on appeal from a JUDGMENT of a single Judge of the federal

court of australia

MINUTES OF ORDER

THE COURT ORDERS:

1.         That the appeal be dismissed with costs.

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

on appeal from a JUDGMENT of a single Judge of the federal

court of australia

REASONS FOR JUDGMENT

THE COURT:    The Court has come to a clear view about the disposition of this appeal and, in the light of that view, does not need to trouble counsel about the substance of the appeal.

This is an appeal from an order of a single Judge of the Court on 5 March 1998 setting aside a bankruptcy notice.  The bankruptcy notice was issued on 24 December 1997 and served on the respondent to this appeal, Dr Wenkart, on 5 January 1998.  The bankruptcy notice claimed a debt of $1,338,344.82 including accrued interest of $30,807.72 as due under a judgment of the Supreme Court of New South Wales in action No 50057 of 1995.  There was a succession of judgments in that action, the first in favour of the plaintiff against the defendant and the others on three cross-claims in which successive cross-respondents were held liable to indemnify the defendant, Abigroup Ltd, in respect of its liability to the plaintiff.

The order on the third cross-claim to which Mr Wenkart was the cross-respondent was in these terms:

10.    THE COURT DECLARES that THOMAS RICHARD WENKART is liable to indemnify ALAN PITMAN in respect of his liability to indemnify GENNARO ABIGNANO under paragraph 6.

11.    Upon the undertaking to the court by ALAN PITMAN to pay to GENNARO ABIGNANO the amount of $1,307,537.10 without deduction therefrom, immediately upon payment of that amount by THOMAS RICHARD WENKART to ALAN PITMAN, and so long as he holds such sum or any part thereof to receive and hold the same on trust for GENNARO ABIGNANO, THE COURT ORDERS that THOMAS RICHARD WENKART pay ALAN PITMAN the amount of $1,307,537.10.

12.    THE COURT FURTHER ORDERS that THOMAS RICHARD WENKART pay ALAN PITMAN’S costs of the Third Cross Claim including the amount of costs for which ALAN PITMAN is liable to pay to GENNARO ABIGNANO under paragraph 8.

It was found by the learned primary Judge in this Court that no formal undertaking to the effect of paragraph 11 of that order had been given as at the date of judgment.  We were informed by Counsel for the appellants today that no issue is now taken with that finding.  An undertaking by Mr Pitman in the requisite terms was filed in the Supreme Court on 13 Feburary 1998, that is, after the service of the bankruptcy notice.

The judgment debt arising by virtue of the orders in the Supreme Court was assigned on 10 December 1997 by Mr Pitman to the present appellants, Gennaro Abignano and Genallco Pty Limited.  Shortly after that assignment certain steps were taken by way of enforcement of the judgment against Dr Wenkart.  Those steps were described in these terms in the judgment below (p 5):

On 24 December 1997, a Registrar of the Supreme Court issued garnishment notices in favour of the respondent founded on the Judgment.  Such notices require payment of the sum of $1,307,537.10 plus interest thereon calculated from 29 September 1997.  On 12 January 1998, a Registrar of the Supreme Court issued a writ for levy of property of Dr Wenkart in execution of the Judgment with interest thereon calculated from 29 September 1997.

Dr Wenkart then applied for a stay of execution to Hunter J who had been the trial Judge in the Supreme Court action.  In the course of refusing that application, his Honour said:

It is said that in the absence of the provision of the undertaking by Pitman, prior to the making of the order, that the order in paragraph 11 for Wenkart to pay Pitman the subject sum was of no effect.  I do not agree.  In the light of the application I have no doubt that I would be more comfortable with having laid to rest at first instance the rights and obligations of the parties by taking formal undertakings at the time.  However, I think the manner in which the matter was approached by me and by the parties at the time envisaged the provision of formal undertakings either then or at an appropriate time before or on payment of the subject judgment sum.

I reject that part of the application so far as it is based upon the proposition that the order in paragraph 11 is, for some reason, defective by reason of the absence prior to today of an undertaking in terms of paragraph 11, by Mr Pitman.

I think it follows from that finding that there is no occasion to interfere with any of the actions taken by or on behalf or through Pitman to enforce the order for payment as set out in paragraph 11 of the judgment.

...

In my view questions of retrospectivity do not arise.  I treat the order made in paragraph 11 as operative and capable of enforcement from the time the order was made and, further, that steps could be taken under that order, short of payment being made by Wenkart of the judgment sum, without the proffering of the undertaking to the Court before or upon payment of that judgment sum.

The narrow question which the learned primary Judge had to resolve was whether the orders in the Supreme Court, when pronounced, created a debt immediately due and payable by Dr Wenkart to Mr Pitman or whether the effect of those orders was that the debt only became immediately due and payable after Mr Pitman had given the undertaking specified in paragraph 11 of the order.

The learned primary Judge took the latter view saying at page 8 of her reasons:

It is not seriously in dispute that no actual undertaking was given by Mr Pitman to the Supreme Court earlier than 13 February 1998, although his willingness to give such an undertaking had apparently been made plain on 29 September 1997.  I understand Hunter J, by his reasons for decision of 13 February 1997, to have indicated that he regarded paragraph 11 of the Judgment as operative from 29 September 1997, subject to the condition that payment of the sum referred to in such paragraph could not be required from Dr Wenkart unless Mr Pitman had earlier proffered his undertaking to the Supreme Court or so proffered it at the time of such payment.  I acknowledge that such understanding does not fit comfortably with his Honour’s conclusion to that there was “no occasion to interfere with any of the actions taken by or through Pitman to enforce the order for payment as set out in paragraph 11 of the judgment.” However, I am not able to understand the passages set out above from his Honour’s reasons for decision of 13 February 1998 in any other way.

The appellants seek by the present appeal, which was instituted on 23 March 1998, to demonstrate that the interpretation of the order of the Supreme Court to which we have just referred was wrong and that the bankruptcy notice should not have been set aside.  However, on 5 March 1998, the same day on which Branson J gave judgment in this Court, the appellants procured the issue of a fresh bankruptcy notice based on the same judgment debt which had unarguably become immediately payable as a result of Mr Pitman’s having given the undertaking on 13 February 1998.  Proceedings were then instituted to set aside that fresh bankruptcy notice and those proceedings were heard by Hill J on 20 August 1998 and his Honour gave judgment on 28 August 1998 when he made these orders:

1.      The application to set aside Bankruptcy Notice number NN 436/1998 be dismissed.

2.      The time for compliance with the Bankruptcy Notice be extended until 30 days from the delivery of the judgment of the New South Wales Court of Appeal in appeal numbers 40673 of 1997 and 40718 of 1997.

3.      There be no order as to costs.

Upon being apprised of the issue of the fresh bankruptcy notice and the subsequent proceedings before Hill J, this Court invited and received submissions from counsel as to whether it should continue to entertain the appeal against the order of Branson J setting aside the earlier bankruptcy notice.  Having heard that argument and having had a limited opportunity to reflect on the matter, the Court has come to the clear view that it should not continue to entertain this appeal because to do so would leave open the possibility of orders being made which cut across those made by Hill J to which we have just referred.

We also consider that, where the same creditor issues two bankruptcy notices, one after the other, the creditor is required to make an election as to which bankruptcy notice it is with which the debtor is required to comply.  The possibility of successive bankruptcy notices has been adverted to in several authorities including a judgment of the Court of Appeal in the United Kingdom in Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253.  In that case, Sargant LJ, in agreeing with the judgment of Lord Hanworth MR, said at page 261:

If, while an earlier bankruptcy notice were still available for a petition, a second notice were given in bad faith or to embarrass the debtor, the Court could prevent oppression by declining to act.  But in my view there has been nothing of this sort here.  The first bankruptcy notice had been withdrawn, objections had been taken to the second notice which had not been conclusively satisfied, and I think that the third notice was served to escape from those objections, and to place the petitioning creditors in a stronger and less challengeable position than they had previously occupied.  The failure to comply with this third notice was attributable not to the existence of the second notice, but to the entire inability of the debtors to pay the remainder of the their debt.  The petitioning creditors have complied with the statutory formalities necessary to establish the insolvency of the debtors; and I see no sufficient reason for refusing the statutory consequences of the insolvency so established.

In our view, his Lordship in that passage recognised that it is open to a creditor to issue a fresh bankruptcy notice for the purpose of circumventing or overcoming a challenge or a possible challenge to an earlier notice.  We consider that to have happened here.  The deficiency in the earlier notice was exposed by the reasons of Branson J which, incidentally, were adopted by Hill J when he came to consider the subsequent bankruptcy notice and steps were taken to overcome that difficulty as they could be since the undertaking had been given between the time of the issue of the first bankruptcy notice and the publication of her Honour’s reasons.

In those circumstances, the course taken by the creditors as assignees of Mr Pitman was entirely open to them but it was a course which could not be pursued in parallel with the prosecution of the present appeal.  We consider that the prosecution of the present appeal in the events that have happened is tantamount to an abuse of process and, accordingly, we decline to entertain it.

The orders of the Court will be that the appeal be dismissed with costs.

Associate:

Dated:              13 November 1998