FEDERAL COURT OF AUSTRALIA

Jackson, in the matter of Conway v Conway [2000] FCA 1530

BANKRUPTCY – bankruptcy notice – whether obligation to pay interest on judgment debt resulted in notice improperly claiming interest on interest – whether an appeal is a proceeding to set aside a judgment for the purposes of s 41(6A) Bankruptcy Act 1966 (Cth) – whether time for compliance with bankruptcy notice should be extended

PRACTICE AND PROCEDURE – time and place for the presentation of evidence and argument is the hearing – supplementary material may only be filed after the close of the hearing with leave – timetables for the filing of supplementary submissions to be strictly complied with

District Court Act 1973 (NSW) s 85(2)(c)

Supreme Court Act 1970 (NSW)

Bankruptcy Act 1966 (Cth) s 41(6A)

Re Wong; ex parte Kitson (1979) 27 ALR 405, considered

Ex parte Fewings; In re Sneyd (CA) (1883) 25 Ch D 338, considered

Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1993) 7 ANZ Insurance Cases 61-202, cited

Lentini; ex parte Lentini v CSR Limited (1991) 29 FCR 363, cited

Re Maddox (Federal Court of Australia, Neaves J, 12 May 1987, unreported), cited

Re Halliday; ex parte Halliday v ACN 003 075 394 Pty Ltd (1993) 44 FCR 349, cited

Vincent v State Bank of New South Wales (1995) 60 FCR 290, cited

Stavrianos v Commonwealth Bank of Australia Ltd (Federal Court of Australia, Branson J, 9 September 1998, unreported), cited

Bryant v Commonwealth Bank of Australia (Federal Court of Australia, Davies, Foster and O’Loughlin JJ, 9 November 1994, unreported), followed

Benaharon v Fabric Dyeworks (Aust) Pty Ltd [1998] FCA 1109, cited

Pak Sun Liew v JNS Technologies (M) Sdn Bhd [1999] FCA 1428, cited

Re Baker; ex parte Baker v Staples (Federal Court of Australia, Kiefel J, 4 September 1995, unreported), cited

Re Geard; ex parte Reid (Federal Court of Australia, Shepphard J, 11 February 1994, unreported), cited

Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685, considered

Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246, cited

Al Raied v Minister for Immigration & Multicultural Affairs [2000] FCA 1357, cited

IN THE MATTER OF DENISE CONWAY

ALAN JACKSON v DENISE CONWAY

N 7834 of 2000

BRANSON J

SYDNEY

31 OCTOBER 2000

IN THE MATTER OF DENISE CONWAY

THE COURT ORDERS THAT:

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

2.                  The time for compliance with the bankruptcy notice be extended until ten (10) days after the hearing and determination or earlier disposition by the Court of Appeal of the Supreme Court of New South Wales of the appeal in matter No CA 40495 of 2000, or further order.

3.                  Each party has liberty to apply on three days’ written notice to the other.

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

IN THE MATTER OF DENISE CONWAY

REASONS FOR JUDGMENT

1                     The applicant seeks an order that a bankruptcy notice issued by the respondent be set aside or alternatively, that the time for compliance with the bankruptcy notice be extended.

2                     The bankruptcy notice requires the applicant to pay to the respondent the amount of a judgment debt plus interest accrued since the date of the judgment or alternatively to make arrangements to the respondent’s satisfaction for settlement of the debt.  The bankruptcy notice gives the amount of the judgment as $111,449.59 and claims interest on that amount since the date of the judgment.

3                     The judgment debt arose following a contested proceeding in the District Court of New South Wales.  In that proceeding the respondent (who was the plaintiff before the District Court) alleged that the applicant (who was the defendant before the District Court) had agreed to pay her $70,000 on 30 June 1995 and that, despite demands being made for payment, he had not paid her on 30 June 1995 or at any other time.  On 13 June 2000 his Honour Acting Judge Cripps gave judgment in favour of the respondent.  His Honour found that the applicant remained under an obligation to pay the respondent $70,000.  His Honour noted that interest up to the date of judgment was claimed in an amount of $41,449.59.  The formal orders of the District Court entered on 13 June 2000 were:

“1.       there be a verdict for the plaintiff in the sum of $111,449.59 inclusive of interest.

  2.       the Defendant pay the Plaintiff costs”.

4                     The applicant claims that the bankruptcy notice should be set aside as improperly claiming interest on interest.  That is, the applicant claims that the respondent is not entitled to claim post-judgment interest on the entire amount of the verdict entered in her favour but only on the principle sum of $70,000.

5                     The pleadings that were filed in the District Court have been placed in evidence.  They show that neither party pleaded an agreement to pay interest on the principal sum of $70,000.  The claim for interest made in the District Court proceeding was presumably made under s 83A(1) of the District Court Act 1973 (NSW) (“the DC Act”) which provides:

“In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) the Court may order that there shall be included, in the amount for which judgment is given, interest at such rate as it thinks fit on the whole or any part of that amount for the whole or any part of the period between the date when the cause of action arose and the date when judgment takes effect.”

6                     The policy behind s 83A(1) of the DC Act may be presumed to be that a party should not profit by refusing or delaying payment of money due to another.  Thus a party who has had the benefit of the use of funds which ought to have been paid to another, and has wrongly kept the other party out of funds to which that party was entitled, may be required to pay interest on the funds to the date of judgment.

7                     Once judgment was entered in the District Court in favour of the respondent, the original cause of action was merged in the judgment.  The applicant was no longer liable to pay the respondent $70,000 pursuant to an agreement; he was liable to pay on the judgment.

8                     Section 85 of the DC Act provides as follows:

“85(1)Unless the Court orders in any particular case that interest be not payable, interest shall, subject to subsection (3), be payable on so much of the amount of a judgment debt as is from time to time unpaid.

(2)   Interest payable under subsection (1) in respect of a judgment debt shall –

(a)               subject to subsection (3), be calculated as from the date when the judgment debt came into being or from such later date as the Court in any particular case fixes;

(b)               be calculated at the rate prescribed for the purposes of section 95(1) of the Supreme Court Act 1970; and

(c)                form part of the judgment debt, but not so as to require the payment of interest upon interest.”

9                     The policy behind s 85(1) of the DC Act may be assumed to be not only that a party should pay interest on money which it retains which in truth belongs to another, but also that litigants ought to comply with orders of a court promptly.  It is the latter aspect of this policy which explains the tendency of at least some courts to fix the interest payable on judgment debts at a rate higher than the prevailing commercial rate of interest.

10                  The applicant contends that if interest is payable on the whole of the judgment debt of $111,449.59, he will be paying interest on interest contrary to s 85(2)(c) of the DC Act.  Lockhart J gave consideration to s 85(2)(c) of the DC Act in Re Wong; ex parte Kitson (1979) 27 ALR 405 at 413.  After noting that interest on a judgment debt would not ordinarily be understood as answering the description of a “judgment debt”, his Honour said:

“In my opinion, all that s 85(2)(c) does is to provide that for purposes of enforcement of the statutory obligation to pay interest on a judgment debt, the interest is to be treated as if it were part of the judgment debt itself; but it does not answer the description of ‘the judgment debt’ as defined in Div 4 of the District Court Act.”

11                  The significance of the concluding words of s 85(2)(c), in my view, is to make clear that although, for the purpose of enforcement of the statutory obligation to pay interest on a judgment debt, the interest is to be treated as if it were part of the judgment debt, compound interest on the judgment is not permitted.  That is, further interest on such interest is not payable.  The paragraph, however, has nothing to say concerning the payment of interest on the judgment debt itself.  That issue is governed by s 85(1) read with the definitions of “judgment” and “judgment debt” contained in s 84(1) of the DC Act.  Section 84(1) provides:

“In this Division, except in so far as the context or subject matter otherwise indicates or requires –

judgment includes any order of the Court for the payment of an amount of money as costs or otherwise;

judgment debt includes –

(a)               any amount ordered by the Court to be paid as costs or otherwise; and

(b)               any amount payable as provided by the rules as costs without any order of the Court.”

12                  The above definitions make it plain that the amount of the judgment debt upon which interest was payable, unless the District Court ordered otherwise, was the sum of $111,449.59 plus any amount ordered by the District Court to be paid as costs or any amount payable as provided by the rules as costs without an order of the District Court.  Although the respondent obtained a costs order in her favour in the District Court, it has not been suggested that the judgment debt includes any amount representing costs.  Interest is thus payable under s 85(1) of the DC Act on so much of the sum of $111,449.59 as is from time to time unpaid.  As no amount of the sum of $111,449.59 has been paid, the respondent was entitled by the bankruptcy notice to claim interest on the entire amount of the judgment debt of $111,449.59 at the rate prescribed for the purposes of s 95(1) of the Supreme Court Act 1970 (NSW) (see s 85(2) of the DC Act).

13                  It is appropriate to note that the position might be otherwise had the parties entered into an agreement that interest was payable on the principal sum of $70,000 so long as any part of the sum remained unpaid.  The relevant principle was explained by Fry LJ in Ex parte Fewings; In re Sneyd (CA) (1883) 25 Ch D 338 at 355:

“When there is a covenant for the payment of a principal sum, and a judgment has been obtained upon the covenant for that sum, it is plain that the covenant is merged in the judgment, and, if there is a covenant to pay interest which is merely incidental to the covenant to pay the principal debt, that covenant also is merged in a judgment on the covenant to pay the principal debt.  Of course a covenant to pay interest may be so expressed as not to merge in a judgment for the principal; for instance, if it was a covenant to pay interest so long as any part of the principal should remain due either on the covenant or on a judgment”.

14                  For a recent application of the above principle see Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1993) 7 ANZ Insurance Cases 61-202.

15                  The application to set aside the bankruptcy notice must be dismissed.

16                  I turn to consider whether the time for compliance with the bankruptcy notice should be extended.  Before the time fixed for compliance with the bankruptcy notice, the applicant lodged an appeal from the judgment of the District Court.  By consent, the Supreme Court of New South Wales has ordered that execution of the judgment be stayed pending determination of the appeal or until further order.

17                  Section 41 of the Bankruptcy Act 1966 (Cth) (“the Act”) relevantly provides:

“41(6A)     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)   …

the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.

      (6B)     [repealed]

      (6C)     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 instituted bona fide; or

(ii)               are not being prosecuted with due diligence;

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

18                  The only basis upon which the respondent pressed her opposition to an order further extending the time for compliance with the bankruptcy notice was that, as she contended, an appeal is not a proceeding to set aside a judgment within the meaning of s 41(6A) of the Act.

19                  There is some conflict in the authorities on whether an appeal which seeks, as the appeal in this case does, that the judgment of the court below be set aside, is a proceeding to set aside a judgment within the meaning of s 41(6A) of the Act.  In Lentini; ex parte Lentini v CSR Limited (1991) 29 FCR 363 Neaves J held that a notice of appeal filed against a judgment did not constitute a proceeding to set aside the judgment within the meaning of s 41(6A) of the Act.  His Honour in that case took the same view as that which he had earlier expressed in Re Maddox (Federal Court of Australia, Neaves J, 12 May 1987, unreported).  In Re Maddox his Honour said:

“The language of s 41(6A)(a) is clearly apt to refer to proceedings by a judgment debtor in the court where judgment was entered against him to have the judgment set aside.  What the provision contemplates is an application to have the court by which the judgment was pronounced revoke the expression of its coercive power where there has been a failure to follow the rules of procedure or where there is shown to be some defect or irregularity or some other circumstance which renders it desirable that the debtor should be given an opportunity to have the issue further litigated.  It may be that, in some circumstances, such proceedings may be taken in a court superior to that in which the judgment was entered but, be that as it may, the language of the provision is not, in my opinion, apt to refer to proceedings which are properly characterised as an appeal from the judgment in respect of which the bankruptcy notice was issued.”

20                  In Re Halliday; ex parte Halliday v ACN 003 075 394 Pty Ltd (1993) 44 FCR 349 at 358, Olney J adopted the views of Neaves J as expressed in Re Lentini and Re Maddox.  Foster J in Vincent v State Bank of New South Wales (1995) 60 FCR 290 at 298 also appears to have indicated support for the approach adopted by Neaves J in Re Lentini.

21                  I remain of the view which I expressed in Stavrianos v Commonwealth Bank of Australia Ltd (Federal Court of Australia, Branson J, 9 September 1998, unreported) that further debate on this aspect of the proper construction of s 41(6A) of the Act has been foreclosed, at least for the purposes of a hearing before a single judge, by the decision of the Full Court of this Court in Bryant v Commonwealth Bank of Australia (Federal Court of Australia, Davies, Foster and O’Loughlin JJ, 9 November 1994, unreported).  In Bryant’s case the Full Court said:

“The trial judge treated the appeal in the Supreme Court as a proceeding to set aside the judgment in respect of which the bankruptcy notice was issued, a course with which we agree.”

22                  I am not aware of any subsequent decision of the Full Court which has questioned the approach taken by the Full Court in Bryant’s case.  Recent decisions of the Court, so far as I am aware, have uniformly adopted the view that an appeal may be a proceeding to set aside a judgment within the meaning of s 41(6A) of the Act (see, for example, Stavrianos v Commonwealth Bank of Australia; Benaharon v Fabric Dyeworks (Aust) Pty Ltd [1998] FCA 1109; Pak Sun Liew v JNS Technologies (M) Sdn Bhd [1999] FCA 1428).

23                  I am not of the opinion (I do not think that the contrary was seriously pressed) that the appeal has not been instituted bona fide or is not being prosecuted with due diligence.  I therefore have a discretion to extend the time for compliance with the bankruptcy notice.

24                  As a stay of execution of the judgment of the District Court has been obtained pending determination of the appeal or until further order of the Supreme Court, it is not necessary for me to give consideration to the different approaches adopted by Kiefel J in Re Baker; ex parte Baker v Staples (Federal Court of Australia, 4 September 1995, unreported) on the one hand and those judges who have preferred the approach adopted by Shepphard J in Re Geard; ex parte Reid (Federal Court of Australia, 11 February 1994, unreported) on the other.  In Re Baker, Kiefel J expressed the view that where there is a genuine and arguable appeal against a judgment founding a bankruptcy notice, it is ordinarily desirable, because of the consequences of an act of bankruptcy, to grant an extension of the time for compliance with the bankruptcy notice to allow the judgment to be tested.  In Re Geard, Shepphard J expressed the view that where a debtor has made no application to obtain a stay of proceedings on a judgment which founds a bankruptcy notice, and which is under appeal, it would require special circumstances before a court would extend the time for compliance with the bankruptcy notice.

25                  The applicant has obtained a stay.  The circumstances in which a stay pending appeal will be granted by the Supreme Court of New South Wales were considered by the Court of Appeal in Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 693-695.  The Court concluded that:

“… it is not necessary for the grant of a stay that special or exceptional circumstances should be made out.  It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour.”

The Court went on at 694-695:

“The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties ….  The mere filing of an appeal will not, of itself, provide a reason or demonstrate an appropriate case, nor will it discharge the onus which the applicant bears ….  The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair.  In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it ….  Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay ….  Sometimes as a condition of the grant of a stay, where funds are available, a court will impose on the applicant the payment of the whole, or part, to the judgment creditor ….  Even where no order is made for the payment of part of a verdict, it is not at all unusual for the Court, in the exercise of its discretion, to grant a stay on terms that the appellant give to the judgment creditor security in terms defined by the Court as appropriate to the fair adjustment of the rights of the parties.”  (citations omitted)

26                  I am satisfied that it is appropriate having regard to all of the circumstances of this case, which include that a stay pending appeal has been granted by the Supreme Court, to extend the time for compliance with the bankruptcy notice.  The extension will be granted until a short time after the hearing and determination or earlier disposition of the appeal or until further order.  The extension will be framed in this way to allow the respondent to apply to the Court should it appear that the applicant is not doing all that he reasonably can to expedite the hearing of the appeal.  I consider it appropriate to reserve consideration of the question of costs.

27                  I conclude with remarks concerning the way in which the present application was handled by the parties’ respective legal representatives.  The application was filed on 22 September 2000.  At a directions hearing held on 10 October 2000 a Registrar ordered that the application be adjourned until 17 October 2000.  On 17 October 2000 a Registrar referred the application to me as duty judge.  Neither party sought an adjournment of the hearing before me.  However, it became apparent during the course of the hearing that neither of the legal representatives had fully researched the issues raised by the application.  Why this was so was not made clear.  I gave leave to the parties to file supplementary written submissions but, having regard to the nature of the application and the fact that one of the legal representatives was to depart overseas the next day, I directed that such submissions should be filed by mid-morning the next day.  Notwithstanding that direction, the legal representative of one of the parties continued to send supplementary written submissions to my chambers for more than a week after the hearing.

28                  I have recently had occasion to remind practitioners of what was made clear by Mason J in Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246 at 257-258, namely that the hearing is the time and place for the presentation of arguments (see Al Raied v Minister for Immigration & Multicultural Affairs [2000] FCA 1357).  The above circumstances suggest that there might be value in my again quoting his Honour’s words.  Mason J said:

“I should express my dissatisfaction with the way in which the appellants’ case has thus far been presented.  …  After argument had concluded in this Court lengthy written submissions dealing with issues not hitherto raised and a further affidavit were filed.  …  The material was submitted without leave having been given by the Court.  The impression, unfortunately abroad, that parties may file supplementary written material after the conclusion of oral argument, without leave having been given beforehand, is quite misconceived.  We have to say once again, firmly and clearly, that the hearing is the time and place to present argument, whether it be wholly oral or oral argument supplemented by written submissions.”

29                  In this case, as I have mentioned, the parties were given leave to file written submissions – but within a limited time period.  No leave was granted for submissions to be filed outside that time period.  It is quite wrong for a party to place a judge in the embarrassing position of receiving in his or her chambers unauthorised supplementary submissions.  Issues of fairness and the public perception of fairness necessarily arise.  Where, as happened here, the judge is invited to allow the other side time to respond, and by inference to delay the publication of judgment to the extent necessary to make the invitation meaningful, one has an out of court attempt by a party to influence the Court’s management of the proceeding.  I have no reason to think that any impropriety or discourtesy was intended in this case.  However, in cases in which parties are authorised to provide to the Court supplementary written submissions, it is appropriate, as it is in all other cases, for the Court’s directions to be strictly complied with.

Associate:

Dated:                                           27 October 2000