FEDERAL COURT OF AUSTRALIA

Grace v Lawson Hill Estate Pty Ltd [2005] FCA 1778

BANKRUPTCY – bankruptcy notice – judgment debtor has application pending before High Court for special leave to appeal from final judgment or order on which bankruptcy notice is based – application for stay of execution of judgment – Held:  (1) a stay on the judgment will not prevent act of bankruptcy from being committed upon expiry of time fixed in bankruptcy notice or of that time as extended by Court;  (2) commission of act of bankruptcy will not prevent judgment debtor from prosecuting her application for special leave to appeal;  (3) application for stay of execution refused.

Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41

JUNE MARGARET GRACE v

LAWSON HILL ESTATE PTY LIMITED

NSD 1801 OF 2005

LINDGREN J

6 DECEMBER 2005

SYDNEY

THE COURT ORDERS THAT:

1.         The application brought by notice of motion filed on 23 September 2005 be dismissed.

THE COURT NOTES THAT:

2.         There is no order as to costs.

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

REASONS FOR JUDGMENT

INTRODUCTION

1                     As a result of the Full Court’s allowing of the appeal in Lawson Hill Estate Pty Ltd v Grace (proceeding NSD 197 of 2005) on 22 August 2005 (see Dalton v Lawson Hill Estate Pty Ltd [2005] FCAFC 169), Lawson Hill Estate Pty Ltd (‘Lawson Hill’) has a judgment against June Margaret Grace (‘Mrs Grace’), as well as against her husband, Jose Harold Grace, for $705,589.00.

2                     On 16 September 2005 Mrs Grace applied to the High Court for special leave to appeal from the Full Court’s decision.  The High Court has notified Mrs Grace that it is expected that her application for special leave will be listed for hearing on 3 February 2006.

3                     On 23 September 2005, Mrs Grace filed the application which commenced this proceeding, seeking a stay of execution of the judgment.  I heard that application yesterday.

4                     On 10 October 2005, the Official Receiver, upon the application of Lawson Hill, issued a bankruptcy notice in relation to Mrs Grace.  Apparently, the bankruptcy notice was served on her on 1 November 2005.

5                     On 21 November 2005, Mrs Grace filed in this Court an application for an order setting aside the bankruptcy notice and an order that the time for compliance with it be extended to 21 days after the High Court determines whether to grant special leave, or until further order of the Court (proceeding NSD 2256/2005 – ‘the bankruptcy proceeding’).  Also on 21 November 2005, the Court extended the time for compliance with the bankruptcy notice until today.

6                     I will hear the application for a further extension of the time for compliance with the bankruptcy notice in the bankruptcy proceeding immediately after delivering this judgment.

CONSIDERATION

7                     I am able to resolve Mrs Grace’s application for the stay of execution on a narrow ground.

8                     It was not in dispute that one criterion to be satisfied by Mrs Grace is that she must establish that if a stay is not granted, her application for special leave will be rendered nugatory.  Importantly, it is not suggested, and there is no evidence, that Lawson Hill intends, prior to the hearing of the application for special leave, to ‘enforce’ its judgment against Mrs Grace otherwise than by means of bankruptcy proceedings against her.  Accordingly, Mrs Grace must establish that if execution of the judgment is not stayed, Lawson Hill will, through bankruptcy proceedings, be able to defeat the purpose of Mrs Grace’s application for special leave.

9                     Section 41 of the Bankruptcy Act 1966 (Cth) (‘the Act’) provides for the issue of bankruptcy notices, and s 40(1)(g) of that Act provides for the act of bankruptcy which consists of a failure by a debtor to comply with such a notice.  The Official Receiver’s power to issue a bankruptcy notice given by s 41 requires that the application for the notice by made by a creditor who has obtained against a debtor a final judgment or final order, execution of which has not been stayed.  When the Official Receiver issued the present bankruptcy notice, this condition was satisfied.

10                  Once a bankruptcy notice is validly issued, the debtor will commit an act of bankruptcy by reason of nothing more than the operation of s 40(1)(g) and the effluxion of the time fixed in the notice, or that time as extended by the Court, unless, of course, the notice is set aside by the Court or the debtor does one or other of the things referred to in para (g) of s 40(1).  No further ‘execution’ of the final judgment or order by the creditor is required, before the act of bankruptcy is committed.  In the present case, for example, it is not even necessary that Lawson Hill take the step of appearing in the bankruptcy proceeding in order for Mrs Grace to commit an act of bankruptcy.

11                  For the above reason, a stay of execution on the judgment at this stage would not serve Mrs Grace’s purpose and the application for it is misconceived.  Therefore, the application should be dismissed.

12                  Any remedy available to Mrs Grace must be found within the régime established by the Act.

13                  I note also that the commission of an act of bankruptcy by Mrs Grace today will not render her application for special leave futile:  she will remain at liberty to pursue her application for special leave.

14                  It was said yesterday by Mr Ashhurst, counsel for Lawson Hill, that the likely course of events if Mrs Grace should commit an act of bankruptcy today is that a creditor’s petition would be presented by Lawson Hill some time later this month.  The first day of Law Term in 2006 is 6 February, and there is no suggestion that Lawson Hill would apply for an urgent hearing of its petition during vacation.

15                  Accordingly, so far as one can see at present, the creditor’s petition would not come before this Court until after the application for special leave was resolved.  Of course, if the application for special leave is not heard and determined on 3 February 2006, Mrs Grace could apply for an adjournment of the hearing of the petition.

16                  [His Honour heard the parties on costs].

17                  The basis on which I have decided that the application should be dismissed is not one which was debated yesterday, although it depends on facts not in dispute.  Costs ordinarily follow the event, but in these special circumstances, it should be left to each party to bear her or its own costs.

Associate:

Dated:              9 December 2005