Conway v Jackson

"(1) The Court may: (a) upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally; (b) at any time allow the amendment of any written process, proceeding or notice under this Act; or (c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time." The words in s 33(1)(c)

"… or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), …" were inserted by the amending Act. 14 Prior to the amending Act, there was no specific grant of power to the Court to enable it to extend time for compliance with the requirements of a bankruptcy notice. In Lipov v Alexander Fraser & Son Ltd (1978) 36 FLR 126, CA Sweeney J held that s 33(1)(c) of the Act as then in force empowered the Court to extend time for compliance with the requirements of a bankruptcy notice. His Honour at 130 remarked that that construction of s 33(1)(c) "has been acted upon by the courts in respect of many bankruptcy notices." The facts of that particular case indicate that the debtor was seeking an extension of time to comply until the determination of an appeal from the judgment upon which the bankruptcy notice was founded. It appears also that under the corresponding provision of the Bankruptcy Act 1924 (Cth), time to comply with a bankruptcy notice could be extended but only before the expiration of the time for its compliance: Re Grace; Ex parte Castling (1931) 3 ABC 131. James v Abrahams (1981) 51 FLR 16 ("James") makes it clear that the amendment to ss 33(1)(c) and the introduction of s 41(6A) preclude any implication of a general inherent power in the Court to extend the time fixed by the Registrar for compliance with the requirements of a bankruptcy notice: see per Deane and Lockhart JJ at 22. 15 In our view, that background to s 41(6A) of the Act has significance to its proper construction. There was no express power to extend time for compliance with the requirements of a bankruptcy notice, but s 33(1)(c) as then in force was regarded as a source of power to do so. Moreover, the circumstances in which that power under s 33(1)(c) was exercised included those where an appeal had been instituted by a debtor against the judgment upon which the bankruptcy notice was founded. In the Explanatory Memorandum to the Bankruptcy Amendment Bill circulated by the Minister of Business and Consumer Affairs, the following appears in relation to cl 20 of the Bill:

"61 The Court will be able to extend or abridge times fixed by the Court or the Registrar (Bill para 20(a)). … The power does not extend, … to an extension of time for compliance with a bankruptcy notice which is dealt with elsewhere"

"68 The Court may extend times fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice where the debtor is seeking to set aside the bankruptcy notice itself or the judgment or order on which the notice is based providing the debtor is acting bona fide and with due diligence. … These amendments will overcome doubts as to the present powers of the Court and the Registrar in this regard." 16 Clauses 20 and 24 of the Bill ultimately came to result in the amendments to ss 33(1)(c) and 41 of the Act referred to above. 17 There is nothing to suggest in that material that it was intended to remove from the Court the power, in an appropriate case, to extend the time for compliance with the requirements of a bankruptcy notice where there was an appeal seeking to set aside the judgment upon which the bankruptcy notice was based. The legislature may be taken to have been aware that that power (under s 33(1)(c) as then in force) was being exercised in the case of an appeal seeking to set aside such a judgment. The Explanatory Memorandum discloses that the amending Act was the consequence of a comprehensive review of the Act by the Department of Business and Consumer Affairs. Indeed, in the light of the exercise of the power under the then s 33(1)(c) to extend the time for compliance with a bankruptcy notice where there was an appeal from the judgment upon which the bankruptcy notice was based, if there were any intention to preclude the Court from exercising that power, it is likely that a clear intention to do so would have been apparent. There is no such intention evident. The limitation upon the exercise of the discretion in the exercise of that power is that contained in s 41(6C), but that does not indicate any intention to remove the power to extend time where there is an appeal from the judgment on which the bankruptcy notice is based. 18 There is nothing in the language or the context of s 41(6A)(a) which indicates that a narrow meaning should be given to the expression "proceedings to set aside judgment". It contemplates circumstances where the judgment debtor is seeking to set aside the judgment. In certain circumstances, that may be done by application to the Court or the judge who entered the judgment. The clearest example of that arises where judgment has been entered in default of appearance or for some other procedural failure on the part of the judgment debtor. Commonly, in such cases, there has been no adjudication on the merits of the claim or on some part of the merits of the claim. But the language of s 41(6A)(a) does not indicate any intention to limit its application to such circumstances. It would have been easy for such an intention to have been expressed. In such cases, moreover, it is common to require that the judgment debtor demonstrate some real basis for disputing the merits of the claim, and to have acted promptly in pursuing the application to set aside the judgment: Parker v Transfield Pty Ltd [2000] WASCA 382; Rollond v Bank of Western Australia Ltd (3 September 1998, WASCA, unreported) If s 41(6A) has the restricted scope of operation contended for by the appellant, the restrictions imposed by s 41(6C) would not really serve much purpose. They are likely to bear more significance in cases where there has been an adjudication on the merits of the claim, and an appeal has been instituted from the judgment. The significance of s 41(6C), in support of the construction contrary to the appellant's contention, formed part of the reasons for decision of Einfeld J in Dittes v Clyde Industries Ltd (10 December 1992, unreported) ("Dittes"). It may also be noted that it is commonplace, as the appeal to the New South Wales Court of Appeal illustrates, that an appeal expressly seeks to set aside the judgment upon which the bankruptcy notice is founded In Re Bryant; ex parte Bryant v Commonwealth Bank of Australia (Hill J, 4 May 1994, unreported) ("Bryant at first instance"), Hill J made that point in the following terms:

"Where an appeal is brought from a decision at first instance, the order of the appeal court, if the appeal be allowed, is an order setting aside the decision at first instance. Among the meanings of the expression "set aside" contained in the Shorter Oxford English Dictionary (Third Ed) is "to annul, quash, render void or nugutory. Chiefly 'law'." If authority be needed, the High Court in Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220 involved an appeal against a conviction which was set aside and the question to be determined was whether the conviction was avoided ab initio. The expression "set aside" and the consequences of an order being set aside, are dealt with by the Full Court of this Court in Broken Hill Pty Company Ltd v Trade Practices Tribunal (1980) 31 ALR 401 at 410-411 and also by me in Oates v Commissioner of Taxation (1990) 27 FCR 289 at 299." 19 We also consider that the purpose of s 41(6A) would more usefully be served by adopting the construction of the relevant words which includes an appeal from the judgment on which the bankruptcy notice if founded, where that appeal in fact seeks to set aside the judgment. The commission of an act of bankruptcy has serious consequences. Apart from the obvious consequence of exposure to the making of a sequestration order, an act of bankruptcy itself commonly constitutes an act of default under security instruments and so exposes the person who has committed the act of bankruptcy to the crystallisation and calling up of other debts. It is also an event which, at least anecdotally, causes those providing unsecured credit to the judgment debtor, such as trade creditors in the case of a business operated by the judgment debtor, to alter or withdraw the terms upon which credit is or continues to be provided. Section 41 (6A)(a) would appear to recognise the consequences of the commission of an act of bankruptcy, and to empower the Court in appropriate circumstances to protect a judgment debtor from those consequences. That policy would not be served by restricting the ability to exercise that power so as to exclude its exercise in all cases where the judgment debtor has appealed from the judgment at first instance and seeks to set it aside. In Bryant at first instance, Hill J made the point pithily in the following terms:

"As a matter of policy it is hard to imagine why the Court should have power to extend time for compliance where an application has been lodged in the same court in which judgment has been entered to set that judgment aside, but is refused that same power where judgment has been given but there has been an appeal against that judgment." 20 For those reasons, and subject to considering the cases on the meaning of s 41(6A)(a), we are of the view that the expression "proceedings to set aside the judgment or order" includes the institution of an appeal from the judgment or order in respect of which the bankruptcy notice was issued where that appeal does in reality seek to have that judgment or order set aside. 21 In Bryant at first instance, Hill J considered the earlier decisions including those of Sheppard J in Re Taylor; ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377 ("Taylor") and of Neaves J in Re Lentini; ex parte Lentini v CSR Ltd (1991) 29 FCR 363 ("Lentini") in which his Honour followed his earlier decision in Re Maddox (12 May 1987, unreported) ("Maddox"). For reasons similar to those we have expressed above, Hill J in Bryant at first instance expressed the view that, as then advised, there was a very strong argument that s 41(6A)(a) empowered the Court to extend time for compliance with the requirements of a bankruptcy notice where the judgment debtor had appealed from the judgment on which the bankruptcy notice was founded. His Honour to that extent disagreed with the view of Neaves J in Lentini and Maddox. He did not, however, reach a concluded view on that question. It was unnecessary to do so, as he would not in any event have exercised the discretion to extend time for compliance with the requirements of the bankruptcy notice. In Taylor, Sheppard J at 380 assumed that an appeal fell within the provisions of s 41(6A)(a) but indicated that he did not express an opinion on that question. 22 In Bryant, the Full Court was not directly called upon to address the question raised by this appeal. The debtor had appealed, relevantly, complaining only of the exercise of the discretion under s 41(6A) of the Act. The respondent gave no notice of contention under O 52 r 22(3) of the Federal Court Rules that it contended, as the present appellant contends, that in the particular circumstances of an appeal from the judgment upon which the bankruptcy notice was founded s 41(6A)(a) did not enliven any discretionary power on the part of the Court. Nevertheless, the Full Court said:

"The trial judge treated the appeal in the Supreme Court as a proceeding to set aside the judgment in respect of which the bankruptcy notice was issued, a course with which we agree." 23 The solicitor for the appellant contended that that passage did not amount to an adoption by the Full Court of the views expressed by Hill J in Bryant at first instance on the particular question now before the Court. It was put that the Full Court simply approved of the course adopted by his Honour of assuming that s 41(6A)(a) applied to the circumstances without deciding that it did so, as the refusal to exercise the discretion available under that provision was to be upheld in any event. There may be some merit in that submission in the absence of any notice of contention given by the respondent to that appeal raising the point. It is not necessary to resolve that issue, for we have independently come to the conclusion that s 41(6A)(a) does apply where a judgment debtor has appealed from the judgment upon which the bankruptcy notice was founded with a view to setting aside that judgment so as to enable the Court, in appropriate circumstances, to extend time for compliance with the requirements of a bankruptcy notice. 24 It should be noted, however, that more recently judges of the Court have regarded Bryant as deciding that point: Benaharon v Fabric Dyeworks (Aust) Pty Ltd (Weinberg J 24 August 1998, unreported); Stavrianos; Pak Sun Lieu v JNS Technologies (M) Sdn Bhd [1999] FCA 1428, Kenny J at [12]; and Jenkins v National Australia Bank Ltd [1999] FCA 1758, Ryan J at [3] in relation to an application for special leave to appeal to the High Court. 25 Earlier decisions of the Court expressed conflicting views on that question. In Bond v Hong Kong Bank of Australia (Foster J, 24 October 1991, unreported) the applicability of s 41(6A)(a) to circumstances such as the present was assumed. In Dittes, the same point arose. Einfeld J at 8 tentatively reached the same conclusion on the question now under consideration as that we have expressed, but ultimately did not need finally to decide the question. The application before his Honour had been amended to have the bankruptcy notice set aside under s 41(6A)(b), and that application was adjourned until after the hearing and determination of the appeal from the judgment. 26 The two decisions of Lentini and Maddox clearly reached a different view. In Lentini, Neaves J at 367 adopted his Honour's reasons in Maddox which were in the following terms:

"The applicant relies on both limbs of s 41(6A). In reliance upon s 41(6A)(a), it is submitted that the institution of the proceedings in the Supreme Court by way of appeal against the judgment of the Magistrates Court is properly to be considered as the institution of proceedings to set aside the judgment in respect of which the bankruptcy notice was issued. It is further submitted that, as the appeal was instituted before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, the condition precedent to the exercise of the court's discretion under that provision is established. I am unable to accept this submission. The language of s 41(6A)(a) is clearly apt to refer to proceedings by a judgment debtor in the court where judgment was entered against him to have the judgment set aside. What the provision contemplates is an application to have the court by which the judgment was pronounced revoke the expression of its coercive power where there has been a failure to follow the rules of procedure or where there is shown to be some defect or irregularity or some other circumstance which renders it desirable that the debtor should be given an opportunity to have the issue further litigated. It may be that, in some circumstances, such proceedings may be taken in a court superior to that in which the judgment was entered but, be that as it may, the language of the provision is not, in my opinion, apt to refer to proceedings which are properly characterised as an appeal from the judgment in respect of which the bankruptcy notice was issued." 27 The debtor in that case, nevertheless, achieved the desired result of an extension of time to comply with the requirements of the bankruptcy notice by having the application treated also as having been made under s 41(6A)(b) so as to have the bankruptcy notice set aside. In so far as the application sought that relief, it was adjourned to a date when it was anticipated that the appeal would have been heard and determined and the time for compliance with the requirements of the bankruptcy notice extended until that time. His Honour in Maddox, notwithstanding that he did not think it appropriate to set aside the bankruptcy notice, also adjourned the application to set it aside and extended the time to comply with the requirements of the bankruptcy notice until the application further came on for hearing. Olney J in Re Halliday; ex parte Halliday (1993) 44 FCR 349 at 358 ("Halliday") adopted the views expressed in Lentini and Maddox. His Honour referred to provisions of the County Court Rules (Vic) enabling an application to set aside a judgment or order where the judgment debtor did not attend the hearing, where a claim had been dismissed for want of prosecution, or for procedural default. His Honour then said:

"In my opinion it is this type of application to set aside judgment that is contemplated by s 41(6A), (6B) and (6C) of the Bankruptcy Act. That is not to say that in the exercise of its wide discretion the Court should not grant an extension of time to comply with a bankruptcy notice where an appeal raising an arguable case has been instituted bona fide and is being pursued with due expedition." 28 The views of Neaves J in Lentini and Maddox were also adopted by Foster J in Vincent v State Bank of New South Wales (1995) 60 FCR 290 at 298 ("Vincent"). It is not clear what is the source of that general discretion referred to in Halliday and Vincent. In Vincent his Honour would not have granted an extension of time to comply with the requirements of the bankruptcy notice in any event (see at 297-298), and his Honour also appears to have assumed the existence of a general discretion to extend the time to comply with the requirements of a bankruptcy notice. The decision of the Full Court in James, which concludes that there is no such general discretion, appears not to have been brought to the judges' attention in either of those two last mentioned cases. 29 For reasons expressed above, we respectfully disagree with the observations of Neaves J in Maddox and adopted by his Honour in Lentini. We do not agree that the language of s 41(6A)(a) is apt only to encompass an application to set aside a judgment or order where there has been a failure to follow the rules of procedure or where there is shown to be some defect or irregularity or some other circumstance which renders it desirable that the debtor should be given an opportunity to have the issue further litigated, and so as to exclude proceedings by way of appeal which may result in the judgment being set aside. It does not seem to accord with any legitimate policy consideration that a debtor whose careless or delictual conduct has allowed judgment to pass by default should be in any better position than a judgment debtor who has unsuccessfully but conscientiously defended a claim and succeeds in having the judgment set aside on appeal. 30 In exercising the discretion whether or not to extend the time for compliance with a bankruptcy notice, the creditor should not be routinely frustrated from enforcing the judgment by the device of the institution of an appeal. Section 41(6C), to an extent, recognises that position. Moreover, the date of the commission of the act of bankruptcy is significant to determine the commencement of the bankruptcy if a sequestration order is made: s 115(1), and so to determining the property of the bankrupt which is divisible amongst the creditors of the bankrupt: s 116(1). It also has significance to the application of ss 118, 120, 121 and 122 of the Act. The delay in the commission of the act of bankruptcy, if ultimately the requirements of a bankruptcy notice are not complied with and a sequestration order is made, by an extension of time to comply with a bankruptcy notice may therefore have significant consequences to the creditors of the bankrupt. An extension of time to comply with the requirements of a bankruptcy notice does not, on the other hand, preclude any other judgment creditor from procuring the issue and service of a bankruptcy notice, or from presenting a petition for a sequestration order if some other act of bankruptcy has already been committed. Such considerations, if significant in the particular circumstances, together with other considerations relevant to the circumstances of the particular case, will no doubt be considered by the Court in exercising its discretion under s 41(6A) of the Act: see eg. the discussion by Lehane J in Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264. However, such considerations are properly left to the Court in exercising its discretion whether to extend time for compliance with the requirements of a bankruptcy notice. 31 In our judgment this appeal should be dismissed. We see no reason why the normal rule as to costs should not apply. The appellant should pay to the respondent costs of the appeal to be taxed.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate: Dated: 16 March 2001 Solicitor for the Appellant: D Knaggs