ane CATCHWORDS BANKRUPTCY - application to extend time for compliancé with bankruptcy notice - appeal against judgment pending - nature of evidence of prospects of success. Magistrates Court Act 1921 Bankruptcy Act 1966 Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 F.L.R. 377 Ex parte Heyworth; In re Rhodes C1884] 14 9.B.D. 49 Lipov v. Alexander Fraser & Son Ltd. & Anor. (1978) 36 F.L.R. 126 Re Sterling; Ex parte Esanda Ltd. (1979) 44 F.L.R. 125 RE PATRICK McATEE; EX PARTE PATRICK McATEE (APPLICANT) MICHAEL SPADINA (RESPONDENT ) QLD. No. BN2140 of 1986 SPENDER J. BRISBANE 2 DECEMBER, 1986. KK IN THE FEDERAL COURT OF AUSTRALIA ) ~ GENERAL DIVISION ) QLD. No.BN2140 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: PATRICK McATER EX PARTE: PATRICK McATEE (Applicant) MICHAEL SPADINA (Respondent) MINUTE OF ORDER JUDGE MAKING ORDER: SPENDER J. DATE OF ORDER: 2 DECEMBER, 1986 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. That the time for compliance of the bankruptcy notice issued on 31 October 1986 be extended until further order; 2. that the applicant and the respondent be at liberty to relist this matter on reasonable notice; 3. that the costs of this application be reserved. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISTON ) QLD. No.BN2140 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: PATRICK McATER EX PARTE: PATRICK McATER (Applicant) DATE JUDGMENT DELIVERED: COUNSEL: MICHAEL SPADINA (Respondent) 2 DECEMBER, 1986 for the applicant Mr. Gardiner for the respondent Mr. Newton T. MACDERMOTT ASSOCIATE TO SPENDER J. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISTON ) QLD. No.BN2140 of 1986 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: PATRICK McATER EX PARTE: PATRICK McATER (Applicant) MICHAEL SPADINA (Respondent) SPENDER J. BRISBANE 2 DECEMBER, 1986. REASONS FOR JUDGMENT This is an application by a judgment debtor for an order for the extension of time for compliance with the requirements of a bankruptcy notice. On 19 September 1986, Mr. W.d. McKay, Stipendiary Magistrate, after a contested hearing, ordered that judgment be entered for the debtor in the sum of $3,578.65, being an amount encompassing the various claims in dispute between the parties, and for costs. The judgment entered under r.187(2) of the Magistrates Court Act 1921, which was the basis of the application for the issue of a bankruptcy notice, is in these terms: "Whereas on the 19th day of September 1986, it was adjudged by the Magistrates Court at Brisbane that the Defendant do recover against the Plaintiff the amount of $3549.25 for CLAIM and COSTS and $NIL for costs And it was ordered that the defendant do pay the same forthwith Judgment is hereby entered for the amount of $3578.65 for CLAIM & COSTS and the amount of $Snil for costs, including $29.40 costs of entering Judgment." On that curiously worded judgment a bankruptcy notice in the amount of $3,608.05 was issued. However, in this case, no question arises under s.41(5) of the Bankruptcy Act 1966, which provides:- "A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor tht he disputes the validity of the notice on the ground of the mis-statement." The basis of the application to extend time for compliance with the bankruptcy notice 1s that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor. This is one of the grounds provided by s.41(6A) of the Bankruptcy Act 1966. An appeal was filed on 10 October 1986. A bankruptcy notice was issued on 31 October 1986, and service was effected on the debtor on 5 November 1986. The bankruptcy notice was a 14 day notice. This application to extend time for compliance was filed on 19 November 1986. There is no dispute that proceedings to set aside the judgment in respect of which the bankruptcy notice was issued have been instituted before the expiry of the time fixed by the Registrar for compliance under the bankruptcy notice. It follows, therefore, that the application to extend the time for compliance with the bankruptcy notice was filed before the expiration of the time fixed by the Registrar for compliance with the requirements of the bankruptcy notice. The discretion given to the court to extend time is at large - Clyne v. Deputy Commissioner of Taxation (1982) 56 A.L.J.R. 857. I accept, as Sheppard J. heid in Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 F.L.R. 377, that the mere fact that an appeal has been lodged is not sufficient to warrant the discretion being exercised. T have not been provided in this case with the reasons of the learned Stipendiary Magistrate for his judgment. A notice of appeal has been exhibited. That recites a number of grounds, including the wrongful reception of evidence regarding matters that had not been pleaded. Some of the grounds challenge the finding that the defendant was entitled to an award for damages for mental Dod distress occasioned by the delayed delivery of a kitchen. However, it is difficult from a perusal of the notice of appeal to form any view as to the prospects of success of the appeal. In a matter of this kind, a court sitting in bankruptcy should not "explore the merits of the appeal except on the widest footing", as the Full Court of the Federal Court concluded in Verma v. Deputy Commissioner of Taxation (unreported decision of 22 February 1985). I am therefore in a position of some difficulty in assessing the prospects of the appeal. In Taylor's Case, the position in which Mr. Justice Sheppard found himself was a little dafferent from the present. He said at 378:- "The evidence in support of this application consists of evidence from the debtor's solicitor deposing to the facts of the matter more or less as I have recounted them. Significantly, there is no affidavit from the debtor, nor does the debtor's solicitor in any affidavit which he has sworn say that he has been advised by counsel that the appeal which has been instituted against Lee J.'s decision has reasonable prospects of success or something of that kind. Counsel appearing for the debtor this morning is not counsel engaged in the appeal, and has not turned his mind apparently to the question of whether there is a reasonable chance of success. All he did in argument was to refer me to Lee J.'s judgment, and say that it was a relevant matter for me to consider whether I thought, upon reading the judgment, the debtor had some prospect of success in the appeal. In the circumstances I find myself in an invidious position. In the absence of evidence of the usual kind to which I have referred, and in the absence of any argument from the debtor's counsel, I am asked to express an opinion on the debtor's chance of success in the appeal. That is not something which I should be asked to do. Nevertheless, I have performed the exercise. Having done so, I can only say that it does not occur to me that wit there is any reasonable basis for a successful challenge to Lee J.'s judgment. Nothing having been put to me upon which I might rely for a different view, the exercise I have performed has to be understood in that way. But the fact that nothing was pointed out or relied upon by counsel for the debtor is, I think, itself significant. What he wishes me to do really is simply to take into account the fact that an appeal has been lodged. It seems to me, that being my view, that is really determinative of this application, " Unless the time for compliance with a bankruptcy notice is extended, non-compliance with the requirements of that notice will constitute an act of bankruptcy. This is so even if the appeal ultimately succeeds (see Re Vella; Ex parte Seymour (1983) 48 A.L.R. 420.) The question therefore of whether time ought to be extended is by no means academic. In Ex parte Heyworth; In re Rhodes £18843 14 Q.B.D. 49, the English Court of Appeal was concerned with what should be the position where an appeal was pending from a judgment on which a bankruptcy petition was founded. Fry L.J. stated in that case at p.52:- "In all cases of this kind I should be very unwilling to interfere with the exercise of the registrar's discretion. But in the present case I think he has exercised his discretion rightly. If the appeal from the judgment appeared to be an entirely frivolous one, the proceedings on the petition ought not to be stayed, but that is not so here. The present appeal, however, is entirely frivolous, and it must be dismissed with costs." Those principles have been applied by this Court considering the question of whether time for compliance witha bankruptcy notice should be extended where an appeal has been instituted against the judgment on which the notice is based. One instance is the judgment of C.A. Sweeney J. in Lipov v. Alexander Fraser & Son Ltd. & Anor. (1978) 36 F.L.R. 126; see also Re Sterling; Ex parte Esanda Ltd. (1979) 44 F.L.R. 125 at 134. The position here is finely poised, but the material before me does offer some indication as to the nature of the appeal. In an affidavit filed on behalf of the judgment creditor, Mr. Gynther has sworn:- "During the hearing of the Plaint, Messrs. Morris Fletcher and Cross instructed Mr. Peter Hastie of Counsel on behalf of the Respondent. Mr. Hastie has further been instructed by that firm to consider the prospects of success of the Appeal by the Applicant. Iam informed by Mr. Hastie and verily believe that the prospects of upholding the Magistrates decision are very good." However, the debtor, Mr. McAtee, has deposed in these terms: "7. On being advised of the decision on the 19th September, 1986 I immediately instructed my Solicitor, Maxwell Mead of Maxwell Mead & Sowry, Solicitors, to take Counsel's advice on an Appeal. il. I am financially able to pay the Judgment Debt, however I feel that my Appeal against such Judgment, being an Appeal based on Legal Advice should be heard before this matter is finalised." ~e Although there is a lack of frankness as to the prospects of success, the view I have reached is that, in the light of that material, the appeal was instituted at counsel's advice, from which Iam prepared to infer that it was nota frivolous appeal, and that there were some prospects of success. Apart from that, I do not think I can take the matter any further. I do not think I am permitted to infer that the prospects of success are any higher than that. In relation to the debtor's claim that he is financially able to pay the judgment debt, but wishes to exhaust the appeal process, it is true that the debtor swears that there are in existence other smaller sums which are unpaid. The material also shows that the appeal will not be heard until February 1987 at the earliest. In the circumstances I am prepared to grant an extension of time until further order, with a provision enabling either party to bring the matter on before me if the appeal is prosecuted with other than due diligence. The orders that I propose are these:- 1. That the time for compliance of the bankruptcy notice issued on 31 October 1986 be extended until further order; 2. that the applicant and the respondent be at liberty to relist this matter on reasonable notice; 3. that the costs of this application be reserved. I certify that this and the preceding 6 pages are a true copy of the reasons for judgment herein of His Honour Mr. Justice Spender Mad Zor OS . Dated 2.12.1986 Associate