FEDERAL COURT OF AUSTRALIA

Jenkins v National Australia Bank Ltd [1999] FCA 1758

HEATHER JOY JENKINS -v- NATIONAL AUSTRALIA BANK LTD

V7755 of 1999

THOMAS JENKINS -v- NATIONAL AUSTRALIA BANK LTD

V7756 of 1999

RYAN J

MELBOURNE

13 DECEMBER 1999

THE COURT ORDERS THAT:

1.         The application to set aside the bankruptcy notice be refused.

2.         The respondent's costs of the application be part of the petitioning creditor's costs of any petition issued for non-compliance with the bankruptcy notice.

3.         Any petition issued on behalf of the respondent for a sequestration order against the applicant based on non-compliance with the bankruptcy notice be made returnable, unless otherwise ordered, before Ryan J.

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

THE COURT ORDERS THAT:

1.         The application to set aside the bankruptcy notice be refused.

2.         The respondent's costs of the application be part of the petitioning creditor's costs of any petition issued for non-compliance with the bankruptcy notice.

3.         Any petition issued on behalf of the respondent for a sequestration order against the applicant based on non-compliance with the bankruptcy notice be made returnable, unless otherwise ordered, before Ryan J.

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

AND

V7755 OF 1999

REASONS FOR JUDGMENT

1                     There are before the Court applications to extend time for compliance with a bankruptcy notice served on each of the applicants.  The applications are made pursuant to s 41(6A) of the Bankruptcy Act 1966 ("the Act") which provides:

"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."

Subsection (6C) of s 41 provides:

"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 issued bona fide;  or

(ii)        are not being prosecuted with due diligence;

the Court shall not extend the time for compliance with the bankruptcy notice."

2                     Judgment was entered against each applicant in the Supreme Court of Victoria on 1 June 1998 in the sum of $848,227.83.  Appeals against those judgments were dismissed by the Court of Appeal on 8 April 1999.  The applicants have each sought from the High Court special leave to appeal from the orders of the Court of Appeal.  The applications for special leave are still pending but may, I have been told from the Bar table, be heard in February 2000.  Each applicant has conceded an inability to pay any part of the judgment debt and has asserted an absence of any other creditors.  Counsel for the applicants have relied on a judgment of Kiefel J in Re Baker;  Ex Parte Baker v Staples, No QN613 of 1995, (Federal Court of Australia, unreported 4 September 1995). 

3                     I accept, for the purposes of the argument, that the applications for special leave can be treated as proceedings of the kind contemplated by s 41(6A) to set aside the judgment on which the present bankruptcy notices have been issued.  However, the Court retains a wide discretion whether or not to set aside a bankruptcy notice, even if it is not satisfied as to the matters identified in s 41(6C).  As Kiefel J said in Re Baker, para 4:

"Clearly the discretion under the sub-section is at large:  see Re Taylor ex parte Deputy Commissioner (1983) 74 FLR 377, 379.  But that is to say that account may be taken of whatever factors appear relevant in the particular case.  It does not say much of the position where, as here, there is only one factor to consider, namely the existence of a bona fide and arguable appeal which has been instituted and prosecuted with diligence.  In such a case I can see no warrant for inquiring into the relevant merits of the grounds of the appeal and forming a view as to its outcome.  I can think of sound practical considerations why that course should not be pursued, not the least of which is that what is presented to this Court under the guise of this "factor" going to discretion is not even a fully argued case.  If the grounds of appeal were hopeless and completely without merit then a finding could fairly readily be made that it is not an arguable appeal and indeed the view may be taken that it was not instituted bona fide but for the purposes, for instance, of delay.  But that is not the case here, and it is noteworthy that the argument about its prospects ranged over some hours."

Her Honour then went on in paragraph 5 to observe:

"Cases concerned with whether an adjournment of a petition ought to be granted, where an appeal is outstanding, hold that it is generally desirable to permit the conclusion of investigation into liability before a sequestration order is made:  Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 and Adamopoulos and Anor v Olympic Airways SA & Anor(1990) 95 ALR  525, at least where it is shown that the dispute is "genuine".  In this respect I have recently referred to that requirement in Re Dowson ex parte The Abovenamed v. Kaku 1 September 1995.  A similar approach ought, in my view, apply to the grant of an extension of time in which to comply with the bankruptcy notice."

Her Honour then quoted from Ahern at p148 and went on to observe:

"Subsection (6A) (6B) and (6C) of s.41, in providing for an extension of time where a judgment or order is under investigation, recognise the serious consequences which follow if a bankruptcy notice is not complied with.  At least where the proceeding taken is genuine and arguable, the course the sub-section allows is that a person ought not to be called upon to answer the notice and have his/her solvency tested without the order upon which it is based being first tested.  It would hardly be of comfort to the judgment debtors or a just outcome to have the judgment set aside and then be faced with all that flows from having committed an act of bankruptcy in failing to comply with it.  The sub-sections must be taken to recognise those problems.  It is, I think, not to the point to suggest, as the judgment creditor did here, that they ought to be required to make payment if the creditor secures repayment to them in the event their appeal succeeds."

4                     In the present case the applicants have exhausted their appeals as of right against the foundational judgments.  They have conceded that they have no hope of paying the judgment debts if the judgments are not set aside by the High Court.  Accordingly, the possibility, to which Kiefel J referred in the passage just quoted, of the judgment debtors being required to make payment pending the resolution of the proceedings in the High Court does not arise.

5                     In these circumstances, it seems to me that the Court should not sanction a delay in the commission of a prima facie available act of bankruptcy, but should allow the pending proceedings in the High Court to be taken into account in the exercise of a discretion of the kind discussed by the Full Court in Ahern's case.  That is, a discretion whether or not to adjourn the hearing of a creditor's petition if one should issue founded on such acts of bankruptcy. 

6                     To facilitate that exercise of discretion on a full understanding of the material presently before the Court, I shall direct that any petition issued by the respondent against either of the debtors be made returnable before myself. 

7                     It follows that the applications to set aside the bankruptcy notices will be refused.  I shall order that the respondent's costs of those applications be part of the petitioning creditor's costs of any petition issued for non-compliance with either bankruptcy notice.  

Associate:

Dated:              13 December 1999