Re O'Dea, M.G. v Ex parte Fielding, D.J.

[1985] FCA 509

Re: MICHAEL GEOFFREY O'DEA
And: DAVID JAMES FIELDING and JEAN MARGARET FIELDING
No. B181 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
Toohey J.

CATCHWORDS

Bankruptcy - application to set aside bankruptcy notice - whether leave to amend application to seek an order that the time within which the bankrupt comply with the notice should be granted where time for compliance had expired - consideration of provisions in Bankruptcy Act concerning extensions of time - whether proceedings to set aside judgment bona fide or being prosecuted with due diligence.

Bankruptcy Act 1966 para.33(1)c) and s.41

HEARING

PERTH
#DATE 4:10:1985

ORDER

1. The debtor have leave to amend para.2 of the application filed 30 August 1985 by adding the following paragraph in substitution for the existing paragraph 2:
> "An order that the time within which the debtor comply with the bankruptcy notice be extended until 21 days after judgment in appeal No. 155 of 1985 to the Full Court of the Supreme Court of Western Australia."

2. The time in which the debtor comply with the requirements of the bankruptcy notice be extended until 21 days after judgment in appeal No. 155 of 1985 to the Full Court of the Supreme Court of Western Australia or until further order.

3. Liberty to the parties to apply as to the costs of the debtor's application to amend para.2 of the application and as to the costs of the hearing of para.2 of the application.

4. Liberty to the parties to apply generally.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

On 16 August 1985 a bankruptcy notice was served on the debtor, Michael Geoffrey O'Dea, at the instance of the creditors, David James Fielding and Jean Margaret Fielding. The bankruptcy notice required payment, within 14 days of service, of the sum of $45,283.25, being the amount of a judgment obtained by the creditors against the debtor in the District Court of Western Australia on 13 June 1985.

On 30 August the debtor filed an application for an order that the bankruptcy notice be set aside. On the same day he filed a further application seeking an order that the time within which he comply with the bankruptcy notice be extended to the date of determination of his application to have the bankruptcy notice set aside. The application for extension of time came before the Registrar on 30 August. In exercise of delegated authority, the Registrar made an order by consent that the time limited for compliance be extended to 11 September 1985 at 3.30 p.m. Liberty was reserved to either party to apply to vary the terms of the order.

No application was made by the debtor prior to 11 September for a further extension of time; nor indeed was any such application made on that day. However, on 23 September the application to set aside the bankruptcy notice came before me. The parties were represented by counsel. I should add that on 3 July 1985 the debtor had lodged notice of appeal to the Full Court of the Supreme Court of Western Australia against the judgment of the District Court. That appeal has not yet been heard.

At the hearing on 23 September, counsel for the debtor applied to amend the application by adding a paragraph seeking an order that the time within which he comply with the bankruptcy notice be extended until 21 days after judgment in his appeal to the Full Court. The application to amend was opposed by counsel for the creditors and, as the basis of the opposition involved the power of the Court to grant an extension, I reserved my decision on the application. At the same time I permitted counsel to address both as to the power of the Court to grant an extension and as to whether an extension should be granted if power existed. Counsel for the debtor made some submissions directed to the application that the bankruptcy notice be set aside. Counsel for the creditors complained that the submissions were taking a form different to that which he had been lead by the debtor's representatives to believe would be the argument in support of this claim for relief. In the circumstances I agreed to defer argument on the question whether the bankruptcy notice should be set aside and adjourned that argument until the next bankruptcy sittings on 14 October. The parties will have my present reasons for decision in ample time to prepare for any argument that may be necessary as to the principal relief sought in the debtor's application viz. that the bankruptcy notice be set aside.

Without unduly trespassing into that area, I should mention that the creditors have filed notice of opposition to the application on four grounds, three of which have been relied upon by the creditors in their opposition to the application to amend and in opposition to an extension of time if the amendment be allowed. The grounds have been formulated in the following way:

"1. That the Appeal instituted by the Debtor has not been instituted bona fide.

2. That the said Appeal has not been prosecuted with due diligence.

3. . . .

4. The Debtor committed an act of Bankruptcy at 3.30 p.m. on the 11th day of September 1985."

The proposition that the debtor committed an act of bankruptcy at 3.30 p.m. on 11 September derived of course from the fact that the Registrar extended the time for compliance until then and that the debtor made no attempt prior thereto to seek a further extension. The time for compliance, so the argument ran, expired at midnight on 11 September and, in terms of para. 40(1)(g) of the Bankruptcy Act 1966, the debtor had thereby committed an act of bankruptcy. While para. 33(1)(c) of the Bankruptcy Act empowers the Court to extend the time limited by the Act or any time fixed by the Court or the Registrar for doing an act or thing, there is an express exclusion in the case of "the time fixed for compliance with the requirements of a bankruptcy notice".

However s. 41 of the Act, which is concerned with bankruptcy notices, contains specific provision for extension of time in regard to such notices. In particular sub-s. 41(6A) reads:

"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".

Subsection 41(6C) reads:

"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."

Subsections 41(6A) and (6C) were inserted by No. 12 of 1980, s. 24. The background to their introduction was discussed by Sheppard J. in Streimer v. Tamas (1981) 37 A.L.R. 211 at 217-218; I shall not repeat what is said there. In that case Deane and Ellicott JJ. held that, where one of the conditions precedent in sub-s. 41(6A) has been fulfilled, the Court is empowered to extend the time for compliance with a bankruptcy notice even though the time for compliance has expired. Sheppard J. inclined to the same view but found it unnecessary to decide the matter, holding that in the circumstances of the particular case the primary judge had an inherent power to vary an earlier order made for an extension of time even though the time had expired. Judgment in Streimer v. Tamas was delivered on 21 August 1981, after a hearing on 30 June that year. On 5 June 1981, in Thurgood v. National Bank of Australasia Ltd. (1981) 53 F.L.R. 51 Lockhart J. held that in circumstances where an application to set aside bankruptcy notices had been adjourned several times, with extensions of time for compliance with the requirements of the notices being granted to the adjourned dates, save that on a later adjournment no application was made for an extension of time, acts of bankruptcy had been committed. Unfortunately Thurgood does not appear to have been cited to the Full Court in Streimer and no reference to Lockhart J.'s decision appears in the judgments in that case. I must follow the decision of the Full Court. I am bound to the conclusion in the present case that, proceedings to set aside the judgment in respect of which the bankruptcy notice was issued having been instituted by the debtor before the expiration of the time fixed by the Registrar for compliance with the requirements of the bankruptcy notice and an application to set aside the bankruptcy notice having been filed within that time, I am empowered by sub-s. 41(6A) to extend the time for compliance notwithstanding that the time fixed by the Registrar has expired.

Counsel for the creditors drew attention to certain passages in the judgments in Streimer. He referred in particular to the following dicta of Deane and Ellicott JJ. at 216:

"One would hope that the circumstances where time was allowed to expire for 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 a debtor's legal representative or, conceivably, temporary unavailability of a judge or registrar of a court entrusted with the exercise of bankruptcy jurisdiction".

In this regard counsel referred also to the dictum of Sheppard J. at 224. However, these comments are by way of caveats on the exercise of the power to extend time; at least in the case of the judgment of Deane and Ellicott JJ., they assume the existence of the power.

In my view the Court should accede to the application by the debtor to amend his application so as to seek an order extending the time for complying with the bankruptcy notice until disposition of the appeal. That is not to say that the relief sought by way of amendment should necessarily be granted. It did not emerge with clarity why the debtor did not seek a further extension of time before 11 September. It seems however that his counsel assumed that there would be a further hearing before the Registrar at 3.30 p.m. on 11 September but that, being told the Registrar was not then available and that there was no listing of the matter, he did not attend the Court. Counsel for the creditors did attend, presumably in expectation that there would be a hearing. Such circumstances are among those mentioned expressly or by implication by Deane and Ellicott JJ. in Streimer. Subject to what follows, this is a case for an extension of time under sub-s. 41(6A). The debtor has met both conditions precedent to the operation of that subsection.

However, having regard to the terms of sub-s. 41(6C), the Court may not extend the time for compliance with the bankruptcy notice if it is of the opinion that the proceedings to set aside the judgment have not been instituted bona fide or are not being prosecuted with due diligence. The creditors contend that both sets of circumstances exist and operate to preclude an extension of time.

As to whether the appeal is being prosecuted with due diligence, the creditors applied, by notice of motion filed 30 August 1985, to have the appeal dismissed for want of prosecution. The motion came before the Full Court on 4 September and the Court ordered that the debtor file a draft appeal book index forthwith, that the appeal be entered before the end of September and that the debtor pay the creditors' costs of the motion. No mention was made of a springing or self-executing order whereby the appeal would be dismissed in default of compliance with the order of the Full Court. I understand that the debtor has filed a draft appeal book index; but when the matter was before me on 23 September the appeal had not yet been entered for hearing. However the debtor still had a week in which to meet that requirement.

The state of the appeal before the Full Court is not conclusive of the question whether the debtor has prosecuted the appeal with due diligence. Nevertheless it provides a guide. Where the Full Court has made orders aimed at ensuring that the appeal does proceed with expedition, I am prepared to assume that the debtor is proceeding with due diligence so long as he complies with the order of the Full Court. In terms of s. 41(6C), I am not of the opinion that the proceedings to set aside the judgment are not being prosecuted with due diligence.

The question of whether the appeal has been instituted bona fide is a more difficult one. It was made more difficult by the fact that counsel for the debtor stated that it was his intention to seek a number of amendments to the grounds of appeal, designed to raise more squarely the challenges to be made to the judgment of the District Court. The question is not whether the appeal is likely to succeed. That is not an assessment which this Court can make on the material before it nor should it do so. The reference to bona fide points, I think, to a situation in which an appeal has been instituted without merit and for an ulterior purpose such as delaying execution on the judgment. The trial judge in the District Court gave his judgment at the end of the hearing on the second day of trial and reached his conclusions largely by reference to the credibility of the parties. However there are matters in the reasons for judgment that are capable of being argued on appeal. In particular it seems not to have been in issue that the creditors would provide three headers for the purpose of harvesting the debtor's lupin crop but that they only provided two machines. Nevertheless his Honour rejected the debtor's evidence that this was a term of the contract adding that, in any event, it was not shown in what manner the use of three headers would be critical to the operations which the creditors undertook to carry out. One can readily see that the use of three machines as against two might well be critical to a harvesting operation. I do not propose to explore other matters referred to by counsel for the debtor relating to the existing or proposed grounds of appeal. It is enough to say that I am not of opinion that the appeal was not instituted bona fide. It follows then that the creditors have not met the onus cast upon them by sub-s. 41(6C).

In the circumstances it is appropriate that there be an extension of time in which to comply with the requirements of the bankruptcy notice until 21 days after judgment is delivered by the Full Court or until further order. There will be liberty to the parties to apply. This will meet any difficulties which may arise by reason of the extension or any relevant change in circumstances.