FEDERAL COURT OF AUSTRALIA

Sharples v Hanson, In the matter of Sharples [2000] FCA 426

BANKRUPTCY  - bankruptcy notice – application to set aside – assertion of a bona fide counter-claim, set-off or cross demand – whether time for compliance with notice capable of extension

Bankruptcy Act 1966 (Cth), par 40(1)(g), ss 41(6A), 41(7)

Streiner v Tamos (1981) 54 FCR 253 cited

James v Abrahams (1981) 34 ALR 654 cited

Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 cited

RE: TERRY PATRICK SHARPLES; EX PARTE: TERRY PATRICK SHARPLES v PAULINE LEE HANSON as representative of herself and all members of PAULINE HANSON’S ONE NATION (as registered under the Electoral Act 1992 [Qld])

Q 7515 of 1999

DOWSETT J

31 MARCH 2000

BRISBANE

THE COURT ORDERS THAT:

1.         All applications be dismissed.

2.         The applicant pay the costs of the respondent including reserved costs.

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

REASONS FOR JUDGMENT

1                     I am presently hearing two applications pursuant to the Bankruptcy Act 1966 (Cth) (the “Act”) filed on 2 December 1999 and referred to me by the Registrar on 5 January 2000. One of them (the “compliance application”) seeks the following relief:

1.         That the time for compliance with the requirements of the bankruptcy notice dated 8 October 1999 and served upon (the applicant) on 11 November 1999 be extended.

2.         That the respondent pay the costs of and incidental to the application to be taxed.

3.         Such further or other order as the Honourable court may seem meet.

2                     The other (the “Court of Appeal application”) seeks the following relief:

1.         The order Court of Appeal, Supreme Court of Queensland Appeal No: 9834/98 delivered 7 September 1999 be set aside.  Bankruptcy Act 1966.

2.         That the Respondent pay the costs of and incidental to this application to be taxed.

3.         Such further or other order as the Honourable court may seem meet.

3                     The compliance application was made in the first instance to the Registrar, who declined it.  Although this may not appear from the material, that decision was based upon the absence of an affidavit filed in support of the application.  According to the registry records, the supporting affidavit upon which the applicant now seeks to rely was not filed until 3 December.  He disputes this, saying that it was filed on 2 December.  Although there is presently no evidence before the Court to that effect, he says that he is willing to give such evidence.  He has sought to cross-examine registry personnel to the same effect.  I propose to dispose of the matter upon the basis that the affidavit was available on 2 December.  In doing so, I am not reflecting upon the accuracy of the registry records.  I merely make that assumption for present purposes.  The relevance of this aspect arises from the fact that time for compliance with the bankruptcy notice expired on 2 December.  It will therefore be necessary to identify the extant applications as at that date.  The applicant asserts that the affidavit identifies the relief then being sought by him and so makes up for the absence of any express reference to such relief in the applications themselves.

4                     The affidavit attacks the bankruptcy notice in four ways, although each attack is in very general terms.  The four lines of attack are:

·                 that the applicant has a bona fide counter-claim, set-off or cross demand which is “substantial”, but not said to equal or exceed the amount of the judgment debt;

·                 that the order for costs on which the notice is based should be set aside;

·                 that the bankruptcy notice is an abuse of process, used to “frustrate and divert” the applicant; and

·                 that the bankruptcy notice “is defective for want of a Debtor and Respondent”.

5                     On 17 December, leave was given to file an amended application which sought:

1.  That the Bankruptcy Notice issued and dated 8 October 1999, against the Applicant be set aside:

(a)       as an abuse of process of the court on the grounds of oppression and intimidation of the applicant in proceedings before the Court of Appeal, Supreme Court of Queensland, in the alternative:

(b)        as the judgment and cost order upon in respect of which the alleged debt an (sic)Bankruptcy Notice was improperly obtained and the result of fraud on the Applicant and a miscarriage of justice, in the alternative:

(c)       as the Bankruptcy Notice is defective confusing and fails to meet the essential requirement of the Bankruptcy Act 1966 (Cth) (“the Act”), in the alternative:

(d)       as the Applicant has a bona fide counterclaim, set-off or cross-demand of a kind referred to in Section 40(1)(g) of the Act in respect of a costs order awarded to him against the Respondent delivered on 12 November 1999 after the issue of the Bankruptcy Notice that will equal or exceed the amount on which the Bankruptcy Notice is based, in the alternative:

(e)       the debt the subject of the Bankruptcy Notice is the subject of a personal indemnity guarantee from the Commonwealth Minister of Employment the Honourable Tony Abbott.

6                     I do not know which of the applications of 2 December was so amended, but it probably does not matter. 

7                     An application to set aside a bankruptcy notice can serve no purpose if the act of bankruptcy has already been committed.  This will generally be the case if the time for compliance with the notice has expired before it has been set aside.  In the absence of any extension, the time for compliance with this bankruptcy notice expired on 2 December.  Thus no purpose will be served by setting aside the notice unless time for compliance has been, or can be extended.  Sub-sections 41(6A) and (7) of the Act are the relevant provisions in this regard.

8                     Sub-section 41(6A) permits an extension of time for compliance provided that, before that time has expired, the debtor has commenced proceedings to set aside the judgment or order upon which the notice is based, or has applied to set aside the bankruptcy notice.  Where an application to set aside the notice has been made within the time prescribed for compliance, upon the ground that the debtor has a counter-claim, set off or cross demand of the kind referred to in par 40(1)(g) of the Act, such an application to extend time is not necessary as subs 41(7) grants an automatic extension until the determination of the application.  A claim of the kind specified in par 40(1)(g) is one which equals or exceeds the judgment debt.  Neither application filed on 2 December asserts such a claim.  In the affidavit referred to above, the appellant asserts a claim for “substantial costs”, but does not assert that they equal or exceed the judgment debt.  Thus subs 41(7) has not been invoked to extend time for compliance past 2 December.

9                     Turning to subs 41(6A), the Court of Appeal application seeks to set aside the order for costs, but this Court is clearly without jurisdiction to entertain such an application.  I suspect that the applicant confused the power of the Court in bankruptcy to “go behind” an order and the power to set aside such an order.  I doubt whether an application to a court lacking jurisdiction to grant the appropriate relief could constitute “proceedings to set aside the judgment or order” for the purposes of par 41(6A)(a).  It is not necessary to decide that question because I am willing to assume, without deciding, that the applications of 2 December, taken with the applicant’s affidavit, constitute an application to set aside the bankruptcy notice as contemplated by par 41(6A)(b).  I also therefore assume for the purposes of argument that there is jurisdiction to extend time pursuant to subs 41(6A).  Streiner v Tamos (1981) 54 FCR 253 at 258 (per Deane and Ellicott JJ) establishes that such an extension may be granted after time for compliance has expired, provided that one or other of the conditions prescribed in par 41(6A) (a) and (b) has been met within that time.  Obviously, there is no point in so extending time unless there is a good ground for setting aside the notice.  I therefore turn to consider the grounds advanced, which are those appearing in the amended application.

10                  Grounds 1(a) and 1(b) allege that the bankruptcy notice is an abuse of the process of the Court on the grounds of oppression and intimidation of the applicant in proceedings before the Court of Appeal.  It is alternatively alleged that the costs order, upon which the alleged debt and bankruptcy notice are based, was improperly obtained as the result of fraud on the applicant, and is a miscarriage of justice.  The applicant concedes that there is no evidence presently before the Court to support these assertions and asks for an adjournment in order to obtain such evidence.  When the matter was last before the Court on 11 February, as I have already observed, I indicated to him that he was to be in a position to proceed today.  He says that he has been very busy attending to other litigation associated with these matters and that he has also been ill.  I consider that he has had adequate opportunity to be ready.  However, had I formed the view that he had some substantial matter to raise, I would have stretched a point and allowed him another adjournment, although probably upon terms.  In what he has said to me concerning the material which he wishes to lead in support of grounds 1(a) and 1(b), he has demonstrated that he has nothing relevant to say.  I do not mean to suggest that I consider him to be disingenuous or other than sincere in the complaints that he wishes to make, but such complaints will not assist him for present purposes.

11                  In effect, the debt which is the subject of the bankruptcy notice is pursuant to an order of the Court of Appeal, on appeal from Moynihan J at first instance in the Supreme Court. His Honour ordered the applicant to pay the costs of certain interlocutory proceedings.  He asked Moynihan J for leave to appeal against the order as to costs, but his Honour declined to grant leave.  The applicant then appealed to the Court of Appeal against the refusal of leave or applied for leave to appeal, but the Court of Appeal refused that appeal or application and ordered that he pay the costs.  The taxed amount of those costs is the subject of the present bankruptcy notice. 

12                  The applicant asserts that because he alleged fraud against the judgment creditor, Ms Hanson, in the Supreme Court proceedings, and that allegation was eventually made out, the order for costs ought be unenforceable.  That is simply not the case.  He also asserts that he ought to have been allowed to lead evidence in the proceedings before Moynihan J before his Honour made any determination as to costs.  That was a question for ventilation in the Court of Appeal and, in any event, it must be kept in mind that the bankruptcy notice relates to the costs order made in the Court of Appeal.  Although the applicant is unhappy with the order, there is no demonstrated basis for going behind it.

13                  In the circumstances, on the account of his case given to me by the applicant, he has no prospect of making out the allegations in paragraphs 1(a) and 1(b) of the amended application.  In those circumstances, I refuse the application for an adjournment.  It follows that the grounds set out in paragraphs 1(a) and 1(b) must fail because there is no evidence to support them.  I have already ruled that the ground raised in par 1(c) must fail and given separate reasons for that ruling.

14                  Ground (e) alleges that the applicant is entitled to a personal indemnity from Mr Tony Abbott in respect of the current debt.  I understand that proceedings have been commenced in the Supreme Court to enforce that claim.  That does not affect the validity of the bankruptcy notice.  That leaves ground 1(d), which alleges that the bankruptcy notice should be set aside:

as the applicant has a bona fide counter-claim, set-off or cross-demand of a kind referred to in Section 40(1)(g) of the Act in respect of a costs order awarded to him against the respondent delivered on 12 November 1999 after the issue of the bankruptcy notice that will equal or exceed the amount on which the bankruptcy notice is based.

15                  Before considering the merits of this ground, I return to the question of whether an application on that ground is a valid basis for the necessary extension of time for compliance with the notice.  As I have said, as at 2 December, there was no application to set aside the bankruptcy notice upon the ground that the applicant had a claim of the sort described in par 40(1)(g) of the Act.  He raises such a claim by the amended application.  For reasons previously given, the utility of setting aside a bankruptcy notice depends upon the act of bankruptcy not being complete.  This, in turn, depends upon time for compliance having been extended, or being capable of extension, until the time at which the application to set aside is determined, assuming that such decision is not made within the prescribed period.  It may be argued that if application has been made to set aside a bankruptcy notice as contemplated by par 41(6A)(b) on any ground, such application may be supported upon other grounds.  Thus, facts establishing the ground identified in par 40(1)(g) of the Act, not raised within the prescribed period, and therefore not attracting an automatic extension under subs 41(7), might be raised in support of an application to set aside on other grounds commenced within that time.  It might then be argued that, the existing application meeting the requirements of par 41(6A)(b), the Court has jurisdiction to extend time.  This would seem to be inconsistent with the policy implicit in subs 41(7), providing for such an extension only if the application is made within time.

16                  This rather involved problem arises because, although par 40(1)(g) does not contemplate setting aside a bankruptcy notice because of a counter-claim, set-off or cross claim, subs 41(7) does contemplate that step.  This apparent inconsistency was produced by the 1996 amendment to subs 41(7).  Previously, that sub-section provided for the filing of an affidavit as to the debtor’s claim, resulting in an extension of time to comply with the notice until the matter could be resolved pursuant to par 40(1)(g).  If the debtor were successful, the notice would not be set aside.  It would simply be spent.  See James v Abrahams (1981) 34 ALR 657 at 661 (per Deane & Lockhart JJ).  Prior to the amendment, subs 41(6A) would certainly have had no application where the debtor sought to answer the bankruptcy notice upon the basis of a counter-claim, set-off or cross demand.  Whatever the reason for the apparently inappropriate amendment to subs 41(7), it is unlikely that Parliament intended that it result in an extension of the operation of subs 41(6A) to authorize an extension of time for compliance in circumstances which ought to have been dealt with pursuant to subs 41(7).  I am of the view that the applicant cannot now seek to extend time to comply with the bankruptcy notice pursuant to subs 41(6A) upon the basis of a counter-claim, set-off or cross claim as described in par 40(1)(g).  There is therefore no point in considering the application to set aside the notice on that ground as there is no power to make the necessary extension of the time for compliance with the bankruptcy notice.  I have had regard to the second reading speeches and to the explanatory memorandum.  They offer no assistance.

17                  The last two paragraphs represent a considerably expanded justification for a conclusion which I formed at the hearing and recorded (rather inelegantly) in my ex tempore reasons.  In the course of revising those reasons, I have also considered the evidence which was led in support of the applicant’s cross claim pursuant to the order for costs in his favour.  It consists of a list of expenses allegedly incurred in his proceedings in the Supreme Court.  He asserts that they are recoverable pursuant to the order.  Unfortunately, he says nothing to indicate the basis upon which he so asserts.  It may be that they are recoverable, but more information would be necessary in order to satisfy me that there is an arguable case to that effect.  The relevant test for present purposes is set out in Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350 as follows:

The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand.  “Cross demand” is the word relied upon here.  The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out.  In Re Duncan; Ex parte Modlin (1917) 17 SR (NSW) 152 Street J. said that the debtor need not satisfy the Court that there are reasonable grounds for believing that he will establish his cross action, but only that he has a bona fide claim which he is fairly entitled to litigate.  This perhaps is expressed too favourably to the debtor.  In Re A Debtor [1958] 1 Ch 81 Roxburgh J. said: “But not every demand will suffice.  A demand made in bad faith would not be good enough.  The debtor must satisfy the Court that he has a genuine demand. … But in my opinion a demand must be more than bona fide: the Court must be satisfied that it has a reasonable probability of success” [1958] 1 Ch at 99.  Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.

18                  This suggests that the applicant should offer evidence which demonstrates the arguable relevance of the outlays to the conduct of the proceedings in question, without necessarily establishing that they are properly recoverable on taxation.  Thus, even if I am in error in considering that there can be no extension of time in which to comply with the notice, and that no useful purpose is to be served by setting aside the notice, the asserted cross claim is not made out.

19                  There is no basis for the relief sought in the amended application filed on 17 December, nor for that sought in the applications of 2 December.  In those circumstances, all applications should be dismissed.  I order the applicant, Terry Patrick Sharples, to pay the costs of the respondent, Pauline Lee Hanson, of these applications, including reserved costs.

20                  A further application was filed on 11 February but not read today.  In any event, the substantive matters raised in that application have been resolved in connection with the other applications.

Associate:

Dated:              17 April 2000