Kevin Alan Studwell v Australian Fibreglass Pty Ltd

[1980] FCA 77

Re: KEVIN ALAN STUDWELL
Ex parte: AUSTRALIAN FIBREGLASS PTY. LTD.
No. B5234 of 1979
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Lockhart J.

CATCHWORDS

Bankruptcy - bankruptcy notice - application for extension of time with requirements - power to extend time - exercise of discretion not to extend time - application for leave to amend to set aside bankruptcy notice

Bankruptcy Act 1966 (Cth.) s. 33

HEARING

SYDNEY

#DATE 27:5:1980

ORDER

1. Leave to the applicant to amend the application by seeking orders that bankruptcy notice B5234 of 1979 be set aside is refused.

2. The application of 26 November 1979 is dismissed.

3. The order previously made extending time for compliance with the requirements of the bankruptcy notice until further order is terminated.

4. The applicant be released from his undertaking to the court by his counsel that he would not, until the determination of the application or further order, dispose of, deal with, mortgage, pledge or encumber any of his assets otherwise than in the ordinary course of business or for the purpose of meeting ordinary living expenses or legal costs.

5. The applicant pay the respondent's costs of the applications including reserved costs.

JUDGE1

This is an application by Kevin Alan Studwell ("the applicant") for an order that time for compliance with the requirements of a bankruptcy notice be extended for such time as may be necessary for the completion of proceedings to set aside the judgment on which the bankruptcy notice is based.

The bankruptcy notice is dated 16 October 1979 and was served on the applicant on 29 October 1979. The judgment on which it is based was obtained by Australian Fibreglass Pty. Limited ("the respondent") against the applicant in the Supreme Court of New South Wales on 30 July 1979 in the sum of $86,697.93.

It was submitted by counsel for the applicant that this Court has power to extend time for compliance with the requirements of the bankruptcy notice pursuant to s. 33 of the Bankruptcy Act 1966 ("the Act"). It is common ground that the Bankruptcy Amendment Act 1980 does not bear on the application.

Section 33 provides:

"33. (1) The Court may -

(a) upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally;

(b) at any time allow the amendment of any written process, proceeding or notice under this Act; or

(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act for doing an act or thing or abridge any such time.

(2) The Registrar may --

(a) upon such terms as he thinks fit, at any time adjourn any proceeding before him either to a fixed date or generally;

(b) at any time allow the amendment of any written process, proceeding or notice under this Act; or

(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act for doing an act or thing or abridge any such time."

This very question was considered by C. A. Sweeney J. in Lipov v. Alexander Fraser & Son Limited & Anor (1979) 24 A.L.R. 616 where his Honour held that paragraph 33 (1) (c) conferred power on the court to extend time for compliance with a bankruptcy notice. His Honour reached that conclusion after considering s. 27 of the Bankruptcy Act 1924 which provided, amongst other things, that the court may extend, either before or after its expiration, any time limited by that Act for doing any act or thing. He said at p. 618:-

"Under that Act, the court was given power to extend the time for compliance with a bankruptcy notice served in Australia, as that time was plainly limited by that Act, within the meaning of s. 27. Is one to conclude that s. 27 did not confer any power upon the court to extend the time for compliance with a bankruptcy notice served elsewhere, on the ground that, that time being "limited in that behalf by the order giving leave to effect service elsewhere", should not be held to be within the expression "any time limited by this Act for doing any act or thing"? In my opinion, the answer should be plainly in the negative. Clear words would be needed to found the conclusion that, on the true construction of the section, the court was given power to extend the time of seven days set out in s. 52 (j) in respect of service in Australia but had no power under s. 27 to extend the time limited by the order giving leave to effect the service elsewhere. The better view seems to me to be that the expression in s. 27 "any time limited by this Act for doing any act or thing" embraced both the time of seven days and the time limited by an order made pursuant to the power given by the Act."

His Honour then referred to a decision of Lukin J. in Re Grace (1931) 3 A.B.C. 131 in support of his conclusion. He said at pp. 619 and 620:-

"On the view I have formed on s. 27 of the Act of 1924, the court had power to extend time in relation to a bankruptcy notice whether served in Australia or elsewhere. On the contrary view, it had power to do so in relation to a notice served in Australia but not to one served elsewhere. Applying this contrary view to the present Act, s. 33 would confer no power upon the court to extend time in relation to any bankruptcy notice, whether served in Australia or elsewhere, as in each case the time is to be ascertained not merely from a reading of the Act, but also from a consideration of the terms of the notice, including the time fixed by the Registrar or of the order giving leave to effect the service elswhere. In my opinion, a time so fixed by the Registrar or by the Order giving such leave is a time limited by the Bankruptcy Act 1966 within the meaning of s. 33 (1) (c). This construction has been acted upon by the courts in respect of many bankruptcy notices."

Counsel for the respondent submitted that I should not follow Lipov's Case for the following reasons:-

(a) The question was not argued in Lipov's Case. Counsel for the judgment creditors conceded there that the court had power to enlarge the time for compliance with the bankruptcy notice. The argument in that case was whether the power should be exercised by the court.

(b) The terms of the 1924 Act and the Act are different in material respects. In particular, paragraph 41 (2) (a) of the Act provides that the prescribed form of bankruptcy notice shall be such that the notice requires the debtor named in it within a specified time (being the time referred to in sub-paragraph (i) or (ii) of paragraph (g) of sub-section (1) of s. 40, whichever is appropriate) to pay the judgment debt or to secure its payment or to compound it. One is then referred back to paragraph 40 (1) (g) which provides that the time to pay the judgment debt or secure or compound it, where the notice was served in Australia, is the time fixed by the Registrar by whom the notice was issued. Also, the prescribed form, form 4, suggests that it is for the Registrar to complete the requisite time.

(c) The power to extend time conferred by paragraph 33 (1) (c) is in respect of any time limited "by" and not "under" the Act. The distinction between the two is important and is well recognised as appears from Attorney-General v. Chapman 1891 2 Q.B. 526; Elve v. Boyton 1891 1 Ch. D. 501 and Re Smith 1896 2 Ch. D. 590.

(d) The fact that anomalies may result from the absence of a power to extend under both the 1924 Act and the Act is not to the point.

(e) The bankruptcy notice is the Registrar's document. It is he who fixes the time for compliance with its requirements. As it is well established that the Registrar, in exercising his power of issuing bankruptcy notices, is not exercising the judicial power of the Commonwealth but is acting ministerially (see Re Moss; Ex parte Tour Finance Limited (1969) 13 F.L.R. 101 and Re Maddox (1979) 24 A.L.R. 279) the court will be slow to conclude that it has power to extend time for compliance with a bankruptcy notice unless the words of the relevant section purporting to confer the power do so in clear and unambiguous language. Paragraph 33 (1) (c) is not so expressed.

I have briefly summarised the argument and in so doing have doubtless done it less than justice; but as I have reached the conclusion that on the evidence before me the application should be refused, it is not necessary for me to decide this point. Also the question may be academic in the future because the Bankruptcy Amendment Act 1980 expressly excludes from the ambit of s. 33 orders for extension of time for compliance with the requirements of bankruptcy notices (see s. 20 of the amending Act) and goes on to confer express power on the court to extend time for compliance with the requirements of a bankruptcy notice where proceedings to set aside the judgment in respect of which the bankruptcy notice was issued have been instituted or application to set aside the notice has been filed (see s. 24 of the amending Act). These amendments came into operation on 8 April 1980.

I turn to the evidence. The respondent sued the applicant in the Supreme Court of New South Wales, Common Law Division, claiming $86,497.93 together with interest. Two causes of action are alleged in the statement of claim. The first allegation is that by agreement in writing of 17 May 1976 the applicant guaranteed to the respondent the payment of sums of money which may at any time or from time to time become due owing or payable or be unpaid from Studwell Pty. Limited ("the company") to the respondent; that the company defaulted in payment of moneys due and owing by it to the respondent in the sum of $86,497.93; that the guarantee provided that the amount payable by the applicant shall not exceed $50,000.00 exclusive of interest; and that a demand in writing was made by the respondent upon the applicant and the applicant has failed to pay the maximum sum of $50,000.00. Second, it is alleged that in addition to the liability under the guarantee the applicant and one Ross Studwell, in consideration of the respondent extending credit to the company, agreed that in the event of the non payment of certain bills of exchange on the due dates, they would furnish to the respondent bank cheques for the amounts referred to in each of the bills on the dates referred to therein; that various of the bills have been dishonoured and the applicant and Ross Studwell failed to furnish to the respondent the bank cheques; and that the respondent claims from the applicant and Ross Studwell $44,000.00 being part of the said sum of $86,497.93.

The applicant has sworn affidavits in which he deposes to facts intended to establish that as to $21,497.93 of the $86,497.93 claimed by the respondent, the company never was indebted to the respondent as goods were not supplied on credit by the respondent to the company in that sum. Hence as no primary liability arose from the company to the respondent, no liability arose under the guarantee from the applicant to the respondent. As to the balance of $65,000.00 counsel for the applicant informed me that the applicant had no defence; save that the company was propounding cross-claims against the respondent in a sum of money exceeding the total claimed by the respondent from the company namely, a sum in excess of $86,497.93.

Under the agreement by way of guarantee the applicant guaranteed to the respondent:-

"the due payment to you on demand in writing by you or your behalf of all sums of money which may at any time or from time to time hereafter become due owing or payable or be unpaid from the company to you on a floating balance of account in respect of goods so supplied to the company while this guarantee remains in force. . . ".

It is not disputed that the company is liable as principal debtor to the respondent as to $65,000.00. The guarantee is to pay without qualification or deduction to a limit of $50,000.00. The guarantee is different from the guarantee that was construed by the Court of Appeal of New South Wales in Langford Concrete Pty. Limited v. Finlay 1978 1 N.S.W.L.R. 14. There the guarantee was so formulated that the guarantor agreed to pay what the principal debtor could have been compelled to pay. That is not the case here. Plainly the applicant could not raise the company's proposed cross-claim against the respondent to avoid liability under the guarantee.

I approach the matter on the footing that there is no dispute that the applicant is indebted to the respondent in the sum of at least $50,000.00 and that he has no answer to the respondent's claim against him to that amount.

Although the bankruptcy notice claims a greater sum than $50,000.00 namely, $86,697.93, the bankruptcy notice is not vitiated: see sub-s. 41 (5) of the Act.

In these circumstances there is no point in exercising any discretion the court may have to extend time for compliance with the requirements of the bankruptcy notice.

Application has been made by the applicant to the Supreme Court of New South Wales to set aside the judgment; but in all the circumstances I do not think that fact would lead to the exercise of any discretion by this Court to extend time.

In my opinion the application should be dismissed.

Application was made by the applicant, during the hearing of the application, for leave to amend the application by seeking orders that the bankruptcy notice be set aside in the exercise of the Court's inherent jurisdiction.

The respondent opposed the granting of leave to amend on the ground that it would be futile to allow the amendment because the court does not have inherent jurisdiction to set aside bankruptcy notices and, even if it did, the court would not set aside the notice in the exercise of its discretion. It was submitted that the evidence is so strongly against the applicant's case he must fail in any application to set aside the notice.

Counsel for the applicant submitted that the court has inherent jurisdiction to set aside bankruptcy notices for the following reasons:-

1. There are numerous cases in England where bankruptcy notices have been set aside on various grounds. In re Howes (1912) 3 K.B. 1 a bankruptcy notice was set aside as it was not in accordance with the terms of the judgment and was calculated to perplex the debtor. In Re H. B. (1904) 1 K.B. 94 the bankruptcy notice was held to be bad as it did not comply with the terms of the judgment. In Re Millar (1912) 3 K.B. 1 the bankruptcy notice could not be issued for the whole of a judgment debt where the judgment debtor paid money into court in part satisfication of the debt. These are but three examples of the exercise of the jurisdiction by the English Courts.

2. Australian Courts exercising jurisdiction in bankruptcy have purported to exercise their inherent jurisdiction by setting aside bankruptcy notices both before and after the Australian Bankruptcy Act 1924 came into force. Two cases are:-
Wilkinson v. Osborne & Anor. (1915) 21 C.L.R. 89 where the High Court held that a bankruptcy notice may be set aside on the ground that in truth no debt lay behind the judgment of the petitioning creditor. The court held that the contract upon which the judgment was obtained was void as against public policy and therefore could not be the foundation of proceedings in bankruptcy;
Re Partridge (1945) 13 A.B.C. 185 where Clyne J. held that a bankruptcy notice may be set aside on the ground that the sum of which payment was required by its terms had in fact been paid by the debtor or that the judgment did not constitute a debt.

3. There are numerous reported cases where the courts having jurisdiction in bankruptcy both here and in the United Kingdom have gone behind the judgment to find if there was in reality a debt due by the debtor to the petitioning creditor. Generally this power has been exercised by the court on hearing the petition for sequestration. Instances of the exercise of this jurisdiction are where the judgment is obtained by default or where the circumstances tend to show fraud or collusion or miscarriage of justice or where the judgment is obtained by compromise and the compromise and surrounding circumstances tend to show that the compromise was not a fair and reasonable one: see In Re Flatau; Ex parte Scotch Whiskey Distillers Limited (1888) 22 Q.B.D. 83; In Re Hawkins; Ex parte Troup 1895 1 Q.B. 404 especially per Lord Esher at p. 409; Corney v. Brien (1951) 84 C.L.R. 343; and Wren v. Mahoney (1972) 126 C.L.R. 212. 4. There is no reason in principle why this jurisdiction should be narrower when the court is hearing an application to set aside a bankruptcy notice.

Counsel for the respondent submitted that the court does not have inherent jurisdiction to set aside bankruptcy notices for the following reasons:-

1. The only possible head of inherent jurisdiction could be the power of the Court to control its own process, practice and procedure, except to the extent that its power in that regard in some particular respect is expressly taken away or regulated by Statute or by some Rule of Court by which it is bound. Examples of the exercise of this power are hearing a proceeding in camera if justice can be done only by excluding the public: Scott v. Scott 1913 A.C. 417; staying actions as being vexatious: Cox v. Journeaux (No. 2) (1935) 52 C.L.R. 713; controlling the right of audience before the court and varying or setting aside its own judgments: Vacuum Oil Pty. Limited v. Stockdale (1942) 42 S.R. (N.S.W.) 243.

2. Setting aside bankruptcy notices does not fall within the scope of this head of power. The bankruptcy notice is the Registrar's document and not that of the court. The Act is careful to draw a distinction between those matters that fall for the court to determine in the exercise of the judicial power of the Commonwealth and matters in which the Registrar acts ministerially: see Re Moss (supra) and Re Maddox (supra).

3. Under Commonwealth law, it has been recognised that the court can set aside a bankruptcy notice if execution of the debt has been stayed: see Re Holder (1931) 4 A.B.C. 37; but in that case the question before the court was whether there had been a stay before the issue of the bankruptcy notice as a result of the Moratorium legislation of Queensland.

4. The exercise by State Courts, before the Bankruptcy Act 1924 came into force, of jurisdiction to set aside bankruptcy notices sometimes had a statutory basis: for example sub-s. 4 (3) of the Bankruptcy Act (N.S.W.) 1898. At other times the courts purported to exercise inherent jurisdiction because the bankruptcy notice was issued by the Registrar of the Court so that it was in truth the court's document and part of its process. The position is entirely different under the Act because it is an enactment of the Commonwealth Parliament and draws a careful distinction between the exercise of judicial power by the Court and of ministerial power by the Registrar in Bankruptcy.

5. Although there are cases where courts exercising Federal jurisdiction in bankruptcy have set aside bankruptcy notices, presumably in the purported exercise of inherent jurisdiction, it does not appear from the reports of those cases that the question of jurisdiction was argued or even mentioned.

I do not find it necessary to decide whether the court has inherent jurisdiction to set aside bankruptcy notices for the reasons I have given already as to the questions involving s. 33 of the Act namely, that on the evidence the application should be refused and the Bankruptcy Amendment Act 1980 may render the question academic in the future.

So that the application could be fully argued by counsel at suitable times, and as I thought it appropriate to reserve my decision, I made an order extending time for compliance with the requirements of the bankruptcy notice until further order and noted an undertaking to the Court from the applicant by his counsel that he would not, until the determination of the application or further order, dispose of, deal with, mortgage, pledge or encumber any of his assets otherwise than in the ordinary course of business or for the purpose of meeting ordinary living expenses or legal costs.

I propose to dismiss both the application for leave to amend the application and the substantive application itself. I will terminate the order extending time for compliance and release the applicant from his undertaking.

I make the following orders:-

1. I refuse leave to the applicant to amend the application by seeking orders that bankruptcy notice B5234 of 1979 be set aside in the exercise of the Court's inherent jurisdiction;

2. I dismiss the application of 26 November 1979;

3. I terminate the order previously made extending time for compliance with the requirements of the bankruptcy notice until further order;

4. I release the applicant from his undertaking to the Court by his counsel that he would not, until the determination of the application or further order, dispose of, deal with, mortgage, pledge or encumber any of his assets otherwise than in the ordinary course of business or for the purpose of meeting ordinary living expenses or legal costs.

5. I order the applicant to pay the respondent's costs of the applications before the Court including reserved costs.