FEDERAL COURT OF AUSTRALIA

Cawood v Cawood, in the matter of Cawood [2000] FCA 1786

BANKRUPTCY – bankruptcy notice – judgment creditor obtains declarations stating amount due under previous consent orders made by the Family Court – whether judgment creditor in a position to issue execution at time notice issued.

Family Law Act 1975 (Cth), ss 79, 80(1), 83.

Bankruptcy Act 1966 (Cth), ss 40, 41

Bankruptcy Act 1883 (Eng).

Bankruptcy Act 1890 (Eng).

Family Law Rules (Cth), O 33 r 3.

Hall v Nominal Defendant (1966) 117 CLR 423, cited.

Abigroup Ltd v Abignano (1992) 39 FCR 74, followed.

Pyramid Building Society (In Liq) v Terry (1997) 189 CLR 176, cited.

Pepper v McNiece (1941) 64 CLR 642, cited.

Re Woodall; Ex parte Woodall (1884) 13 QBD 479, followed.

Re Ide; Ex parte Ide (1886) 17 QBD 755, followed.

In re Clements; Ex parte Clements [1901] 1 QB 260, cited.

Re Richards; Ex parte Sommers (1947) 14 ABC 112, cited.

Re Seers (1955) 17 ABC 11, cited.

JOHN CHARLES CAWOOD v MARGARET ANNE CAWOOD

N 7533 OF 2000

SACKVILLE J

SYDNEY

8 DECEMBER 2000

THE COURT ORDERS THAT:

1.                  The bankruptcy notice issued on 23 May 2000 against the applicant be set aside.

2.                  The respondent pay the applicant’s costs.

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

REASONS FOR JUDGMENT

1                     This is another chapter in extensive litigation arising out of the breakdown of the marriage of the applicant and his former wife, the respondent. In these particular proceedings, the applicant seeks an order that a bankruptcy notice directed to him, issued on 23 May 2000, be set aside.

2                     The bankruptcy notice claimed that the applicant owed the respondent a debt of $465,340.11.  This sum was said to be made up as follows:

·        a judgment or order of $412,360; and

·        accrued interest on the judgment of $57,980.11; less

·        a payment by the respondent of $5,000.

3                     The bankruptcy notice annexed copies of the judgments or orders relied on by the creditor.  The first set of orders annexed to the notice was made by Moss J of the Family Court of Australia on 29 July 1999, following a hearing which occurred on 2 July 1999.  The terms of the orders were as follows:

“The Court orders –

1.                  It be declared that pursuant to Order 10 of the Orders made herein on 1^st April 1996 and in the events which have happened the Respondent is indebted to the Applicant in the sum of $355,000.00 together with interest thereon until paid as calculated in accordance with Order 11 of the said orders;

2.                  That it be declared that pursuant to Order 18 of the said Orders and in the events which have happened the Respondent is indebted to the Applicant in the sum of $67,837.76 together with interest thereon until paid calculated in accordance with the Rules of Court;

3.                  That the Respondent pay the Applicant’s costs of and incidental to the proceedings;

4.                  Liberty to the Applicant to apply if so advised for charging or other Orders to better secure the payment by the Respondent of the said sums or any part thereof.

The references in Orders 1 and 2 to orders made on 1 April 1996 are to orders made by consent between the parties in the Family Court. I shall return to the 1996 consent orders shortly.

4                     The second set of orders annexed to the bankruptcy notice were those of the Full Court of the Family Court.  These orders were made on 16 March 2000, after the Full Court heard an appeal from the judgment of Moss J.  The Full Court made the following orders:

“1.       That the appeal be dismissed.

2.              That the husband pay the wife’s costs of and incidental to the appeal, such costs to be agreed between the parties and failing agreement to be taxed.

3.              By consent that Order 2 of the orders of 2 July 1999 be varied by substituting $57,360 for $67,837.76.”

the family court proceedings

5                     In order to understand the submissions of the parties, it is necessary to explain the history of the proceedings in the Family Court.  On 1 April 1996, the Family Court made orders by consent of the parties.  Except for orders relating to guardianship, custody and access of the child of the marriage, the orders were expressed to be made subject to s 79 of the Family Law Act 1975 (Cth), which permits the Court to make, inter alia, orders for the settlement or transfer of property.

6                     The orders provided that the applicant was to transfer to the respondent his interest in a property at Watsons Bay (Order 7).  Pending completion of the sale of the property by the respondent or by 29 March 1997 (whichever was first), the applicant was to do everything necessary to ensure that the amount due under the first mortgage did not exceed $355,000 (Order 8), and was to make certain other payments to and for the benefit of the respondent (Orders 9, 9A).  Orders 10 and 11 were as follows:

“10.     That by 1 April 1997 the husband pay to the wife or as she directs in writing by bank cheque the sum of $355,000 (‘the principal sum’).

11.          That as and from 2 April 1997 the husband pay interest to the wife on the principal sum or such part thereof as shall remain due to be paid to the wife at the rate prescribed from time to time pursuant to Order 40, Rule 1 of the Family Law Rules.”

7                     In about February 1999, the respondent caused an enforcement summons to be issued against the applicant in the Family Court, pursuant to Family Law Rules,O 33 r 3.  Order 33 r 3(1) provides that if a person is alleged to have failed to comply with an order to which rule 2 applies (relevantly, an order that a party pay maintenance or other money for the benefit of the other party), the person entitled to the money under the order may file an affidavit requesting the issue of a summons.  Upon receipt of the affidavit, the Registrar may issue a summons: O 33 r 3(3).

8                     Family Law Rules,O 33 r 3(9) provides as follows:

“(9)     Where a person attends before, or is brought before, a court, the court may, on being satisfied that the person has refused or failed to comply with an order or agreement with which rule 2 applies, make such of the following orders as it thinks fit:

(a)   an order for the payment of the arrears and any other unpaid portion of the moneys payable under the first-mentioned order or agreement;

(b)   a garnishment order under rule 4;

(c)    an order under rule 5 for the seizure and sale of personal property belonging to the person;

(d)   an order under rule 6 that the estate of the person be sequestrated;

(e)    an order under rule 7 for the sale of an interest in real property belonging to the person;

(f)     such orders as it thinks necessary to enable enforcement of its orders or to prevent the dissipation of property or to wasting of assets.”

The summons issued on the application of the respondent reproduced the substance of O 33 r 3(9).

9                     The enforcement summons was heard by Moss J.  At the hearing, the applicant contended that, while he had not paid the sum of $355,000, he had made other payments for the benefit of the respondent that should have been offset against his liability to pay the lump sum under the consent orders.  Moss J found that, although the applicant had made payments to or for the benefit of the respondent, they were not to be credited against his liability under the consent orders.  His Honour recorded in his judgment that the respondent was entitled “to the declaration … that she seeks as set out in [her] written submissions”. It therefore seems that it was at the respondent’s request that Moss J made declarations in the form reproduced in [3] above.

10                  Counsel for both parties on the present application seemed to accept that the source of power for the Court to grant declaratory relief was to be found in Family Law Rules, O 33 r 3(9)(f).  It is by no means clear that this is the case, since rule 3(9)(f) is limited to orders the court “thinks necessary to enable enforcement of its orders or to prevent the dissipation of property or the wasting of assets”.  However, the Court has other powers that would appear to support the grant of declaratory relief: see Family Law Act 1975 (Cth), s 80(1)(k).  In any event, neither party attributed any significance for present purposes to the source of power for the declaratory orders.

11                  The Full Court dismissed the applicant’s appeal from the orders made by Moss J, except for correcting an error in the amount of interest due by the applicant.  The terms of the Full Court’s orders have been set out above at [4].

the bankruptcy act

12                  Section 40(1)(g) of the Bankruptcy Act 1966 (Cth) provides as follows:

“(1)     A debtor commits an act of bankruptcy…

…

(g)   if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor…a bankruptcy notice under this Act and the debtor does not:

(i)              where the notice was served in Australia – within the time specified in the notice; or

(ii)               …;

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be….

13                  Section 41(1) provides that the Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that is described in s 40(1)(g) and is for an amount of at least $2,000.  The notice must be in the prescribed form: s 41(2).  Section 41(3) provides as follows:

“(3)     A bankruptcy notice shall not be issued in relation to a debtor:

(a)                except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g)…,

(b)                if, at the time of the application for its issue, execution of the judgment or order to which it relates has been stayed; or

(c)                …”.

the submissions

14                  The applicant made three submissions supporting his contention that the bankruptcy notice should be set aside.

·        First, on their proper construction, s 40(1)(g) and s 41(1) of the Bankruptcy Act require that a bankruptcy notice be issued by a creditor who has obtained a final judgment or order, being an order for the payment of money.  The orders annexed to the bankruptcy notice were merely declaratory of the effect of the consent orders of 1 April 1996.  They could not be described as orders for the payment of money by the applicant.

·        Secondly, in order for there to be a judgment or order capable of supporting a bankruptcy notice, the judgment creditor must be in a position to issue execution immediately.  The respondent was not able to do so, since in order to issue execution she needed to obtain from the Court an enforcement order provided for in Family Law Rules,O 33 r 3(9).

·        Thirdly, since the orders made by Moss J and affirmed by the Full Court merely declared the effect of the 1996 orders, they could not constitute final orders.  According to Mr Einfeld QC, who appeared with Mr Donohoe for the applicant, the orders did not “finally determine the rights of the parties in a principal cause pending between them”: Hall v Nominal Defendant (1966) 117 CLR 423, at 443, per Windeyer J.

15                  The applicant made the “subsidiary” submission that if the respondent attempted to rely on the 1996 orders to support the bankruptcy notice, the attempt had to fail because the 1996 orders were themselves not final orders. Despite the orders referring to s 79 of the Family Law Act, they were in truth (so it was said) maintenance orders that could be varied under s 83 of the Family Law Act. In the event, the respondent conceded that the bankruptcy notice had to stand or fall on the basis of the orders of Moss J and the Full Court, since these were the only orders annexed to the notice.  Accordingly, there is no need to refer further to the applicant’s “subsidiary” submission.

16                  The respondent made these submissions in response:

·        It is not necessary, in order for a judgment or order to come within s 40(1)(g) of the Bankruptcy Act, that it provide for one party to pay a sum of money to the other.  It is enough that the court declare that one party owes the other a specific sum or sums of money, thus giving rise to the relationship of debtor and creditor.  So much was recognised in Abigroup Ltd v Abignano (1992) 39 FCR 74, at 88, where the Full Court stated that a declaration that A was jointly and severally liable with B to indemnify C was a “final order”.

·        It was erroneous to characterise the orders made by Moss J as merely declaratory of the effect of the consent orders of 1 April 1996.  The words “and in the events which have happened” in the declaration showed that his Honour was concerned not simply with the effect of the consent orders but with the effect of payments made by the applicant after the date of those orders.

·        The orders made by Moss J reserved liberty to the respondent to apply to the Court for charging or other orders to better secure payment of the amount due by the applicant.  It was open to the respondent at any time to exercise the liberty to apply and seek any one of the orders provided for by Family Court Rules, O 33 r 3(9).  She was therefore in a position to issue execution of the judgment subject only to invoking the process of the Court.

·        Each of the declaratory orders constituted a “final judgment or order” within s 40(1)(g) of the Bankruptcy Act.  The orders were made after a hearing on the merits addressing the question of whether the applicant was entitled to credit for payments made by him after the date of the consent orders.  Since the orders made by Moss J dealt squarely with the rights in contest between the parties, they were final and not interlocutory.

reasoning

17                  It is convenient to commence with the applicant’s second contention namely that the respondent was not in a position to issue execution on the judgment of Moss J at the time the bankruptcy notice was issued. 

18                  In Abigroup Ltd v Abignano, the Court referred (at 79) to the history of s 40(1)(g) of the Bankruptcy Act. Their Honours pointed out that s 4(1) of the Bankruptcy Act 1883 (Eng), the forerunner to s 40(1)(g), was construed to mean that only a creditor who had obtained a judgment could issue a bankruptcy notice.  The position was altered by s 1 of the Bankruptcy Act 1890 (Eng), which provided that “any person who is for the time being entitled to enforce a final judgment shall be deemed to be a creditor who has obtained a final judgment”.  That provision, which was designed to accommodate the position of an assignee of a judgment debt, is now to be found in s 40(3)(d) of the Bankruptcy Act.

19                  The Court in Abigroup Ltd v Abignano, then made the following observation pertinent to the present case (at 79):

“The 1890 English enactment did not however affect the rule (established on the ground of necessary implication arising from the words ‘execution thereon not having been stayed’) that in order to issue a bankruptcy notice the judgment creditor must be in a position to issue execution.  Thus, although the ‘person who is for the time being entitled to enforce a final judgment’ was thereafter taken to include a person who had not himself obtained the judgment, nevertheless he had to be a person who had taken all steps which entitled him to reap the fruits of the judgment.”  (Emphasis added.)

In Pyramid Building Society (In Liq) v Terry (1997) 189 CLR 176, Gaudron and Gummow JJ echoed these words.  Their Honours observed (at 192) that the judgment creditor referred to in s 40(1)(g) of the Bankruptcy Act is

“a judgment creditor entitled directly to the benefits or fruits of the judgment or order made against the debtor and [the paragraph] does not extend to a judgment creditor who is not able to issue execution”.

See also Pepper v McNiece (1941) 64 CLR 642, at 649, per Starke J; at 657, per Williams J.

20                  There are many examples of this principle having been applied to bankruptcy notices.  In Re Woodall; Ex parte Woodall (1884) 13 QBD 479, it was held that the executrix of a judgment creditor was not “a creditor [who] has obtained a final judgment” until she had obtained leave to issue execution on the judgment.  Baggallay LJ considered that the effect of the words “and execution thereon not having been stayed”, found in the 1883 Act, was that the creditor must be “a person who is in a position to issue execution upon the final judgment” (at 482).  In Re Ide; Ex parte Ide (1886) 17 QBD 755, a creditor who had obtained judgment against a firm was held to be unable to issue a bankruptcy notice against a person alleged to be a member of the firm, since execution could not be levied against that person without the leave of the court.  Lord Esher MR said this (at 759):

“It is true that in the present case execution on the judgment has not been stayed, but the words seem to me necessarily to imply that the judgment must be one upon which execution could go immediately, unless it was stayed.  But here execution cannot go immediately whether it is stayed or not; it cannot go without the leave of the Court.  I think, therefore, that this was not a final judgment such as is described in sub-s 1(g) on which a bankruptcy notice could issue.”  (Emphasis added.)

Bowen LJ agreed (at 760):

“We must look carefully at the words to see if there is not an implication to be found in them, and it seems to me that, from the collocation of the words ‘final judgment’ and ‘execution thereon not having been stayed’, a necessary implication arises of this character, viz, that the creditor must not merely have obtained a final judgment but must be in a position to issue immediate execution upon it.” (Emphasis added.)

See also In re Clements; Ex parte Clements [1901] 1 QB 260 (a trustee in bankruptcy of judgment creditor who had not obtained leave to issue execution was held not entitled to issue a bankruptcy notice); Re Richards; Ex parte Sommers (1947) 14 ABC 112 (an assignee of a judgment debt was not entitled to issue execution without leave of the court and thus was unable to issue a bankruptcy notice against the judgment debtor); Re Seers (1955) 17 ABC 11 (same result where leave was required to enforce a stale judgment).

21                  Mr Coleman, who appeared for the respondent, submitted that the principle that a judgment creditor is not within s 40(1)(g) of the Bankruptcy Act unless he or she is able to issue immediate execution on the judgment did not prevent the respondent issuing a bankruptcy notice in the present case.  He contended that the only step the respondent had to take to “reap the fruits of the judgment” of the Family Court was to exercise the liberty to apply reserved by Moss J and to obtain an order under Family Law Rules,O 33 r 3(9).  This was sufficient, so he argued, to satisfy the requirements laid down in Abigroup Ltd v Abignano and the other authorities.

22                  I leave to one side the difficulty that Moss J reserved liberty to apply only for the purpose of obtaining “charging or other orders to better secure payment by the [applicant]”.  The respondent’s argument, in effect, conceded that she was not in a position to enforce the declaratory orders unless and until she obtained a further order from the Family Court.  But until a further order was made, whether pursuant to the liberty to apply or by a fresh application under Order 33, the respondent was not able to issue execution on the declaratory orders made by Moss J.  She was in substantially the same position as a judgment creditor, or a person deemed to be a judgment creditor, who is required to obtain the leave of the court in order to issue execution.  She had simply not taken all the steps necessary to entitle her to reap the fruits of the judgment in her favour.

23                  It follows that at the time the bankruptcy notice was issued the respondent was not in a position to issue immediate execution upon the declaratory orders that had been made by Moss J and affirmed by the Full Court of the Family Court.  The respondent was therefore not a creditor of the kind referred to in s 40(1)(g) of the Bankruptcy Act and the bankruptcy notice should not have been issued.  This is so regardless of whether or not the orders made by Moss J were otherwise final orders for the purposes of s 40(1)(g).

24                  The position may have been different had the respondent obtained an order of the kind referred to in Family Court Rules, O 33 r 3(9)(a)-(e), although it is unnecessary for me to express a concluded view on that question. The fact is that the bankruptcy notice was issued before the respondents sought any such order.

25                  For these reasons, the bankruptcy notice should be set aside. It is not necessary for me to consider the other arguments relied on by the applicant.

conclusion

26                  The bankruptcy notice issued on 23 May 2000 against the applicant must be set aside.  The respondent must pay the applicant’s costs.

Associate:

Dated:              8 December 2000