Killoran v Duncan, in the matter of Killoran

EX TEMPORE REASONS FOR JUDGMENT 1 This is an application to set aside a bankruptcy notice pursuant to s 30(1) of the Bankruptcy Act 1966 (Cth) ("the Act") and an application to extend the time for compliance with the notice pursuant to s 41(6A)(b) of the Act. 2 The short facts are as follows. On 1 December 1998 the applicant, Bernard John Killoran, entered into a consent arrangement to dispose of proceedings in the New South Wales Supreme Court, Equity Division, with the respondent, Bette Cecile Masters Duncan, and a company, Barney's Timber Pty Limited, which is controlled by the applicant. I need not set out the details of that agreement which had various alternatives available to the applicant and Barney's Timber Pty Limited, who were the defendants in those proceedings. 3 In the events which happened, as other alternatives were not taken up, the relevant clause of the agreement was as follows: "In the event that the defendants fail to comply with the provisions of paragraph 5 then the defendants and each of them hereby consent to judgment against each of them jointly and severally in the sum of $150,000 plus the amount as calculated in paragraph 5B." Paragraph 5B related to an occupation fee. 4 On 28 June 1999, the solicitors for the respondent wrote to the solicitors for the applicant in these terms: "We refer to our letter of 18 March 1999 and note that we have not had the courtesy of a reply. Please respond to that letter as a matter of urgency. As you are aware unless this matter is settled on Wednesday 30 June 1999 our client will be entering judgment against your client in accordance with the terms dated 1 December 1998. Our client will then be proceeding to wind up Barney's Timber Pty Limited and issue a bankruptcy notice against Mr Killoran." 5 The solicitors for the applicant wrote a holding response. By facsimile dated 8 July 1999 the solicitors for the respondent, after setting out the substance of the settlement and noting the failure to respond in substance, said: "As you are aware your client has failed to either complete the interdependent Contract for Sale or pay to our client the rent set out in the Agreement. As you are also aware this matter is returnable before the Court tomorrow. We advise that at that time we will be seeking orders in terms of the agreement between the parties." On 9 July 1999, judgment was duly entered for the sum of $158,120. 6 By facsimile of 20 July 1999 the solicitors for the applicant and for Barney's Timber Pty Limited wrote to the solicitors for the respondent advising that their clients had entered into a contract to sell part of some land, disclosing the purchase price and saying that the settlement was expressed to take place on or before 13 September 1999. They enclosed a copy of the front page of the exchanged contract but not the body of it. The solicitors sought the respondent's consent to an extension of a stay of the judgment which had been granted until 29 September to allow for the possibility of the need to issue a notice to complete. The view was put forward that the respondent was adequately protected by the registration of a caveat and the entry of judgment. 7 The solicitors for the respondent wrote back by facsimile on the following day, namely 21 July 1999, saying: "Our client would only consider this proposal on the basis that your client also pays our client's additional costs in relation to the enforcement of the Consent Orders agreed upon your client in December 1998. These costs including counsel fees amount to $1,500.00. Additionally, we will require payment of our fees in preparing the Withdrawal of Caveat and attending on settlement in the sum of $300.00. Please obtain your client's instructions in relation to the above matters on receipt of your response we will let our client further consider the proposal. Unless a satisfactory response is received by 5.00 pm 22 July 1999 our client will proceed with enforcement of the judgment." 8 On 29 July 1999 the bankruptcy notice here in question was issued. The solicitor for the applicant argues that at that point it could be concluded that the bankruptcy notice was an abuse of the process of the Court as it is apparent that the purpose of it was to put pressure on the debtor to pay the debt rather than to invoke the Court's jurisdiction in relation to insolvency (Brunninghausen v Glavanics, in the matter of Brunninghausen (Emmett J, 3 March 1998, unreported)). I will come back to that submission in a moment. 9 I do not propose to trace in detail what has happened since then. It suffices to say that in the events which have happened: (1) There has been no completion of the sale and, indeed, it is apparent that because of the position of the local council and mortgagees it has not been possible to get the matter to a stage where it can be settled. (2) Although there was for a period an offer of security, that offer was withdrawn when it was to be taken up. (3) The contract which was entered into, when it is examined, is a joint contract with the vendors being the present applicant and Barney's Timber Pty Limited in relation to their respective interests in the land, but there is no apportionment of the purchase moneys. Furthermore, the purchaser is a proprietary company. 10 It is also relevant to note that there is no evidence of solvency filed in these proceedings, either in relation to the applicant or Barney's Timber Pty Limited, although there is some evidence as to an estimated surplus in relation to the parcel of land itself if settlement takes place. There is no affidavit setting out a statement of affairs or a balance sheet in relation to either entity. 11 Counsel for the respondent submits that, when the position is viewed at the time of issue of the bankruptcy notice, it was no abuse to appeal to the bankruptcy jurisdiction rather than, for example, by registering the judgment and seeking to execute by sale of land. It was put that the creditor was perfectly entitled to pursue all of her remedies at that stage. Her solicitors' letter of 28 June 1999, which was relied upon heavily by the solicitor for the applicant as indicating that her purpose was to threaten the draconian consequences of bankruptcy and winding up in order to induce the applicant to pay rather than being a genuine appeal to the bankruptcy jurisdiction, was said to be, bearing in mind the terms of the settlement and the imminent expiry of the period agreed, no more than sensibly making clear precisely the position that the respondent would be taking. 12 Whilst there is no debate about the jurisdiction of the Court to set aside a bankruptcy notice as an abuse of process where it can be concluded that it was simply to put pressure on the debtor rather than to genuinely invoke the Court's jurisdiction, I am not satisfied that that is the position here. There is nothing to indicate that the respondent creditor does not genuinely intend to pursue the matter if there is default in complying with the notice. In my opinion, there is nothing special about abuse of process in this field, and, if a person wishes to resort to the jurisdiction of the Court for appropriate orders, then it will be an unusual case in which that will be prevented. 13 There is no evidence here of any collateral purpose or of any undue pressure being applied. It is correct, I think, that the time to judge abuse of process is the time that the bankruptcy notice is issued and that subsequent events have relatively slight relevance. They may be relevant insofar as they throw light upon circumstances which might have been appreciated and foreseen at the time of the issue of the notice. 14 If, contrary to my view, however, there were a prima facie case of abuse of process, the remedy is discretionary and, in my view, if circumstances following that time had altered significantly so that it would not be appropriate to set aside the notice, I think that the jurisdiction of the Court is wide enough to give effect to that. I have in mind here that whilst the immediate parties to the application are those with the most interest in the matter, the body of creditors generally also have an interest and I cannot be certain one way or the other about the position of solvency. It may be most unfortunate if a bankruptcy notice were set aside in circumstances where the debtor is in fact insolvent. 15 In any event, as I have said, the primary question which is before me must be decided upon the evidence as it stood at the time of the issue of the notice. It does seem, however, that the events which have taken place since the issue of the notice illustrate that the mere assertion of a contract for sale of an asset is far from providing satisfactory evidence of an ability to pay or from being any satisfactory response to a claim that the creditor receive the fruits of its judgment. 16 Although most argument has taken place concerning setting aside the bankruptcy notice, and I decline to do so because of the failure to satisfy me that it was an abuse of process, the application does include an application to extend time for compliance. The difficulty with this application, it seems to me, is that once it is decided that the bankruptcy notice is not an abuse of process in a situation where the circumstances which have eventuated give no confidence that there will be any immediate freeing of funds from the conveyancing transaction, it is difficult to find any bona fide reason for extending compliance with the notice. 17 In my view, the appropriate forum to sort out between the parties the order which should be made is upon the hearing of any application which is made for bankruptcy. It is at that point that the Court will have before it all of the relevant circumstances and where the discretion which is involved can be properly exercised. It seems to me at the moment that there is a grave risk that by stepping in at this stage the interests of not only the parties but others might be affected upon a very insubstantial basis. 18 I should mention that I have read and had regard to the decision of the New South Wales Supreme Court, Equity Division, in an application by Barney's Timber Pty Ltd to set aside a statutory demand served upon it (Barney's Timber Pty Ltd v Duncan (Supreme Court of New South Wales, Master Macready, 20 September 1999, unreported)). That application, as I read it, was made at a time when there had been an apparently bona fide offer of security and that seems to have been the basis for the Master setting aside the notice of demand. As will be apparent from my statement above of the short facts of this matter, that situation does not pertain in the present case. 19 I should also say, before leaving the matter, that there are significant differences between this case and the case of Brunninghausen v Glavanics, in the matter of Brunninghausen (supra) to which I have referred. In that case an appeal was on foot which was conceded to be bona fide. There was also an offer of a first mortgage security and a very considerable balance of solvency was proved. 20 In all the circumstances, I dismiss the application and order that the applicant pay the costs of the respondent. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.