Re Dier, J v Suduk, J & S

[1990] FCA 73

Re: JOHN DIER
Ex Parte: JOHN SUDUK and SUSAN SUDUK
No. P1731 of 1989
FED No. 73
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - application to extend the time prescribed by Bankruptcy Act 1966, s.41(5) - delay - discretion

HEARING

SYDNEY

#DATE 9:3:1990

Counsel and solicitors Mr. M.R. Aldridge instructed by for the debtor: Sally Nash & Co.

Counsel and solicitors Mr. G. Blake instructed by for the petitioning Greaves Wannan & Williams creditors:

ORDER

Application by the debtor to extend the time prescribed by s.41(5) of the Bankruptcy Act 1966 is refused.

Order that the debtor pay the petitioners' costs of the application

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

JUDGE1

This is an application, made pursuant to s.33(1)(c) of the Bankruptcy Act 1966 ("the Act") by a debtor for an order for an extension of the time allowed under s.41(5) of the Act for the giving of a notice by a debtor that he disputes the validity of a bankruptcy notice on the ground that the sum specified in the bankruptcy notice as the amount due to the creditor exceeds the amount in fact due.

The legislative framework

1. By s.33(1) it is provided that -
   

"33(1) The Court may -

...

(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act...(other than the time fixed for compliance with the requirements of a bankruptcy notice) for doing an act or thing..."

By s.41(5) of the Act, it is provided that -

"(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the mis-statement."

By s.41(6) of the Act, it is provided that -

"(6) Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with sub-section (5), he shall be deemed to have complied with the notice if, within the time allowed for payment, he takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it."

By s.41(6A) and (6C), it is provided that -

"(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. ...

(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."

1. If the debtor gives a notice pursuant to s.41(5) within time, the bankruptcy notice will be invalid (see Walsh v. Deputy Commissioner of Taxation (1984) 156 CLR 337 at p 339).

2. In Re Wilhelmsen; Ex parte Gould (1986) 11 FCR 107, it was held that the time for the giving by the debtor of a notice pursuant to s.41(5) could be extended by virtue of the provisions of s.33(1)(c). Pincus J. said (at p 109):
   

"Counsel for the creditors relied upon the express exclusion of the time fixed for compliance with the requirements of a bankruptcy notice. That exclusion, however, does not avail the creditors, because the giving of a s.41(5) notice is not a requirement of a bankruptcy notice. What is required by a bankruptcy notice is, of course, primarily payment. To my mind, the question is whether it is implicit in s.41(5), read with s.33(1)(c), that one cannot extend the time for giving a s.41(5) notice other than by extending the time for compliance with the requirements of the bankruptcy notice, under s.41(6A). My conclusion on that point is in favour of the debtor, because, although a s.41(5) notice must prima facie be given within the time allowed for compliance with the requirements of a bankruptcy notice (which time is briefly described there as the 'time allowed for payment'), that is to be read subject to s.33(1)(c). I think the time for giving a s.41(5) notice may be extended without affecting the time for compliance with the requirements of the bankruptcy notice."

1. In Re Clubb; Ex parte Clubb v. Westpac Banking Corporation, 16 January 1990, unreported, Burchett J. followed Pincus J. I also propose to follow Pincus J.
   The background to the application

2. The matter has had a long and complicated history.
   The proceedings in the Magistrates' Court

3. In September 1988, John Suduk and Susan Elizabeth Suduk, as complainants, commenced proceedings in the Magistrates' Court at Broadmeadows, Vic., against John Dier and Barbara Dier as defendants. In their particulars of demand dated 2 September 1988 in matter 281942, Mr. and Mrs. Suduk alleged that they carried on business under the name Toolernvale Park Stud (para.1) and that by an oral agreement made between Mr. and Mrs. Suduk and Mr. and Mrs. Dier on or about 23 September 1980, Mr. and Mrs. Suduk agreed, at the request of Mr. and Mrs. Dier, (a) to grant to Mr. and Mrs. Dier permission to use certain grazing land of Mr. & Mrs. Suduk for the depasturing of the mare "Salad Days" ("the mare"); (b) to tend to the veterinary and other needs of the mare; (c) to provide the stallion "So Called" ("the stallion") during 1981 to service the mare for a fee of $4,OOO.OO; (c) to grant to Mr. and Mrs. Dier permission to use certain grazing lands of Mr. and Mrs. Suduk for the depasturing of any foal ("the foal") the produce of the union between the stallion and the mare; (e) to provide veterinary and other services for the foal. Mr. and Mrs. Suduk alleged that Mr. and Mrs. Dier agreed to pay the fees referred to in sub-paras.(a), (b) (d) and (e) and the sum of $4,000.00 in sub-para.(c) (para.2). It was then alleged that by a further oral agreement made between Mr. and Mrs. Suduk and Mr. and Mrs. Dier in or about 1982, Mr. and Mrs. Suduk agreed, at the request of Mr. and Mrs. Dier, to continue to provide the rights and services described in the earlier agreement and to provide the stallion during 1982 to service the mare for a sum of $4,000.00 and Mr. and Mrs. Dier agreed to pay the fees levied by Mr. and Mrs. Suduk from time to time and the sum of $4,000.00 (para.3). It was next alleged that by a further oral agreement made between Mr. and Mrs. Suduk and Mr. and Mrs. Dier during 1983, Mr. and Mrs. Suduk agreed, at the request of Mr. and Mrs. Dier, to continue to provide the rights and services described in the earlier agreements and (a) to provide the stallion "Padroug" to service the mare; (b) to grant to Mr. and Mrs. Dier permission to use certain grazing lands of Mr. and Mrs. Suduk for the depasturing of any foal the produce of the union between the stallion "Padroug" and the mare; (c) to provide veterinary and other services for the foal; and Mr. and Mrs. Dier agreed to pay the fees referred to in the earlier agreements and pursuant to sub-paras. (b) and (c) and the sum of $4,OOO.OO (para.4). Then it was alleged that on or about 9 July 1986, Mr. and Mrs. Suduk brought an action against Mr. and Mrs. Dier in the County Court of Victoria at Melbourne to recover the sum of $31,866.50 then said to be due pursuant to the agreements referred in in paras. 2, 3 and 4 (para.5). Next it was alleged that on or about 8 December 1986, Ogden J. of the County Court granted leave to Mr. and Mrs. Suduk (presumably under the Service and Execution of Process Act 1901) to proceed against Mr. Dier (then resident in New South Wales) and, consequently, on or about 12 December 1986, Mr. and Mrs. Suduk entered judgment against Mr. Dier in the County Court in the sum of $31,866.50 with costs (para.6). Then it was alleged that, thereafter, Mr. and Mrs. Dier paid to Mr. and Mrs. Suduk and Mr. and Mrs. Suduk made allowances to Mr. and Mrs. Dier in the total sum of $31,866.50 in respect of monies owing pursuant to the agreements referred to in paras.2, 3 and 4 (para.7). Next it was alleged that, notwithstanding these payment and allowances, since about 9 July 1986, Mr. and Mrs. Suduk, pursuant to the agreements referred to in paras. 2 and 4, accounted to Mr. and Mrs. Dier in the sum of $14,422.00 but Mr. and Mrs. Dier refused to pay that sum to Mr. and Mrs. Suduk. The following particulars were given: "Agistment charges, cost of veterinary services and general costs of care for the said mare and the produce of the union of the said mare with both the stallion "So Called" and the stallion "Pardoug", to 31st August 1988...$14,422.00" (para.8). Next it was alleged that, by reason of the agreements referred to in paras. 2 and 4, Mr. and Mrs. Suduk were suffering loss until such time as Mr. and Mrs. Dier removed the mare and the produce from the custody of Mr. and Mrs. Suduk. The following particulars were given: "Agistment charges, cost of veterinary services and general costs of care - $20.00 per day" (para.9). Mr. and Mrs. Suduk then claimed: (a) the sum of $14,422.00 pursuant to para.8; (b) damages at the rate of $20.00 per day from 1 September 1988 until Mr. and Mrs. Dier took custody of the mare and her produce; (c) an order that Mr. and Mrs. Suduk be allowed to sell the mare and her produce by public auction pursuant to s.8(2) of the Livery and Agistment Act 1958 (Vic.) failing Mr. and Mrs. Dier taking custody or possession of the mare and her produce within 30 days of such order, the net proceeds therefrom to be applied in diminution of the indebtedness of Mr. and Mrs. Dier to Mr. and Mrs. Suduk pursuant to the agreements referred to in paras. 2 and 4; (d) costs; (e) interest.

4. In February 1989, Mr. and Mrs. Suduk filed a request, in matter No. 281942, at the Magistrates' Court at Melton, Vic. The request, dated 27 February 1989, was entitled "Magistrates (Summary Proceedings) Act 1975...Request for an Order." Mr. and Mrs. Suduk requested that an order be made for the sum of $18,132.00 plus costs plus damages at the rate of $20.00 per day from 1 September 1988. In an affidavit verifying the claim, Mr. Suduk gave details of how the claim for $18,132.00 was made up. Mr. Suduk said that the claim consisted of agistment charges, veterinary and other services in the period 1 July 1986 to 31 December 1988. On 3 April 1989, a magistrate made an order on the request. The notice of the order issued by the Magistrates' Court was as follows:
   

"Order in Chambers

Upon reading the affidavits of John Suduk and Neil Robinson sworn 9/2/1989 & 18/10/88 respectively: Order on the claim against the lst named defendant (Mr. Dier) for $18,312.00 with $238.70 costs."

1. It will be noted that the figure shown in the order was $18,312.00, and not the sum of $18,132.00, as claimed. It seems that, under the "slip" rule or in the exercise of the inherent jurisdiction of the Magistrtes' Court, the mistake could, and should, have been corrected (see Commonwealth of Australia v. McCormack (1984) 55 ALR 185 at p 187). However, no correction has yet been made.

2. The same error was made in a certificate of judgment obtained by Mr. and Mrs. Suduk in May 1989 under the Service and Execution of Process Act. This certificate of judgment was relied on by Mr. and Mrs. Suduk in applying to this Court for the issue of a bankruptcy notice addressed to Mr. Dier. The bankruptcy proceedings

3. On 26 May 1989, a bankruptcy notice in the usual form was issued in these proceedings addressed to Mr. Dier. The bankruptcy notice recited a claim by Mr. and Mrs. Suduk that there was due to them, under the Magistrates' Court judgment, the sum of $18,312,000, plus costs of $238.70, together with interest in the sum of $338.69, being a total debt of $18,889.39. The bankruptcy notice was served on 30 May 1989. Mr. Dier did not comply with the requirements of the bankruptcy notice. On 16 August 1989, Mr. and Mrs. Suduk presented a petition for the sequestration of the estate of Mr. Dier. The petition was served on 25 September 1989. The petition was returnable on 19 October 1989. On 18 October Mr. Dier filed a notice of intention to oppose the petition on the grounds (1) that he had not been served with a bankruptcy notice; (2) that he had committed no act of bankruptcy. On 19 October, the petition was adjourned, by consent, to 7 November. On that date, the petition was adjourned to 28 November. The debtor then filed an amended notice of intention to oppose the petition, restating the two earlier grounds and adding a third ground disputing the debt alleged in the petition. On 28 November, directions were given by Burchett J. that Mr. and Mrs. Suduk provide further particulars to Mr. Dier. The petition was stood over to 13 February 1990. On 15 January 1990, Mr. Dier filed a further amended notice of intention to oppose the petition on the grounds (a) that there was no debt; and (b) that the claims made by Mr. and Mrs. Suduk "are not the subject of any contract".

4. By letter to the solicitors for Mr. and Mrs. Suduk dated 13 February, the solicitor for Mr. Dier raised the point that the amount claimed in the bankruptcy notice exceeded what was in fact due by the sum of $1,304.70. In this connection, reliance was placed by the solicitors for Mr. Dier upon what was said to be a "concession" to this effect made by the solicitors for Mr. and Mrs. Suduk in a letter to the solicitor for Mr. Dier dated 7 February. I will return to this letter later. Because it was recognised that Mr. Dier had not given notice of his objection within the time prescribed by s.41(5), an application for extension of that time was foreshadowed. On 13 and 15 February 1990, the petition came before Morling J. who adjourned the petition to 6 March and directed that Mr. Dier file and serve an application for extension of time, returnable on 6 March.
   The present application

5. On 23 February, Mr. Dier filed an application seeking these orders: (1) An order for extension of the time prescribed by s.41(5) up to and including 13 February; (2) a declaration that the bankruptcy notice was invalid; (3) an order dismissing the petition.

6. In support of his application, Mr. Dier swore an affidavit on 20 February in which he admitted that he owed Mr. and Mrs. Suduk $6,232.54 ("as at 31 May 1988") but disputing any other liability. It appears that Mr. Dier has not yet paid the sum of $6,232.54 or any part of it.

7. In his affidavit, Mr. Dier says:
   

"9. I did not file a Defence to the Statement of Claim served upon me as I was always of the view that I could resolve this matter amicably with John Suduk. We have had a long standing relationship and have always been able to resolve matters concerning the outstanding account between us. Whilst Mr. Suduk has sued me in the past for the unpaid account we have in fact made arrangements with respect to payment.

10. I did not reply to the Bankruptcy Notice which was apparently served upon me because I overlooked the service of the document upon me and if the document had registered with me as being a Bankruptcy Notice I would have immediately taken it to my Solicitor to take action upon it.

11. It was not until I was served with the Bankruptcy Petition did I realize the full ambit of the claim by the Creditors and the fact that they were taking the matter so far. I immediately contacted my Solicitors and requested that they obtain particulars of the claim. At this stage I was not aware of where the horses were being agisted or if they were still alive."

1. Mr. Dier then refers to an exchange of correspondence between the solicitors in November and December 1989 in which further particulars of the claims made by Mr. and Mrs. Suduk were requested and supplied. In their letter dated 7 February, already mentioned, the solicitors for Mr. and Mrs. Suduk said, inter alia:
   "3. We draw your attention to the Particulars of
   

Demand annexed to both the County Court and Magistrates Court Summonses, in respect of which judgment has been obtained against your client. Paragraphs 2, 3 and 4 plead in detail the Agreement between Mr. and Mrs. Suduk and your client. You will note that apart from the provision of agistment, it is alleged that it was agreed to provide veterinary and ancillary services to the horses.

4. As your client has paid the County Court judgment, we submit that he is estopped from denying that the Agreement with Mr. and Mrs. Suduk is as pleaded in the County Court and Magistrates Court Summonses.

5. In any event, the Magistrates Court judgment is for the period from 9th July, 1986 to date. Examination of the invoices from 1st July, 1986 shows that, with the exception of the invoice dated 1st July, 1st August and 1st September 1986, the defendants have only been charged for agistment of the horses.

6. It is conceded that Mr. and Mrs. Suduk have no entitlement to charge your client interest and legal fees and the quantum of the sum payable by your client should be adjusted accordingly for those amounts shown in each invoice, the total of which we calculate as follows:-

(i) Interest $398.7O

(ii) Legal fees $906.00"

1. The final paragraph of Mr. Dier's affidavit is as follows:
   

"I was not in a position to file any Notice Under Section 41(5) of the Bankruptcy Act prior to 13 February, 1990 as it was only in the letter dated 7th February, 1990 that the Solicitors for the Creditors admitted the amount of the overstatement and conceded the point at court on 13 February, 1990. Prior to that date on each occasion that I have sought an adjournment to request further particulars of the claim, I have been advised by my Solicitor Sally Nash that the application for adjournment was opposed and that the Creditors sought to proceed on each occasion."

1. On behalf of Mr. and Mrs. Suduk, reliance is placed upon the evidence of their solicitor, Alison Mary Knox, in her affidavit sworn on 2 March 1990. She explains that the concession made in the letter dated 7 February was made by an error in her instructions and that interest and legal fees were not included in the amounts claimed by Mr. and Mrs. Suduk in the proceedings in the Magistrates' Court. Her explanation is not challenged. However, she does admit that the bankruptcy notice did overstate by $180.00 the amount due, being the difference between $18,312.00, the amount wrongly stated in the judgment, instead of $18,132.00, the amount in fact due.

1. (It should be noted also that counsel for Mr. Dier submitted that no debt to Mr. and Mrs. Suduk existed because the invoices relied on by Mr. and Mrs. Suduk were issued by a company, and not by Mr. and Mrs. Suduk. In the circumstances it is not necessary, for reasons to be given later, that this point be dealt with here.)
   The jurisdiction or power under s.33(1)(c) to extend the time for a debtor to give a notice pursuant to s.41(5)

2. Given the course of authority already mentioned, I am of the opinion that this jurisdiction or power does exist. However, in the two earlier cases (Wilhelmsen and Clubb), where an extension of time was sought, the matter had not, as here, proceeded to the petition stage. It may be that, once a petition has been presented, the Court's power to act under s.33(1)(c) in respect of a notice under s.41(5) is no longer available. Because, for reasons to be given shortly, I propose to refuse the application on discretionary grounds, I need not decide the point. I am prepared to assume, for the purposes of the present argument, that the power still exists.
   Discretion

3. Whether the power to extend ought to be exercised depends upon discretionary considerations as the interests of justice require.

4. In favour of the exercise of the discretion are the following: First, the judgment was obtained by default and therefore was of kind of judgment which it is open to a court of bankruptcy to "go behind" and inquire whether there is a real, and not merely a fictitious, debt underlying the judgment (see Corney v. Brien (1951) 84 CLR 343; Wren v. Mahony (1971) 126 CLR 212; Olivieri v. Stafford, Full Federal Court, 28 November 1989). Secondly, in one respect at least (in respect of the difference between the amount claimed and the amount for which judgment was entered, i.e. the sum of $180.OO) and perhaps even other respects, there is an overstatement in the amount claimed in the bankruptcy notice.

5. However, against these considerations it must be accepted that there has been significant, even gross, delay on the part of Mr. Dier in seeking the extension of time he now requests. It will be remembered that, although the bankruptcy notice was served on 30 May 1989 and the petition was served on 25 September 1989, the extension was not sought until the middle of February 1990.

6. It should be borne in mind, in the present context, that this is not a case where a debtor has been left in the dark by his creditors as to how the claim against him was made up. The particulars of demand in the Magistrates' Court gave a full description of the causes of action sued upon. (I was informed that steps have been taken by Mr. Dier to seek an order setting aside the default judgment, but this process was initiated only recently.)

7. The present application is approximately eight months out of time. The bankruptcy notice, served on 30 May 1989, required, inter alia, payment within 14 days after service (i.e. by mid June), yet the present application was not even foreshadowed until mid February in the following year. A further, and serious, complication is the presentation of the petition on 16 August 1989 and its service in the following month. The petition has already been before the Court on at least five occasions. It must be a rare case where an application of the present kind is granted after the presentation of a petition.

8. It is true that in Wilhelmsen's Case, an extension of time was granted, but the notice there was only two days' late (see at p 108). In Clubb's Case, an extension was also granted, yet the notice in that case was merely three days' late and there had been an error made by the solicitors for the debtor (see at pp 4-5). The evident policy of s.41(5) is to ensure that, ordinarily at least, if a notice is to be given by a debtor under that provision, it should be given promptly. Extensions of two or three days do not contradict this legislative policy. An extension of eight months, especially granted after the presentation of a petition, does, on the face of it, seem at odds with the legislative intent.

9. In my opinion, the delay in the present case, viewed in the context of an important supervening event in the form of the presentation of the petition, is such that the interests of justice require that time not now be extended. Mr. Dier has given no acceptable explanation why the points he now seeks to raise were not advanced when he was served with the bankruptcy notice, or even when served with the petition. In my view, it would be wrong, after some eight months have passed since the point could have been raised, to permit Mr. Dier to challenge the validity of the bankruptcy notice on these grounds. (This is not to say that it would not be open to Mr. Dier, at the hearing of the petition, to seek to "go behind" the default judgment for any appropriate reason. But that is a different question, and it does not now arise for consideration.)

10. I propose to refuse the application, with costs.