Wallin and Anor. v MJB Building Services - [2001] FMCA 71

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WALLIN & ANOR. v MJB BUILDING SERVICES [2001] FMCA 71

BANKRUPTCY – application to set aside bankruptcy notice and for an extension of time – appeal, collateral proceedings and cross claim relied upon by applicant – application dismissed.

Bankruptcy Act 1966 (Cth), ss. 30, 41(6A) and 41(7)

Applicants:

GRAHAM CRAIG WALLIN

PAULA J WALLIN

Respondent:

MJB BUILDING SERVICES PTY LTD

File Nos:

SZ 249 of 2001

SZ 242 of 2001

Delivered on:

28 August 2001

Delivered at:

Newcastle

Hearing Date:

28 August 2001

Judgment of:

Driver FM

REPRESENTATION

Applicants in Person

Counsel for the Respondent:

Mr R Tregenza

Solicitors for the Respondent:

McNeil James Solicitors

ORDERS

That the applications be dismissed.
That the applicants are to pay the respondent’s costs pursuant to Rule 21.10 of the Federal Magistrates Court Rules
That an advocacy certificate be granted pursuant to Rule 21.15 of the Federal Magistrates Court Rules.

Note:Settlement and entry of these orders may be effected pursuant to Order 36 of the Federal Court Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT NEWCASTLE

SZ249 of 2001

SZ242 of 2001

GRAHAM CRAIG WALLIN
PAULA J WALLIN

Applicants

And

MJB BUILDING SERVICES PTY LTD

Respondent

REASONS FOR JUDGMENT

I have before me applications by PAULA J WALLIN and GRAHAM CRAIG WALLIN, seeking relief pursuant to ss. 30, 41(6A) and 41(7) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). The applications were heard together. Pursuant to leave granted by me previously, the applications have been amended and, as further elaborated today, they comprise two parts.
The first part is based on the proposition that this Court should go behind a judgment of the NSW Land and Environment Court. That is the judgment on which the bankruptcy notices are based, and which has been put in evidence in these proceedings as exhibit R5. That is the decision made by his Honour Lloyd J on 6 November 1997.
The second part is that the applicants claim to have a cross-claim or counterclaim of equal or greater value than the amount due under the bankruptcy notice served upon them which should cause the Court to set aside the bankruptcy notice.
In addition, the applicants seek further time to comply with the bankruptcy notice, both in the exercise of the Court's discretion under s.41(6A) and as a matter of course pursuant to s.41(7).
The Court can set aside invalid or substantially defective bankruptcy notices on proper grounds under s.30 and pursuant to a power implied from other sections of the Bankruptcy Act including, in particular, s. 41. The power of the Court to extend time for the compliance with the bankruptcy notices derived from 41(6A) and 7 carries with it the power to set aside the notices themselves. To set a notice aside, the party must be the person to whom the notice is directed and there is no doubt that in this case that is Mr and Mrs Wallin.
This Court has no general discretion under section 30 to otherwise set aside bankruptcy notices which are in valid form and which are not an abuse of process and in this case there is no issue as to the validity of the form of the bankruptcy notices, nor any issue of abuse of process. Neither is there any issue of service of the notices, other than the time of service.
In the absence of a defect in the notice or an abuse of process, the Court does not have discretion to set aside a notice on the basis that it is satisfied that the debtor is solvent and in this case I have no evidence of solvency or otherwise.
While there is no general discretion or principle of fairness to the debtor enabling the Court to set aside a notice, it can be set aside on grounds relating to the existence or validity of the judgment debt on which it is founded. Where grounds exist on which a bankruptcy notice might be set aside, the Court retains a discretion as to whether it should set the bankruptcy notice aside.
In relation to the first element of the application, which is the proposition that this Court should not rely on the judgment on which the bankruptcy notice is founded, the position is that the judgment of the Land and Environment Court is valid and effective until such time as it is set aside. It is apparent from what has proceeded before me today that there have been several attempts to set the judgment of the Land and Environment Court aside which to date have not been successful, but those attempts are continuing.
Nevertheless, I must be satisfied, if I am going to go behind the judgment of the Land and Environment Court, that there is cause to question either the validity of that judgment or the propriety of that judgment or for some other reason, such as the availability of fresh evidence, I should not simply rely on the validity of that judgment as supporting the bankruptcy notices. In addition, it should be borne in mind that the power to set aside the notices and the power to extend time for compliance with the notices are necessarily related, given that the inherent power to set aside is derived in part from section 41.
Therefore, matters relevant to the judgment on which the bankruptcy notices are based, including whether there exists grounds to go behind the judgment, are also relevant in considering the question of the extension of time. There are prerequisites in ss. 41(6A)(a) and (b) and, indeed, in s. 41(7) which must be met before those provisions can be brought into play in order to enable the Court to extend time for compliance with the bankruptcy notices.
The pre-requisites relate either to the application to set aside the bankruptcy notices, or for the purposes of s. 41(6A)(a) to any attempt to set aside the judgment establishing the debt or, for the purposes of s. 41(7) to a cross‑claim or a counter claim. Section 41(6A)(b) requires that the application to set aside the bankruptcy notice must have been filed before the time for compliance with the bankruptcy notice expired and in this case there is a dispute as to when that time expired.
The evidence for the respondents is that Mr Wallin was served on 23 April 2001 and that Mrs Wallin was served on 24 April 2001 and exhibits R1 and R2 go to that issue. That was also a matter deposed to by Mr Jones in his affidavit in relation to service upon Mr Wallin and it was also a matter dealt with in oral evidence by Stephen John Wheatland when he was examined earlier this afternoon.
Now, if that evidence is correct, then there is no doubt that the bankruptcy notices expired prior to the filing of the two applications in this Court and, therefore, I would have no discretion to extend time under section 41(6A)(b) of the Bankruptcy Act. Similarly, section 41(7) would not operate to extend time in relation to the cross-claim.
Mr and Mrs Wallin have deposed, in their affidavits, that they do not think that they were served until on or about 26 April 2001. However, it is apparent from their evidence given today that they are quite uncertain as to when they were served, whereas the persons who effected service are quite clear in their evidence as to when that service was effected. I find that the respondents' evidence is more accurate and reliable and that service was effected on Mr Wallin on 23 April 2001 and that service was effected on Mrs Wallin on 24 April 2001. In consequence, therefore, I must conclude that the time for compliance with the bankruptcy notices expired prior to the filing of their respective applications in this Court and, accordingly, I have no ability to extend time for compliance with those bankruptcy notices based upon those applications.
Mr and Mrs Wallin have commenced other proceedings, in the High Court and in the NSW Court of Appeal on 21 and 27 August 2001 seeking special leave to appeal from the decision of the Court of Appeal on 2 September 2001 and a re-opening of the appeal proceedings by the Court of Appeal. None of those proceedings were commenced before the time for compliance with the bankruptcy notices expired, and hence s.41(6A)(a) has no application.
That does not remove from me the power to set aside the bankruptcy notices to which I have started giving consideration and which I will now conclude. The principles to be applied where the question is whether a creditor’s petition should be adjourned or dismissed are not necessarily those which should guide the exercise of this court as to whether a bankruptcy notice should be set aside. The reason is that the commission of an act of bankruptcy is a different thing from the making of a sequestration order.
While a court may be ready to look behind a judgment which is subject to attack when considering a creditor's petition, the court will be less ready to look behind a judgment which is subject to attack on the hearing of a bankruptcy notice, because the consequence of a failure to deal with a bankruptcy is that an act of bankruptcy is committed. But the consequence of the issuing of a sequestration order is that the debtor is made bankrupt which is clearly a matter of a more serious order.
Considering then what there is before me which might lead me to look behind the judgment in issue here, it is apparent that the Land and Environment Court found against the applicants in these proceedings in quite strong terms. Lloyd J referred to the applicants as making a “shopping list” of allegations without providing any evidence to support them. Similarly, the judgment of the Court of Appeal was quite dismissive of the appeal to it against the decision of the Land and Environment Court. Proceedings in the High Court for special leave to appeal were dismissed by that court on 10 August 2001 although I note that Mr and Mrs Wallin dispute the extent to which those proceedings dealt with the totality of the proceedings in the Court of Appeal or the Land and Environment Court.
The willingness of the bankruptcy court to look behind the judgment which is sought to be impugned in the bankruptcy proceedings will decline as time passes and as more unsuccessful attempts are made to overturn those original proceedings. In this case it is apparent that there have been several opportunities put before the Wallins to deal with the decision with the Land and Environment Court and to date they have been wholly unsuccessful. They have also been unsuccessful in seeking a stay on the orders of that court, and the orders of the Court of Appeal.
Mr and Mrs Wallin have referred today to fresh evidence that they wish to put before the Court of Appeal, but the specific nature of that fresh evidence is somewhat illusive and I am not satisfied that Mr and Mrs Wallin are able to point to any fresh evidence which would convince the Court of Appeal to reopen the matter. Similarly, I have nothing before me that would convince me that there is any evidence of fraud before the Land and Environment Court or that for any other reason the decision of the Land and Environment Court is unsafe or that it should not be relied upon.
I must conclude that there is nothing before me which would cause me to believe that there is any proper basis for this Court to go behind the decision of the Land and Environment Court on which the bankruptcy notices are based.
The other element of the applications is the allegation that there is a cross‑claim against the creditor of equal or greater value than the amount due under the bankruptcy notices. As was alluded to earlier in these proceedings the immediate difficulty with the applicants' claim is that while damages proceedings have been taken against a large number of individuals, they have not to date been taken against the creditor in these proceedings.
Mr Wallin and Mrs Wallin have indicated their intention to amend their proceedings to join the creditor and that I think is an acknowledgment that their failure to do so to date has been an oversight on their part. However, nothing has been put before me today which would convince me that such a claim has any prospects of success or even if it did, that it would lead to a judgment in Mr and Mrs Wallin’s favour of an equal or greater amount than the amount due under the bankruptcy notice.
There also remains the issue of whether such a claim could have been set up in the original proceedings before the Land and Environment Court. While I am told that the Land and Environment Court does not have any common law jurisdiction, which would have been necessary for it to deal with the damages claims instituted by Mr and Mrs Wallin, it may have been possible for the whole of the proceedings to be removed to another court which would have had jurisdiction. I have heard no evidence on that point and I do not base my decision on that issue. I base it on the conclusions that damages proceedings against the creditor would have at best uncertain prospects of success and there is nothing before me to indicate that the litigation, if commenced, and if successful, would produce damages of equal or greater value than the amount due under the bankruptcy notices.
In all the circumstances therefore, I conclude that I must dismiss both applications before me and I will hear the parties on costs.
The orders that I will make are that the applications number SZ242 of 2001 and SZ249 of 2001 be dismissed and that in each application the applicants are to pay the costs of the respondents of and incidental to the proceedings, including any reserved costs in accordance with Rule 21(10) of the Federal Magistrate's Court Rules and for the purposes of Rule 21(15) I certify that it was reasonable for the respondents to employ an advocate in each proceedings.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 5 September 2001