FEDERAL COURT OF AUSTRALIA

Brookfield v Capital Finance Australia Limited [2012] FCA 415

THE COURT ORDERS THAT:

1.    The Application for an Extension of Time to File a Notice of Appeal be dismissed.

2.    The Interlocutory Application filed on 19 April 2012 be dismissed.

3.    The Respondent’s costs of each application be paid out of the bankrupt estate of the Applicant.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    By an interlocutory application filed on 19 April 2012, Ian Walter Brookfield (‘the applicant’) seeks an extension of time under r 36.05 of the Federal Court of Australia Rules 2011 (‘the Rules’) to file a Notice of Appeal against orders made by Driver FM on 30 January 2012. Such orders included a sequestration order against the applicant’s estate and declared that the applicant’s act of bankruptcy occurred on 11 May 2011. Such orders were made in the absence of the applicant.

2    On 7 March 2012, the applicant appeared before Driver FM to seek to set aside his Honour’s orders of 30 January 2012. Driver FM found that the interests of justice did not require the orders to be disturbed and dismissed the applicant’s application: see Capital Finance Australia Limited v Brookfield [2012] FMCA 165.

3    The applicant’s interlocutory application before this Court seeks to set aside or stay the decision of Driver FM, to set aside or stay a bankruptcy notice issued by Capital Finance Australia Limited (‘the respondent’) on 1 March 2011 and to remove a related adverse entry in the records of Veda Credit, a private organisation.

4    A draft Notice of Appeal attached to the affidavit of the applicant affirmed on 5 April 2012 raises the following grounds of appeal:

1.    The orders are subject to a judgment under appeal in the Supreme Court.

2.    The orders are a miss-carriage [sic] of justice.

3.    The orders support an abusive process [sic] by the petitioning creditor.

4.    The orders are made in the absence of all material facts.

5.    The orders do not reflect the evidence which currently sits before the court.

6.    The Defendant is responsible for the debt which forms the basis of this action.

5    The application is supported by an affidavit affirmed by the applicant on 5 April 2012, but not filed with the Court until 19 April 2012. The applicant states that the judgment obtained in the Local Court which is the genesis of the bankruptcy notice is to be appealed in the Supreme Court of New South Wales and that the appeal has not yet been heard by that Court. Otherwise the Court has not been provided with any evidence which would support Grounds 2 to 6 of the draft Notice of Appeal.

6    The applicant states that he is a sole director of a number of companies that are seeking to commence production of hovercrafts, and that the applicant is actively seeking funding from various sources for such projects. The applicant claims that payment of the respondent’s debt ‘will be capable of being made’.

7    The purpose of granting an extension of time is to avoid injustice. Therefore, this Court must consider whether the interests of justice would be served by the grant of an extension of time to appeal: see Gallo v Dawson (1990) 93 ALR 479 at 480. As part of this consideration, the Court must take into account the likelihood of success of any appeal. In Hughes v National Trustees Executors and Agency Co of Australasia Ltd [1978] VR 257, McInerny J stated at 263:

It is clear, however, that whether the applicant seeks "special leave" or merely "leave", consideration alike of the question of possible injustice to the applicant if the application be refused and the judgment left undisturbed, and of possible injustice to the respondent resulting from the disturbance of his seemingly vested interest in the maintenance of the judgment involves a consideration of the prospects of success of the appeal if the extension be granted. For it would be unjust to the respondent to put him to the trouble and expense of an appeal if the judgment sought to be attached is plainly right--compare the observations on a similar point by Sholl, J., in Bayview Quarries Pty. Ltd. v Castley Development Pty. Ltd., [1963] VR 445 at p. 446 citing Evans v Bartlam, [1937] AC 473; [1937] 2 ALL ER 646 and Collins Book Depot Pty. Ltd. v Bretherton, [1938] VLR 40.

8    In Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344, Wilcox J succinctly stated the essential criteria before an application for extension of time can be granted. Those requirements include a satisfactory explanation for the failure to comply with the time limits prescribed by the Rules for the filing of an appeal, whether substantive merits are shown such that if leave were not granted a potential injustice would result, and whether prejudice exists to any other party if the application were granted.

9    Driver FM made the sequestration order on 30 January 2012. Thereafter, the applicant applied under r 16.05 of the Federal Magistrates Court Rules 2001 for the orders to be set aside. Driver FM heard the matter and delivered his finding on 7 March 2012. Taking the last-mentioned date as the critical date to calculate the window of opportunity to file an appeal against Driver FM’s orders, the present application should have been filed by approximately 28 March 2012. These proceedings were therefore approximately 14 days out of time. This is not an extensive delay, but no explanation for such delay has been provided as required. Nevertheless, since the delay is relatively short, this factor would not, of itself, result in the dismissal of the application. The critical question for determination is whether merit in the appeal has been demonstrated.

10    The applicant has told the Court that the judgment obtained by the petitioning creditor in the Local Court of New South Wales was entered in approximately February 2011, and that the bankruptcy notice was issued in March 2011. The applicant took no court proceedings to seek to have the Local Court judgment set aside until October 2011, when he made an application to appeal the Local Court decision to the Supreme Court of New South Wales. As appears from the decision of Driver FM, his Honour was aware of the existence of the application to the Supreme Court of New South Wales.

11    Driver FM, in orders made on 30 January 2012, noted that the date of the act of bankruptcy was 11 May 2011. Unfortunately, this Court has not been provided with a copy of the Local Court decision or any evidence of the proposed appeal in the Supreme Court.

12    Driver FM, in his decision dated 7 March 2012, observed at [7]:

Mr Brookfield has proposed that he could deal with the debt due to Capital Finance by borrowing funds from elsewhere. However, he asserts that he is frustrated from doing so by an adverse credit notice on his credit file. I note from the documents annexed to his affidavit that an adverse credit report appears, disclosing an overdue amount, $46,281. That is the amount of the judgment debt, plus, I assume, an amount of interest on the judgment.

13    His Honour continued at [9]:

The fact that Mr Brookfield is only able to deal with the debt by borrowing funds from elsewhere indicates that he is not able to pay the debt from his own money. I accept that he is unable to obtain other loan finance, confronted with the adverse credit report, but in the absence of any compelling reason to look behind the judgment debt, I see no reason to accede to his request that the court should require Capital Finance to delete the adverse credit information.

14    At [11] Driver FM noted the Grounds of Opposition to the making of the sequestration order filed by the respondent. However, his Honour considered that as the petitioning creditor had satisfied the requirements of a sequestration order, there was no reason for the Court to refrain from making such order.

15    The Court has considered the merits of the present application, which are essentially the same as those considered by Driver FM. The applicant acknowledges that he has no monies with which to pay the petitioning creditor’s debt, nor is he in a position to borrow any monies whilst the sequestration order remains. The applicant acknowledges that he owes monies to the petitioning creditor, but not to the extent of the judgment obtained in the Local Court. From the bar table the applicant assessed his liability to the petitioning creditor in the amount of approximately $20,000.

16    The Court will now consider the applicant’s submission that the sequestration order made by Driver FM should be stayed because of potential financial benefits to be obtained from the applicant’s business ventures. The applicant states that he is the promoter of a hovercraft business known as Sydney Harbour Hovercraft Services Pty Ltd. The applicant’s affidavit also refers to the fact that he is the sole director of several companies which are in the ‘final stages of finalising many millions of dollars in funding for two major projects’. The applicant also states that Sydney Harbour Hovercraft Services Pty Ltd ‘is placed to be listed on the ASX in the second half of this year with a 150 million dollar float’. The affidavit also refers to an intention to lease land in a marina in Queensland and refers to orders for approximately 105 hovercrafts at a price of $2.6 million each. The affidavit claims that the decision of the Federal Magistrate has placed such projects in jeopardy, and that he would suffer losses in excess of $250 million if the orders remain against him.

17    The mere theoretical existence of a potentially lucrative business investment is insufficient to avoid insolvency. In Sandell v Porter (1966) 115 CLR 666, Barwick CJ stated at 670:

Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.

18    Where a debtor seeks to avoid bankruptcy by claiming some future event will provide for the satisfaction of the debt, only the reasonably immediate future is to be looked to: see Bank of Australasia v Hall (1907) 4 CLR 1514; Sandell v Porter.

19    The applicant’s affidavit indicates that the various hovercraft businesses relied upon by the applicant as being the source of future financial resources are, at their highest, aspirational, and no evidence has been adduced to establish that the respondent’s debt can be satisfied in the reasonably immediate future. As Powell J stated in Allfox Building Pty Ltd v Bank of Melbourne Ltd (unreported, Supreme Court of NSW, 6 May 1992) at [4]:

I remain to be persuaded that the alleged agreement is anything but a fantasy - as a piece of draftsmanship, it is an appalling farce, and, as I read it, it contains nothing which would ensure that, either by 16th May 1992, or at any other time, the Plaintiff will ever receive a red cent pursuant to its terms .

The present case is, thus, reduced to a simple one involving a delinquent debtor, which owes a significant sum of money, payment of which sum is long overdue, seeking to restrain the exercise by its mortgagee of its undoubtedly presently exercisable powers of sale upon the faith of no more than the Micawber - like plea that, if more time be allowed, "something will turn up".

20    The debtor acknowledges that he is unable to pay his debts as they fall due. Further, the prospect that there might be a future financial windfall from dealings in his hovercraft business is insufficient to warrant the Court finding that the applicant is likely to succeed in having the sequestration order set aside.

21    For these reasons, both applications are dismissed with costs.

Associate:

Dated:    23 April 2012