FEDERAL COURT OF AUSTRALIA Reasonable Endeavours Pty Ltd v Dennehy [2001] FCA 188 BANKRUPTCY – notice of opposition to applicant creditor's petition – whether bankruptcy notice was invalid on account of execution on the judgment upon which it relied being stayed at the time the bankruptcy notice was applied for and deemed to be served – whether execution on the judgment can be said to have stayed on account of the fact that leave of the Supreme Court of Victoria is required before a warrant of seizure and sale may be issued Bankruptcy Act 1966 (Cth) ss40(1)(g), 41(3)(b) Re Exell; ex parte Martin (1995) 62 FCR 337 not followed In Re Overseas Aviation Engineering (GB) Ltd [1963] Ch 24 referred to Re Pannowitz; ex parte Wilson (1975) 38 FLR 184 followed Re Seers (1955) 17 ABC 11 referred to Penning v Steel Tube Supplies Pty Ltd (1988) 18 FCR 568 applied Ex parte Ide; Re Ide (1886) 17 QBD 755 referred to Cawood v Cawood [2000] FCA 1786 followed Abigroup Ltd v Abignano (1992) 39 FCR 74 applied REASONABLE ENDEAVOURS PTY LTD (FORMERLY ASIACITI (AUSTRALIA) PTY LTD) v GERARD PETER DENNEHY V 7093 OF 2000 MARSHALL J MELBOURNE 9 MARCH 2001 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 7093 OF 2000 BETWEEN: REASONABLE ENDEAVOURS PTY LTD (FORMERLY ASIACITI (AUSTRALIA) PTY LTD) APPLICANT AND: GERARD PETER DENNEHY RESPONDENT JUDGE: MARSHALL J DATE OF ORDER: 9 MARCH 2001 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: The creditor's petition be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 7093 OF 2000 BETWEEN: REASONABLE ENDEAVOURS PTY LTD (FORMERLY ASIACITI (AUSTRALIA) PTY LTD) APPLICANT AND: GERARD PETER DENNEHY RESPONDENT JUDGE: MARSHALL J DATE: 9 MARCH 2001 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 24 February 2000, the applicant creditor caused a creditor's petition to be issued. The petition sought the sequestration of the respondent debtor's estate. The applicant alleged that the respondent owed it the sum of $564,303.76 pursuant to a final judgment obtained by the applicant in the Supreme Court of Victoria on 28 November 1991. It was not until early 1999 that the applicant applied for the issue of a bankruptcy notice. The relevant bankruptcy notice was issued on 14 October 1999. 2 On 25 August 2000, the respondent filed a notice of intention to oppose the applicant's petition. Paragraph 5 of the notice provided as follows: "The said Bankruptcy Notice is invalid pursuant to section 41(3)(b) as being applied for and deemed served at a time when execution on the judgment on which it relies was stayed – the debtor will submit that Re Exell; ex parte Martin (1995) 62 FCR 337 was wrongly decided … ." 3 On 25 October 2000, Registrar Wood ordered that paragraph 5 of the notice of intention to oppose be tried as a preliminary issue. The statutory context 4 Section 41(3)(b) of the Bankruptcy Act 1966 (Cth) ("the Act") provides: "A bankruptcy notice shall not be issued in relation to a debtor: … (b) if, at the time of the application for its issue, execution of the judgment or order to which it relates has been stayed … ." 5 Section 40(1)(g) of the Act, so far as is material, provides that a debtor commits an act of bankruptcy: "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 … a bankruptcy notice under this Act …." The issue for determination 6 The preliminary question for determination in this matter is whether the bankruptcy notice issued on 14 October 1999 was invalid on account of execution on the judgment upon which it relied being stayed at the time the bankruptcy notice was applied for and deemed to have been served. The critical issue is whether execution on the judgment can be said to have been stayed because leave of the Supreme Court of Victoria is required before a warrant of seizure and sale may be issued. Mr G Bigmore QC appeared with Mr S Minahan, of counsel, for the respondent. Mr J Nolan, of counsel, appeared for the applicant. Exell 7 In Re Exell; ex parte Martin (1995) 62 FCR 337, the creditor had obtained a judgment against the debtor on 22 July 1985. The creditor applied for the issue of a bankruptcy notice on 27 January 1995. The creditor effected the service of the bankruptcy notice on 21 March 1995, and a creditor's petition was issued on 27 June 1999. The debtor opposed the petition on various grounds, including that the bankruptcy notice was invalid because more than six years had elapsed since the date of effect of the judgment on which the bankruptcy notice was founded. 8 Olney J observed that the creditor, under the relevant rules of Court, was unable to obtain a warrant of execution to enforce the judgment without the leave of the Supreme Court of Victoria given that more than six years had passed since the judgment took effect. Olney J said (at 340): "In specific terms the question is whether the words 'execution of the judgment … has not been stayed' apply in a case in which the only impediment to enforcing the judgment is the absence of leave of the Court, pursuant to r 68.02(1)(a) to issue a warrant of seizure and sale." 9 His Honour then considered the meaning of "execution" by reference to various authorities, including: · In Re Overseas Aviation Engineering (GB) Ltd [1963] Ch 24; and · Re Pannowitz; ex parte Wilson (1975) 38 FLR 184. 10 In Pannowitz,Riley J had concluded that an order that could not be enforced by a writ of execution was not a final judgment or order capable of being enforced. In Exell, Olney J said (at 344): "Whilst it is with some diffidence that one would disagree with Riley J on a question of the construction of the Bankruptcy Act, it does appear that his opinion concerning the meaning of 'execution' in s 40(1)(g) was based upon the obiter comment of Lord Esher MR in Re Binstead in 1893, and was not consistent with the views of Lord Denning MR and Harman LJ in Re Overseas Aviation Engineering. In Binstead the issue was whether an order for costs made by the Divorce Court was a final judgment. At that time the English equivalent of s 40(1)(g) referred only to a final judgment and not also to a final order. The obiter remark made by Lord Esher MR which is otherwise unexplained appears to have been made to reinforce his view that the order in question was not a judgment within the meaning of the relevant Act. Furthermore, Riley J's view on the meaning of 'execution' was not germane to the decision in the particular case. In my opinion the decision in Pannowitz is not a binding authority in relation to the meaning of 'execution' in s 40(1)(g) of the Bankruptcy Act. Rather, I am of the view that the term should properly be construed in accordance with the dicta of Lord Denning MR and Harman LJ as expressed in Re Overseas Aviation Engineering. It follows therefore that whilst execution of the judgment relied upon by the judgment creditor by means of a warrant of seizure and sale is stayed, other methods of execution have not been stayed. There is in my view no logical reason, as a matter of policy, why a creditor who has available a variety of methods of enforcing a judgment should have his right to issue a bankruptcy notice foreclosed because one means of execution is not presently available to him." 11 In his concluding remarks, Olney J said (at 344): "In the sense that the term 'stay of execution' is commonly understood, the effect of r 68.02 is not to impose a stay of execution of the judgment. Whilst in the absence of leave one method of execution is not available it leaves unaffected other legitimate processes of execution. In my opinion, for the purposes of ss 40(1)(g) and 40(3) of the Bankruptcy Act, execution of the judgment in question has not been stayed. It follows that the bankruptcy notice in this proceeding is not invalid by reason that it was issued after six years had elapsed since the judgment took effect." The respondent's contentions 12 Mr Bigmore submitted that the word "execution" has a wide sense and a narrow sense. In its wide sense it contemplates the enforcement or giving effect to judgments or orders of courts. In its narrow sense it contemplates the enforcement of those judgments or orders by a public officer under writs of fieri facias. Mr Bigmore submitted that in Pannowitz, Riley J considered at length the two possible meanings of the word "execution" and decided that the narrow definition applied to the equivalent of what are now ss40(1)(g) and 41(3)(b) of the Act. Mr Bigmore emphasised that Riley J had (at 194) observed that the draftsman had deliberately used the word "execution" and not "enforcement". 13 Mr Bigmore also relied upon Clyne J's judgment in Re Seers (1955) 17 ABC 11. In Seers, Clyne J held that the Deputy Commissioner for Taxation was not entitled to apply for a bankruptcy notice when he was not entitled to levy execution on a judgment obtained by him without leave of the County Court. 14 Mr Bigmore next relied upon the judgment of a Full Court in Penning v Steel Tube Supplies Pty Ltd (1988) 18 FCR 568. He submitted that the Full Court in Penning had approved of the judgments in Pannowitz and Seers. 15 In Penning, a Full Court held that a bankruptcy notice had not been validly issued due to the prior appointment of a registered trustee to take control of the debtor's property. The Full Court said (at 575): "The crucial matter for determination is whether, during the currency of an order under s 50 directing a trustee to take control of the appellant's property, the judgment creditor was barred by s 41(3)(b) of the Act from issuing a bankruptcy notice because execution on the judgment had been stayed." 16 After referring to s41(3)(b) of the Act the Full Court said (at 575-576): "It appears to be settled law both in the United Kingdom and, at least at first instance, in this country, that the words in s 41(3) 'execution of the judgment or order to which it relates has been stayed' are not restricted to an order expressly staying a judgment. They have been construed as having a much wider meaning. In certain circumstances execution is deemed to have been stayed if the execution creditor is for some reason not in a position to issue execution upon his judgment. Reference to such circumstances is to be found in Halsbury's Laws of England (4th Ed), Vol 3, par 262." 17 The Full Court (at 576) also referred to the judgment of the English Court of Appeal in Ex parte Ide; Re Ide (1886) 17 QBD 755 and to Bowen LJ's observation (at 759): "[I]t seems to me that, from the collocation of the words 'final judgment' and 'execution thereon not having been stayed', a necessary implication arises of this character, viz, that the creditor must not merely have obtained a final judgment but must be in a position to issue immediate execution upon it." 18 The Full Court in Penning then stated (at 576): "The Bankruptcy Courts in this country have, on a number of occasions, adopted this construction, but it does not appear to have received consideration by an appellate court." 19 Their Honours then referred (at 576-577) to a number of cases, including Seers and Pannowitz. The Full Court (at 577) referred to Clyne J's judgment in Seers (at 12) where, inter alia, Clyne J said the following: "It is clearly established that in order to entitle a creditor to issue a bankruptcy notice he must be in a position to issue execution on his judgment at the time when he issues the bankruptcy notice … ." 20 The Full Court (at 577) also referred to Pannowitz (at 188) where Riley J quoted from the following passage in Halsbury 4th Ed Vol 3 at par 262: "For this purpose execution is considered to be stayed if, at the date of the issue of the notice, the judgment creditor is not entitled to issue immediate execution on the judgment." The applicant's contentions 21 Mr Nolan submitted that Olney J in Exell accepted the fundamental principle that a creditor seeking the issue of a bankruptcy notice must be in a position to issue execution on his judgment at that time. However, Mr Nolan submitted that Olney J held that the creditor could issue execution on his judgment at the relevant time, albeit that all methods of execution were not then available. Mr Nolan also submitted that Pannowitz was not binding on Olney J, and that it was open to him to prefer the approach of Lord Denning in Re Overseas Aviation Engineering (GB) Ltd where Lord Denning referred to "execution" as "the process for enforcing or giving effect to the judgment of the court …". 22 Mr Nolan submitted that various authorities relied upon by Mr Bigmore were distinguishable. Mr Nolan contended that Seers involved an interpretation of the meaning of a relevant rule of court. He submitted that Penning was distinguishable because the issue for determination did not require an examination of the correct approach to the meaning of "execution". 23 On the day the Court reserved its judgment on the issue currently before it, Sackville J published his reasons for judgment in Cawood v Cawood [2000] FCA 1786. On 10 January 2001, the Court requested the parties to provide written submissions on the effect of Cawood and also on the effect of a Full Court judgment cited in Cawood but not referred to in argument in this proceeding. That Full Court judgment is Abigroup Ltd v Abignano (1992) 39 FCR 74. 24 In Cawood,the applicant contended, inter alia, that his former wife was not in a position to issue execution because she required an enforcement order from the Family Court of Australia. Sackville J accepted that submission. His Honour observed (at [18]) that Abigroup referred to the history of s40(1)(g) of the Act (which must be read consistently with s41(3)(b) of the Act). His Honour referred (at [19]) to a passage in the judgment in Abigroup (at 79) that he said "made the following observation pertinent to the present case". The relevant passage with Sackville J's added emphasis was as follows: "'The 1890 English enactment did not however affect the rule (established on the ground of necessary implication arising from the words 'execution thereon not having been stayed') that in order to issue a bankruptcy notice the judgment creditor must be in a position to issue execution. Thus, although the 'person who is for the time being entitled to enforce a final judgment' was thereafter taken to include a person who had not himself obtained the judgment, nevertheless he had to be a person who had taken all steps which entitled him to reap the fruits of the judgment.' (Emphasis added)." 25 In Cawood, Sackville J said (at [22]) that Mrs Cawood "had simply not taken all the steps necessary to entitle her to reap the fruits of the judgment in her favour". (Emphasis supplied). 26 In his written submissions provided on 5 February 2001, Mr Bigmore observed that Abigroup contains a statement of principle consistent with the oral submissions he advanced before the Court. He also stated that Cawood provided further support for those submissions in that it confirmed Seers and was inconsistent with Exell. Mr Nolan provided his written submissions on 26 February 2001. He contended that the essence of Sackville J's reasoning in Cawood was that a creditor applying for the issue of a bankruptcy notice must be a person who had taken all the steps that entitled her or him to reap the judgment's fruits. Sackville J equated Mrs Cawood with a creditor who had to obtain leave of the Court to issue execution. She had not obtained such leave; therefore, she was not in a position to reap the judgment's fruits, that is, to obtain a valid bankruptcy notice. Mr Nolan asserted that Sackville J did not construe the meaning of "execution" and would have reached the same conclusion whether he had given it a broad or narrow meaning. Mr Nolan interpreted Abigroup similarly. Mr Nolan stated that the Full Court found the bankruptcy notice invalid because the creditor was not in a position to execute immediately upon the judgment given against the debtor named in the bankruptcy notice; the Court having decided this without interpreting the meaning of "execution". Mr Nolan argued that Cawood and Abigroup could be distinguished on their facts from the present matter because the creditors in these cases had not taken all necessary steps to reap their judgment's fruits. I do not accept Mr Nolan's differentiation of Cawood and Abigroup from the present matter. The applicant creditor was not in a position to issue immediate execution upon a final judgment, just as Mrs Cawood and the creditor in Abigroup were not in such a position. The applicant creditor still had to obtain leave of the Supreme Court of Victoria to obtain a warrant of seizure and sale. Consequently, Cawood and Abigroup are not relevantly distinguishable, and the fact that they did not discuss the meaning of "execution" does not weaken their authority. Conclusion 27 In the present matter, the applicant creditor, at the time of the issuing of the bankruptcy notice, had not taken all steps necessary to entitle it to reap the fruits of its judgment. One of those steps was the application for leave to apply for a warrant of seizure and sale. I agree with the approach taken by Sackville J in Cawood and am content to follow it, especially as it derives support from the Full Court's judgment in Abigroup. That approach is also consistent with the view taken by Riley J in Pannowitz and by the Full Court in Penning, albeit by way of dicta. The judgment of Olney J in Exell stands on its own as pointing to an opposite conclusion. I do not consider that Exell should be followed especially having regard to the historical analysis undertaken in Abigroup, referred to at [24] above, which supports Riley J's analysis in Pannowitz. Order 28 It follows that the respondent has succeeded on the preliminary issue and ground 5 of the grounds of opposition should be upheld. The creditor's petition will be dismissed with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall. Associate: Dated: 9 March 2001 Counsel for the Applicant: Mr John Nolan Solicitor for the Applicant: Minter Ellison Counsel for the Respondent: Mr Gary Bigmore QC with Mr Simon Minahan Solicitor for the Respondent: Septimus Jones & Lee Date of Hearing: 8 December 2000 Completion of Written Submissions: 26 February 2001 Date of Judgment: 9 March 2001