Walter v Handberg - [2004] FMCA 210

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WALTER v HANDBERG

[2004] FMCA 210

BANKRUPTCY – Application to set aside bankruptcy notice – appeal against judgment – no basis for challenging judgment debt.

Bankruptcy Act 1966 (Cth), s.40(1)(g)

Wren v Mahony (1972) 126 CLR 212
Day and Dent Construction Pty Ltd (in liq) v North Australian Property's Pty Ltd (1982) 150 CLR 85
Liew v JNS Technologies (M) Sdn Bhd (1999) FCA 1428

Applicant:

CARMEN WALTER

Respondent:

GEOFFREY NIELS HANDBERG

File No:

MZ 400 of 2002

Delivered on:

15 April 2004

Delivered at:

Melbourne

Hearing date:

28 June 2002

Judgment of:

Phipps FM

REPRESENTATION

The Applicant appearing in person

Counsel for the Respondent:

Mr Galvin

Solicitors for the Respondent:

Baker & McKenzie

ORDERS

That the application be dismissed.
That the applicant pay the respondent's costs, including reserved costs, in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 400 of 2002

CARMEN WALTER

Applicant

And

GEOFFREY NIELS HANDBERG

Respondent

REASONS FOR JUDGMENT

Application is made to set aside a bankruptcy notice or for an extension of time in which to pay.
The respondent was appointed as receiver and manager of the land described in Certificate of Title Volume 10,289 Folio 289. The land was owned by the parents of the applicant. Palatinat Brewery Pty Ltd, according to the respondent, operated a brewery on the land, although the applicant says that the brewery was operated by trust. The respondent was appointed as receiver and manager of the land, the assets and undertaking of the company. Both appointments were made by National Australia Bank Ltd, that in relation to the land under a registered mortgage and in relation to Palatinat pursuant to a registered charge over the assets and undertaking of Palatinat.
The respondent sold the land by public auction and entered into an unconditional contract for the sale of the property. Prior to the auction the applicant lodged a caveat in the titles office claiming that the property was held on trust by the registered proprietor for the Walter family trust and the applicant pursuant to a constructive trust. It referred to breaches of constitution by NAB, and breaches of common-law rights.
Prior to the contract of sale being entered into, the applicant and the parents issued proceedings in the Supreme Court of Victoria seeking to restrain the respondent from selling the property and the assets of Palatinat. The applicant and the parents were unsuccessful in those proceedings.
The respondent took proceedings in the Supreme Court of Victoria against the applicant and the registrar of titles to have the caveat removed. The respondent was successful. An order was made for the removal of the caveat and the applicant was ordered to pay the respondent's costs. Subsequently those costs were taxed at $14,838.30. This is the judgment debt on which the bankruptcy notice is founded.
The applicant raises these issues:
a)the validity of the debt;
b)a counterclaim, set off or cross demand;
c)a claim that the debt has been satisfied;
d)extension of time in which to satisfy the bankruptcy notice.
There is no basis for disputing the validity of the debt. The position is different from that when a sequestration order is sought. The bankruptcy notice is based on the existence of a judgment debt. The making of a sequestration order is dependent upon the court being satisfied that the debtor owes the creditor a debt "in truth and reality" (Wren v Mahony (1972) 126 CLR 212, Barwick CJ at 342). That is the basis for a court sometimes undertaking an investigation which goes behind the judgment debt. Even if there was an argument for going behind the judgment debt it could not apply here. There is no debt behind the judgment debt. The judgement debt is an order for costs. The order itself creates the debt. If the order is valid the debt must be valid. The only way for disputing the validity of the order is the appeal process. It is not a matter where a court exercising bankruptcy jurisdiction has any role in investigating the correctness of the order made.
The applicant has filed a considerable volume of material alleging a counterclaim. What she asserts is that there were several businesses. She says that there was a family trust which carried on the brewery business. The family trust sold the product of the brewery business to the company which carried on the restaurant business and the hotel business. She was a director of the company. She was not a shareholder.
In describing the counterclaim, she refers to a counterclaim filed in proceedings brought in the Magistrates Court of Victoria. The respondent brought proceedings against the applicant's parents seeking recovery of a motor vehicle. The counterclaim was filed and subsequently struck out. Whatever the validity of the counterclaim the matters referred to in it cannot constitute a counterclaim which the applicant can raise in opposition to the bankruptcy notice. The matters raised are all claims made by the company, the applicant's parents or the trust which the applicant alleges exists. There is not the requisite mutuality between applicant and respondent (Day and Dent Construction Pty Ltd (in liq) v North Australian Property's Pty Ltd (1982) 150 CLR 85). More significantly, everything which is relied upon depends upon the invalidity of the appointment of the respondent as a receiver and manager either of the company or the land. These were issues in the proceedings in the Supreme Court. Subsection 40(1)(g) of the Bankruptcy Act 1966 (cth) which provides that to successfully challenge a bankruptcy notice on the basis of a counterclaim, set up or cross demand, it must be one which "she could not have set up in the action or proceeding in which the judgment or order was obtained". None of the matters which the applicant seeks to rely upon, even if they have any validity, meet this description.
The applicant alleges that the debt has been satisfied. She says that the costs have been paid out of the proceeds of sale of assets. That is a misconception. The fact that the applicant has had the costs and expenses paid as they have been does not affect the applicant's liability pursuant to the order. Then she alleges that the amount of $14,838.30 is totally unreasonable. That is not an issue that can be raised now. Costs have been assessed by the Taxing Master of the Supreme Court and set out in a court order.
At the time of the application an appeal against the decision in the Supreme Court of Victoria was pending. The applicant sought an extension of time for compliance with the bankruptcy notice until that appeal had been dealt with.
The relevant law was considered by Kenny J in the Liew v JNS Technologies (M) Sdn Bhd [1999] FCA 1428. She said:
“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 applicant 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.”
Applying this statement I would be inclined to refuse the application for extension of time. However, since the application was commenced the appeal has been heard and dismissed. There are no grounds for allowing an extension of time.
Accordingly, the application is dismissed. Having been unsuccessful, the applicant must pay the respondent costs.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Phipps FM

Associate: R.Campbell

Date: 15 April 2004