Komesaroff, Morris v Law Institute of Victoria [1997] FCA 250

CATCHWORDS

BANKRUPTCY - appeal from orders made by single judge of Federal Court - whether basis for alleged cross demand - whether bankruptcy notice valid - whether in the circumstances court had power to order extension of time for compliance with bankruptcy notice - whether filing an affidavit alleging “irregularities” constituted an application to set aside a bankruptcy notice - whether claimed discomformity between the bankruptcy notice and judgment made out

Bankruptcy Act 1966

Legal Profession Practice Act 1958 (Vic)

AWU v Bowen (1946) 72 CLR 575 distinguished

James v Abrahams (1981) 34 ALR 657

Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 30 ALR 433

MORRIS KOMESAROFF v LAW INSTITUTE OF VICTORIA

NO VG 291 of 1996

SPENDER, DRUMMOND and R D NICHOLSON JJ

BRISBANE (heard in Melbourne)

7 APRIL 1997

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY No VG 291 of 1996

GENERAL DIVISION

BETWEEN: MORRIS KOMESAROFF

Appellant

AND: LAW INSTITUTE OF VICTORIA

Respondent

CORAM: SPENDER, DRUMMOND and R D NICHOLSON JJ

PLACE: BRISBANE (heard in Melbourne)

DATE: 7 APRIL 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The orders of Olney J of 23 May 1996 be set aside.

2. The judgment creditor pay the debtor’s costs of and incidental to the application filed 20 May 1996 to extend the time to comply with the bankruptcy notice, to be taxed if not agreed.

3. The appeal otherwise be dismissed.

4. There be no order as to costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY No VG 291 of 1996

GENERAL DIVISION

BETWEEN: MORRIS KOMESAROFF

Appellant

AND: LAW INSTITUTE OF VICTORIA

Respondent

CORAM: SPENDER, DRUMMOND and R D NICHOLSON JJ

PLACE: BRISBANE (heard in Melbourne)

DATE: 7 APRIL 1997

REASONS FOR JUDGMENT

THE COURT: This is an appeal from orders made by a single judge of this court (Olney J) exercising jurisdiction in bankruptcy. The appeal is part of a long-running saga between the appellant, Mr Komesaroff, a barrister and solicitor of long standing, and the Law Institute of Victoria, the Council of the Law Institute of Victoria, and one Connell, the Secretary of the Institute.

The first order the subject of this appeal, made by Olney J on 8 May 1996 (and entered on 29 July 1996) is in the following terms:

“ The Court is not satisfied that the judgment debtor has such a set-off, counter-claim or cross demand as is referred to in s 40(1)(g) of the Bankruptcy Act 1966 and orders that:

1. The judgment debtor pay the judgment creditor’s costs of this proceeding.

2. In the event that a sequestration order is made against the estate of the judgment debtor based on an act of bankruptcy committed by him as a result of his failure to comply with the demand contained in the bankruptcy notice herein, the costs referred to in paragraph 1 of this order be deemed to be costs in the administration of the bankruptcy.”

These orders were made in respect of the application heard on 30 April 1996.

The second order the subject of this appeal was made by Olney J on 23 May 1996 (again entered on 29 July 1996) and is in the following terms:

“ The Court Orders That:

1. The time for compliance with the Bankruptcy Notice will be extended to 24 May 1996.

2. The costs of this application to be taxed and in the event of the debtor being made bankrupt on a petition based on an act of bankruptcy arising from non-compliance with the Bankruptcy Notice, such costs be treated as costs in the administration and paid in accordance with the Statute.”

The bankruptcy notice to which these orders relate is Bankruptcy Notice VN1986 of 1995. The bankruptcy notice was a fourteen day notice and recited:

“ WHEREAS THE LAW INSTITUTE OF VICTORIA of 470 Bourke Street, Melbourne, Victoria (“Judgment Creditor”) has claimed that the sum of $14,571.88 and no more (which amount includes $3,688.08 interest calculated on the sum of $10,883.80 at the rate applicable pursuant to the Penalty Interest Rates Act 1983 (Vic) from 13 November 1992 to 17 August 1995) is the amount due by you under a final order for costs obtained by it against you in the Supreme Court of Victoria at Melbourne in proceeding no. 7865 of 1991 on 24 September 1991, which order was taxed by Master Bruce of the Supreme Court of Victoria by order dated 13 November 1992, being an order the execution of which have not been stayed:

...”

In proceedings V7865 of 1991 in the Supreme Court of Victoria between the appellant and the Law Institute of Victoria as respondent, Brooking J made an order on 24 September 1991 that:

“ The appeal is dismissed with costs including reserved costs.”

Mr Komesaroff sought to appeal to the Full Court of the Supreme Court from that decision but his appeal was found to be incompetent and was struck out with costs.

On 13 November 1992, Master Bruce in an order headed:

“ B E T W E E N:

MORRIS KOMESAROFF Appellant

- and -

LAW INSTITUTE OF VICTORIA and ROBERT JOHN

CORNALL Respondents”

said in the body of the order:

“ Taxation pursuant to the order of the Honourable Mr. Justice Brooking made 24 September 1991 and of the order of the Full Court made 10 March 1992.

...

THE COURT ORDERS THAT:

1. The costs of the Respondent pursuant to the order of the Honourable Mr. Justice Brooking are taxed and allowed at $10,883.80.

2. The costs of the Respondent pursuant to the order of the Full Court are taxed and allowed at $3693.70.”

These matters are set out in some detail because Mr Komesaroff sought in his submissions to rely on an alleged disconformity between the judgment founding the bankruptcy notice and the bankruptcy notice itself.

The Bankruptcy Notice 1986 of 1995 was served on 16 October 1995. On 26 October 1995 (within the time for compliance with the bankruptcy notice) the appellant filed an affidavit pursuant to s 41(7) of the Bankruptcy Act 1966, (‘the Act’), to the effect that he had a cross demand which he could not set up in the proceeding in which the costs order was obtained, which exceeded the judgment debt. Mr Komesaroff in that affidavit claims that as the result of the refusal to issue him with a practising certificate:

“ ...I suffered loss and damage by reason of being unable to carry on practice as a solicitor. I claim that my loss of earnings in respect of the years 1991, 1992, 1993, 1994 and 1995 amounted to at least $200,000, which loss and damage I am seeking to recover from the Institute and Robert Cornall.”

In addition to the claim of a cross demand of the kind referred to in s 40(1)(g) of the Act, Mr Komesaroff in that affidavit swore:

“ ...I say that the present Bankruptcy Notice is invalid, and I set out and rely on the following matters:-

(1)Tress, Cocks and Maddocks purporting to give and sign the Bankruptcy notice was not authorised or entitled to act for and on behalf of the Law Institute having regard to the provisions of the Legal Profession Practice Act and the rules and by-laws of the Institute.

(2)That the notice is irregular, giving rise to substantial injustice.

(3)The provisions of Rule 7 of the Bankruptcy Rules in relation to the application for issue of Bankruptcy Notice have not been complied with.

(4)The first Bankruptcy Notice having been set aside by the Court finally determines the claim to apply for and have issued a notice in respect of the debt claimed in the first notice.”

The matter referred to in the fourth category relates to an earlier bankruptcy notice. No reliance was placed on this aspect by Mr Komesaroff on the appeal. It is not relevant for present purposes.

In the proceedings before Olney J on 30 April 1996, it was not suggested on behalf of the Law Institute of Victoria (‘the Institute’) that the affidavit of Mr Komesaroff was not an affidavit of the kind required by s 41(7) of the Act: cf Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 30 ALR 433.

One basis on which his Honour expressed his lack of satisfaction was his finding that:

“ The judgment debtor has not in this proceeding or in the proceedings heard and determined by Ashley J attempted to establish that he has even a prima facie case against the Institute. The mere assertion of the existence of a cross demand is not sufficient (re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 30 ALR 433 at 439; Eastick v ANZ Banking Group Ltd (1981) 53 FLR 91; re Racheha, Ex parte Altonious (1980) 40 FLR 423).”

A further basis concerned the absence of evidence to support the quantum of the appellant’s claim. His Honour referred to Mr Komesaroff’s invitation to take judicial knowledge of the fact that a solicitor would earn more than the amount owing to the Institute if he practised for the periods indicated. Against this, His Honour noted that in 1991, Mr Komesaroff was unable to obtain a practising certificate. He withdrew his application for a practising certificate in 1992 and he did not apply for a certificate in either 1993, 1994 or 1995. In the light of this material, his Honour concluded:

“ Given these facts the mere assertion contained in the judgment debtor’s affidavit does not provide even a prima facie basis for his alleged cross demand.”

In the reasons for judgment given on 8 May 1996, Olney J said:

“ In the affidavit filed pursuant to s 41(7) of the Bankruptcy Act the judgment debtor sought to raise a number of other issues said to affect the validity to the bankruptcy notice but these matters were either not pressed or were abandoned in the course of argument. In the circumstances, no reference has been made to them in these reasons.”

The appellant disputes the accuracy of this statement, contending that while there was no express argument concerning the validity of the bankruptcy notice, they were not abandoned. The appellant sought to rely on these matters on the appeal.

The proceedings and orders on 23 May 1996 concerned an application by the Institute filed on 20 May 1996:

“ That the time for compliance by the Judgment Debtor with the Bankruptcy Notice No VN001986 of 1995 dated 24 August, 1995 be extended.”

On 23 May 1996, having recited the history of the matter, his Honour said:

“ The debtor did not file a formal application pursuant to Rule 10 of the Bankruptcy Rules but, nevertheless, the filing of the affidavit was treated as an application for the purposes of that rule, and for the purpose of the debtor’s application to set aside the bankruptcy notice on the grounds of invalidity. No application was made prior to the current application for an extension of time for compliance with the bankruptcy notice.”

In the reasons for judgment of 23 May 1996, his Honour said:

“ On 30 April 1996 the question in relation to the debtor’s claimed cross demand was argued in full. The other issues raised in the original affidavit relating to invalidity were either not pressed or were abandoned in the course of the hearing. Judgment was reserved and on 8 May 1996 I gave judgment and published reasons for my conclusion that I was not satisfied that the debtor had such a set-off, counter-claim or cross demand as is referred to in s 40(1)(g) of the Bankruptcy Act.”

His Honour continued:

“ The effect of my decision was that the deemed extension of time pursuant to s 41(7) did not apply, and accordingly the debtor committed an act of bankruptcy upon the expiration of 14 days from the service of the bankruptcy notice namely 30 October 1995.”

Because in his Honour’s view an act of bankruptcy had been committed on 30 October 1995 and that act had ceased by effluxion of time to be an available act of bankruptcy for the purpose of presenting a bankruptcy petition, his Honour invited counsel for the creditor and Mr Komesaroff (who appeared both at first instance and on this appeal for himself) to make further submissions in writing.

The creditor’s written submissions asserted a power in the court, pursuant to s 41(6A) of the Act, to order the time for compliance with the bankruptcy notice to be extended, and an order to that effect was sought. A subsequent application to that effect was filed.

Mr Komesaroff opposed the extension of time on the ground that the court at this stage of the proceeding had no jurisdiction to make such an order.

On 23 May 1996, his Honour concluded that one of the preconditions of the court’s power to extend time under s 41(6)A of the Act existed, that being the application by Mr Komesaroff to set aside the bankruptcy notice. His Honour concluded that:

“ ...the justice of the case demands that the time for compliance be extended, first, to give the debtor an opportunity to comply and, second, to ensure that if an act of bankruptcy is committed it will be an available act should the creditor elect to proceed with a petition. Accordingly, I propose to order that the time for complying with the bankruptcy notice be extended until 24 May 1996.”

The notice of appeal dated 29 May 1996 indicated that Mr Komesaroff appealed:

“ ...from the whole of the decisions of Mr Justice Olney given on 8 May, 1996 and 23 May, 1996.”

The grounds of the appeal are:

“ (1)That the learned judge wrongly held on the 8th May, 1996 that the Court was not satisfied that the judgment debtor (the appellant) had a set-off counter claim or cross demand as is referred to in Section 40 (1) (g) of the Bankruptcy Act, 1966 for or in respect of the bankruptcy notice given by the respondent.

(2)That the learned judge wrongly held on the 8th May, 1996 that the appellant had not complied with the requirements of the bankruptcy notice.

(3)That the learned judge’s consequential orders given on the 8th May, 1996 were wrong in Law and should be set aside.

(4)That the learned judge on the 23rd May, 1996 wrongly purported to extend the date for compliance with the bankruptcy notice to the 24th May, 1996 which order is null and of no effect.”

The Act then relevantly provided:

“ 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 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;

...”

Section 41(6A) of the Act provided:

“ Where, before the expiration of the time fixed by the Court or the Registrar 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 to set aside the bankruptcy notice has been filed with the Registrar;

the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.”

Section 41(7) of the Act then provided:

“ Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he 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.”

The bankruptcy notice No 1986 of 1995 contained the following:

“ NOTE: If you have a counterclaim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a) of this notice, being a counterclaim, set-off or cross demand that you could not have set up in the proceeding in which the judgment was obtained, you may, under sub-section (7) of section 41 of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counterclaim set-off or cross demand, as the case requires, and the reasons why you were unable to set up the counterclaim, set-off or cross demand and, if you do so, the time for complying with the requirements of this notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counterclaim, set-off or cross demand.”

Here the condition referred to in the subsection 41(7) of the Act was met, with the consequence that the time for compliance was extended by force of the Act itself, until and including 8 May 1996.

It is to be noted that s 41(7) was amended by amendments which came into force by Act No 44 of 1996 Sch 1, Pt 1 (118) on 16 December 1996. The words “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” have been substituted for the words “the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross demand“ in the earlier version.

Section 306(1) of the Act provides:

“ Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”

Rule 195(2) provides:

“ Where the provisions of these Rules have not been complied with in relation to a proceeding -

(a)the proceeding may be set aside, either wholly or in part, as irregular, or may be amended or otherwise dealt with in such manner and upon such terms as the Court thinks fit; or

(b)the Court may, upon such terms as the Court thinks fit, relieve a party from the consequences of non-compliance with these Rules.”

There were four issues identified by Mr Komesaroff in his submissions to the court on the appeal.

The first was that the bankruptcy notice did not accord with the judgment that was given. The second was that there was never any “application” by him to set aside the bankruptcy notice; in his affidavit filed under s 41 of the Act, Mr Komesaroff claimed that the bankruptcy notice did not comply with the provisions of the Act and was, as a consequence, null and void. Associated with this second issue was the argument that the bankruptcy notice was a nullity and not a matter to be set aside as an irregularity and that the application should not have been characterised as an application to set aside the bankruptcy notice.

The third issue raised by Mr Komesaroff was that the court, having expressed its conclusion on 8 May 1996 that it was not satisfied as to a counter-claim, set-off or cross demand, had no power on 23 May 1996 to extend the time for compliance with that bankruptcy notice, that time having expired on 8 May 1996.

The fourth issue canvassed in submissions by Mr Komesaroff was that if there was power in the court to extend the time for compliance with the bankruptcy notice, there was a denial of “natural justice” in the extension of time to 24 May 1996, because that did not give any reasonable time to the judgment debtor to comply with the terms of the notice and was not a fair and reasonable exercise of the power to extend time.

In addition to these matters, Mr Komesaroff was asked:

“ Are there any further grounds that you want to argue?”

to which he replied:

“ None other than appears in my affidavit”,

being a reference to the affidavit sworn 26 October 1995.

Finally, notwithstanding the absence of any material during the course of submissions to challenge the conclusion as to the non-satisfaction of the existence of a cross claim, Mr Komesaroff seemed to indicate that he took issue with the rejection by the primary judge of the existence of the cross claim based on the lack of evidence as to quantum of such a claim.

It is convenient to deal with the quantum point first.

The appellant referred to s 79 of the Legal Profession Practice Act 1958 (Vic) which casts a duty on the Secretary to keep a roll of solicitors and “to issue practising certificates of prescribed classes to persons who are entitled under this division to take out certificates authorising them to practice....” Mr Komesaroff also referred to Sutherland Shire Council v Heyman (1984-85) 157 CLR 424 and Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337. This aspect of the matter was not the subject of further elaboration by the appellant.

Accepting that the ordinary principles of negligence apply to persons the subject of the duty in s 79 of the Legal Profession Practice Act 1958, rendering them liable for damage caused by a negligent failure to act when under a duty to act, or by a negligent failure to consider whether to exercise a conferred power in the public interest, the mere existence of a duty to act does not establish any breach of it, nor does it create an entitlement to damages flowing from the breach. There is nothing in the evidence to justify any interference with the finding by Olney J concerning his finding as to the quantum of any cross claim that Mr Komesaroff may have against the Institute.

As to the matters (other than the cross claim) referred to by Mr Komesaroff in his affidavit of 26 October 1995, there is the initial hurdle of his Honour’s statement that those matters were either not pressed or abandoned. Putting to one side the difficulties of that statement, the evidence does not permit the points numbered 1, 3 and 4 in paragraph 10 of that affidavit to be answered favourably to the appellant. There is nothing to persuade the court that on the evidence before the primary judge, he ought to have determined any of them in favour of Mr Komesaroff.

As to the point numbered 2 in paragraph 10 of the affidavit dated 26 October 1995 that “the [bankruptcy] notice was irregular, giving rise to substantial injustice”, no particulars of the claimed irregularities of the bankruptcy notice are given.

It may be that this complaint relates to the first issue referred to by Mr Komesaroff in his submissions to this court, being the disconformity point.

The claimed disconformity between the notice and the judgment is not made out. The judgment of the Supreme Court of Victoria dated 24 September 1991 is unambiguous. The addition of the name of Robert John Connell as one of the respondents named in the heading of the order of taxation of Master Bruce of 13 November 1992 is explicable by the fact that the first of those orders related to the proceedings before Brooking J and the second is in respect of the orders for costs made by the Full Court.

The order of Master Bruce is addressed to the respondent in the singular. The proceeding is numbered as number 7865 of 1991. The matter being addressed is taxation pursuant to the orders of Brooking J and of the Full Court previously referred to. The order of Brooking J dismissed the appeal with costs including reserved costs. The bankruptcy notice refers to the amount due under the final order for costs obtained by the respondent against the appellant in the Supreme Court of Victoria in proceeding number 7865 of 1991 on 24 September 1991. The final order relied upon is that of Brooking J. The notice claims payment only of Brooking J’s order as quantified. The validity of the notice is unaffected by the naming of an additional respondent in the heading to the order of Master Bruce.

Further, this is not a case like AWU v Bowen (1946) 72 CLR 575, where the High Court held that a bankruptcy notice authorised by only some of the joint judgment creditors was invalid. The judgment on which the present bankruptcy notice is founded is a judgment for costs in favour of the Institute. The proceeding in which that judgment was made was a proceeding with two parties only, Mr Komesaroff and the Institute. There was only one judgment creditor arising out of that costs order. The bankruptcy notice is not invalid on this account.

In the light of these conclusions, the orders made by Olney J of 8 May 1996 were properly made.

It remains to consider the validity of the orders made on 23 May 1996.

The appellant disputes the power of the court to extend the time for compliance with the bankruptcy notice, asserting that no application had been made to the court to set aside the bankruptcy notice before the expiration of the time fixed for compliance with the requirements of it.

On its proper construction, the affidavit alleging “irregularities” in the notice causing “substantial prejudice”, is not fairly to be regarded simply as notifying a view that the bankruptcy notice was null and void and requiring at most nothing more than a declaration of nullity. The terms of the affidavit and the terms in s 306(1) of the Act and r 195(2) assist in this conclusion, which is further reinforced by the complaint about want of authority in the solicitors acting for the judgment creditor, and the complaint concerning disconformity between the judgment and the bankruptcy notice. The affidavit which Mr Komesaroff filed on 26 October 1995 was thus both an affidavit pursuant to s 41(7) asserting a cross claim, and an affidavit which sought to set aside the bankruptcy notice on the ground of irregularities causing substantial prejudice.

As earlier noted, Olney J said in his reasons for judgment of 23 May 1996:

It follows that there was then an application to the court to set aside the bankruptcy notice made before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, and the court therefore had power, pursuant to s 41(6A), to extend the time for compliance with the bankruptcy notice.

This conclusion does not rely on any finding that any affidavit filed pursuant to s 41(7) amounted to an application to set aside the bankruptcy notice. The observation in James v Abrahams (1981) 34 ALR 657, later referred to, suggests that an affidavit filed under the previous s 41(7) is not an application to set aside a bankruptcy notice. This is to be contrasted with the terms of the amended s 41(7), which suggests that the assertion of a relevant cross claim is “an application to set aside a bankruptcy notice”.

However, the statement of the primary judge on 23 May 1996:

involves a mistaken application of s 41(7). The effect of s 41(7), where an affidavit to the effect of s 40(1)(g) of the Act is filed, is to extend the time for compliance with that bankruptcy notice until the court determines whether it is so satisfied of the counter-claim, set-off or cross demand alleged.

In Re Brink; Ex parte The Commercial Banking Company of Sydney Ltd (1980) 30 ALR 433 at 439 Lockhart J said:

“ The initial affidavit filed under s. 41(7) operates to extend time for compliance with the requirements of the bankruptcy notice until the court determines whether it is satisfied that the debtor has the requisite counterclaim, set-off or cross demand. Although the mere filing of the requisite affidavit brings the statutory extension automatically into play, the court thereafter controls the matter.”

His Honour continued at 439:

“ In my opinion the affidavit cannot merely contain an assertion that the debtor has a counterclaim, set-off or cross demand which he could not have set up in the action in which the judgment or order was obtained. The affidavit must show a counterclaim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which the debtor could not have set up in the action in which the judgment or order was obtained: see Vogwell v Vogwell (1939) 11 ABC at p 85; Ebert’s case (1960) 104 CLR at p 350; Re A Debtor per Slesser L.J. [1935] 1 Ch 347, at p 352.”

In James v Abrahams (supra), Deane and Lockhart JJ said at 661:

“ The filing, within the time specified in s 41(7), of an affidavit to the effect that a debtor has a counter-claim, set-off or cross demand of the type mentioned in s 40(1)(g), does not constitute an application to set the bankruptcy notice aside. It operates as an automatic extension of time for compliance with the bankruptcy notice until the court can determine whether it is satisfied by the debtor that the debtor has a counter-claim, set-off or cross demand of the type referred to in s 40(1)(g). If the court is so satisfied, it is neither required nor empowered to make an order setting aside the bankruptcy notice. The result of the court’s being so satisfied, within either the time originally fixed by the bankruptcy notice for compliance or the extended time resulting from the operation of s 41(7), is that failure to comply with the requirements of the bankruptcy notice does not constitute an act of bankruptcy. After the court has been so satisfied, the bankruptcy notice is spent.

After the expiry of the time which the bankruptcy notice itself fixed for compliance with its terms and up until the day on which the court determined whether it was satisfied that the debtor had a counter-claim, set-off or cross demand of the type referred to in s 40(1)(g), any order purportedly extending time for compliance would be either otiose or futile. If the affidavit filed by the debtor was to the required effect, the time for compliance with the requirements of the bankruptcy notice was automatically extended by the provisions of s 41(7). If the affidavit was not to the required effect, the time for compliance had expired and the act of bankruptcy had been committed.”

The position therefore is that on the filing of the affidavit by Mr Komesaroff in October 1995 pursuant to the then provisions of s 41(7), the time for compliance with the bankruptcy notice was extended until the court determined whether it was satisfied or not as to whether Mr Komesaroff had such a counter-claim, set-off or cross demand. When on 8 May 1996 the court determined that it was not so satisfied, the bankruptcy notice required compliance with its terms by and including 8 May 1996. When, on the expiration of that day, there had not been compliance with the requirements of the notice, an act of bankruptcy by the appellant was committed.

After 8 May 1996, there was no power (except perhaps subject to the slip rule, as to which see Elyard Corp v DDB Needham Sydney (1995) 18 ACSR 807) to extend time for compliance with the requirements of the bankruptcy notice.

The orders of 23 May 1996 were based on a misconception of the effect of s 41(7) of the Act and should be set aside. It is therefore unnecessary to consider whether, had they been within power, the requirements of “natural justice” required a longer period within which to comply with the requirements of the notice.

As to costs, the costs order made on 23 May 1996 will be set aside. There seems to be no reason why Mr Komesaroff should not have his costs of what in the ultimate, was an unsuccessful application for extension of time for compliance with a bankruptcy notice.

As to the costs of the appeal, Mr Komesaroff has had some success but has failed on his principal challenge. In all the circumstances, an appropriate order as to the costs of the appeal is that there should be no order as to costs of the appeal.

For the above reasons, the court makes the following orders:

1. The orders of Olney J of 23 May 1996 are set aside.

2. The judgment creditor pay the debtor’s costs of and incidental to the application filed 20 May 1996 to extend the time to comply with the bankruptcy notice, to be taxed if not agreed.

3. The appeal otherwise be dismissed.

4. There be no order as to costs of the appeal.

I certify that this and the preceding nineteen (19) pages are a true copy of the reasons for judgment herein of the Court.

Associate

Date:

The appellant appeared in person.

Counsel for the respondent : Mr S Gardiner

instructed by : Tress Cocks & Maddox

Date of hearing : 2 October 1996

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