Re Brookes, Thomas Joseph & Anor Ex Parte Marshall, James Alan & Anor [1997] FCA 219

IN THE FEDERAL COURT OF AUSTRALIA ) ) BANKRUPTCY DISTRICT ) No. NN 2514 of 1996 ) OF THE STATE OF NEW SOUTH WALES )

RE: THOMAS JOSEPH BROOKES & JUDITH BROOKES Debtors EX PARTE: JAMES ALAN MARSHALL & JOY MARSHALL Applicants

CORAM: EMMETT J. PLACE: SYDNEY DATED: 10 FEBRUARY 1997

EX TEMPORE REASONS FOR JUDGMENT HIS HONOUR: This application comes before the court in circumstances which were not initially clear when we began this morning. After some discussion with counsel it appears that the application is one for the exercise of what is said to be the inherent jurisdiction of court to extend the time for compliance with a bankruptcy notice after the time initially provided for has expired. The application is brought by Mr and Mrs Brooks each of whom has been the recipient of a bankruptcy notice issued by the court at the instigation of James Alan Marshall and Joy Marshall. The bankruptcy notice is based on a judgment of the Supreme Court of New South Wales given in proceedings brought initially by Australia and New Zealand Banking Group Limited against the Brooks and the Marshalls. There were apparently cross-claims within those proceedings which led to a judgment in favour of the Marshalls against the Brooks. I do not think at this stage that the detail of those proceedings is necessarily to be investigated. The bankruptcy notice was served on Mr Brooks on 24 August. On 4 September an affidavit was filed by Mr Brooks purporting to be an affidavit pursuant to section 41(7) of the Bankruptcy Act. There is some question as to the time when the bankruptcy notice was served on Mrs Brooks. Orders were made permitting substituted service. In any event it appears to be common ground that the affidavit was served no later than the middle of October although there is a real question as to whether it was served before that time. Mrs Brooks also filed an affidavit purporting to be pursuant to section 41 (7) of the Bankruptcy Act. It was filed on 22 October 1996. Mr Hilbery of counsel has appeared for both Mr and Mrs Brooks in the application today. He accepts that notwithstanding that the affidavits are expressed to be pursuant to section 41(7) of the Bankruptcy Act, they do not in fact meet the description of an affidavit referred to in that subsection. In any event there is a real question as to whether, even if the affidavits did satisfy the requirements of section 41(7), it would achieve the result which the applicants contend for. Section 41 itself permits the extension by the court of the time for compliance with a bankruptcy notice. Section 41(6A) provides that where, before the expiration of the time fixed by the court or the Registrar for compliance with the requirement of a bankruptcy notice one of two steps has been taken, the court may then extend the time for compliance. The steps which have to have been taken are either proceedings to set aside the judgment in respect of which the bankruptcy notice was issued must have been commenced, or an application to set aside the bankruptcy notice must have been filed. Neither of those steps had been taken prior to the expiration of the time for compliance with the bankruptcy notices apart from any extension that might have been effected by the operation of section 41(7). The scheme of sections 40 and 41 of the Bankruptcy Act is clear in my view. An act of bankruptcy is committed under section 40(1)(g) if a bankruptcy notice is served and the debtor does not either comply with the requirements of the notice or satisfy the court that he has a counter-claim set off or cross-demand equal to or exceeding the amount of the judgment debt. Section 41(7) fits into that provision by effecting an automatic extension where an affidavit to the effect that there is such a counter claim set off or cross-demand is filed. The procedure under section 41(6)(A), (B) and (C) is an independent and distinct basis for the extension of the time for compliance with the bankruptcy notice. It assumes not that there is a set off counter-claim or cross-demand but that an attack is to be made on the judgment itself. In this instance Mr Hilbery has indicated that an application has been lodged in the Supreme Court to set aside the judgment which is the foundation of the bankruptcy notice. The evidence is not satisfactory as to the real basis for that application. However, I have assumed for the purposes of this application, (although that is not necessarily with the concurrence of counsel for the Marshalls), that there is at least some basis for making the application to set aside that judgment. Even so it seems to me that the procedure contemplated by section 41(6)(A), (B) and (C) is not such as will permit an additional discretionary basis for extending the time for compliance with a bankruptcy notice. Mr Hilbery frankly acknowledged that he was unable to find any authority which supported my having any jurisdiction to grant an extension of time for compliance after the time had originally expired. Once it is accepted that the affidavits purporting to be under section 41(7) were ineffective to achieve an extension, I think it is clear that an act of bankruptcy was committed. It would be extraordinary if, notwithstanding the commission of that act of bankruptcy, the court could negate it by granting an extension of time ex post facto. I am therefore of the view that there is no jurisdiction inherent in the court to extend the time for compliance with the bankruptcy notices in circumstances such as those in question. However, against the possibility that I might be wrong in that conclusion I have also heard from Mr Hilbery on the merits of his application. The submission is that Mr and Mrs Brooks were ignorant of their rights in relation to any application to apply to set aside the judgment. Mr Brooks spoke informally to a barrister who is a neighbour who gave some advice apparently in relation to the filing of the affidavits to which I have referred. In cross-examination Mr Brooks also acknowledged, however, that before the matter was before the court on 8 October he had consulted Mr Hodgkiss of counsel who had also given him some advice. Nevertheless it was not until late November that any application was actually made to the Supreme Court to set aside the judgments. Mr Lever, counsel for the Marshalls, also relies on the fact that during December Mr and Mrs Brooks transferred a parcel of land to a company apparently controlled by Mr Brooks' father. Putting that matter aside I do not consider that there has been any satisfactory explanation advanced, assuming there is any jurisdiction to grant the extension of time, why the court should grant an indulgence at this stage. Mr Lever referred me briefly to some authorities which support the conclusion which I have reached that there is no jurisdiction to grant the extension of time. I will not take the time now to refer to those authorities. Mr Hilbery was unable to refer to any authority which supported him. The only authority to which he was able to make reference was Re Briggs; Ex parte Briggs v. Deputy Commissioner of Taxation (WA) (12 FCR 310). That authority, however, supports only a conclusion that there is an inherent jurisdiction in the court to set aside a bankruptcy notice but only when an application to do so is made before the time fixed for compliance with it has expired. I do not think, therefore, that Mr Hilbery gets any assistance at all from that authority. On that basis I do not propose to accede to the application which has in effect been made ore tenus today for extension of the time to comply with the bankruptcy notice. In other words, first, because I do not think I have power to do so and secondly, because, if I did I would not in the exercise of my discretion grant that indulgence. I order that the applicants today pay the costs of this application for an extension of time. I certify that this and the preceding six pages are a true of the Reasons for Judgment of his Honour Justice Emmett. Associate: Dated: 10 February 1997 Heard: 10 February 1997 Place: Sydney Decision: 10 February 1997 Appearances: Mr F.G.Lever appeared, instructed by Swaab & Associates for the applicant. Mr M.Hilbery appeared, instructed by Stewart Levitt & Co for the respondent.