FEDERAL COURT OF AUSTRALIA

Sockhill v Deputy Commissioner of Taxation [2000] FCA 1208

BANKRUPTCY  - procedure – application for extension of time for compliance with bankruptcy notice – power of registrar to grant interim relief by extending time for compliance – generally a request by a party having an appropriate interest is a necessary prerequisite to the exercise of the power – power should generally be exercised in the presence of the parties – interim relief should normally only be given on stringent conditions – “compelling reason” is required to justify proceeding ex parte – there must be a full and fair disclosure where proceeding ex parte – Held Deputy Registrar ought not have proceeded to grant interim relief in the absence of an express application by the applicant – no proper grounds were demonstrated for proceedings ex parte – material relied upon did not justify an extension of time for compliance with the bankruptcy notice.

Bankruptcy Act 1966 (Cth), ss 41(6A), 41(6C)

Federal Court of Australia Act 1976 (Cth), s 35A(5)

Federal Court Rules, O 3 r 3, O 77 r 8, O 77 r 14

Re Nguyen Ex parte Commissioner of Taxation (1994) 54 FCR 403

Gus v Johnstone (2000) 171 ALR 598

Thomas A Edison Limited v Bullock (1912) 15 CLR 679

Pollack v National Australia Bank Ltd [2000] FCA 684

BRUCE RICHARD SOCKHILL v DEPUTY COMMISSIONER OF TAXATION

Q 7193 OF 2000

DOWSETT J

4 AUGUST 2000

BRISBANE

THE COURT ORDERS THAT:

1.         The order of the Court made on 20 June 2000 be set aside.

2.         The order of the Deputy Registrar made on 22 May 2000 be set aside.

3.         Application Q 7193 of 2000 be dismissed.

4.         The applicant pay the respondent’s costs of the application and the notice of motion, including reserved costs.

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

REASONS FOR JUDGMENT

1                     On 16 March this year, in the District Court at Brisbane, the Deputy Commissioner of Taxation recovered judgment against the present applicant, Bruce Richard Sockhill.  On or about 12 April the applicant appealed against that judgment.  The grounds of appeal challenge the validity of the appointment of the Commissioner of Taxation, alleging formal deficiencies arising out of the transition of power from the Imperial Parliament and the Queen-in-Council to the Australian Parliament and the Governor-General-in-Council.  I am told that this argument has been previously raised unsuccessfully in other litigation.  For present purposes it is sufficient to say that the appeal does not look very promising. 

2                     On 2 May this year, the respondent Deputy Commissioner caused a bankruptcy notice to be served upon the applicant.  Pursuant to that notice the applicant was required to satisfy the debt within twenty-one days from 2 May.  Paragraphs 5 and 6 of the bankruptcy notice provided:

5.         Bankruptcy proceedings may be taken against you if, within the time stated in paragraph 3, above:

(a)        you do not comply with the requirements of either paragraph 3(a) or paragraph 3(b) above, and

(b)        the Federal Court does not extend, or is not deemed to have extended, the time for compliance with this Bankruptcy Notice (see paragraph 6, below).

6.         The Federal Court of Australia may extend the time for compliance with this Bankruptcy Notice if, within the time stated in paragraph 3 above, you apply to that Court on one or both of the following grounds: 

(a)       that you have instituted proceedings to set aside the judgment or order in respect of which this Bankruptcy Notice has been issued;

(b)        that you have filed with the Federal Court of Australia an application (on one or more grounds, apart from the grounds mentioned in paragraph 7, below) to set aside this Bankruptcy Notice.

3                     On 22 May, the applicant filed an application to extend time pursuant to subs 41(6A) of the Bankruptcy Act 1966 (Cth) and a supporting affidavit by himself, to which he exhibited the notice of appeal, saying that it had been filed on 13 April.  It seems that thereafter, without any further action by or on behalf of the applicant, a Deputy Registrar considered the matter and decided to extend time for compliance, this being achieved by order dated 22 May.  The order provided that time for compliance be extended up to and including 16 June, “being the date set for the first directions hearing of the application to extend time for compliance with the Bankruptcy Notice.”

4                     The Deputy Registrar was authorized to make this order by a delegation pursuant to s 35A of the Federal Court of Australia Act 1976 (Cth).  Pursuant to subs 35A(5), a party may apply to review any exercise of a delegated power.  Order 77 rule 8 requires that such review be sought within twenty-one days.  The Deputy Commissioner, by notice of motion, now seeks such review but concedes that the motion was filed out of time.  In view of the importance of the matter as appears hereafter, I will extend time for such application pursuant to O 3 r 3.  As I understand it, the original application for an extension of time is also listed for hearing today.  Counsel for the applicant has withdrawn, having indicated that the applicant no longer wishes to maintain the application for extension of time and does not oppose the Deputy Commissioner’s motion to vacate or to set aside the order previously made by the Deputy Registrar.  I am therefore primarily concerned with the Deputy Commissioner’s motion. 

5                     It would seem that in making the order, the Deputy Registrar had regard to O 77 r 14, which provides:

(1)       An application for an extension of time to comply with a bankruptcy notice may be made ex parte.

(2)       The application need only be heard in open court if it is for an extension of time to a date after the first directions hearing.

6                     No doubt the Deputy Registrar considered that she was thereby authorised to proceed ex parte and that it was not necessary that her order be made in open court.  The extension of the time for compliance was presumably limited to the period up to the directions hearing because of the limitation imposed by sub-rule 14(2).  When the matter first came before me, I formed the view that the orders reflected a misunderstanding of the effect of O 77 r 14, and in particular of sub-rule 14(1).  I therefore asked the District Registrar to provide a report as to the process which is followed in the registry when such applications are received, dealing particularly with the circumstances in which such an order for extension of time is made.  In response, I have received a number of reports from the District Registrar and from the Deputy Registrar who made the order in question.  The following passage from one of the District Registrar’s reports is of primary importance:

Upon filing, the documents are dealt with in the way referred to in my report of 27 June 2000.  The documents are referred to a Registrar.  Ordinarily, that Registrar will consider the matter on the papers in the absence of the applicant or his or her solicitor.  However, having read and considered the material, the Registrar may decide to invite submissions from the applicant or his or her solicitor on particular issues or matter contained in the material.  For instance, that might occur in the event that some clarification is sought.  If, on the face of the papers, the application seems to be brought bona fide, an order is ordinarily made without the applicant or his or her solicitor being present.

Initially, a Registrar considers the matter of an extension of time in the knowledge that in appropriate cases, an order needs to be made before the time for compliance has expired otherwise an act of bankruptcy will be committed.  It is not unusual for applications to extend time to be filed on the last day and often late that day.  Time being of the essence, Registrars undertake the initial consideration whether or not a request in that regard is actually made.  Very often such requests for initial or preliminary consideration are made by applicants or their solicitors.  Usually, there is insufficient time between the date of filing and the last day for compliance for a date for a directions hearing to be fixed before the last day for compliance.  That being the case, the procedure envisaged by order 77 rule 4 is applied.  (emphasis added)

7                     In the present case the circumstances were of the kind described by the District Registrar as “not unusual”.  The application was made on 22 May.  The time for compliance with the bankruptcy notice expired on 23 May.  The Deputy Registrar followed the practice outlined above.  The District Registrar’s report implies that it is a debtor’s right to wait until the last moment before filing an application and that if he or she does so, the Court should automatically take steps to relieve him or her of the consequences of such a late application.  In some circumstances, there may be good reason for a last-minute application, but that will not usually be the case.  In the absence of any explanation, the Court ought not be unduly anxious to relieve the applicant of the consequences of his or her own actions.  After all, it is not unknown for a debtor to use court mechanisms as part of a “delaying defence”.

8                     It seems that the registry practice may have been developed to remedy an apparent difficulty in the prescribed wording of the bankruptcy notice.  Paragraph 6 of the bankruptcy notice (set out above), if read in isolation, might be taken to mean that the debtor need only apply to the Federal Court within time in order to avoid the consequences of non-compliance with it.  However, if pars 5 and 6 are read together, it is clear that this is not the case.

9                     A number of factors have to be kept in mind by a judge or registrar in exercising the discretion conferred by subs 41(6A). The first is that a judgment creditor is not invoking the assistance of the courts for the first time.  He or she comes having the benefit of a judgment of a court of appropriate jurisdiction and having also initiated the process prescribed by the Bankruptcy Act in order to bring about bankruptcy.  Thus, prima facie, a judgment creditor is simply taking advantage of a process prescribed for his or her benefit and for the benefit of the community, having already demonstrated an entitlement to payment.  If a debtor chooses to wait until the last moment in order to make an application of the kind contemplated by subs 41(6A), the consequences of that delay should not automatically be visited upon the creditor.  Prima facie, they should be visited upon the debtor.  It is not an argument in favour of truncating normal judicial procedures (if that is what has happened here), that the debtor has waited until the last possible moment in order to make an application for an extension of time.

10                  The power exercised by the Court pursuant to subs 41(6A) is a judicial power.  It ought generally be exercised only upon the request of a party having an appropriate interest.  An application to extend time does not necessarily imply an application for an interim ex parte order of the kind made by the Deputy Registrar in this case.  The Deputy Commissioner does not dispute that there is power to grant such interim relief in an appropriate case.  As much seems to follow from the decision of Heerey J in Re Nguyen Ex parte Commissioner of Taxation (1994) 54 FCR 403.  However it does not follow that such relief should be granted at the instigation of a registrar rather than a party.  In any event, it is now clear, although there may previously have been some doubt, that the Court has power to extend time for compliance even after expiry of the time specified in the bankruptcy notice.  See Guss v Johnstone (2000) 171 ALR 598 at par 58.  In those circumstances, there will rarely be any justification for making an interim order of the kind contemplated in this case.  A registrar, if asked to make such an order, should keep in mind this possibility. 

11                  Order 77 r 14 distinguishes between proceedings in court and other proceedings.  This reflects the well-known distinction between proceedings in court and proceedings in chambers.  It may be that the practice described above reflects some confusion concerning that distinction and the distinction between judicial and administrative functions.  The judicial function is usually exercised in public.  On some occasions, it is exercised in chambers but even then, it is usually exercised in the presence of the parties, or at least in the presence of the moving party and after the other has been served, and so given an opportunity to be heard.  It is true that in recent times, with the advent of hearings by telephone and video-link, it is not always obvious that this is the case, but in principle and reality, it is so.  There is a difference between an exercise of the judicial power in chambers, after allowing the affected parties to be heard, and a private exercise of such power without a hearing.  It is true that on occasions, orders are made judicially without hearing an affected party.  That is an exception with which I will deal in a moment.  Nonetheless, in general, judicial power should be exercised in the presence of the parties, or at least in the presence of the moving party and after reasonable notice to the other party.  In this context, “presence” includes video or telephone attendance.  Of course, orders made by consent may involve different considerations.

12                  Interim relief is normally given on stringent conditions, even if all affected parties have been heard.  In the context of injunctive relief, for example, it is necessary for the moving party to demonstrate a serious question to be tried and that the balance of convenience favours the grant of interlocutory relief.  Although subs 41(6C) prescribes certain circumstances in which relief under subs 41(6A) is not to be granted, those circumstances are not the only relevant considerations in exercising the subs 41(6A) discretion.  Factors such as “a serious question to be tried” (on the appeal) and “balance of convenience” may be relevant by analogy in the exercise of that discretion.  It may sometimes be desirable to consider the imposition of conditions upon any extension of time.  The price of obtaining an interlocutory injunction will usually be an undertaking as to damages.  Such an undertaking in the bankruptcy jurisdiction may often be pointless.  However in some circumstances, a judge or registrar exercising this jurisdiction might require some sort of cash security or other deposit as a condition of extending time.  It is not necessary for me to consider that matter further.  It is unlikely that these matters, or the matters dealt with in subs 41(6C) will be adequately addressed other than at a hearing.

13                  A further complication in the present case is that the Deputy Registrar proceeded ex parte.  The Deputy Commissioner had no notice of the proceedings and no notice of the intention to grant interim relief.  Indeed, the applicant had no such notice.  The courts, not infrequently, act ex parte, but only because special circumstances compel that course.  It is only where, for some reason, it is not practicable to serve the other side or where such service is likely to negate the relief sought, that a court will so proceed.  A party asking a court to proceed ex parte must demonstrate the necessity for it.  There is nothing in the evidence in this case suggesting a proper basis for ex parte proceedings.  To establish such a basis, it would have been necessary for the applicant to justify his delay in making the application and also to demonstrate that it was not reasonably practicable for him to serve the Deputy Commissioner before the latest practicable time for the hearing of the application for interim relief.  Given that the Deputy Commissioner has a well-known place of business, it is difficult to see how the applicant could ever have discharged that obligation.  It is true that O 77 sub-rule 14(1) contemplates an ex parte application, but it does not follow that proceedings should normally be ex parte or that the Court should so proceed simply because the applicant has chosen to bring the application at a very late stage.  Ex parte proceedings must be seen as the exception rather than the rule, justifiable only by a compelling reason.

14                  There is a further obligation placed upon an applicant who asks the Court to proceed ex parte.  He or she must make full and fair disclosure of all circumstances relevant to the relief sought.  This has been the law for a very long time.  I refer particularly to the decision of Isaacs J (as his Honour then was) in Thomas A Edison Limited v Bullock (1912) 15 CLR 679, especially at 681-682.  The passage is well-known to all who practise in the commercial jurisdiction and in other jurisdictions in which ex parte relief is occasionally sought.  The applicant who moves ex parte is obliged to take the position of the absent party and to say everything contrary to the application which that party might say were he or she in attendance.  Such a high price is by no means unreasonable considering the very serious consequences which may flow from ex parte proceedings.

15                  Many of these considerations were addressed by Heerey J in Nguyen, (supra).  Although, for reasons set out below, the order made in that case may not be appropriate for present purposes, I find myself in agreement with all of his Honour’s observations as to matters of principle.  That case was recently referred to with apparent approval by Burchett J in Pollak v National Australia Bank Ltd [2000] FCA 683 at par 2.

16                  I consider that in the present case, the Deputy Registrar ought not to have proceeded to grant interim relief other than on the express application of the applicant.  Further, no proper grounds were demonstrated for proceeding ex parte.  As to the merits, the material demonstrated only that the applicant had filed a notice of appeal raising grounds which, to my mind, had little prospect of success, even on their face.  Any one of these deficiencies would justify my setting aside the order.

17                  In Nguyen, Heerey J declined to set aside the order ab initio because that would have had the effect of divesting vested rights.  However his Honour was there exercising a different power from that which I am now exercising.  The Registrar's order in that case was made pursuant to subs 41(6A) in its previous form, which expressly conferred jurisdiction upon a registrar.  The power exercised by Heerey J was pursuant to s 37 of the Bankruptcy Act which authorised the Court to, “rescind, vary or discharge any order made by it under this Act.”  His Honour felt that the terms “rescind, vary or discharge” did not authorise him to make an order which had the effect of divesting vested rights.

18                  I am exercising the power conferred by subs 35A(5) of the Federal Court Act, which obliges me to review the Deputy Registrar’s exercise of delegated power.  As I understand it, I am required to consider the matter afresh.  In those circumstances, I am inclined to vacate the order made by the Deputy Registrar so that the bankruptcy notice expired at the time at which it would have expired had no order ever been made.  There is, however, one difficulty lying in the way of my adopting that course.  When the matter was before me on 20 June this year, I made an order extending time for compliance with the notice until 4 pm on 5 July.  It might be thought that time having been so extended, there can be no proper basis for my going behind that order or varying it.  The only power would be that contained in s 37, and I would feel obliged to deal with the concerns expressed by Heerey J if I were to proceed pursuant to that section.  However, for reasons which are quite fortuitous, it is not necessary for me to consider that matter.  The order has not been perfected.  In those circumstances I am, as I understand it, entitled to revoke the order simply because it is now clear that it was not appropriate that it be made.  I would be reluctant to follow that course if the applicant had demonstrated any substantial reliance upon the fact that the order was made, but he has not sought to do so.  I am told that his counsel was given notice this morning of the intention to apply for this order, and it was certainly made clear to her before she left, in circumstances which I will explain in a moment, that the Deputy Commissioner was seeking to have the Deputy Registrar’s order set aside.  There would be no point in doing that if my order were not also to be set aside.  I understand that there will be an affidavit demonstrating that counsel had notice of the Deputy Commissioner’s intention to seek to have my order set aside.  In those circumstances it is appropriate that I proceed as proposed above, conditional upon an undertaking to file that affidavit in due course.  I consider that it would be appropriate, if necessary, for counsel to swear such an affidavit.

19                  I should say something about the circumstances in which counsel for the applicant withdrew.  As I have said, Ms Julian-Armitage appeared this morning and indicated that the applicant no longer wished to prosecute his application for an extension of time.  She also indicated to me that he did not wish to oppose the motion to set aside the Deputy Registrar’s order, although he did not concede that there was any irregularity in the order or the circumstances in which it was made.  When we adjourned, some time before lunch, to enable further research to be done, Ms Julian-Armitage indicated to me that she might not return after lunch as the applicant had no continuing interest in the matter.  She has not done so.  It is for this reason that out of an abundance of caution, I have asked Mr Coulsen to file material, demonstrating that Ms Julian-Armitage was aware that there would be an application to set aside both the Deputy Registrar's order and my own.  It is quite clear to me that neither order ought to have been made, particularly in view of the decision in Guss v Johnstone to which I have referred.  I will set aside both the order made on 20 June 2000, but not yet perfected, and the order made by the Deputy Registrar on 22 May 2000.  I will also dismiss application 7193 of 2000 made on 22 May 2000.

20                  The Deputy Commissioner should have his costs of the proceedings, including costs of the motion and reserved costs.

Associate:

Dated:              30 August 2000