Bankruptcy - Bankruptcy Act - failure to comply with bankruptcy notice - judgment debt result of decision of Mining Warden's Court - debtor seeking adjournment of petition pending appeal to the Supreme Court under s.147 Mining Act - consideration of principles on which petitions should be adjourned - application for adjournment dismissed. Bankruptcy Act 1966 sub-3s 33(1) and 52(1) Mining Act 1985 33.147 and 148 Cases: Le Mesurier v. Qwen (1921) 24 WALR 2, Re Flateau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 86. Petrie v. Redmond 13 ABC 44 at 48. Corney v. Brien (1950-1951) 84 CLR 343 at 356. Re Lewis and Glasson; Ex parte Glasson (Unreported - Federal Court of Australia - 24 April 1986). Re: ANTHONY FRANKIE PRACILIO - Debtor Ex Parte: RQBERT CHARLES GARDNER - Creditor No. P151 of 1986 MUIRHEAD J. PERTH 13 MAY 1986 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA No. P151 of 1986 RE: ANTHONY FRANKIE PRACILIO Debtor EX PARTE: ROBERT CHARLES GARDNER Creditor MINUTE OF ORDER JUDGE MAKING ORDER: MUIRHEAD J. DATE OF ORDER: 9 May 1986 WHERE MADE: Perth THE COURT ORDERS THAT: 1, A Sequestration Order be made against the estate of Anthony Frankie Pracilio to he stayed pending the handing down of written reasons for decision. 2. Costs including reserved costs be taxed and paid according to the Act. (NB. - On 13 May the reasons for decision were published and the stay set aside.) Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT QF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA No. P151 of 1986 wee weve wv RE: ANTHONY FRANKIE PRACILIO Debtor EX PARTE: ROBERT CHARLES GARDNER Creditor CORAM: MUIRHEAD J. 13 May 1986 REASONS FOR JUDGMENT The petition in this matter was listed for hearing before me on 28th April. The petition is based on the failure of the debtor to comply with the provisions of a bankrupty notice served on him on 6th February 1986. In anticipation that the debtor would seek an adjournment the creditor filed affidavits in opposition to such an application. On 28th April the debtor's counsel sought an adjournment, no notice of opposition having been filed at that date. The creditor's counsel strenuously opposed the application but I granted an adjournment until the lst of May. On that date I heard argument. I reserved my decision but having considered the matter and having determined that a sequestration order should be made I made such an order on 9th May, granting a stay until my reasons were available. Section 33(1) of the Bankruptcy Act 1966 provides that the court "may upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally". The judgment debt results from a decision of a Mining Wardens Court dated 21st October 1985 in which the Warden considered claims by the debtor and a counterclaim by the creditor. It was a considered judgment, the reasons for judgment occupied 40 pages and it followed delayed, protracted and interrupted proceedings between the parties at Mt Magnet. The issue of credibility loomed large. The Warden classified the debtor, the plaintiff in those proceedings, as an "almost totally unreliable witness". The dispute resulted from a mining partnership between the parties which subsisted for four months between November 1983 until March 1984. The parties were both represented by counsel. The hearings took place in 1985 on 26th March, 27th May, 24th June, 22nd July, 26th August and 23rd September and many factual issues were involved. The somewhat sorry history of the matter prior to judgment is set out in the affidavit of David Scott Ellis filed herein on 28th April 1986. The ground of the debtor's application is that an appeal to the Supreme Court under 3.147 of the Mining Act 1985 is pending. The debtor's affidavit in support of the application, refers to the fact that he was in custody until shortly before the hearing commenced in the Wardens Court His solicitor advised him that an adjournment of the hearing, scheduled to commence on 26th March could not be obtained and he was unformed that other counsel had been briefed. He met his counsel at the Perth airport on 26th March and they travelled together by plane to Mt Magnet. He complains that he was disadvantaged in that he was "not represented properly; that material witnesses were not properly examined and in some instances were not called". He deposes that his counsel did not understand the issues; to sum up that his counsel did not adequately fulfil his role. It is not for me at this stage to enquire further into this aspect, but it is important to bear in mind the protracted nature of the proceedings. Indeed on the first day of hearing the court did not hear evidence and there was an adjournment of two months before the matter came on again and there were several subsequent adjournments of about one month. Viewed objectively it is fair to assume the debtor had adequate opportunity to arrange other representation if he so desired. I return to the substance of the appeal to the Supreme Court of Western Australia. I am in fact in some doubt whether an appeal is yet on foot as Mr Clifford, counsel for the creditor advises me that the notice of appeal has not been served. Section 147 of the Mining Act provides that an appeal lies to the Supreme Court "from any final judgment, determination or decision of a Wardens Court". It provides that the appeal will be commenced by prescribed notice filed in the Wardens Court within twenty one days after judgment. I observe that over six months have now elapsed gince that judgment. Section 147 further provides that the notice of appeal which must contain the grounds of appeal shall be served, within the period ot twenty one days upon the Warden and the respondent or his selicitor. Section 147(b) provides that notice of appeal does not operate as a stay unless the warden so orders. Section 148(1) provides that "where the grounds of appeal include any matter of fact, the Supreme Court may order, or the parties to the appeal may agree, that the appeal shall be by way of rehearing before a Judge". Section 148(2) provides "Except as provided in subsection (1) of this section, every appeal shall be heard and determined upon the proceedings in the Wardens Court". Subsection (5) requires the appeal to be set down for hearing in the Supreme Court "within fourteen days after filing notice of appeal". Against the background it appears that the debtor has endeavoured to institute an appeal. He did not dogo in the required time and on 9th December 1985 he made application for enlargement of time to the Supreme Court. This application was dismissed, the court holding that the notice of appeal did not comply with 3.147 of the Mining Act. On 30th December 1985 the debtor applied toa Warden for an extension of time. This application was dismissed on 29th January 1986, the Warden finding that he had insufficient evidence before him to justify the order. On Sth March 1986 the Warden finally made an order extending time but the deponent Ellis swears that this order has not been complied with, in so far as the creditor had not (by 28th April last) been served with a copy of the notice of appeal, and so the matter rests. Counsel for the debtor has stressed that I should not make an arder preempting the ultimate decision of the Supreme Court and indeed normally this would be so where a bona fide appeal was pending. He also submits that as the appeal may be by way of rehearing rather than strictu sensu this court cannot satisfy itself as to the merits or prospects of appeal by consideration of material and events relating to the earlier hearing in the Wardens Court. Whilst I have some doubts on the issue [I will assume for present purposes that subject to discretion in other places, the appeal will get off the ground. One old authority was cited when the Supreme Court ordered a rehearing, not by the Supreme Court but by the Warden; Le Mesurier v. Owen (1921) 24 WALR 2. There upon the new material before him McMillan CJ observed "If that story is true, gross fraud has been committed by the plaintiff and evidence should be placed before the Warden which he did not have before him previously..." The Chief Justice went on to observe that if the parties did not consent to a rehearing by the Warden he would order the rehearing before himself. But matters such as this must be treated with a degree of realism. The creditor's counsel assures me that his client will not consent to a rehearing. The material before me reveals a picture of a prolonged contest, both parties represented by counsel. There is no evidence of fraud, collusion, malpractice or the like. The debtor's main concern is to the quality of his representation. The Warden''s judgment reveals a careful analysis of evidentiary matters and a great deal depended, as conflicting evidence was involved, upon his findings as to relative credibility. Upon the material before me I can, I think, fairly ohserve (assuming the appeal now to huve heen instituted) that the prospects of the Supreme Court ordering a rehearing are remote as indeed are the prospects of the appeal succeeding. The principles have been enumerated in several authorities. In Re Flateau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 Fry Ld observed (at 86) "This power has never, s0 far as I am aware, been extended to cases in which a judgment has been obtained after issues have been tried out before a court". In Petrie v. Redmond 13 ABC 44 at 48 Latham CJ observed: "At the hearing of the petition he relied on the principle founded on the words in the Bankruptcy Act that the court requires proof of the debt of the petitioning creditor. The court is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice, as stated in Ex parte Lennox; Re Lennox ((1885)16 Q.B.D. 315); Re Flateau; Ex parte Scotch Whisky Distillers Ltd. ((1888) 22 Q.B.D. 83); Re a@ Debtor ((1929) 1 Ch. 125), and other cases. Also the court looks with suspicion on consent judgments and default judgments. The court also strives to prevent creditors from being defrauded by collusive or dishonest proceedings by friends of the debtor, or other people. The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It is impossible to lay down any general rule." Fullaghar J dealt with the authorities relevant to the question of going behind the judgment in bankruptcy proceedings at some length in Corney v. Brien (1950-1951) 84 CLR 343 at 356 et seq. He observed "If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima facie case of fraud or _ collusion or miscarriage of justice is made out". (See also Re David: Ex parte Lahowd (1972-1980) 2/7 ALR 206). f{ appreciate that the debtor is not seeking that this Court should go behind the judgment - he simply asks for an adjournment to enable him to pursue an appeal. But the considerations expressed in these cases are matters which have relevance to the exercise of my discretion and they are not irrelevant to the factors the Supreme Court would consider in determining the question of a rehearing. Such an application on the material before me (and I can safely assume there will be no consent) will aimost certainly fail. Having read the judgment and all affidavits and exhibits before me I assess the prospects of a successful appeal as very slim. Since reserving my decision I have read the judgment of Pincus J in Re Lewis and Glasson; Ex parte Glasson (Unreported - Federal Court of Australia - 24 April 1986). In that case His Honour dealt with an application to adjourn the petition as an appeal from the judgment was pending, the debtor in his words "actively taking steps in prosecution of the appeal". His Honour referred to "the onus on the judgment debtors to point to some aspects of the reasons which gives them a real chance of success on appeal...". Having examined the judgment he was not prepared to find this was established. He enunciated the proposition that "the question whether the appeal is brought bona fide and on substantial grounds is ... a circumstance to be taken into account in exercising the discretion whether or not to adjourn the petition". The importance of that decision is that His Honour examined the principles upon which adjournments pending appeal fas) should be granted. as oxpressed un decisions such as Ex parte Heyworth in re Rhodes (1864) 14 0.B.D. 49 and Lipov v. Alexander Fraser & Sons Ltd and Another (1978) 36 FLR 126. to the effect that the institution of an apparently bona fide appeal is good reason to adjourn a petition. To determine whether or not an appeal is 'bona fide' is no easy task. The most hopeless appeais may be pursued in good faith. If on the other hand the motive is primarily to cause delay good faith will not be established. The view I take is that the debtor must establish not only good faith but also that substantial grounds exist. The latter consideration is probably generally examinable in determination of the former but in my opinion must be regarded as a separate issue. In some cases an evaluation of the proposed appeal will be a difficult exercise to a court sitting in bankruptcy. But in the present case where the findings are essentially based on the quality of evidence and where the court has so clearly and for apparent good reasons expressed its findings on relative credibility so clearly, a conclusion may be made with some degree of confidence. In these reasons I have referred to but a fraction of the affidavit evidence before me. There is much other evidence which goes to the question of insolvency and indeed as_ to the debtor's bona fides. A strong inference of continuing tactics intended to delay is justified and I am concerned particularly by reason of the matters deposed to in the affidavit of the creditor filed on 28th April last, that the debtor's property is being or may be disposed of or dealt with ina manner contrary to the interests of bona fide creditors. In hrs aifidavit ot Z@2rd April 198€ sworn in support of an application for stay of judgment in the Wardens Court the debtor deposed as to certain property and financial matters. He swears that he was then unable to pay the judgment debt but referred to his "prospects of income" as being "bright". The affidavit of the creditor which I have referred to 1S supported by many relevant exhibits containing material which makes it impossible for me to accept the accuracy of the debtor's affidavit. There is no necessity to go into detail - the affidavits speak for themselves. The true situation of the debtors's estate is clouded and it is not unlikely that he has assets such ag gold, difficult to trace. It is the type of situation where, if an adjournment was granted, it would be on terms that ensured the petitioning creditor would not suffer prejudice by the further delay. The debtor's counsel informs me that an order in such terms could not be complied with. In the exercise of my discretion I am well persuaded that the adjournment must be refused. As I have said, the appeal is not likely to succeed. I am of the view that further delay in sequestration will probably prove detrimental to creditors and will add to the Trustee's difficulties. I pronounced a sequestration order last week but in the absence of reasons I considered I should postpone its operation until they were availabie. 10. I repeat the order 1 made which which will be effective from today. I am satisfied that the debtor has committed the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters, of which s.52(1) of the Act requires proof. I note that Gary Raymond Monck a registered trustee has consented to act as the trustee of the estate of the debtor. I make a sequestration order against the estate of the debtor Anthony Frankie Pracilio. I order that costs, including reserved costs, be taxed and paid according to the Act. I direct that a draft of this order be delivered to the Registrar within 7 days in accordance with rule 124. I certify that this and the nine preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Muirhead. Aizatth Hrcrron, Associate Dated: 13 May 1986