Re Van Coblyn, J. v Ex Parte Mercantile Credits Limited

[1992] FCA 1018

Re: JOHN VAN COBLYN
Ex parte: MERCANTILE CREDITS LIMITED
Nos. N P3416 of 1991 and G515 of 1992
FED No. 1018
Number of pages - 16
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Einfeld J.(1)

CATCHWORDS

Bankruptcy - creditor inadvertently failed to extend creditor's petition before expiry - whether Court has power to extend crediter's petition after it has expired - consideration of slip rule - whether hearing of petition should be adjourned

Bankruptcy Act 1966 ss 33(1)(c), 40(1)(g), 41(6A)(6C), 52(4),(5), 152(4),(5), 188, 306

Esso Research and Engineering Company v The Commissioner of Patents (1960) 102 CLR 347

Re Young ex parte Smith (1985) 5 FCR 204

Thurgood v National Bank of Australasia Limited (1981) 53 FLR 51

Streimer v Tamas (1981) 54 FLR 253

Re Draper ex parte Brosalco Pty Limited (1983) 72 FLR 179

Re Cavanagh ex parte WEA Records Pty Limited unreported, 14 December 1984

HEARING

SYDNEY

#DATE 21:9:1992

Counsel and solicitor for the debtor: Mr B. De Buse instructed by

Potts Latimer Solicitors

Counsel and solicitor for the creditor: Mr M. Aldridge instructed by

Sullivans Solicitors

ORDER

1. The time of the petition is extended to 16 September 1993.

2. The matter is adjourned to 13 October 1992 at 9.30am when the

matter will proceed to finality.

3. Costs reserved.

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

JUDGE1

EINFELD J. This application for a sequestration order has a long and uninspiring history. It commenced with a statement of claim lodged by the creditor in the District Court at Parramatta on 28 December 1990. The statement of claim was served on 11 February 1991 and default judgment was entered on 18 June of that year. Those last two events, the service of the statement of claim and the entry of default judgment, are wrongly dated in the debtor's affidavit of 19 May 1992. A bankruptcy notice was issued on 7 August and served on 10 August 1991.

1. On 17 September 1991 the debtor moved in the District Court to set aside the default judgment and the application was heard on 25 November 1991. Reserved judgment was given on 2 December refusing the motion. The debtor lodged a notice of appeal in the New South Wales Court of Appeal on 31 January 1992 which, on 6 May, was converted into an application for leave to appeal. In the event, the Court of Appeal refused leave on 18 May 1992.

2. Meanwhile, a bankruptcy petition dated 16 September 1991 had issued out of this Court on 4 October and was served on 15 October. It was fixed for hearing on 14 November when the matter came before a Registrar for the first time. The debtor filed a notice of intention to appear at the hearing of the petition but did not state any grounds upon which the petition would be opposed. The petition was adjourned to 29 November by consent when it was again adjourned by consent to 3 February 1992. Then it was again adjourned, this time apparently not with consent, to 6 May. On that date, over the objection of the creditor, the petition was adjourned at the debtor's request to 19 May when the debtor filed a fresh notice of opposition to the petition disputing indebtedness to the creditor on the basis of a claimed cross-claim or set off exceeding the amount of the debt. It is not immediately easy to see what the claimed amount is but figures of $2.1 million, $2.2 million and $5 million are mentioned in the notice of opposition. I assume that the alleged set off is substantial. This claim has become matter number G515 of 1992.

3. On 19 May, in the presence of the more particularised notice of intention to oppose the petition, a Registrar made orders by way of a timetable requiring the parties to produce their evidence and deal with other interlocutory steps in relation to what was then treated as an opposed petition. Leave was given to approach the registry for a special fixture. On or about 16 July, today's date was given and 23 July was fixed as a date for further mention or directions. The parties then appeared before me and orders were made by way of further timetable requiring the parties to take steps to give substance to the nature of the dispute raised by the claimed set off. The hearing dates allocated, today and tomorrow, were extended to reserve Wednesday 23 September in case there was to be a joint hearing. The matter was directed to be listed on 18 August to consider whether the debtor's newly filed claim should be heard at the same time as the petition.

4. After hearing argument on that day, I ruled that the debtor's claim should be the subject of a separate hearing and directed that the bankruptcy proceedings should proceed today. The debtor's claim was stood over to today for mention or directions. Meanwhile, by reason of its presentation on 16 September 1991, the petition expired some five days ago, with no express application having been made for the extension of its life prior to expiry.

5. By section 52(4), the Bankruptcy Act provides that a creditor's petition lapses at the expiry of 12 months commencing on the date of its presentation unless that period is extended by the Court under subsection (5) and in certain other circumstances not here relevant. Subsection (5) makes provision that the Court may at any time prior to the expiration of the 12 month period order that the life of the petition be extended for a maximum of a further 12 months to a date not more than two years from its presentation. The premises for the application of the subsection are that the order be made prior to the expiration of the first 12 months and that it be just and equitable to make it. The order may be made upon terms and conditions if appropriate.

6. An affidavit dated 18 September 1992 upon which the debtor relies today expressly seeks a further adjournment of the hearing of the petition for three weeks from today. That affidavit is also important from another standpoint. It deposes to the fact that on 18 September, that is two days after the petition in fact expired, a meeting of creditors was held following upon the debtor's execution on 3 September 1992 of an authority under section 188 of the Act. I record in passing that the creditor today submits that the execution of this authority was an act of bankruptcy in itself. If the application today to have the petition extended fails, the creditor seeks to present a petition on the basis of that act of bankruptcy more or less immediately and to seek sequestration upon such petition.

7. The affidavit of the debtor goes on to explain that when the meeting of creditors was called on 18 September, the creditors voted to adjourn the meeting to 9 October so that an amended proposal could be put. The present creditor attended the meeting but abstained from voting on the resolution to adjourn. The debtor says in the affidavit that the total value of his unsecured creditors is what he describes as "approximately $7.2 million", and that 11 creditors were present at the meeting representing debts of approximately $7.1 million. The affidavit annexes the verified statement of affairs presented to the meeting and the meeting attendance register, but does not place before the Court the proposal put to the meeting which was adjourned for re-presentation. Two specific creditors are mentioned in the affidavit, viz. the State Bank said to be owed $2.8 million and Elders Finance said to be owed $1.3 million. The debtor is said to have minimal assets.

8. All these matters plus the holding of the meeting itself reinforce and emphasise that the debtor has been seeking over some period of time to avoid bankruptcy and to delay the hearing of the petition. However, the parties have at all times proceeded upon the basis that the petition was valid and available. Indeed its many adjournments, the calling of the Part X meeting, and ultimately the attempt to link the cross-claim with the petition were all premised on the fact that the petition was still alive. Hence, I have no doubt at all that it would have been just and equitable to extend the time of the petition had the matter been drawn to attention in time. Had the application for an extension of the life of the petition been made within the time fixed by section 52(5), it would have been granted.

9. The creditor applies today for an extension of the petition notwithstanding that 12 months from presentation have now passed. He acknowledges that the present law binding upon me is that section 33(1)(c) of the Act, expressly permitting the Court to extend after expiration any time fixed by the Act for the doing of a particular thing, does not apply to the extension of petitions under subsections (4) and (5) of section 52. That law flows from the decision in Re Young ex parte Smith (1985) 5 FCR 204, a unanimous decision of a Full Court of this Court (Bowen C.J., Sweeney and Lockhart JJ.).

10. Their Honours refer to two judgments of single judges given in the cases of Re Draper ex parte Brosalco Pty Limited (1983) 72 FLR 179, a judgment of McGregor J, followed in Re Cavanagh ex parte WEA Records Pty Limited, an unreported judgment of Wilcox J given on 14 December 1984. The view taken in those two cases was that section 33(1)(c) was available to extend the life of petitions. At 209, the Full Court held that this view was not correct. At the same it described Draper as a special case. In that it concerned a petition which had expired during the hearing of the case, and because of one or two other matters not now relevant, Draper does have some unusual facts but in the context of the point now being discussed, it is difficult to identify precisely what was regarded as 'special' within the category of case referred to.

11. As an alternative to section 33(1)(c), Draper raised the question whether what is generally known as the "slip" rule might have provided a basis to extend the life of the petition, notwithstanding the expiry of the initial twelve month period. McGregor J expressly said that he would have extended the life of the petition at least to the time when the judgment was given in this basis, relying upon some remarks of Sheppard J in a case concerning the applicability of the slip rule to a bankruptcy notice which had expired. In Young the Full Court expressly reserved that possibility in relation to petitions.

12. The judgment of Sheppard J was given as a member of a Full Court of this Court (Deane, Sheppard and Ellicott JJ) in Streimer v Tamas (1981) 54 FLR 253. That case involved the expiry of a bankruptcy notice, once again seemingly on the day on which its review on other grounds was first listed for hearing when the matter was either part-heard or adjourned to the following day. By the time the hearing commenced in earnest, the bankruptcy notice had expired and the point was taken that as no extension of time had been sought the day before, an act of bankruptcy had been committed.

13. At first instance in Tamas, McGregor J rejected that submission on the basis that it was not necessary for the notice to be extended because the hearing was in substance under way. It was stated that time did not continue to run whilst the Court was dealing notionally or otherwise with the issues that had been raised. This decision, given on 9 April 1981, is unreported but a relevant part of it is quoted in a decision of Lockhart J in Thurgood v National Bank of Australasia Limited (1981) 53 FLR 51 at 54.

14. In a joint judgment on appeal, Deane and Ellicott JJ. said that section 41(6A) confers jurisdiction on the Court to make orders extending the time for compliance with the bankruptcy notice notwithstanding that the time for compliance with the notice had already expired. The question in each case was whether the provisions of subsection (6A) had been complied with, thus taking up the provisions of subsection (6C).

15. Justice Sheppard gave a separate judgment. It is referred to in the headnote as a dissenting judgment, but when properly read it does not dissent at all, either in the result or in the reasoning. There are some other errors in that headnote. At 266, his Honour was not sure that, on the proper construction of subsection (6A), there is a power to act in relation to bankruptcy notices after time has expired. He pointed out the anomaly that if there is power, it might be pointless to exercise it because an act of bankruptcy had been committed by the failure to comply with the bankruptcy notice which cannot be undone by force of section 40(1)(g).

16. Nonetheless, his Honour thought that there are substantial reasons why it should be concluded that there is power to extend time, notwithstanding that the period for compliance has expired. This conclusion that the power exists is based upon what his Honour described as the general principle of statutory construction referred to by Fullagar J in Esso Research and Engineering Company v The Commissioner of Patents (1960) 102 CLR 347. At 351 Justice Fullagar said:
    

I think I would concede that a provision for "extending" a prescribed period during which a thing may be done should prima facie be construed as operating only while the originally prescribed period is still current. It may even be said that, when the originally prescribed period has expired, there is nothing to "extend". But while this view may be said to represent the most natural meaning of the word "extend", that word is by no means incapable of a wider reference. It is by no means a misuse of language to speak of what is really the prescription of a new period as an "extension" of the period originally prescribed.

1. Justice Sheppard pointed out that the ultimate task is to ascertain the legislative intent but his Honour's assessment of the legislation concerning bankruptcy notices suggested that the rule of construction proposed by Fullagar J should apply. His Honour therefore noted the alternative submission made in the case in question that by adjourning the matter from the date on which it was first listed to the following day, the trial judge had by implication extended the time for compliance at least to then.

2. Otherwise, as Justice Sheppard pointed out, the adjournment of the application was pointless. His Honour noted that the submission was put in a number of ways such as by reference to the slip rule and section 306 as well as some other matters. He referred to the slip rule in this Court as being made applicable by order 35 rule 7 of the Federal Court rules but as these rules do not apply to bankruptcy, they cannot be, at least in express terms, thought to be part of or available in the bankruptcy jurisdiction. The conclusion reached by his Honour was that the case falls within what he described as the Court's inherent power to vary its own orders so as to carry out its own meaning or to make its meaning plain.

3. Although some doubt has subsequently been thrown upon whether it is proper to describe this Court, being originally a statutory court, as having an inherent power, there seems no doubt that there is an implied power to deal with matters which in other courts would be known as an inherent power. In any event since this Court has effectively become a court of general jurisdiction by operation of such accretions as the pendent or accrued jurisdiction and the cross-vesting legislation, it is doubtful that such a difference exists any longer.

4. At 268 Sheppard J set out the facts in the particular case at first instance:
   

This case was one where the court adjourned it to the following day because its commitments prevented it from reaching it in the ordinary course of its business. I think it plain that the court was acting or at least was intending to act, so as to give to the parties when the matter could be reached, the hearing which they expected to have on the day on which the matter was listed. It is not in my opinion to the point that the slip or oversight which occurred when the time for compliance was not further extended was not that of the judge. In my opinion the court has power to act where, as in the present case, the slip or oversight is solely attributable to a failure on the part of counsel or solicitor or of the party himself if he be not represented, to draw the Court's attention to the particular matter. It would have been pointless to stand this matter over unless time were extended. If the matter had been mentioned, there can be no doubt but that his Honour would have extended the time. The appellant would plainly not have raised any opposition to his doing so. Time was not extended because the matter was not mentioned and not adverted to by the judge.

1. His Honour did point out that the case in question had to be looked at in the light of its own special facts and that there may be other cases where it would be inappropriate to act under the slip rule, particularly for example:
   

...cases where the hearing of an application for an injunction is adjourned and an existing injunction is not continued from day to day...

1. The question, therefore, arises as to whether this is a case for the application of such an approach. Counsel for the creditor frankly admits that the expiry of this petition was overlooked. Counsel for the debtor says that he would have objected to the extension of time but for the reasons I have given, I think that that is more the product of hindsight or tactical statement today than fact. No doubt the extension would have been requested if remembered and it is very doubtful indeed that the debtor would have objected when he was in the process of calling a Part X meeting and seeking a further adjournment. If objection had been intended, it might have been expected to find expression in his affidavit of 18 September, after the date of expiry, in place of, as I have said, a request for yet a further adjournment of the petition following his many requests for adjournments in the past.

2. It is true that the long history of bankruptcy has made it a very technical jurisdiction and that the issue of a petition is a serious matter with significant consequences. On the other hand, the Court has already expended a great deal of time in this matter at the request of the parties and in an attempt to do justice to the matters raised. All of that time would have been wasted if the petition had not been extended. It will now be lost if there is no power to extend the time.

3. Moreover, as it seems to me, the debtor has had very just treatment extended to him in the course of this matter. He has been able to delay the hearing of this petition for more than 12 months in the course of which he has had a hearing in the District Court and in the Court of Appeal, and has been able to put forward a substantial cross-claim which he seems to have forgotten at the time when the judgment in the District Court was originally sought and obtained. To the extent to which a discretion were available, it would seem to me that the Court would undoubtedly exercise it in favour of extension, but the real question is whether there is power.

4. The matter is one of some difficulty. On the one hand, the legislature has made it clear that petitions should only be extended if applications are made before their expiry. On the other hand, courts have always exercised powers to correct slips and errors in orders which include the omission to make orders which are clearly inferential and implied by the behaviour and conduct of the parties and the courts' own decisions and actions. Whether under what is generally known as the slip rule or whether under some implied or inherent power, courts have always assumed a power to correct a record, an order or a judgment which clearly does not completely express the intention held at the time it was made.

1. When on or about 16 July, this case was specially fixed for hearing for 21 and 22 September, when the hearing was extended on 23 July to include 23 September, and when, on 18 August, it was re-confirmed that the hearing of the bankruptcy petition was to proceed today, it was certainly intended that the petition be still valid and functioning. Otherwise none of those orders would have been made. When, on 18 August, I considered and gave judgment on whether the debtor's claim against the creditor in matter G515 of 1992 should be heard at the same time as the petition and should, in effect, be given a fast track to a hearing, I did so on the basis, accepted by the parties, that the petition would be valid.

2. The dates for hearing were fixed because they were the first dates which the Court had available, consistent with the convenience of the parties, for the hearing of the issues which the parties said would be raised in the case. There seems to me no doubt that it was the intention of the parties that all steps would be taken at those times and at relevant subsequent times to ensure that the petition was still valid and able to be heard and given attention when the selected dates arrived. The extension of time, while regrettably not mentioned, nonetheless seems to me to have been part and parcel of the intention of the parties and of the Court at those various times.

3. Giving effect to this type of intention has always been the basis upon which the Court has been asked to exercise its implied power to correct the record. It lies at the root of the slip rule itself. In my view the Court has the power on that basis to extend the time of this petition in the facts of this particular case and I think that it should do so.

(DISCUSSION)
30. The debtor seeks an adjournment of the petition. A number of grounds are argued, the most prominent being to await the outcome of the adjourned meeting of creditors presently fixed for 9 October. After all this time the debtor is looking for another three weeks. But awaiting the adjourned meeting is the strongest point that he has, the rest of the application for an adjournment appearing to me to be hopeless.

1. He has now placed before me the adjourned Part X proposal. The debtor has put to the creditors' meeting a proposal to make payments of $85,000 over the next three years towards debts of $7 million. No evidence is available as to where he might be getting the $85,000 from, nor is there any capacity to assess whether that proposal itself has the slightest hope of being met. The debtor said in evidence that the proposal was adjourned when it came before the meeting on 16 September because the State Bank wanted him to find another $10,000 or $15,000.

2. This bald statement of the reason for the adjournment of the meeting is difficult to believe. The State Bank must, if it put such a view, still be suffering from the effects of its excesses during the 80s, as it surely cannot have formed a view that another $15,000 to be shared amongst creditors owed $7 million would be worth adjourning a meeting for a few weeks. It would cost the bank more to turn up for the second meeting than it would receive from the additional proceeds.

3. The debtor has also offered his creditors 60 per cent of the proceeds of any judgment obtained in his action against the creditor number G515 of 1992 after the payment of legal costs and disbursements. Even assuming that this proposal could be put in a legal form, there is nothing before me which shows that it is likely that 60 per cent of the net proceeds of any judgment is likely to be obtained in the near future or is likely to be of any particular financial substance to any particular creditor.

4. Hence the fact that the proposal was adjourned indicates to me that the creditors were not happy with the proposal because they were not satisfied either with its quantum or with the debtor's capacity to meet the obligations which would arise under it. Nonetheless I must take into account the fact that another three weeks added onto the delays in this matter will hardly mean much and that little as they will receive even if an additional sum is obtained, bankruptcy, on the evidence before me, will result in the creditors getting nothing.

5. There are facts and circumstances in this matter which call for investigation and examination by a trustee. The fact that the debtor could have run up $7 million worth of debts in a relatively short number of years and have no assets to show for them is one of these factors; there are others. I am prepared to allow the creditors a second opportunity to consider the matter, although with some reluctance and certainly with a great deal of doubt that it will bear any fruit at all. When the matter is brought back on the next occasion, short of the creditors' agreement or other extraordinary circumstances, the matter will proceed to finality.