Lui v Schnabel
[2002] FMCA 274
•15 November 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| LUI v SCHNABEL | [2002] FMCA 274 |
| BANKRUPTCY – Bankruptcy notice – application to extend time for compliance – appeal from court of first instance to Court of Appeal pending – decision of Court of Appeal to refuse stay – distinction drawn between cases where the appeal is the first appeal and cases where appeal is for special leave to High Court. |
Bankruptcy Act 1966 (Cth) ss.41(6A)(a), (b); 41(6C)
Streimer v Tamas (1981) 37 ALR 211
Lipov v Alexander Fraser & Son Limited [1978] 36 FLR 126
re Baker; Ex parte Baker v Staples [1995] FCA 703
Benaharon v Fabric Dyeworks(Aust) Pty Ltd [1998] FCA 1109
Conway v Jackson [2002] 107 FCR 201
Ahearn v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148
Re Geard; Ex parte Reid
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Blacker v National Australia Bank Limited (2001) FMC 7
| Applicant: | KEVIN Y LUI |
| Respondent: | PETER R SCHNABEL |
| File No: | SZ 940 of 2002 |
| Delivered on: | 15 November 2002 |
| Delivered at: | Sydney |
| Hearing Date: | 6 November 2002 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr S Epstein SC |
| Solicitors for the Applicant: | Frank Low Yeung & Co |
| Counsel for the Respondent: | Mr F Kunc |
| Solicitors for the Respondent: | Deacons |
ORDERS
Time for compliance of the bankruptcy notice issued on 21 June 2002 be extended until seven days after the disposition by the New South Wales Court of Appeal of Matter No CA 40463 of 2002 or further order.
Liberty to apply on seven days notice.
Costs reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 940 of 2002
| KEVIN Y LUI |
Applicant
And
| PETER R SCHNABEL |
Respondent
REASONS FOR JUDGMENT
In this matter the applicant seeks an extension of time for compliance with a bankruptcy notice served on 11 September 2002. The time for compliance had already been extended by Registrar Segal until
15 October 2002 and then again to 5 November 2002. The matter came before me on 5 November 2002 but I was unable to deal with it until 6 November 2002. On that day, following the authority of Streimer v Tamas (1981) 37 ALR 211, I extended the time for compliance with the bankruptcy notice until judgment or further order.
The applicant debtor is the subject of a judgment obtained by the respondent creditor in the Supreme Court of New South Wales in the sum of US$3,571,334.77. That judgment was entered on 17 June 2002 although the reasons for judgment upon which it was based were handed down by Bergin J on 1 February 2002. The judgment is subject to an appeal to the New South Wales Court of Appeal that is due to be heard on 19 February 2003. There was placed in evidence before me a red Appeal Book filed on 17 July 2002. There did not seem to be any dispute between the parties that the appeal would go ahead on the date fixed.
Justice Bergin’s judgment dealt with the enforcement of a judgment entered against the debtor by the United States District Court, Central District of California on 20 November 2000 in the following form:
“For Plaintiff Schnabel:
(1)Breach of contract damages in the amount of $930,125.30 plus pre-judgment interest at the rate of 7% per annum from March 26 1998 until the date judgment is entered;
(2)Ford damages in the amount of $2,177,604.00;
(3)Nominal damages of $1.00 for interference with prospective economic advantage;
(4)Punitive damages in the amount of $4,355,208.00; and
(5)Interest as divided by law from the date judgment is entered until paid.”
[All sums in US Dollars].
Justice Bergin in her judgment separated out the element of punitive damages from those of the other damages which she held constituted a valid and enforceable judgment in New South Wales. The amount so separated out is the amount to which I have previously referred and which is the subject of the bankruptcy notice.
The judgment of the United States District Court was itself the subject of an appeal to the Federal Court of Appeals and that appeal has been unsuccessful. In an affidavit filed in these proceedings and sworn on 15 October 2002 Mitchell Mathas, the creditor’s solicitor, deposes to his understanding that the appeal judgment was handed down on 5 September 2002.
On the basis of the above information it becomes clear that as at the date the bankruptcy notice was issued (21 June 2002) and almost up to the date upon which it was served (following an application for substituted service) on 11 September 2002, the debtor had two grounds upon which he could make an application for a stay of Justice Bergin’s judgment. The first was that the original judgment in America was the subject of an appeal and the second was that Justice Bergin’s judgment was the subject of an appeal.
No application for a stay was made to Justice Bergin or to the Court of Appeal until after service of the bankruptcy notice. However, the debtor was the subject of orders in the nature of “Mareva” injunctions preventing him from dealing with his assets other than in the ordinary course of business and requiring him to provide particulars of those assets.
After the issue of the bankruptcy notice (at which time the appeal was on foot) the debtor made a belated application to the NSW Court of Appeal for a stay of execution. Had such a stay been in place prior to the date upon which the notice was issued, it could not have been issued. The purpose of seeking a stay after the issue of a notice was to buttress the debtor’s application under s.41(6A)(b) of the Bankruptcy Act. It was not suggested by Counsel for the creditor that s.41(6C) was relevant to these proceedings and therefore my discretion in the matter was “at large”.
Unfortunately for the debtor, Justice Stein was unsympathetic to his application. His Honour gave extempore judgment on 4 November 2002 in which he rehearsed the history of the proceedings and at
[17-19] said:
“[17 ] It seems to me it is difficult to say other than the appeal appears to be an arguable one, although I tend to the view, at this point of time, that it does not have strong prospects of success. What is however of greater concern to the court is the discretionary issues relating to the dilatoriness of the claiming in bringing this application to court. The judgment was given by her Honour on 1 February 2002 although the orders were not made until 9 May 2002. An appeal was filed on 5 June 2002 and a bankruptcy notice, as I mentioned earlier, was issued fairly soon thereafter but not able to be served until the substituted service order was made. The notice was ultimately served shortly after 15 August 2002 in compliance with substituted service order. An application to set aside the bankruptcy notice was not made by the claimant in the Federal Court until 30 September 2002 and this notice of motion was not filed until 9 October 2002.
[18] Of some relevance is the fact that no application for a stay was made to her Honour, in particular a stay pending the result of the appeal made by the claimant in the United States.
[19] In my opinion there has, in the circumstances of a judgment of this size, been significant delays by the claimant in seeking, in one form or another to stay the proceedings in this court, if not also the Federal Court. As to the reliance made on the existing orders, continued by paragraph 2 of the orders made by Bergin J (which are the assets preservation orders and orders regarding disclosure of financial situations) it is difficult to understand how it can be said that these orders provide any real protection for the opponents because, accepting the evidence of the claimant, his assets are of little or no worth. They do however provide some limited assistance to the opponents and must be taken into account by the court, but the reality of the situation is that they are of little value if one accepts the evidence in the affidavits of the claimant."
[20] When all of the relevant issues which need to be examined on the application are weighed, I am unpersuaded that it is appropriate to make an order staying the execution of the judgment and the orders made by her Honour in paragraphs 1 and 3, contained in the orders of 9 May 2002. I decline to order a stay.”
I think the views expressed by Stein J in relation to the prospects of the appeal are important matters for me to take into consideration when exercising my discretion. But I should also have regard to the authorities. Lipov v Alexander Fraser & Son Limited [1978] 36 FLR 126; re Baker; Ex parte Baker v Staples [1995] FCA 703 (unreported Kiefel J 4 September 1995); Benaharon v Fabric Dyeworks (Aust) Pty Ltd [1998] FCA 1109 (unreported) Weinberg J 24 August 1998); Conway v Jackson [2002] 107 FCR 201 are all cases dealing with the grant of an extension of time when the debtor has made an appeal against the primary judgment. In Conway the Full Court held that the expression “proceedings to set aside the judgment or order found in s.41(6A)(a) includes the institution of an appeal from the judgment or order in respect of which the bankruptcy notice was issued. Those cases adopted the principle laid down in Ahearn v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148:
“It is also well established that, in general, a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor wherein an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds.”
Although this case applied to a sequestration order the principle was quoted with the approval in Baker by Kiefel J as applying equally to a bankruptcy notice.
There are cases where the Ahearn dicta has not been followed, particularly re Geard; Ex parte Reid (unreported, Federal Court, Sheppard J, 11 February 1994) and Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264. I followed the decision of Lehane J in Byron in Blacker v National Australia Bank Limited (2001) FMC 7. The important distinction between those cases and the ones which support the debtor is that the appeals in those cases were not from the court of first instance to a court of appeal but from a court of appeal to the High Court of Australia. Counsel for the debtor advised me that he was unable to find a case in which an extension of time had been refused in an appeal on first instance. He is wrong in that. I exercised my discretion against granting an extension of time in Blacker.
But Blacker was an exceptional case. At [17] I noted:
“In this case the amended grounds of appeal which were considered by the Full Court do not seek to set aside the order under which the debtors were due to pay to the creditor the sum of $1,500,000.00 but to set aside those findings of his Honour which restricted the amount of the debtor’s cross claims. Even if the debtors were entirely successful, it is submitted by the creditors that there would still be a substantial sum in excess of $500,000.00 owed to the respondent bank. This argument was not resisted by the applicants and perusal of the amended grounds of appeal would appear to confirm its accuracy.”
In my view this finding distinguishes Blacker from the present case where there is a general appeal upon the ability of the creditor to enforce its United States judgment in Australia. Justice Stein did not describe the prospects of the appeal succeeding as minuscule or hopeless. He said the case was arguable, although he doubts it would be successful. It is not for me to go behind the judgment of Bergin J when it is so near to being considered on appeal, nor can I usefully add much to what Justice Stein has said. I note the decision would involve conflict of laws considerations, which are always complex and open to interpretation.
I am of the opinion that I should exercise my discretion in favour of the debtor, particularly bearing in mind that the appeal is due to be heard early in the new legal term of 2003. However, I would not wish to see the appeal delayed. For that reason I will give liberty to the parties to apply on seven days notice and extend the time for compliance of the bankruptcy notice until seven days after the disposition by the Court of Appeal of Matter No CA 40463 of 2002.
I reserve the costs of this application.
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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