Richardson v Leonard Cohen & Co
[2007] FMCA 78
•1 February 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| RICHARDSON v LEONARD COHEN & CO | [2007] FMCA 78 |
| BANKRUPTCY – Application for extension of time for compliance with bankruptcy notice – whether appeal not filed within time for compliance with bankruptcy notice a proceeding to set aside judgment – not a proceeding – application dismissed. BANKRUPTCY – Application for extension of time for compliance with bankruptcy notice – discretion – principles to be applied – application dismissed. |
| Bankruptcy Act 1966 (Cth), s.41(6A),(6C) Federal Magistrates Act 1999 (Cth), s.104(2) Federal Magistrates Court Rules 2001 (Cth), r.20.03 Rules of the Supreme Court 1971 (WA), O26, r.15 |
| Leonard Cohen & Co v Richardson & Anor [2005] WADC 172 Richardson & Paligorov v Leonard Cohen & Co [2006] WASCA 64 Sheahan & Le Poidevin Industries Pty Ltd v Northern Australian Land and Agency Co Ltd & Ors (unreported, Supreme Court of South Australia, Perry J 4 February 1993) Pittorino v Meynert & Ors [2001] WASC 245 Ipp J “Lawyers’ Duties to the Court” (1998) 114 LGR 63 at 92 James v Hill[2005] FCA 853 Shepherd v Chiquita Brands (South Pacific)Ltd (2004) 1 ABC (NS) 610, [2004] FCAFC 76 Hovan v Goycolea-Silva [2003] FCA 234 Conway v Jackson (2001) 107 FCR 201; [2001] FCA 230 Kalfus v Cassis (2005) 3 ABC (NS) 649; [2005] FMCA 143 Harrison v Schipp (2001) 189 ALR 144; [2001] FMCA 70 Udowenko and Others, Ex parte Mitchell (1996) 69 FCR 299 Guss v Johnstone (2000) 171 ALR 598; [2000] HCA 26 Byron v Southern Star Group Pty Ltd (1977) 73 FCR 264 McPhee v Glentham Pty Ltd [2006] FMCA 1508 Horwarth; ex parte Mortgage Acceptance Nominees Ltd (1993) 43 FCR 587 Valassis v Bernard [2001] FCA 477 O’Loughlin v Glenmont Investments Pty Ltd [2001] FCA 925 Elliott v Water Wheel Holdings Pty Ltd (2004) 178 FLR 459; [2004] FMCA 37 Sidhom v Euphoric Pty Ltd [2006] FMCA 827 Jackson v Conway [2000] FCA 1530 Re Geard; ex parte Reed (1994) 217 ALR 191 O’Farrell v Network Entertainment Pty Ltd [2005] FMCA 1936 |
| Applicant: | PHILLIP NOEL RICHARDSON |
| Respondent: | LEONARD COHEN & CO |
| File Number: | PEG 247 of 2006 |
| Judgment of: | Lucev FM |
| Hearing date: | 19 October 2006 |
| Date of Last Submission: | 19 October 2006 |
| Delivered at: | Perth |
| Delivered on: | 1 February 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr C S Williams |
| Solicitors for the Applicant: | Solomon Brothers |
| Counsel for the Respondent: | Mr B W Ashdown |
| Solicitors for the Respondent: | Stewart Forbes |
ORDERS
That the application for review of Registrar Stanley’s orders of 25 September 2006 be dismissed.
The Applicant to pay the Respondent’s costs to be agreed, or if not agreed, taxed according to the Federal Court Scale: see FCR Order 62.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 247 of 2006
| PHILLIP NOEL RICHARDSON |
Applicant
And
| LEONARD COHEN & CO |
Respondent
REASONS FOR JUDGMENT
The Extension of Time application
On 21 September 2006 Phillip Richardson (“Applicant”) applied for an extension of time (“Extension of Time Application”) in which to comply with Bankruptcy Notice No BN 341 of 2006 dated 22 August 2006 (“Bankruptcy Notice”) to 30 November 2006, and that within that time the Applicant have liberty to apply to set aside the Bankruptcy Notice.
Registrar’s orders
On 25 September 2006 Registrar Stanley made orders (“Registrar’s Orders”), including an order that the Extension of Time Application be dismissed.
The review application
On 29 September 2006 the Applicant applied for a review of the Registrar’s orders (“Review Application”). The Review Application is made under section 104(2) of the Federal Magistrates Act 1999 (Cth) (“FM Act”). Rule 20.03 of the Federal Magistrates Court Rules 2001 (Cth) provides for Review Applications to be heard de-novo.
Prior proceedings
On 16 September 2005 a judgement of Sleight DCJ of the District Court of Western Australia in matter no 970 of 2000 was entered, providing that the defendants (one of whom is the Applicant) in those proceedings pay the plaintiff (the Respondent):
a)the sum of $156, 661.91 (“the Judgment Sum”);
b)interest on the Judgment Sum of $83, 850.60; and
c)costs[1]
(“Judgment Debt”).
[1] Applicant’s Affidavit, 20 September 2006, para 5 and annexure PNR 2 (Applicant’s Affidavit).
In the Reasons for Judgement Sleight DCJ began by describing the action as having “a long and unfortunate history”[2] which he then set out. Concluding, Sleight DCJ said:
“the history of this matter demonstrates that the defendants have deliberately attempted to frustrate the plaintiff’s attempts to obtain proper discovery, and in doing so they have sought to avoid putting the plaintiffs in the position which they will be able to prepare adequately for trial”[3]
and highlighted the defendants conduct as “manifest[ing] a disregard for the obligations of giving proper discovery.”[4]
[2] Leonard Cohen & Co v Richardson & Anor [2005] WADC 172 at para 1 per Sleight DCJ (“Leonard Cohen”)
[3] Leonard Cohen at para 65 per Sleight DCJ
[4] Leonard Cohen at para 64 per Sleight DCJ
The Applicant was the first Defendant in Leonard Cohen. The reasons for judgement in Leonard Cohen make it clear that it is the conduct of the Defendants individually, and of their then solicitor, that was at fault.[5]
[5] Leonard Cohen at paras 18-20, 24, 29, 31-33, 36-38, 41-44 and 60-62 (and in particular para 61) per Sleight DCJ.
The Court notes that Leonard Cohen was an appeal: “a complete review of the matter de novo by way of an actual re-hearing of the application which led to the making of the order”.[6]
[6] Leonard Cohen at para 50 per Sleight DCJ.
The order made giving rise to the appeal in Leonard Cohen was a springing order made for discovery by Deputy Registrar Hewitt of the District Court of Western Australia on 5 May 2005 (which followed earlier orders for discovery made by the Deputy Registrar on 2 February 2005 and 21 March 2005).[7]
[7] Leonard Cohen at paras 27-30 and 39.
In Leonard Cohen judgement was entered against the Defendants (including the Applicant) under O26 r15 of the Rules of the Supreme Court 1971 (WA) by reason of “the continuing disregard by the Defendants of their obligation to give proper discovery”.[8] O26 r15 provides for judgement to be entered if a party has failed to give discovery in accordance with an order.
[8] Leonard Cohen at para 65 per Sleight DCJ.
On 15 September 2005 the Applicant, together with the other defendant, appealed the decision in Leonard Cohen to the Court of Appeal of Western Australia.[9] On 9 March 2006, in Richardson & Paligorov v Leonard Cohen & Co[10] Wheeler JA dismissed the appeal. The Applicant, who was the first named Appellant, was not represented on the appeal, although the second named Appellant was represented by the same solicitor that had represented both Appellants (as Defendants) in the District Court of Western Australia.
[9] Forbes Affidavit, 13 October 2006, para 2, annexure A
[10] [2006] WASCA 64 (“Leonard Cohen Appeal”)
Wheeler JA, having noted that the Appellants had “demonstrated a continuing disregard of their obligations … over a considerable period of time” in Leonard Cohen,[11] then recounts the Leonard Cohen Appeal case history, replete with a repetition of a failure to have regard to obligations in the appeal.[12] In conclusion Wheeler JA said:
“the appropriate course is to dismiss the appeal of both appellants, on the basis that the appellants have not obeyed the Rules or any order made under them; that is, they have not obeyed the Rules requiring the filing of the appellants case, nor have they obeyed the order of the Registrar requiring them to file that case. For those reasons, I dismiss the appeal in respect of both appellants.”[13]
[11] Leonard Cohen Appeal at para 2 per Wheeler JA,
[12] Leonard Cohen Appeal at paras 3-7 per Wheeler JA.
[13] Leonard Cohen Appeal at para 8 per Wheeler JA.
The Court also notes Wheeler JA’s observation that:
“So far as one can tell from the reasons in the District Court, simply looking at the history there disclosed, there is very slender merit, so far as one can discern, in the appeal.”[14]
[14] Leonard Cohen Appeal at para 8 per Wheeler JA.
There has been no appeal against the judgment in Leonard Cohen Appeal. Most of autumn, all of winter and the early part of spring passed before, on 25 September 2006, the Applicant applied to the District Court to set aside the judgement in Leonard Cohen (Set Aside Application”).[15]
[15] Applicant’s Affidavit, 20 September 2006, para 6 and annexure PNR 4.
The Set Aside Application followed the service on the Applicant of the Bankruptcy Notice, served according to a note on the copy produced by the Applicant at “4/9/06 at 7.30pm”.[16] The Bankruptcy Notice provided for payment, or satisfaction of, the debt within 21 days.[17]
[16] Applicant’s Affidavit, annexure PNR5 (being a further affidavit sworn 20 September 2006 (“Applicant’s Further Affidavit)) para 11 and annexure PNR1.
[17] Applicant’s Further Affidavit, annexure PNR1 at para 3.
On 3 October 2006 Deputy Registrar Hewitt in the District Court dismissed the Set Aside Application (“Set Aside Decision”)[18]. The Applicant’s current solicitor (who also appears as Counsel on the Review Application) deposed[19] to the Deputy Registrar’s reasons for the Set Aside Decision as follows:
“The judgment entered by Judge Sleight was based upon his perception of the unsatisfactory conduct of the defendants in regard to discovery not the expiry of the time fixed by a springing order. As a consequence the Court cannot extend the time for compliance and thereby remove the basis for the judgment. The only redress open to the defendants would be by way of an appeal against his Honour’s order and such an appeal was launched and has been dismissed. This court lacking power the application is dismissed.”[20]
[18] Forbes Affidavit, 13 October 1996, para 5 and annexure D.
[19] The practice of solicitor also appearing as counsel in circumstances where the solicitor/counsel has sworn an affidavit, or is likely to have to give evidence, is not one to be encouraged. The difficulties that may arise are many, and ought to be manifest: see Sheahan & Le Poidevin Industries Pty Ltd v Northern Australian Land and Agency Co Ltd & Ors (unreported Supreme Court of South Australia, Perry J, 4 February 1993) at paras 3-18; Pittorino v Meynert & Ors [2001] WASC 245 at paras 7-10; Ipp J “Lawyers’ Duties to the Court” (1998) 114 LGR 63 at 92.
[20] Williams Affidavit, 12 October 2006, para 9.
On 4 October 2006 the Applicant (and his co-defendant in Leonard Cohen) appealed the Set Aside Decision to the District Court (“Set Aside Appeal”).[21]
[21] Williams Affidavit, 12 October 2006, para 10 and annexure CSW 3.
On the evidence there is no stay of the judgements or orders in Leonard Cohen, Leonard Cohen Appeal or the Set Aside Decision.
Applicant’s Affidavit
The Applicant’s Affidavit deposes to matters associated with the conduct of the various litigation referred to previously. In relation to delay the Applicant says:
“I recall receiving affidavits prepared by Dennis & Co for my execution concerning outstanding discovery obligations and upon receipt of these I undertook searches of my files and contacted Richard Kurland, a fellow employed to assist me in this action, to have him search his files to make certain I fulfilled my obligations to disclose all documents in my possession, control or power, or within the possession control and power of my agents and to be sure I could identify where any documents no longer in my possession, control and power might be found.
So far as I was aware, I had complied with all request made of me by Dennis & Co which I was also assured were sufficient to discharge my discovery obligations to this Honourable Court.
I was never informed, whether by Dennis & Co or any other source, of the making of his Honour Judge Sleight’s orders on 16 September 2005 against me, although Mr Bill Paligorov, the second-named defendant, informed me that an order had been made against him from which he had appealed. I only become aware that there were any outstanding orders against me when a Sheriff attended at my home with a warrant on or about 12 or 13 July 2006. I was not aware, at that time, that the Sheriff’s warrant concerned this action. I only became aware judgment had been entered against me in this action and an order had been made against me when I was served with a bankruptcy notice. Annexed hereto and marked “PNR-1” is a copy of that bankruptcy notice”.[22]
[22] Applicant’s Further Affidavit, paras 9-11.
As to the reasons why the Applicant failed to comply with discovery he says that:
a)he has no legal training or experience;[23]
b)he relied upon the advice of his former solicitors to ensure that he complied with his discovery obligations;
c)he never instructed his former solicitors to take any steps to frustrate discovery;[24] and
d)as all discovery affidavits were prepared by his former solicitors he assumed they were sufficient to comply with his discovery obligations.[25]
[23] Applicant’s Further Affidavit, para 13.
[24] Applicant’s Further Affidavit, para 13.
[25] Applicant’s Further Affidavit, para 14.
The Applicant also deposes to and attaches a copy of a deed of settlement (“Settlement Deed”), which, as he puts it “was the critical document of which the plaintiff sought discovery”.[26] The Applicant says that he “came by” the Settlement Deed “when my agent, Richard Kurland, telephoned me on or about early September 2006 to say he had a copy in his possession which he forwarded Mr Paligorov’s[27] solicitor, George Livaditis on 4 September 2006.[28]
[26] Applicant’s Further Affidavit, para 15. The Settlement Deed is annexure PNR2.
[27] Mr Paligorovis being the Applicant’s co-defendant in Leonard Cohen.
[28] Applicant’s further Affidavit, para 15.
The Settlement Deed does not bear an exact date, but the year 2000 appears at the end of a line in the Settlement Deed immediately preceding the prescription of the parties.[29]
[29] Applicant’s Further Affidavit, annexure PNR2.
The Settlement Deed was sent to Mr Livaditis under the letterhead of “Recoveries & Litigation Support” and is in the following form:
“We understand that you act for Bill Paligorov who informed us that he was looking for a Deed of Settlement but could not find it.
Upon clearing out certain papers and documentation we came across a copy of a document which might very well be what Bill was looking for. This document accompanies this letter.”[30]
[30] Applicant’s Further Affidavit, annexure PNR2.
In relation to the substantive defence of the action on which the Judgment Debt exists the Applicant alleges that:
a)that the Respondent firm was instructed to act for the Applicant by Kurland, acting as the Applicant’s agent, at a meeting on 21 September 1995 with Messrs Cohen and Levitan from the Respondent firm;[31]
[31] Applicant’s Further Affidavit, para 16.
b)that the Respondent firm agreed to act on the basis that their normal fees and disbursements would be paid, together with a success fee of $50,000 if successful in the action (“the Terms”);[32]
[32] Applicant’s Further Affidavit, para 16.
c)that Messrs Cohen and Levitan advised that the Terms could not be reduced to writing;[33]
[33] Applicant’s Further Affidavit, para 16.
d)
he signed a retainer agreement with the Respondent firm on
1 October 1995, and on the basis of discussions with his agent, Mr Kurland, believed that although the retainer agreement did not say so, the Respondent firm’s $50,000 success fee and payment of its usual fees and disbursements only on success were the terms on which the Respondent was engaged to defend the action;[34]
[34] Applicant’s Further Affidavit, para 17.
e)the Terms were champertous, alternatively constituted a contract by way on maintenance, and were illegal and/or contrary to public policy, and therefore unenforceable;[35]
[35] Applicant’s Further Affidavit, para 18 and annexure PRN 4 para’s 2-3 (being a Defence in another District Court action between the Respondent and the Applicant, which the Applicant says was “substantially similar, if not identical”: Applicants Further Affidavit, para 18, to the Defence filed in the Judgment Debt action which Defence is partially reproduced at annexure PRN3, and the whole of which the Applicant is unable to produce).
f)that an amount claimed for Counsel’s fees:
i)was not payable because no authority or instruction was given to brief Counsel, or to incur any liability for Counsel’s fees other than on the same or similar basis as the Terms;
ii)was not incurred in the Judgment Debt action at his request;
iii)was not work undertaken by Counsel; and
iv)in any event, the Applicant (and his co-defendants) had paid an amount in satisfaction of Counsels fees;[36]
g)the Judgement Debt action was not finalised (i.e. settled);[37]
h)on the basis of legal advice received the Applicant believes that the Respondent firm is only entitled to recover its fees and disbursements under the appropriate costs scale, and that costs so calculated would be “substantially less” than the sum claimed, and hence “substantially less” than the sum of the Judgement Debt;[38]
i)The Judgment Debt action was not settled successfully.[39]
[36] Applicant’s Further Affidavit, para 18 and annexure PNR4 paras 4-6.
[37] Applicant’s Further Affidavit, para 18 and annexure PNR 4 para 10(d).
[38] Applicant’s Further Affidavit, para 19.
[39] Applicant’s Further Affidavit, para 19.
For the sake of completeness the Court notes that it has read and considered the following affidavits:
a)Applicant’s Affidavit and Applicant’s Further Affidavit both dated 20 September 2006;
b)Affidavits of Christopher Stephen Williams dated 21 September 2006 and 12 October 2006; and
c)Affidavit of Stewart Vivyan Forbes dated 13 October 2006.
Jurisdictional pre-requisite
The question arises as to whether the Set Aside Appeal is a proceeding to set aside judgment or order for the purposes of s.41(6A) of the Bankruptcy Act 1966 (Cth).
A proceeding of this type includes:
a)an appeal from the decision in which the judgment was given and upon which the bankruptcy notice was issued;[40]
b)an application for special leave to appeal to the High Court;[41]
c)equity proceedings to set aside a judgment based on new evidence (or fraud and fabricated evidence) may be sufficient.[42]
[40] Conway v Jackson (2001) 107 FCR 201 at 207 and 210 per Moore Mathews and Mansfield JJ; [2001] FCA 230 at paras 19-20 and 29 per Moore, Mathews and Mansfield JJ (“Conway”).
[41]Kalfus v Cassis (2005) 3 ABC (NS) 649 at 656 per Driver FM; [2005] FMCA 143 at para 26 per Driver FM “(Kalfus”)
[42] Harrison v Schipp (2001) 189 ALR 144 at 155 per Driver FM; [2001] FMCA 70 at para 27 per Driver FM (“Schipp”).
In each of the above cases the relevant “proceeding” was instituted before the time for compliance with the bankruptcy notice had expired.[43]
[43]Conway FCR at 203 per Moore, Mathews and Mansfield JJ; FCA at paras 5-6 per Moore, Mathews and Mansfield JJ; Kalfus ABC at 651 per Driver FM, FMCA at para 5 per Driver FM; Schipp ALR at 155 per Driver FM; FMCA at para 26 per Driver FM.
The Applicant relies on three cases: James v Hill,[44] Shepherd v Chiquita Brands (South Pacific) Ltd[45] and Hovan v Goycolea-Silva.[46], to assert that the jurisdictional pre-requisite is met.
[44][2005] FCA 853 (“James”).
[45] (2004) 1 ABC (NS) 610, [2004] FCAFC 76 (“Chiquita Brands”).
[46] [2003] FCA 234 (“Hovan”).
In James the Federal Court held that it had power to extend time for compliance under s.41(6A) of the Bankruptcy Act where an appeal had been lodged against a decision of this Court not to extend time for compliance for the period sought by the debtor (although a very short extension had been granted by this Court). Fundamental to the Federal Court’s decision was the fact that the appeal had been filed within the time (as extended by an order of this Court).[47]
[47] James at paras 13-14 and 18 per Edmonds J.
In Chiquita Brands the debtor’s appeal against the judgment of a single judge of the Federal Court was upheld. At first instance the Federal Court had, on the application of the creditor, granted an extension of time for compliance with a bankruptcy notice, after the time fixed for compliance had expired.[48]
[48] Chiquita Brands ABC at 612-613 per Hill & Marshall JJ; FCA at paras 2-5 per Hill and Marshall JJ.
The majority of the Full Court of the Federal Court (Hill and Marshall JJ) held as follows:
“Clearly s 41(6A) was intended to be in aid of the application to set aside the judgment … Once the application to set aside the judgment … has been finally determined (and it is not necessary to consider here the question of the status of that application during such time as an appeal was current) there is no aid which the power to extend time for compliance can give to the determined application. It follows, in our view, that the power to extend time for compliance has been spent”[49]
[49] Chiquita Brands ABC at 619-620 per Hill & Marshall JJ; FCA at para 40 per Hill and Marshall JJ.
The other member of the Full Court of the Federal Court (Sackville J) reached the same conclusion. His Honour found that:
“Section 41(6A), read in context, is not intended to authorise an extension of time to comply with a bankruptcy notice independently of … an application to set aside a judgment in respect of which the bankruptcy notice was issued.”[50]
[50] Chiquita Brands ABC at 622 per Sackville J; FCA at para 54 per Sackville J.
Sackville J, followed the “convincing” reasoning[51] of Lindgren J in Re Udowenko and Others, Ex parte Mitchell[52] where Lindgren J had said:
“In the present case, by the expiration of the time for compliance on 4 June 1996, the application to set aside the bankruptcy notice which had been filed before that expiration, had ceased to be on foot. Accordingly, there is no proceeding or application satisfying the description in s 41(6A) to which an extension of time ordered by me could be ancillary. I conclude therefore that I lack power to extend time.”[53]
[51] Chiquita Brands ABC at 622 per Sackville J; FCA at para 54 per Sackville J.
[52] (1996) 69 FCR 299 (“Udowenko”)
[53] Udowenko at 304 per Lindgren J cited in Chiquita Brands ABC at 622 per Sackville J; FCA at para 53 per Sackville J.
Sackville J went on to consider the possible effect of the High Court judgment in Guss v Johnstone.[54]
[54] (2000) 171 ALR 598; [2000] HCA 26 (“Guss”).
Sackville J said that Guss indicated that the High Court:
“appears to regard the power in s 41(6A) … as available to an appellate court in order to undo the effects of what otherwise would be an act of bankruptcy on the part of the debtor (the successful appellant)” [55] (underlining added)
and that it:
“seems to follow that s 41(6A) is available to a debtor who seeks an extension of time to comply with a bankruptcy notice in order to render effective the debtor’s successful appeal against an order by the trial Judge dismissing a challenge to a bankruptcy notice.”[56] (underlining added)
[55] Chiquita Brands ABC at 623 per Sackville J; FCA at para 59 per Sackville J.
[56] Chiquita Brands ABC at 623 per Sackville J; FCA at para 60 per Sackville J.
Sackville J, like the majority, allowed the debtors appeal, because there were no proceedings on foot to set aside the bankruptcy. This was because, at the time the relevant motion was served, there were “no proceedings on foot to set aside the bankruptcy notice” and therefore “it cannot be said that the creditor’s application for an extension of time was in aid of the power to set aside the bankruptcy notice or of proceedings to set aside the judgment on which the bankruptcy notice was based.”[57]
[57] Chiquita Brands ABC at 623 per Sackville J; FCA at para 60 per Sackville J.
Having considered Chiquita Brands and Guss the position appears to be that:
(a)a successful appeal against an order dismissing an application for extension of time for compliance with a bankruptcy notice (and provided that that application was originally made before time for compliance passed)[58] re-enlivens the jurisdiction to make an order for extension of time, because the first instance order is set aside, thus leaving the original application still to be dealt with according to law (that is, under s.41(6A)); [59]
(b)that pending any appeal from first instance dismissal of an application for extension of time for compliance with a bankruptcy notice (and, especially, absent a stay) there is no power to extend time where the appeal is not filed within the time for compliance with the bankruptcy notice.[60]
[58] Guss ALR at 610 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinam JJ, HCA at para 58 per Gleeson CJ Gaurdron, McHugh, Kirby and Callinan JJ, noting that any extension was ”provided the conditions of s 41(6A) are otherwise satisfied”.
[59] Guss ALR at 610-611 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ; HCA at paras 58 and 63 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinam JJ; Chiquita Brands ABC at 622-623 per Sackville J; FCA at paras 57-59 per Sackville J.
[60] Guss ALR at 610 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinam JJ HCA at para 58 per Gleeson CJ, Gaudron, McHugh, Kirby and Callinam JJ ; Chiquita Brands ABC at 619-620 per Hill and Marshall JJ, FCA at para 40 per Hill and Marshall JJ; ABC at 623 per Sackville J, FCA at para 60 per Sackville J.
In Hovan the Federal Court dismissed an application for extension of time for compliance with a bankruptcy notice. Emmett J said:
“There would be real issues as to whether … an application could be brought … under s 41(6A) after the time for compliance with the bankruptcy notice had expired according to its original terms.”[61]
[61] Hovan at para 8 per Emmett J.
Emmett J went on to say:
“It may well be that the Court does have inherent jurisdiction to extend the time for compliance with a bankruptcy notice pending the hearing of an appeal from an order dismissing an application to set it aside.”[62]
[62] Hovan at para 9 per Emmett J.
The judgment in Hovan was seemingly given ex tempore (or at least on the same day as the argument) and it does not appear that the Federal Court was referred to any authority (and no relevant authority is cited in the judgment). In the circumstances (and without intending any disrespect to Emmett J) the Court prefers to rely on the later Full Court judgment in Chiquita Brands and its analysis of Guss.
In the circumstances the Court considers that “proceedings” for the purposes of s.41(6A) (a) of the Bankruptcy Act do not include an appeal from a judgment dismissing an application to set aside a judgment or order of the type set out in s.41(6A) (a), where the appeal is not filed within the time for compliance with the bankruptcy notice, and more so where there is no stay of the judgment appealed against.
In this case for the reasons set out above the Set Aside Appeal is not a proceeding for the purposes of s.41(6A) (a). The jurisdictional pre-requisite for the exercise of the Court’s discretion to extend time for compliance with the Bankruptcy Notice has not been met. For that reason, the Review Application must be dismissed.
Lest the Court’s view on the jurisdictional pre-requisite be incorrect, the Court considers it prudent to consider the Review Application’s disposition, if the discretion ought to have been exercised.
Extension of time for compliance – principles
Whether there ought to be an extension of time for compliance with the Bankruptcy Notice is a matter to be determined by the exercise of the Court’s discretion.
Grounds for the exercise of discretion must be shown,[63] but the discretion is generally “at large”, subject to s.41(6C) of the Bankruptcy Act.[64] The Court has summarised the factors to be taken into account as follows:
[63] Conway FCR at 206 and 210 per Moore, Mathews and Mansfield JJ; FCA at paras 18 and 30 per Moore, Mathews and Mansfield J.
[64] Byron v Southern Star Group Pty Ltd (1977) 73 FCR 264 at 270-271 per Lehane J (“Byron”).
Where proceedings to set aside a judgment debt and order have been instituted by way of an appeal factors to be taken into account when determining whether to exercise the discretion include:
a)whether there is an arguable case on appeal;
b)whether a stay of execution has been sought or obtained;
c)prejudice to the debtor;
d)prejudice to the creditor and other creditors;
e)the impact of the date of bankruptcy;
f)the impact on any related legal proceedings;
g)delay; and
h)whether or not undertakings have been given, or conditions can be imposed, in relation to, for example:
i)payment of monies on trust by the debtor;
ii)non-disposal of assets by the debtor;
iii)notification of significant expenditure by the debtor; and
iv)further borrowings on real property owned by the debtor, and the debtor’s ability to fulfil or comply therewith.[65]
[65] McPhee v Glentham Pty Ltd [2006] FMCA 1508 at para 20 per Lucev FM, citing Horwarth; ex parte Mortgage Acceptance Nominees Ltd (1993) 43 FCR 587 at 592 per Einfeld J; Valassis v Bernard [2001] FCA 477 per Beaumont J; O’Loughlin v Glenmont Investments Pty Ltd [2001] FCA 925 at par [17] and [19] per Mansfield J.
Arguable case
An extant appeal, and whether there is or is not an arguable case, are factors for consideration on an extension of time application.[66]
[66] Byron at 270-271 per Lehane J.
The Applicant asserts an arguable case on appeal. The Respondent asserts that the appeal is not arguable.
The Court need not make a preliminary merit assessment of the appeal; but rather, forms a view as to whether the appeal may be arguable or not.[67]
[67] Elliott v Water Wheel Holdings Pty Ltd (2004) 178 FLR 459 at 475-476 per McInnis FM; [2004] FMCA 37 at para 49 per McInnis FM (“Water Wheel”).
View as to appeal
The Court considers the decision of Deputy Registrar Hewitt on the Set Aside Application[68] to be correct. In those circumstances, the Set Aside Appeal, does not, in the Court’s view, disclose an arguable case.
[68] As set out in para 15 above.
An arguable case or the lack thereof, is but one factor in the overall discretionary assessment.[69]
[69] Sidhom v Euphoric Pty Ltd [2006] FMCA 827 at para 16 per Barnes FM (“Sidhom”).
There is no evidence before me as to the likely date of hearing and determination of the appeal. Ordinarily, that would be a factor to be weighted at this stage.[70]
[70] Water Wheel FLR at 478; FMCA at para 61 per McInnis FM.
In all of the circumstances the appeal is more likely to be unarguable than arguable, and this factor does not weigh in favour of extension of time for compliance.
Stay of execution
If a stay has been applied for and granted that is a factor for extension of time for compliance.[71] If a stay has been applied for, but not yet obtained, that is a factor requiring consideration of all of the circumstances. Those circumstances will include:
a)whether or not there might be an arguable case on the stay application; and
b)and if the stay application has not been heard, when it is likely to be:
i)heard; and
ii)determined.[72]
[71] Jackson v Conway [2000] FCA 1530 at paras 24-26.
[72] McPhee at paras 30-32 per Lucev FM.
If a stay has not been applied for that is a factor against extension of time for compliance,[73] and, absent other relevant factors, an exceptional case, or at least quite special circumstances, are required for an extension of time for compliance to be granted, if no stay has been obtained.[74] Nevertheless, it remains the case that the seeking or obtaining of a stay is but one factor in determining whether to grant extension of time for compliance.[75]
[73] Byron at 270-271 per Lehane J.
[74] Byron at 272 per Lehane J; Re Geard; ex parte Reed (1994) 217 ALR 191 at 193 per Shepherd J; Sidhom at para 35 per Barnes FM.
[75] Sidhom at paras 33 and 35 per Barnes FM.
There have been no stay applications made by the Applicant in relation to the litigation, and in particular the Set Aside Decision.
The Applicant says that no stay has been applied for because it would be unlikely to succeed, and would be a self-serving exercise. That rather proves the point that a stay is not likely to be granted.
In the circumstances, there being no stay of any relevant judgment, and none applied for, this factor does not weigh in favour of an extension of time for compliance.
Prejudice to debtor
The Applicant submits that he:
“will suffer prejudice if no extension of time to comply … is granted; he will commit a bankruptcy.”[76]
[76] Applicant’s Submission, 13 October 2006, at para 20 (“Applicant’s Submissions”).
The “usual and obvious difficulties attendant upon an act of bankruptcy having been committed” are not alone sufficient prejudice to warrant an extension of time for compliance.[77]An absence of evidence of irreparable damage to the debtor is a factor against extension of time for compliance.[78]
[77] McPhee at para 34 per Lucev FM.
[78] Hovan at para 9 per Emmett J.
The Applicant’s submission states no more than the obvious. Apart from the obvious there is no actual evidence of prejudice to the Applicant debtor. Applicant debtors who, asserting prejudice, seek to extend time for compliance, but fail to put before the Court evidence of:
a)their overall financial position, properly disclosed;
b)other relevant matters, such as, for example, the effect an act of bankruptcy might have on their:
i)professional or employment;
ii)business or corporate; and
iii)personal,
arrangements, commitments or responsibilities, actual or pending (the list is indicative not exhaustive);
c)prejudice specifically instanced[79], and beyond that usual with the issuance of a bankruptcy notice,
cannot expect the Court (on the current state of the law) to find prejudice to the debtor favouring, as one of the operative factors, an extension of time for compliance.
[79] Or, as Emmett J has put it: “particular prejudice” – Hovan at para 10.
On this factor, there is nothing put by the Applicant which weighs in favour of an extension of time for compliance.
Prejudice to creditor or other creditors
The Applicant submits that delay by the Respondent of almost a year between the decision in Leonard Cohen on which the Judgment Debt is based, and the issuance of the Bankruptcy Notice, means that there is no more than minimal prejudice to the Respondent as creditor.[80] Approximately half of that delay might be explained by the processes involved and awaiting judgment, in Leonard Cohen Appeal, where judgment was delivered on 9 March 2006. Thus, the delay is much reduced, and not so significant as to be out of the ordinary.
[80] Applicant’s submissions, para 20.
The Court refers to what it said in McPhee:
There is no particular evidence of prejudice to the respondent, as creditor of the applicant. There is no evidence as to other creditors of the applicant. The most that can be said, in general terms, is that to grant an extension of time would delay the time at which the act of bankruptcy occurs, and that it is in the interests of creditors generally, where a sequestration order ultimately follows, that the act of bankruptcy be earlier no later … because there are ‘potential adverse consequences’ if the act of bankruptcy is delayed …’[81]
and La Pegna v Deputy Commissioner of Taxation:
It must however be remembered that issuance of a bankruptcy notice based on properly issued final judgment, followed by a failure to comply with the bankruptcy notice, brings about an act of bankruptcy upon which all creditors, and not merely the Respondent, can found a petition. A bankruptcy notice founded upon a judgment debt provable in bankruptcy is not required. The legislative purpose is to “identify markers or criteria that point towards insolvency”. This is for the benefit of the public, and that is a benefit to which the Court must have regard when exercising the discretion. Part of that public interest, as well as a matter in the interests of creditors generally, is to ensure that in the determination of the relation back date no unfair advantage is obtained by the better informed or more resolute creditors.[82]
[81] McPhee at para 40 per Lucev FM.
[82][2006] FMCA 1643 at para 27 per Lucev FM
In the circumstances, this is a factor which in the Court’s view does not weigh in favour of an extension of time for compliance. In any event, at best for the Applicant, is probably neutral as to an extension of time for compliance, and thus does not weigh in favour of an extension of time for compliance.
Impact on date of bankruptcy
The issue of impact on the date of bankruptcy is sufficiently dealt with in para 63 above. It is not a factor which weighs in favour of extension of time for compliance.
Impact on related legal proceedings
The Set Aside Appeal will not be impacted upon by the extension or non-extension of time for compliance. The Set Aside Appeal will continue to be dealt with in the normal way even if an act of bankruptcy is committed.
It will not be until a sequestration order issues, if one ever does,[83] that bankruptcy proceedings will impact on the Set Aside Appeal.
[83] As to which see the Court’s comments in McPhee at paras 36-37 per Lucev FM, and particularly para 37 concerning the possibility of an adjournment of any creditor’s petition.
Impact on related legal proceedings is not a factor which weighs in favour of extension of time for compliance.
Delay
There has been much delay in the conduct of the litigation between these parties, both in the action giving rise to the Judgment Debt, and since.
In both Leonard Cohen & Leonard Cohen Appeal Sleight DCJ and Wheeler JA respectively sheeted home the blame for that delay to the Applicant (and his co-defendant) as well as their solicitor.[84] Whatever the Applicant now says about the reasons for those delays it remains the fact that there have been considerable delays during which time the Respondent has not been paid the debt owing.
[84] See para 6 and footnote 5 above.
The Set Aside Application was made within a reasonable time of the issuance of the Bankruptcy Notice. So too the Set Aside Appeal.
In the Applicant’s Affidavit the Affidavit refers to the Set Aside Application and says that he has instructed his current solicitors to pursue the Set Aside Application “with all reasonable expedition.”[85] In the Applicant’s Further Affidavit the Applicant says that he is “prepared to undertake to take all steps necessary to allow the expeditious disposition” of the Set Aside Application[86].
[85] Applicant’s Affidavit, para 7.
[86] Applicant’s Further Affidavit, para 20.
The Set Aside Application having been dismissed, the Set Aside Appeal was filed. There is no evidence (or even an indication from the Bar table) as to when the District Court might hear that appeal. It may be weeks, or even months, but it certainly entails further delay.
The delay is further compounded by the length of time the debt has been owing and the amount of the Bankruptcy Notice, $240,512.51 which is “quite considerable”, and a further factor (especially in the context of a possible further delay) to be considered.[87]
[87] O’Farrell v Network Entertainment Pty Ltd [2005] FMCA 1936 at para 8 per Raphael FM.
Any further delay, combined with an extension of time for compliance, would be likely to affect the relation back date.[88]
[88] See paragraph 63 above.
In all the circumstances, any further delay is not desirable, and is a factor which weighs against, or at least does not weigh in favour of, an extension of time for compliance.
Undertakings and conditions
There is no evidence of undertakings or conditions so as to warrant this being a factor weighing in favour of extension of time for compliance. Had the Applicant:
a)paid into trust; or
b)provided some form of guarantee; or
c)provided information as to financial position capable of supporting some form of undertaking as to the payment;
the amount of the Judgment Debt, an amount being a reasonable estimate of the fees and disbursements properly said to be incurred, or payable under the appropriate costs scale;[89] or an appropriate amount some way between (d) and (e) above, the Court might have been able to consider this as a factor to be weighed in favour of an extension of time for compliance.[90] But, absent appropriate undertakings or conditions, this is not a factor weighing in favour of extension of time for compliance.
[89] See para 23(h) above.
[90] Hovan at para 12 per Emmett J.
Conclusions – discretion
The factors considered do not weigh in favour of the extension of time for compliance with the Bankruptcy Notice. Bearing in mind that the discretionary assessment is qualitative not quantitative, the assessment of all of the circumstances of this case lead the Court to conclude that the Review Application ought to be dismissed on discretionary grounds.
Set aside application not bona fide
In view of the conclusions reached above at paras 42 and 78, it is unnecessary to deal with this point.
Orders
The Court makes the following orders:
(1)
That the application for review of Registrar Stanley’s orders of
25 September 2006 be dismissed.
(2)The Applicant to pay the Respondent’s costs to be agreed, or if not agreed, taxed according to the Federal Court Scale: see FCR Order 62.
I certify that the preceding eighty (80) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate:
Date:
9
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