Wenkart, Thomas Richard v Abignano, Gennaro
[1998] FCA 1035
•28 AUGUST 1998
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY – whether bankruptcy notice should be set aside –judgment for monies owed to third party assigned to creditor – appeal against judgment by both debtor and creditor heard but judgment not yet delivered – if either appeal successful debt would be extinguished – whether rights conferred by the judgment are properly to be regarded as property and hence assignable where judgment conditioned on undertaking by third person– whether bankruptcy notice defective in form because it did not refer to the giving of the undertaking – whether Court may go behind the judgment upon which the bankruptcy notice is based – where judgment obtained after a contest in which the parties were represented and no allegation of fraud or abuse of process suggested.
BANKRUPTCY – whether time for compliance with the bankruptcy notice should be extended – manner in which the discretion ought to be exercised in the circumstances of the case.
CONTRACT – construction of terms of assignment – whether ambiguity should be resolved by giving effect to the obvious intentions of the parties ascertained by their language – whether agreement should be construed in the context in which it came into being
Bankruptcy Act 1966 (Cth) – ss 40(3)(d), 41
Wilkinson v Osborne (1915) 21 CLR 89 – cited
Emerson v Wreckair Pty Ltd (1991) 33 FCR 581 – cited
Bourke v Beneficial Finance Corporation Ltd (1994) 124 ALR 716 – cited
Corney v Brien (1951) 84 CLR 343 – cited
Wren v Mahony (1972) 126 CLR 212 – cited
Monroe Schneider Associates Inc v No 1 Raberem Pty Ltd (1992) 37 FCR 234 – cited
Re Seghabi; Ex parte GIO General Ltd (1994) 52 FCR 296 – cited
Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 –cited
Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570 – cited
Corumo Holdings Pty v C Itoh Ltd (1991) 24 NSWLR 370 – cited
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 – cited
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 – cited
Abigroup Limited v Abignano (1992) 39 FCR 74 – cited
Hilti (Australia) Pty Limited v Millard(Burchett J, unreported, 30 September 1997)
– referred to
Hepples v Federal Commissioner of Taxation (1990) 22 FCR 1 – referred to
Cummings v Claremont Petroleum NL (1995-6) 185 CLR 124 – referred to
R a Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 – cited
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 – cited
Blair v Curran (1939) 62 CLR 464 – referred to
James v Federal Commissioner of Taxation (1956) 93 CLR 631 –referred to
Re v Judgment Debtor [1908] 2 KB 474 – cited
Pillai v Comptroller of Income Tax [1970] AC 1124 – cited
Re Wimborne; Ex parte Debtor (1979) 24 ALR 494 – cited
Re Bryant; Ex parte Bryant v Commonwealth Bank of Australia (unreported, FCA, 4 May 1994) – cited
Re Baker; ex parte Baker v Staples (unreported, FCA, 4 September 1995) – considered
Re Geard; Ex parte Reid (unreported, FCA, 11 February 1994) – considered
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 – considered
THOMAS RICHARD WENKART v
GENNARO ABIGNANO AND ANOR
NG 7336 of 1998
HILL J
SYDNEY
28 AUGUST 1998
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 7336 of 1998
BETWEEN:
THOMAS RICHARD WENKART
ApplicantAND:
GENNARO ABIGNANO
First RespondentGENALLCO PTY LIMITED
Second RespondentJUDGE:
HILL J
DATE OF ORDER:
28 AUGUST 1998
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The application to set aside Bankruptcy Notice number NN 436/1998 be dismissed.
The time for compliance with the Bankruptcy Notice be extended until 30 days from the delivery of the judgment of the New South Wales Court of Appeal in appeal numbers 40673 of 1997 and 40718 of 1997.
There be no order as to costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 7336 of 1998
BETWEEN:
THOMAS RICHARD WENKART
ApplicantAND:
GENNARO ABIGNANO
First RespondentGENALLCO PTY LIMITED
Second RespondentJUDGE:
HILL J
DATE OF ORDER:
28 AUGUST 1998
WHERE MADE:
SYDNEY
REASONS FOR JUDGMENT
The applicant, Dr Wenkart, applies to the Court to set aside a Bankruptcy Notice dated 5 March 1998 and served upon him by the Respondents on the same day. In the alternative he seeks an order that the Court extend the time for compliance by him with that notice.
The Bankruptcy Notice the subject of the present proceedings is the second notice which the Respondents have served upon Dr Wenkart. The first was set aside by Branson J on the same day as the present Bankruptcy Notice was issued and served. An appeal from her Honour's judgment has been filed, but not heard. The first notice was in virtually identical form to the present notice. It was, however, set aside, not because of any defect in form but because her Honour was of the view that, as at the date of issue of the Bankruptcy Notice, the Respondents were not entitled to enforce a final judgment or order for the payment of money against Dr Wenkart. As will shortly be seen, this was because, in her Honour’s view, that requirement had not at the time of issue of the notice been fulfilled and would not be fulfilled until an undertaking was proffered to the Court by a Mr Pitman in accordance with the terms of an order made by Hunter J on which the Bankruptcy Notice before her Honour, and indeed that before me, was based. By the time the present Bankruptcy Notice was issued that requirement was fulfilled.
There were other matters which were the subject of submission to her Honour in support of the application to set aside the Bankruptcy Notice. In addition, as in the present case, an alternative application was made to her Honour to extend the time for compliance with the notice. These matters were not the subject of her Honour’s decision but arise now before me, in the context of the new Bankruptcy Notice which has been issued and served.
Much of the evidence which was before her Honour was also tendered before me, although the legal proceedings which continue to occupy the Courts as between the parties have continued and the evidence brought the detail of these proceedings up to date.
The Background to the Issue of the Bankruptcy Notice
The Bankruptcy Notice is stated to be based upon a judgment of $1,307,537.10 plus a claim for interest accrued from the date of judgment. That judgment (“the primary judgment”) was given by Hunter J of the Supreme Court of New South Wales in its Commercial Division on 29 September 1997. The proceedings in which it was given commenced, it would seem, as a claim by Sandtara Pty Limited, as plaintiff, being the landlord of certain premises against Abigroup Limited (“Abigroup”) for monies payable to the plaintiff under a guarantee which Abigroup had given to the plaintiff in respect, inter alia, of rent owing by the lessee of those premises, Cenrin Pty Limited, to the plaintiff. Cenrin Pty Limited apparently went into liquidation and the liquidator disclaimed the lease, leaving Abigroup liable to pay $1,307,537.10 to Sandtara.
However, there were then a series of cross claims. Abigroup claimed to be entitled to an indemnity in respect of monies it was liable to pay under the guarantee from the Respondents. That was the first cross claim in the proceedings. In turn the Respondents claimed to be entitled to an indemnity in similar amount from a Mr Pitman. That was the second cross claim in the proceedings. In turn Mr Pitman claimed to be entitled to an indemnity from Dr Wenkart. That was the third cross claim in the proceedings. The plaintiff and each of the cross claimants succeeded before Hunter J and orders for indemnification were made against each cross defendant. Each of those orders were orders in the relevant cross claim. That which affected Dr Wenkart directly was the order made in relation to the third cross claim. It was expressed as follows:
“10.THE COURT DECLARES that THOMAS RICHARD WENKART is liable to indemnify ALAN PITMAN in respect of his liability to indemnify GENNARO ABIGNANO under paragraph 6.
11.Upon the undertaking to the Court by ALAN PITMAN to pay to GENNARO ABIGNANO the amount of $1,307,537.10 without deduction therefrom, immediately upon payment of that amount by THOMAS RICHARD WENKART to ALAN PITMAN, and so long as he holds such sum or any part thereof to receive and hold the same on trust for GENNARO ABIGNANO, THE COURT ORDERS that THOMAS RICHARD WENKART pay ALAN PITMAN the amount of $1,307,537.10”
It may be observed that, although both the Respondents were obliged to indemnify Abigroup, Mr Pitman’s obligation in accordance with the judgment was only to indemnify Mr Abignano the first Respondent. Nothing, however, presently turns upon this.
On 10 December 1997 a deed of assignment was entered into by Mr Pitman and the Respondents. A copy of this deed accompanied the Bankruptcy Notice as did the orders made by Hunter J in the primary judgment.
The relevant provisions of that deed are as follows:
“1. RECITALS:
1.1In Supreme Court Proceedings Commercial Division Number 50057 of 1995 (“the Proceedings”) the Assignees have obtained judgment against Pitman in the amount of $1,307,537.10 plus interest and costs (“the Abignano Judgment”):
1.2In the Proceedings Pitman has obtained judgment against Thomas Richard Wenkart (“Wenkart”) in the sum of $1,307,537.10 plus interest and costs (“the Pitman Judgment”).
1.3Pitman has agreed to assign the benefit of the Pitman Judgment to the Assignees by way of partial distribution of his assets to a creditor in the form of the Assignees, in exchange for a release from the Assignees of the debt owing to them by Pitman.
2.ASSIGNMENT
2.1Pitman hereby assigns to the Assignees absolutely all of Pitman’s rights, title and interest in the Pitman Judgment and all interest accrued and to accrue thereon, and all rights and entitlements which Pitman has against Wenkart under the Pitman Judgment
2.2The Assignees accept the assignment of the Pitman Judgment, and in full satisfaction and discharge of the debt owing by Pitman to the Assignees under the Abignano Judgment, and hereby release Pitman from that debt.
3.COVENANTS
…
3.2.4Pitman shall do all acts and things, including without limitation the execution of all such further documents, as may be reasonably required by the Assignees to give effect to the assignment provided for in this deed.”
No reference is made in the deed to Mr Pitman giving an undertaking to the Court. Nor is there in the Bankruptcy Notice any reference to the undertaking having been given. However, it is common ground that it was in fact given in the course of court proceedings between the parties in which Dr Wenkart was a party and in circumstances where he was well aware of it.
Dr Wenkart lodged an appeal in the New South Wales Court of Appeal against the primary judgment claiming, inter alia, that the primary judge had erred in finding that he had given an oral indemnity. Although the Respondents did not dispute that they had given an oral indemnity to Abigroup they initially appealed against the quantum of damages awarded against them. A subsequent appeal by the Respondents was brought rather out of time claiming a failure to mitigate damages, which if successful would mean that they would not have been liable to indemnify Abigroup and, in consequence, Dr Wenkart would not have been liable to indemnify Mr Pitman. A portion of these appeals brought as of right together with applications for leave to appeal various interlocutory judgments was argued in March before the Court of Appeal and continued in the first week of June in this year. Judgment is presently reserved.
Four applications have been made by Dr Wenkart for a stay of the judgment in the primary proceedings. Two of these were made on the basis that the two Bankruptcy Notices to which I have referred had been issued. All of these applications failed, although at least in part because although a stay was ordered on at least one occasion by the Court of Appeal on condition that Dr Wenkart provide a bank guarantee in respect of the amount owing under the judgment he failed to comply with that condition.
In February of this year in interlocutory proceedings it became necessary, in formal reasons, for Hunter J to explain his orders. His reasons include the following passage which is quoted by Branson J in her Honour’s reasons as well:
“It is said that in the absence of the provision of the undertaking by Pitman, prior to the making of the orders, that the order in paragraph 11 for Wenkart to pay Pitman the subject sum was of no effect. I do not agree. In the light of the application I have no doubt that I would be more comfortable with having laid to rest at first instance the rights and obligations of the parties by taking formal undertakings at the time. However, I think the manner in which the matter was approached by me and by the parties at the time envisaged the provision of formal undertakings either then or at an appropriate time before or on payment of the subject judgment sum.
I reject that part of the application so far as it is based upon the proposition that the order in paragraph 11 is, for some reason, defective by reason of the absence prior to today of an undertaking in terms of paragraph 11, by Mr Pitman.
I think it follows from that finding that there is no occasion to interfere with any of the actions taken by or on behalf or through Pitman to enforce the order for payment as set out in paragraph 11 of the judgment.
…
In my view questions of retrospectivity do not arise. I treat the order made in paragraph 11 as operative and capable of enforcement from the time the order was made and, further, that steps could be taken under that order, short of payment being made by Wenkart of the judgment sum, without the proffering of the undertaking to the Court before or upon payment of that judgment sum.”
Branson J in her Honour’s judgment expressed difficulty in understanding his Honour’s comments. With respect, so do I. In any event, it seems to me safer to construe his Honour’s orders from the language used, not by reference to what his Honour may have intended to do, in the absence of any correction being made to the orders, for example, under the slip rule, in the event that the orders did not reflect what his Honour had intended.
The Applicant’s Submissions on Setting Aside the Notice
By force of s 41(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) a Bankruptcy Notice may be issued on the application of a creditor who has obtained against a debtor a final judgment or order of a specified kind (execution of which has not been stayed) and in excess of a specified amount ($2000). It is required to be in a form prescribed by the Regulations. However, by force of s 40(3)(d) a person who is for the time being entitled to enforce a final judgment or final order for the payment of money is deemed to be a creditor who has obtained a final judgment or final order. Had the Respondents not obtained the assignment of the judgment the Respondents would clearly have had no standing to issue a Bankruptcy Notice. However, they claim to have been entitled to do so as a result of the assignment at the time the Bankruptcy Notice issued. As already indicated, by that time the undertaking referred to in Order 11 had been given, so that (but for an argument advanced on behalf of Dr Wenkart) there would seem to be no impediment in any way to the Respondents as assignees, enforcing as against Dr Wenkart, what is clearly a final judgment or order made against him for the payment of money.
Counsel for Dr Wenkart submitted that the Respondents were not within s 40(3)(d) and so entitled to enforce the judgment for three reasons:
The assignment between Mr Pitman and Mr Abignano was ineffective either because at that time there was no effective judgment to assign or alternatively it was merely personal to Mr Pitman and incapable of assignment.
If an undertaking given subsequent to the assignment affected the matter the undertaking of Mr Pitman was in any event ineffective – such an undertaking could only be given by Mr Abignano and was not.
The legal effect of the assignment was that Mr Pitman ceased, as at 19 December 1997 to have any liability to Mr Abignano. This had the effect also of releasing Dr Wenkart’s liability to pay any money to Mr Pitman or through him to Mr Abignano.
There was a separate submission, not foreshadowed in any material filed on behalf of Dr Wenkart, that the Bankruptcy Notice was defective in form because it did not refer to the giving of an undertaking by Mr Abignano which, it was more or less conceded, required leave in order that it be argued.
I shall deal with each of these submissions separately.
Was the Assignment Ineffective?
Before addressing this submission I should mention that the Applicant’s written submissions and indeed oral submissions sought to rely upon the proposition that in an application to set aside a Bankruptcy Notice the Court may go behind the judgment upon which the Bankruptcy Notice is based to see if there is a “true debt”, or as is often said to see whether there is a real consideration for the debt. It was said that this was what the Applicant was seeking to ask the Court to do.
It may readily be accepted that a Court in bankruptcy may go behind a judgment debt as suggested: Wren v Mahony (1972) 126 CLR 212 at 224. Although the usual case for this will be where the judgment relied upon is a default judgment there are occasions where the Court may go behind a judgment, even where the parties have been represented and the proceedings contested: see, eg Wilkinson v Osborne (1915) 21 CLR 89; cf. Emerson v Wreckair Pty Ltd (1991) 33 FCR 581. However the circumstances where this would occur are rare. The most obvious example is where the judgment was brought about by fraud: Bourke v Beneficial Finance Corporation Ltd (1994) 124 ALR 716 at 724; Corney v Brien (1951) 84 CLR 343 at 347; Wren v Mahony (1972) 126 CLR 212 at 223; Monroe Schneider Associates Inc v No 1 Raberem Pty Ltd (1992) 37 FCR 234 at 237ff; Re Seghabi; Ex parte GIO General Ltd (1994) 52 FCR 296 at 300. There is no suggestion here but that the judgment obtained in the third cross claim against Dr Wenkart was obtained after a contest in which the parties were represented and in which there could be no reason why the Court should exercise a discretion to go behind the judgment.
In fact, counsel for Dr Wenkart does not really seek to go behind the judgment at all for any purpose of his submission. He takes the judgment as it stands, but seeks to conclude from it that it was not assignable, or at least that as a result of the purported assignment the Respondents have no right to enforce payment of it.
The assignment does not really purport to be of the benefit of a judicial declaration (ie. of the benefits of clause 10), so it is unnecessary to consider what the consequences of that would be seeing that a judicial declaration does not, in form, constitute an order for the payment of money: see Abigroup Limited v Abignano (1992) 39 FCR 74 at 78ff. Rather, it is clear that it purported to be an assignment of the Pitman judgment defined in the recital as being a judgment against Dr Wenkart in the sum of $1,307,537.10.
I think that it is clear that the judgment, while in form conditioned upon the giving of an undertaking by Mr Pitman, was an effective judgment from the time it was made, or at least entered. In so saying I have no need to rely upon what Hunter J expressed to be his intention, but rather the language of the judgment itself. By force of s 96 of the Supreme Court Act 1970 (NSW) it is in form a judgment or order for the payment of money and so has the effect of a judgment at law. A judgment will take effect if given in Court on the date it was given, otherwise on the date it was entered, ie. the next day. An order takes effect on the day it is made: Pt 40 r 3 of the Supreme Court Rules 1970. It could not be argued that there was no judgment or order unless and until an undertaking was given by Mr Pitman.
Despite what was said by Hunter J, I would agree with Branson J that it could not be said that the order to pay Mr Pitman bound Dr Wenkart to make a payment until Mr Pitman in fact gave an undertaking. However willing Mr Pitman may have been, willingness to give an undertaking to the court and the actual giving of an undertaking are different things. But it does not follow from that that the benefit of the judgment was incapable of assignment between the day it was made or the orders given as the case may be and the date the undertaking was in fact given by Mr Pitman.
Although there are some rights that are personal and not assignable, the categories of rights which constitute assignable property is not as limited as counsel for Dr Wenkart suggests. Although the question of what may, or may not, constitute “property” is a question the answer to which may vary from context to context (cf the judgment of Gummow J in this Court in Hepples v Federal Commissioner of Taxation (1990) 22 FCR 1 at 24ff in the context of capital gains tax with the judgment of the majority of the High Court in Cummings v Claremont Petroleum NL (1995-6) 185 CLR 124 at 132ff per Brennan CJ, Gaudron and McHugh JJ) the generally accepted view of what property is is to be found in the judgment of Mason J, as his Honour then was, in R a Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342-3 where, quoting a dictum of Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1247-8 his Honour said:
“Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.”
Assignability can not, of itself, as his Honour thereafter points out, be an essential characteristic of a right of property, since some forms of property may be expressed to be non assignable – eg. a lease.
The rights conferred by the judgment are, in my view, properly to be regarded as property and there is no reason why they could not be assigned within the test propounded in Toohey.
If I were wrong on this it would not matter. If for some reason no item of property came into existence until the undertaking was given all that would mean is that the purported assignment (being clearly for consideration) would operate in equity as an agreement to assign and once the property came into existence, ie on the giving of the undertaking it would seize upon the property and operate then as an effective assignment: Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1.
At the very least the assignment was effective once the undertaking was given. That was before the Bankruptcy Notice was issued, so that as at the time the Bankruptcy Notice issued, subject to the next submission, the assignee was entitled in law to enforce the judgment.
Whose Undertaking was Required?
A question could be raised whether Mr Pitman could be required under the terms of Cause 2.2.4 of the assignment to give the undertaking or whether there should be implied a term that he would do so. Nothing turns upon that. The submission that in some way the undertaking could be given by Mr Abignano is without any merit. The terms of the order are clear. The undertaking referred to is one that could only be given by Mr Pitman. As indeed it was.
The Effect of the Release
To the extent that there is any ambiguity in the deed of assignment, and in my view there is not, it would be appropriate to resolve that ambiguity in a way that effectuated what the obvious intention of the parties to be ascertained from their language was, rather than to adopt a construction that was capricious: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109-110 per Gibbs J as his Honour then was. It is also appropriate to construe the agreement in the context in which it came into being: Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570; Corumo Holdings Pty v C Itoh Ltd (1991) 24 NSWLR 370 at 380; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 353
In the present circumstances the language of the document is clear enough. Pitman assigns his rights against Dr Wenkart. In return he is to be released from his obligation to pay Mr Abignano. There is no suggestion that the result of this is that Mr Abignano releases Dr Wenkart. This curious suggestion is said to arise from the fact that Dr Wenkart is obliged to indemnify Mr Pitman in the underlying transaction and once Mr Pitman is released from the obligation to pay Mr Abignano, so there falls away the obligation of Dr Wenkart to indemnify Mr Pitman.
What the submission fails to take account of is that a consequence of a judgment for a money sum, is that the underlying basis of the debt merges in the judgment. What is enforced is not the underlying liability but the judgment itself: cf Blair v Curran (1939) 62 CLR 464 at 532.
There could be no more capricious suggestion than that the assignment disclosed an intention on the part of Mr Abignano, who had an obligation to pay further up the chain, that the assignment to him of Dr Wenkart’s obligation to pay Mr Pitman should operate to bring about the result that Mr Abignano while retaining his obligation to pay the requisite $1,307,537.10 under a judgment against himself, in essence intended to give up any obligation to secure payment to himself. If the terms of the assignment had this result as a matter of law, or evinced an intention to this effect, the argument might have more substance that it does. But this is not the case.
Was there a Deficiency in the Form of the Bankruptcy Notice?
There is substantial doubt whether the Applicant should be allowed at all to raise this matter at such a late stage. Counsel for Dr Wenkart freely admitted that it had not been raised because it was only a matter which had come to his attention on the morning of the hearing. Indeed, it did not form part of his written submissions.
However, I have come to the view that because the matter involves no factual issue and because it is hard to see any prejudice to the Respondents in dealing with the submission, it is appropriate that leave be given to Dr Wenkart to raise the point.
The simple point is that although the Bankruptcy Notice in claiming payment of the debt referred to and attached both the judgment and the Deed of Assignment, it did not refer to the giving of the undertaking which was, on any view, a necessary ingredient in establishing the title of the Respondents to have issued a valid bankruptcy notice.
A bankruptcy notice is required to be in the form prescribed in the Bankruptcy Regulations: s 41(2) of the Bankruptcy Act. The requirement is by the terms of the section, mandatory not merely prescriptive. Failure to comply with a requirement made essential by the Act will lead to the notice being set aside as a nullity, see eg. James v Federal Commissioner of Taxation (1956) 93 CLR 631; Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 79. Regulation 4.02 prescribes the form – Form 1. That form, on its face, assumes that the person claiming to be owed money is the person entitled to enforce the judgment on which the notice is based. It makes no provision explicitly for a case, such as the present, where the person entitled to enforce the judgment is not a party to the judgment but takes by assignment. Although arguably this may be assumed cf Hilti (Australia) Pty Limited v Millard (Burchett J, unreported, 30 September 1997).
A judgment debtor with notice of the assignment which operates as an assignment at law of the chose in action constituted by the judgment debt would be unlikely to be misled if the fact of notice was omitted from the bankruptcy notice although the deed of assignment was referred to and attached. That is not to say that it is undesirable in a notice issued at the instance of an assignee to state both the fact of assignment and of notice. That question need not detain us because it is not suggested that the exclusion of the circumstance of notice of assignment rendered the notice ineffective.
There is nothing in the present notice which refers to the giving of the undertaking referred to in the judgment. The form of bankruptcy notice does not pretend to deal with that circumstance either. A notice which is likely to mislead or even perplex a person in the circumstances of the debtor will generally, perhaps invariably, be set aside and it will be immaterial that the particular debtor may not have been misled: Re v Judgment Debtor [1908] 2 KB 474 at 481. The case law is replete with examples. It is unnecessary to do more than cite two: Pillai v Comptroller of Income Tax [1970] AC 1124; Re Wimborne; Ex parte Debtor (1979) 24 ALR 494 and Kleinwort Benson supra.
It can hardly be suggested, in the present case, if the failure to refer to the giving of the undertaking results in some failure to comply with the relevant form, that a debtor in the circumstances of Dr Wenkart could possibly be misled, perplexed or in any way in doubt about the matter. Dr Wenkart was perfectly aware that Mr Pitman had given an undertaking – indeed it was given in litigation in which he was a party. It was not suggested that there could possibly be confusion other than that the matter is not referred to specifically in the Bankruptcy Notice.
If, therefore, I was of the view that failure to refer to the undertaking operated in some way to make the notice misleading, perplexing etc, and I am not, then the present is certainly the case where there is no more than a formal defect to which s 306 applies and which can be remedied by order of the Court. The present is not a case where the form of notice strayed from the requirements of Regulation 4.02 or Form 1 where a different result might follow.
Extension of Time for Compliance
The Court has undoubted power to extend the time for compliance with a Bankruptcy Notice by force of s 41(6) of the Act, but subject to s 41(6C). There is no suggestion in the present case that the appeal against the judgment and orders of Hunter J was other than instituted bona fide or was not being prosecuted with due diligence. Indeed it was conceded by counsel for the Respondents that there were issues in the appeal (and for that matter the appeal which the Respondents had brought against their own liability to indemnify Sandtara Pty Limited) which could not be said to be trivial. An appeal from the judgment relied upon is properly to be regarded as proceedings to set aside the judgment or order: Re Bryant; Ex parte Bryant v Commonwealth Bank of Australia (unreported, FCA, 4 May 1994). It is not suggested otherwise.
Whether or not the power to extend time be exercised depends upon discretionary considerations. There seems to be some dispute (although the dispute could be said to be more apparent and real and turn upon factual difference) in the Court as to the manner that discretion ought to be exercised. At the one extreme are to be found comments by Kiefel J in Re Baker; ex parte Baker v Staples (unreported, FCA, 4 September 1995), to the effect that where there is a genuine and arguable appeal it is ordinarily desirable, having regard to the consequences of bankruptcy to extend the time for compliance. At the other end of the spectrum is a judgment of Sheppard J in Re Geard; Ex parte Reid (unreported, FCA, 11 February 1994), in which his Honour suggested that where a judgment debtor had made no application for a stay of the judgment it would require special circumstances before the extension of time should be granted. In between is the view expressed by Lehane J in Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 that like all discretions the discretion to extend the time for compliance should be exercised having regard to all relevant factors including both the impact upon the debtor of what constitutes a change of status if an act of bankruptcy occurs and the impact upon creditors. I must say that, with respect, I prefer the approach suggested by Lehane J to either of the other approaches to the extent that they intended to suggest some general principle.
Although there was some attempt to adduce evidence of transcripts of examination of Dr Wenkart in the Supreme Court (objected to as irrelevant by his counsel) as suggesting that there was a possibility that the timing of the act of bankruptcy was of some relevance in the present case, with respect that evidence goes no way at all in suggesting any attempts by Dr Wenkart to dispose of assets. I would accept, of course, that it will always be a consequence of extending the time for compliance with a Bankruptcy Notice that the time at which an act of bankruptcy may be committed will be affected. Of course a suggestion that a debtor is in the course of disposing assets would be relevant to the exercise of discretion, but that suggestion is not established by the transcripts which accordingly I would reject as irrelevant.
A strong argument against the exercise of discretion is that Dr Wenkart had four times sought a stay of the judgment, at least once related to the present Bankruptcy Notice and that stay had been rejected, at least after failure to comply with conditions. Had there been no other special factor in the present case I would have been inclined not to exercise the discretion. I would have done so notwithstanding that the legislative purpose behind the Court being able to grant an extension of time is to ameliorate the rule that except in exceptional cases such as fraud, the court would be disinclined to go behind a judgment of a court which has been obtained after full argument of the merits.
The special feature of this case is one arising wholly out of the factual circumstances to which the chain of indemnities has given rise. The Respondents have themselves appealed against their obligation to indemnify Sandtara Pty Ltd. They say, not surprisingly, that they have good grounds so to do. If they were to be successful it would follow that the judgment obtained against Dr Wenkart would have to be set aside since it was given only in the circumstances that the Respondents were required to indemnify Sandtara Pty Ltd. Not only has Dr Wenkart himself an appeal involving issues which are at least arguable but so too do the Respondents in circumstances where the judgment against Dr Wenkart would go if they were successful.
The above matter is of course but one matter. I have no evidence before me as to Dr Wenkart’s assets. I take into account the impact of an act of bankruptcy upon him; I take into account the fact that no stay has been granted, although sought. I take into account that the fact that the stay was not given was related to the fact that Dr Wenkart did not comply with a condition of the stay, to pay the sum required. I take into account the fact that the extension of time would result in a later relation back date in the bankruptcy, assuming no other act of bankruptcy were committed by Dr Wenkart and also I take into account the circumstances of Dr Wenkart’s own appeal and that of the Respondents.
Two months or more have now elapsed since the appeals were heard in the Court of Appeal. It can hardly be expected that a judgment will be a long time in coming, or that the extension of time for compliance will itself be long. In the circumstances I would, while dismissing the application to set aside the notice, extend the time for compliance with it until 30 days from the delivery of the judgment of the New South Wales Court of Appeal on both Dr Wenkart’s appeal and that of the Respondents.
As both sides have had some success it seems to me that the appropriate order is that there be no order as to costs.
I have set the 30 day period to take into account the possibility of further court proceedings, such as an application for special leave to the High Court, although it should not be thought that in so saying I would be of the view that a further extension should be granted should both the Respondents in their appeal and Dr Wenkart in his, be unsuccessful.
I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill
Associate:
Dated: August 1998
Counsel for the Applicant: Mr R Harper Solicitor for the Applicant: Solomon Garland Partners Counsel for the Respondent: Mr W Muddle Solicitor for the Respondent: Bruce & Stewart Date of Hearing: 20 August 1998 Date of Judgment: 28 August 1998
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