Limitation ground
36 Ground 1 of the proposed notice of appeal, as amended, is as follows:
The [judgment] debt dated 28 August 2015 was statutorily barred on 28 August 2021, being 6 years old on that day pursuant to s 9 of the Bankruptcy Act 1966 (Cth) and pursuant to s 13 of the Limitation Act 2005 (WA), based on these legislative provisions thus the decision: CTI Logistics Ltd v Ogbonna [2022] FedCFamC2G 781 delivered on 20 September 2022, was invalid given the [judgment] debt dated was more than six years old and statute barred when the Creditor's Petition was filed on 17 May 2022.
37 Section 9 of the Bankruptcy Act provides that the Act does not affect a law of a State relating to matters not dealt with expressly or by necessary implication in the Act. Section 13(1) of the Limitation Act (WA) provides that: 'An action on any cause of action cannot be commenced if 6 years have elapsed since the cause of action accrued.' The term 'action' is defined in s 3(1) of the Limitation Act (WA) to mean, relevantly, 'any civil proceeding in a court, whether the claim that is the subject of the proceeding or relief sought is under a written law, at common law, in equity or otherwise'.
38 The applicant submits, in substance, that the proceedings in the FCFCOA (Div 2) commenced by the proposed respondents' presentation (filing) of their creditors' petition was '[a]n action on [a] cause of action' and, as such, was statute-barred by operation of s 13(1) of the Limitation Act (WA) because it was commenced on 17 May 2022 which was more than six years after the FCC order was made on 28 August 2015. The applicant also submits that, as an action on the FCC judgment debt was statute-barred at the date of presentation of the petition, there was no debt owing to the petitioning creditors that was payable immediately or at a certain future time for the purposes of s 44(1) of the Bankruptcy Act. As a consequence, the applicant submits the primary judge made an error in failing to dismiss the proceedings below on the ground that those proceedings were commenced outside the limitation period and (or) on the ground that the creditors' petition could not be presented against the applicant (as debtor) because there was no debt owing and payable at that time.
39 The primary judge set out the applicant's three grounds of opposition to the creditors' petition (PJ [34]). None of those grounds raise a limitation defence to the proceedings as a whole or to the existence of a debt for the purposes of s 44(1) of the Bankruptcy Act.
40 However, the primary judge records that the applicant raised the expiry of the limitation period as a ground for contending that there was 'substantial injustice' and, therefore, the primary judge should consider that a defect in the proceedings (that not all facts in the creditors' petition had been verified by affidavit) rendered the proceedings invalid. The applicant contended that substantial injustice resulted because the FCC judgment debt was statute-barred and could not then be the subject of a fresh bankruptcy notice. The primary judge did not consider substantial injustice to arise from that matter because the expiry of the limitation period was primarily due to the conduct of the applicant (PJ [49]).
41 The primary judge also records that the applicant raised the expiry of the limitation period as a ground for contending that the primary judge should have been satisfied that there was other sufficient cause as to why a sequestration order ought not be made for the purposes of s 52(2)(b) of the Bankruptcy Act. The primary judge said that submission 'would be of compelling weight, if that delay were not due, in large part, on the evidence before the Court, to the conduct of [the applicant]' (PJ [64]).
42 The alleged error that the applicant proposes raising in ground 1 of the proposed notice of appeal is not an argument (defence) that he had raised before the primary judge. Therefore, if leave were granted for him to institute an appeal he would require leave of the Court to raise a 'new point' in that appeal. Accordingly, an aspect of considering if proposed ground 1 is 'reasonably arguable' requires consideration of the question of whether the Court would or should permit him to raise proposed ground 1 in an appeal.
43 The principles applicable to the circumstances in which an appellate court will permit an appellant to raise a 'new point' in an appeal are well established. These were recently summarised in Frigger v Trenfield (No 3) [2023] FCAFC 49 at [133]-[170]. The points that would be raised in ground 1 of the proposed notice of appeal are legal points that could not have been met with evidence below. Therefore, the question of whether an appellate court would grant the applicant leave to raise ground 1 turns largely on the merits of those points and whether they have sufficient merit to warrant the grant of leave. That is substantially the same question that arises as to whether the proposed appeal is a vexatious proceeding. Accordingly, if ground 1 of the proposed notice of appeal has sufficient merit to warrant the grant of leave to institute an appeal that leave should be granted as it would have sufficient merit to make it reasonably arguable that the Court would grant the applicant leave to raise that new point in the appeal.
44 The FCC order was pronounced on 28 August 2015. The creditors' petition was presented on 17 May 2022. That was more than six years after the cause of action for the FCC judgment debt accrued. Therefore, an action on that FCC judgment debt was statute-barred at the time of presentation of the petition. There is no jurisdiction (power) to make a sequestration order under s 43 unless at the time of presentation of the creditor's petition 'there is owing by the debtor to the petitioning creditors a debt': s 44(1)(a) of the Bankruptcy Act.
45 Proposed ground 1 and the circumstances of this case raise three principal questions for consideration:
(a) Are bankruptcy proceedings commenced by a creditor's petition an 'action' that is statute-barred for the purposes of s 13(1) of the Limitation Act (WA)? If so, the applicant had a defence to the proceedings for the sequestration order.
(b) Is a statute-barred debt a debt owing for the purposes of s 44(1)(a)? If not, the FCC judgment debt could not have supported the sequestration order.
(c) Notwithstanding the answer to (b), if the judgment creditor is able to execute on the judgment, is there a debt owing for the purposes of s 44(1)(a)? If not, the FCC judgment debt could not have been supported by the sequestration order.
46 In O'Mara Constructions a Full Court (Heerey, Dowsett and Conti JJ) considered these questions in the context of the interaction between s 17(1) of the Limitation Act 1969 (NSW) and s 43 and s 44 of the Bankruptcy Act.
47 Section 17(1) of the Limitation Act (NSW) provided:
(1) An action on a cause of action on a judgment is not maintainable if brought after the expiration of a limitation period of twelve years running from the date on which the judgment first becomes enforceable by the plaintiff or by a person through whom the plaintiff claims.
48 Section 43 of the Bankruptcy Act provided (at the relevant time and as of 17 May 2022) that where a debtor has committed an act of bankruptcy, the Court may 'on a petition presented by a creditor, make a sequestration order against the estate of the debtor'. At the relevant time s 44(1) of the Bankruptcy Act was in materially the same terms as it was as on 17 May 2022. As of 17 May 2022, it provided:
44 Conditions on which creditor may petition
(1) A creditor's petition shall not be presented against a debtor unless:
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to the statutory minimum or 2 or more debts that amount in the aggregate to the statutory minimum, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to the statutory minimum;
(b) that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
49 The relevant facts in O'Mara Constructions were as follows. On 21 February 1992 O'Mara Constructions obtained judgment in the Supreme Court of New South Wales against Avery for $147,899.60. On 18 August 2003 the Supreme Court of New South Wales gave O'Mara Constructions leave to enforce its judgment by issue of a writ of execution to be lodged in the registry by 1 September 2003. A further order was made on 10 November 2003 again giving leave to enforce the judgment by a writ of execution. On 12 November 2003 a bankruptcy notice was issued for $125,270.79 being the remaining amount of that judgment sum then due. The bankruptcy notice was not served until 12 March 2004. An application was made to set aside the bankruptcy notice on 21 April 2004 which was dismissed on 27 July 2004. The creditor's petition was presented on 3 September 2004. The petition was heard on 31 May 2005. While there was no evidence as to the outcome of O'Mara Constructions' orders for leave to enforce its judgment, the proceedings were conducted on the basis that O'Mara Constructions was, at the date of presentation of the petition, at liberty to enforce the judgment by issue of a writ of execution.
50 On 5 July 2005 a federal magistrate dismissed the petition on two grounds. First, the presentation of the creditor's petition in bankruptcy was an action on a cause of action on a judgment within the meaning of s 17(1) of the Limitation Act (NSW) and was statute-barred. Second, the judgment debt was also statute-barred by operation of s 17(1) and, as a consequence, O'Mara Constructions was not a 'creditor' entitled to present the creditor's petition pursuant to s 43 and s 44 of the Bankruptcy Act. O'Mara Constructions successfully appealed from the federal magistrate's order dismissing its petition and the Court made a sequestration order in lieu thereof. The Court's reasons for allowing the appeal may be summarised as follows.
(1) While a proceeding commenced by petition seeking sequestration is an 'action' within the meaning of s 17(1) of the Limitation Act (NSW), an insolvency proceeding is not an action on a cause of action on a judgment for the purposes of that section: O'Mara Constructions at [38]-[40].
(2) A debt that is statute-barred is not provable in bankruptcy and cannot ground the presentation of a petition of the creditor for the purposes of s 44(1) of the Bankruptcy Act. Also, a statute-barred debt is unenforceable against a trustee in bankruptcy. The date for determination of whether a debt is statute-barred is the date of presentation of the petition: O'Mara Constructions at [19]-[25], citing Motor Terms Co Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177 at 180; Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332.
(3) Section 17(1) of the Limitation Act (NSW) did not bar execution upon a judgment, at least where execution is effectively an extension of the original proceedings in the court in which the judgment was obtained: O'Mara Constructions at [11], [16] (citing WT Lamb & Sons v Rider [1948] 2 KB 331 at 337-338 and Lowsley v Forbes [1999] 1 AC 329).
(4) Further, to the extent that a creditor is able to execute on a judgment at the date of presentation of a petition, that creditor remains a creditor able to prove in the bankruptcy and able to petition for a sequestration order for the purposes of s 43 and s 44 of the Bankruptcy Act: O'Mara Constructions at [33]-[37], [58].
(5) The intention of the Bankruptcy Act that, in the event of insolvency, a judgment creditor's right to execute be subjugated to the rights of creditors generally, and that the former participate in the administration as an unsecured creditor, is inconsistent with any application of s 17(1) of the Limitation Act (NSW) which would limit the right of such a creditor to petition. In the event of a sequestration order, the Bankruptcy Act would override the creditor's right to execute: O'Mara Constructions at [58].
51 While O'Mara Constructions is distinguishable in that it is only authority for these propositions as they relate to s 17(1) of the Limitation Act (NSW) it is highly persuasive authority given the similarity between the text of s 17(1) of the Limitation Act (NSW) and s 13(1) of the Limitation Act (WA). It is not reasonably arguable that this Court would approach the construction of s 13(1) of the Limitation Act (WA) differently to the manner in which s 17(1) of the Limitation Act (NSW) was approached in O'Mara Constructions and conclude that the proposed respondents' bankruptcy proceeding against the applicant was an 'action on any cause of action' for the purposes of s 13(1). It follows that it is not reasonably arguable that the proceedings on the creditors' petition in the FCFCOA (Div 2) was 'statute-barred' by operation of s 13(1) of the Limitation Act (WA).
52 On an application of this nature I am prepared to assume, without deciding, that the proposed respondents have a cause of action in debt for the judgment debt. That is, an action in debt could be brought for non-payment of the judgment debt in the same way that an action may be brought in debt on a foreign judgment on the basis of an implied promise to pay the debt or on the basis of a common law cause of action: see, e.g., Dennehy v Reasonable Endeavours Pty Ltd [2003] FCAFC 158; (2003) 130 FCR 494 at [8]-[10] where Finkelstein J (Madgwick and Dowsett JJ agreeing) explains that there are three general categories of action on a judgment. I am also prepared to assume that the cause of action in debt on the FCC judgment debt accrued no later than the date of the FCC order (28 August 2015). Therefore, it is reasonably arguable that any action in debt on the FCC judgment debt was statute-barred by operation of s 13(1) of the Limitation Act (WA) before the creditors' petition was filed and before the sequestration orders were made.
53 It follows that it is reasonably arguable that a claim for the FCC judgment debt was not a debt provable in the bankruptcy and could not correctly ground a sequestration order. However, that does not necessarily mean that it is reasonably arguable that proposed ground 1 of the proposed appeal will succeed. It must also be reasonably arguable that the FCC judgment debt was not 'payable' in the sense that payment of that judgment could not be extracted by execution: O'Mara Constructions at [37].
54 The proposed respondents submit that it is not reasonably arguable that they were not able to execute on the FCC order because s 13(1) of the Limitation Act (WA) is not relevant to enforcement of judgments and, at all material times, they were entitled to enforce the FCC order by operation of the applicable provisions of the legislation and rules governing enforcement of judgments and orders of the Federal Circuit Court.
55 The proposed respondents submit that they were entitled to enforce the FCC order between the date of that order (28 August 2015) and the date the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFCOA Act) came into force (1 September 2021) by operation of s 78 of the Federal Circuit Court of Australia Act 1999 (Cth) (FCCA Act) and Pt 29 of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules). Neither that Act nor those Rules, so the proposed respondents submit, made provision for any limit on the time within which a judgment of the Federal Circuit Court may be enforced.
56 The proposed respondents submit, in substance, that nothing changed after the FCFCOA Act came into force. The effect of that Act was that the Federal Circuit Court continued in existence and became the FCFCOA (Div 2): s 8(2) FCFCOA Act. Judgments of that court may be enforced by operation of s 213 of the FCFCOA Act and Pt 25 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (FCFCOA (Div 2) Rules). Section 18 of Sch 5 of the Federal Circuit and Family Court of Australia (Consequential Amendments and Transitional Provisions) Act 2021 (Cth) (FCFCOA Act Transitional Provisions) provides that the amendments do not affect the validity of anything done before the amendments were made. Therefore, so the proposed respondents submit, the FCC order continues, in effect, as an order of the FCFCOA (Div 2) and is enforceable as an order of that court and was so enforceable at the date of presentation of their creditors' petition and the date of the sequestration order.
57 Section 213 of the FCFCOA Act relevantly provides:
213 Enforcement of judgment
…
(2) A person in whose favour a judgment of the Federal Circuit and Family Court of Australia (Division 2) is given is entitled to the same remedies for enforcement of the judgment in a State or Territory, by execution or otherwise, as are allowed in like cases by the laws of that State or Territory to persons in whose favour a judgment of the Supreme Court of that State or Territory is given.
(3) Subsection (2) has effect subject to the Rules of Court.
…
Section 78 of the FCCA Act was in materially the same terms.
58 Rule 25.11 of the FCFCOA (Div 2) Rules provides:
25.11 Execution generally
(1) A party may apply to the Court to issue a writ, order or any other means of enforcement of a judgment or order that can be issued or taken in the Supreme Court of the State or Territory in which the judgment or order was made, as if it were a judgment or order of that Supreme Court.
(2) An order made under subrule (1) authorises the Sheriff, when executing the orders of the Court, to act in the same manner as a similar officer of the Supreme Court of the State or Territory in which the order is being executed is entitled to act.
(3) A party who wants to enforce an order in more than one State or Territory may adopt the procedures and forms of process of the Supreme Court of the State or Territory in which the judgment or order was made.
(Notes excluded.)
Rule 29.11 of the FCC Rules was in materially the same terms.
59 Section 8 of the Federal Circuit and Family Court of Australia (Consequential Amendments and Transitional Provisions) Rules 2021 (Cth) provides, in effect, that a proceeding that was in the Federal Circuit Court before 1 September 2021 that had not been determined before that day is taken, for the purposes of the FCFCOA Act, to be a proceeding in the FCFCOA (Div 2) after that day. As the FCC order concluded the FCC proceedings it could not be taken to have been a proceeding in the FCFCOA (Div 2) after 1 September 2021. Further, as no application to enforce the FCC order had been made under r 29.11 of the FCC Rules, there was no other proceeding on foot in the Federal Circuit Court as of 1 September 2021. Therefore, there were no relevant proceedings in the Federal Circuit Court before 1 September 2021 that continued after that date as a proceeding in the FCFCOA (Div 2) to which the new rules of that Court, including r 25.11, directly applied.
60 Nonetheless, I accept the proposed respondents' submission that the effect of s 8(2) of the FCFCOA Act and s 18 of Sch 5 of the FCFCOA Act Transitional Provisions is that a judgment or order of a judge of the Federal Circuit Court made before 1 September 2021 operates as a judgment or order of the FCAFCOA (Div 2) after 1 September 2021. The Federal Circuit Court continued after 1 September 2021 as the FCFCOA (Div 2). The repeal of the FCCA Act had no effect on the validity of anything done before 1 September 2021 in relation to the Federal Circuit Court, including judgments or orders of that court. Therefore, s 213 of the FCFCOA Act and r 25.11 of the FCFCOA (Div 2) Rules must apply to judgments or orders of the Federal Circuit Court made before 1 September 2021 as judgments or orders of the FCFCOA (Div 2).
61 The proposed respondents submit that s 213 of the FCFCOA Act and r 25.11 of the FCFCOA (Div 2) Rules place no limitation on the enforcement of the FCC order. For the purposes of considering if proposed ground 1 is reasonably arguable, I am not prepared to accept that submission.
62 It is reasonably arguable that, for the purposes of s 213, an entitlement 'to the same remedies for enforcement of the judgment in [Western Australia], by execution or otherwise, as are allowed in like cases by the laws of [Western Australia]' picks up within that entitlement any limitations on remedies for enforcement that are stipulated in the relevant laws of Western Australia. Likewise, it is reasonably arguable that for the purposes of r 25.11 a person may only apply for and an order may only be made for a means of enforcement of a judgment or order that 'can be issued' in Western Australia. If a means of enforcement cannot be issued in Western Australia due to a limitation on the right of enforcement in that State it is not a means of enforcement that 'can be issued'.
63 In Western Australia the remedies for enforcement of a judgment, by execution or otherwise, and the kinds of orders or other means of enforcement of a judgment that can be issued or taken in the Supreme Court are contained in the Civil Judgments Enforcements Act 2004 (WA) (CJE Act). Section 12 of the CJE Act provides that an order under that Act to enforce a judgment must not be made if 12 years have elapsed since the judgment took effect. Section 13(1) of the CJE Act provides that leave of the court must be obtained before an order may be made under that Act to enforce a judgment if six years have elapsed since the judgment took effect.
64 Section 13(2) of the CJE Act provides:
13. Court's leave to enforce needed in some cases
…
(2) On an application for leave under subsection (1), the court -
(a) may give leave if it is satisfied that the person seeking to enforce the judgment is entitled to do so and that the person against whom the order is sought is liable to satisfy the judgment; and
(b) may order the trial of any issue that needs to be decided in order to determine if the judgment may be enforced and, if it may be enforced, by whom and against whom; and
(c) may do so on terms as to costs or otherwise.
…
65 It is reasonably arguable that if six years have elapsed since a judgment of the Federal Circuit Court took effect, then the judgment creditor has no entitlement to a remedy for enforcement in Western Australia for the purposes of s 213 of the FCFCOA Act unless and until leave to enforce that judgment is obtained from the Court. Further, an order for the issue of a means of enforcement under r 25.11 of the FCFCOA (Div 2) Rules is also subject to the court first granting leave to enforce the judgment or order. Otherwise, for the reasons which follow, I accept the proposed respondents' submission to the effect that s 13(1) of the Limitation Act (WA) has no relevance to and does not operate to bar execution of the FCC order. That is, it is not reasonably arguable that s 13(1) of the Limitation Act (WA) operates to bar enforcement or execution of the FCC order.
66 As already noted, in O'Mara Constructions the Full Court accepted that s 17 of the Limitation Act (NSW) did not operate to limit execution upon a judgment. The Full Court's reasoning was based on the reasoning of the Court of Appeal in WT Lamb & Sons v Rider and the House of Lords in Lowsley v Forbes. The Full Court observed that in Lowsley v Forbes 'the House of Lords concluded that WT Lamb & Sons v Rider was, in effect, wrongly decided insofar as it held that the section did not bar execution. However, their Lordships did not overrule the decision, observing that the relevant legislation had been amended upon the assumption that it was correct.' The Full Court reasoned that the Limitation Act (NSW), including s 17, was founded on an assumption that WT Lamb & Sons v Rider was correct and, therefore, s 17 should be construed consistently with WT Lamb & Sons v Rider: O'Mara Constructions at [11]-[13], [15]-[16]. The Full Court (Madgwick, Finkelstein and Dowsett JJ) reached the same conclusion regarding the operation of s 5 of the Limitation Act 1958 (Vic) in Dennehy v Reasonable Endeavours Pty Ltd [2003] FCAFC 158; (2003) 130 FCR 494 at [5]-[18].
67 In Dennehy (at [18]) Finkelstein J (Madgwick and Dowsett JJ agreeing) concluded that 'the only "limitation" which applies to the enforcement of a judgment obtained in the Supreme Court of Victoria is that contained in the Rules of the Supreme Court.' As to those rules, Finkelstein J had earlier made the following relevant observations concerning the historical context of execution upon judgments and legislation and court rules affecting execution: Dennehy at [2].
… Once it was the rule that when a year and a day had elapsed after judgment, without execution being levied, the judgment was deemed to have been satisfied. Following the enactment of the Statute of Westminster (13 Edw 1 c 45) a writ of scire facias (a warning) could be served requiring the defendant to show cause why execution should not issue against him notwithstanding the lapse of one year and one day: E Coke, The First Part of the Institutes of the Laws of England (A Commentary Upon Littleton), 291a; Underhill v Devereux (1669) 85 ER 715. This was changed by the Common Law Procedure Act 1852 (UK). Execution could then issue within six years from the recovery of the judgment without revival. After the expiration of six years, a judgment could be revived by leave or by writ of revival: Common Law Procedure Act, ss 128, 129, 130 and 131. In England, following the Judicature Acts, these sections were replaced by rules of court which were to the same effect. The rules were adopted by the superior courts in Australia, although in Victoria the writ of scire facias was preserved: Supreme Court Act 1958 (Vic), s 163. In the Supreme Court of Victoria, the relevant rule now is O 68, r 2. According to this rule, if six years has elapsed since the recovery of a judgment, it is necessary to obtain leave before execution can issue. …
68 In this case, unlike the circumstances under consideration in O'Mara Constructions and Dennehy, the proposed respondents had not obtained leave to enforce or taken any other steps to enforce the FCC order before the notice of bankruptcy was issued or before the presentation of the creditors' petition. The proceedings before the primary judge were not conducted on the assumption that the proposed respondents were at liberty to enforce the FCC order against the applicant.
69 In O'Mara Constructions there was no examination of the judgment creditor's right to execute. The parties had proceeded on the basis that the creditor 'was at liberty to execute on the judgment without any relevant limitation'. The Full Court also noted that the judgment creditor had earlier been granted leave to enforce the judgment: O'Mara Constructions at [34]. The Full Court observed that execution 'is a substantial aspect of a judgment creditor's rights'. Further, at the heart of the Full Court's reasoning that a judgment creditor who is able to execute on the judgment is a 'creditor' in the sense that term is used in s 43 and s 44 of the Bankruptcy Act is the notion that in 'a practical sense, there is no way in which a judgment debt is payable other than by the voluntary act of the debtor or by some form of execution' and that a 'creditor who enforces his or her rights pursuant to a judgment by execution is, in effect, extracting payment': O'Mara Constructions at [36]-[37]. Accordingly, it is reasonably arguable that for the FCC judgment debt to be provable in the bankruptcy it must be a debt capable of payment immediately or at a certain future time by execution. It is reasonably arguable that in the absence of the grant of leave to execute, the FCC judgment debt was not of that character. To that extent, proposed ground 1 raises issues that are reasonably arguable and it is not vexatious.