Rutkowski v Meriton Apartments Pty Ltd
[2006] FMCA 549
•20 April 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| RUTKOWSKI & ANOR v MERITON APARTMENTS PTY LTD | [2006] FMCA 549 |
| BANKRUPTCY – Application to have Bankruptcy Notice set aside – application for extension of time to comply with Bankruptcy Notice – pending proceedings in the District Court – no prospects of success – application dismissed. |
| Bankruptcy Act 1966, ss.41(6A), 41(7), 41(6C), 40(1)(g) |
| Vasiliou v Tasiopoulos Lambros & Co [2005] FCA 1577 Elliott v Water Wheel Holdings Ltd & Water Wheel Mills Pty Ltd [2004] FMCA 37 |
| Applicant: | SIGMUND PAUL RUTKOWSKI & ANOR |
| Respondent: | MERITON APARTMENTS PTY LTD |
| File Number: | SYG 1061 of 2006 |
| Judgment of: | Nicholls FM |
| Hearing date: | 18 April 2006 |
| Date of Last Submission: | 18 April 2006 |
| Delivered at: | Sydney |
| Delivered on: | 20 April 2006 |
REPRESENTATION
| Counsel for the Applicant: | Nil |
| Solicitors for the Applicant: | Mr. McKell |
| Counsel for the Respondent: | Mr. Marshall |
| Solicitors for the Respondent: | Sally Nash and Co Solicitors |
ORDERS
The application is dismissed.
The applicants pay the respondent’s costs as agreed to be taxed pursuant to the Federal Court scale.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1061 of 2006
| SIGMUND PAUL RUTKOWSKI & ANOR |
Applicant
And
| MERITON APARTMENTS PTY LTD |
Respondent
REASONS FOR JUDGMENT
I have an application before me by Sigmund Paul Rutkowski and Carolyn Fay Rutkowski filed on 7 April 2006 seeking to set aside a Bankruptcy Notice (no. NN 927 of 2006) which was issued on 3 March 2006 and served on Mr. and Mrs. Rutkowski on 18 March 2006. Mr. and Mrs. Rutkowski also sought orders pursuant to s.41(6A) and s.41(7) of the Bankruptcy Act 1966 (“the Act”).
The matter came before me on the morning of 18 April 2006 following a referral from the bankruptcy list by a Registrar.
The present proceedings arise out of a contract for sale of land between Mr. and Mrs. Rutkowski and the vendors Meriton Apartments Pty Ltd (“Meriton”). Meriton subsequently obtained judgement in the District Court of New South Wales in relation to matters arising out of that transaction. The Judgment was that of Judge Garling on 17 June 2005. It is this Judgement on which the Bankruptcy Notice was based.
When the matter first came on before me Meriton was represented by Mr. Marshall of Counsel, and by a solicitor from Sally Nash and Co., solicitors. Mrs. Rutkowski appeared unrepresented. Mr. Rutkowski did not appear (I was subsequently advised that he was overseas). A Mr. Jones sought leave to assist Mrs. Rutkowski. Leave was refused although I allowed Mr. Jones to sit adjacent to Mrs. Rutkowski to enable her to consult with him. In any event Mrs. Rutkowski explained that she had obtained the services of a solicitor but that he would not be available until that afternoon. On that basis, I adjourned the matter until later that day. On resumption Mr. McKell appeared for the Rutkowskis. Mrs. Rutkowski was present in the courtroom (with Mr. Jones).
Evidence
Affidavit evidence admitted before me comprised of:
1)
The affidavit of Sigmund Paul Rutkowski, sworn 7 April 2006.
I note in this regard that Mr. Rutkowski was not present in Court at the hearing before me. Mr. Marshall indicated that he had given notice to Mr. Rutkowski that he would be required for cross examination on his affidavit. However, he confirmed that he had no objection to the admission of the affidavit if the failure to cross examine the applicant would not prejudice the respondent.
I admitted the affidavit into evidence on that basis.
2)The affidavit of Sally Nash, sworn 13 April 2006 to which no objection was made to my taking this into evidence before me.
I also have relevantly before me:
1)The Bankruptcy Notice No. NN 927 of 2006.
2)The application to set aside the Bankruptcy Notice, filed 7 April 2006.
3)The respondent’s (Meriton’s) Notice Stating Grounds of Opposition to Application, Interim Application or Petition.
Tendered during the hearing and marked accordingly:
4)Respondent’s Exhibit 1 (“RE1”): a bundle of documents containing inter alia the contract for sale of the relevant Meriton apartment. Mr. Marshall indicated that the purpose of the tender of this contract was to alert the Court to clause 51 of the special conditions of that contract that related to vendor finance.
5)Respondent’s Exhibit 2 (“RE2”): a letter dated 20 June 2005, addressed to the applicants, from Sally Nash and Co. advising of the hearing before Judge Garling, and the orders made ex parte following that hearing (the applicants, by way of the affidavit of Mr. Rutkowski sworn on 7 April 2005 confirmed receipt of this letter).
6)Applicant’s Exhibit 1 (“AE1”): the applicants’ Notice of Motion filed in the District Court on 13 April 2006 seeking that the Judgment of Judge Garling of 17 June 2005 be set aside, and that enforcement proceedings undertaken by the plaintiff, pursuant to that Judgment order, be stayed until after the determination of the Notice of Motion.
Relevant events are:
1)In February 2002 the parties entered into a contract for the sale of a Meriton Apartment.
2)Subsequently Mr. and Mrs. Rutkowski failed to renew the relevant deposit bond which led to the dispute between the parties.
3)On 17 June 2006, following an ex parte hearing before Judge Garling in the District Court, Judgement was given in favour of Meriton.
4)On 20 June 2005 Sally Nash and Co., on behalf of Meriton, wrote to the Rutkowskis and advised of the outcome of the hearing on 17 June 2005 and the orders made by His Honour. They sought payment to Meriton of the amount claimed pursuant to that Judgement.
5)On 18 March 2006 Mr. and Mrs. Rutkowski were served with the relevant Bankruptcy Notice.
6)On 7 April 2006 Mr. and Mrs. Rutkowski filed their current application before this Court.
7)On 13 April 2006 the respondent filed a notice stating grounds of opposition to Mr. Rutkowski’s application.
8)On 14 April 2006 Mr. and Mrs. Rutkowski filed in the District Court a cross claim and sought orders that the Judgment and orders of Judge Garling be set aside.
Mr. McKell received instructions at a very late stage in this matter and in these circumstances I thought it best, given the way the matter had developed that morning, to allow Mr. Marshall for the respondent to make initial submissions as to the respondent’s position, and particularly, as Mr. Marshall had submitted earlier, to hear the respondent’s arguments, the essence of which were, that any appeal against, or setting aside of, the decision of Judge Garling made on 17 June 2006 had no prospects of success, and as such any order to set aside the Bankruptcy Notice No. NN 927 of 2006 was futile.
The respondent’s Notice opposing the application is stated as follows:
“1. Section 41(6A) of the Bankruptcy Act 1966 (Cth) does not apply and the ground is not made out.
2. Section 41(7) of the Bankruptcy Act 1966 (Cth).”
For ease I have reproduced the sections below:
“(6A) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
(6C) Where:
(a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and
(b) the Court is of the opinion that the proceedings to set aside the judgment or order:
(i) have not been instituted bona fide; or
(ii) are not being prosecuted with due diligence;
the Court shall not extend the time for compliance with the bankruptcy notice.
(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter‑claim, set‑off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter‑claim, set‑off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.”
Mr. Marshall, referring both to the affidavit of Mr. Rutkowski of
7 April 2006 (attaching a copy of the application to set aside the Judgment and orders of Judge Garling), and the contract for sale of the relevant apartment (see “RE1”), took me through the grounds supporting the applicant’s application to have the District Court orders set aside.
I note Meriton’s Amended Statement of Liquidated Claim (annexure “D” to the affidavit of Mr. Rutkowski). He submitted this was the amended pleading before Judge Garling. The applicants’ defence to the Statements of Claim (the parts highlighted in the Statement of Claim relate to subsequent amendments) is at annexure “A” of Mr. Rutkowski’s affidavit.
Noting that what was before Judge Garling was the amended claim, Mr. Marshall took me through the applicants’ defence to the claim:
Mr. Marshall submitted:
1)Paragraph 1: That no issue was taken with paragraph 1 of the statement.
2)Paragraph 2: That as this paragraph asserted that the apartment building (relevant to the contract of sale) was also partly commercial (not only residential) and as such it cannot be seen how this paragraph could assist the applicants.
3)Paragraph 3: That this paragraph is “not admitted” but that this paragraph relates to the ownership of the property which is the subject of the contract of sale.
4)Paragraph 4 (which related to the Section 66W Certificate): That this paragraph is “not admitted”. Mr. Marshall also noted in this regard that in a “pleading sense” the response to such a paragraph must essentially be admitted or denied, particularly if it is something reasonably within the applicants’ knowledge.
5)Paragraph 5 (relating to a specific term of the contract): That this was also “not admitted”. Mr. Marshall made the same point as noted in relation to paragraph 4.
6)Paragraphs 6 and 7 (relating to the deposit bond): They appeared to be traversed and Mr. Marshall indicated that he would come back to these paragraphs as the topic of the deposit bond is one of its own in the defence.
7)Paragraph 8 (relating to the contract for sale and the replacement deposit bond): This was also “not admitted”. Mr. Marshall again emphasised that this was something to be denied or admitted in a statement of claim.
8)Paragraphs 9-13: These were “not admitted”.
Specifically in relation to the applicants’ defence Mr. Marshall took me to the first substantive paragraph of that defence (page 2 - paragraph 5) of the Notice of Grounds of Defence attached to the affidavit of Mr. Rutkowski of 7 April 2006.
1)Paragraphs 5 to 8 (relating to the status of the “Vendors Agent” and “sales representative” involved in the sale of the apartment and the sale’s legality given these factors): Mr. Marshall submitted that this first group of defences are not competent and as a matter of law were “demurrable”.
2)Paragraphs 9 to 10 comprise the second group of defences (relating to vendor finance): Mr. Marshall in this regard submitted that the paragraphs were “false” in that it was clear from the contract of sale, signed by the applicants, that had been tendered, that the subject to finance clause had been ruled through and the contract was clearly not conditional on finance. [See paragraph 5 of the contract for the sale of land “RE1”].
Paragraphs 11, 12, 13 and 14 (relating to the deposit bond):
3)Paragraph 11 (that the vendor’s agent suggested that the shield deposit bond should be applied for): Mr. Marshall submitted that there was no condition precedent, and secondly that it was irrelevant to the outcome of the proceedings before the District Court as to who suggested that the application for the deposit bond should be made.
4)Paragraph 12 (that six months was the maximum term for the deposit bond with allowance for a building time frame of 2 years): Mr. Marshall described this as being “just fantasy” and clearly a “fanciful scenario”, that was factually not in accordance with the terms of the contract.
5)Paragraphs 13 and 14 (relating to any obligation for Mr. and Mrs. Rutkowski to provide a replacement deposit bond): Mr. Marshall stressed that the terms of the contract for sale of land did not support the applicants’ position (he described the contract as “speaking otherwise”).
6)Paragraph 15 (relating to the applicants’ solicitor retained to act on their behalf on the purchase): Mr. Marshall submitted that this ground is not a competent defence, has no consequence in this debt claim, and once again is demurrable.
7)Paragraph 16 (relating to whether the contract for sale was lawfully exchanged): Mr. Marshall indicated that this was unhelpful, without any indication of the source of the illegality.
8)Paragraph 17 and 18 (relating to the valuation of the property and the reduction in the value of the property): Mr. Marshall noted that the paragraphs in question read more like an affidavit, and appeared not to assist the applicants.
9)Paragraph 19 (relating to the vendors failure to sell the property when the Sydney unit market was at a higher value): Mr. Marshall indicated that this paragraph needed to be properly particularised as the defendant actually bears the onus of proof, and nothing had been shown to substantiate a failure to mitigate.
Mr. Marshall’s submission in conclusion was that there was no utility in allowing the matter to proceed any further, and that the application before this Court should be dismissed. Further, that in relation to s.41(7) of the Act the cross-claim could clearly have been filed in the original proceedings, and in light of s.40(1)(g) of the Act, reliance on it now cannot be made, and cannot be had in this application. In relation to s.41(6A) Mr. Marshall, for the same reasons argued above in relation to the dismissal of the application for an extension of time, submitted that there was no chance of success before the District Court, and there was no utility in this Court making an order, the effect of which, was an extension of time.
Mr. McKell for the applicants, acknowledging that he had only been briefed on the matter during the day, made short submissions. In essence he argued that the matters raised by the applicants in the Notice of Motion before the District Court (to have the unfavourable judgment set aside) needed testing by that Court, and that as such, the Bankruptcy Notice should be set aside to allow the Court the opportunity for that consideration. He submitted that the basis of the application for an adjournment (extension of time) was that the “decision” (Judgment) founding the Bankruptcy Notice was ex parte, and as he understood it “no hearing on the merits” had occurred. I note that the Judgment of Judge Garling was not put before me. However Mr. Marshall also from the Bar Table submitted that Judge Garling did not proceed with Judgment on 17 June 2005 on a default basis, and relevantly had before him an affidavit which annexed the contract for the sale of land and other formal evidence before him [consistent with the evidence before me now]. Mr. McKell also noted, that in his submission, there would be no prejudice if the time to comply with the Bankruptcy Notice was extended to enable the District Court proceedings to be determined.
More specifically, Mr. McKell submitted:
1)In relation to the damages claimed before the District Court, expert evidence may need to be put on, given a [real estate] market that “swings about”, although he conceded that he was unsure if any expert evidence had been put on in the previous proceedings.
2)In relation to the cross claim (as it realted to the issue of s.41(7) of the Act) he stated that he would not be making submissions on that point having heard Mr. Marshall’s arguments.
3)In relation to the applicant’s defence before the District Court, complicated areas of law were in question, and as such, needed to be examined by the District Court. Mr. McKell referred directly in this regard to the “dates” of exchange [of the contract], the “deposit issue”, and particularly the question of the contract being dependent on finance and whether this had been properly explained to the applicants. Further, that there was an alleged “irregularity in Judgment” as it related to certain GST factors and tax matters that, as Mr. McKell submitted, are a matter in the applicant’s defence that cannot be “ventilated” today.
I note that in regard to the “damages issue” raised by Mr. McKell [at 16.1 above] Mr. Marshall submitted in reply that the calculation of the damages, pursuant to the contract for sale, was to be based on the actual sale price of the property, and not with reference to any “market” valuation of that property. As such, he submitted, there is no need for the respondent to adduce any expert evidence to prove its case. Further, in reply Mr. Marshall submitted that with regard to the general discretion under s.30 of the Act the critical factor is the prospect of success in the District Court. Mr. Marshall submitted there was no prospect of success based on the matters put in his submissions. Further, that there was no adequate explanation as to why there was a non-attendance before Judge Garling on 17 June 2005 by Mr. and Mrs. Rutkowski and second why, three days later when the applicants became aware of the Judgment when Mr. Rutkowski attended Court, were moves not taken to have the matter brought back before Judge Garling, or some other judicial officer to rectify what the applicants now say, by way of submission, is a “mistake”.
I have reviewed the material before me, and considered the matters put forward by both Mr. McKell and Mr. Marshall. It is clear that, both in relation to any extension, or the setting aside of the Bankruptcy Notice altogether, a critical question is whether the applicant’s prospect of success in their attempt to set aside in the District Court the Judgment of that Court that gave rise to the Bankruptcy Notice. Of further significance in the exercise of the discretion is the period of time likely to pass before the appeal is to be determined in the District Court, and the failure of Mr. and Mrs. Rutkowski to seek to obtain a stay in the Judgment of Judge Garling or to institute appeal proceedings. I note also that with specific reference to the extension of time of the Bankruptcy Notice, s.41(6C) provides a threshold question, and that is whether the proceedings to set aside the Judgment are bona fide and are being prosecuted with due dilligence.
In relation to setting aside the Bankruptcy Notice I note (against other authorities) in this regard the case of Vasiliou v Tasiopoulos Lambros & Co [2005] FCA 1577. In that case Gray J., reviewed two decisions of the Federal Magistrates Court. The first (a relevant decision for the hearing before me today) was a decision by Phipps FM and related to an appeal from an application that had been made to set aside a Bankruptcy Notice initially heard in the Melbourne Magistrates’ Court. Gray J. in reviewing that decision said at [14] to [16]:
[14] On 30 August 2004, Federal Magistrate Phipps heard the application to review Registrar Mussett’s order refusing to set aside the bankruptcy notice. On that day, his Honour dismissed the application with costs. In his reasons for judgment, Andrew Vasiliou v Tasiopoulos Lambros and Co [2004] FMCA 572, his Honour identified as the issue that decided the application the question whether there was a valid judgment with any significant prospect of it being set aside, or any prospect at all of it being set aside. His Honour noted that he had evidence in affidavits of the applicant, and had been told, as agreed matters, certain things from the bar table. At [4], his Honour said:
‘The relevant matters are these. Judgment was obtained on 25 January 2000 in the Magistrates Court at Melbourne. That was a default judgment. The applicant, the debtor, applied to set aside that default judgment, and when that came on for hearing in the Melbourne Magistrates Court on 8 March 2000 the applicant debtor was not present and so the application was refused. What he sets out in his affidavits is that he was unwell at that stage and there was a period when he was hospitalised. Subsequent to the service of the bankruptcy notice on him, he made the application to this court to set aside the bankruptcy notice filed on 15 June 2004. He then made a further application to the Magistrates Court at Melbourne to set aside the judgment debt. That came on for hearing, and these are matters which I have been told from the bar table and they are matters of agreement, originally on 1 July 2004 and it was then adjourned to 26 July 2004. On 26 July 2004, that application was refused. The applicant has now made an application to the Supreme Court which he describes as an appeal to the Supreme Court but which might be more correctly described as an application to appeal.’
[15] At [5], his Honour went on to find that the bankruptcy notice was otherwise a valid bankruptcy notice, and that no submissions had been made disputing its validity, other than submissions about the existence of the debt. His Honour identified s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’) as the basis for the issue of the bankruptcy notice. His Honour then said at [6]:
‘The existence of the debt itself is not an issue for this court. The issue for this court is whether there is a judgment or debt. Other than a dispute about the debt there is, as far as I can see, no claim that there is a counterclaim or set-off which could not have been set up in the proceedings. From what the applicant has told me from the bar table, the debt is legal fees and he disputes whether the amount of work was done for which the money is claimed and whether it was done competently. Whatever defences might arise out of those two things, they could all have been raised in the proceedings in which the judgment or order was obtained.’
[16] At [7], his Honour identified that there had been two applications to set aside the judgment of the Melbourne Magistrates’ Court and that, on the second one, Mr Vasiliou did appear and the application was dismissed. As to the application for leave to appeal to the Supreme Court, or any appeal to the Supreme Court, his Honour said that Mr Vasiliou had not put before the court anything that might suggest that an appeal was likely to proceed. Although his Honour saw himself as dealing with the issue of the validity of the bankruptcy notice, he did plainly address himself to the question whether the judgment on which the bankruptcy notice was made might have a chance of being set aside.”
Further at [27] to [29]:
[27] There was so little material before Federal Magistrate Phipps to indicate that Mr Vasiliou would ever have been able to defeat the claim for legal fees that the federal magistrate was entitled to regard Mr Vasiliou as having no chance of succeeding in his endeavours to set aside the judgment of the Melbourne Magistrates’ Court. Indeed, his Honour was entitled to rely on the fact that Mr Vasiliou had made an unsuccessful application to set aside that judgment, on which he had been heard. His Honour was entitled to take the view that, if Mr Vasiliou had been able to disclose that he had an arguable defence, the Melbourne Magistrates’ Court might have been more disposed to allow him to set aside the judgment. His Honour was perfectly entitled to treat the judgment of the Melbourne Magistrates’ Court as a valid judgment, and as a final judgment, notwithstanding that there existed a faint possibility that it might one day be set aside. As a final judgment, it formed a proper basis for the bankruptcy notice.
[28] Nor could his Honour be accused of having placed excessive weight on the judgment of the Melbourne Magistrates’ Court and on the decision not to set it aside in those circumstances. His Honour was not sitting on appeal from the Melbourne Magistrates’ Court. It was not open to him to say that the decision to refuse to set aside the judgment was a wrong decision. Nor was it open to him simply to ignore that decision and to accept the assertion that the debt was not really owing.
[29] To the extent to which his Honour had a discretion to go behind the judgment, in determining whether the bankruptcy notice should be set aside, I am satisfied that his Honour considered properly the matters that went to that discretion. Most notably, they were the question of the weight to be given to the attempts to set aside the judgment, and to the absence of material that indicated that those attempts would have any prospect of success.
In relation to s.41(6A) and the discretion to extend the time for compliance with the Bankruptcy Notice, I refer to the Judgment of McInnes FM in Elliott v Water Wheel Holdings Ltd & Water Wheel Mills Pty Ltd [2004] FMCA 37, particularly at paragraphs [17] to [20]:
“[17]. Both parties made submissions in relation to the law applicable to the exercise of the court's discretion in this matter. It is common ground that the discretion may be one which is described as a discretion "at large". It is also common ground in the present application that the parties do not dispute that the appeal which is currently pending by the applicant before the Court of Appeal of the Supreme Court of Victoria is a bona fide appeal which has been pursued with due diligence and that the appellant, that is, the applicant in the present applications, has an arguable case in the appeal.
[18]. The main thrust of the appeal concerns, on the one hand, arguments raised in relation to what might be described as criticisms of the trial judge in making findings claimed to be against the evidence and the weight of the evidence. It is also significant to note, however, that a further substantive issue is raised in relation to the interpretation by the court of s.588J of the Corporations Act 2001.
[19]. For my purposes, having accepted that there is a discretion which may be described as a discretion "at large", and having considered relevant authorities to which the parties referred, I am satisfied that an accurate reflection of the relevant law was set out by Her Honour Kenny J in the matter of Liew v JNS Technologies (M) Sdn Bhd (1999) FCA 1428 (18 October 1999). In that case Her Honour considered four applications for extension of time. Her Honour referred to the authorities and in particular stated the following, which in my view, is relevant to the present application:
"12. The authorities establish that an appeal is in the nature of "proceedings to set aside the judgment ... in respect of which the bankruptcy notice was issued": see, e.g., Re Taylor; ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377; Bryant v Commonwealth Bank of Australia (unreported, Full Court of the Federal Court, 11 November 1994); Benaharon v Fabric Dyeworks (Aust) Pty Ltd [1998] FCA 1109.
13. There have been differences in the cases about the principles which are to govern applications such as the present. In Re Baker; ex parte Baker v Staples (unreported, Federal Court, 4 September 1995), Keifel J held that an extension of time should ordinarily be granted where there is a "genuine and arguable" appeal being diligently prosecuted against a judgment founding a bankruptcy notice. A not dissimilar approach was adopted by Weinberg J in Benaharon and by Ryan J in Beckwith v Pedler [1999] FCA 1312. A different approach has been adopted in other cases. In Re Geard; ex parte Reid (unreported, Federal Court, 11 February 1999) Sheppard J refused an application to extend time, stating as follows:
The critical question then is how the discretion should be exercised. As earlier stated, the parties have made, both orally and in writing, detailed submissions concerning the issues which will arise for determination on the appeal and have invited the Court in effect to express a view, provisional though it may be, on the likely outcome of the appeal. To a degree I have felt obliged to look at the matter for myself, but I think it most undesirable that a judge of this Court should in effect undertake some provisional review to determine the correctness or otherwise of a judgment of another court especially where that judgment is under appeal to the Court of Appeal which has jurisdiction to hear appeals in the normal course.
I prefer to approach the matter in a different way.
The debtor has not made any application for a stay of proceedings pending the outcome of the appeal. Why he has not done so is not clear to me but the judgment which has been recovered against him is a final judgment and execution upon it has not been stayed. It would seem to me to require quite special circumstances before a court exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to stay the judgment has been made. ...
A further factor is that this is an application to extend time for compliance with a bankruptcy notice; it is not the hearing of a bankruptcy petition. The refusal of the application will not affect the status of the debtor but it will mean that he, in all probability, will commit an act of bankruptcy. That act of bankruptcy will be available to the petitioning creditors or to any other creditor upon which to base a bankruptcy petition at any time in the period of six months after the act of bankruptcy has been committed. Otherwise the debtor's position will remain unaffected by what the Court does.
If the appeal is ultimately dismissed and the judgment stands with the consequence that the bankruptcy proceedings go on, it may be quite important to the petitioning creditor, whoever he or she may be, to the general body of creditors and to the trustee in bankruptcy, that there be, for the purposes of the administration of the bankrupt estate, an act of bankruptcy committed at an earlier time than would be case if this application were acceded to.
Sheppard J's approach has been followed in Re Smith (unreported, Federal Court, 4 May 1994), Agrillo v Codisposto (unreported, Federal Court, 16 December 1994), Bryett v Deputy Commissioner of Taxation (1997) 37 ATR 1411, and Wenkart v Abignano (unreported, Federal Court, 28 August 1998).
14 In Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264, Lehane J made it clear, at 270-271, that whilst a failure to apply for a stay was a relevant factor to which weight would be attached, it was not necessarily conclusive on the question whether an extension of time should be granted. This point was emphasised in Warner v Frost [1999] FCA 830 in which Hely J said:
For myself, I think with respect, that the view of Lehane J is to be preferred and I propose to follow it but the problem is that really the only matters which were relied upon in support of a stay were these: first, the existence of an arguable appeal. Second, the application for a stay was made but at least inferentially a reason for its refusal was the inability on the part of the applicant to put up security in sufficient sums. Thirdly, the impact of a change in status consequential upon the refusal of the stay. Fourthly, no showing of any prejudice to the respondent should an extension be granted and, finally, the appeal is likely to be heard and decided in a period of eight months or less.
In my view, these factors are insufficient to outweigh the proposition that the Court in which this judgment was obtained has declined to stay its execution and something more than an arguable appeal needs to be shown before the Bankruptcy Court would grant an extension of time for compliance with the bankruptcy notice, which would produce a similar effect to the granting of a stay. Really nothing has been shown in this case other than that there is an arguable appeal and that the consequence of refusing an extension will be the commission of an act of bankruptcy ... .
On the hearing of these applications, both counsel for the applicants and for JNST submitted that, in Warner v Frost, Hely J had correctly stated the principles which ought to govern the exercise of discretion on these applications."
[20]. After discussing the authorities referred to in the earlier extract Kenny J goes on to say:
"16 Further, there are a number of factors which tell against the exercise of discretion in favour of the applicants. Those factors are:
(a) an application for a stay of the judgment has been made in the Supreme Court and refused;
(b) the appeal will not be heard in the immediate future and, on one account, not until after February 2001;
(c) a lengthy extension of time for compliance with the relevant bankruptcy notices may ultimately prejudice JNST as the judgment creditor; and
(d) the commission of acts of bankruptcy which may occur in the event that these applications are refused is not comparable to the consequences of sequestration orders.
17 As we have seen, in Warner v Frost, Hely J placed some weight upon the former factor. The fact is that, the application for a stay of judgment having failed in the Supreme Court, the judgment is enforceable against the applicants. The period for which an extension is sought is also relevant. The applicants seek an extension until 21 days after delivery of judgment by the Court of Appeal. That date is, on any view, likely to be well into the future. Further, as Heerey J said in Re Nguyen; ex parte Commissioner of Taxation (1995) 54 FCR 403 at 407:
Extension of time for compliance with the bankruptcy notice may have important adverse consequences for the judgment creditor. For example, if a sequestration order is subsequently made the commencement of the bankruptcy may be later than would otherwise have been the case, which in turn may affect rights of recovery by the trustee in relation to property.
See also Byron at 270 per Lehane J. Finally, the commission of an act of bankruptcy, although a serious matter, does not carry with it the grave consequences brought about by the making of a sequestration order: cf Byron at 270 per Lehane J and Warner v Frost at par 8. It remains open to the Court on the hearing of any petition for sequestration to adjourn the hearing pending the resolution of the appeal by the Court of Appeal."
In light of the above material I note the following. First, it is clear that there is an ex parte Judgment by Judge Garling, upon which the Bankruptcy Notice has been founded. There is no evidence before me that the ex parte Judgment was given by default. What evidence is before me supports Mr. Marshall’s submission that Judge Garling proceeded to hearing with both affidavit material, and the relevant contract for sale, before him. Second, in regard to the non-attendance by the applicants at the hearing before Judge Garling I refer to the affidavit of Mr. Rutkowski of 7 April 2006 and particularly annexure “A” to that affidavit, where a copy of an affidavit filed in the District Court (again of 7 April 2006) is annexed. In relation to the non-attendance Mr. Rutkowski asserts:
1)On prior occasions before the District Court [in the matter which ultimately came before Judge Garling], particularly in front of Registrar Grew and Judicial Registrar McDonald, dates for further appearances before the Court were set down without consideration of the applicants’ ability to attend.
2)There were several instances where the Court ignored Mr. Rutkowski’s availability to attend.
3)On 6 April 2005 [before Judicial Registrar McDonald] the applicants were unaware that the matter had been set down for hearing on 17 June 2005.
4)That Mr. Rutkowski [and Mr. Jones who was present in Court with Mrs. Rutkowski before me] had attended on that day but understood that the matter was adjourned until 20 June 2005.
5)In support of this Mr. Rutkowski refers to correspondence from Sally Nash and Co., annexed to his affidavit at “C”, that related to a subpoena returnable on 30 May 2005, and that that matter had been stood over until 20 June 2005.
Mr. Rutkowski was clearly not available for cross examination before me on this point [or indeed at all]. Nor for that matter was any evidence proffered by Mr. Jones, who Mr. McKell submitted was present at the relevant time before the District Court and could say that
Mr. Rutkowski and he misunderstood what had occurred on that date. I also note Mr. Rutkowski’s evidence that given the subpoenas issue by the plaintiff and their return date (see paragraph 23 of Mr. Rutkowski’s affidavit) they believed that the matter had been settled in their absence, and without liability being incurred. But what the applicants have not satisfactorily explained before me is, even given that some confusion may have occurred (although Mr. Rutkowski’s evidence is unsupported) why any confusion existed after the receipt (again which is confirmed) of the letter of 20 June 2005 from Sally Nash and Co. The letter in very clear terms states that the Judgment was given against the applicants and a demand was made for the payment to Meriton of monies claimed as a result. The applicants’ explanation [at paragraph 23 and 24 of Mr. Rutkowski’s affidavit] that they relied on earlier letters [dated 2 June 2005] from Sally Nash and Co., is not a satisfactory explanation of why no action was taken after the letter of 20 June 2005 to seek to either appeal or set aside the orders made by Judge Garling. The applicants’ claim that they have been legally unrepresented. Similarly, it is not an acceptable explanation for their failure to act upon notification of Judge Garling’s orders.
There is nothing before me to show that any substantive action was taken until after service of the Bankruptcy Notice, to challenge Judge Garling’s orders. The applicants’ Notice of Motion in the District Court was not filed until 13 April 2006. Further, it does not appear to have been filed by solicitors acting on their behalf and this is consistent with what Mrs. Rutkowski said before me, that they had acted without legal representation until Mr. McKell’s “late” entry on 18 April 2006 before me. There is nothing before me to show that what the applicants have now attempted to [on 13 April 2006] could not have been done at an earlier time.
The Discretion
As I have already stated, in the exercise of my discretion to either set aside the Bankruptcy Notice, or to order an extension of time for compliance with that notice, the due diligence of the applicants in prosecuting their case, the prospects of success of the matter in the District Court are among a number of relevant factors. I note that there has been submission presented from the Bar Table that a hearing [of some type] is scheduled in the District Court in May 2006. Notwithstanding this, I exercise my discretion not to set aside the Bankruptcy Notice, or grant an extension of time for compliance. As set out above, the applicants were on clear notice of the relevant District Court Judgment, and I do not accept the explanation that they thought the matter had been settled in a way favourable to them, particularly given the letter from Sally Nash and Co., dated 20 June 2005, notifying them of the Judgment of 17 June 2005, and orders made that day. Further I accept Mr. Marshall’s submissions as to the prospects of success of the applicants’ case in the District Court. Very little has been put by the applicants in support of their case, save the grounds of their claim and their defence to the Statement of Claim by Meriton. I acknowledge that Mr. McKell was briefed very late in the matter, but he was unable to add much in the way of detail to support the applicants’ position in this regard. Nor was any submission or evidence put that the Bankruptcy Notice was itself defective. On what is before me I am satisfied the relevant Bankruptcy Notice was validly issued.
In relation to an extension of time under s.41(7), which requires a cross claim as referred to in s.41(1)(g) of the Act, the applicants would fail. I accept Mr. and Mrs. Rutkowski’s submissions in this regard and note they were not challenged before me. The cross claim that the applicants have now put before the District Court could have been filed in the proceedings leading to the Judgment of Judge Garling and were not. I am satisfied on what is before me that the District Court (see the affidavit of Sally Nash of 13 April 2006) gave directions for the filing of any cross claim before Judge Garling. On the unchallenged evidence of Sally Nash no such cross claim was filed within the time table set out by the Court, or in fact at all before Judge Garling made his Judgment. The applicants have not explained this failure, nor did Mr. McKell make any submissions on this issue, as he said, after hearing Mr. Marshall’s submissions. I should also note that when an order was made on 7 April 2006 by Registrar Segal of this Court extending the time for compliance with the Bankruptcy Notice, that no application had been filed in the District Court, challenging, seeking to set aside, or stay the decision of Judge Garling of 17 June 2005. This may render this order reviewable, and consequently affect what has been put before me. However, this issue was not pressed by Mr. Marshall before me.
For all the reasons above, although there is always a possibility that Judge Garling’s Judgment could be set aside, I am not satisfied on what has been put before me that the proceedings now on foot in the District Court have any real prosect of success. I do not set aside the Bankruptcy Notice and I do not extend the time for compliance with the Bankruptcy Notice. The application is dismissed.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Nicholls FM
Associate: S. Waring-Lambert
Date: 20 April 2006
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