Boscolo, Sylvia v Botany Council [1996] FCA 897

CATCHWORDS Bankruptcy - Bankruptcy notice - Stay of execution - Injunctive order restraining disposition and encumbrance of a debtor's assets - Whether existence of order at time of issue or time of service of bankruptcy notice or during period for compliance necessary to enable the "equity" invalidating the bankruptcy notice to be raised.

Bankruptcy Act 1966 - ss. 40(1)(g), 41(3)(b) SYLVIA BOSCOLO v. BOTANY COUNCIL NG570 of 1996 Jenkinson, O'Loughlin and Sackville JJ. Sydney 16 October, 1996

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG570 of 1996 GENERAL DIVISION ) On appeal from a judgment of a single justice of the Court BETWEEN: SYLVIA BOSCOLO Appellant AND: BOTANY COUNCIL Respondent CORAM: Jenkinson, O'Loughlin and Sackville JJ. PLACE: Sydney DATE: 16 October, 1996 MINUTES OF ORDER THE COURT ORDERS THAT:

1. The appeal be dismissed. 2. The respondent's costs of the appeal be paid by the appellant. 3. The trustee's costs of appearance on the hearing of the appeal be costs and expenses of the trustee within s.109(1)(a) of the Bankruptcy Act 1966. (Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.)

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG570 of 1996 BANKRUPTCY DIVISION ) On appeal from a judgment of a single justice of the Court BETWEEN: SYLVIA BOSCOLO Appellant AND: BOTANY COUNCIL Respondent CORAM: Jenkinson, O'Loughlin and Sackville JJ. PLACE: Sydney DATE: 16 October, 1996 REASONS FOR JUDGMENT JENKINSON J. Appeal from an order dismissing the appellant bankrupt's application for review of a Deputy Registrar's exercise of power to make a sequestration order against the estate of the bankrupty under s.52(1) of the Bankruptcy Act 1966. The respondent had procured the issue on 26 August 1994 of a bankruptcy notice to the appellant which was served on 21 January 1995. The bankruptcy notice was founded on a final order of the Land and Environment Court of New South Wales for costs of a proceeding between the parties in that Court. The sum payment of which was alleged in the notice to be due was $4553.78 and that sum included interest to 24 August 1994. The appellant did not comply with any of the requirements of the bankruptcy notice, but on the hearing of the petition of the respondent which was founded on that failure of compliance the appellant submitted, before Einfeld J. and before this court, that the existence at the time of issue of the notice and during the period within which compliance with its requirements might have been made of an order of the Family Court of Australia restraining the appellant from "transferring, assigning or further encumbering by way of mortgage or charge or otherwise" a parcel of land of which she claims the fee simple ownership brought about the result that the failure of compliance did not constitute an act of bankruptcy. In support of that submission counsel for the appellant relied upon a passage from the reasons for a judgment of a Full Court of this Court in Wiltshire-Smith v. Mellor Olsson (1995) 57 F.C.R. 572 at 584-587, in these terms: "This question requires consideration of whether execution on the judgment had been stayed within the meaning of ss 40(1)(g) and 41(3)(b) of the Bankruptcy Act 1966 (Cth). For the purpose of these provisions there need not be an express order of a court staying execution on the particular judgment on which the creditor relies: Re Seers (1955) 17 ABC 11, Penning v Steele Tube Supplies Pty Ltd (1988) 18 FCR 568 at 575-576. It was held in Re Solomon; Ex parte Reid (1986) 10 FCR 423 by Beaumont J that the effect of the appointment of a receiver under a Mareva type order made under the Companies (New South Wales) Code to take control of the debtor's property was to prevent the petitioning creditor at the time of the issue of the bankruptcy notice from being able to execute against any of the property of the debtor without leave of the Supreme Court and that, as leave had not been obtained, execution should be deemed to have been stayed. That decision was approved and applied by a Full Court of this Court in Penning v Steel Tube Supplies Pty Ltd which held that the judgment underlying a bankruptcy notice was deemed to have been stayed at the time of the issue of the bankruptcy notice by virtue of an order under s 50 of the Bankruptcy Act which had placed all property of the debtor under the control of a trustee. See also director of Public Prosecutions v Kunz (1993) 43 FCR 374 where a similar conclusion was reached as to the effect of an order pursuant to s 243E of the Customs Act 1901 (Cth) which restrained the property of the judgment debtor and directed the Official Trustee in Bankruptcy to take custody and control thereof. In Re Solomon; Ex parte Reid Beaumont J at 425-426 summarised the relevant principles upon which these decisions rest: `It is well established that, for the purposes of s 41(3)(b), execution is deemed to have been stayed where a judgment creditor is not "in a position to issue immediate execution upon it": per Bowen LJ in Ex parte Ide; Re Ide (1886) 17 QBD 755 at 760; Re Pannowitz; Ex parte Wilson (1975) 38 FLR 184 at 187-188; cf Re A Debtor [1984] 1 WLR 1143 at 1153-1154; [1984] 2 All ER 257 at 266. It is also trite law that a judgment creditor may not, without leave of the court which appointed the receiver, levy execution against the property comprised in the appointment of the receiver; see J O'Donovan, Company Receivers and Managers (1981), at p 321; R P Meagher, W M Gummow and J R Lehane, Equity Doctrines and Remedies (2nd ed, 1983), at p 663. Any attempt to interfere with that property is an interference with an officer of the court in the performance of his functions. If done without leave of the court, it is a contempt of court. It will not be permitted even if the property concerned is not yet in the actual possession of the receiver: see Ames v Trustees of Birkenhead Docks (1855) 20 Beav 332 at 353; 52 ER 630 at 638.' In Re Solomon, Ex parte Reid, Penning v Steel Tube Supplies Pty. Ltd. and Director of Public Prosecutions v. Kunz the orders in each case had the effect of placing all the property of the debtor (apart from an immaterial exception in the first case) under the control of an officer appointed by order of the Court. There remained no property against which the judgment creditor could execute and, moreover, the orders of the Court had the effect of restraining the judgment debtor from satisfying the judgment as any application of his property by him for that purpose would be inconsistent with the receiver's right to possession: see Penning v Steel Tube Supplies Pty Ltd at 574. In the present case, the order of 10 March 1993 operated only in respect of the assets of the newsagency. The order imposed no restraint in law upon the appellant making free use as he saw fit of his other property. The present case is therefore not covered directly by these decisions. It has been established that conduct by a judgment creditor which prevents a judgment debtor from paying the debt may operate to disentitle the judgment creditor from proceeding to immediate execution. In Re Sedgwick; Ex parte Sedgwick (1888) 5 Morr 262 Lord Esher MR said (at 263-264): `...there is an equity laid down - a just equity which goes to the extent only that if a creditor gives a notice requiring payment in seven days and actually and in fact prevents the debtor from paying, such creditor cannot rely upon the notice and it will be set aside. The question is whether in the eyes of any person of ordinary fairness in business it will be said that the creditor has in a business sense prevented the debtor from paying. But the possibility that he may have prevented him is not sufficient. The question is whether the creditor has done something which prevents the debtor in fact from complying with the summons. He may do so in different ways. He may put a legal difficulty in the debtor's way, and although he puts no legal difficulty he may have done something which in fact may prevent payment. The question must be whether he has in fact prevented the debtor from complying. The fact that the creditor has made it more difficult for the debtor to pay than if the creditor had done nothing at all does not go to that extent.' A similar principle was recognised in Re Bond; Ex parte Capital and Counties Bank Ltd [1911] 2 KB 988, in Re Wilson; Ex parte Jones (1916) 85 LJKB 1408; [1916] All ER 1060 and by a Full Court of this Court in Wallace v Trade Credits Ltd (1983) 72 FLR 252 at 254. The onus in such a case is on the debtor to prove affirmatively that the claim in respect of which the bankruptcy notice was issued could and would have been paid but for some act or omission on the part of the creditor: Bracia Czeczowiczka v Otto Markus [1936] 1 All ER 944 at 949. In the present case, however, it was not the act or omission of the respondent as judgment creditor that removed from his control assets which the appellant could otherwise have used to pay the respondent. No `Equity' of the kind referred to by Lord Esher MR could arise here as between the appellant and the respondent as payment was prevented by order of a court. In Re Solomon; Ex parte Reid, Beaumont J reached a similar conclusion on the facts of that case. His Honour however went on to say (at 427-428): `No doubt, an "equity" of the type envisaged by Lord Esher would disentitle a judgment creditor from proceeding to immediate execution but, in my view, this is not an exhaustive statement of the matters that may disqualify a judgment creditor from issuing a bankruptcy notice. There is no reason, of logic or otherwise, to limit the operation of s 41(2)(b) to cases where the debtor can establish an "equity". In my opinion, the existence of any relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution falls within the implied prohibition contained in s 41(3)(b).' The matter which Beaumont J held disentitled the judgment creditor in that case from issuing a bankruptcy notice was not conduct of the judgment creditor, but the appointment of the receiver by order of the Supreme Court under the companies (New South Wales) Code. Once it is recognised that a petitioning creditor may be disqualified from issuing a bankruptcy notice by reason of a restraint imposed by order of a court on all the property of the judgment debtor thereby removing his ability to make payment, there is, no reason why a court order imposed on some only of the property of the judgment debtor which has the same practical effect should not be recognised as a relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution. In our opinion such an order will have this consequence where in practical reality, although not strictly in law, the order `in any way prevent(s) the debtor from paying his debt' (Re Bond; Ex parte Capital and Counties Bank Ltd at 991) or where it 'deprives or may deprive the judgment debtor of assets which he could otherwise use to pay the judgment creditor and thus comply with the bankruptcy notice' (Wallace v Trade Credits Ltd at 254). To adapt the test proposed by Lord Esher MR in Re Sedgwick; Ex parte Sedgwick cited above, the factual inquiry to determine the practical effect of the order is whether in the eyes of ordinary fairness in business it will be said that the order has in a business sense prevented the debtor from paying."