Coshott v Barry

MR BARRY'S INTERIM APPLICATION FOR REVIEW OF THE DECISION OF THE REGISTRAR MADE ON 29 OCTOBER 2009 9 At the time she filed her amended application on 29 October 2009, Mrs Coshott filed a supporting affidavit sworn 27 October 2009. There was exhibited to that affidavit and marked 'Exhibit LC-1' various documents including a copy of the Bankruptcy Notice, a copy of the sealed judgment in proceeding No. 4000/09, a copy of the certificate of determination of costs (assessment No. 00017354 of 2008), copies of various correspondence and other process in proceedings Nos. 2872/09 and 4000/09. It is not clear whether 'Exhibit LC-1' was filed with the affidavit, but if it was, it became detached and was not before the Registrar when, on that same day, she extended time for compliance with the Bankruptcy Notice until 11 November 2009. 10 The fact that 'Exhibit LC-1' was not before the Registrar at the time she extended time for compliance with the Bankruptcy Notice forms the basis of Mr Barry's interim application for review of the Registrar's decision. 11 Section 41(6A) of the Act provides: (6A) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice: (a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or (b) an application has been made to the Court to set aside the bankruptcy notice; the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice. 12 Counsel for Mrs Coshott made the following submissions in support of his contention that the Registrar properly exercised her discretion to extend time for compliance with the Bankruptcy Notice, and none of the factual material underlying these submissions was put in issue by counsel for Mr Barry; on the contrary, they were common ground: (1) When the Registrar made the order, the time fixed for compliance with the Bankruptcy Notice had not expired. The notice had been served on Mrs Coshott on 10 October 2009. (2) The amended application in these proceedings was filed on 29 October 2009 prior to the expiry of the Bankruptcy Notice, and (it should be inferred) was also filed before the making of the order extending time. The relief sought in that application includes the setting aside of the Bankruptcy Notice and an extension of time for compliance with the Bankruptcy Notice in accordance with s 41(6A) of the Act. (3) Also prior to the Registrar making the order extending time, and prior to the expiration of the Bankruptcy Notice, there had been filed in the District Court: (a) An amended summons to appeal the costs assessment, in proceeding No. 2872/09, filed on 1 July 2009; and (b) a notice of motion to set aside District Court judgment in proceeding No. 4000/09. (4) The Court therefore had jurisdiction under s 41(6A) to extend time. There is no suggestion that the Court, or the Registrar, was of the opinion referred to in s 41(6C). (5) The Registrar had power to extend time under s 41(6A): Federal Court of Australia Act 1976 (Cth), s 35A(1)(h); Federal Court (Bankruptcy) Rules 2005 (Cth), r 2.02, Sch 2, Item 4. (6) The discretion to extend time was granted up to and including Wednesday, 11 November 2009, whilst at the same time the parties were given liberty to apply to vary or discharge the order extending time on 24 hours' notice. (7) This extension of time was a minimal extension of time, to the date of the first directions hearing, at which time it was then necessary for Mrs Coshott to renew her application. (8) If the application had not been granted, an act of bankruptcy would have occurred prior to the directions hearing, rendering the application futile. The alternative would be for the Court to list any such application for an inter partes hearing within the time limited under the Bankruptcy Notice. This would no doubt cause considerable inconvenience for the Court if this course were to be generally adopted. (9) It was appropriate for the extension of time to be granted on that occasion, just as it was granted on two subsequent occasions, pending a final hearing of the application. 13 I agree with these submissions. I am firmly of the view that in exercising her discretion to extend the time for compliance with the Bankruptcy Notice until 11 November 2009, the Registrar's discretion did not miscarry and that her decision is not otherwise infected with any error which would warrant it being set aside. I therefore decline to do so.

MRS COSHOTT'S AMENDED APPLICATION TO SET ASIDE THE BANKRUPTCY NOTICE AND FOR TIME FOR THE COMPLIANCE TO BE EXTENDED 14 The substantive final orders sought by Mrs Coshott in her amended application of 29 October 2009 were cast as follows: On the grounds stated in the supporting affidavits, the Applicant seeks the following orders: 1. Pursuant to s.30 of the Bankruptcy Act 1966, that Bankruptcy Notice No. NN4442 of 2009 ("Bankruptcy Notice"), which was served on the Applicant on 10 October 2009, be set aside. A copy of that Bankruptcy Notice accompanies this Application. 2. Pursuant to s.41(6A) of the Bankruptcy Act 1966, that the time for compliance with the Bankruptcy Notice be extended pending the outcome of the Applicant's Notice of Motion filed on 23 October 2009 in proceedings 4000/09 in the District Court of New South Wales at Sydney. 15 In other words, the first application was to set aside the Bankruptcy Notice. There is no express power in the Act to do so but it is common ground that it is within the general powers of the Court conferred by s 30(1) of the Act: see Australian Securities and Investment Commission v Forge (2003) 133 FCR 487 at [26] per Emmett J. 16 The second application sought an extension of time for compliance with the Bankruptcy Notice in reliance on s 41(6A) of the Act pending the outcome of Mrs Coshott's notice of motion filed on 23 October 2009 in proceeding No. 4000/09. As Hill and Marshall JJ observed in Shepherd v Chiquita Brands South Pacific Pty Ltd [2004] FCAFC 76 at [40]: Clearly s 41(6A) was intended to be in aid of the application to set aside … the bankruptcy notice … See too Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 at 130. 17 The written and oral submissions on behalf of Mrs Coshott were structured and articulated on the basis that the primary application was for an extension of time for compliance when, in truth, that was not the primary application; the primary application was to have the Bankruptcy Notice set aside. If that application is dismissed, then one of the two bases upon which the Court may extend time for compliance with the Bankruptcy Notice, that in para (b) of s 41(6A), goes away. In any event, that is how I propose to consider and deal with Mrs Coshott's amended application of 29 October 2009. First, consider and rule on her application to set aside the Bankruptcy Notice and then consider and rule on her application for the Court to further extend time for compliance with the Bankruptcy Notice. 18 There are, in my view, a number of problems with Mrs Coshott's application to set aside the Bankruptcy Notice, not the least of which are: (1) Her amended application of 29 October 2009 was not accompanied by an affidavit which complied with r 3.02(1) of the Federal Court (Bankruptcy) Rules 2006 in that the affidavit did not set out the grounds in support of the application to set aside. Arguably, Mrs Coshott's affidavit of 27 October 2009 filed in support of her amended application of 29 October 2009 set out the grounds upon which she sought an extension of time for compliance with the Bankruptcy Notice in compliance with r 3.03(1), but even that is not beyond argument. But even if she did, that would not satisfy the requirements of r 3.02(1) which requires the affidavit to set out the grounds in support of the application to set aside. As was noted in Maher v Commonwealth Bank of Australia [2008] FMCA 1004, a failure to address the material requirements of r 3.02 (in that case it was r 3.02 of the Federal Magistrates Court (Bankruptcy) Rules, but they are in the same terms) will normally be fatal to an application to set aside a bankruptcy notice. (2) Second, counsel for Mrs Coshott did not articulate any grounds upon which the application to set aside the Bankruptcy Notice was founded. The best one can find is at para (70) of his written submissions where it is put: The application to set aside the Bankruptcy Notice is underlying [the] application to set aside the Certificate of Determination [of Costs] [in] the District Court … With respect, that is not a proper ground in support of Mrs Coshott's application to set aside the Bankruptcy Notice. As was said by Emmett J in Forge at [27]: [T]he Act gives no general discretion to set aside bankruptcy notices that are valid in form and not an abuse of process. The Act permits the issue of a bankruptcy notice and, if the notice is valid, prescribes the consequences to the bankrupt of non-compliance. The grounds upon which a bankruptcy notice may be set aside must relate to the form or content of the notice, service of the notice or the existence of the debt upon which the judgment, and, in turn, the notice, is founded. Reference to the existence of a debt includes the existence of a counterclaim, set-off or cross demand equal to or exceeding the amount of the debt: Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310; Re Athans; Ex parte Athans (1991) 29 FCR 302. Since jurisdiction to set aside a defective bankruptcy notice is not a general discretionary jurisdiction, it differs from the jurisdiction to make a sequestration order under s 52(1), which is expressly discretionary. 19 In the circumstances, I have no alternative but to dismiss Mrs Coshott's amended application insofar as it seeks an order that the Bankruptcy Notice be set aside. 20 Turning to her application pursuant to s 41(6A) of the Act that the time for compliance with the Bankruptcy Notice be extended, I do so on the basis that, in the face of the conclusion expressed in [19] above, the requirement that is para (b) of s 41(6A) is no longer satisfied; there is no application to set aside the Bankruptcy Notice before the Court. 21 Consequently, the application for an extension of time for compliance can only be entertained if the requirement that is para (a) of s 41(6A) is satisfied, namely, that Mrs Coshott has instituted proceedings to set aside the judgment in respect of which the Bankruptcy Notice was issued. 22 But there is a threshold difficulty with the application to extend time for compliance with the Bankruptcy Notice because of the temporal limitation in para (2) of Mrs Coshott's amended application: … pending the outcome of the Applicant's Notice of Motion filed on 23 October 2009 in proceeding 4000/09 in the District Court of New South Wales at Sydney. As indicated at [7] above, on 27 November 2009 that motion was heard and dismissed in its entirety on the basis that the District Court did not have jurisdiction to grant the stay in proceeding No. 4000/09 and the other relief sought. 23 The dismissal of Mrs Coshott's motion in proceeding No. 4000/09 did not operate as a discharge of her application for an extension of time for compliance with the Bankruptcy Notice because, on 17 November 2009, I had extended the time for compliance until 7 December 2009 and, on the completion of the hearing of these applications, I ordered that the time for compliance be further extended until the day I pronounce the orders of the Court and publish my reasons for judgment on the amended application. 24 Consequently, counsel for Mrs Coshott sought the leave of the Court, over the opposition of counsel for Mr Barry, to further amend the amended application for an extension of time for compliance with the Bankruptcy Notice in para 2 of the amended application as follows: (2) Pursuant to s 41(6A) of the Bankruptcy Act 1966, that the time for compliance with the Bankruptcy Notice be extended pending the outcome of proceeding No. 2872/09 in the District Court of New South Wales at Sydney and the final determination of this proceeding. 25 I was initially reluctant to grant leave at such a late stage, however, upon reflection, I think leave should be granted primarily because proceeding No. 2872/09 was instituted well before the issue and service of the Bankruptcy Notice and not in response to it. It was the filing of the notice of motion in proceeding No. 4000/09 which was in response to the issue and service of the Bankruptcy Notice. 26 So amended, the next question which arises is whether proceeding No. 2872/09 satisfies the requirement of para (a) of s 41(6A) as being a proceeding to 'set aside a judgment or order in respect of which the [B]ankruptcy [N]otice was issued'. 27 Proceeding No. 2872/09 was an appeal '… from the decision below (costs assessment 2008/00017354)'. The orders sought included an order that: 3. Certificate of Determination in 2008/00017354 be set aside. 28 Counsel for Mrs Coshott submitted that the fact that it was not sought to set aside the judgment in proceeding No. 4000/09, but rather the underlying certificate of determination which had merged into the judgment is of no import because the judgment is liable to be set aside or varied if the certificate on which it is based is set aside or varied. Reliance was placed on what was said by Hodgson JA (with whom Mason P and Campbell JA agreed) in Doyle v Hall Chadwick [2007] NSWCA 159 at [48] to [53]. What was said there was said in relation to s 208J(3) of the Legal Profession Act 1987 (NSW), the equivalent provision in the Legal Profession Actbeing s 368(5). I agree with this submission. 29 So understood, the fact that Mrs Coshott has filed a notice of motion seeking to amend the summons in proceeding No. 2872/09 so as to add a claim that judgment in proceeding No. 4000/09 be set aside (see [8] above), is arguably irrelevant. 30 Counsel for Mrs Coshott further relied on what a Full Court of this Court said in Conway v Jackson (2001) 107 FCR 201 at [29]: 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. Earlier, at [20], the Court had said: [W]e 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. 31 I am satisfied that I have jurisdiction to entertain Mrs Coshott's application for an extension of time for compliance with the Bankruptcy Notice based on the existence of proceeding No. 2872/09 in the District Court and the terms of para (a) of s 41(6A) of the Act. The only remaining issue is how I should exercise my discretion: to further extend the time beyond the extensions already made, or to decline to do so. 32 In Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264, Lehane J undertook a comprehensive review of the considerations that had been taken into account in other cases involving the exercise of the discretion under s 41(6A), although, and it almost goes without saying, the considerations to which his Honour referred were conditioned by the facts of the case in respect of which the exercise of his discretion was called for. 33 His Honour made the following observations: (1) It is not only on the hearing of a petition that the Court may 'go behind' the judgment giving rise to the judgment debt on which the petitioning creditor relies; the judgment debt can be impeached on a notice to set aside a bankruptcy notice (at 268D). (2) His Honour noted the different approaches of Kiefel J in Re Baker; Ex parte Baker v Staples (unreported, Federal Court, Kiefel J, 4 September 1995) and Sheppard J in Re Geard; Ex parte Reid (unreported, Federal Court, Sheppard J, 11 February 1994) and to later decisions in which Geard was followed. (3) In the course of his judgment in Geard, Sheppard J had taken on board the following considerations: (a) The debtor had not made any application for a stay of proceedings pending the outcome of the appeal; (b) an application to extend time for compliance with the bankruptcy notice is not the hearing of a bankruptcy petition. The refusal of the application will not affect the status of the debtor but it will mean that he, in all probability, will commit an act of bankruptcy; (c) if the appeal is ultimately dismissed and the judgment stands with the consequence that the bankruptcy proceedings go on, it may be quite important to the petitioning creditor, whoever he or she may be, to the general body of creditors and to the trustee in bankruptcy, that there be, for the purposes of the administration of the bankrupt estate, an act of bankruptcy committed at an earlier time than would be the case if the application were acceded to. (4) The approach adopted by Sheppard J was followed by Whitlam J in Re Smith (unreported, Federal Court, 4 May 1994) and by Sackville J in Agrillo v Codisposto (unreported, Federal Court, Sackville J, 16 December 1994). 34 At 270, Lehane J went on to reason: In my view the considerations to which Sheppard J refers indicate that the principles to be applied where the question is whether a petition should be adjourned or dismissed are not necessarily those which should guide the exercise of the discretion to set aside, or extend time for compliance with, a bankruptcy notice. The commission of an act of bankruptcy is, undoubtedly, a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order; and there is also to be taken into account the interest of both the judgment creditor and other creditors of the judgment debtor in ensuring that, if ultimately a sequestration order is made, the relevant act of bankruptcy occurs earlier rather than later. 35 His Honour went on to observe that considerable weight should be given to the circumstance that in the case before him, as in Geard, no stay has been granted (or, apparently, sought) of the judgment supporting the bankruptcy notice. It did not follow that other matters were not to be taken into account: the discretion is 'at large' (Re Taylor; Ex parte Deputy Commissioner of Taxation (Cth) (1983) 74 FLR 377 at 379). 36 His Honour further observed the authorities suggest that, reluctant as the Court may in most cases be to enter into the merits of an appeal, the merits may be relevant, at least where the Court is able to regard the prospects of success as 'slight' or, possibly, in a case where it is apparent that the prospects of success are unusually strong. 37 Finally, on the facts of the case before him, his Honour thought it relevant, as a consideration reinforcing the Court's reluctance to extend time in the absence of a stay, that an appeal had already been dismissed and the proceeding in question was an application for special leave to make a further appeal. 38 In Conway v Jackson at [30], the Full Court said: 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 for example 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. 39 Counsel for Mrs Coshott submitted that a further extension of time for compliance with the Bankruptcy Notice should be allowed in terms of the amended order sought in the amended application by reference to the following considerations: (1) The discretion to grant an extension of time for compliance is 'at large': Re Taylor at 379; Byron at 270. (2) While there is no stay in place, the application for a stay of proceeding No. 4000/09 having been dismissed on 27 November 2009, it was dismissed on jurisdictional, rather than discretionary, grounds. Considerable weight should only be given to the absence of a stay of the underlying judgment (Byron at 270G; Geard (in the passage quoted in Byron at 269G)), if the court that granted the judgment had jurisdiction and power to grant a stay. In circumstances such as the present, where the court that issued the judgment has determined that it has no jurisdiction to grant a stay, the absence of a stay should, in relation to the discretion under s 41(6A), be viewed as carrying no weight, rather than 'considerable weight'. (3) Only a short amount of time is likely to be involved in any extension of time, as the proceeding in the District Court is of limited scope. (4) If Mrs Coshott succeeds in the District Court to any extent, she will be entitled to an order setting aside the Bankruptcy Notice: Halstead v Westpac Banking Corporation (1991) 31 FCR 337 at 355. (5) Reference was made to the merits of the appeal while acknowledging the reluctance of courts to enter upon that area, save in the particular circumstances referred to by Lehane J in Byron at [36] above. The thrust of the submission was that the appeal had merit because: (a) There was no basis for the costs assessor to proceed to determine an amount payable by Mrs Coshott but refuse to determine an amount payable by Mr Coshott; (b) the Legal Profession Act does not give a costs assessor any power to, in effect, alter the terms of an assessment that are referred to him or her; (c) the costs assessor acted ultra vires; (d) the broad brush approach taken by the costs assessor to assessment was not permissible: Cassegrain v CRK Engineering [2008] NSWSC 457 including the passages extracted therein from Kennedy Miller Television Pty Ltd v Lancken (unreported, Supreme Court of New South Wales, August 1999, Sperling J); (e) inadequate reasons are an error of law: Cassegrain at [86]. (6) The Bankruptcy Notice was served after the District Court proceeding No. 2872/09 to appeal the Certificate of Determination had been commenced. Whilst Mr Barry was entitled to do this (there being no stay in place), it is relevant to the discretion that Mr Barry chose to issue his Bankruptcy Notice in circumstances where he knew that the Certificate of Determination, and hence the judgment, was under challenge. This is not a situation of the appeal being launched in response to a bankruptcy notice. Indeed, it is arguably the reverse. 40 Counsel for Mr Barry submitted that no further extension of time for compliance with the Bankruptcy Notice should be allowed by reference to the following considerations: (1) There was no stay of the judgment upon which the Bankruptcy Notice is based and no suspension of the cost assessor's determination or decision: see s 386 of the Legal Profession Act. (2) There were a number of difficulties with the issues which Mrs Coshott identified as being raised by her appeal in proceeding No. 2872/09 which cast serious doubt on the likelihood of its success, if not its bona fides, not the least of which was that the orders made by James J of the Supreme Court of New South Wales on 20 February 2008 that Mr and Mrs Coshott pay the costs of Mr Barry in proceeding No. 20114/04 gave rise to a joint and several liability: Re Bowen; Ex parte The Australian Workers Union & Ors (1945) 13 ABC 275 at 278 - 279. (3) The consideration in (2) aside, it is inappropriate for me to embark on a course of determining what is or is not going to happen with the appeal.

REASONING AND CONCLUSION ON EXERCISE OF DISCRETION 41 It is true that there is no stay of the judgment upon which the Bankruptcy Notice is based and no suspension of the costs assessor's determination or decision. But both were sought and refused on jurisdictional grounds: see [4] and [7] above. The contrast with Geard and Byron is clear. 42 On 1 December 2009, Mr and Mrs Coshott filed a notice of motion in the District Court in proceeding No. 2872/09 seeking leave to file and serve an amended summons, as well as an order that the enforcement of the judgment in proceeding No. 4000/09 be stayed pending determination in proceeding No. 2872/09. That motion is listed for hearing today. 43 I agree with the submission of counsel for Mr Barry that it is not appropriate for me, in the exercise of my discretion under s 41(6A), to get involved in the merits or otherwise of Mrs Coshott's appeal. 44 The consideration which I find most telling in favour of exercising my discretion to further extend the time for compliance with the Bankruptcy Notice is that the appeal against the cost assessor's determination was instituted on 1 July 2009, over three months before service of the Bankruptcy Notice. That fact alone informs one that the proceeding is not brought to frustrate the proceeding commenced under the Act by the service of the Bankruptcy Notice and there is no evidence to suggest, nor was it suggested, that there are circumstances now extant which would otherwise attract the operation of s 41(6C). 45 For these reasons, I propose to exercise my discretion pursuant to s 41(6A) of the Act by extending the time for compliance with the Bankruptcy Notice until the day on which the District Court of New South Wales makes final orders in proceeding No. 2872/09. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Solicitor for the Applicant: Uther Webster & Evans