Re Zumtar, R. Ex parte Deputy Commissioner of Taxation of the Commonwealth of Australia

[1992] FCA 909

JUDGMENT No. ...2 a..../ ...2&

IN THE FEDERAL COURT OF AUSTRALIA	) )
VICTORIA DISTRICT REGISTRY	) No VP 948 of 1992
)
l3ANKRUPTCY DIVISION	1

RE :  ROBERT Z W A R

( Debtor)

EX PARTE: DEPUTY COMMISSIONER OF TAXATION

OF THE COMMONWEALTH OF AUSTRAL-

(Petitioning Creditor) I

Corm:  Ryan J

Place	:	Melbourne
Date:	25 November 1992

EX TEMPORE REASONS FOR JUDGMENT

, .

Rvan J: On 27 June 1992 judgment was entered in action No. 6863 of 1992 in the Supreme Court of Victoria at the instance of the

Petitioning Creditor, the Deputy Commissioner of Taxation ("the	. .
Commissioner"), against the debtor, Robert Zumtar, for the sum
i '
of $1,986,170.92 plus interest of $29,780.28 togetherwithcosts.	I
On the basis of that judgment debt the Commissioner, on 10 July	, . ,-
1992, procured the issue of a bankruptcy notice requiring the
I
debtor within 14 days of the service of the notice to pay the sum
of $1,899,726.65 to the Commissioner or to secure payment of that	i
;- .
i
sum to the satisfaction of this Court or the Commissioner or	I
l
compound for the sum so specified to the satisfaction of the

Commissioner. -

,

That bankruptcy notice was served on the debtor on 26 July 1992. Before judgment was entered as I have just recited, an order had been made on an application by way of summons on an originating motion in action No. 6602 of 1992 in the Supreme Court of Victoria. That order was made by Byrne J on 29 May 1992 and contained, so far as relevant, these paragraphs:

Until the hearing and determination of the applicat~on, by way of

"1.

Summons on the Originating Motlon filed 30 April 1992, or further order, the Flrstnamed Defendant whether by hrmself, his servants or agents or howsoever otherwlse be restrained from disposing of, charging, d~minishing or dealrng in any way with any of his assets whatsoever, wlthln or w~thout the ~urlsdrction save tothe extent that the value of such assets exceeds $2,023,910.66 (except for the sum of $250.00 per week for livlng expenses and except for - an amount of $10,000.00 for legal expenses in connection with any proceeding [to] which the Plalntrff is a party and except for the monthly payment of $1,534.00 payable by the Firstnamed Defendant to the Fifthnamed Defendant under Mortgage No. E885713).

2.   Until the hearrng and determination of the Summons on the Originating Motion filed 30 Aprrl 1992, or further order, the Second and Thirdnamed Defendant whether by themselves, their servants or agents or howsoever otherwise be restrained from disposing of, charging, diminishing or wrthdrawing, transferring, charging or dealing in any way whatsoever with the money held an Account No. 1124130-90 with the State Bank of Vlctoria at rts Carlton Branch except for any payment made in compliance wlth Section 218 Notices filed 9 Aprll 1992.

3.   Until the hearlng and determination of the Summons on the

Originating Motion filed 30 April 1992, or further order, the

Commonwealth Bank trad~ng as the State Bank of Victoria whether by itself, its servants or agents or howsoever otherwise be restrained from paylng, transferring or deallng m any way with

the funds presently held in Account No. 1124130-90 ln the names of Edward El Zmeter and Fadi El Zmeter with the Bank at rts

Carlton Branch, except for any payment made in compliance with Sectlon 218 Notices filed 9 April 1992, and provlded that nothrng rn thrs order shall prevent the Fifthnamed Defendant from exercising any rights of set-off it may have against the First, Second, Third or Fourthnamed Defendants m respect of advances made to the Firstnamed Defendant prior to 29 April 1992 and secured by Mortgage No. E885713.

4.  Until the hearing and determination of the Summons on the Orrginating Motion filed 30 April 1992, or further order, the Flrst, Second, Third and Fourthnamed Defendants whether by themselves, their servants or agents or howsoever otherwise be restrained from selling, transferring, charging or dealing in any way whatsoever the sald land and property situate at 373

Brunswick Road, West Brunsw~ck, Victoria.

5.    Until the hearrng and determrnat~on of the Summons on the Originating Motion filed 30 April 1992, or further order, the Second, Third and Fourthnamed Defendants whether by themselves, thelr servants or agents or howsoever otherwlse be restrained from taklng possession of, occupying or usrng in any way whatsoever the sard land and property situate at 373 Brunswick Road, West Brunswick, Victorra.

6.   Until the hearrng and determrnatron of the Summons on the Orrgrnating Motion frled 30 Aprrl 1992, or further order, the Regrstrar of Titles for the State of Vrctorra whether by himself, hls servants or agents or howsoever otherwrse be restrained from proceeding with or regrstering Deallng No. R827562H lodged in the Office of the Land Tltles.

7.    The further nearing of the Summons on the Originating Motion herein be referred for hearrng rn the Causes List, with such priorlty as the Lrstlng Master deems fit.

8.   Liberty to apply is reserved to all parties herein upon the giving of 48 hours notrce in wrltrng to the other parties."

M r Searle of Counsel for the debtor has contended that paragraph

1 of that order impliedly stayed execution within the meaning of s.40(l)(g) of the Bankruptcy Act 1966 on the judgment which the Commissioner later obtained in action No. 6863 of 1992.

It is well established that execution has been stayed within the meaning of that paragraph and of s .41(3) (b) of the Bankruptcy Act where a judgment creditor is not "in a position to issue immediate execution upon it" (per Bowen L.J. in Ex parte Ide; In

'Re Ide (1886) 17 Q.B.D.	755 at 760).
That proposition was commented on as follows by Riley J in Re

Pannowitz; Ex parte Wilson (1975) 38 FLR 184 at 188:

"In Ex parte Ide; Re Ide (1986) 17 Q.B.D. 755 a credrtor had obtained judgment against a firm, but did not get the necessary leave of the court to issue executlon against the [member] of the firm on whom he served a bankruptcy notice, and the result was similar: it was held that he could not rssue a bankruptcy notrce, because he could not then

issue execution. Re Richards; E x parte Sommers (1947) 14 A.B.C. 112

was a simrlar decision, relating to the assignee of an order for costs, in which Ide's case was followed. In none of those cases had execution in fact been stayed. In each the defect rn the creditor's case was simply that he had not put hrmself in the posltion of being able to issue executlon. "For this purpose executron 1s considered to be stayed if, at the date of the issue of the notice, the judgment creditor is not entitled to rssue immediate execution on the judgment": 3 Halsbury (4th ed.) par. 262; for example where the judgment creditor must be taken to have agreed to suspend his right to execution: Re a

Debtor per Fletcher Moulton L.J. [l9081 1 K.B. 344, at p.349."

In my view, a creditor who has obtained from a superior court of record an order restraining a debtor from paying any of his debts, other than those of a specified class, has disentitled himself to issue immediate execution upon his debt.

The general principle underlying this view was stated as follows

by Phillimore J, with whom Avory J agreed in In R e Bond; E x par t e

Capi ta l and Count ies Bank Ltd [l9111 2 K.B. 988 at 991:

"I thrnk t h a t t h e t echnrca l r u l e wrth regard t o t h e w r r t of f i . fa . rs

based upon t h e p r r n c i p l e t h a t a c redr to r must not s e r z e a debtor ' s

goods i n execution, and thereby prevent him payrng t h e debt , and a t t h e same time serve him wrth a bankruptcy not ice f o r t h e purpose of making him a bankrupt. That i s t h e reason why when execution is s t i l l runnrng

by means of a f i . : f a . a c r e d l t o r cannot serve a bankruptcy notace."

The view which I have just expressed also accords with the

observation of Lord Esher in Re Sedgwick; E x p a r t e Sedgwick

(1888) 5 Morr. 262, that being a case where a judgment creditor who, having obtained a charging order on certain shares belonging to the debtor, had issued a bankruptcy notice. His Lordship said at 264:

" I f a l l t h a t t h e c r e d i t o r has done a s to make it more d i f f i c u l t but not

t o prevent t h e payment it does not come wi th in t h e equity."

On the construction which I adopt of Byrne J's order, the Commissioner here has actually prevented the making of the payment to himself and not merely made it more difficult for the debtor to pay the debt. I consider that the view which I have just expressed is consistent with the judgment and reasons of

Beaumont J in Re Solomon; E x par t e Reid (1986) 10 FLR 423 which

was approved by a Full Court of this Court in Penning v S t e e l
Tube Supplies Pty Ltd (1988) 80 ALR 689.

The point does not appear to have been argued or considered by the Full Court in Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 to which I have been referred by Mr Crennan of Counsel for the Commissioner. l-k Crennan also contended that it was open to the debtor to apply to the Supreme Court for a variation of the order of Byrne J to enable him to comply with the bankruptcy notice had he been so minded. However, I consider that it was incumbent on the Commissioner to establish his entitlement to issue immediate execution at the time of the issue of the bankruptcy notice.

The liberty to apply reserved by paragraph 8 of the order of Byrne J made it clear that the Commissioner, as well as the other parties, had the right to make an application for a variation of his Honour's order. I am also confirmed in the view to which I have come by the reflection that it is inconceivable that the order of Byrne J would have been made in the terms in which it was, had it been intimated that during the currency of the	restraint, the Commissioner intended to seek the issue of a	bankruptcy notice with which, ex hypothesi, the debtor could not
comply as long as the injunction remained in force. (I accept, of course, that the Commissioner did not advert to the matter of issuing a bankruptcy notice at the time when his Honour's order was made) .
For these reasons, I consider that the bankruptcy notice was bad and the petition must be dismissed.

I certify that this and the

preceding five (5) pages are a true copy of the reasons for judgment of his Honour Mr Justice Ryan

Associate:

Date:  a5 %V&W I Q ~ Z

Counsel for the PetZtioning Creditor:	Mr M Crennan
Solicitor for the Petitioning Creditor:	Australian Government Solicitor
Counsel for the Debtor:	Mr P K Searle
Solicitor for the Debtor:	Barker Gosling