Shaddock, Edward Arthur v Commonwealth Bank of Australia

[1997] FCA 947

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7247 of 1997

BETWEEN:	EDWARD ARTHUR SHADDOCK APPLICANT
AND:	COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) RESPONDENT

JUDGE:	RYAN J
DATE:	16 SEPTEMBER 1997
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

The applicant in these proceedings seeks a review of an order made by Registrar Agnew on 18 June 1997 dismissing an application to set aside a bankruptcy notice served on 27 March 1997 (“the bankruptcy notice”).  The bankruptcy notice claimed a judgment debt of $237,091.62 plus accrued interest making a total amount claimed of $282,278.03.  After the issue of the bankruptcy notice but before it was served, the respondent, the Commonwealth Bank of Australia (“the Bank”), sold the property which it held as security for moneys owing by the debtor, possession of which it had obtained in the same proceeding which gave rise to the judgment debt.  On 16 April 1997, the debtor applied to set aside the bankruptcy notice and on the same day an order was made extending the time for compliance with the bankruptcy notice to 4.00pm on 19 May 1997 or further order.  On 17 May 1997 Registrar Agnew further extended the time for compliance to 4.00pm on 17 June 1997.  It appears that on 17 June 1997 Registrar Agnew stood the debtor’s application over to 18 June 1997 after recording a decision that “the affidavit of E.A. Shaddock sworn 16 April 1997 does not satisfy the requirements of s 40(1)(g) in that it does not identify on its face a counter-claim, set-off or cross-demand equal to or exceeding the sum due under the judgment”.  It does not appear that the learned Registrar made any order on 17 June 1997 further extending the time for compliance with the bankruptcy notice.  She contented herself on 18 June 1997 with formally dismissing the application and making orders in respect of the costs of the application.  By motion on notice dated 4 August 1997 the debtor seeks:

1.That the application to the Court dated the 2nd day of July, 1997 be amended in relation to the first order sought by deleting a reference to Section 14(5) of the Bankruptcy Act 1966 and substituting therefor a reference to Section 35A(5) of the Federal Court of Australia Act 1976.

2.That the application to the Court dated the 16th day of April, 1997 be amended to include a further order sought in the following terms:

“5.A declaration that the Applicant has a counterclaim set-off or cross demand of the type referred to in Section 40(1)(g) of the Bankruptcy Act 1966.”

3.That the time for compliance with Bankruptcy Notice VN 371/97 be extended to the 11th day of August, 1997 or such further order.

4.Such further or other orders as this Honourable Court deems appropriate.

Mr Nolan of Counsel for the Bank submitted that there can be no deemed extension of time for compliance with a bankruptcy notice pursuant to s 41(7) when an application to challenge such a notice by way of counter-claim has been dismissed by the Court.  Section 41(7) is in the following terms:

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 Nolan submits that notwithstanding that a review of a decision on an application to set aside a bankruptcy notice is by way of a hearing de novo, “the Court” for the purposes of s 41(7) of the Act comprises the Registrar exercising the delegated judicial power of the Court.  It follows, therefore, in Mr Nolan’s submission, that, pursuant to s 41(7), the determination by the Registrar on 18 June 1997 to dismiss the application to set aside the bankruptcy notice meant that the time for compliance with the bankruptcy notice was deemed to have been extended only to the date of the Registrar’s determination.  Consequently an act of bankruptcy was committed by the debtor on the last moment of that day.  Mr Nolan further submitted that the power to extend time for compliance with a bankruptcy notice is in aid of an application to set aside a bankruptcy notice and relied on McLean v Australia and New Zealand Banking Group Ltd and Anor (1993) 42 FCR 300, particularly at 306 where I observed:

I have already concluded that the power to extend time is to facilitate a challenge to the bankruptcy notice.  That entails that, in the absence of a continuing challenge to the bankruptcy notice, there is no power in the court to grant an extension of time for compliance.

Ms Horivitz of Counsel for the debtor submitted that, pursuant to s 41(7), time for compliance with a bankruptcy notice is deemed to be extended until the Court makes a determination upon the debtor’s application asserting the existence of a cross-claim. It was further contended, however, that as this Court, upon review, deals with the original application by way of a rehearing de novo then “the Court” for the purposes of s 41(7) comprises the Court conducting the review and not the Registrar who makes the initial, reviewable, determination.  Thus, it was argued, that until and including the day when this Court, as presently constituted, decides whether the debtor has a counter-claim of the requisite kind, the time for compliance with the bankruptcy notice is deemed to be still running and allows the debtor to comply with the notice by payment or have it set aside by satisfying a Judge on review of the existence of the requisite kind of counter-claim, set-off or cross-demand.

Ms Horivitz also sought to rely upon s 41(6A) of the Act by contending that notwithstanding that the application to set aside the bankruptcy notice by asserting a cross-claim had been dismissed by the Registrar, the Court could, in its discretion, extend time for compliance with the bankruptcy notice pursuant to that sub-section.

Section 41(6A) of the Act is in the following terms:

Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:

(a)proceedings to set aside the 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 sub-section (6C), extend the time for compliance with the bankruptcy notice.

Sub-section 41(6C) provides:

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 the 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.

Ms Horivitz submitted that this Court could extend time for compliance with the bankruptcy notice pursuant to s 41(6A).  She referred to Streimer v Tamas (1981) 54 FLR 253 where it was held that, provided a debtor had lodged an application to set aside a bankruptcy notice before the expiration of the period for compliance with such a notice, then, notwithstanding that the time for compliance had expired, the Court could further extend time for compliance.

On 18 June 1997, when the Registrar dismissed the debtor’s application, the powers of this Court in any proceeding under the Bankruptcy Act 1966, which were capable of delegation to a Registrar of this Court pursuant to s 35A(1) of the Federal Court of Australia Act 1976, were those listed in Part 3 of the Third Schedule to Federal Court Rule 77.  On 13 December 1996 the Chief Justice issued a written direction delegating those powers, including the power to set aside bankruptcy notices, to the Registrars named in the direction.

A decision by a Registrar dismissing an application to set aside a bankruptcy notice is, therefore, in my view, a decision by the Court for the purposes of s 41(7) of the Act.  ReMcKechnie; Ex parte Weir (1991) 99 ALR 99, to which I was taken by Ms Horivitz, arose under an earlier form of s 41(7) which required the debtor merely to file an affidavit deposing to the existence of a counter-claim. It was then incumbent upon the Registrar pursuant to r 10 of the Bankruptcy Rules to fix the matter for hearing before a judge of the Court. That essentially administrative function is to be distinguished from that which a Registrar performs when exercising delegated judicial power conferred by s 41(7) in its present form to determine whether the debtor has a counter-claim, set-off or cross-demand of the requisite kind. In Streimer v Tamas, by contrast with the present case, the application to set aside the bankruptcy notice was extant when the time for compliance with the bankruptcy notice expired.  In my view, s 41(6A) requires the existence of an extant application to set aside the bankruptcy notice before the Court can extend time for compliance;  see McLean vAustralia and New Zealand Banking Group Ltd (1993) 42 FCR 300 at 304-305 which was applied by Lindgren J in Re Udowenko; Ex parte Mitchell (1996) 69 FCR 299 where his Honour observed, at 304:

In my view, it is clear on the proper construction of s 41(6A) that the condition of the existence of the power to extend time is not satisfied by the mere institution of a proceeding or making of an application to set aside, which has been dismissed or otherwise ceased to subsist as a current proceeding or application before the time for compliance with a bankruptcy notice has expired;  cf McLean v Australia and New Zealand Banking Group Ltd.  The reason is that the purpose of an extension of time under s 41(6A) is limited to that of supporting a proceeding or application, that is to say, one which was instituted or filed before the expiration of the time for compliance with the bankruptcy notice.

In my view, therefore, the correct reading of s 41(6A) and s 41(7) is that, if the time for compliance with a bankruptcy notice has already expired, the debtor must seek an extension of time for compliance with the bankruptcy notice before a determination has been made refusing an application to set aside the notice.  Upon expiration of the time for compliance with a bankruptcy notice, in the absence of a pending but unresolved application to set it aside, an act of bankruptcy occurs forthwith and any further attempt thereafter to extend time for compliance would be futile.  The act of bankruptcy, while not altering the status of the debtor, may result in creditors, other than those who issued the bankruptcy notice, filing petitions before the Court.  To extend retrospectively the time for compliance with the bankruptcy notice would nullify the act of bankruptcy by giving the debtor another opportunity to comply with, or apply to set aside, the bankruptcy notice.  A failure by the debtor to comply with the bankruptcy notice results once and for all in the commission of an act of bankruptcy, but it nevertheless remains open to the debtor upon the hearing of a subsequent petition to adduce evidence seeking to persuade the Court, in the exercise of its discretion, not to make a sequestration order.

In addition to the jurisdictional question discussed above the present application raised a substantive point said to have been left open by the Full Court in Groom v Abela (1992) 37 FCR 277. That point was whether the debtor had to satisfy the Court of the existence of a counter-claim equal to or overtopping the amount payable to the judgment creditor under the judgment at the date of issue of the bankruptcy notice, or merely of a counter-claim at least equal to the balance due to the creditor at the time of the issue of the application to set aside the bankruptcy notice after taking account of the intervening realisation of a security held by the judgment creditor. However, having reached the conclusion which I did that there was no longer jurisdiction to set aside the bankruptcy notice or extend the time for compliance with it, I considered it unnecessary to resolve that substantive point.

It was for these reasons that, on 11 August 1997, I ordered that the application for review of the Registrar’s decision be dismissed with costs, save that in the event of a creditor’s petition being issued in reliance on the bankruptcy notice, the respondent’s costs of the present application should form part of the petitioning creditor’s costs of and incidental to that petition.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment of the Honourable Justice Ryan.

Associate:

Dated:            16 September 1997

Counsel for the Applicant:	Ms S Horivitz
Solicitors for the Applicant:	Goldsmiths
Counsel for the Respondent:	Mr J Nolan
Solicitors for the Respondent:	Lander & Rogers
Date of Hearing:	11 August 1997
Date of Judgment:	16 September 1997