Taubert v Eddaglide Pty Ltd

REASONS FOR JUDGMENT 1 This is an application by Sigmund Taubert ("the applicant") filed on 18 August 2000 pursuant to s 41(6A) of the Bankruptcy Act 1966 (Cth) ("the Act") for orders that the time for compliance with bankruptcy notice NN5404 of 2000, served on the applicant on 31 July 2000 by Eddaglide Pty Limited ACN 051 149 596 ("the first respondent") and bankruptcy notice NN5405 of 2000, served on the applicant on 31 July 2000 by Gundagai Gold Pty Limited ACN 002 862 615 ("the second respondent") be extended and that each bankruptcy notice be set aside. The matter was not made returnable until 10 October 2000. 2 Each of the bankruptcy notices was based upon summary judgments obtained by order of Master McLaughlin of the Supreme Court of New South Wales on 1 June 2000 in the absence of the applicant. 3 The affidavit of the applicant filed in support of the application was sworn on 18 August 2000 and, omitting formal parts, was in the following terms: "4. The respective creditors named in the First Bankruptcy Notice and the Second Bankruptcy Notice have not been correctly identified. 5. The first respondent and the second respondent are in liquidation. 6. The First Bankruptcy Notice and the Second Bankruptcy Notice do not make reference to an external administrator of either the first respondent nor the second respondent. 7. The judgment relied on by the first respondent and the second respondent does not make reference to an external administrator having been appointed to either company. 8. The judgment relied on by the first respondent and the second respondent was obtained by default. 9. I intend to make an application to set aside the judgment." 4 The affidavit of the solicitor for the respondents sworn on 9 October 2000 gave a history of the proceedings leading to judgment, which included the fact that on 31 May 2000 the then solicitor for the applicant said that he had received instructions from the applicant that his authority to act in the proceedings in the Supreme Court had been determined. Consequently, there was no appearance for the applicant on the hearing of the motion for summary judgment. 5 When this matter came on for hearing before this Court on 10 October 2000 it was adjourned until 24 October 2000. On that date, the applicant filed a further affidavitsworn on the same date. The applicant said that he intended to file a notice of motion in the Supreme Court, seeking to set aside the judgments which founded the bankruptcy notices. The applicant also produced a copy of the proposed notice of motion and supporting affidavit. He also annexed a copy of an affidavit sworn by him in the original Supreme Court proceedings on 24 May 2000. This proceeding was stood over until 17 November 2000. On 25 October 2000 the notice of motion to set aside the judgment was filed in the Supreme Court and was to come on for hearing before Hamilton J on 21 November 2000. When this proceeding came on before this Court on 17 November 2000 it was adjourned until 27 November 2000. 6 On 21 November 2000 Hamilton J made the following orders: "Upon the plaintiffs by their counsel giving to the Court an undertaking that they will not raise any defence relying upon the judgments the subject of this application to any claim made by the first defendant in relation to the consultancy fees mentioned in paragraphs 16 and 26 the motor vehicle expenses mentioned in paragraph 26 the Mastercard payment mentioned in paragraph 27 or the expenses mentioned in paragraph 28 of the affidavit of the first defendant sworn 2 November 2000: 1 Application to set aside judgment dismissed. 2 Application to discharge or vary Mareva injunction dismissed. 3 Order that the defendants pay the plaintiffs' costs of the application. 4 Direct that these orders be entered forthwith." I shall return to examine this judgment more closely in due course. 7 When this proceeding came back before this Court on 27 November 2000 it was adjourned for hearing before me on 28 November 2000. On that day the applicant filed in court an affidavit of that date annexing a copy of a notice of motion filed on 27 November 2000 in the Supreme Court proceedings, returnable on 15 December 2000, seeking orders setting aside the judgments obtained against him on 1 June 2000 and seeking leave to file a cross-claim in the Supreme Court proceedings. The matter proceeded to hearing before me on 28 and 29 November 2000, which included cross-examination of the applicant. Having heard full argument I reserved my decision. I indicated however that I might elect to await receipt of reasons for the decision of Hamilton J, which were not then available, before delivering my judgment . 8 The reasons for the decision of Hamilton J became available, and on 15 December 2000 Hodgson CJ in Eq of the Supreme Court heard and rejected the motion which had been filed on 27 November 2000. His reasons became available on 19 December 2000. On that day the solicitor for the applicant prepared a Summons for Leave to Appeal to the Court of Appeal of the Supreme Court of New South Wales, which was allocated a return date on 19 March 2001. I considered the judgments of Hamilton J and Hodgson CJ, the Summons for Leave to Appeal and the attached material. On 21 December 2000 I concluded that it could not be said that the application for leave to appeal was frivolous or vexatious, with no chance of success, and I held that, in the circumstances, the appropriate course was to await determination of that summons, provided that it was pursued with proper diligence. The matter was therefore stood over to 29 March 2001. 9 The summons was not dealt with in the Court of Appeal by 29 March 2001 and the matter was stood over to 26 April 2001. I was informed on that occasion that the application for leave had been refused by the Court of Appeal. Thus, the position is that the judgments against the applicant in the Supreme Court stand, but the respondents are bound by the undertakings given to Hamilton J and recorded in his order of 21 November 2000. 10 This proceeding is, in substance, to set aside the bankruptcy notices. Over the objection of the respondents each time the matter has been before me I have extended time for compliance with the bankruptcy notices and time for compliance is presently extended until the day upon which this judgment is delivered. There is no provision in the Act which expressly grants the power to set aside a bankruptcy notice. Extension of time for compliance is dealt with by s 41(6A), (6C) and (7), which are in the following terms: "(6A) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice: (a) proceedings to set aside the 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. … (6C) Where: (a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and (b) the Court is of the opinion that the proceedings to set aside the judgment or order: (i) have not been instituted bona fide; or (ii) are not being prosecuted with due diligence; the Court shall not extend the time for compliance with the bankruptcy notice. (7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied." 11 Section 40 (so far as is relevant) states: "40.(1)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 specified in the notice; 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 or she 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 or she could not have set up in the action or proceeding in which the judgment or order was obtained; … (3) For the purposes of paragraph (1)(g): … (b) a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained; …" 12 Other relevant provisions are: "s41(1)An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that: (a) is described in paragraph 40(1)(g); and (b) is for an amount of at least $2,000. … (3) 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. … (5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement. (6) Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with subsection (5), he or she shall be deemed to have complied with the notice if, within the time allowed for payment, he or she takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it. …" 13 Counsel for the respondents conceded that there is implicit power in the Court to set aside a bankruptcy notice and that there might be circumstances where, on such an application, the Court might go behind the judgment. This relieves me of the necessity to examine those issues for myself. They are discussed in Olivieri v Stafford (1989) 24 FCR 413 ("Olivieri"), particularly by Gummow J at 430-432. I do not assume, however, that it is appropriate to deal with an application to set aside a bankruptcy notice as if it were the hearing of an application for sequestration. 14 It was argued on behalf of the applicant that the summary judgments in the present case are not final judgments within the meaning of s 40(1)(g) of the Act, I was referred to the analysis of the authorities on the meaning of "final" as contrasted with "interlocutory" in Malouf v Malouf (1999) 86 FCR 134, in which the earlier authorities are reviewed. These authorities discuss the issue in other statutory contexts. In my opinion, s 40(3)(b) of the Act has the effect that the judgments upon which the notices are based are final judgments for present purposes. 15 It was also argued by the applicant, referring to Boscolo v Botany Council (Jenkinson, O'Loughlin and Sackville JJ, 16 October 1996, unreported) and the cases referred to in that decision (in particular Wiltshire-Smith v Olsson (1995) 57 FCR 572 ("Wiltshire-Smith")) that a Mareva injunction which the respondents had obtained against the applicant had the practical effect of staying execution on the judgment because the applicant was not able to realise assets to pay the judgments. 16 However, the Mareva orders in question firstly only restrain dealings "until further order" and, secondly, contain an express provision "The defendant may dispose of or deal with his assets upon the terms consented to by the plaintiff or the plaintiff's solicitor". It would, in my opinion, be odd to suggest that orders in that form have the practical effect of preventing the applicant from dealing with his assets in order to pay the very parties who obtained the Mareva orders. Counsel for the respondents also argued that the applicant's equity in his only asset, the matrimonial home, fell far short of being sufficient to pay out the judgments. That is certainly correct, but the waters are somewhat muddied by the question of cross-claim or set-off to which I shall return. 17 An argument which was initially flagged about the description of the creditors in the bankruptcy notices has not been pursued. 18 It will be recalled that the applicant initially sought extension of time in this Court as he intended to make an application to set aside the judgments. Over the strong and consistent opposition of the respondents, the applicant was afforded that opportunity, including the opportunity to take the matter to the Court of Appeal. Having in mind authorities such as Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264, this may have bent too far in favour of the debtor. The result is that the applicant has been unsuccessful in having the judgments set aside and they stand. 19 It has been submitted on behalf of the applicant that there is an arguable defence available to the applicant to the claim of the first respondent based upon provisions of the Corporations Law. I had some difficulty following the argument made by the applicant, and the answer given by counsel for the first respondent as to the basis of the pleaded claim seemed convincing. Whether that be so or not, I am not disposed to go behind the judgments. It would be a rare case where this Court would extend time further to explore a shadowy defence when time for compliance had been extended for some months to enable application to be made to the relevant court for judgment to be set aside, particularly where no error of substantive law has been identified in the judgments of any of Master McLaughlin, Hamilton J or Hodgson CJ in Eq (as to which, see Olivieri per Gummow J at 429; see also Wiltshire-Smith). Indeed, I am satisfied that counsel for the respondents is correct in submitting that the principal liability was conceded by the applicant in the Supreme Court. 20 The applicant, however, seeks to propound claims against the respondents which should be set off against the indebtedness under the judgments. Evidence in relation to these claims was led in the applications before each of Hamilton J and Hodgson CJ in Eq, and the applicant has sought to further supplement that evidence in this proceeding. Counsel for the respondents points out that, as these claims arise out of events some years ago, they could have been pursued at any time, either directly or in response to the claims which led to the judgment against the applicant. In particular, they could have been raised in answer to the summary judgment application. 21 I am satisfied that the claims in question by the applicant are unrelated to the claims against the applicant which have now merged in the judgments. Nonetheless, they plainly could have been set up in the proceeding in which the judgments were obtained. I am prepared to assume from the reasons of Hamilton J, from the undertaking he extracted from the respondents, and from my limited consideration of the evidence as to these claims, that the applicant has an arguable case. I am satisfied, however, that, if established, the claims would fall far short of the amount required to satisfy each judgment. 22 In these circumstances, I do not think it appropriate to set aside the bankruptcy notices. The applicant cannot satisfy either of the express provisions of s 40(1)(g) in relation to counter-claims, set-offs or cross demands. The judgments of a superior court stand, and there is no dispute that they are supported by a real liability. If an act of bankruptcy eventuates, the applicant can oppose sequestration if he has a serious chance of demonstrating solvency, taking into account all considerations. If sequestration eventuates, counsel for the respondents submits that s 86 of the Act and s 553C of the Corporations Law provide the means of sorting out cross demands. 23 The application is dismissed. The applicant is to pay the costs of the respondents, including all reserved costs. I will extend time for compliance with each bankruptcy notice for a period of fourteen days after today. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.