Nya Nor foe DISTeeemon? ) I WESTERM AUSTRALIA DISTRICT REGISTRY »: NO. WAG 29 OF 1387 } GENERAL DIVISION J ON APPEAL from aie single judge of the Federal Court of Australia BETWEEN: NEIL JAMES JOHN DUCKWORTH Appellant AND: ALAN KEVIN LOCKETT and ELIZABETH EVELYN LOCKETT Respondents MINUTE OF ORDER JUDGES MAKING ORDER: FOX, JENKINSON AND WILCOX JJ. DATE OF ORDER: 22 MAY 1987 WHERE MADE: Perth. THE COURT ORDERS THAT: L. The appeal be dismissed. be The respondents costs of and incidental to the appeal be taxel and paid out of the estate of the appellant with the priority given by the Act to the costs of the petitionina creditor. Note: Settlement and entry of orders 1s dealt with in cdrder 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION NO. WAG 29 of 1987 ON APPEAL froma single judge of the Federal Court of Australia BETWEEN : NEIL JAMES JOHN DUCKWORTH Appellant AND: KEVIN LOC and ELIZABETH EVELYN LOCKETT Respondents CORAM: FOX, JENKINSON AND WILCOX JJ. DATE: 22 MAY 1987 REASONS FOR JUDGMENT THE COURT: This is an appeal from the making of a sequestration order against the estate of the appellant by a judge of this Court (Prench J.). On 30 April 1986 the respondents obtained a default Judgment in the District Court for $21,583.12 against the appellant. On 20 dune 1986 a bankruptcy notice issued on the application of the respondents requiring the appellant to pay the amount of the judgment debt to the respondents within 14 days of the service of the notice on him. The bankruptcy notice was served on the appellant on 11 September 1986. On 25 September, within the time allowed, the appellant filed an affidavit in which he asserted that he had a counter-claim against the respondents for $23,000, plus interest. This affidavit related to para. 40(1)(q) and sub-s. 41(7) of the Bankruptcy Act 1966 which provide as follows:- "40.¢1) A debtor commits an act of bankruptcy in each of the following cases:- (q) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not - (i) where the notice was served in Australia - within the time fixed by the Registrar by whom the notice was issued; or (ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service, comply with the requirements of the notice or satisfy the Court that he has a counter-clain, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained; 41.(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he has such a counter-claim, set-off or cross demand as is referred to 1m paragraph 40(1)(qg). and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off, or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether 1t is so satisfied." No matter of proof was then proffered. On 7 October 1986 the respondents filed a petition seeking a sequestration order against the appellant's estate. On 4 December 1986 the appellant filed a notice of intention to oppose the respondents' petition and an application to have the bankruptcy notice set aside and the time for compliance with the bankruptcy notice extended pending the hearing of the application. This application related to sub-ss. 41(6A) and (6C) of the Act. which provide as follows:- "41(6A) Where, before the expiration of the time fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice - (a) proceedings to set aside the Judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or (b) oan application to set aside the bankruptcy notice has been filed with the Registrar, the Court may subject to sub-section (6C), extend the time for compliance with the bankrutpcy notice." (6C) Where - (a) a debtor applies to the Court or the Reqistrar for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and (b) the Court or the Registrar, as the case may be, is of the opinion that the proceedings to set aside the judgment or order - (i) have not been instituted bona fide; or (iil) are not being prosecuted with due diligence, the Court or the Registrar, as the case may be, shall not extend the time for compliance with the bankruptcy notice." When the matter came on for hearing before us, three of the grounds of appeal were abandoned. Those remaining are as follows:- "5. The learned trial judge was wrong in the exercise of his discretion in not granting an adjournment of the proceedings upon the application of the appellant (debtor) made on the grounds that relevant documentation was not presently available to show the true nature and extent of the appellant's (debtor's) set off. The learned trial judge was wrong in the exercise of his discretion in holding that there was no set off because of paucity of evidence when the appellant's (debtor's) evidence was that relevant documents which would substantiate his claim were presently unavailable but obtainable. The learned trial judge was wrong in law and in the exercise of his discretion in making a sequestration order in circumstances where the evidence was sufficient to show that the amount owing by the appellant (debtor) to the respondent (creditor) was less than the sum of $1,500.00." So far as relevant the trial judge decided as follows:- (i) The appellant's counter-claim was not one to which para. 40(1)(q) and sub-section 41(7) applied; because (a) there was insufficient evidence of the existence of the counter-claim, and {(b) an any event, the appellant had expressly stated in his affidavit that he could have asserted the counter-claim in the District Court, but failed to do so because of pressure of work. Accordingly, the appellant had committed an act of bankruptcy in failing to comply with the bankruptcy notice (para.40(1)(g)). (ii) It was not necessary to decide whether or not the Court had power to extend time to comply with the bankruptcy notice where failure to comply had already led to an act of bankruptcy, because the discretion under sub-section 41(6A) should in any event be exercised against the appellant due to his dilatoriness. (iii) Due to the appellant's dilatoriness, the discretion not to make a sequestration order against the debtor's estate, but instead to allow him time to litigate the issue asserted, would not be exercised in his favour and the order would be made. The debt for which judgment was sianed arose under a deed executed on 24 December 1984. This deed was not in the original appeal papers but a copy of it, as tendered before the learned judge, has been added by consent. Under it the appellant agreed to pay §21,000 to the respondents by 21 January 1986. Two affidavits sworn by the appellant, as well as a substantial body of his oral evidence, were before his Honour. The appellant asserted that the deed did not represent the position or the obligations of the parties but was intended for use by the respondents in obtaining credit. The parties had been friends and had been involved together in the activities of a number of companies. As we understand it, the substance of what is said by the appellant is that the deed was a sham, if not in facta fraud. He said that there was not a debt, and never had been. A surprising aspect of the whole matter is that the appellant did not initiate any court proceedings or pursue a denial of the debt. His concern has been with an alleged set off or counter-claim arising, as it is said, from moneys lent to the respondents, or paid for their benefit. In the District Court the fudqment against him was in default of appearance. He twice applied to be let in to defend, but did not on either occasion file an affidavit in support, and the applications were dismissed. His notice of intention to oppose the bankruptcy petition referred to a set off, but not to a denial of the debt. Nearly all his evidence before his Honour related to the alleged set off, or counter-claim. His interest at that time was to show that he had at least the beginnings of a substantial claim against the respondents. He wanted further time to establish this, with a view apparently of getting the time for compliance with the bankruptcy notice extended, or at least in order to show that on a balance the amount of the debt was less than $1500. In his evidence he gave a rambling account of moneys said to be owing by the respondents and some documents were tendered, but he could only mention figures amounting to $9000. On 23 September 1986 the appellant had taken out a writ in the District Court at Perth which was indorsed as follows: "The plaintiff's claim is for (a) The sum of §23,000 being monies paid by the Plaintiff on behalf of the Defendants to various creditors by way of repayments on loans taken out by the Defendants and further monies owing to the Plaintiff by way of loans advanced by the Plaintiff to the Defendants and which monies are due and owina to the Plaintiff. (b) Interest on the said sum of $23,000.00 pursuant to Section 32 of the Supreme Court Act." Although there was an appearance to the writ no statement of claim was filed, nor any further step taken to prosecute the action. It seems likely that if his Honour had granted an adjournment of the hearing of the petition in order that the appellant's counter-claim could be litiaated in the District Court that that Court would not have entertained any further application for him to be let in to defend or to file a counter-claim against the default judgment. The appellant had himself filed a claim in the District Court but has not prosecuted it and if his Honour had granted an adjournment on condition that the claim be prosecuted with diligence it might well have been that this would only have led to further delay and no result. It could well have appeared to his Honour that if he decided to entertain the dispute himself this would be a long drawn out and unsatisfactory process. The allegation that the deed was in effect a sham and that the debt did not exist was a serious allegation and in some circumstances his Honour might have found it appropriate to explore that matter further. However. the appellant seems himself to have been ambivalent about the matter. He claimed he did not ever owe anv money under the deed and that it was entered into in circumstances I have stated, but at the same time did not seem to resist the claim based on it, provided only that he could establish his own claim for moneys paid to or for the respondents. The situation to which he deposed 1s indeed a very confused one but 1n all the confusion there is a deed, on its face regularly entered into, which is quite clear in what it Bays. It is well established that an appellate court will not interfere with the exercise of discretion by a Judge unless satisfied there was some error. In the present case, several discretions came into play. but we cannot say in relation to any ot them that his Honour was wrong. Dilatoriness and confusion had existed for s0 long that his Honour was quite entitled to take the view that the application for more time to comply with the bankruptcy notice should be refused and that a sequestration order should be made forthwith. When the trustee becomes possessed of the relevant documents he may, or may not, feel that the District Court action commenced by the appellant should be pursued or that some other course should be taken either in relation to the amounts claimed by the appellant or to the debt to the respondents. The appeal should be dismissed and the respondents' costs be taxed and paid out of the appellant's estate. Counsel for the Appellant: Solicitors for the Applicant: Counsel for the Respondents Solicitors for the Respondents: Dates of hearina: Date jfudament delivered: I certify that this and the eight (8) preceding pages are a true copy of the Reasons for Judgment herein of the My ae Associate Dated: 22 May 1987 Mr D.R. Clyne Messrs. Malone Dziecol & Co. Mr S.R. Paterniti Messrs. Parker & Parker 19, 20 May 1987 22 May 1987