FEDERAL COURT OF AUSTRALIA

State Bank of New South Wales Limited v Gomez [2002] FCA 1476

BANKRUPTCY – motion by petitioning creditor to extend time for compliance with bankruptcy notice – whether Court should exercise discretion to extend time – no prejudice to respondent debtor – attempt to do indirectly that which is forbidden directly

BANKRUPTCY – motion by petitioning creditor for declaration that act of bankruptcy occurred when Full Court dismissed appeal from decision refusing to set aside bankruptcy notice – construction of Bankruptcy Act 1966 (Cth) s 41(7) - whether act of bankruptcy occurred on day of decision of primary judge or day of decision of Full Court – whether authorities plainly wrong

Bankruptcy Act 1966 (Cth) ss 40(1), 41(7), 44(1)

Ebert v Union Trustee Company of Australia Limited (1961) 105 CLR 327 followed

Johnstone v Guss [1998] FCA 117 followed

Elkateb v Lawindi [2000] FCA 1939 followed

K Mart Australia Limited v Commissioner of Taxation (unreported, Beaumont J, 31 August 1995) cited

Vista Commercial Construction Pty Ltd v Deputy Commissioner of Taxation (1997) 79 FCR 288 referred to

Re Moss; Ex parte Tyaraf Pty Limited (unreported, Morling J, 23 August 1985) cited

Re Halstead; Ex parte Westpac Banking Corporation (No 2) (1991) 32 FCR 394 cited

Re Howarth; Ex parte Mortgage Acceptance Nominees Limited (1993) 43 FCR 587 cited

Caltex Oil (Australia) Proprietary Limited v Best (1990) 170 CLR 516 cited

STATE BANK OF NEW SOUTH WALES LIMITED (ACN 003 963 228) v JOSEPH WENCESLAUS GOMEZ

N 7154 of 2002

BRANSON J

28 NOVEMBER 2002

SYDNEY

THE COURT ORDERS THAT the motion pursuant to the notice of motion filed on 16 October 2002 be dismissed.

REASONS FOR JUDGMENT

INTRODUCTION

1                     This is a motion by the petitioning creditor, the State Bank of New South Wales (‘the applicant’), for an order extending the time for compliance by the respondent debtor, Joseph Wenceslaus Gomez (‘the respondent’), with the bankruptcy notice upon which the petition is founded, or, alternatively, for a declaration that the respondent debtor relevantly committed an act of bankruptcy on 15 April 2002.

BACKGROUND

2                     A bankruptcy notice dated 20 June 2000 (‘the bankruptcy notice’) was issued by the applicant and served on the respondent on 15 July 2000.  On 4 August 2000 the respondent filed an application to set aside the bankruptcy notice.  That application was dismissed by me on 7 August 2001.  On 27 August 2001 the respondent filed a notice of appeal from my decision.  The appeal was dismissed by the Full Court on 15 April 2002. 

3                     When the respondent filed his application to set aside the bankruptcy notice an order was made by the Registrar extending the time for compliance with the bankruptcy notice to 29 August 2000.  It is accepted by the parties that the time for compliance with the bankruptcy notice was thereafter extended automatically pursuant to s 41(7) of the Bankruptcy Act 1966 (Cth)(“the Act”) at least until my decision dismissing the application to set aside the bankruptcy notice was delivered on 7 August 2001.  Between 7 August 2001 and 15 April 2002 no further order was made extending the time for compliance with the bankruptcy notice.

4                     The creditor’s petition in this matter was presented on 23 May 2002.  On 24 September 2002 a Registrar raised with the parties the possibility that the creditor’s petition was stale.  On the assumption that the relevant act of bankruptcy occurred on 7 August 2001, more than 6 months had elapsed between the act of bankruptcy upon which the creditor’s petition was founded and the presentation of the creditor’s petition.

NOTICE OF MOTION

5                     The notice of motion upon which the applicant relies was filed on 16 October 2002.  The orders sought by the notice of motion are:

‘1.        Extending time for compliance with the bankruptcy notice NN5187/00 dated 20 June 2000 to such as date as this honourable Court deems appropriate.

2.                  Such further or other orders as the this honourable Court deems fit.’

6                     The applicant made two alternative submissions to the Court.  The first submission concerned the proper construction of s 41(7) of the Act.  It was argued by the applicant that on the proper construction of s 41(7) the respondent did not commit the relevant act of bankruptcy until the dismissal of his appeal to the Full Court.  Counsel for the applicant relied on paragraph 2 of the notice of motion as supporting a claim for a declaration that the act of bankruptcy on which the petition is founded was committed on 15 April 2002.  In the alternative, the applicant submitted that, in the circumstances of this case, the Court should make an order extending the time for compliance by the respondent debtor with the bankruptcy notice until 15 April 2002 or some other date within six months of filing of the creditor’s petition. 

STATUTORY PROVISIONS

7                     Section 5 of the Act defines ‘the Court’ as ‘a Court having jurisdiction in bankruptcy under this Act’.  The Federal Court of Australia (‘the Federal Court’) is one such Court.

8                     Section 40(1) relevantly provides:

‘1)       A debtor commits an act of bankruptcy in each of the following cases:

…

(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 in Australia or, by leave of the Court, elsewhere, 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; …

(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, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;’

9                     Section 41(7) of the Act provides:

‘Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.’

10                  Section 44(1) of the Act relevantly provides:

‘A creditor’s petition shall not be presented against a debtor unless:

…

(c)               the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.’

consideration

The date of the act of bankruptcy

11                  The applicant submits that the references to ‘the Court’ in s 41(7) of the Act must include the Federal Court whether constituted by a single judge or by the Full Court.  Accordingly,  it was submitted ‘the day on which the Court determines whether it is so satisfied’ within the meaning of s 41(7) is the day on which any relevant appeal, filed within the time allowed, is determined.  On this basis it was submitted by the applicant that the act of bankruptcy on which the creditor’s petition in this matter is founded did not occur until 15 April 2002.

12                  In Ebert v Union Trustee Company of Australia Limited (1961) 105 CLR 327 (‘Ebert’) the High Court, in considering the predecessor provision to s 41(7), stated at 332‑333:

‘The provision deals with the case of a debtor by affidavit setting up a counter-claim set-off or cross demand.  In effect the sub-section operates to extend the time limited in the bankruptcy notice until the day when the Bankruptcy Court determines whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand.  It is obvious that this refers to the decision of the Bankruptcy Court and cannot on any principle be understood as operating with respect, not to the date of that decision, but to the decision of this Court on appeal from the decision of the Bankruptcy Court.’

13                  The applicant argued that Ebert can be distinguished from the present case on the grounds that in Ebert the High Court was considering an appeal from one court, the Bankruptcy Court, to a different court, the High Court, whereas in this case the appeal was from one incarnation of the Federal Court, a single judge exercising the original jurisdiction of the Court, to another incarnation of the same Court, the Full Court exercising the appellate jurisdiction of the Court.

14                  In Johnstone v Guss [1998] FCA 117 Finn J rejected the argument that a decision of the Full Court of the Federal Court is a determination of the Court for the purposes of s 41(7) of the Act.  After setting out the passage from Ebert cited above, Finn J stated:

‘In the absence of any indication as to why the presently accepted view of the sub-section is arguably incorrect – no canon of construction, no reason of principle or of policy was refer to – I am unable to accept there is an arguable ground here: the more so because in 1966 the provision was re-enacted presumably in the knowledge of the High Court’s earlier decision.’

15                  In Elkateb v Lawindi [2000] FCA 1939 Madgwick J stated that:

‘s 41(7) of the Bankruptcy Act 1966 (Cth) operates to extend time for the filing of a petition until the original determination of the Court, not any appeal from that original determination…’

His Honour cited Ebert and Johnstone v Guss as authority for this proposition.

16                  A judge of this Court will ordinarily follow a decision of another judge of the Court unless satisfied that the earlier decision is ‘clearly wrong’ (K Mart Australia Limited v Commissioner of Taxation (unreported, Beaumont J, 31 August 1995)).  Counsel for the applicant submitted that the decisions of Finn and Madgwick JJ referred to above were plainly wrong in holding that the High Court’s decision in Ebert applied in circumstances in which an appeal from a decision of a judge of the Federal Court was heard and determined by a Full Court exercising the appellate jurisdiction of the Federal Court.  It was argued that ‘it is plain that the expression “the Court” in s 41(7) must refer to the Federal Court of Australia whether constituted by a single judge or by the Full Court’.  Support for the argument was sought to be found in Vista Commercial Construction Pty Ltd v Deputy Commissioner of Taxation (1997) 79 FCR 288 which was concerned with the power of the Court under the Corporations Law to extend the time for compliance with a statutory demand.  The differences between the relevant provisions of the Act and Corporations Law respectively mean that little guidance for present purposes may be obtained from Vista Commercial Construction Pty Ltd v Deputy Commissioner of Taxation.

17                  I am not satisfied that the decisions in Johnstone v Guss and Elkateb v Lawindi were plainly wrong.  I consider it appropriate to follow the earlier decisions.  I conclude that the act of bankruptcy in this matter occurred on 7 August 2001.

Extension of Time

18                  The parties accepted that the Court has no power to extend the six month period within which s 44(1) of the Act requires a petition to be presented (see Re Moss; Ex parte Tyaraf Pty Limited (unreported, Morling J, 23 August 1985)).

19                  The applicant submitted, however, that in the circumstances of this case, the Court should extend the time for compliance by the respondent debtor with the bankruptcy notice until 15 April 2002, the date on which the Full Court dismissed the respondent’s appeal.  Alternatively, the applicant submitted that the time for compliance should be extended to 24 December 2001 so that the act of bankruptcy took place on 26 December 2001.  This would ensure that the creditor’s petition was filed within 6 months from the act of bankruptcy. 

20                  It has been held that s 41(6A) authorizes the Court, on an application made by a creditor, to extend the time within which a debtor may comply with a bankruptcy notice (Re Halstead; Ex parte Westpac Banking Corporation (No 2) (1991) 32 FCR 394; Re Howarth; Ex parte Mortgage Acceptance Nominees Limited (1993) 43 FCR 587).  It was not argued that these authorities were wrongly decided.  I proceed on the basis that the Court has a discretion, which may be exercised on an application made by a creditor, to extend the time within which a debtor may comply with a bankruptcy notice.

21                  However, it is not sufficient from the applicant’s point of view that the Court has the power to extend the time for compliance with the bankruptcy notice.  It is necessary also that the Court be satisfied that it would be an appropriate exercise of the Court’s discretion to extend the time.

22                  The bases upon which the applicant contended that the Court should exercise its discretion in favour of granting an extension of time in this case are summarized in the applicant’s written submissions as follows:

‘27.      The debtor initiated the appeal which was ultimately dismissed on the 15 April 2002.

28.              If he had not appealed the creditor would have presented a petition when the time for appeal had expired.  It is highly likely if the debtor had applied for an extension of time for compliance he would have been granted such extension pending the outcome of the appeal: see e.g Ahen v DCT (1987) 76 ALR 137; Adamopoulos v Olympic Airways SA (1990) 95 ALR 525.

29.              The purpose of extending time under s41 (6A) is to enable the Court to hear an application to set aside the bankruptcy notice without the occurrence of an act of bankruptcy in the meantime: Re Stirling; Ex Parte Esanda Ltd (1980) 44 FLR 125 at 130.  Clearly the same basic considerations applied to the hearing of Dr Gomez’s appeal, and he would have obtained an extension.

30.              Consequently an extension of time to 15 April 2002 would place the debtor in precisely the same position as if he had made application himself, pending outcome of the appeal.

31.              Secondly, the debtor can point to no prejudice suffered by him by reason of the proposed extension of time.

32.              Thirdly, at the first return of the creditors petition on 21 June 2002, the debtor agreed that he would raise no opposition to the making of a sequestration order, if he failed to obtain refinancing before the next return date.  He has failed to obtain refinance money.  This agreement contains the implicit concession that the debtor has done nothing since 2 August 2002 which would be affected by his bankruptcy, since he concedes that in the absence of the refinance a sequestration order should be made.

33.              In those circumstances, the debtor cannot be heard to claim he has suffered any prejudice.

34.              Fourthly, the creditor did not delay in any way in presenting its petition after the debtor’s appeal was dismissed.

35.              In the circumstances the court should extent time for compliance for the bankruptcy notice up to and including 15 April 2002.  Thus the relevant act of bankruptcy took place on the 16 April 2002 at the latest.  Alternatively, the time should be extended to 24 December 2001, so the act of bankruptcy took place on 26 December 2001.’

23                  I accept that if the respondent had applied for an extension of time within which to comply with the bankruptcy notice to allow him meaningfully to prosecute his appeal to the Full Court he may well have been granted the extension of time.  I also accept that the granting of the extension of time sought would not result in any real prejudice to the respondent.  Until the point that the petition might be stale was raised by the Registrar, the respondent and his legal advisors had assumed that the petition was valid.  It has not been suggested that the applicant was guilty of any delay after 15 April 2002 in presenting its petition.

24                  However, it seems to me that the application for an extension of time is in reality an invitation to the Court to assist the applicant to achieve indirectly that which s 44(1) of the Act does not allow; i.e. the presentation of a petition later than six months after the act of bankruptcy on which the petition is founded.  The principle that it is not permissible to do indirectly what is prohibited directly has a long and respectable history (Caltex Oil (Australia) Proprietary Limited v Best (1990) 170 CLR 516 per Mason CJ, Gaudron and McHugh JJ at 522-523).  I do not consider that it would be an appropriate exercise of the Court’s discretion to assist the applicant by granting the extension of time that it seeks.

25                  The motion will be dismissed.

Associate:

Dated:              28 November 2002