Bankruptcy - bankruptcy notice - setting aside notice on basis of existence of a stay of judgment debt - whether requirement contained in Court rule that a judgment creditor get leave to issue execution on judgment debt after lapse of 6 years creates a "stay" for purposes of Bankruptcy Act - whether Bankruptcy Act requires only that judgment not be stayed as at time of issue or at time of service as well.

Bankruptcy Act 1966 ss. 40(1)(g) and 41(3)(h)

World Square Pty Ltd v. Taylor (1990) 1 Qd R 583

Litherland v. Litherland and Randage (1963) QWN 24

Re John Perkins Seers (1955) 17 ABC 11

Re Moss; Ex parte Tour Finance Ltd (1969) 13 FLR 101

Re Padagas; Ex parte Carrier Air Conditioning Pty Ltd [1977] FCA 12; (1977) 30 FLR 170

Re Vittoria Di Giacomo; Ex parte Boral Steel Limited [1983] FCA 43; (1983) 68 FLR 106

Schekeloff; Ex parte Schekeloff v. The Hopkins Group Pty Ltd (1989) 22 FCR

Re Frasersmith; Ex parte J Blackwood and Son Ltd [1992] FCA 249; (1992) 36 FCR 144

Counsel for the Petitioning

Creditor:Miss M. Byrne

Solicitors for the Petitioning Phillips Fox town agents for Cohen

Creditor: Kirby and Iser

1. Bankruptcy Notice No. 1715 of 1993 be set aside.

2. The respondent pay the applicant's costs.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

SPENDER J This is an application to set aside a bankruptcy notice. It raises a question as to the meaning of "a judgment the execution of which has not been stayed" in s. 40(1)(g) of the Bankruptcy Act 1966 ('the Act'), and the further question of whether as at the date of service of the bankruptcy notice it is necessary that the judgment on which the bankruptcy notice is based is one which is not at that time stayed.

2. The contentions of the applicant, Graham Johnson ('the debtor'), are that the judgment has to be one which is not stayed as at the date of service of the bankruptcy notice and that the judgment relied upon as founding bankruptcy notice No. 1715 of 1993 ('the judgement') is not "a judgment the execution of which has not been stayed" within the meaning of s. 40(1)(g) of the Act, because the respondent, Patricia Irene Tonkin ('the judgment creditor') failed to obtain the leave of the Supreme Court of Queensland under the Rules of the Supreme Court (Queensland) O. 47 r. 24(a), to issue execution "when six years have elapsed since the date of the judgment", such leave being necessary because six years have elapsed since the date of the judgment

3. For the creditor, it was submitted that while it was accepted that the notion of a stay in s. 40(1)(g) is a broad one, it does not extend to a situation where a requirement for leave to proceed has arisen by the effluxion of time. In this regard, reliance is placed on the provisions of s. 41(3) which distinguishes between a judgment the execution of which has been stayed in s. 41(3)(b) and a judgment in respect of which a period of more than six years has elapsed: s. 41(3)(c). The submission for the creditor is that if lapse of time is to come within the broad notion of a stay, s. 41(3) would be otiose. It was further submitted that it is only at the time of issue of the bankruptcy notice that consideration must be given as to whether the judgment is one the execution of which has not been stayed.

4. The chronology of events is important in the present case.

5. In 1982, Writ of Summons No. 170 of 1982 issued in the Supreme Court of Queensland, Cairns District Registry. The writ sought damages as a result of the negligence and/or breach of duty of the debtor and another at Fitzroy Island on the 21st day of june, 1981, in the State of Queensland. On 6 August 1986, Thomas J ordered that the plaintiff/judgment creditor recover against the second defendant/debtor damages to be assessed. On 13 April 1988, Connolly J, in the Supreme Court of Queensland, assessed damages at $141,220.00. On 4 February 1994, Bankruptcy Notice No. 1715 ('the bankruptcy notice') issued in respect of that sum. On 13 April 1994 the six year period provided for by O.47 rr.23-24 expired. In May 1994 (the precise date is unclear) the bankruptcy notice was served. It was therefore served outside the period of six years since the date of the judgment.

6. Section 40(1)(g) provides:

" A debtor commits an act of bankruptcy in each of the

following cases:

...

(g) if a creditor who has obtained against the debtor a

final judgment or final order, being a judgment or

order the execution of which has not been stayed, has

served on the debtor in Australia or, by leave of the

Court, elsewhere, a bankruptcy notice under this Act

and the debtor does not:

(i) where the notice was served in Australia -

within the time fixed by the Registrar by whom

the notice was issued; or

(ii) where the notice was served elsewhere - within

the time fixed for the purpose by the order

giving leave to effect the service;

comply with the requirements of the notice or satisfy

the Court that he has a counter-claim, set-off or

cross demand equal to or exceeding the amount of the

judgment debt or sum payable under the final order, as

the case may be, being a counter-claim, set-off or

cross demand that he could not have set up in the

action or proceeding in which the judgment or order

was obtained. "

7. Section 41(3) provides:

" A bankruptcy notice shall not be issued in relation to a

debtor:

(a) except on the application of a creditor who has

obtained against the debtor a final judgment or final

order within the meaning of paragraph 40(1)(g) or a

person who, by virtue of paragraph 40(3)(d), is to be

deemed to be such a creditor.

(b) if, at the time of the application for its issue,

execution of the judgment or order to which it relates

has been stayed; or

(c) in respect of a judgment or order for the payment of

money made by the Court in the exercise of the

jurisdiction conferred on it by this Act if:

(i) a period of more than 6 years has elapsed since

the judgment was given or the order was made; or

(ii) the operation of the judgment or order is

suspended under section 37. "

8. Section 41(3) is directed at the time at which a bankruptcy notice is issued. It outlines circumstances which prohibit the issuing of a bankruptcy notice. At the time of the issue of the bankruptcy notice, execution of the judgment to which it relates had not been stayed and therefore the prohibition contained in s. 41(3)(b) did not apply.

9. In my opinion, the prohibition contained in s. 41(3)(c) is confined to judgments or orders for the payment of money made by a Court, being a court specified in s. 27(1) of the Act, exercising bankruptcy jurisdiction.

10. The effect of the prohibition is that no bankruptcy notice can issue in respect of any such judgment or order if more than six years has elapsed since the judgment was given or the order was made. The judgment which founds the present bankruptcy notice is not a judgment made by a court in the exercise of any jurisdiction conferred by the Bankruptcy Act.

11. Rules 23 and 24 of Order 47 of the Rules of the Supreme Court relevantly provide:

" 23. As between the original parties to a judgment or order,

execution may be issued at any time within six years from

the date of the judgment or order.

24. In the following cases, that is to say -

(a) When six years have elapsed since the date of the

judgment or order, ...

...

the party claiming to be entitled to execution may apply to

the Court or a Judge for leave to issue execution

accordingly. And the Court or Judge may, if satisfied that

the party so applying is entitled to execution, make an

order giving him leave accordingly, or may order that any

question or issue of fact necessary for determining the

rights of the parties shall be tried in any manner in which

any question or issue of fact in any action may be tried.

And in either case the Court or Judge may impose such terms

as to costs or otherwise as may be just. "

12. These rules were considered by Lee J in World Square Pty Ltd v. Taylor (1990) 1 Qd R 583. Lee J dismissed an application in 1989 for leave pursuant to O. 47 r. 24(a) to issue execution against a judgment made on 1 April 1992. His Honour held that the applicant plaintiff had not established that, having regard to arrangements between the parties, it was entitled to execution and, in the alternative, said that as a matter of discretion, because of likely prejudice to the defendants, would also on that ground have dismissed the application. His Honour, having considered authority, concluded that upon application pursuant to O. 47 r. 24(a), the court or a judge had an unfettered discretion whether or not to grant the application once the plaintiff showed it was entitled to issue execution. Lee J held, applying Hammond v. Kampfhenteel [1895] VicLawRp 34; (1895) 21 VLR 202, that an evidentiary onus lay on the defendants to show some reason why it would be inequitable or unjust for the plaintiff to issue execution. His Honour also indicated that, although the rule did not expressly require a plaintiff to explain the delay in issuing execution, it was prudent practice to do so. At 587, where he was concerned with the intention of the rule, his Honour said:

" In Litherland v. Litherland and Randage ((1963) QWN 24)

Gibbs J was also concerned only with the question of whether

or not the defendant should be served. His Honour said:

' In my opinion these decisions are correct, and the

intention of the rule is that after six years have

elapsed, the party apparently entitled to execution

should not be able to enforce his judgment without

giving the other party an opportunity to show that for

some reason he is no longer liable to have the judgment

enforced against him. '

That passage is wide enough to include matters which the

defendant might show going to the exercise of the discretion

as well as matters which might tend to negative the legal

entitlement or legal right of the plaintiff to issue

execution. "

13. No such application has been made in respect of the judgment which founds Bankruptcy Notice No. 1715 of 1993.

14. In those circumstances, the question in the present application concerns the proper construction of the words "being a judgment or order the execution of which has not been stayed" where a creditor has served on the debtor a bankruptcy notice founded on that judgment or order.

15. The respondent contends that the judgment in this case is properly to be regarded as one which is stale rather than one "the execution of which has been stayed", and that consideration of the question of whether the judgment is one of which the execution has been stayed is confined to the time of issue of the bankruptcy notice.

16. Re John Perkins Seers (1955) 17 ABC 11 is relevant to the first point. In that case Clyne J considered the effect of "what might be called a stale judgment", using his words, under the Victorian County Court Rules 1930 (Vic.). This was in the context of s. 52(j) of the then Bankruptcy Act 1924, which, in respect of a judgment on which a bankruptcy notice was founded, contained the requirement of "execution thereon not having been stayed".

17. Under the relevant County Court rule, no warrant against goods, except by leave of the court, could issue on a judgment unless certain payment had been made by the judgment debtor in the previous four years.

" In my opinion the reasonable construction of the rule is

that where a judgment creditor proposes to issue execution

on what might be called a stale judgment, he must obtain

leave of the court or a judge to do so unless he can prove

that during the period of four years previous to the date

when he proposes to issue execution some payment into court

has been made by the judgment debtor. A payment by the

judgment debtor to the judgment creditor is not a payment

into court, nor is a payment made to avoid execution.

The next question is whether by virtue of r. 17 there has

been a stay of execution. In my opinion there has been such

a stay. The words in s. 52(j) of the Bankruptcy Act 'and

execution thereon not having been stayed' are not, I think,

restricted only to cases where there is an express stay by

order of the court.

It is clearly established that in order to entitle a

creditor to issue a bankruptcy notice he must be in a

position to issue execution on his judgment at the time when

he issues the bankruptcy notice. See Ex parte Ide: In re

Ide (1886) 17 QBD 755, at p 759) per Bowen LJ. "

19. In Penning v. Steel Tube Supplies Pty Ltd (1988) 18 FCR 568, which is a case again directing attention to the question of whether the judgment underlying a bankruptcy notice was deemed to have been stayed at the time of issue of the notice, these observations of Clyne J were cited with approval.

20. In Re Moss; Ex parte Tour Finance Ltd (1969) 13 FLR 101, Gibbs J, as he then was, in the Federal Court of Bankruptcy, dismissed an application to set aside a bankruptcy notice as invalid, the judgment debtor contending that there had been a stay of execution of the judgment. His Honour considered both ss. 40(1)(g) and 41(3)(b) of the Act. At 103, he said of the words "the execution of which has not been stayed" as they appear in the prescribed form of bankruptcy notice and in s. 40(1)(g) of the Act:

" ...the words of the notice and of the section speak as at

the time when the notice is served and refer to a stay of

execution which has continued in force up to the time of the

service of the notice. Similarly, s. 41(3)(b), which

provides that a bankruptcy notice shall not be issued if at

the time of the application for its issue execution of the

judgment or order to which it relates has been stayed,

refers to a stay in force at the time of the application.

The effect of these provisions is that if at the time of the

application for its issue execution of the judgment or order

to which it relates has been stayed, and the stay is still

in force, so that at that time the creditor is not entitled

immediately to issue execution on the judgment, the notice

will be bad..."

(my emphasis)

21. As s. 41(3) makes plain, it is clearly necessary that in order to entitle a creditor to issue a bankruptcy notice he must be in the position to issue execution on his judgment at the time when he issues the bankruptcy notice: Re Seers at p 13; Ex Parte Ide; In Re Ide (1886) 17 QBD 755 at 759.

22. In Re a Debtor; Ex parte The Debtor (1908) 1 KB 344, Fletcher Multon LJ said at 351:

" You have to show that you are in a position to receive

payment at the date when you serve the bankruptcy notice. "

23. Gibbs J in Re Moss said (at p 104) that this statement "is not in conflict with the statement of Clyne J because the creditor has to be entitled to enforce his judgment both at the time of the issue of the notice and at the time of its service". Re Moss was a case where the claimed "stay" had ceased prior to the issue of the bankruptcy notice, so that the question was not as here, which is whether there is the requirement not only at the date of issue but at the date of service. Nonetheless the observations of Gibbs J directly cover the present facts.

24. In Re Padagas; Ex parte Carrier Air Conditioning Pty Ltd [1977] FCA 12; (1977) 30 FLR 170, a stay operated both at issue and service of a bankruptcy notice, the judgment having been entered on 16 October 1976, the bankruptcy notice issued on 1 November 1976, served on 17 December 1976, the expiry for the bankruptcy notice being 31 December 1976. The order and stay in respect of the judgment on which the bankruptcy notice was based was not made until 26 January 1977.

" By reason of s. 88(8) of the District Court Act an

instalment order, while it remains in force, operates as a

stay of enforcement of the judgment' in respect of which it

was made. (There is an exception which is not material to

this case). Had this order so operated before the time of

the issue or the service of the bankruptcy notice, the

notice would have been bad: ss. 40(1)(g), 41(3)(b) of the

Bankruptcy Act; Re Moss; Ex parte Tour Finance Ltd (1968) 13

FLR 101 at pp 103-104. "

26. The observations of Gibbs CJ in Walsh v. Deputy Commissioner

of Taxation [1984] HCA 33; (1984) 156 CLR 337, which was concerned with the question whether a bankruptcy notice overstates the amount due is to be decided at the time of the issue of the notice or at the time of its service does not affect the present question. Gibbs CJ, (with whom Mason, Brennan, Deane and Dawson JJ agreed) concluded that the requirement is that the amount which must be correctly stated is the amount of the judgment debt owing at the date of issue of the bankruptcy notice, although any payment made after issue and before service must be taken into account in deciding whether there has been a compliance with the requirements of the notice.

27. In Re Vittoria Di Giacomo; Ex parte Boral Steel Limited [1983] FCA 43; (1983) 68 FLR 106, Evatt J was concerned with a case where the primary facts were on all fours with the present, it being submitted that the bankruptcy notice was bad as at the date of service, albeit not as at the date of issue. For relevant purposes the facts were that on 11 March 1982, judgment was entered in the New South Wales District Court; on 16 April 1982 a bankruptcy notice was issued; on 10 May 1982 an ex parte order was made in the District Court that the amount of the judgment be paid by instalments and on 13 May 1982 the bankruptcy notice was served. The effect of s. 88 of the New South Wales District Court Act provided for orders for the payment for a judgment by instalments was that such order, while it remaind in force, operated as a stay of enforcement of the judgment. Accordingly, although the judgment of 11 March 1982 was not stayed as at the issue of the bankruptcy notice on 16 April 1982, because of the instalment order made on 10 May 1982, the judgment had been stayed when the bankruptcy notice was served on 13 May 1982.

28. Evatt J expressly referred to the dicta of Gibbs J in Re Moss and Riley J in Padagas and said at 109:

" The judgment creditor has submitted that the observations of

both Gibbs J and Riley J that a bankruptcy notice is bad if

at the time of its service upon the debtor there is in force

an order made under s. 88 of the District Court Act were

obiter and should not be followed. He submitted that the

proper meaning of s. 40(1)(g) when read with s. 41(3)(a) and

(b) was that the proviso provided for in s. 40(1)(g) was

speaking only as at the date of the issuing of the

bankruptcy notice and not the date of service thereof.

It is clear that the observations of both Gibbs J and Riley

J in respect of s. 40(1)(g) of the Bankruptcy Act set out

above are obiter and as such are not binding. But with

respect I agree with those observations. The instalment

order made under s. 88 of the District Court Act on 10 May

1982 operated 'as a stay of enforcement of the judgment' in

respect of which it was made and such order so operated on

13 May 1982, the date of the service of the bankruptcy

notice. Accordingly I am of the view that the bankruptcy

notice could not then have founded the act of bankruptcy

alleged in the petition. "

29. In my opinion, it is a necessary requirement of the Act that a judgment or order founding a bankruptcy notice be one which is not stayed (within the wide meaning given to that phrase) both at the time of issue of the bankruptcy notice and at the time of its service. This conclusion is consistent not only with the cases I have cited but with the judgment of Burchett J in Schekeloff; Ex parte Schekeloff v. The Hopkins Group Pty Ltd [1989] FCA 91; (1989) 22 FCR 407 and of Beaumont J in Re Frasersmith; Ex parte J Blackwood and Son Ltd [1992] FCA 249; (1992) 36 FCR 144.

30. For the above reasons, Bankruptcy Notice No. 1715 of 1993 is invalid and must be set aside, with costs.