FEDERAL COURT OF AUSTRALIA

Slack v Bottoms English Solicitors [2002] FCA 1445

BANKRUPTCY – application to set aside bankruptcy notice issued jointly by three respondents – whether applicant had a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt – whether there was mutuality between creditor’s claim against debtor and current claims – whether bankruptcy notice issued for improper purpose

PRACTICE & PROCEDURE – application for an extension of time – considerations relevant to granting an extension of time – delay short – no suggestion of prejudice to respondent – extension of time should be granted if arguable grounds of proposed appeal shown – no arguable grounds of appeal hence granting of extension of time futile

Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344, followed

Jessup (Trustee) v Mountain View Farm [2002] FCA 664, cited

Jess v Scott (1986) 70 ALR 185, referred to

Hughes v National Trustees Executors and Agency Co of Australasia Limited [1978] VR 257, referred to

Atkinson v Federal Commissioner of Taxation (2000) 45 ATR 1, cited

Stec v Orfanos [1999] FCA 457 , considered

Emanuele v Grey [1997] 1545 FCA, referred to

James v Federal Commissioner of Taxation (1995) 93 CLR 631, followed

Brunninghausen v Glavanics [1998]  FCA 230, cited

Re Sarina (1980) 43 FLR 163 , referred to

Killoran v Duncan [1999] FCA 1574, cited

RICHARD JOHN SLACK v BOTTOMS ENGLISH SOLICITORS (a partnership) and STEINDLS SOLICITORS (a partnership) and MILLER HARRIS LAWYERS (a partnership)

No Q 144 of 2002

SPENDER J

BRISBANE

20 NOVEMBER 2002

THE COURT ORDERS THAT:

1.                       The application for an extension of time within which to file and serve a notice of appeal be dismissed.

2.                       The applicant pay the respondents’ costs, to be taxed if not agreed.

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

REASONS FOR JUDGMENT

1                     This is an application to extend time within which to appeal a judgment of Federal Magistrate Coker given 2 August 2002.  Richard John Slack (“the applicant”) seeks to set aside a bankruptcy notice issued jointly by the three respondents to the present application: Bottoms English Solicitors (a partnership), Steindl Solicitors (a partnership) and Miller Harris Lawyers (a partnership).  In the proceedings before Federal Magistrate Coker, the applicant submitted that he had a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt, and that the bankruptcy notice ought to be set aside.

2                     The Federal Magistrate found that there was no mutuality between the creditor’s claim against the debtor, and the claims on which the applicant relied.  Those claims include proceedings 180 of 2001 in the Supreme Court of Queensland, but there are, it seems, other proceedings as well.  The effect of those other proceedings, it seems to be conceded, is that they involve some or all of the issues in the proceedings on which the bankruptcy notice was founded (namely, proceedings 50 of 2001 in the Supreme Court of Queensland.)

3                     It also seems to be conceded that those proceedings lack mutuality in the sense that the respondents to the various other Supreme Court proceedings are not identical to the three respondents to the present application.  The Federal Magistrate found that there was no mutuality between the creditor’s claim against the debtor and his claim in the other proceedings, and consequently dismissed the application in so far as it relied on that ground. 

4                     Further, it was submitted before Federal Magistrate Coker that proceedings had been brought in circumstances from which one could infer that the purpose was to require payment of the debt.

5                     Federal Magistrate Coker said at pars [4] to [5]:

“It is contended upon the part of the applicant that these proceedings have been brought in, what might be termed, an inappropriate manner in that there have been no steps taken by the creditors to enforce the Judgment or the order obtained by them in the Supreme Court at Cairns by enforcement procedures available under the Uniform Civil Procedures Rules. It is the case that, as I understand it, no such steps have been taken but it is contended on the part of the solicitor and counsel for the respondents that there is no such obligation to do so.

I agree with that particular submission and it is clear that the provisions of the Bankruptcy Act do not require enforcement proceedings to have been taken under some other form of legislation or by some other means before the institution of proceedings.” 

His Honour dismissed the application, noting at par [9]:

“I agree that there is an absolute opportunity on the part of the applicant, if served with a creditors petition, to contest that creditors petition and that will be a matter that will be determined if it is necessary to do so at another time.  It is certainly the case that one of the legitimate considerations in relation to whether the creditors petition should lead to sequestration is whether in fact the respondent to the creditors petition is solvent.  That will be a matter for determination then.”

6                     The application for an extension of time was filed 28 days after the judgment was given by Federal Magistrate Coker.  Order 52 r 15(1) of the Federal Court Rules requires a notice of appeal to be filed and served within 21 days of the judgment. 

7                     The requirement for special reasons to extend time has been considered in a number of cases, importantly by Wilcox J in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-349, where his Honour set out the considerations ordinarily relevant to such an application as follows:

“1.    Although the section does not, in terms, place any onus of proof upon an applicant for extension an application has to be made.  Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper so to do.  The ‘prescribed period’ of twenty-eight days is not to be ignored (Ralkon Agricultural Co. Pty Ltd v Aboriginal Development Commission (1982) 43 ALR 535 at 550). Indeed, it is the prima facie rule that proceedings commenced outside that period will not be entertained (Lucic v Nolan (1982) 45 ALR 411 at 416).  It is a pre-condition to the exercise of discretion in his favour that the applicant for extension show an ‘acceptable explanation of the delay’ and that it is ‘fair and equitable in the circumstances’ to extend time (Duff at 485; Chapman v Reilly  unreported (Federal Court of Australia, Neaves J, 9 December 1983) at 7).

2.            Action taken by the applicant, other than by making an application for review under the Act, is relevant to the consideration of the question whether an acceptable explanation for the delay has been furnished.  A distinction is to be made between the case of a person who, by non-curial means, has continued to make the decision-maker aware that he contests the finality of the decision (who has not ‘rested on his rights’: per Fisher J in Doyle v Chief of Staff (1982) 42 ALR 283 at 287) and a case where the decision-maker was allowed to believe that the matter was finally concluded.  Compare Doyle, Chapman, Ralkon  and Douglas v Allen (1984) 1 FCR 287 with Lucic at 414-415 and Hickey v Australian Telecommunications Commission (1983) 48 ALR 517 at 519.  The reasons for this distinction are not only the ‘need for finality in disputes’ (see Lucic at 410) but also the ‘fading from memory’ problem referred to in Wedesweiller v Cole (1983) 47 ALR 528.

3.             Any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension: see Doyle at 287, Duff at 484-485, Hickey at 525-527 and Wedesweiller at 533-534.

4.            However, the mere absence of prejudice is not enough to justify the grant of an extension: Douglas, Lucic at 416, Hickey at 523.  In this context, public considerations often intrude (Lucic, Hickey).  A delay which may result, if the application is successful, in the unsettling of other people (Ralkon at 550, Becerra at 12-13) or of established practices (Douglas) is likely to prove fatal to the application.

5.            The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted: Lucic at 417, Chapman at 6.

6.            Considerations of fairness as between the applicants and other persons otherwise in a like position are relevant to the manner of exercise of the court’s discretion: Wedesweiller at 534-535.”

8                     I referred to those and other considerations relevant to the granting of an extension of time in Jessup (Trustee) v Mountain View Farm [2002] FCA 664.  I there observed, after referring to Hunter Valley Developments v Cohen, Jess v Scott (1986) 70 ALR 185  and observations by McInerney J in Hughes v National Trustees Executors and Agency Co of Australasia Limited [1978] VR 257, that (at par [6]):

“Ultimately, as was observed by a subsequent Full Court in Zocchi v The Queen [2000] 116 A Crim R 245 at 246, Jess v Scott is authority for the proposition that:

         ‘… the Court’s power to extend time is a flexible one, designed to enable substantial justice to prevail over technical default’.” 

9                     In this case the delay is short and there has not been suggested any prejudice to the respondent.  Consequently, it seems to me that an extension of time should be granted if it can be shown that there is an arguable ground in the proposed appeal.  In Atkinson v Federal Commissioner of Taxation (2000) 45 ATR 1, Sackville J held at par [3]:

“The Commissioner takes no point as to the adequacy of the applicant's explanation for the relatively short delay in invoking the court's appellate jurisdiction.  The Commissioner opposes the grant of leave on the basis that the applicant has not shown that he has any arguable grounds of appeal.  The Commissioner correctly submits that if the applicant is unable to identify any arguable ground of appeal, an appeal would be futile and the court would not grant an extension of time: Jess v Scott (1986) 12 FCR 187 at 195; Tydeman v Deputy Registrar of Child Support Agency [1999] FCA 936, at [5]; Brehoi v Minister for Immigration and Multicultural Affairs [1999] FCA 772 at [12].”

10                  Essentially, Mr Wrenn of counsel for the applicant relies on two broad complaints as grounds for the proposed appeal.  The first is that the judgment below was wrong because it should have been held that the issuing of the bankruptcy notice was for an improper purpose and should therefore have been set aside.  Secondly, it is said that the Federal Magistrate was wrong in his conclusion that the principle of mutuality meant that the applicant had not demonstrated that he had a requisite cross-claim, counter-claim or set-off.

11                  So far as the second broad ground of appeal is concerned, it is quite unarguable in my opinion that the Federal Magistrate was wrong in his conclusion that there was not the requisite cross-claim, counter-claim or set-off, in that there was a want of mutuality. 

12                  In Stec v Orfanos [1999] FCA 457 the Full Court (Beaumont, Branson and Sundberg JJ) said at pars [24] – [25]:

“The primary judge then said that there was a more general answer to all the alleged cross demands.  This was that in answer to a bankruptcy notice issued by several joint creditors, the debtor may not raise a debt owed by one  or some of them individually.  Mr Stec’s claims were not against all those described in the notice as ‘the creditor’.  His Honour relied on James at 643 and on an earlier decision of his own, Emanuele v Grey (unreported 17 December 1997), which also relied on the passage in James [This is a reference to James v Federal Commissioner of Taxation (1995) 93 CLR 631].  Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right:  Re Anderson; Ex parte Alexander (1927) SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27.  The requirement that the two claims be ‘in the same right’ is directed to the capacities in which the claimants claim.  Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee.  See Re Wedd; Ex parte Wedd (1961) 19 ABC 36; Re Molesworth (1907) 51 Sol J 653; Vogwell v Vogwell (1939) 11 ABC 83 at 89.  But the requirement relevant to the present case is that the claims be mutual; that is that they be of the same kind or nature.  Thus joint debts cannot be set off against several debts: Middleton v Pollock (1875) LR 20 Eq 515 at 518.  Here three of Mr Stec’s claims were against ERI alone.  There is thus no mutuality in relation to these claims.  His other claim was against Messrs Conroy, Rybak and Georgopolos.   Again there is no mutuality because one of the joint creditors, ERI, is not the subject of the cross claim.  

We agree with the primary judge's observations in Emanuele and in the present case that a debtor may only raise as an answer to a bankruptcy notice issued by several joint creditors a cross demand against those creditors jointly.  However, we do not think that James provides any authority for this proposition.”

13                  I respectfully disagree with the final sentence of the Full Court’s analysis.  I share the view of von Doussa J (which he expressed in Emanuele v Grey [1997] 1545 FCA) that James v Federal Commissioner of Taxation (1995) 93 CLR 631 is authority for the proposition that a debtor can raise, as an answer to a bankruptcy notice issued by a number of joint creditors, only a cross-demand against those creditors jointly.  The passage in James which I think justifies that proposition appears at 643 where the High Court (Williams, Kitto and Taylor JJ) says:

“Here, the order is an order that the plaintiff pay the costs of the action to the defendants.  In order that a bankruptcy notice should be in accordance with this judgment it should direct the plaintiff to pay the three defendants named in the action.  In the same way it should notify the debtor that he may secure or compound the debt to their satisfaction.  In the same way it should notify the debtor that he may apply to the court to set aside the notice if he has a counter-claim etc. against the three creditors which equals or exceeds the amount claimed by them.” (Emphasis added)

14                  It seems to me unarguable that there was a want of mutuality in the cross-claim on which the applicant relied before the Federal Magistrate.  There is therefore no basis for setting aside the bankruptcy notice on the ground that the applicant has a counter-claim etc. which equals or exceeds the amount claimed by him. 

15                  On the question of abuse of process, it is submitted on behalf of the applicant that the judgment below is arguably wrong because it is arguable that the issue of the bankruptcy notice was for an improper purpose.  In that respect reference was made to a letter which appears in exhibit RJS 3 to the applicant’s affidavit sworn 18 November 2002.  That letter is addressed to the applicant from a Rob Miller under the letterhead of Miller Harris Lawyers.  It is headed “Bottoms English & Ors ats You Supreme Court Claim Number 50/2001”,  and the body of the letter is in these terms:

“You have now been served with a bankruptcy notice. 

Please note that we intend to proceed by way of a creditors’ petition in the event that payment is not made within the required time. 

Miller Harris

Per:

Rob Miller.”

16                  Counsel for the applicant relies on observations by Emmett J in Brunninghausen v Glavanics [1998]  FCA 230 where his Honour said:

“As I have said, the primary contention on the part of the debtor is that the bankruptcy notice is an abuse of process on the basis that it is no more than an attempt to collect the judgment debt which has resulted from the order made by Bryson J. 

I was referred to the decisions of this Court in Re Sterling; Ex parte Esanda Pty Limited (1980) 44 FLR 125 and  Re Lentini v CSR Limited (1991) 29 FCR 363 as to the inherent power of the Court to set aside a bankruptcy notice as an abuse of process.  I did not understand counsel for the creditor to dispute the Court's jurisdiction to act in that way and I take it to be undisputed that if it is apparent that the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court's jurisdiction in relation to insolvency, then the filing of the bankruptcy notice is an abuse of process.”

17                  For reasons which his Honour then advanced, he declined in those circumstances to conclude that the bankruptcy notice should be set aside on that basis.  His Honour referred to Re Sarina (1980) 43 FLR 163, where Deane J observed at 165 that bankruptcy proceedings are not appropriate as a means to compel a recalcitrant debtor who is otherwise solvent to pay a debt which he declines to pay.  In that case it was clear beyond argument that the purpose of the bankruptcy proceedings was to put pressure on the debtor rather than to genuinely invoke the Court’s jurisdiction. 

18                  Similarly, in Killoran v Duncan [1999] FCA 1574, Gyles J said:

“8.  On 29 July 1999 the bankruptcy notice here in question was issued.  The solicitor for the applicants argues that at that point it could be concluded that the bankruptcy notice was an abuse of the process of the Court as it is apparent that the purpose of it was to put pressure on the debtor to pay the debt rather than to invoke the Court’s jurisdiction in relation to insolvency  (Brunninghausen v Glavanics, in the matter of Brunninghausen (Emmett J, 3 March 1998, unreported)).  I will come back to that submission in a moment.

…

12.  Whilst there is no debate about the jurisdiction of the Court to set aside a bankruptcy notice as an abuse of process where it can be concluded that it was simply to put pressure on the debtor rather than to genuinely invoke the Court's jurisdiction,  I am not satisfied that that is the position here.  There is nothing to indicate that the respondent creditor does not genuinely intend to pursue the matter if there is default in complying with the notice.  In my opinion, there is nothing special about abuse of process in this field, and, if a person wishes to resort to the jurisdiction of the Court for appropriate orders, then it will be an unusual case in which that will be prevented. 

13.  There is no evidence here of any collateral purpose or of any undue pressure being applied.  It is correct, I think, that the time to judge abuse of process is the time that the bankruptcy notice is issued and that subsequent events have relatively slight relevance.  They may be relevant insofar as they throw light upon circumstances which might have been appreciated and foreseen at the time of the issue of the notice.”

His Honour said at par [16] that he declined to set aside the bankruptcy notice because of the failure to satisfy him that it was an abuse of process. 

19                  In this particular case there is an unfortunate inconsistency in the claims made on behalf of the applicant.  On the one hand it is said that the improper purpose in the issue of the bankruptcy notice was to have the debt paid, whilst at the same time it is said that there was an improper motive on the part of the respondents to the present application in that they wished to seek a sequestration order against the applicant to stifle other proceedings in the Supreme Court.

20                  As the letter to which I have made reference makes plain, it seems to me unarguable that the issue of the bankruptcy notice was an attempt genuinely to invoke the bankruptcy jurisdiction of the Court in the event of default in complying with it.  The statement “we intend to proceed by way of a creditors’ petition in the event that payment is not made within the required time” was, no doubt,  calculated to persuade the applicant to pay the debt the subject of the notice, but that is an express object of a bankruptcy notice.

21                  It seems to me to be quite unarguable that the issuing of a bankruptcy notice as a means to secure payment of a debt and, in the event of default, to proceed by way of petition for sequestration is an abuse of process.  It seems to me to be simply unarguable in the circumstances of this case that the issue of the bankruptcy notice with the intention, or hope, that the debt would be paid, but that if it was not paid then bankruptcy proceedings would issue, is an abuse of process.

22                  I have dealt in some detail with the broad areas of the proposed appeal and I have considered in detail the specific grounds set out in the proposed notice of appeal.  For the reasons which I have advanced, it seems to me that no arguable ground of appeal exists, thereby rendering the granting of an extension of time futile. 

23                  I earlier referred to the observations by the Federal Magistrate, which I now repeat, that many of the matters which Mr Wrenn has raised on the applicant’s behalf about solvency, abuse of process, attempts to have the applicant bankrupted so as to frustrate Supreme Court proceedings, and so on, are matters which can and should be raised, if appropriate, at the petition stage.

24                  I understand that the debt the subject of the bankruptcy notice has been paid but there is pending an application to have creditors substituted on a creditors’ petition which has been issued in respect of the act of bankruptcy constituted by the failure to comply with the bankruptcy notice the subject of the application before Federal Magistrate Coker.  None of those aspects is relevant to the question of whether there are arguable grounds of appeal from the declining by Federal Magistrate Coker to set aside the bankruptcy notice. 

25                  The application is therefore refused, because an extension would be futile. 

26                  I order that the application for an extension of time be dismissed, and that the applicant pay the respondents’ costs, to be taxed if not agreed.

Associate:

Dated:              27 November 2002