FEDERAL COURT OF AUSTRALIA

Beckwith v Pedler [1999] FCA 1312

JOHN RICHARD BECKWITH  v  DONALD ALEXANDER PEDLER

V 7387 of 1999

RYAN J

MELBOURNE

15 SEPTEMBER 1999

THE COURT ORDERS THAT:

1.           The time for complying with the bankruptcy notice served on 20 May 1999 be extended until 14 days after the determination by the Court of Appeal of the Supreme Court of Victoria of the appeal to that Court No 7525 of 1998 or further order.

2.           That liberty be reserved to either party to apply on not less than 48 hours' notice in writing to the other party.

3.           The applicant pay the respondent's costs of the application, including any reserved costs, such costs to be taxed in default of agreement.

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

REASONS FOR JUDGMENT

1                     This is an application for review of a decision by a registrar of the Court, refusing to set aside a bankruptcy notice which was served on the applicant on 20 May 1999.  The bankruptcy notice was founded on a judgment entered in the County Court of Victoria on 19 October 1998 in the sum of $44,021.43, together with interest of $18,812.09.  The plaintiff's costs of the County Court action were subsequently taxed on 8 December 1998 at $23,236.30.

2                     The bankruptcy notice claimed a sum of $29,575.27, made up of the amount of judgment and interest to the date of judgment, being $62,833.52, together with costs of $23,236.30 plus interest since the date of judgment of $3505.45, making a total of $89,575.27.  Credit was given in the bankruptcy notice for the sum of $60,000, which was paid by the debtor on 18 January 1999 on account of the judgment debt, leaving the net amount claimed in the bankruptcy notice of $29,575.27.

3                     The debtor has appealed to the Victorian Court of Appeal against the judgment and order of the County Court.  It seems that the appeal will be in a callover to be conducted early in the year 2000 and will be set down for hearing approximately six weeks after the callover.  The issues raised by the appeal are in narrow compass and go essentially to the effect and admissibility of evidence as to whether the debtor, who is a solicitor, had failed to credit his client Mr Pedler, at whose instance the bankruptcy notice was issued, with amounts of $30,000 and $11,438.03.

4                     The learned County Court Judge upheld Mr Pedler's contentions in that respect.  It was asserted in the debtor's Notice of Appeal that the trial Judge's conclusion stemmed from an error as to the admissibility of certain trust account records and a denial of natural justice constituted by a refusal to adjourn the trial to enable an accountant to be called to give evidence about the preparation and effect of those records.

5                     It is unnecessary, and I consider undesirable, for this Court to express a view as to whether the appeal should succeed.  The application to set aside the bankruptcy notice is not predicated on an invitation to this Court to go behind the judgment debt.  However, there is evidence before the Court, in the form of an opinion from Senior Counsel, that the debtor has reasonable prospects of successfully prosecuting his appeal to the Court of Appeal.

6                     Counsel for the judgment creditor on the present application did not press a submission that this Court should conclude that the appeal was hopeless.  I consider it appropriate in the circumstances to entertain this application on the basis that the appeal is reasonably arguable.  It is common ground that this Court has a wide discretion whether or not to extend the time for compliance with a bankruptcy notice in circumstances like the present.  In some cases that discretion may be influenced by whether or not the debtor has sought a stay of execution of the judgment debt.  See for example Re Geard Ex Parte Reid, (Federal Court of Australia, Sheppard J, unreported, 11 February 1994), which has been followed by Madgwick J in Bryett v Deputy Commissioner of Taxation, (Federal Court of Australia, unreported, 5 September 1997), by Whitlam J in Re Smith, (Federal Court of Australia, unreported, 4 May 1994), and by Sackville J in Agrillo v Codisposto (Federal Court of Australia, unreported, 16 December 1994).

7                     However, it seems that the practice of Victorian Courts is not to stay the execution of a judgment for a money amount except in exceptional circumstances.  Accordingly, the debtor has been furnished with a memorandum of advice, again by Senior Counsel, which contains this passage:

"However, in Victoria, unlike other Australian jurisdictions, the test which is usually applied on an application for a stay is whether the applicant had demonstrated special or exceptional circumstances:  see, for example, Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653; Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150.  This approach clearly differs from that which applies in other states and, in particular, New South Wales:  see Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685.  The onus of establishing special or exceptional circumstances falls on the applicant.  Where money judgments are involved a balance has to be struck between the principle that a successful party at first instance is entitled to the fruits of his or her victory and the need to ensure that the appeal should not be rendered nugatory.

In the present matter there was no evidence available to the Appellant which would have supported a claim that, once paid, the money would not be recoverable from the Respondent in the event of the appeal succeeding.  There were no features of the case which, in my view, would have taken it outside the general rule that an appeal does not operate as a stay.  Accordingly, I advised the Appellant that he had little or no prospect of succeeding on a stay application."

8                     If that advice is, as I consider it to be, arguably correct, circumstances exist here against which the Court's discretion has to be exercised, which are different from those considered by Sheppard J in Re Geard ex parte Reid, quoted by Lehane J in Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 269.  In Geard, Sheppard J said:

"The debtor has not made any application for a stay of proceedings pending the outcome of the appeal.  Why he has not done so is not clear to me but the judgment which has been recovered against him is a final judgment and execution upon it has not been stayed it would seem to me to require quite special circumstances before a court exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to stay the judgment has been made.  If one were to contemplate the taking of such a course, one would usually require evidence of the means of the debtor and would wish to consider whether or not it were appropriate to order that security for the amount of the judgment should be provided.  Those are matters which a court exercising jurisdiction to stay the execution of a judgment would wish to consider."

9                     In Byron v Southern Star Group itself, Lehane J said at 270:

"I think, therefore, that considerable weight should be given to the circumstance that here, as in Geard, no stay has been granted (or, apparently, sought) of the judgment supporting the bankruptcy notice.  It does not follow that other matters are not to be taken into account:  the discretion is "at large" (Re Taylor;  Ex parte Deputy Commissioner of Taxation (Cth) (1983) 74 FLR 377 at 379).  For example, the authorities suggest that, reluctant as the Court may in most cases be to enter into the merits of an appeal, the merits may be relevant, at least where the Court is able to regard the prospects of success as "slight" (for example Bryant) or, possibly, in a case where it is apparent that the prospects of success are unusually strong.  (Kiefel J, in [Re Baker;  Ex parte:  Baker v Staples (Federal Court of Australia, unreported, 4 September 1995)], discussed the merits of the appeal in some detail, considering it desirable to do so as further applications were likely;  it is evident that her Honour's view was that the appeal had substantial prospects of success).  It may be that different considerations apply where the proceedings instituted for the purpose of setting aside the judgment are, rather than an appeal, separate proceedings seeking to set the judgment aside (Olivieri;  Agrillo), particularly where, as in Agrillo, the judgment was entered by consent.  I think it is relevant, as a consideration reinforcing the Court's reluctance to extend time in the absence of a stay, that an appeal has already been dismissed and the proceeding in question is (as here) an application for special leave to make a further appeal."

10                  In the present case the pending appeal to the Court of Appeal is as of right.  In that sense the circumstances are similar to those discussed by Weinberg J in Benaharon v Fabric Dyeworks (Australia) Pty Ltd (Federal Court of Australia, unreported 24 August 1998), where his Honour exercised the discretion in favour of extending the time for compliance with the bankruptcy notice.

11                  I have been similarly persuaded to exercise my discretion in favour of extending the time for compliance with the bankruptcy notice.  I have been influenced, in reaching that conclusion, by the view which I have formed in the light of all the evidence that the debtor has reasonable prospects of success on the appeal.  The appeal is being prosecuted with reasonable diligence and should be heard and determined within nine months.  I also regard it as a significant earnest of good faith that the debtor has paid, in January this year, an amount of $60,000, representing about two-thirds of the judgment debt together with interest and costs.  The debt remaining unpaid is, by prevailing standards, not large.  Moreover, the amount of $60,000 was apparently accepted unconditionally by the judgment creditor.

12                  On the other hand, the only detriment which can legitimately be claimed to be inflicted on the judgment debtor by an extension of time for compliance with the bankruptcy notice is that he will be delayed for about nine months in issuing a creditor's petition in reliance on an act of bankruptcy constituted by non-compliance with the bankruptcy notice, assuming such an act of bankruptcy is committed.  It is also to be borne in mind that, if a creditor's petition were issued within the next few weeks, assuming this application to be refused, the Court would be called on to exercise substantially the same discretion but directed then to whether or not to make a sequestration order.

13                  I do not consider that the conduct of the judgment debtor has been such as to preclude him from the favourable exercise of the discretion to which I have referred.  Since the judgment debt arose, there have been slight delays while the debtor considered whether to apply for a stay of execution, and later while he endeavoured to raise a loan to pay the debt.  Those endeavours were successful to a substantial extent, as is reflected in the payment of $60,000 in January 1999.  All that the debtor has done since then is, through his solicitor, hold out some hope, falling short of a promise, that the balance of the debt would be paid.

14                  For reasons indicated in the course of discussion with counsel, I consider that any conduct of the debtor in the County Court will have been reflected in orders as to costs and otherwise made in that Court, and has only the slightest relevance to the discretion which this Court has to exercise. 

15                  Accordingly, I shall order that:

1.           The time for complying with the bankruptcy notice served on 20 May 1999 be extended until 14 days after the determination by the Court of Appeal of the Supreme Court of Victoria of the appeal to that Court No 7525 of 1998 or further order.

2.           That liberty be reserved to either party to apply on not less than 48 hours' notice in writing to the other party.

16                  Submissions have been made on the question of costs.  Because the debtor has applied for an exercise of discretion in his favour in circumstances in which the creditor was entitled to issue the bankruptcy notice, I consider that, prima facie, he should pay the creditor's costs of the application.  That was the order made by Weinberg J in Benaharon v Fabric Dyeworks (Australia) Pty Ltd to which I have referred earlier in these reasons.  I do not consider that prima facie conclusion to have been displaced by the payment by the debtor of $60,000 in January this year.  Nor am I persuaded that the creditor has taken the risk of a successful outcome to this application in such a way that should deprive him of the costs to which, on the prima facie view I indicated, he is entitled.  Accordingly, the third order I make is:

3.           The applicant pay the respondent's costs of the application, including any reserved costs, such costs to be taxed in default of agreement.

Associate:

Dated:              15 September