Mulligan, James Bruce Ex Parte Mulligan. James Bruce v Benton, Ian

[1998] FCA 1620

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY – application to set aside bankruptcy notice – application to extend time for compliance with bankruptcy notice

Bankruptcy Act 1966 (Cth), ss 41(2), 41(6A)

Re Briggs;  Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310, cited
Benjamin John Hutchins (Applicant); Ex parte David J Wall and Amelia Wall (unreported, Federal Court, Spender J, 6 May 1998), cited
Clyne v Deputy Commissioner of Taxation (NSW) (1982) ATC 4484, cited
Athans;  Ex parte Athans (1991) 29 FCR 302, cited
Brunninghausen v Glavanics  (unreported, Federal Court, Emmett J, 3 March 1998), cited

JAMES BRUCE MULLIGAN

EX PARTE JAMES BRUCE MULLIGAN v

IAN BENTON and KERRIE BENTON

NG 7756 of 1998

O’CONNOR J
SYDNEY
14 DECEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7756  of   1998

BETWEEN:

JAMES BRUCE MULLIGAN
DEBTOR

EX PARTE JAMES BRUCE MULLIGAN
APPLICANT

AND:

IAN BENTON and KERRIE BENTON
RESPONDENT

JUDGE:

O'CONNOR J

DATE OF ORDER:

14 DECEMBER 1998

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1. Time for compliance with Bankruptcy Notice No. 882 of 1998 be extended until 28 days after the day on which the New South Wales Court of Appeal delivers its decision in proceedings No. 40091 of 1998 between the parties to these proceedings.

1. No order as to costs.

NOTE:SETTLEMENT AND ENTRY OF ORDERS IS DEALT WITH IN ORDER 36 OF THE FEDERAL COURT RULES.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7756 of 1998

BETWEEN:

JAMES BRUCE MULLIGAN
DEBTOR

EX PARTE JAMES BRUCE MULLIGAN
APPLICANT

AND:

IAN BENTON and KERRIE BENTON
RESPONDENT

JUDGE:	O'CONNOR J
DATE:	14 DECEMBER 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

This is an application to set aside a bankruptcy notice No 882 of 1998 issued under s 41(2) of the Bankruptcy Act 1966 (Cth) (“the Act”) dated 6 May 1998 (“Bankruptcy Notice”) and served on the applicant on 19 June 1998. There is also an application described as interlocutory, to extend the time for compliance with the notice.

BACKGROUND

On 6 February 1998, Downes DCJ gave judgment for the respondents in District Court proceedings No. 1286 of 1994 in the District Court of New South Wales.  On 5 March 1998, the applicant lodged a Notice of Appeal with the New South Wales Court of Appeal seeking to set aside the judgment of Downes DCJ in so far as it favoured the judgment creditors in those proceedings (respondents to this application).

On 5 March a notice of motion for stay of execution of judgment pending Court of Appeal proceedings was filed by the applicant in the District Court of New South Wales.  This motion was listed for hearing on 17 April 1998.   However neither the applicant nor his solicitor appeared on that day and the notice was struck out.   A further notice of motion for stay of execution of judgment was filed in the District Court on 5 June.  An order for stay was made, by consent after security for the judgment debt was provided, on 23 June 1998.

However on 6 May 1998 the Bankruptcy Notice, the subject of these proceedings, had been issued against the applicant by the respondents claiming that the applicant debtor owed the respondent creditors $58,250.92 pursuant to the orders made by Downes DCJ on 5 February 1998.  The respondent creditors claim the applicant debtor has not within the specified time in the notice raised a counter-claim, set-off or cross demand against them.

The applicant debtor relies on two bases for the application to set this notice aside:

1. That the judgment of Downes DCJ reveals, on its face, that there is a dispute based on substantial grounds as to the correctness of the judgment.  

1. That the notice operates as an abuse of process.

In relation to the first basis, there is no general rule that the Court must set aside a bankruptcy notice, or extend time for its compliance, where there is a dispute based on substantial grounds and, indeed, some authority for the proposition that the discretion to set aside could or should not be exercised for that reason (see Athans;  Ex parte Athans (1991) 29 FCR 302 at 310). However Lockhart J said in Clyne v Deputy Commissioner of Taxation (NSW) (1982) ATC 4484 at 4487:

“orders are not infrequently made setting aside bankruptcy notices where there is a dispute genuinely based on substantial grounds.  Ultimately it is a matter for the Court’s discretion”.

In Benjamin John Hutchins (Applicant); Ex parte David J Wall and Amelia Wall (unreported, Federal Court, 6 May 1998), Spender J said that the authorities suggest that the Court will more readily look behind a judgment if it was obtained by default.   This is not the case here.

The applicant debtor relies on an affidavit sworn by his solicitor which refers to the opinion of counsel who appeared for the applicant debtor in the District Court and who, in these proceedings, referred me to the text of the judgment to expose what were submitted were patent errors, which, if accepted would establish that no debt was owing to the respondents.  In my view the passages in that judgment, which are relied on, are ambiguous.  If read in one sense, the applicant creditor does have substantial grounds for disputing the judgment.  If interpreted differently, that may not be so.   This situation demonstrates the difficulty of determining the merit of the applicant debtor’s case where there has been a contested hearing and judgment.  It also reveals that the better course in most cases for dealing with an application of this kind would be to adjourn it until the appeal is heard and determined.

In relation to the second basis, the applicant debtor argues that if the stay order sought, firstly, on 17 April had been granted at that time, this notice would not have been issued and that the “window of opportunity” created by the delay in seeking the stay (ordered on 23 June) during which the notice was issued to take advantage of this delay amounted to an abuse of process.  He also argues that to allow the notice to continue after the sum of the judgment debt has now been secured by the applicant is also an abuse and against the public interest.   These two submissions, in my view, seem to equate abuse of process with a general principle of fairness.   If this is so, it does not establish a basis for granting the application made here.  In Re Briggs;  Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310, Toohey J as he then was said at 312:

“Counsel for the applicant argued for some general principle of fairness, according to which a bankruptcy notice will be set aside if in some way the notice is unfair to the debtor.  I do not accept the existence of such a principle.  There is nothing in the Bankruptcy Act 1966 to justify it and no authority to support it.”

Even if such a basis for the exercise of the discretion was available, it is difficult to accept that a “window of opportunity” which arose because of the non-appearance of the applicant debtor to pursue a motion for stay of proceedings in the District Court in April and which was not subsequently corrected until June could be seen as of the respondent’s making.  This is quite a different situation to that before Emmett J in Brunninghausen v Glavanics (unreported, Federal Court, 3 March 1998) where his Honour found that the notice was an “attempt to collect the judgment debt” done by the means of a notice designed to put pressure on a recalcitrant debtor and as such amounted to an abuse of process.

In this case there has, of course, been security provided in relation to the amount of the debt but this was not offered or even considered before the issuing of the notice.  The respondent creditor submits that both interest and costs would remain outstanding should the applicant fail on appeal even with the current security and if this notice were set aside the respondent would, in order to protect his position, be obliged to file a further petition to avoid being outside time limits if decision on appeal is reserved by the Court beyond the six month period.

As the power to set aside the notice is discretionary I have considered the prejudice to both parties in both allowing or refusing the application and considered the particular matters raised in submissions.

As a result I refuse the application to set aside the bankruptcy notice, because in my view it is not an abuse of process nor has there been demonstrated that the dispute which continues to exist, and will be determined on appeal, warrants on its face the setting aside of the judgment.

EXTENSION OF TIME FOR COMPLIANCE

Both parties have sought by application and cross application to have time for compliance with the notice extended until the appeal is determined. The respondent argues that the applicant’s application, being interlocutory is beyond the power in s 41(6A). In the light of the cross application it is unnecessary to determine this.

There are compelling grounds to extend time in this case.  There is evidence presented by the creditor, which is not contested, that the debtor is difficult to serve with process and seems to have changed his appearance, a fact which might make service even more difficult and costly.  A further petition may be required but if the debtor is successful on appeal, this course will incur costs for the creditor.  Failure to extend time will have obvious detrimental consequences for the applicant debtor as well.

I extend the time for compliance with bankruptcy notice No. 882 of 1998 until 28 days after the day on which the New South Wales Court of Appeal delivers its decision in proceedings No. 40091 of 1998 between the parties to these proceedings.

I make no order as to costs in these proceedings.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Connor

Associate:

Dated:            14 December 1998

Counsel for the Applicant:	C W Robinson
Solicitor for the Applicant:	Turner Freeman
Solicitor for the Respondent:	Watkins Tapsell
Date of Hearing:	8 December 1998
Date of Judgment:	14 December 1998