Re Clubb; Ex parte Clubb v Westpac Banking Corporation [1996] FCA 343 | Case summary

REASONS FOR JUDGMENT Before the Court are (1) an application made on behalf of the debtor for an order pursuant to s.41(5) of the Bankruptcy Act 1966 ("the Act") extending the time for giving notice to the creditor (that the debtor disputes the validity of the bankruptcy notice on the ground that the amount in the notice exceeds the amount in fact due) and (2) the creditor's petition for a sequestration order. The debtor has filed a notice of intention to appear at the hearing which includes a statement of the grounds of opposition to the petition. Those grounds include a contention that the default judgment obtained in the District Court, the subject of the bankruptcy notice, was irregularly obtained and that the Court, in the exercise of its statutory discretion, should not make a sequestration order. I heard first the debtor's application. At the conclusion of evidence and submissions in that application, I indicated that I proposed to refuse it and would give reasons when I came to deal with the petition. It is convenient then for me to proceed to the petition at this stage and to deal then with the grounds of opposition mentioned. In order to understand the context in which the grounds of opposition are raised, reference should be made to some of the history of the matter which is not in dispute. On 18 September 1992, the petitioning creditor obtained a default judgment against the debtor in the Local Court in the sum of $17,210. The background to the recovery of that judgment is that after service upon the debtor of a statement of liquidated claim, an arrangement was made between the parties for the payment by the debtor of instalments of $400 per month in reduction of the creditor's claim. On 19 August 1992 a payment of $400 was received by the creditor from the debtor. The receipt of this sum was acknowledged by an officer of the creditor in swearing an affidavit of debt in the Local Court as part of the process of seeking default judgment. That affidavit stated that the amount of the claim made by the creditor was $15,483.63, that claim having been reduced from the sum of $15,883.63, being the amount due before the receipt of the sum of $400 previously mentioned. However, although judgment was entered on 18 September 1992, two days before this, on 16 September, a further payment of $400 was received by the creditor from the debtor. The amount for which judgment was entered, namely $17,210 which included interest and costs, did not take account of the second payment of $400. It appears that the reason for this was that the creditor operated a state accounting centre at which all payments were processed upon receipt, but no system existed for its collections department to be notified of payments for any particular account. I infer then that through administrative oversight and without any suggestion of any lack of good faith, the judgment was obtained in the sum of $400 more than was in fact due, once account was taken of the receipt of the sum of $400 on 16 September. The further history of the matter, which is also common ground, is that after the date of judgment, the debtor made instalment payments to a total of $5210, the last of such payments being made on 21 October 1993. On 27 March 1995, the creditor applied to this Court for the issue by the Registrar of a bankruptcy notice, and in support of that application produced, in accordance with the rules, an office copy of the judgment obtained against the debtor on 18 September. That certificate of judgment certified that the plaintiff had recovered judgment against the defendant on 18 September 1992 in the sum of $17,210, thus omitting the receipt of the sum of $400 on the 16 September, and further certified that the judgment creditor had been paid the sum of $5210 in respect of the judgment debt. As has been noted, although the fact of the subsequent payments was correctly stated, the amount which was, in truth, due as at 18 September 1992 was $400 less than the $17,210 stated in the judgment. A bankruptcy notice was issued on 28 March 1995 requiring payment of the sum of $15,595.81, being described as the balance sum of $12,000, together with interest due under the final judgment obtained in the Local Court. It is common ground that no attempt was made to comply with the bankruptcy notice. On 7 July 1995, the present petition was presented. It was not served until 1 December 1995. By letter dated 8 February 1996, the present solicitors for the debtor wrote to the solicitors for the judgment creditor purporting to give notice (but out of time) that the amount claimed in the bankruptcy notice exceeded the amount in fact due and that the debtor disputed the validity of the notice on the ground of the overstatement. The letter went on to state that a payment made on 16 September 1992 in the amount of $400 had not been deducted from the judgment nor deducted from the amount set out in the bankruptcy notice. I turn first to the question whether the power available to the Court under s.33(1)(c) of the Act to extend time should be exercised in the present case. Section 33(1)(c) provides: "33(1) The Court may: ... (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." In Re Wilhelmsen; Ex parte Gould (1986) 11 FCR 107, Pincus J. granted an extension of two days in an application to extend the time for the giving of notice under s.41(5). A similar approach was taken by Burchett J. in Re Clubb; Ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123. I considered but distinguished those cases in Re John Dier; Ex parte John Suduk and Susan Suduk, 9 March 1990, unreported, where on the assumption that the power available under s.33(1)(c) was available in the present context it was held that for discretionary reasons, it should not be exercised. I there said (at 14-15): "The present application is approximately eight months out of time. The bankruptcy notice, served on 30 May 1989, required, inter alia, payment within 14 days after service (i.e. by mid-June), yet the present application was not even foreshadowed until mid February in the following year. A further, and serious, complication is the presentation of the petition on 16 August 1989 and its service in the following month. The petition has already been before the Court on at least five occasions. It must be a rare case where an application of the present kind is granted after the presentation of a petition. It is true that in Wilhelmsen's Case, an extension of time was granted, but the notice there was only two days' late (see at p.108). In Clubb's Case, an extension was also granted, yet the notice in that case was merely three days' late and there had been an error made by the solicitors for the debtor (see at pp.4-5). The evident policy of s.41(5) is to ensure that, ordinarily at least, if a notice is to be given by a debtor under that provision, it should be given promptly. Extensions of two or three days do not contradict this legislative policy. An extension of eight months, especially granted after the presentation of a petition, does, on the face of it, seem at odds with the legislative intent. In my opinion, the delay in the present case, viewed in the context of an important supervening event in the form of the presentation of the petition, is such that the interests of justice require that time not now be extended. Mr. Dier has given no acceptable explanation why the points he now seeks to raise were not advanced when he was served with the bankruptcy notice, or even when served with the petition. In my view, it would be wrong, after some eight months have passed since the point could have been raised, to permit Mr. Dier to challenge the validity of the bankruptcy notice on these grounds. (This is not to say that it would not be open to Mr Dier, at the hearing of the petition, to seek to "go behind" the default judgment for any appropriate reason. But that is a different question, and it does not now arise for consideration.)" In my opinion, similar discretionary considerations apply in the present case. Again I am prepared to assume, albeit with some reluctance, that the power of the Court under s.33(1)(c) could be invoked after the presentation of a petition. There are strong discretionary reasons why that power should not be invoked at such a late stage. The debtor in his affidavit in support of his application said that upon receipt of the bankruptcy notice, he took it to his (then) solicitor upon whom, he says, he relied to advise him with respect to the matter. However, apart from that bald statement, no attempt has been made on behalf of the debtor to provide any detail of the terms of his instructions to his solicitor at the time or to provide the Court with any other material information in that area. For instance, there is no evidence that the debtor sought to draw to the attention of the solicitor then acting for him, the circumstance that the judgment failed to take into account the payment of $400 made on 16 September 1992. The delay between the time of service, 1 December 1995, and the writing of the letter by the present solicitors on 8 February 1996 is, on its own, quite substantial in the present context. Moreover, the bankruptcy notice, itself, was served on 6 April 1995 and required compliance by 20 April 1995, so that nearly ten months elapsed between that date and the time at which an attempt was made to invoke the provisions of s.41(5). That delay is, I think, of a scale that compels the refusal of any discretion that might be available under s.33(1)(c) in the instant connection. On behalf of the debtor, I was invited to go behind the default judgment, and it is of course accepted that the Court has that power (cf. Olivieri v Stafford (1989) 24 FCR 413). However, it is also said on behalf of the debtor, that given the overstatement of the amount of the judgment debt in the sum of $400 by reason of the circumstances I have described, the judgment in the Local Court was irregularly obtained and therefore, for bankruptcy purposes, it should be, in effect, ignored. (It would seem that, whether or not it is necessary to invoke the slip rule in the present context, there probably was, in any event, jurisdiction in the Local Court to make an appropriate order to remedy a situation which has arisen as a result of an oversight by a party's legal representative, notwithstanding the fact that formal orders have been taken out (see The Commonwealth v McCormack (1984) 155 CLR 273 at 277), but I need not pursue the point.) The question now for decision is in fact covered by authority. In Re Bedford; Ex parte H.C. Sleigh (Queensland) Pty Ltd (1967) 9 FLR 497, it was held that failure to comply with a bankruptcy notice given upon an irregular judgment entered for an amount exceeding the amount actually due at the time of judgment is an act of bankruptcy upon which the judgment creditor is entitled to proceed in bankruptcy. I will not attempt to summarise the discussion of the present question by Gibbs J. (as he then was) at 498-9, but, with respect, I agree with it. As his Honour observed, even if I go behind the judgment, it does not follow that no act of bankruptcy has been proved. As Gibbs J said (at 499): "[The creditor] ... has obtained a final judgment which has not been set aside and which, although irregular, is not null." Inquiry shows, in this case, as in Bedford, that the judgment was founded on a "real" debt. The amount stated in the notice was excessive, but this does not invalidate the notice, by dint of the operation of s.41(5). In my opinion, the act of bankruptcy has been established and there is no reason, of principle or of a discretionary kind, why I should refuse to make a sequestration order. In the absence of any evidence of solvency of the debtor and I note, in this connection, that another creditor supports the present petition, I propose to order that the estate of the debtor be sequestrated. I further order that the petitioning creditor's costs, including any reserved costs, be taxed and paid in accordance with the Act. I further order that the Official Trustee be the trustee of the bankrupt's estate. I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Beaumont. Associate Dated: 8 May 1996

Re Clubb; Ex parte Clubb v Westpac Banking Corporation

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