O'MARA Constructions Pty Limited v Avery
[2005] FMCA 738
•5 July 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| O'MARA CONSTRUCTIONS PTY LIMITED v AVERY | [2005] FMCA 738 |
| BANKRUPTCY – Creditor’s petition – a creditor’s petition cannot be brought more than 12 years after the judgment supporting it in New South Wales, notwithstanding that a bankruptcy notice may be issued if execution of the judgment is still possible. |
| Bankruptcy Act 1966 (Cth), ss.41, 43, 44, 52 Limitation Act 1969 (NSW), s.17 |
| ASIC v Forge [2003] FCAFC 274 Avery v O’Mara Constructions Pty Ltd [2004] FMCA 462 Chohan v Times Newspaper Ltd [2001] 1 WLR 184 Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 Dennehy v Reasonable Endeavours Pty Ltd [2003] FCAFC 158; (2003) 130 FCR 494 In re a Debtor [1997] Ch 310 Re Amos; ex parte Richardson (1933) 7 ABC 185 Reasonable Endeavours v Dennehy [2002] FCA 1472 |
| Applicant: | O'MARA CONSTRUCTIONS PTY LIMITED |
| Respondent: | LANGER EDWARD AVERY |
| File Number: | SYG2732 of 2004 |
| Judgment of: | Driver FM |
| Hearing date: | 31 May 2005 |
| Date of Last Submission: | 10 June 2005 |
| Delivered at: | Sydney |
| Delivered on: | 5 July 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Aldridge SC |
| Solicitors for the Applicant: | Colin Biggers & Paisley |
| Counsel for the Respondent: | Mr J Johnson |
| Solicitors for the Respondent: | Raj Lawyers |
ORDERS
The creditor’s petition filed on 3 September 2004 is dismissed with costs, including any reserved costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG2732 of 2004
| O'MARA CONSTRUCTIONS PTY LIMITED |
Applicant
And
| LANGER EDWARD AVERY |
Respondent
REASONS FOR JUDGMENT
Introduction and background
The proceeding before the Court is a creditor’s petition filed on
3 September 2004 by O’Mara Constructions Pty Limited. The petition asserts that Mr Avery owes O’Mara Constructions $125,270.79, being the unpaid balance of a judgment obtained against Mr Avery in the Supreme Court of New South Wales. Judgment was entered against Mr O’Mara in the Supreme Court for the principal sum of $147,899.60 with effect from 21 February 1992. On 18 August 2003 and 10 November 2003 the Supreme Court granted orders giving O’Mara Constructions leave to enforce the judgment by way of writ of execution.
Pursuant to the orders of the Supreme Court in August and November 2003, O’Mara Constructions issued bankruptcy notice NN2829 of 2003. On 21 April 2004 Mr Avery applied to have the bankruptcy notice set aside. That application was unsuccessful: Avery v O’Mara Constructions Pty Ltd [2004] FMCA 462. In making that decision, Raphael FM considered himself bound by the decisions of the Full Federal Court in ASIC v Forge [2003] FCAFC 274 and Dennehy v Reasonable Endeavours Pty Ltd [2003] FCAFC 158.
Mr Avery did not comply with the bankruptcy notice.
On 31 March 2005 Mr Avery filed a Notice of Intention to Oppose the Creditor’s Petition on the following grounds:
a)the proceedings constituted by the presentation of the creditor’s petition on 3 September 2004 by virtue of the date of the act of bankruptcy relied upon in paragraph 4 of the petition is a proceeding upon a judgment obtained on a date greater than 12 years prior than the possible date of commencement of the bankruptcy;
b)the applicant creditor is not a creditor for the purposes of s.43(1) and s.41(1) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”);
c)the applicant creditor is not a person who is entitled to lodge a proof of debt in relation to the administration of any bankruptcy.
It follows that the petition is opposed on the basis that the creditor’s petition, and the debt supporting it, are statute barred.
The legislation
Sections 41(1) and 43(1) of the Bankruptcy Act provide as follows:
Section 41(1)
An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:
(a) a final judgment or final order that:
(i) is of the kind described in paragraph 40(1)(g); and
(ii) is for an amount of at least $2,000; or
(b) 2 or more final judgments or final orders that:
(i) are of the kind described in paragraph 40(1)(g); and
(ii) taken together are for an amount of at least $2,000.
Section 43(1)
Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b)at the time when the act of bankruptcy was committed, the debtor:
(i)was personally present or ordinarily resident in Australia;
(ii)had a dwelling-house or place of business in Australia;
(iii)was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv)was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
Section 44(1) of the Bankruptcy Act provides as follows:
A creditor's petition shall not be presented against a debtor unless:
(a)there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000;
(b)that debt, or each of those debts, as the case may be:
(i)is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii)is payable either immediately or at a certain future time; and
(c)the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
Section 52(1) of the Bankruptcy Act provides as follows:
At the hearing of a creditor's petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
Section 17 of the Limitation Act 1969 (NSW) (“the Limitation Act”) provides as follows:
(1)An action on a cause of action on a judgment is not maintainable if brought after the expiration of a limitation period of twelve years running from the date on which the judgment first becomes enforceable by the plaintiff or by a person through whom the plaintiff claims.
(2)A judgment of a court of a place outside New South Wales becomes enforceable for the purposes of this section on the date on which the judgment becomes enforceable in the place where the judgment is given.
(3)Subsection (2) does not apply to a judgment of a court of the Commonwealth, not being a court of a Territory of the Commonwealth.
Submissions
Mr Johnson and Mr Aldridge presented oral submissions on 31 May 2005 and also made written submissions on 7 and 10 June 2005. Mr Johnson submits that a sequestration order cannot be made in this case because, at the time the creditor’s petition was presented, the judgment debt was statute barred under s.17 of the Limitation Act. Mr Johnson submits that a creditor can only petition in respect of a provable debt and that, for the purposes of s.82 of the Bankruptcy Act, a statute barred debt is not provable. Further, or in the alternative, Mr Johnson submits that the creditor’s petition itself is statute barred.
Mr Aldridge submits that while s.17 of the Limitation Act bars an action on a cause of action it does not purport to extinguish the judgment obtained by O’Mara Constructions and nor does it make the judgment unenforceable. The Limitation Act does not prevent execution on a judgment and hence did not invalidate the bankruptcy notice in these proceedings. He submits that as execution can still be levied on a judgment then the judgment debt must still exist. It can therefore be the subject of a proof of debt.
Secondly, Mr Aldridge submits that a creditor’s petition is not itself statute barred by s.17 of the Limitation Act because it is not a cause of action against the debtor, let alone a cause of action on a judgment. It is a statutory right to seek a change in status of the debtor. It is not a suit on a judgment to obtain a new judgment. Mr Aldridge submits that a creditor’s petition is a form of equitable execution[1].
[1] Clyne v Deputy Commissioner of Taxation 154 CLR 589
Mr Aldridge submits that, to the extent that the decision of the Full Federal Court in Dennehy v Reasonable Endeavours Pty Limited (2003) 130 FCR 494 stands in the way of the creditor’s petition I should not follow it.
The evidence
I have before me the affidavits of Mark Geoffrey Doble made on 7 April 2005, Barry Joseph Thomas O’Mara made on 26 August 2004 (two affidavits), Clautina Douglas, made on 24 February 2005 and 2 September 2004 and Peter John Harkin, made on 19 May 2005.
Reasoning
According to the learned authors of McDonald, Henry and Meek’s Australian Bankruptcy Law and Practice at paragraph 82.1.80, debts barred by a statute of limitation are not provable. This is so even if a debt is acknowledged subsequently[2]. In Dennehyv Reasonable Endeavours Pty Limited [2003] FCAFC 158 at [4] Finkelstein J (with whom Madgwick and Dowsett JJ agreed) said:
The debtor's argument assumes that when these sections refer to a judgment the execution of which has been stayed, that includes a judgment the enforcement of which is barred by a limitations statute. It is true that ss 40(1)(g) and 41(3)(b), among others, are designed to ensure that only a creditor who is able to obtain the benefit of a judgment can pursue the bankruptcy of his debtor: Ex parte Blanchett; Re Keeling (1886) 17 QBD 303, 307; Pyramid Building Society (in liq) v Terry (1997) 189 CLR 176, 192. It does not follow, however, that a judgment the enforcement of which is statute-barred is a judgment which has been "stayed" within the meaning of ss 40(1)(g) and 41(3)(b). Indeed, I rather incline to the view that the reference to "stayed" in these provisions is to an order of a court exercising control over its own process by staying the execution of one of its judgments. I should point out, however, that even if this view be correct, the merits of the debtor's appeal will not be adversely affected. The true position in bankruptcy is that a creditor who has a statute-barred debt is not a creditor who is entitled to lodge a proof of debt: Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177, 181; Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, 339, 344. Nor, I suppose, can he petition for a sequestration order. This is the basis upon which I will consider the debtor's appeal.
[2] Re Amos; ex parte Richardson (1933) 7 ABC 185
Although the Full Federal Court was hearing an appeal against the making of a sequestration order[3] the appeal in the Full Federal Court was limited to the question of the validity of a bankruptcy notice which preceded the creditor’s petition in that case. In the context of the appeal, therefore, the observations of Finkelstein J at [4] concerning the effect of a Limitation Act upon a creditor’s petition might be considered an obiter dictum. Also, I do not understand why no challenge to the creditor’s petition in Dennehy’s case was made. Further, it is not entirely clear to me whether Finkelstein J in Dennehy considered that a Limitation Act would bar a creditor’s petition directly (as a cause of action) or indirectly (because there was no provable debt). In his earlier judgment in this matter at [11] Raphael FM considered that a Limitation Act would bar a creditor’s petition directly as an action upon a judgment[4] and also indirectly, as there would be no provable debt[5] .
[3] Reasonable Endeavours Pty Ltd v Dennehy [2002] FCA 1472
[4] see also In re a Debtor [1997] Ch 310; Chohan v Times Newspaper Ltd [2001] 1 WLR 184
[5] see [14]
Mr Aldridge submits that the statement in Dennehy at [4] is wrong in its application to creditor’s petitions. Further, he submits that the cases referred to by Raphael FM at [11] are not persuasive. The decision in Chohan was based upon a concession by the parties (referred to at page 187) and Re a Debtor was a decision of a single judge. Finally, Mr Aldridge seeks to draw a distinction between an “action on a judgment” and an “action on a cause of action on a judgment”.
The distinction, if there is one, between an action on a judgment and an action on a cause of action on a judgment eludes me. Although the issue seems to have seldom troubled the courts in recent years, the English authority referred to by Raphael FM supports the conclusion that a creditor’s petition is barred directly by the Limitation Act. There is no Australian authority available to me to contradict it. There is no doubt that at the time of the presentation of the creditor’s petition 12 years had elapsed after the date upon which the judgment supporting the petition was made and became effective. In fact, that date had passed prior to the commission of the act of bankruptcy relied upon.
I find that the presentation of a creditor’s petition is an action on a cause of action on a judgment within the meaning of s.17 of the Limitation Act of NSW and that the creditor’s petition in this case is statute barred.
Even if that were not the case, the petitioning creditor could not prove in Mr Avery’s bankruptcy in respect of the statute barred debt. In that regard, the Full Federal Court in Dennehy appears to have drawn a distinction between a bankruptcy notice which is unaffected by the expiration of a limitation period provided that execution of the judgment is still possible, and a creditor’s petition which is not maintainable if the petitioning creditor could not prove in the bankruptcy. I should follow the observations by Finkelstein J in Dennehy at [4] unless satisfied that they are clearly wrong. I am not so satisfied.
The apparent distinction between a valid bankruptcy notice based upon a judgment debt the execution of which has not been stayed, and a creditor’s petition based upon a debt which is unprovable because it is statute barred, would be an uneasy one if the result were to permit a bankruptcy notice to be issued in circumstances where there could be no creditor’s petition. However, in this case, when the bankruptcy notice was issued, and when the creditor obtained orders for execution, the 12 year limitation period had not expired. That period expired during the time for compliance with the bankruptcy notice. I am uncertain whether the creditor could still rely upon the orders for execution of the judgment. If (as seems to me logical)[6] an order for execution of a judgment expires upon the expiration of the 12-year limitation period on the judgment, it would be beyond argument that there is no debt supporting the creditor’s petition. Whether or not the creditor can still rely on the execution orders, a creditor’s petition is not dependent upon a right of execution. It is dependent upon there being a provable debt. The existence of a provable debt is also, on the available authorities, not dependent upon the existence of a debt, the execution of which remains possible, but rather upon the existence of a debt which is not statute barred. The present judgment debt is statute barred by s.17 of the Limitation Act.
[6] s.17 of the Limitation Act appears to bar a legal proceeding to obtain such an order after 12 years
It follows that the creditor’s petition should be dismissed with costs. I will so order.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 5 July 2005
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