Re Carter; Ex parte National Mutual Trustees Ltd

[1995] FCA 230

CATCHWORDS

BANKRUPTCY - bankruptcy notice based on default judgment - application for extension of time for compliance with notice - application made after expiration of time initially limited for compliance - proceeding by debtor to set aside judgment pending during period of the notice - whether application for extension of time competent.

Bankruptcy Act 1966, sub-ss. 41 (6A), (6C)

Streimer v Tamas (1981) 37 ALR 211
Re Halstead; Ex parte Westpac Banking Corporation (No. 2) (1991) 32 FCR 394
Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363

RE:          COLIN CARTER and NELL CHRISTINE CARTER
EX PARTE:     NATIONAL MUTUAL TRUSTEES LIMITED

No. BNN 1125 of 1994

BEFORE:      GUMMOW J.
PLACE:       SYDNEY.
DATE:        11 APRIL 1995.

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )    No. BNN 1125
BANKRUPTCY DIVISION OF NEW SOUTH WALES )    of 1994

RE:          COLIN CARTER and
  NELL CHRISTINE CARTER

EX PARTE:     NATIONAL MUTUAL
  TRUSTEES LIMITED

BEFORE:      GUMMOW J.
PLACE:       SYDNEY.
DATE:        11 APRIL 1995.

MINUTE OF ORDERS
THE COURT ORDERS THAT:

(1)The question for separate decision, namely

"Upon the agreed facts and in reliance upon para. (a) thereof does the Court have power to make an order under s. 41 (6A) of the Bankruptcy Act 1966?"

be answered "Yes".

(2)The costs of the separate question should be the costs of the application filed 17 January 1995 and amended 28 March 1995.

(3)The application filed 17 January 1995 amended 28 March 1995 stand over to a date to be fixed for hearing of the remaining issues.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )    No. BNN 1125
BANKRUPTCY DIVISION OF NEW SOUTH WALES )    of 1994

RE:          COLIN CARTER and
  NELL CHRISTINE CARTER

EX PARTE:     NATIONAL MUTUAL
  TRUSTEES LIMITED

BEFORE:      GUMMOW J.
PLACE:       SYDNEY.
DATE:        11 APRIL 1995.

REASONS FOR JUDGMENT
     This is an application by the debtors, Mr and Mrs Carter, made 17 January 1995 for an order extending the time for compliance with the requirements of a bankruptcy notice issued 16 May 1994.  The application was amended on 28 March 1995.  In addition to seeking the extension, the applicants seek an order setting aside the bankruptcy notice.

On 28 March 1995, the Court ordered that until further order the creditor, and respondent to the present application, National Mutual Trustees Limited, be restrained from presenting a creditor's petition against either or both of the debtors.

The debtors rely upon sub-s. 41 (6A) of the Bankruptcy Act 1966 ("the Act"). This states:

"41(6A) Where, before the expiration of the time fixed by the Court or the Registrar for compliance with the requirement 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 subsection (6C), extend the time for compliance with the bankruptcy notice."

The text of sub-s. (6C) is as follows:

"41(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."

It will be apparent that the power given to the Court by sub-s. (6A) is qualified by sub-s. (6C) in the sense that if the conditions spoken of in the latter sub-section exist, the Court or the Registrar is obliged not to act under sub-s. (6A) and not to extend the time for compliance.

On 30 March 1995, I heard argument upon the question whether, upon the undisputed facts, the Court has power to extend the time for compliance with the bankruptcy notice.  It was accepted that if that question were answered favourably to the debtors, separate arguments would be addressed at a later time as to whether, as a matter of discretion, that power should be exercised in their favour.

The bankruptcy notice is based upon judgment recovered against the debtors in the New South Wales District Court.  The order of events is important for the issue which is before me.  I turn to that order of events.

The District Court action was commenced by the creditor against the debtors on 15 November 1993.  The defendants were personally served, Mrs Carter on 25 November 1993, and Mr Carter on 29 November 1993. 

Judgment by default was entered against the debtors on 19 January 1994.  On 21 April 1994, the debtors filed a notice of motion in the District Court to set aside the default
judgment.  That motion was served on 3 May 1994.  It has been adjourned, for various reasons and on numerous occasions.  The motion was listed for hearing but not reached on 17 November 1994.  It is now listed for hearing on 22 and 23 June 1995.  There is no stay of the District Court judgment.

A 14 day bankruptcy notice was issued out of this Court on 16 May 1994 and was served on Mrs Carter on 17 October and on Mr Carter on 24 October 1994.  There was no compliance within time and acts of bankruptcy were committed on 31 October 1994 by Mrs Carter, and on 7 November 1994 by Mr Carter. 

Any petition based upon those acts of bankruptcy must be presented by 1 May 1995 in the case of Mrs Carter, and 8 May 1995 in the case of Mr Carter.

The application to set aside the bankruptcy notice thus came well after the time for compliance with the bankruptcy had expired.  Accordingly, the debtors do not rely upon para. (b) of s. 41 (6A).  They rely upon para (a) thereof.  The application to set aside the District Court judgment has been on foot since 21 April 1994 and predates even the issue of the bankruptcy notice. 

The question is whether an application for extension of time under sub-s. 41 (6A) must be made during the period of the currency of the bankruptcy notice and before its expiration, in a case where para. (a) of the sub-section has been satisfied throughout that period. 

This is not a case where what is sought is an extension to be granted after the expiration of the notice period, but upon an application for extension made before the expiration of the notice period; cf Streimer v Tamas (1981) 37 ALR 211.

Sub-section 41 (6A) is expressed in terms which are incomplete or imprecise.

The sub-section must be read with s. 30 of the Act, and s. 15C of the Acts Interpretation Act 1901 ("the Interpretation Act"). Section 30 provides that the Court has full power to decide all questions in any case of bankruptcy, and may make such orders as it considers necessary for the purposes of carrying out or giving effect to the Act in any such case. Section 15C of the Interpretation Act, so far as relevant, states:

"15CWhere a provision of an Act, whether expressly or by implication, authorizes a civil or criminal proceeding to be instituted in a particular court in relation to a matter:

(a)that provision shall be deemed to vest that court with jurisdiction in that matter;

(b)except so far as the contrary intention appears, the jurisdiction so vested is not limited by any limits to which any other jurisdiction of the court may be subject;

...

(c)..."

The effect of these provisions, when read with sub-s. 41 (6A), is to make it clear that this Court is invested with jurisdiction in respect of matters which arise under the sub-section.

However, the sub-section does not expressly confer standing upon any particular person or class of persons to make the application for which it provides.  In the ordinary course, such application will be made by the debtor.  But this has not always been so.  It may be in the interests of the creditor to obtain an extension of time for compliance by the debtor so that the creditor can preserve the efficacy of the notice if it survives challenge by the debtor.  An example is the decision of Heerey J in Re Halstead; Ex parte Westpac Banking Corporation (No. 2) (1991) 32 FCR 394. Where the creditor is the applicant in this way, sub-s. 41 (6C) cannot apply. This is because, in terms, it operates only where the debtor has applied for an extension of time.

The phrase in para. 41 (6A) (a) "proceedings to set aside the judgment ..." also is not without difficulty.  However, in Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363 at 367, Neaves J held that the institution of an appeal is not the institution of proceedings to set aside judgment or order.

Sub-section 41 (6A) states that either condition (a) or condition (b) must be met before the expiration of the time otherwise fixed for compliance with the notice.  In Re Lentini, supra at 373, Neaves J said that if an extension of time to comply with the requirements of a bankruptcy notice is sought under para. (b) of sub-s. 41 (6A), the application to set aside the bankruptcy notice, which is the subject of condition (b), must be filed within the time limited by the notice for compliance with the bankruptcy notice.  This reasoning would equally apply to condition (a), so that the debtor must have instituted proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued within the time limited in the notice.

But sub-s. 41 (6A) does not specify whether the application thereunder for extension itself must be made before expiry of the time fixed for compliance with the notice.  Nor does it state any particular period within which the order of the Court to extend time must be made. 

The specification in sub-s. 41 (6A) of only one temporal point (comprising an alternative within it) and the use of the phrase "Where [that state of affairs exists] the Court may ... extend the time" is a striking feature of the sub-section. In conjunction with s. 30 of the Act and s. 15C of the Interpretation Act, it suggests that a new jurisdiction is vested in the Court, that this jurisdiction is attracted only if and when the condition has been satisfied, and that the jurisdiction otherwise is to be exercised according to the terms of sub-s. 41 (6A); cf The King v The Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 155, 165-6. As will be seen, this is consistent with what was decided by Deane and Ellicott JJ in Streimer v Tamas (1981) 37 ALR 211.

In the present case, the facts show that the application to set aside the default judgment was filed on 21 April 1994, that is to say, before even the date of issue of the bankruptcy notice itself on 16 May 1994.  The motion is still pending in the District Court.  An issue may arise, for example, as to whether the proceeding to set aside the District Court judgment has been prosecuted with due diligence, within the meaning of sub-s. 41 (6C).  But that is not the present point.

The immediate difficulty concerns the sequence of events involving the filing on 17 January 1995 of the present application for extension of time for compliance.  The issue concerns not the earlier time at which condition (a) in sub-s. 41 (6A) was satisfied, but the consequences of the date of the institution of the very application itself.  This took place well after the expiry of the time for compliance by the debtors, and after the commission by them of acts of bankruptcy on 31 October 1994 (Mrs Carter) and 7 October 1994 (Mr Carter).

In Streimer v Tamas supra, a 14 day bankruptcy notice had been served on the debtor on 2 December 1980, and on 16 December 1980, that is to say within the time for compliance, an application for extension of the period for compliance was filed.  An order also was sought setting aside the bankruptcy notice.  The question was whether it was open to the Court to act upon that application at a time after the expiration of the bankruptcy notice.  It was not a case where the application for extension had been filed after the expiration of the time initially limited for compliance with the notice.

The creditor in Streimer v Tamas submitted that sub-s. 41 (6A) should not be construed as conferring authority to make an order extending time for compliance where at the time of the proposed order the period originally fixed or any previously granted extension or extensions thereof had expired. It was contended that the Act conferred no authority upon the Court to annul an act of bankruptcy after its commission, and that upon the expiry of the time originally fixed and any extensions thereof an act of bankruptcy was complete.

However, Deane and Ellicott JJ rejected these submissions.  Their Honours said (at 214-5):

"The Parliament plainly turned its attention to the question of what steps needed to be taken before the expiry of the time which the bankruptcy notice fixed for compliance with its terms.  It specified two alternative steps, namely, the institution of proceedings to set aside the relevant judgment or order or the filing of an application to set aside the bankruptcy notice.  Subject to either of those steps being taken within the time limited for compliance, the power to extend time is conferred in general words.  It would, in our view, be contrary to the plain import of the words used by the Parliament to construe s 41 (6A) as requiring not only that one or other of the alternative express conditions precedent to jurisdiction be fulfilled within the time originally fixed for compliance, but as also requiring that both the application for an order and any initial order be made within that time.  Indeed, such a constricted construction would render otiose a large part of the sub-section, namely, the words 'before the expiration of the time fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice'."

[Emphasis supplied]

Their Honours quoted part of the text of sub-s. 41 (6A) to make the point that what it requires for the timing of the institution and disposition of the application was no more than that one or other of the alternative express conditions precedent to that jurisdiction has been fulfilled.  The phrase "the alternative express conditions precedent to jurisdiction be fulfilled" indicates that the jurisdiction may be invoked, by the making of the application for extension, only if one or other of the express conditions to the existence of that jurisdiction have been satisfied within the time originally fixed for compliance.

Deane and Ellicott JJ went on to state their rejection of the proposition that in the absence of an independent power to annul an act of bankruptcy, an order extending the time for compliance would be futile if not made within the period initially fixed for compliance or some persisting extension thereof.  Their Honours (at 215) said that the power conferred by the sub-section is a power to "extend" the previous period of time, rather than a power to establish a new, distinct and independent period of time for compliance.  The result is that the effect of an order extending time for compliance made after the expiry of the time originally fixed is to enlarge the "overall time" allowed for compliance.  The consequence is that "what would otherwise have constituted an act of bankruptcy no longer does".

Their Honours said that upon the construction they favoured the sub-section would not operate so as retrospectively to divest rights to rely upon an act of bankruptcy which would otherwise exist.  They continued (at 215):

"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."

[Emphasis supplied]

Deane and Ellicott JJ then turned to consider the submission that a factor militating against acceptance of the construction of the legislation which they favoured was the uncertainty and inconvenience to which it might lead in practice.  Their Honours said that ordinarily the creditor would be aware that proceedings to set aside the judgment had been instituted, or that an application to set aside the bankruptcy notice had been filed.  Accordingly, the creditor would be on notice that the time for compliance might be extended.  They went on to say that any prudent practitioner would continue to observe the present practice of endeavouring to ensure that the original or extended time for compliance was not allowed to expire without an extension or further extension being obtained. 

Their Honours added (at 216):

"One would hope that the circumstances where time was allowed to expire before an application to extend, or further to extend, time, was made or dealt with, would be restricted to cases resulting from ignorance on the part of a debtor acting in person, inadvertence on the part of the debtor's legal representative or, conceivably, temporary unavailability of a judge or registrar of a court entrusted with the exercise of bankruptcy jurisdiction.  Be this as it may, we are unable to accept possible uncertainty or inconvenience as constituting any proper ground for cutting down the circumstances in which, under the plain words of the statute, a person is entitled to seek from the court an order extending the time for compliance with the requirement of a bankruptcy notice which has been served upon him."

[Emphasis supplied]

In my view, and contrary to the submissions put to me by counsel for the creditor, the reasoning of their Honours does not suggest that the application for extension must be made within the time then currently limited for compliance with the bankruptcy notice.  Rather, their Honours identified what they
described as the alternative express conditions precedent to jurisdiction and the requirement that they be fulfilled within the time fixed for compliance and they refused to cut down what they described as the "plain words of the statute".

In Re Halstead supra, Heerey J appears to have proceeded on a basis consistent with that which I have just identified.  In that case, an application to set aside the bankruptcy notice had been brought on 8 February 1991, 4 days before the expiry of the time fixed for compliance with the notice.  However, the application for extension of time was made by the creditor apparently well after the time fixed for compliance with the notice had expired.  Heerey J said (at 395-6) that sub-s. 41 (6A) "gives power to extend the time for compliance, even where application is made after the time fixed by the notice has expired ...".

In Re Lentini supra, the application for extension had been filed within the time limited for compliance with the notice, so the issue presently before me did not directly arise.  However, Neaves J (at 372, 373) said that where para. (b) was relied upon the time for compliance with the requirements of a bankruptcy notice might be extended after the expiration of the time limited by the notice for compliance "provided an application to set aside the notice is made within the time so limited".  In McLean v Australia and New Zealand Banking Group Limited (1993) 42 FCR 300, para. (b) was relied upon. On the final day for compliance with the bankruptcy notice, the debtor filed an application seeking orders both that the notice be set aside and that the time for compliance be extended. Again, the issue presently before me did not directly arise. However (at 305) Ryan J referred to Re Lentini and, consistently with Streimer v Tamas, identified the existence of an application to have the bankruptcy notice set aside as a "condition precedent" to the exercise of the power contained in sub-s. 41 (6A).

In Re Conte; Ex parte Conte v Commissioner of Taxation (1990) 27 FCR 120, the application to set aside the bankruptcy notice and, alternatively, to extend the time for compliance with it, had been filed within the time limited for compliance with the bankruptcy notice. In Van Reesema v Australian Growth Resources Corporation Pty Ltd (1987) 75 ALR 311, the primary Judge had dismissed applications to set aside the bankruptcy notices in question and his Honour then entertained an application to extend the time for compliance, pending the hearing of an appeal against the dismissal of the applications to set aside the notices.

In Re Barbaro; Ex parte Amalgamated Television Services Pty Limited (3 December 1987, unreported), Burchett J referred to Streimer v Tamas and described the holding in that case as being that sub-s. 41 (6A) conferred jurisdiction upon the Court to extend time:

"[I]n a case where the requirements of the subsection were met, even though the application for the extension of the time was not made until after expiry of the time sought to be extended."

Before me reference was made to my unreported decision in Re Bleyer; Ex parte TCN Channel 9 Pty Ltd (2 March 1993).  In that case, the application for extension of time, filed 1 March 1993, was dismissed.  The bankruptcy notice was based upon a judgment for costs in an unsuccessful action brought by the debtor in the Supreme Court of New South Wales.  A judgment for costs against him had been entered on 18 October 1989 with effect from 7 July 1989.  The certificate for taxed costs of $80,000 had been issued on 10 March 1992.

In Bleyer the debtor relied upon para. (a) of sub-s. 41 (6A).  An appeal from the New South Wales Court of Appeal against the costs order had been filed on 14 July 1989, and was still pending in March 1993.  However, the time for compliance with the bankruptcy notice had expired on 15 February 1993.  The application under sub-s. 41 (6A) was dismissed as incompetent. 

That result is to be supported on the basis that as at 15 February 1993 para. (a) of sub-s. 41 (6A) had not been complied with.  This was because the appeal which was on foot did not answer the description of a proceeding "to set aside the judgment" within the meaning given that phrase in Re Lentini supra.  The result is not to be supported on the ground then advanced for it, namely that the application for extension necessarily was incompetent because it was filed after the expiry of the time limited for compliance with the bankruptcy notice.

Finally, I should refer to Re Howarth; Ex parte Mortgage Acceptance Nominees Limited (1993) 43 FCR 587. In that case, on 11 June 1993, the creditor sought an order extending the time for compliance by the debtor with a bankruptcy notice which had expired on 15 September 1992. An application by the debtor to set aside the bankruptcy notice had been made during the currency of the notice. Einfeld J followed the decision of Heerey J in Halstead as to the standing of the creditor.  Further (at 592) his Honour held that the Court had power to extend time for compliance with the notice although, as a matter of discretion, the extension was refused.

From this survey of the authorities it is clear that, whilst most of the single judge decisions did not concern factual sequences comparable to that in the present case, there is nothing in them, properly understood, which is inconsistent with the conclusion from the joint judgment in Streimer v Tamas which I have already indicated as following in the present case.

This conclusion is that the jurisdiction of the Court was attracted during the currency of the bankruptcy notice because, throughout that period, condition (a) in sub-s. 41 (6A) was satisfied.  There had been instituted by the debtor a proceeding to set aside the judgment or order in respect of which the bankruptcy notice had been issued.  That being so, it is no objection to the existence of the power of the Court in the matter that the application for extension itself was made after the expiration of the bankruptcy notice.

Accordingly, there should be answered in the affirmative the question for separate decision namely:

"Upon the agreed facts and in reliance upon para. (a) thereof does the Court have power to make an order under s. 41 (6A) of the Bankruptcy Act 1966?

The costs of the separate question should be the costs of the application filed 17 January 1995 and amended 28 March 1995.

The application should stand over for a date to be fixed for the determination of the remaining issues.  The restraint upon presentation of a creditor's petition continues until further order and without the need now for any extension of it.

I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for judgment of the Honourable Justice Gummow.

Associate:

Date:  11 April 1995.

Counsel and solicitors for the debtors:

Mr T.H. Barrett instructed by Frank & Woods.

Counsel and solicitors for the creditor:

Mr J.S. Mendel instructed by John M. Fitzgerald & Associates.

Date of hearing:

30 March 1995.

Date of judgment:

11 April 1995.