FEDERAL COURT OF AUSTRALIA

Dellios v Zegarac [2006] FCA 1733

Bankruptcy – Sequestration order made against respondent – Respondent filing notice of motion seeking extension of time to appeal Federal Magistrate’s decision – Whether “special reasons” pursuant to O 52 r 15 (2) Federal Court Rules – Whether appeal is bound to fail – Whether respondent has a counter claim set off or cross-demand equal to or exceeding the amount of judgment debt – No basis for extending the time for compliance

 Bankruptcy Act 1966 (Cth), s 40(1)(g)

Federal Court of Australia Act 1976 (Cth), s 24(1)(d)

 Jess v Scott (1986) 12 FCR 187, applied

Low v Commonwealth [2001] FCA 702, followed

PAUL DELLIOS (TRADING AS DELLIOS WEST AND CO) v SLAVICA ZEGARAC

VID 159 OF 2006

MARSHALL J

13 DECEMBER 2006

MELBOURNE

THE COURT ORDERS THAT:

1.                  Paragraphs 2, 5, 6, 7, 8 and 9 of the respondent debtor’s motion of 28 November 2006 is dismissed.

2.                  The respondent debtor pay the applicant creditor’s and trustees’ costs of, and associated with the motion.

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

REASONS FOR JUDGMENT

1                     The substantive proceeding is an application by the respondent debtor, Ms Zegarac, to review a sequestration order made by Registrar Mussett on 18 May 2006. In that proceeding, on 28 November 2006, Ms Zegarac filed a notice of motion, paragraph 2 of which seeks the following relief:

“Leave of the Court to appeal the Federal Magistrate Phipps decision out of time.”

2                     I understand the proposed relief to be a request for the Court to extend the time within which Ms Zegarac is allowed to appeal from the judgment of Federal Magistrate Phipps of 16 December 2005. In that judgment Phipps FM dismissed Ms Zegarac’s application to set aside a bankruptcy notice dated 18 July 2005.

3                     This Court has jurisdiction to hear appeals from certain judgments of the Federal Magistrates Court exercising original jurisdiction under a law of the Commonwealth. That includes appeals from judgments in matters arising under the Bankruptcy Act 1966 (Cth); see s 24(1)(d) of the Federal Court of Australia Act 1976 (Cth).

4                     Under O 52 r 15(1) of the Rules of Court, a notice of appeal must be filed within 21 days after the date of the judgment appealed from or within such further time as is allowed upon a motion being filed within those 21 days. Importantly, O 52 r 15(2) provides:

“Notwithstanding anything in the preceding sub-rule, the Court or a judge for special reasons may at any time give leave to file and serve a notice of appeal.”

5                     Bearing in mind the provisions of O 3 r 2(4A) which excludes the period from 24 December to 14 January for the purposes of counting the 21 days during which an appeal should be filed, any notice of appeal from the judgment given on 16 December 2005 should have been filed by 27 January 2006. The application for leave has consequently been made almost 11 months out of time.

6                     In Jess v Scott (1986) 12 FCR 187 at 195 a Full Court discussed the meaning of “special reasons” in O 52 r 15(2) and said that it is:

“…an expression describing a flexible discretionary power, but one requiring a case to be made upon grounds sufficient to justify a departure, in the particular circumstances, from the ordinary rule prescribing a period within which an appeal must be filed and served.”

7                     In this matter Ms Zegarac has not, in her affidavit accompanying her notice of motion, advanced any persuasive reason why she did not seek to appeal from the judgment of Phipps FM by the time allowed under the rules of Court, or before 28 November 2006. Indeed no reasonable explanation for the delay has been advanced.  There was no reason for her to wait for authentication of the order of Phipps FM before appealing.  In any event, she had 11 days after her receipt of the orders to apply to appeal or apply to extend the time in which to seek leave to appeal.  The delay is not slight but almost a year in circumstances where she has taken other legal steps in the legal dispute between her and Mr Dellios.  

8                     In Low v Commonwealth [2001] FCA 702, the Court declined to extend the time within which to appeal from a judgment of a Federal Magistrate in circumstances where the proposed appeal was bound to fail.

9                     Apart from leave not being granted because of the lack of a reasonable explanation of the delay, I am also of the view that the current proposed appeal is bound to fail for the reasons set out below.

10                  Phipps FM declined to set aside the bankruptcy notice because he was not satisfied that Ms Zegarac had a counterclaim, set off or cross-demand equal to or exceeding the amount of her judgment debt or a counterclaim that could not have been set up in the action in which the judgment was obtained; see s 40(1)(g) of the Bankruptcy Act. His Honour also refused to grant Ms Zegarac an extension of time in which to comply with the bankruptcy notice under s 41(6)(a).

11                  His Honour retraced the history of the controversy which led to the proceeding before him. He noted that Mr Dellios acted for Ms Zegarac in Supreme Court proceedings concerning a property dispute with her de-facto husband. A dispute ensued between Ms Zegarac and Mr Dellios about fees which Mr Dellios alleged to be owing to her. Mr Dellios obtained a judgment against Ms Zegarac in the Magistrates Court of Victoria at Heidelberg. His Honour, Cashmore M heard the matter. During the proceeding, Ms Zegarac applied for leave to file a counterclaim alleging professional negligence against Mr Dellios. Cashmore M refused leave for the counterclaim to issue but during the course of his reasons for judgment, rejected Ms Zegarac’s allegation that Mr Dellios had engaged in professional negligence.

12                  Phipps FM noted that an appeal from the order of Cashmore M was dismissed by Cummins J in the Supreme Court of Victoria on 28 June 2005. His Honour also referred to Ms Zegarac’s commencement of a proceeding in the Magistrates Court of Victoria alleging professional negligence against Mr Dellios. That proceeding also raises allegations of defamatory conduct against him.

13                  On 16 April 2006, after publication of the judgment of Phipps FM, Magistrate Smith of the Magistrates Court of Victoria struck out Ms Zegarac’s claim in which she made allegations of professional negligence and defamation. By an application dated 26 June 2006 she has applied to set aside the orders of Smith M. That matter is yet to be heard by the Supreme Court.

14                  Since the refusal of Phipps FM to set aside the bankruptcy notice, the following relevant events have also occurred:

·                    On 18 May 2006, Mussett R heard the creditor’s petition and made a sequestration order.

·                    On 9 June 2006, Ms Zegarac filed an application to review the exercise of power by the Registrar. (The hearing of that review is scheduled for next Friday 15 December 2006).

·                    On 14 July 2006, Ryan J declined to grant a stay of the sequestration order, but noted the undertaking of Mr Dellios to consent to the adjournment of the unresolved Supreme Court proceeding until the hearing and determination of the review.

15                  At [14] of his reasons for judgment, Phipps FM said:

“This issue is whether Ms Zegarac has a counterclaim set-off or cross-demand equal to or exceeding the amount of the judgment debt which she could not have set up in the proceeding in which it was obtained…”

16                  There is no challenge to that aspect of his Honour’s reasoning. However, Ms Zegarac contends that his Honour erred in saying that the professional negligence claim was one which was or could have been set up before Cashmore M. There is no basis for that contention. His Honour correctly held that that claim could have been brought before Cashmore M. In fact, Ms Zegarac applied for it to be before him. Although that application was formally refused, he dealt with and rejected her claims of professional negligence in his reasons for judgment. Phipps FM correctly stated at [15] that:

“…the important thing [for the purposes of s 40(1)(g)] is that it is a claim which could have been raised.”

I agree. Importantly, it was not a counterclaim that could not have been set up in the proceeding before Cashmore M.

17                  His Honour below, in effect, described the defamation claim as inchoate in the sense that the basis for it has not been set out in Ms Zegarac’s claim in the Magistrates Court of Victoria. This is the same claim which Smith M later struck out. Importantly, Phipps FM said at [16] that:

“(Ms Zegarac)…does not show any basis for damages as a result of what she alleges in her defamation claim, and that is an essential part of any set-off or counterclaim that is asserted under s 40(1)(g).”

I agree with that view.

18                  His Honour also held at [17] consistently with his above views that there was no basis for extending the time for compliance with the bankruptcy notice. He dismissed Ms Zegarac’s application with costs.

19                  Ms Zegarac has not demonstrated any error in his Honour’s reasoning in the matter below. I consider the reasoning to be free from doubt such that it would be futile to extend the time within which to allow an appeal to be filed.

20                  I will order as follows:

1.                  Paragraphs 2, 5, 6, 7, 8 and 9 of the respondent debtor’s motion of 28 November 2006 is dismissed.

2.                  The respondent debtor pay the applicant creditor’s and trustees’ costs of, and associated with the motion.

Middleton J previously dealt with paragraphs 1, 3 and 4 of the motion 28 November 2006.  Paragraphs 5, 6, 7 and 8 of the motion were either not pressed or rejected at the hearing this morning.

Associate:

Dated:  13 December 2006