McLean v ANZ Banking Group Ltd

[1993] FCA 284

Re: STEPHEN FRANK McLEAN
And: AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED and DAVID JOHN BEATTY
No. VP871 of 1992
FED No. 284
Number of pages - 7
Bankruptcy
(1993) 42 FCR 300

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
BANKRUPTCY DIVISION
Ryan J(1)

CATCHWORDS

Bankruptcy - Bankruptcy Notice - Power of the Court to extend time for compliance with the notice - effect of absence of application to set aside notice - purpose for which extension of time may be granted - exercise of discretion of the Court to extend the time for compliance on ground of abuse of process - alleged abuse of process occurring after the expiration of time for compliance fixed by bankruptcy notice.

Bankruptcy Amendment Act 1980

Bankruptcy Act 1966

Lipov v Alexander Fraser and Son Ltd and Anor (2978) 36 FLR 126

Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 393

Re Sterling; Ex parte Esanda Ltd 44 FLR 125

Streimer v Tamas (1981) 37 ALR 211

HEARING

MELBOURNE

#DATE 6:5:1993

Counsel for the applicant: Mr P Ginnane

Solicitor for the applicant: R J Macnab and Associates

Counsel for the respondent: Mr D M Derham

Solicitor for the respondent: Blake Dawson Waldron

ORDER

THE COURT ORDERS:

1. That the application be dismissed.

2. That the applicant pay the costs of the respondents such costs to be taxed.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

RYAN J On 8 July 1992 a bankruptcy notice, No. OO2148 of 1992, was issued on the application of Australian and New Zealand Banking Group Limited and David John Beatty ("the creditors"), directed to the applicant Stephen Frank McLean ("the debtor"). The debt which formed the subject of the notice was described as:

"The sum of $43,341.10 and no more ... due by (the debtor) to (the creditors) under a final judgment obtained by them against (the debtor) in the Supreme Court of Victoria at Melbourne on the 23rd day of January 1992 being a judgment the execution of which has not been stayed and pursuant to which a taxation order was made on the 1st day of April 1992."

1. The notice was served upon the debtor on 16 July 1992 and stipulated a period for compliance of 14 days, expiring on 30 July 1992. On the final day for compliance, 30 July 1992, an application by the debtor was filed in the registry of this Court by which he sought the following orders:
   

"1. That the Bankruptcy Notice dated the 8th day of July 1992 and issued in these proceedings by the Judgment Creditor be set aside.

2. That further and in the alternative the time for compliance be extended by order of the Court."

1. An affidavit in support of the application sworn by the debtor on 30 July 1992 was also filed. No extension of time for compliance with the bankruptcy notice was granted in favour of the debtor upon the filing of the application.

2. Upon the return of the application before a Registrar, on 7 August 1992, leave was granted to the debtor to amend the application. The orders sought in the amended application, being the application currently before me, were:
   

"1. That the Bankruptcy Notice No. 002148 of 1992 dated 8 July, 1992 and served 16 July, 1992 and issued in these proceedings be set aside.

2. That the Bankruptcy Notice No. 002148 of 1992 dated 8 July, 1992 and served 16 July, 1992 and issued in these proceedings be set aside as an abuse of process.

3. That further and in the alternative the time for compliance with the Bankruptcy Notice No. 002148 of 1992 dated 8 July, 1992 and served 16 July, 1992 be extended by order of the Court."

1. In accordance with directions given by the Registrar on 7 August 1992 affidavits in support and in opposition to the application have been filed.

2. On 3 August 1992 the creditors presented a petition based upon an act of bankruptcy comprising the failure of the debtor to comply with the requirements of the bankruptcy notice on or before 30 July 1992. The creditors' petition was served on the debtor on 12 August 1992.

3. On 26 August 1992 the amended application came on before me for hearing. Counsel for the debtor, Mr P.J. Ginnane, disavowed those parts of the application which sought to set aside the bankruptcy notice and confined himself to seeking an extension of time for compliance on the grounds that the failure by the debtor to comply within the time stipulated in the notice resulted from a bona fide mistake. It was submitted the debtor had a mistaken belief as to the likelihood of a successful challenge to the bankruptcy notice and that he was mistaken as to the need to seek an extension of time for compliance with the notice when his application was filed on 30 July 1992. On that basis the purpose of the application before me was to obtain an extension of time to enable the debtor immediately to comply with the bankruptcy notice and thereby avoid committing an act of bankruptcy.

4. This Court was said to derive power to extend time for compliance with the bankruptcy notice from ss. 41(6A)(b) and 41(6B) of the Bankruptcy Act (1966) (Cth) ("the Act"). Counsel, correctly in my view, did not contend that the general power of the Court, conferred by s.33 of the Act, to extend time limits imposed by the Act, applied to the present case. Similarly, it was not submitted that the Court has an inherent power to extend the period for compliance: see James v Abrahams (1981) 51 FLR 16 at 22 per Deane and Lockhart JJ.

5. After submissions had been made by Counsel for both parties, the matter was adjourned part heard and resumed on 8 September 1992 when Counsel for the debtor sought to agitate the question of whether the bankruptcy notice should be set aside on the ground that the conduct of the creditors amounted to an abuse of the process of the Court. Mr Ginnane submitted that the refusal of the creditors to accept satisfaction of the debt, the subject of the notice, notwithstanding that it was offered out of time, constituted an abuse of process. That refusal, so it was said, warranted the inference that the creditors were seeking to achieve some purpose ulterior to the recovery of the debt due to them. An affidavit of the debtor sworn on 1 September 1992 sets out the grounds upon which the the Court is invited to draw that inference. It is not necessary to rehearse those grounds in detail.

6. Mr Ginnane submitted that the point had not been abandoned and that the creditors had, by affidavit of Jane Allison Macknight affirmed 3 September 1992, responded to the specific allegations made by the debtor in relation to an abuse of process and were thus in a position fully to meet the application and would suffer no prejudice if the debtor were allowed to pursue the point. Counsel for the creditors, Mr Derham, objected to the point being raised but conceded that his clients, having filed answering affidavits, had suffered no prejudice as a result of the debtor's invocation of a new ground for setting aside the bankruptcy notice. In the light of that concession, I regard it as an appropriate exercise of the Court's discretion to permit the debtor to rely on the ground of abuse of process as now formulated.

7. Although it is not entirely clear, it appears that the debtor's reliance on the alleged abuse of process is in addition to the primary submission that the Court has the power to extend the time for compliance regardless of whether the applicant wishes to pursue the application to set aside the bankruptcy notice. It is appropriate first to deal with that primary submission. It involves the interpretation of sub-ss.41(6A), (6B) and (6C) of the Act which provide:
   

"(6A) Where, before the expiration of the time fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice -

(a) proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

(b) an application to set aside the bankruptcy notice has been filed with the Registrar, the Court may, subject to sub-section (6C), extend the time for compliance with the bankruptcy notice.

(6B) Where, before the expiration of the time fixed by the Registrar for compliance with the requirements of a bankruptcy notice -

(a) proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

(b) an application to set aside the bankruptcy notice has been filed with the Registrar, the Registrar may, subject to sub-section (6C), extend the time for compliance with the bankruptcy notice.

(6C) Where -

(a) a debtor applies to the Court or the Registrar for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and

(b) the Court or the Registrar, as the case may be, is of the opinion that the proceedings to set aside the judgment or order -

(i) have not been instituted bona fide; or

(ii) are not being prosecuted with due diligence,

the Court or the Registrar, as the case may be, shall not extend the time for compliance with the bankruptcy notice."

The debtor sought specifically to rely upon paragraph 41(6A)(b).

1. It was conceded by Mr Derham, that the power conferred by the provisions just quoted may be exercised after the expiration of the period fixed for compliance and where a failure to comply with the terms of the notice has occurred: Streimer v Tamas (1981) 37 ALR 211.

2. The question which falls to be decided is whether the provisions empower the Court to extend time for compliance where, at the time of the hearing of the application, the debtor disavows any desire to proceed to have the bankruptcy notice set aside.

3. Mr Ginnane submitted that the terms of the Act enable the extension of time to be granted independently of the application to set aside the bankruptcy notice and that to allow the debtor to prosecute an application to have the bankruptcy notice set aside is not the sole purpose for which an extension may be granted. Counsel also advanced the related proposition that the provisions require no more than the existence, at the time of issuing the application, of a genuine or bona fide desire to have the bankruptcy notice set aside.

4. To determine the purpose for which this Court may exercise its discretion, pursuant to s.41(6A)(b) to grant an extension of time for compliance with a bankruptcy notice, it is appropriate to consider what the effect of such an extension would be. In Streimer v Tamas (1981) 37 ALR 211 Deane and Ellicott JJ observed, at 215:
   

"The effect of an order extending the time for compliance, which is made after the expiry of the time originally fixed and any previous extension thereof, will be to enlarge the overall time allowed for compliance with the result that what would otherwise have constituted an act of bankruptcy no longer does (cf Esso Research and Engineering Co v Commissioner of Patents (1960) 102 CLR 347 at 351). Ignoring any transitional problems where special considerations may be applicable, this does not mean that s.41(6A) operates so as retrospectively to divest rights to rely upon an act of bankruptcy which would otherwise exist. What s.41(6A) does is to modify, by the introduction of a contingency, the actual and potential rights and liabilities resulting from failure to comply with the requirements of a bankruptcy notice within the time allowed by the notice in a case where, within that time, one of the two conditions specified in the sub-section has been fulfilled."

1. The power, contained in s.41(6A), to extend the time for compliance does not, to use the words of Deane and Ellicott JJ, connote the power to create "a new, distinct and independent period of time for compliance" (ibid). Should an extension be granted, the rights and liabilities of the parties subsisting during the original time for compliance and which flow from the issue of the bankruptcy notice are also extended. Accordingly, in my view, the debtor would be entitled to comply with the terms of the bankruptcy notice during any period of extension and thus avoid an act of bankruptcy.

2. However, Mr Ginnance went on to submit that the ability to comply with a bankruptcy notice during any period of extension compelled the conclusion that it was a legitimate purpose to grant an extension merely to allow the debtor time to comply with the notice. To evaluate that submission it is necessary to look in more detail at the relevant provisions and their history.

3. Sub-sections 6A, 6B and 6C of s.41 were introduced into the Act by s.24(2) of the Bankruptcy Amendment Act 1980 and apply to bankruptcy notices issued before or after 8 April 1980. Before the amendment which inserted those sub-sections, s.33 gave a general power to the Court to extend or abridge any time limited by the Act including the time for compliance with a bankruptcy notice. The amendments to ss. 33 and 41 make it clear that any extension of time may only be granted in the circumstances provided for in s.41 as amended.

4. As Lockhart J observed in Re Sterling; Ex parte Esanda Ltd(1980) 44 FLR 125, the power granted by s.41 is in aid of the setting aside of the notice itself: see at 128, 129, 130 and 132. His Honour specifically pointed out, at 129, that:
   

"Notwithstanding that the filing of the application to set aside the bankruptcy notice within the specified time is a condition precedent to the exercise of the court's power to extend time, and is perhaps a ground for granting the extension, in truth the power to extend time is in aid of the setting aside of the notice itself."

To similar effect Lockhart J pointed out, at 130:

"Plainly the power to extend time for compliance is in aid of the power to set aside the notice itself. What is the point in extending time for compliance otherwise than for the purpose of enabling the court to hear the application to set aside the notice without the occurrence of an act of bankruptcy in the meantime? If it did occur this would be destructive of the very power itself."

1. His Honour was compelled to the conclusion that the power to extend time was a necessary concomitant of the jurisdiction to entertain an application to set aside a notice because, without an extension of time, an act of bankruptcy may occur before the hearing of the application which would thereby be rendered futile. Since Streimer v Tamas (supra) it must now be accepted that it is possible to extend the time for compliance in circumstances in which a failure to comply has already occurred. The fact that an application to set aside a bankruptcy notice after a failure to comply may no longer be futile, does not, with respect, detract from the correctness of Lockhart J's conclusion that the power to extend time is properly to be viewed only as a grant in aid of the application to set aside the bankruptcy notice. That conclusion was also reached by Neaves J in Re Lentini, Ex parte Lentini v CSR Limited (1991) 29 FCR 363 at 372.

2. The existence of an application to have the bankruptcy notice set aside is a condition precedent to the exercise of power contained in s.41(6A)(b). The purpose for which an extension of time may be granted is confined by the context of s.41 to facilitating the hearing and determination by the Court of an application to contest the validity of a bankruptcy notice or the debt upon which it has been based.

3. It was submitted by Mr Ginnane that, provided an application for an extension of time, bona fide when issued, is extant, the Court has power later to extend the period for compliance regardless of whether the debtor is then persisting in the application to set aside the bankruptcy notice. However, in my view, s.41(6A) requires a subsisting intention by the debtor to have the bankruptcy notice set aside when the application is heard. In the absence of such a subsisting intention, it would be unnecessary for the Court to ask whether, at the date of issuing the application (here 30 July 1992), the debtor was genuinely seeking to have it set aside. The primary position of the debtor is that he does not wish to prosecute his application to set aside the bankruptcy notice. Accordingly, in the absence of an extant application this Court does not have power to extend the time for compliance with the bankruptcy notice.

4. In anticipation of the conclusion which I have just reached, Counsel for the debtor has argued that he is now genuinely seeking to have the bankruptcy notice set aside on the newly formulated basis that the conduct of the judgment creditors constitutes an abuse of the process of the Court.

5. The grounds on which the debtor relies in order to establish an abuse of process were modified on the second day of hearing. It is not necessary to set out the original grounds. The conduct ultimately relied upon was the refusal, on 26 August 1992, of the judgment creditors to accept payment of the debt. The true motivation of the creditors was said to be first, the desire to bankrupt the debtor rather than to recover the debt. Secondly, it was submitted that the creditors are using these proceedings to prevent the debtor from pursuing a claim in the Supreme Court of Victoria which has been stayed by order of that Court, until payment of the costs ordered by Marks J on 23 January 1992. It is those costs which comprise the debt upon which the bankruptcy notice in these proceedings is founded.

6. As I indicated to Counsel during the course of argument the alleged abuse of process, as finally identified, did not arise upon the issuing of the bankruptcy notice nor from its content. There remains no primary attack on the notice itself. It is significant in this regard that Mr Ginnane did not, in his submissions, specifically seek relief in the form of an order setting aside the bankruptcy notice. Rather, he insisted that the time for compliance be extended in order to allow the debtor to pay the debt.

7. I have already concluded that the power to extend time is to facilitate a challenge to the bankruptcy notice. That entails that, in the absence of a continuing challenge to the bankruptcy notice, there is no power in the Court to grant an extension of time for compliance. I accept, however, that the debtor at the time of the hearing maintained his application to challenge the bankruptcy notice on the different basis that the conduct of the creditors constituted an abuse of process. However, that conduct, assuming it to have been motivated by either or both of the purposes imputed to the creditors, did not infect the issue of the notice and did not occur until after the expiry of the time fixed by the notice for compliance with it.

8. Even assuming that the Court has the power to grant an extension of time in order to facilitate the hearing of the application on the different basis of abuse of process it is relevant to the exercise of the Court's discretion that the different basis has been afforded only by facts occurring after the time for compliance fixed by the bankruptcy notice itself. As Sweeney J observed in Lipov v Alexander Fraser and Son Ltd (1978) FLR at 130:
   

"The courts have had regard to the grave consequences which flow from the effluxion of the time fixed for compliance with a bankruptcy notice. Judgment has been obtained against the applicant, who has regularly instituted an appeal against it. He has sworn that he believes that he has proper grounds of appeal against it. He has not been cross-examined. The creditors have not offered any evidence in opposition.

In these circumstances, the grant of an extension of time for compliance will enable the applicant, should his appeal succeed, to avoid the commission of an act of bankruptcy, based upon a judgment which should not, on this assumption, have been given against him the first place."

1. In this case there is no attack upon the notice or upon the debt on which it is founded. The purpose for which the debtor makes his application is to obtain an extension of time and the alleged abuse of process has been seized upon as affording respectably arguable support for such an extension. In the circumstances, I consider it to be an inappropriate exercise of the Court's discretion to allow the debtor to escape the consequences of an act of bankruptcy, the commission of which he no longer disputes.

1. For these reasons the application will be refused with costs.