Brunninghausen, Max Bernard Jules v Glavanics, Michael [1998] FCA 230

REASONS FOR JUDGMENT HIS HONOUR: I have before me an application to set aside a bankruptcy notice issued at the request of Michael Glavanics on 20 October 1997. The notice was served on Max Bernard Jules Brunninghausen on 22 October 1997. On 11 November 1997 this application was filed and on 1 December 1997, the first return of the application, the time for compliance was extended to 10 February 1998. On 10 February 1998 directions were given for the filing of affidavits in relation to the application and the application was stood over to today. However, apparently through oversight, the time for compliance with the bankruptcy notice was not extended to 3 March 1998. Although when the matter commenced before me it was intimated that there was an issue as to whether or not it was now open to the Court to set the bankruptcy notice aside, the time for compliance having expired, it is now common ground that the Court has jurisdiction to do so and that the time for compliance should be extended at least up to and including today. Accordingly, I propose to extend the time for compliance with effect from 10 February 1998 up to and including today. The primary application, however, is for the bankruptcy notice to be set aside. Alternatively, the debtor seeks an extension of the time for compliance until the final disposition of an appeal to the Court of Appeal of New South Wales from the judgment which gives rise to the bankruptcy notice. It is common ground that the appeal to the Court of Appeal is arguable and that it is neither frivolous nor vexatious. I take it from that concession on behalf of the creditor that it is accepted that the appeal has been brought and prosecuted in good faith. There is certainly no evidence to the contrary and, indeed, five volumes of appeal books have been settled and are in evidence before me. It is therefore unnecessary to consider the issues which might arise on the appeal. The appeal arises out of orders made by Bryson J on 18 December 1996 that the debtor pay to the creditor equitable compensation in the sum of $300,000. On 31 January 1997 the debtor filed a notice of appeal in respect of that judgment. Following the making of those orders, the solicitors for the creditor wrote to the solicitors of the debtor on 23 December 1996 saying, inter alia, as follows: Following judgment your Mr Wawn [the solicitor for the debtor] had discussions with our Mr Fisher [the solicitor for the creditor] inwhich [sic] your Mr Wawn stated that unless our client was prepared to forego immediate payment, your client would seek orders for a stay of enforcement of the judgement debt pending the hearing of the appeal against his Honour's decision to the Court of Appeal. We have received advice from our Senior Counsel the grounds of appeal do not show an overwhelming likelihood of your client being successful on appeal. Accordingly our client is prima facie entitled to the fruits of the judgement in his favour. Notwithstanding this, our client's primary concern is to ensure there is no dissipation of your client's assets which might jeopardise our client's ability to receive the benefits of the judgement in his favour. Thus postponement of the enforcement of the judgement in our client's favour would necessitate your client provide ours with sufficient information to enable us to identify assets which could be "frozen". This would ensure that these assets were not dissipated to render the judgement in our client's favour "hollow". Alternatively, if the matter cannot be resolved amicably, our client may have to consider a "mareva" injunction to prevent any dissipation of assets. Please consider these matters and advise us as to how we might ensure that the judgment for our client is not rendered hollow. While it may not be practical we suggest either your client deposit $300,000 into our Trust Account so as to attain interest or he give a satisfactory bank guarantee in favour of our client over your client's assets. On 9 January 1997 a conversation took place between Messrs Wawn and Fisher when Mr Wawn said to Mr Fisher: Max Brunninghausen will give your client a First Mortgage over a Redfern terrace which one of his companies own [sic] which is worth about $350,000 as security for your client's judgment debt. Mr Fisher responded: That sounds good. I will get instructions. On 4 February 1997, Mr Wawn wrote to Mr Hughes saying inter alia as follows: We refer to your letter of 23rd December, last, and our Mr Wawn's telephone conversation with your Michael Fisher on 9 January, last, and confirm our advice then to Mr Fisher that our clients [sic] premises at 40 Baptist Street, East Redfern are available for a first mortgage security to your client as security for his Judgment. The premises are valued between $330,000-$350,000. During April or May 1997, while both solicitors were attending before the registrar of the Court of Appeal to settle the index to the appeal books, a further discussion occurred when Mr Fisher said: Michael Glavanics is not very happy with Max's offer for security. Mr Wawn responded: Would you find out what Michael wants and get back to me and I will get instruction. There is no evidence of any communication between the parties after that date and before the service of the bankruptcy notice on 27 October 1997. The bankruptcy notice referred to the judgment order of Bryson J and required payment within 21 days. On 7 November 1997 Mr Wawn wrote to Mr Fisher saying inter alia: We refer to the Bankruptcy Notice issued by your client to our client, Mr Brunninghausen, in respect of the judgment given in the Supreme Court which is the subject of two appeals. We have instructions to again put to your client our client's previous offer to provide your client with a first mortgage over premises at 40 Baptist Street, East Redfern, which we are instructed have a current market value of between $400,000/$420,000. We enclose a letter from Messrs Davis and Davis, Property Consultants, to this effect. We are instructed that this property is in first class condition, in a growth area and is in all respects a first class security. We note that the time for compliance with the Bankruptcy Notice expires Wednesday 12th instant and in the circumstances we would be grateful if you would agree to extend the time for compliance by a further fourteen days in order that these current negotiations to satisfy your client's request for security can be finalised. It is significant that the invitation was to finalise current negotiations to satisfy Mr Glavanics' request for security. Attached to the letter was a letter of 10 November 1997 from Davis and Davis, property consultant confirming that: If the property was offered on the current market and taking other comparable sales within the immediate area, we feel an achievable sale price would be between $400,000 to $420,000. There was apparently no response to the letter of 7 November 1997 and accordingly the application was filed and the application has since been resisted. In support of the application an affidavit was filed in which Mr Brunninghausen gave evidence concerning his assets and liabilities which was not challenged by cross-examination. The affidavit was sworn on 22 December 1997 and, I draw the inference, was served not long thereafter. It showed that Mr Brunninghausen's assets comprised the following: · four-seventh share in 80A Hopetoun Avenue, Vaucluse, $1.71 million; · half-share in OMH Investments Pty Limited, $350,000; · art and furniture at 80A Hopetoun Avenue, Vaucluse, $3000; · motor vehicles, two, $15,000; · total $2,240,000. The statement showed no liabilities. In addition, the affidavit disclosed that Mr Brunninghausen had an interest in two companies. The first is Amiks Imports Australia Pty Limited which has issued capital of 6,000 ordinary shares of which Mr Brunninghausen owns 5,000 and his wife owns 1,000. The affidavit indicated that the assets of that company comprised cash on deposit at Banque Nationale de Paris of $1,270,000 and a liability on overdraft with that bank of $170,000, giving net assets of $1,100,000. The other company is Amiks Holdings Pty Limited which has an issued capital of 10 shares, of which eight are owned by Mr Brunninghausen and the other two are owned as to one each by his two children. Mr Brunninghausen and his wife are the only directors of both companies. The affidavit disclosed that the assets of Amiks Holdings Pty Limited comprised the property at 40 Baptist Street, East Redfern and that the company has no liabilities. As I have said, the primary contention on the part of the debtor is that the bankruptcy notice is an abuse of process on the basis that it is no more than an attempt to collect the judgment debt which has resulted from the order made by Bryson J. I was referred to decisions of this Court of Re Sterling; Ex parte Esanda Pty Limited (1980) 44 FLR 125 and Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363 as to the inherent power of the Court to set aside a bankruptcy notice as an abuse of process. I did not understand counsel for the creditor to dispute the Court's jurisdiction to act in that way and I take it to be undisputed that if it is apparent that the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court's jurisdiction in relation to insolvency, then the filing of a bankruptcy notice is an abuse of process. In any event, in the light of the evidence now before me, there is a good reason for concluding that the bankruptcy notice would ultimately be ineffective in leading to the sequestration of the estate of Mr Brunninghausen. I was also referred to the decision of Deane J in Re Sarina (1980) 43 FLR 163 in which his Honour observed at 165 that bankruptcy proceedings are not appropriate in order to compel a recalcitrant debtor who is otherwise solvent to pay a debt which he declines to pay. In the light of the communications to which I have referred, there does not appear to be any explanation as to why the creditor considered it appropriate to proceed by way of bankruptcy notice, other than the possibility of putting pressure on the debtor. One thing is clear and that is that no indication was given as to why the security offered was in any way inadequate. Several matters were raised by the creditor as being said to be relevant to the exercise of the discretion which I have in deciding whether or not to set aside the bankruptcy notice. The first is that the evidence shows that there is no cash available to meet the order. However, in Sarina's case the report indicates that the debtor had available $9000 on deposit and had creditors of in excess of $13,000. Deane J observed at 165 that a debtor who is in a position to pay immediately in the sense of a reasonable time all the debts which he owes ought not to be the subject of a sequestration order. The second matter raised in opposition to the orders sought was the fact that the proceedings before Bryson J are not yet complete and that there is still outstanding the question of interest on the judgment debt. However, until such time as there is a judgment debt in relation to that matter it seems to me to be totally irrelevant. If a further judgment is entered, then it will be a matter for the creditor to endeavour to enforce that judgment or alternatively for the debtor to offer security, or alternatively seek a stay of the proceedings. That leads to the third matter raised by the creditor in relation to the question of exercise of discretion, namely that there has been no application for a stay. That is a somewhat hollow submission in the light of the communications to which I have referred. It was first proposed by the solicitor for the creditor that some security be proffered in response to an indication by the solicitor for the debtor that an application for a stay would otherwise be made. In any event having regard to what was said by Sweeney J in Lipov v Alexander Fraser and Son Ltd, (1978) 36 FLR 126 at 130, I do not consider it material that no application for a stay has been made. It is for the Supreme Court to decide whether it would make such an order. It is for this court to say whether the time for compliance with a bankruptcy notice will be extended or in my view whether the bankruptcy notice should be set aside. Sweeney J observed that the institution of an appeal which appears to be bona fide is a good reason for adjourning a hearing of a bankruptcy petition based on the judgment subject to the appeal. The Courts have had regard to the grave consequences which flow from the effluxion of the time fixed for compliance with the bankruptcy notice. Judgment has been obtained against the present applicant who has instituted an appeal against it. There is no reason to conclude that the prosecution of the appeal is otherwise than in good faith. In any event, of course, all of those matters are matters of discretion for extending the time for compliance and are not relevant to the question of abuse of process. Next it was suggested that these matters should be properly dealt with on the hearing of the petition and that the bankruptcy notice should be allowed to take its course. That of course is hardly an answer to a contention that the issue of the bankruptcy notice itself is an abuse of the Court's process. It was also suggested that I should draw the inference that Mr Glavanics is impecunious. There was evidence, originally objected to by counsel for the creditor that a title search indicated that Mr Glavanics is not the owner of any real property. That is hardly sufficient to give rise to an inference, if the inference is opposed, that Mr Glavanics is impecunious. However, I was invited by his counsel to draw that inference on the basis of that evidence as the reason for saying there would be some prejudice to Mr Glavanics if the bankruptcy notice were set aside and the appeal were dismissed because he would then be put to the expense of a further bankruptcy notice. That of course is not an answer if the bankruptcy notice itself is an abuse of process. It is still open to Mr Glavanics to take steps to enforce the judgment by issuing of writ of fieri facias in the Supreme Court and to execute against such assets of Mr Brunninghausen as might be available. That of course might prompt an application for a stay on the part of Mr Brunninghausen and if the same offer were repeated in circumstances where I am invited by Mr Glavanics' counsel to draw the inference that he is impecunious, the balance of convenience would appear to lie in favour of a stay. But again, those matters are beside the point in considering the question of abuse of process. Having regard to the communications and the apparent failure to respond in any way to the proposal which was being put, in circumstances where the discussions arose from an indication that a stay would be sought unless some arrangements could be made, I conclude that the reason for the issue of the bankruptcy notice was to endeavour to put pressure on Mr Brunninghausen to make some payment. It follows that I should set the bankruptcy notice aside. In the alternative the debtor sought an extension of time for compliance with the bankruptcy notice until the final determination of the appeal. If I had not found that the issue of the bankruptcy notice was an abuse of process, I would certainly have extended the time to comply with the bankruptcy notice up to and including the time of final disposition of the appeal. I would in those circumstances have imposed a term in much the same language as the open offer which was made in court. In the course of address, counsel for the debtor offered to procure that Amiks Holdings Pty Ltd provide to the creditor as security for judgment interest and costs a mortgage over the property described in folio identified 107/259801 being a mortgage in the form of Annexure F to his affidavit of 22 December 1997. Having regard to the conclusion which I have reached, that question does not arise. However, I should briefly record the matters which I would have taken into account in deciding to exercise that discretion. The first is that the appeal is arguable. Second, Mr Brunninghausen has adduced evidence to show that he would be in a position to meet the judgment debt within a reasonable time if by no other course than by causing the winding up of the two companies. He does not of course have direct access either to the land or to the cash on deposit in the companies. Nevertheless he does have a controlling interest in the sense that he controls more than 75 per cent of the voting power in relation to both companies. It would be within his power to cause the companies to be wound up and their assets to be distributed. Next, there is no evidence that Mr Brunninghausen has made any attempt to alienate assets that would put it beyond his power to meet the judgment debt. There is also the question of the possible impecuniosity of the creditor such that if the debt were paid in order to satisfy the bankruptcy notice there may be a risk that it would not be recoverable. There is no evidence of any detriment to the creditor by reason of deferring payment of the debt, particularly in light of the open offer to which I have referred. The orders that I would then propose are: · that time for compliance with the bankruptcy notice be extended with effect from 10 February 1998 up to an including today; · that the bankruptcy notice of 20 October 1997 number 2173 of 1997 be set aside; and · that the creditor pay the debtor's costs of this application.