JUDGMENT NOx sme? SS uf IE, CATCHWORDS BANKRUPTCY - application for extension of time for compliance with bankruptcy notice - whether discretion should be exercised where debtor has proceedings pending to set aside orders for payment of debt - insufficient evidence to support debtor's claim to have orders set aside - debtor's failure to make a further application to stay orders - application refused. Bankruptcy Act 1966, s 41(6A), s 41(6C) Re Geard: Ex parte Reid 11 February 1994, Unreported, Sheppard 16 DEC 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL, REGISTRY v_RAFFAELE ISP NN_234/94 Sackville J. 16 December, 1994 Sydney. FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NN 234 of 1994 GENERAL DIVISION ) BETWEEN: SANTINO AGRILLO Applicant AND: RAFFAELE CODISPOSTO Respondent CORAM: SACKVILLE J. PLACE: SYDNEY DATE: 16 DECEMBER, 1994 MINUTES OF ORDER THE COURT ORDERS THAT: 1. Subject to orders, the application be dismissed. 2. The time for compliance with the bankruptcy notice be extended for seven days from the date of this judgment 3. The debtor pay the costs of the application. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NN 234 of 1994 GENERAL DIVISION ) BETWEEN: SANTINO AGRILLO Applicant AND: RAFFAELE CODISPOSTO Respondent CORAM: SACKVILLE J. PLACE: SYDNEY DATE: 16 DECEMBER 1994 REASONS FOR JUDGMENT Introduction The debtor, Santino Agrillo, by an amended application, seeks orders that a bankruptcy notice, dated 3 May 1994, be set aside, or that the time for compliance with the notice be extended until one month after the conclusion of certain proceedings, No. 4418 of 1993, in the Equity Division of the Supreme Court of New South Wales. The bankruptcy notice was issued on the application of the creditor, Raffaele Codisposto, and was based upon a judgment debt arising out of earlier proceedings in the Equity Division of the Supreme Court of New South Wales, No. 3419 of 1993, between the creditor as plaintiff and the debtor as one of two defendants. At the hearing before me, Mr Reuben, who appeared on behalf of the debtor, confined his submissions to an application, pursuant -2- to 8.41(6A) of the Bankruptcy Act 1966, that the bankruptcy notice be extended until the time specified in the amended application. Section 41(6A) and s.41(6C) of the Bankruptcy Act 1966 provide as follows: "41(6A) [Extension of time by Court] 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 subsection (6C), extend the time for compliance with the bankruptcy notice. 41(6C) [Where application for extension of time to be refused] Where: (a) a debtor applies to the Court or the Registrar 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 (ii) 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." The Facts The sequence of events in this matter was as follows: By a summons filed on 9 July 1993, being proceedings No. -3- 3419 of 1993 in the Equity Division of the Supreme Court of New South Wales, the creditor sought relief against the debtor, as first defendant, and a solicitor, Mr S. Scarfone, as second defendant. Mr Scarfone acted for both the vendors and purchasers on the sale of a property to the debtor and three other members of his family. The vendors seem to have been the creditor's two daughters, although the creditor apparently acted in relation to the sale under a power of attorney from his daughters. The relief sought in the summons included orders restraining the debtor from disposing of moneys payable to him in consequence of certain other proceedings in the Supreme Court of New South Wales. The summons also sought an order that the "defendant" (sic) pay the creditor the sum of $240,000. As Cohen J. remarked in later proceedings (to which I refer shortly), proceedings No. 3419 of 1993 were in a "most confused state". Interim orders were made by the Supreme Court of New South Wales on 9 July 1993, These restrained the debtor from dealing with the proceeds of settlement of the earlier proceedings in the Supreme Court of New South Wales, designated as No. 10890 of 1992. It appears that the proceeds related to an insurance claim by the debtor, arising out of a robbery that took place at his jewellery store. In any event, the interim orders made on 9 July 1993 were made too late to prevent dispersal of the moneys that had been received by the debtor. -4- The evidence filed on behalf of the creditor in proceedings No. 3419 of 1993 was not tendered at the hearing before me. However, I infer from the evidence before me that the claim by the creditor related to moneys said to be due by the debtor in respect of the sale of the property to the debtor, his wife, sister and brother-in-law. The claim also included repayment of moneys said to have been lent by the creditor to the debtor's father and for which the debtor (among others) had accepted responsibility. On 14 July 1993, the proceedings instituted by the creditor came before the Equity Division of the Supreme Court of New South Wales. On that day, short minutes of order were signed by counsel for the creditor and the debtor. Orders were made by the Court in accordance with those short minutes of order, as follows: "THE COURT ORDERS that: 1. On or before the 30th August, 1993 the First Defendant shall pay $256,000.00 to the Plaintiff or his Solicitor. 2. The summons is otherwise dismissed. 3. The Plaintiff discontinues its action as against the Second Defendant. 4. There be no order as to costs. THE RT NOT T: 5. The parties acknowledge that the sum of $256,000.00 is apportioned as follows: a. $110,000.00 in full and final settlement of the property known as 57 Boronia Street, Wentworthville, being fully described in Folio Identifier B/389809. b. $146,000.00 in payment of outstanding debts in Australia of Santino Agrillo to Raffaele Codisposto. 6. Upon payment of the sum of $256,000.00 to the Plaintiff, the Plaintiff shall:- a. Deliver to the First Defendant's Solicitor a transfer in registrable form. b. The said transfer shall nominate as purchaser, the First Defendant and or such other parties as the First Defendant shall nominate. " The debtor was present when the terms of the agreement with the creditor were negotiated. Indeed, on his own account, although he said he was "constantly being pressed by [his] legal representative to reach settlement", he gave specific instructions to his solicitor. These were that he would agree to the short minutes of order only if they acknowledged that $110,000, of the total sum of $256,000 to be paid by him, was for the house and $146,000 was in respect of debts owed by him and his father "so that no further claim (could] be made against [his] father". On 22 September 1993 the debtor, together with his wife, sister and brother-in-law, commenced proceedings in the Supreme Court of New South Wales, being proceedings No. 4418 of 1993. The defendants to these proceedings were the creditor and his two daughters (the vendors under the earlier arrangement relating to the sale of the property). The summons sought a declaration that there was a binding ~6- agreement for the sale of the land and orders for specific performance of the agreement between the four plaintiffs, as purchasers, and the creditors' daughters, as vendors. The summons also sought a declaration "that the purported agreements noted between the First Plaintiff [the debtor] and the Second Defendant [the creditor] in proceedings No. 3419 of 1993 on 14 July 1993 in the Equity Division of [the Supreme Court of New South Wales] are null, void and of no effect." It is to be noted that this declaration does not, in terms, seek to set aside the order made against the debtor for payment of $256,000. Rather, the declaration is directed toward the agreements noted by the Court. On 19 November 1993 the debtor and his wife each swore affidavits in support of the summons filed in proceedings No. 4418 of 1993. On 6 December 1993 Cohen J., of the Equity Division of the Supreme Court of New South Wales, dismissed a motion brought by the plaintiffs in proceedings No. 4418 of 1993, to stay execution of the judgment obtained in the earlier proceedings, No. 3419 of 1993. Of course, it was only the debtor, and not the other plaintiffs, who had been a party to the earlier proceedings. His Honour referred to both sets of proceedings as being in a "most confused state". His Honour pointed out that in the earlier proceedings the creditor was the only plaintiff. Yet reliance had been placed upon a contract which (in addition to other -7J- problems) was between the creditor's daughters and the debtor and three other members of the debtor's family. His Honour also referred to what he described as "the obvious problems" in the proceedings. If the proceedings were intended to deal with the sale of the property, then the parties to the contract had not been joined, since the creditor had been acting only as attorney under power for his two daughters. Furthermore, the debtor was only one of four purchasers, the other three of whom where not joined in the proceedings. His Honour accepted that' the proceedings were surrounded by "mistakes of fact and law". However, these mistakes must have been obvious at the time when the debtor was represented by solicitor and counsel. Short minutes had been signed by counsel for the creditor and the debtor, following discussion between the debtor and his legal representatives. His Honour observed that the final orders were intended to be a "wash up" of all of the disputes between the parties. The obvious errors in the proceedings did not provide a basis upon which a stay of execution of the judgment could be afforded. There was no suggestion that the consent orders were obtained by fraud and it was hard to know what mistakes, if any, caused the consent orders to be made. His Honour also pointed out that there was no evidence by the father which would assist in knowing whether there was any dispute as to the debt. In dismissing the motion, his Honour indicated that other evidence might be adduced at a later stage, but he was not prepared to grant a stay on the material before him. - g- On 4 April 1994 the creditor swore an affidavit, which was filed in proceedings No. 4418 of 1993. On 3 May 1994 a bankruptcy notice was issued to the debtor, on the application of the creditor. The bankruptcy notice required payment of the sum of $256,000 under the final judgment of the Supreme Court of New South Wales obtained on 14 July 1993, together with interest on that sum. The total amount of $266,488.99 was to be paid within 28 days after service of the notice. It appears that the notice was served on 19 May 1994. No payments have been made by the debtor pursuant to the notice. On 30 May 1994 the debtor's father, Antonino Agrillo, swore an affidavit, which was filed in proceedings No. 4418 of 1993. In that affidavit, the father admitted borrowing money from time to time from the creditor, but disputed the amounts and claimed that some moneys had been repaid to the creditor. On 6 June 1994 the debtor applied to the Court for an order extending time for compliance with the bankruptcy notice. The application was amended on 14 July 1994. The time for compliance with the bankruptcy notice has been extended by Registrars of the Court from time to time. On 19 July 1994, Registrar Segal extended the time for compliance until further order. The Debtor's Contentions Mr Reuben conceded that the orders made on 14 July 1994 by the Supreme Court of New South Wales constituted final orders. The evidence clearly shows that execution of the order requiring payment of the sum of $256,000 by the debtor had not been stayed. However, Mr Reuben submitted that the terms of s.41(6A) had been satisfied, since proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued had been instituted by the debtor before expiration of the time fixed for compliance with the bankruptcy notice. Mr Reuben accepted that the Court had a discretion in dealing with the debtor's applications. However, he submitted that the ordinary principle was - or should be - that, unless the proceedings to set aside the judgment are shown not to be instituted bona fide, the debtor ought to be entitled to agitate his claim in the Supreme Court of New South Wales. Accordingly, the bankruptcy notice should be extended until the conclusion of the Supreme Court proceedings, expected some time in 1995. Analysis The authorities suggest that the discretion conferred by s.41(6A) of the Bankruptcy Act 1966, far from being constrained in the manner submitted by Mr Reuben, is "at large". In Re Taylor; Ex t eput. ommissioner of Taxation (1983) 74 FLR 377 (FCA/Sheppard J.), at 379: "The discretion which s.41 confers is that provided for in subs.(6A). The only effect of subs.(6C) is to compel the court, in the event of it making one of the - 10 - findings of fact which are there provided for, not to extend time; but, subject to that matter, the discretion is at large." See also Allen v Midland Montagu Australia Ltd 8 December 1992, unreported, Ryan J. at 3. Mr Reuben conceded in argument before me that, despite his first submission, it was material for me to consider whether there was evidence to support the debtor's application to set aside the consent orders in proceedings No. 3419 of 1993. In that respect, although the matter was not canvassed in argument before me, the authorities show that a consent judgment can be set aside on grounds which would suffice to render a simple contract void or voidable, or to entitle the party to equitable relief in respect of it: Harvey v Phillips (1956) 95 CLR 235, at 243-244; Spies _v_ Commonwealth Bank of Australia (1991) 24 NSWLR 691 (NSWCA), at 696-697. These grounds include fraud, misrepresentation and duress, and in addition mistake: Deputy Taxation v Jain (1990) 26 FCR 221 (FCA/Wilcox J.), at 230-231, reversed on other grounds (1991) 28 FCR 21. However, this does not mean that any mistake will suffice. A unilateral mistake may be sufficient, if the other party is aware that the first party is entering the agreement under some serious mistake or mis-apprehension about the content or subject matter of the agreement and deliberately fails to correct it: Taylor v Johnson (1983) 151 CLR 422, at 432. Mr Reuben also conceded in argument that insufficient evidence had been adduced in the proceedings before me to demonstrate that -11- there were reasonable grounds to expect that the debtor would obtain an order in proceedings No. 4418 of 1993 to set aside the orders made on 14 July 1994. There was some evidence before me from which it might be inferred that the debtor believed that his father was indebted to the creditor. Evidence had also been put on from the debtor's father in which he (the father) disputed that he was indebted to the creditor, at least in the amount claimed. But there was nothing to show that the orders had been obtained in consequence of a mistake of the kind that would justify setting aside the agreement upon which the consent orders were based. For all that appears, if the debtor was under a misapprehension, it was not a misapprehension for which the creditor was responsible. Indeed, as I have previously remarked, it is not at all clear that the summons in proceedings No. 4418 of 1993 is apt to set aside the orders made by the Supreme Court of New South Wales, although that presumably was the intention. A further factor of some significance, in my view, is that no order has been made in the Supreme Court of New South Wales staying execution of the orders made on 14 July 1994. Cohen J. declined to make such an order. No attempt has been made to return to the Supreme Court to make a further application, notwithstanding that Cohen J. indicated that this might be done if additional evidence were adduced. In Re Geard: Ex parte Reid, ll February 1994, unreported, Sheppard J. regarded the failure to apply for a stay of proceedings pending the outcome of an appeal to be a material factor in declining to extend time for compliance with a bankruptcy notice (at 6-7). The present case - 12 - seems to me a fortiori. Mr Reuben contended that proceedings No. 4418 of 1993 were still on foot and that I should give the debtor an opportunity to put on additional evidence in the present proceedings. But, as Mr Reuben accepted, directions were given long ago for the filing of affidavit evidence in these proceedings and it is not appropriate for me to speculate as to what additional evidence might or might not be put on at a later stage in the proceedings. I should say that my own reading of the evidence does not suggest that Cohen J.'s description of the litigation was in any way inapt. The present application seeks to extend time for compliance with a bankruptcy notice. As Sheppard J. observed in Re Geard, It is not the hearing of a bankruptcy petition. The refusal of the application does not affect the debtor's status, but it does mean that the debtor is likely to commit an act of bankruptcy available to petitioning creditors. If the proceedings in the Supreme Court of New South Wales do not result in an order setting aside the consent orders of 14 July 1994, it may well be important to a petitioning creditor to be able to rely on an earlier act of bankruptcy than otherwise would be the case (at 7). 'This is a factor which, in my opinion, should be taken into account. Finally, Mr Reuben pointed out that, if the matter were to proceed to the hearing of a creditor's petition, the Court would -13- have power, in appropriate circumstances, to go behind the consent judgment to be satisfied that the debtor is indeed indebted to the petitioning creditor: Corney v Brien (1951) 84 CLR 343; Wren v Mahoney (1971) 126 CLR 212, at 224-225. I think that this power is also a factor to be borne in mind in exercising the Court's discretion under s.41(6A) to extend the time for compliance with a bankruptcy notice. However, the weight of this factor must depend on the circumstances and in particular the evidence supporting the claim that the consent judgment was not founded on a genuine debt. The evidence in this case is not such as to persuade me that the discretion should be exercised in the debtor's favour. Conclusion I therefore conclude that the debtor's application for an extension of time for compliance with the bankruptcy notice of 3 May 1994 be refused. However, in order to enable the debtor to have an opportunity of complying with the notice, I shall extend the time for compliance for a period of seven days from the date this judgment. The debtor should pay the costs of this application. I certify that this and the preceding 12 Pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: [de Fook Dated: 16 December, 1994 Heard: Place: Decision: Appearances: - 14 - 12 December, 1994 Sydney 16 December, 1994 Mr S. Reuben instructed by Milne Berry & Berger, Solicitors, appeared for the applicant. Mr B. O'Sullivan instructed by Morgan Ardino & Co, Solicitors, appeared for the respondent.