Re Vella, Dianne Ex Parte Seymour, Michael Thomas
[1983] FCA 114
•10 JUNE 1983
Ex parte: MICHAEL THOMAS SEYMOUR (1983) 67 FLR 287
Plaint No. B942 of 1983
Bankruptcy
IN THE FEDERAL COURT OF AUSTRALIA
EXERCISING FEDERAL JURISDICTION IN BANKRUPTCY
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Morling J.(1)
Bankruptcy - default judgment in District Court - service of bankruptcy notice - expiry of bankruptcy notice - subsequent setting aside of District Court judgment - application to set aside bankruptcy notice after commission of act of bankruptcy - application refused
Bankruptcy Act 1966 (as amended) ss. 30(1), 40(1)(g), 41(6A)
Bankruptcy - Default judgment in District Court - Service of bankruptcy notice - Expiry of bankruptcy notice - Subsequent setting aside of district court judgment - Application to set aside bankruptcy notice - Commission of act of bankruptcy - Application refused - Bankruptcy Act 1966 (Cth), ss 30(1), 40(1)(g), 41(6)(A).
In December 1982, the petitioning creditor obtained a default judgment against the debtor in the District Court of N.S.W. Relying upon the unsatisfied judgment the petitioning creditor caused a bankruptcy notice to be issued and served upon the debtor on 29 March 1983. The debtor did not apply to set the bankruptcy notice aside. On 2 May 1983, the debtor applied to the District Court to have the judgment set aside and on the same day she applied to the Federal Court to have the bankruptcy notice set aside. In due course, the District Court set aside the judgment. On the application to set aside the bankruptcy notice pursuant to s. 30(1) of the Bankruptcy Act 1966.
Held: That the act of bankruptcy in the present case was committed when the debtor failed to comply with the bankruptcy notice. The subsequent setting aside of the judgment on which the bankruptcy notice was based, did not alter the act of bankruptcy.
Re Handby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378, referred to with approval.
Re Hayes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216, explained and followed.
In such circumstances, there was no basis for setting aside the bankruptcy notice.
Application dismissed with costs.
1983, 24 May; June 10. #DATE 10:6:1983
APPLICATION
Application by a debtor to set aside a bankruptcy notice.
P. Dowdy, for the applicant debtor.
J. Zaresky, for the respondent creditor.
Cur. adv. vult.
Solicitors for the applicant debtor: Hunt & Hunt.
Solicitors for the respondent creditor: Spencer, Whitby and Co.
D.L.
1. Application dismissed.2. Debtor to pay petitioning creditor's costs. Orders accordingly.
Dianne Vella ("the debtor") has applied to have a bankruptcy notice served upon her set aside. The application raises a nice point of law which, so far as counsel's and my own researches go, is free from authority precisely in point.The application arises in this way. On 6 December 1982 Michael Thomas Seymour ("the petitioning creditor") obtained a default judgment against the debtor in the District Court of New South Wales. The judgment not having been satisfied, the judgment creditor served a bankruptcy notice upon the debtor on or about 29 March 1983. There is some uncertainty as to the exact date of service, but nothing turns upon that. It was a fourteen day bankruptcy notice. The debtor did not comply with it. During the currency of the notice the debtor did not apply to have the judgment set aside nor did she apply to set aside the bankruptcy notice. On 2 May 1983 the debtor applied to the District Court to have the judgment set aside. On the same day she made an application to this court to have the bankruptcy notice be set aside. In due course the application in the District Court came on for hearing and was successful. As a result, the judgment was set aside.
The question for decision is whether this court should set aside the bankruptcy notice which was itself founded upon a District Court judgment which was subsequently set aside. Counsel for the judgment creditor submitted that the court does not have power to make the order sought and, alternatively, that even if there is power no sufficient reason is shown for the exercise of the power. Counsel for the debtor submitted that s.30(1) of the Bankruptcy Act 1966, as amended, gives the court power to grant his client's application. Sub-section (1) of s.30 provides, in part, as follows:
'30(1) The Court _
(b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.'
No reliance was placed upon s.41(6A) of the Act which gives the court power to extend the time for compliance with a bankruptcy notice. Mr Dowdy, who appeared for the debtor, conceded, in my view correctly, that he could not found an argument upon that sub-section because of his client's failure to apply to have the judgment set aside or to have the bankruptcy notice set aside before the expiration of the time fixed for compliance with the requirements of the notice.
By s.40(1) of the Act it is provided, inter alia, that a debtor commits an act of bankruptcy if a creditor who has obtained against the debtor a final judgment upon which execution has not been stayed has served upon the debtor a bankruptcy notice and the debtor does not within the time fixed for compliance with the notice comply with its requirements or satisfy the court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment was obtained. It was common ground between counsel that the debtor's failure to comply with the requirements of the bankruptcy notice resulted in the commission of an act of bankruptcy on or about 12 April. But it was submitted on behalf of the debtor that since the basis upon which the bankruptcy notice was founded was the District Court judgment, the setting aside of that judgment gave this court power to set aside the bankruptcy notice because the taking of such a course was 'necessary for the purposes of carrying out or giving effect to this Act' within the meaning of those words in s.30(1)(b).
At first blush this argument has some attraction. But upon reflection I have come to the view that it is not sound. It is necessary to keep clearly in mind the effect of non-compliance with the bankruptcy notice. The effect was, of course, that the debtor committed an act of bankruptcy when she failed either to comply with its terms or to take appropriate action under s.41(6A). The subsequent setting aside of the judgment did not alter the fact that the act of bankruptcy had already been committed. The act of bankruptcy remained extant. No doubt, in the exercise of its discretion, the court would not make a sequestration order if at the time of the hearing of the petition it was shown that the judgment debtor was not in fact indebted to the judgment creditor. But the act of bankruptcy referred to in s.40(1)(g) would be complete.
That the position is as I have stated it appears from the judgment of Gibbs J. (as he then was) in Re Hanby; Ex parte Flemington Central Spares Pty. Limited (1967) 10 F.L.R. 378. In that case a petitioning creditor obtained a judgment in the District Court against a debtor. A bankruptcy notice addressed to the debtor was issued. It was a fourteen day notice and was served on the debtor on 16 May 1966. As in the present case, the debtor did not either comply with its requirements or apply for an extension of time to comply with them. Nor did he apply to the District Court to have the judgment set aside. A petition seeking the sequestration of the debtor's estate was returnable on 10 February 1967 but the hearing on that date was adjourned because the debtor had taken proceedings in the District Court to set the default judgment aside. The judgment was, in fact, set aside on 29 March 1967 and the debtor was let in to defend the action. The proceedings in the District Court were subsequently settled upon terms that there should be a verdict for the plaintiff in a sum somewhat smaller than the amount for which the default judgment had been entered. When the petition subsequently came on for hearing it was contended on behalf of the debtor that as the judgment had been set aside, it could no longer be treated as a final judgment for the purposes of s.52(j) of the Bankruptcy Act 1924-1965, a provision which finds it counterpart in s.40(1)(g) of the present Act. No application was made to Gibbs J. to set aside the bankruptcy notice, but what he had to say in deciding the point which arose in the case is apposite to the present case. He said at p.381:
'It was, however, said on behalf of the debtor that once the judgment was in fact set aside it could no longer be treated as a final judgment. However, the critical time for determining whether an act of bankruptcy has been committed is the date on which the period limited by the bankruptcy notice expired _ see Re Grace; Ex parte Castling (1931) 3 A.B.C. 131; Re McDonald (1934) 8 A.B.C. 184, at p. 193; Re Edmunds (1936) 9 A.B.C. 1, at p.5. At the time when the bankruptcy notice expired in the present case, namely 30th May, 1966, the judgment had not been set aside and remained a final judgment. Since the debtor had not by that date complied with the requirements of the notice, the act of bankruptcy was then completed. It is not possible to say that by reason of subsequent circumstances an act of bankruptcy once committed ceases to have been committed or must be treated as though it had never been committed. Of course this does not mean that a sequestration order may be made if a judgment has been set aside in circumstances that show that the debtor was under no liability to the petitioning creditor, for the court must inquire whether there is a debt due by the debtor to the petitioning creditor, and if not, will refuse an order notwithstanding the commission of an act of bankruptcy. If, however, a judgment is set side after an act of bankruptcy has been completed, and subsequently the existence of the debt is established by a further judgment after a new trial, or by a compromise of the proceedings, the conditions which entitle the petitioning creditor to a sequestration order will have been established.'
It is true that in Hanby's Case the issue before the Court was whether a sequestration order should be made on the hearing of a petition and not whether a bankruptcy notice should be set aside. The decision is not directly in point in the present case but it does make clear that a subsequent event, namely, the setting aside of a judgment upon which a bankruptcy notice is based, does not nullify the consequence of non-compliance with the notice.
Applying Gibbs J's reasoning, with which I respectfully agree, it follows that in the present case it would not be correct to treat the act of bankruptcy committed by the debtor as if it had never been committed. If the existence of the judgment creditor's debt is established by a further judgment in the District Court after a new trial (as in Hanby's Case) the conditions which will entitle him to a sequestration order will have been established. It will not be necessary for him to serve a fresh bankruptcy notice on the debtor. It will be sufficient for him to rely upon the act of bankruptcy committed on or about 12 April 1983. In these circumstances, it cannot be said, in terms of s.30(1)(b) of the Act, that the court should consider it necessary to set aside the bankruptcy notice for the purpose of carrying out or giving effect to the Act.
Mr Dowdy referred me to the decision of Lockhart J. in Re Sterling (1980) 30 A.L.R. 77. That was a case in which an application was made to set aside a bankruptcy notice. However, the application was made before the expiration of the time fixed for compliance with the notice. Time for compliance was subsequently extended. Thus no act of bankruptcy had been committed by the debtor. His Honour found that s.30(1) is a source of the court's power to set aside bankruptcy notices. I respectfully agree with that decision, but I do not think it is of relevance to the determination of the real question in the present case, which is whether the court should set aside a bankruptcy notice after non-compliance with it has led to the commission of an act of bankruptcy.
Mr Dowdy also relied upon Streimer v Tamas (1981) 37 A.L.R. 211, a decision of a Full Court of this court. That was a case in which an extension of time was sought, and obtained, to comply with the requirements of a bankruptcy notice. The facts were quite special. A bankruptcy notice based on a judgment obtained by the appellant against the respondent in the New South Wales District Court was issued at the request of the appellant on 26 November 1980. Extensions of time for compliance with the requirements of the bankruptcy notice were granted by McGregor J. until 6 April 1981. On that date the matter was not reached by the court and was adjourned to 7 April 1981. McGregor J. was not requested, however, to make an order further extending the time for compliance with the bankruptcy notice and did not do so. As a result, the extended time for compliance with the bankruptcy notice expired at midnight on 6 April 1981. Before McGregor J. it was argued for the appellant that an act of bankruptcy had already been committed by the respondent. On 7 April 1981 time for compliance with the bankruptcy notice was extended and a further extension was made until further order. An appeal to the Full Court failed.
The question for decision in Streimer's Case was whether s.41(6A) of the Act conferred jurisdiction upon McGregor J. to make an order extending the time for compliance with the bankruptcy notice notwithstanding the fact that, at the time the order was made on 7 April 1981, the extended time for compliance with the notice had already expired. In their joint judgment Deane and Ellicott JJ. said:
'It was argued on behalf of the appellant that a long line of authority makes it apparent that s.41(6A) should not be construed as conferring jurisdiction to make an order extending time for compliance with the requirements of a bankruptcy notice in circumstances where, at the time of the proposed order, the time originally fixed and any previously granted extension or extensions thereof have expired. The reason for this, it was said, is that the Act confers no authority upon the court to annul an act of bankruptcy which has been committed. Upon the expiry of the time originally fixed and any extension or extensions thereof without compliance with the terms of the bankruptcy notice, an act of bankruptcy is complete. Any subsequent extension of time would, so the argument proceeds, be futile, since it could not annul the act of bankruptcy which had already been committed and which would remain. In particular, reliance was placed upon King v Henderson (1898) AC 720 at 728; Re Grace (1931) 3 ABC 131; Re McDonald (1934) 8 ABC 184 at 193; Re Edmunds (1936) 9 ABC 1; Re Hanby (1967) 10 FLR 378 at 381; Re Hayes (1970) 18 FLR 216.'
(37 A.L.R. 211 at 214)
After stating that this argument possessed considerable force and referring to the terms of s.41(6A) of the Act Deane and Ellicott JJ. continued:
'We do not accept the proposition that, in the absence of an independent power to annul an act of bankruptcy, an order extending the time for compliance with the requirements of a bankruptcy notice would be futile if it were not made within the time initially fixed for compliance or some persisting extension thereof. The power conferred a power to establish a new, distinct and independent period of time for compliance. The effect of an order extending the time for compliance, which is made after the expiry of the time originally fixed and any previous extension thereof, will be to enlarge the overall time allowed for compliance with the result that what would otherwise have constituted an act of bankruptcy no longer does .... (T)his does not mean that s 41(6A) operates so as retrospectively to divest rights to rely upon an act of bankruptcy which would otherwise exist. What s.41(6A) does is to modify, by the introduction of a contingency, the actual and potential rights and libilities resulting from failure to comply with the requirements of a bankruptcy notice within the time allowed by the notice in a case where, within tha time, one of the two conditions specified in the sub-section has been fulfilled.'
(37 A.L.R. 211 at 215).
Whilst the effect of the decision in Streimer's Case was to relieve retrospectively the debtor in that case from the consequences of his brief non-compliance with the requirements of the bankruptcy notice served upon him, the decision cannot be taken as authority for the proposition that the setting aside of a bankruptcy notice after the time for compliance with it has expired has the effect of annulling the act of bankruptcy already committed. The effect of the order made by McGregor J. (and affirmed on appeal) in that case was to enlarge the overall time allowed for compliance with the result that no act of bankruptcy was committed. The order did not have the effect of retrospectively divesting rights to rely upon an act of bankruptcy.
I was also referred to Re Hayes; ex parte Thomas Borthwick & Sons (Australasia) Limited (1970) 18 F.L.R. 216. In that case Street J. (as he then was) applied the decision of Gibbs J. in Re Hanby (supra). Street J. held that failure to comply with a bankruptcy notice requiring payment of a judgment debt constitutes an act of bankruptcy notwithstanding that the judgment is later set aside and the debtor allowed in to defend the creditor's action. He held that any creditor, able to prove another debt of sufficient amount, may prosecute a creditor's petition upon that act of bankruptcy. In the report of the case it is stated that 'the bankruptcy notice was set aside yesterday' (37 A.L.R. 216 at 218). But it is plain from a reading of the facts of the case that what was set aside was the default judgment upon which the bankruptcy notice was based, not the notice itself. This appears from the fourth paragraph on p.217 of the report, where it is clearly stated by his Honour that he had been 'informed that the District Court had yesterday morning set aside the original petitioner's judgment and allowed the debtor in to defend.' I have confirmed that the bankruptcy notice was not set aside by reference to Street J's notes, which his Honour has kindly made available to me. The relevance for present purposes of Re Hayes' Case is that his Honour treated Hanby's Case as clear authority that non-compliance with a bankruptcy notice will bring about an available act of bankruptcy notwithstanding that the judgment upon which it is based may subsequently be set aside. I respectfully agree with Street J. that Hanby's Case is authority for that proposition. In Wilde v. Australian Trade Equipment Co. Pty. Limited (1981) 34 A.L.R. at p. 151 , Gibbs J. referred with obvious approval to both Hanby's Case and Hayes' Case.
It is unnecessary in the present case to determine the ambit of the court's power under s.30(1). It is not in doubt that the sub-section gives the court power to set aside a bankruptcy notice in some circumstances. See Sterling's Case (supra). It is sufficient for present purposes to say that no sufficient basis has been shown for setting aside the bankruptcy notice in this case. Setting aside the notice would not nullify the act of bankruptcy committed by the debtor on or about 12 April. In the events that may happen, the judgment creditor may be able to rely on that act of bankruptcy should he subsequently petition to sequestrate the debtor's estate.
Mr Dowdy submitted that setting aside the bankruptcy notice would be of some value to the debtor insofar as its continued existence is an embarrassment to her. He argued that, accepting that she committed an act of bankruptcy by not complying with the notice, the debtor still desired to have the notice set aside. I can understand her desire, but I do not think it is a sufficient basis for exercising the power under s.30(1). If the notice were now to be set aside the impression might be created that no act of bankruptcy had been committed. But in the view I take of the law, that is not so. Thus the impression would be misleading. Certainly I am unable to find, in terms of s.30(1), that it is necessary to make an order setting aside the bankruptcy notice for the purpose of carrying out or giving effect to the Act.
Whilst this may seem a hard result from the debtor's point of view, it is a direct consequence of her failure to take the steps available to her to avoid that result and of the consequence which the Act gives to that failure. Had I been of the view that setting aside the bankruptcy notice would operate retrospectively to nullify the debtor's act of bankruptcy I would have come to a different conclusion on the present application. But I cannot find anything in the Act or the authorities to support that proposition.
Accordingly the application is dismissed. The debtor must pay the judgment creditor's costs.
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