NUDGMENT No. CLY B77 CATCHWORDS BANKRUPTCY - Bankruptcy notice - Application to set aside or extend time for compliance - Counter-claim set off or cross~demand - Appeal from judgment founding bankruptcy notice - Whether prosecuted with due diligence - Discretion of Court - Test is whether appeal 1s on substantial grounds - Calculation of interest in bankruptcy notice - Whether extension of time for compliance with bankruptcy notice is "urgent relief of an interlocutory nature" for the purposes of s.78B of the Judiciary Act where a constitutional point is raised. Bankruptcy Act 1966, s.41(5), (6A), (6C), (7) Judiciary Act 1903, s.78B RE: DOMINIC BARBARO; EX PARTE: AMALGAMATED TELEVISION SERVICES PTY LIMITED Burchett J. Sydney 3 December 1987 IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY GENERAL DIVISION No. B3790 of 1987 DOMINIC BARBARO EX PARTE: AMALGAMATED TELEVISION SERVICES PTY LIMITED MINUTE OF ORDER OF THE COURT Judge Making Order: Burchett J. Where Made: Sydney Date of Order: 3 December 1987 THE COURT ORDERS: (1) That the time for compliance with the bankruptcy notice referred to in the application be extended until further order. (2) That liberty be reserved to either party to apply to the Registrar for relisting of the application on a date which will permit the giving of 7 days' notice to the other party. (3) That costs be reserved. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY GENERAL DIVISION No. B3790 of 1987 we we ww DOMINIC BARBARO EX PARTE: AMALGAMATED TELEVISION SERVICES PTY LIMITED REASONS FOR JUDGMENT BURCHETT J. This is an application by a debtor to set aside a bankruptcy notice and to extend time for compliance until after the determination of an appeal challenging the judgment of the Supreme Court of New South Wales that led to the debtor being ordered to pay costs which, being taxed at $18,704-77, formed the foundation of the bankruptcy notice. The debtor also seeks to set up a counter-claim set off or cross-demand within the meaning of s.41(7) of the Bankruptcy Act 1966 ("the Act"). Finally, the debtor contends that he was not properly served with the bankruptcy notice. The bankruptcy notice is dated 14 September 1987. It refers to the sum of $18,704-77 as being due under an order of the Supreme Court of New South Wales and a certificate of taxation obtained 29 January 1987, and 1t refers to interest "at 2. the rate of 19.5 per centum per annum from 29 January 1987 which at 7 September 1987 amounts to $2,208-44 making a total of $20,913-21." No complaint was made as to the form of the bankruptcy notice, except for an argument that the interest was understated by an amount of $9-99 by reason that in its calculation one of the two days 29 January 1987 and 7 September 1987 was omitted. I shall return to this matter. The bankruptcy notice was served on 11 October 1987 by a process server who asked the debtor: "Are you Dominic Barbaro mentioned in this bankruptcy notice?" to which the debtor replied "Yes." The complaint about service is that the debtor was unable to read the English language, and did not appreciate the significance of the bankruptcy notice. He said it was not explained to him. In my opinion there is no substance at al] in this complaint. On 3 November 1987, the debtor's application, dated 2 November 1987 and supported by an affidavit of the same date, was filed. As the bankruptcy notice required compliance within 14 days after service, it is accepted (subject to the argument about service) that an act of bankruptcy had already occurred over a week before the application was filed. So far as the application relies on s.41(7), 1t seems to me it must follow that it fails. Before an affidavit complying with the requirements of that subsection had been filed, "the time for compliance had expired and the act of bankruptcy had been committed": James v. Abrahams (1981) 34 A.L.R. 657 at 662, per Deane and Lockhart JJ. As is explained in the same judgment at 661, the filing of an affidavit 3. pursuant to s.41(7) 1s to be distinguished from an application to set a bankruptcy notice aside. The advantage at which it aims 1s that failure to comply with the requirements of the bankruptcy notice, when the Court 1s satisfied that the debtor has a counter-claim set off or cross-demand of the required kind evidenced by an affidavit filed within time, does not constitute an act of bankruptcy. But if the affidavit is not filed within time, or is not such an affidavit as s.41(7) contemplates, the position is simply that an act of bankruptcy has been committed. This was the result in James v. Abrahams, and also in Re Laybutt; Ex parte Robinson (Burchett J., unreported, 17 July 1985). However, in the present matter the debtor 1s not relegated to reliance upon s.41(7). His true case 1S a case pursuant to s.41(6A). That subsection provides as follows: "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) an 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 bankruptcy notice." It will be noticed that s.41(6A) operates in alternative situations. It confers on the Court a discretion to extend the time for compliance with a bankruptcy notice in either of the two 4. events mentioned in it. In the present case, as I have already pointed out, the application to set aside the bankruptcy notice was not filed before the expiration of the time fixed for compliance; but the evidence shows that an appeal against the judgment of the Supreme Court was lodged promptly after the judgment was delivered, and it was not contested that this appeal fulfilled the requirements of s.41(6A)(a). In Streimer v. Tamas (1981) 37 A.L.R. 211, it was held by a Full Court of this Court that s.41(6A) conferred jurisdiction upon the Court to extend time in a case where the requirements of the subsection were met, even though the application for the extension of the time was not made until after expiry of the time sought to be extended. The debt founding the bankruptcy notice arises, as I have said, out of a costs order. The creditor was the defendant in a libel action brought by the debtor before Hunt J. and a jury on 26, 27 and 28 November 1984. Hunt J. directed a verdict for the defendant on 28 November 1984, reserving his reasons. He also ordered the plaintiff to pay the defendant's costs. Reasons for the decision were delivered on 6 February 1985 and are reported: Barbaro v. Amalgamated Television Services Pty Ltd [1985] 1 N.S.W.L.R. 30. A notice of appeal was promptly lodged, but great delays have since occurred and settlement of the appeal index has not yet been concluded: the index 1s to be settled on 8 December 1987. It was said by the debtor's counsel, and not disputed, that a solicitor's error led to the wrong index being filed well over a year ago now. 5. It is clear that the appeal was not in the past "prosecuted with due diligence" - see s.41(6C) to which s.41(6A) is expressly made subject. However, the bar erected by s.41(6C) exists in cases which are not being prosecuted with due diligence: it is not expressed to arise whenever there has been a lack of due diligence in the past. The contrast in tenses between the language of s.41(6C)(b)(1), which refers' to proceedings which have not been instituted bona fide, and the language of s.41(6C)(b)(ii) 1s I think deliberate. The legislature did not intend to remove all discretion from the Court because of a past lapse, but only in cases where the proceedings to set aside the judgment or order are not, at the time the Court considers the matter, being prosecuted with due diligence. No steps were taken by the creditor to have the appeal dismissed for want of prosecution, but a bill of costs was lodged for taxation pursuant to the order that the debtor pay the creditor's costs. The bill was taxed, and a certificate of taxation issued on 29 January 1987. While the delay before that date in prosecuting the appeal 1s, of course, relevant, there was until then no existing debt. After taxation of the costs, however, the delay continued for some time, and 1t seems that service of the bankruptcy notice has in fact been the spur to action in the appeal. Although that is so, I am far from acceding to the submission of counsel for the creditor that the appeal was merely a stalling tactic in respect of the creditor's debt. I think on the contrary the appeal was instituted bona fide in a case of genuine difficulty. Hunt J. at page 34 of the report referred to above said: "(T)he points raised were by no means easy to resolve." It has been said that the discretion conferred by s.41(6A) 18 a wide discretion which, unless the Court makes one of the findings specified in subsection (6C), 1s "at large" (see Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 F.L.R. 377 at 379-80). In Clyne v. Deputy Commissioner of Taxation (Lockhart J., unreported, 11 October 1982), which is referred to in the judgment of Mason A.C.J. in Clyne v. Deputy Commissioner of Taxation (1982) 56 A.L.J.R. 857 at 859, an extension of time to comply with a bankruptcy notice was sought (inter alia) on the basis that an appeal was pending in respect of the judgment which founded the bankruptcy notice. The circumstances were very special, and adverse to the debtor. In those circumstances, Lockhart J. considered that the proper time for the Court to consider whether its discretion should be exercised in favour of Mr. Clyne would be upon the hearing of any petition. But he added: "I do not say for one moment that in the appropriate case, relief such as 1s sought by the applicant here should not be granted. There may be cases where, notwithstanding the existence of a common law judgment in favour of the respondent against a taxpayer, time for compliance with a bankruptcy notice, issued at the respondent's request, should be extended or the notice even set aside." The respondent to whom his Honour was referring was the Deputy Commissioner of Taxation and the situation more particularly under consideration in this passage was the situation of a 7. taxpayer who, having appealed from an assessment, had a common law judgment entered against him pursuant to s.201 of the Income Tax Assessment Act 1936 notwithstanding the pendency of his appeal. This situation is the subject of comment in the judgment of Mason A.C.J. which is referred to above. Leaving aside the special considerations which swayed the Court's discretion in the Clyne case, Lockhart J. referred to the principles which normally govern such an application in the following terms: "There is no general rule that the Court must set aside bankruptcy notices or extend time for their compliance where there is a dispute genuinely based oon substantial grounds. Indeed, although there are many 'disputed' debt cases, they generally arise on the hearing of bankruptcy or winding-up petitions or on applications to restrain presentation of petitions. Little guidance is to be found in the reported cases when considering a case such as the present one, although orders are not infrequently made setting aside bankruptcy notices where the Court is satisfied that there is a dispute genuinely based on substantial grounds. Ultimately it is a matter for the Court's discretion." In Lipov_v. Alexander Fraser & Son Ltd (1978) 36 F.L.R. 126 Sweeney J. accepted that a debtor had "proper grounds of appeal" against a Supreme Court judgment on which a bankruptcy notice had been issued. He referred at 130 to the "grave consequences which flow from the effluxion of the time fixed for compliance with a bankruptcy notice," and exercised his discretion in favour of extending the time for compliance. As he pointed out, it has been held that the institution of an appeal which appears to be bona fide is a good reason for adjourning the 8. hearing of a bankruptcy petition based upon the judgment subject to the appeal. A similar approach was adopted by Beaumont J. in Re Clift; Ex parte V.L. Finance Pty Limited (unreported, 1 March 1985), where his Honour exercised his discretion in favour of the debtor on the basis that "there may be substantial grounds of appeal". The position may be compared with that which arises in relation to a claim of a counter-claim set off or cross-demand under s.41(7), where the test has been said to be whether the debtor has "a fair chance of success" (see Re Morgan; Ex parte John Fairfax & Sons Ltd (1987) 72 A.L.R. 83 at 86). I do not think it is for me to attempt to form any view about what will ultimately be the result of the debtor's appeal. It would be an invidious and inappropriate task to attempt to do that. But I think I am required to form a view, on the material placed before me, as to whether it 1s shown that the appeal is based upon substantial grounds. In my opinion, it 1s clear that it 18 so based, the issues which were dealt with by Hunt J., the subject of appeal, being issues of some difficulty and significance. The consequences of that finding are not in this case easy to decide. There is a number of discretionary considerations pointing each way. But having decided that the debtor has lodged a genuine appeal on substantial grounds, I think it would in all the circumstances be too grave a penalty for him to incur 1f I were to refuse to extend time for 9. compliance with the bankruptcy notice. To a significant extent, the delay in the appeal 1s due, not to a failure on the part of the debtor, but to an egregious mistake by his solicitor. Although there must be a question about the extent of ultimate recovery, the fact is the debt carries interest at a commercial rate. I have concluded that I should exercise my discretion in favour of the debtor. I do so to some extent on the basis that he will, as his counsel suggested, seek an order from the Registrar of the Court of Appeal of New South Wales, or failing the Registrar making such an order, from a Judge, expediting the preparation of the appeal books so as to enable his appeal to be heard as soon as possible. The form of relief I propose to grant will involve the creditor having liberty to restore the present matter to seek a variation of the order. This will ensure that there 1s a remedy if the debtor fails to take the action his counsel has foreshadowed. I mentioned at the commencement of these reasons that there was an argument asserting an understatement of the interest claimed in the bankruptcy notice to the extent of $9-99, It was argued for the debtor that both the commencing date 29 January 1987 and the date up to which interest was said to be calculated, 7 September 1987, should have been included in the calculation, but that one only of these dates had been included. It seems to me that it would be in accordance with the normal rule of construction to exclude the date from which the interest 1s calculated, and in support of this prima facie position I was referred to Part 2 rule 2(2) of the Supreme Court Rules. It follows that in the present case the interest was not 10. under-calculated, and I do not have to consider the question whether the amount of $9-99 should be regarded as "de minimis" or "negligible", to use the terms employed respectively by Beaumont J. and by myself in Crowl v. Kleinwort Benson Australia Ltd (1987) 74 A.L.R. 148 at 152 and 157. Indeed, the question arises whether there may not be an over-calculation of one day by reason of the inclusion of the day 7 September 1987 in the calculation. An over-calculation would not of course assist the debtor, having regard to the terms of s.41(5) of the Act, by which such a defect does not invalidate a notice "unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the mis~statement." It was pointed out, however, that if I extend the time for compliance with the notice (and I would be doing so, as was the case in Streimer v. Tamas, after expiry of the time originally limited which has not been extended), 1t could be said that the debtor would thereby be enabled, within the time which would then be allowed for payment, to give a notice under s.41(5). Upon attention being drawn to this aspect of the situation, counsel for the debtor undertook that, if I were to extend the time for compliance with the bankruptcy notice, advantage would not be taken to attempt to raise the question whether the interest claimed was too great by the sum of $9-99. It is therefore unnecessary to consider whether or not the last day of the period should have been included in the calculation of the interest. An argument was raised by counsel for the creditor that s.41(6A) is invalid on constitutional grounds, the proposition, ll. as I understood it, being that, since the Registrar exercises an administrative function in fixing the time for compliance with a bankruptcy notice, the attempted conferral of power upon the Court to extend the same time 1S an attempt to confer an administrative function on a Court exercising the judicial power of the Commonwealth. There is not, 1n my opinion, any substance in this contention, which does not appear to have occurred to any member of the Full Court in Streimer v. Tamas. I have been concerned as to whether, however, it required me to insist under s.78B of the Judiciary Act 1903 upon the giving of the notices referred to in that section to the Attorneys-General of the Commonwealth and of the States. But I think subsection (5) of that section applies to enable me to grant the relief which I propose to grant, by way of extension of the time for compliance with the bankruptcy notice, on the basis that relief of that kind is "urgent relief of an interlocutory nature" which it 1s necessary in the interests of justice to proceed to grant. I think sub-s.(5) should be construed generously, designed as it is to provide some relief from the draconian terms of the main provision of s.78B, of which judicial complaint has frequently been made. Cf. Amrit Lal Narain v. Parnell (1986) 9 F.C.R. 479 at 489-490. I make an order in the form which was adopted in Lipov's case, namely, that the time for compliance with the bankruptcy notice be extended until further order, liberty being reserved to either party to apply to the Registrar for relisting of the application on a day which will permit the giving of seven days' notice to the other party. As was indicated in that case at 131, 12. if the applicant pursues his appeal in the Supreme Court with due diligence, 1t would not be expected that relisting of the application would be sought before the determination of the appeal. Costs are reserved. I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for judgment herein of his Honour Mr. Justice Burchett. Chea roles Associate Dated: 3 December, 1987. Counsel for the debtor: Mr. C.A. Evatt Solicitors for the debtor: Teakle, Ormsby & Associates Counsel for the creditor: Mr. S. Rares with Mr. L. Einstein Solicitors for the creditor: Mallesons Stephen Jaques Date of hearing: 1 December 1987.