| Respondent: | JOHN SEGAR WILLIAMS |
| File Number: | SYG 568 of 2008 |
| Judgment of: | Barnes FM |
| Hearing date: | 16 September 2008 |
| Delivered at: | Sydney |
| Delivered on: | 3 October 2008 |
REPRESENTATION
| Solicitors for the Applicant: | BDA Legal |
| Counsel for the Respondent: | W Langley |
| Solicitors for the Respondent: | Townsends Business & Corporate Lawyers |
ORDERS
That the application of 10 March 2008 be dismissed.
That the applicant pay the costs of the respondent taxed in accordance with the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 568 of 2008
| STEPHEN BERNARD KEHOE |
Applicant
And
| JOHN SEGAR WILLIAMS |
Respondent
REASONS FOR JUDGMENT
Background
The applicant, Mr Kehoe, seeks an order that Bankruptcy Notice NN4910/07 be set aside and in the alternative that there be an extension of time for compliance with the bankruptcy notice.
The bankruptcy notice was based on a debt that was said to arise from a costs order made on 1 March 2007 by the New South Wales Supreme Court, Court of Appeal in proceedings between the parties. Mr Kehoe, the unsuccessful applicant for leave to appeal from a decision of McClellan J, was ordered to pay Mr Williams’ costs.
On 21 May 2007 Mr Williams, the respondent in these proceedings, filed an application for assessment of the costs in the Supreme Court. On 25 July 2007 the costs assessor issued a certificate as to determination of costs. On 19 September 2007 the cost assessor’s determination was registered as a judgment in the Local Court of New South Wales. On 5 December 2007 Bankruptcy Notice NN4910/07 was issued founded on that judgment. On 18 February 2008 the bankruptcy notice was served on Mr Kehoe.
This application
On 10 March 2008 the applicant filed an application in this Court seeking an order setting aside the bankruptcy notice and interim orders staying process under the bankruptcy notice until determination of that application. He also sought an extension of time for compliance with the bankruptcy notice to 31 March 2008. The application stated that this was to enable him to file the necessary documents in the Supreme Court of New South Wales to “set aside” the costs assessment and/or to enable him to “reconstitute” in the New South Wales Court of Appeal an appeal in proceedings No. 40291/06 on the basis that successful prosecution of that appeal would provide him with a set-off against the claim by the respondent.
On 28 March 2008 the applicant sought an extension of time in which to appeal from the costs assessment in the Supreme Court of New South Wales and consequential orders if the extension of time was granted. The application to grant an extension of time was refused and the summons dismissed by Harrison AJ on 8 August 2008 (see Kehoe v Williams [2008] NSWSC 807). On 5 September 2008 Mr Kehoe filed a summons seeking leave to appeal from the decision of Harrison AJ to the New South Wales Court of Appeal.
It emerged in oral submissions by the applicant’s solicitor that the applicant now seeks to have the bankruptcy notice set aside or, in the alternative, an extension of time for compliance with the bankruptcy notice until after 10 November 2008, the first return date in the New South Wales Court of Appeal for the summons seeking leave to appeal from the decision of Harrison AJ.
Setting aside the bankruptcy notice
In written submissions it was claimed that the applicant disputed the costs determination and the process by which it was made and submitted that the bankruptcy notice should be set aside because he had sought leave to appeal to the Court of Appeal and had also sought a stay in respect of the costs determination.
The applicant contended that the nature of the application for leave to appeal was to “put squarely into dispute” the order on which the bankruptcy notice was based. It was submitted that such an appeal was in the nature of proceedings to set aside the judgment in respect of which the bankruptcy notice was issued and that if it was successful and the costs determination set aside the basis for the judgment on which the bankruptcy notice was founded would cease to exist. It was contended that the applicant should not be put in the position of committing an act of bankruptcy when the basis on which the act of bankruptcy was founded was in dispute.
The solicitor for the applicant confirmed that no issue was taken with the form or content of the bankruptcy notice. Nor was any issue raised in relation to issue or service of the notice and it was not suggested that there was any abuse of process.
I note first that despite the reference in the application of 10 March 2008 to the applicant’s desire to reconstitute an appeal to the New South Wales Court of Appeal in the proceedings which resulted in the initial costs order, there is no evidence before the Court that any such appeal has been “reconstituted” or as to the basis for any proposed “reconstitution” of an appeal.
The affidavit sworn by Mr Kehoe and filed on 10 March 2008 accompanying the application to set aside the bankruptcy notice does not reveal grounds in support of the application to set aside the bankruptcy notice (except insofar as it was indicated that he intended to reconstitute his appeal in the substantive proceedings in the Court of Appeal which led to the original costs order in favour of Mr Williams). The affidavit does not detail the claimed set-off which it was suggested prosecution of such appeal would provide or show that the set-off could not have been set up in the original action in accordance with Rule 3.02(2) of the Bankruptcy Rules. Nor have any such details been provided to the Court. The material before the Court was not effective to extend the time for compliance with the bankruptcy notice under s.41(7) of the Bankruptcy Act 1966 (Cth) (see Webb v Hunter (1995) 59 FCR 24).
On 26 August 2008 a Registrar of this Court ordered the applicant to file and serve any additional evidence to support the grounds in his application (including in relation to setting aside the bankruptcy notice) by 5 September 2008. He did not do so. A copy of the summons seeking leave to appeal from the decision of Harrison AJ in relation to the application for an extension of time in which to appeal from the costs assessment and accompanying documents were tendered in Court.
The evidence is not such as to satisfy the Court that the bankruptcy notice should be set aside on the basis that the applicant has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt or sum payable under the final order that he could not have set up in the action or proceeding in which the judgment or order was obtained within s.40(1)(g) of the Act. There is nothing in the material before the Court to establish that the debtor has a “prima facie case” or “a fair chance of success” (see Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at 438 – 9 per Lockhart J and ReGlew; Glew v Harrowell Of Hunt & Hunt Lawyers (N7350 of 2002) (2003) 198 ALR 331) such that it is just that the claim that the applicant makes in relation to an intention to seek to “reconstitute” an appeal to the New South Wales Court of Appeal should be determined before the bankruptcy proceedings are allowed to continue. The debtor has not shown the existence of a counter-claim set-off or cross-demand by producing evidence. As Jacobson J pointed out in Dekkan v Evans [2008] FCA 1004 at [54] it is not sufficient that a debtor believes he has a genuine claim.
The primary basis on which the applicant seeks that the bankruptcy notice be set aside relies on the fact that he has sought leave to appeal to the Court of Appeal from the decision of Harrison AJ refusing his application for extension of time to appeal from the costs assessment. While in one sense it could be said that issue is taken with the existence or validity of the judgment debt on which the bankruptcy notice was founded, the solicitor for the applicant confirmed that the Court was not being asked in these proceedings to go behind the certificate of judgment or costs assessment on which the bankruptcy notice was founded. Rather the applicant relies on the fact of the application for leave to appeal to the Court of Appeal as the reason to set aside the bankruptcy notice.
Insofar as it is asserted that the costs assessment should not have taken place or is otherwise disputed, it is relevant that after the application to this Court was filed on 10 March 2008 the applicant unsuccessfully sought an extension of time in which to appeal from the costs assessment. The decision of Harrison AJ is before the Court. In submissions for the applicant no issue was taken with the decision other than reliance on the fact that the applicant now seeks leave to appeal from the decision. It appears from that decision that the applicant objected to the fact that the costs determination was made, although he had not provided a statement of objections to the cost assessor. He claimed he was denied procedural fairness. He also took issue with some of the costs allowed. However Harrison AJ considered that no practical injustice had been occasioned to Mr Kehoe and also observed that as at the time of the judgment Mr Kehoe had still not outlined the basis of his objections to the amounts claimed in the bill of costs. Harrison AJ addressed the matters McHugh J suggested in Gallo v Dawson (1990) 64 ALJR 458 at 480 should be considered in an application for leave to bring an appeal out of time, including the history of the proceedings, the prospects of the applicant succeeding and any explanation for the delay in making the application.
The applicant’s prospects of success were not addressed in submissions. Rather, it was submitted by the solicitor for the applicant that the facts in this instance were analogous to a situation in which a bankruptcy notice was based on a default judgment. It was contended that where there was an application to set aside a default judgment the court would normally adjourn or extend the time for compliance with a bankruptcy notice until after the application to set aside the default judgment had been determined. Insofar as this contention is now raised as a basis for setting aside the bankruptcy notice, the analogy is not apt.
In this case, the basis for the bankruptcy notice was a costs assessment and the resultant certificate of judgment in the Local Court. The applicant has had an opportunity to have that costs assessment reviewed, insofar as he sought an extension of time within which to appeal the costs assessment (and on that basis sought orders invalidating the costs assessment and a stay). He participated in the proceedings before Harrison AJ. He was unsuccessful. If an analogy can be drawn in relation to a default judgment (albeit this would seem more relevant to the application to extend the time for compliance with the bankruptcy notice), he has had the opportunity to seek to have the costs assessment “set aside” in that his application for an extension of time to appeal (in which the prospect of success in any appeal were addressed by Harrison AJ) has been determined. The suggested analogy does not assist the applicant in relation to the present application for leave to appeal to the Court of Appeal. The mere fact that the applicant seeks leave to appeal from a decision refusing an extension of time in which to appeal is not such as to establish that the bankruptcy notice should be set aside.
Reference was made to the decision of Nicholls FM in Rutkowski & Anor v Meriton Apartments Pty Ltd [2006] FMCA 549 in which his Honour considered an application to set aside a bankruptcy notice and in the alternative an application for an extension of time to comply with a bankruptcy notice. In that case the bankruptcy notice was based on a judgment of the District Court of New South Wales. The applicant had filed a notice of motion to set aside the judgment and sought that enforcement proceedings pursuant to the judgment be stayed until after the determination of the notice of motion. Nicholls FM dismissed the application.
The applicant relied on a discussion in Rutkowski of the decision of Gray J in Vasiliou v Tasiopoulos Lambros & Co [2005] FCA 1577. In that case Gray J was considering an appeal from a decision of a Federal Magistrate dismissing an application to review a Registrar’s refusal to set aside a bankruptcy notice as well as an appeal from a decision of another Federal Magistrate dismissing an application for review of a sequestration order subsequently made against the same debtor. Gray J found no error in either judgment of the Federal Magistrates Court. In relation to the application to set aside the bankruptcy notice his Honour had regard to the fact that the debt underlying the bankruptcy notice was a default judgment, that there had been an unsuccessful application to set aside that default judgment, that a further such application had been refused and that the debtor had then made an application to the Supreme Court described as an “application to appeal”. Despite this, the bankruptcy notice had not been set aside. Gray J stated that he was unable to detect any error in the reasons for judgment of the Federal Magistrate. Relevantly, his Honour referred to the absence of detail from the debtor to indicate that he would have been able to defeat the underlying claim that was the basis for the default judgment (a claim for legal fees). Gray J found that the Federal Magistrate was entitled to rely on the fact that the debtor had made an unsuccessful application to set aside that judgment on which he had been heard and that to the extent that the Federal Magistrate had a discretion to go behind the judgment he had properly considered matters that went to the weight to be given to attempts to set aside the judgment in the absence of material indicating that those attempts would have any prospects of success (at [29]).
These principles do not assist the applicant in this case. In this case, as in Vasiliou, the applicant has had an opportunity to seek to appeal from the cost assessment. He did not do so within the specified time and hence had to proceed by way of an application for an extension of time in which to appeal the costs assessment. That application was considered but was unsuccessful. Harrison AJ had regard to the debtor’s explanation for the delay in commencing proceedings which was found not to be satisfactory and also considered the fact that he had not outlined the basis of his objections to the amounts claimed in the bill of costs. His prospects of success were addressed. Harrison AJ was of the view that the chance of Mr Kehoe being granted leave to appeal on the grounds he had outlined was “very unlikely” (at [21]) and found that there had been no practical injustice occasioned to him in relation to the costs assessment (at [24]).
The present application to the Court of Appeal is not an appeal on the merits as such. Rather it is an application for leave to appeal from a decision refusing an extension of time in which to appeal from the costs assessment. The grounds of appeal in support of the summons seeking leave to appeal to the Court of Appeal and his prospects of success were not addressed in submissions for the applicant.
The argument for the applicant turned not on the arguability of the grounds he intends to rely on before the Court of Appeal, but rather on the mere fact that he had brought an application for leave to appeal to the Court of Appeal. No authority was cited in support of the proposition that the mere existence of such an application is a sufficient basis to set aside a bankruptcy notice. While the application to the Court of Appeal was commenced within a month of the decision of Harrison AJ, there was a considerable delay between the time of the costs assessment and the application for an extension of time to appeal. The reasons for this delay were not expressly addressed in Mr Kehoe’s affidavit of 10 March 2008, although some of the attached correspondence refers to a challenge to the costs assessment. As indicated, Harrison AJ was of the view that Mr Kehoe had not provided a satisfactory explanation for the seven month delay in seeking to appeal against the costs assessment, although it appears from the proposed grounds of appeal to the Court of Appeal that Mr Kehoe disputes this. As to his prospects of success, it is important to have regard to the fact that even if Mr Kehoe succeeds in his application to the Court of Appeal that of itself will not result in the setting aside of the costs assessment as discussed further below.
I am not persuaded on the material before me that the bankruptcy notice should be set aside on the basis of the existence of the summons for leave to appeal against the decision not to grant an extension of time in which to appeal from the costs assessment or any other basis.
Extension of time for compliance
In the alternative, if the Court did not set aside the bankruptcy notice, the applicant sought that the time for compliance be extended. It was clarified that the extension of time sought at this stage was until after the first return date for the summons seeking leave to appeal from the decision of Harrison AJ. It was submitted that s.41(6A) of the Bankruptcy Act applied. Section 41(6A) is as follows:
Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
As indicated above, the applicant filed a summons on 28 March 2008 seeking an extension of time in which to appeal the costs assessment and orders invalidating the costs assessment as well as a stay on any enforcement proceedings taken by the creditor in relation to the costs assessment. That was before the time for compliance with the bankruptcy notice expired. Adjournments were granted in this Court to enable that application to be determined. That application was unsuccessful and on 5 September 2008 the applicant filed the summons seeking leave to appeal at a time at which the time for compliance with the bankruptcy notice had been extended by order of a Registrar of this Court.
The institution of an appeal against a judgment, including an application for special leave to appeal to the High Court (O’Loughlin v Glenmont Investments Pty Limited (2001) 191 ALR 336 at [4] per Mansfield J) can in some circumstances constitute proceedings to set aside the judgment or order within s.41(6A)(a) (see Bryant v Commonwealth Bank of Australia [1994] FCA 1474). An issues arises as to whether a summons seeking leave to appeal from a decision to refuse an extension of time within which to appeal does constitute “proceedings to set aside” the costs assessment or the Local Court Certificate of Judgment that formed the basis for the bankruptcy notice within s.41(6A)(a) (see Sol Theo v Official Trustee [1997] FCA 319 and Hubner v Australia & New Zealand Banking Group Ltd unreported, Federal Court of Australia, Dowsett J, 7 December 1998, affirmed on appeal (1999) 88 FCR 445). As the solicitor for the respondent pointed out, even if the applicant was to succeed in the summons seeking leave to appeal that would not necessarily mean that the costs assessment would be set aside. The result of such success would simply be that the applicant had leave to appeal from the costs assessment. In any event, even if the pre-requisites in s.41(6A) are met and s.41(6C) does not apply, the Court has a discretion as to whether to extend the time for compliance with the bankruptcy notice.
The discretion conferred on the Court under s.41(6A) is “at large” (see Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 270 and Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377 at 379). It should be exercised having regard to all relevant factors (Warner v Frost [1999] FCA 830 at [6]) per Hely J and Wenkart v Abignano (unreported, Federal Court of Australia, 28 August 1998 per Hill J) and not fettered by any particular rules (Shepherd v Chiquita Brands (South Pacific) Ltd [2003] FCA 841 at [12] and see my decision of Sidhom v Euphoric Pty Ltd (2006) 232 ALR 618).
In all the circumstance of this case the fact that the applicant has instituted proceedings seeking leave to appeal from the decision not to extend the time in which to appeal is not such to satisfy me that it is appropriate to further extend the time for compliance with the bankruptcy notice.
It is relevant to have regard to whether there is an arguable appeal. I have considered the nature of the proceedings presently before the Court of Appeal and the applicant’s prospects of success in relation to setting aside the costs determination that is the basis for the judgment on which the bankruptcy notice is founded, insofar as that can be assessed on the basis of the submissions and material before the Court. The submissions for applicant did not address the issue of whether there was an arguable case in relation to the application for leave to appeal. There is no concession to that effect (cf Sidhom). The material before the Court is not such as to establish the applicant’s prospects of success in those proceedings or that there is an arguable basis on which to set aside the costs determination, having regard to the reasons for judgment of Harrison AJ and bearing in mind that the application to the Court of Appeal is an application for leave to appeal in relation to a decision not to grant an extension of time within which to appeal from the costs determination. Even if the present application for leave to appeal is arguable and has been instituted in good faith and diligently prosecuted, it is not such as to warrant a further extension of time for compliance with the bankruptcy notice.
While a stay of execution was sought, no stay was granted by Harrison AJ. The application to the Court of Appeal also seeks a stay. However that is only one factor in determining whether to grant an extension of time for compliance with a bankruptcy notice (see Sidhom v Euphoric Pty Ltd (2006) 232 ALR 618).
There is no evidence before me as to the possible impact of any decision in relation to an extension of time to comply with the bankruptcy notice on any related legal proceedings (in that respect I note the foreshadowed intention to attempt to “reinstate” the underlying proceedings that led to the costs order). This is not a matter that weighs in favour of an extension of time for compliance.
No argument was put to the Court in relation to possible prejudice to the debtor attendant upon the commission of an act of bankruptcy by virtue of non-compliance with the bankruptcy notice. I bear in mind in that respect the distinction between an application to extend time for compliance with a bankruptcy notice and the principles to be applied where the issue is whether a creditor’s petition should be adjourned or dismissed, given the difference between the commission of an act of a bankruptcy and the change of status brought about by the making of a sequestration order (see Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 270 per Lehane J). As Kenny J pointed out in Liew v JNS Technologies (M) Sdn Bhd [1999] FCA 1428 at [13] in relation to this distinction:
The refusal of the application [to extend time for compliance with a bankruptcy notice] will not affect the status of the debtor but it will mean that he, in all probability, will commit an act of bankruptcy. That act of bankruptcy will be available to the petitioning creditors or to any other creditor upon which to base a bankruptcy petition at any time in the period of six months after the act of bankruptcy has been committed. Otherwise the debtor's position will remain unaffected by what the Court does. [Emphasis added.]
I note that when this matter came before the Court on 16 September 2008 the applicant did not seek a further extension of time for compliance with the bankruptcy notice. When the hearing proceeded on 19 September 2008 the solicitor for the respondent did not dispute that the Court had power to extend the time for compliance until judgment, notwithstanding that at that time the time for compliance with the bankruptcy notice had already expired (see Streimer v Tamas (1981) 37 ALR 211 and Re Conte; Ex parte Conte v Deputy Federal Commissioner of Taxation (1990) 27 FCR 120). In any event, the issue of the commission of an act of bankruptcy is not such as to weigh heavily in favour of an extension of the time for compliance with the bankruptcy notice in these proceedings.
It is also relevant to have regard to any possible prejudice to the creditor. There has been a considerable delay in this matter already. The time for compliance with the bankruptcy notice has been extended on a number of occasions in order to enable the applicant to proceed with the application for an extension of time for leave to appeal in the Supreme Court, notwithstanding that he did not file that application until five months after the Supreme Court advised him of the process of costs review and appeal. Such extension of time has already had the effect of delaying the commission of any act of bankruptcy by the debtor, a matter that may be of some importance to any petitioning or other creditor and to a trustee in bankruptcy (see Re Howarth; Ex parte Mortgage Acceptance Nominees Ltd (1993) 43 FCR 587; Panton v Deputy Commissioner of Taxation [1999] FCA 22). Moreover while the present extension of time sought is until after the first court date in the Court of Appeal, it is apparent that a lengthier extension of time may be sought once the time at which the matter will be heard by the Court of Appeal is known.
There has been some significant delay already in this matter by virtue of the extensions of time that were granted since this matter first came before this Court on 25 March 2008. I am not persuaded that any further delay in this matter is desirable in all the circumstances.
On balance I am not persuaded that it is appropriate either to set aside the bankruptcy notice or to grant a further extension of time for compliance with the bankruptcy notice. Accordingly the application should be dismissed with costs.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 3 October 2008
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