FEDERAL COURT OF AUSTRALIA O'Loughlin v Glenmont Investments Pty Ltd [2001] FCA 925 BANKRUPTCY - application for an order extending time for compliance with a bankruptcy notice - bankruptcy notice based upon Full Court of Supreme Court judgment - significance of failure to seek stay of Full Court judgment - whether to exercise discretion to grant an extension of time until special leave application to the High Court is determined. Bankruptcy Act 1966 (Cth) Conway v Jackson [2001] FCA 230 applied Bryant v Commonwealth Bank of Australia [1994] FCA 1091 considered Re Taylor; Ex parte Deputy Commissioner of Taxation (Cth) (1983) 74 FLR 377 considered Re Geard; Ex parte Reid [1994] FCA 45 considered Re Baker; Ex parte Baker v Staples [1995] FCA 703 considered Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 referred to Benaharon v Fabric Dyeworks (Aust) Pty Ltd [1998] FCA 1109 referred to Warner v Frost [1999] FCA 830 applied Beckwith v Pedler [1999] FCA 1312 considered Liew v JNS Technologies (M) Sdn Bhd [1999] FCA 1428 referred to BARRY PETER O'LOUGHLIN v GLENMONT INVESTMENTS PTY LTD S 7005 OF 2001 MANSFIELD J ADELAIDE 19 JULY 2001 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 7005 OF 2001 BETWEEN: BARRY PETER O'LOUGHLIN APPLICANT AND: GLENMONT INVESTMENTS PTY LTD RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 19 JULY 2001 WHERE MADE: ADELAIDE UPON the undertaking of the applicant, Barry Peter O'Loughlin, that he will not dispose of any of his assets, other than in the ordinary course of his business or for normal living expenses, pending the hearing and determination of this application, and further that he will notify in writing the respondent, Glenmont Investments Pty Ltd, by its solicitor not less than forty-eight hours before he pays or incurs any individual item of expenditure in excess of $5,000, and further that he not borrow any monies on the existing security granted by him over his land, and further that he will continue to use his best endeavours to carry on his business known as Barlin Metals, THE COURT ORDERS THAT: 1. The application be adjourned to 9.00 am 29 August 2001 for further hearing. 2. Liberty to apply on short notice be granted. 3. The time for the applicant, Barry Peter O'Loughlin, to comply with the bankruptcy notice served upon him on 10 April 2001 by the respondent Glenmont Investments Pty Ltd, be extended until 4.00 pm 29 August 2001, or until such other date as the court or a judge may determine. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 7005 OF 2001 BETWEEN: BARRY PETER O'LOUGHLIN APPLICANT AND: GLENMONT INVESTMENTS PTY LTD RESPONDENT JUDGE: MANSFIELD J DATE: 19 JULY 2001 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This is an application under s 41(6A) of the Bankruptcy Act 1966 (Cth) ("the Act") for an order extending the time fixed for compliance with the requirements of a bankruptcy notice served upon the applicant on 10 April 2001 until the hearing and determination of the applicant's application for special leave to appeal to the High Court from a decision of the Full Court of the Supreme Court of South Australia pronounced on 28 March 2001, and if special leave is granted until the appeal is heard and determined. 2 The Full Court entered judgment in favour of the respondent against the applicant (and others) in the sum of $10.25 million. The Court seal of that Court was in fact put on the judgment only on 2 April 2001 and the application for the issue of the bankruptcy notice was made to the Official Receiver by the respondent on 3 April 2001. On 10 April 2001, I infer coincidentally with the date of service of the bankruptcy notice upon the applicant, the applicant applied to the High Court for special leave to appeal from that decision. 3 At the hearing, the applicant alternatively sought an order adjourning the application to a date in August 2001 after the date by which, it is anticipated, the application for special leave to appeal to the High Court will have been heard. 4 This application that is now before the Court was made on 19 April 2001, before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice. Also within that time, the application for special leave to appeal to the High Court was instituted. In the light of the decision in Conway v Jackson [2001] FCA 230, in my view it is clear that the application for special leave to appeal to the High Court from the decision of the Full Court of the Supreme Court of South Australia does constitute proceedings to set aside the judgment of that Court in respect of which the bankruptcy notice was issued. It is not suggested by the respondent that s 41(6C) of the Act applies to any of the matters. Consequently, the Court has a discretion to extend the time for compliance with the bankruptcy notice. 5 The applicant contends that that discretion is unfettered, and should be exercised in the interests of justice in all the circumstances of the case: see Bryant v Commonwealth Bank of Australia [1994] FCA 1091; Re Taylor; Ex parte Deputy Commissioner of Taxation (Cth) (1983) 74 FLR 377. He owns and operates, and has done since 1983, a scrap metal business known as Barlin Metals. Until about 1987, that business was restricted to buying and selling scrap metal, but since then it has expanded to include buying and selling salvage metal, gearboxes and industrial machinery for spare parts. It was in the course of conducting that business that the liability to the respondent arose. 6 The applicant fears that the commission of an act of bankruptcy on his part will cause him significant adverse consequences, and that in the circumstances the interests of justice dictate that the Court should extend the time for compliance with the bankruptcy notice at least until the application for special leave to the High Court is heard and determined. The evidence before the Court indicates that that application is likely to be heard in the week commencing 13 August 2001 in Adelaide. The application indexes have been settled, and the applicant has undertaken to take all steps reasonably available to him to secure the prompt hearing of his application. The respondent too is anxious for the application to proceed as soon as possible. The application therefore seeks, in the first instance, that the time for compliance with the bankruptcy notice be extended for what is now a period of about five weeks only. It is then contemplated that, depending upon the outcome of the application for special leave to appeal, the Court should determine whether time for compliance with the bankruptcy notice should be further extended. 7 The applicant, in his business, operates plant and equipment, much of which is quite old. It is not of great value and is, he says, secured to the extent of a loan of $36,000 provided to him by his partner by a Bill of Sale. I do not think, given the relationship between himself and the person who has provided that finance to him, that the commission of an act of bankruptcy on his part would expose him to the security being called up. He also leases other plant and equipment in his business, one significant item of which is a shear machine which he leases commercially at a monthly payment of about $2,000. The lease is not in evidence, but I infer that the commission of an act of bankruptcy is an occasion of default under that document. He also leases some plant from his two daughters, as he has been doing for many years. It constitutes a truck, a low loader, a forklift and a Holden utility. All those vehicles except for the utility, are many years old. Again, given the family relationship, I do not think that the commission of an act of bankruptcy on his part would expose him to any immediate detriment. 8 The respondent contends, in those circumstances, that the application should be refused. It is necessary for the Court to have regard to the fact that it is in the interests of the respondent and other unsecured creditors of the applicant that the act of bankruptcy should be permitted to occur, so as to crystallise the relation-back date for the purposes of considering what assets of the applicant are available in his bankruptcy, when and if a sequestration order is made over his estate: see Conway v Jackson at [30]. The respondent contends that once an application for a sequestration order is made, the applicant can then apply to have that application adjourned, and that at that point the Court has a more general discretion as to whether or not to permit the applicant to await the outcome of his application for special leave to appeal to the High Court or, if granted, his appeal to the High Court. 9 The applicant is clearly insolvent. That is not really in issue if he is liable for the judgment which has been entered against him by the Full Court of the Supreme Court of South Australia. On the other hand, if that judgment is set aside, on the material available to the Court it appears that the applicant's business is trading profitably and that the applicant has a reasonable surplus of assets over liabilities. 10 The respondent further points to the fact that the applicant has not sought a stay of the decision of the Full Court of the Supreme Court of South Australia and that, in those circumstances, the failure to seek a stay is a significant consideration adverse to the exercise of the discretion which is sought: see Re Geard; Ex parte Reid [1994] FCA 45 ("Re Geard"). In that case, Sheppard J said : "It would seem to me to require quite special circumstances before a judge exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to stay the judgment has been made." 11 There have been a number of decisions of judges of this Court which have considered the principles governing the discretion to grant an extension of time for compliance with a bankruptcy notice: see Re Geard; Re Baker; Ex parte Baker v Staples [1995] FCA 703 ("Baker"); Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 ("Byron"); Benaharon v Fabric Dyeworks (Aust) Pty Ltd [1998] FCA 1109; Warner v Frost [1999] FCA 830 ("Warner"); Beckwith v Pedler [1999] FCA 1312 ("Beckwith"); Liew v JNS Technologies (M) Sdn Bhd [1999] FCA 1428. 12 I do not consider it necessary to review those cases in detail. I adopt with respect the summary given by Hely J in Warner. The balance of authority, as his Honour says, is that the failure to seek a stay of the judgment appealed from, or from which special leave to appeal is sought, is a significant but not decisive matter in the exercise of the discretion under s 41(6A) of the Act. 13 I noted earlier the promptness with which the respondent sought the issue of a bankruptcy notice following the entry of the judgment of the Full Court of the Supreme Court of South Australia. In that circumstance, in my view, it was appropriate for the applicant to make the present application and seek to make out that, upon it, the discretion should be exercised in his favour before seeking any stay of that judgment. The failure to have sought a stay of the Full Court judgment, at least to date, in the circumstances is but one factor to weigh in the scales. I also have had regard to the fact that the application, if granted, will have the effect of delaying the commission of an act of bankruptcy on the part of the applicant, and to that extent may prejudice the interests of the respondent and of the other creditors. In this particular instance, I do not think that that prejudice is likely to be very great. I have borne in mind that, although the respondent has acted very promptly subsequent to the decision of the Full Court of the Supreme Court of South Australia, the circumstances which gave rise to the judgment were not ones upon which the respondent acted promptly in the first instance. The judgment arises from a contract entered into between the respondent and the applicant in 1985 for the dismantling of a steel structure around a dinosaur which was on exhibition at the Royal Adelaide Show in September 1985. The applicant, to secure the dismantling of that steel framework, engaged another contractor to do that work. It is common ground, as the judgment discloses, that it was the negligence of that independent contractor which in fact caused the fire to the dinosaur owned by the respondent and led to the significant loss. It was not, however, until 1991 that the respondent instituted proceedings against the applicant in the Supreme Court, and it was not until 25 November 1999 that the Judge hearing the claim at first instance gave judgment on that claim. There had, therefore, been a period of some fourteen years or so between the incident giving rise to the loss of which the respondent complains and the occasion of the judgment first entered against the applicant. There is nothing to indicate that thereafter the respondent did not prosecute or seek the prosecution of the appeal to the Full Court instituted by the applicant (and others) in the Supreme Court of South Australia. However, the lengthy period of time between the incident complained of and institution of proceedings, and the apparently leisurely progress of the proceedings in the Supreme Court of South Australia, does not indicate the urgency on the part of the respondent which it now asserts. 14 Although I accept that the other creditors of the applicant might also be disadvantaged by delay, there is no evidence of any other creditors pressing. Having regard to the amount of the judgment, and to the level of other creditors, and to the apparent level of the applicant's assets, those creditors' share in the applicant's estate if ultimately a sequestration order is made will be relatively nominal. There is also nothing to suggest that the applicant has disposed of any of his assets, other than in the ordinary course of the conduct of his business, in the past. 15 A further consideration that may be relevant to the exercise of my discretion under s 41(6A) is the merit of the pending application for special leave to the High Court to appeal the decision of the Full court of the Supreme Court of South Australia. I consider it undesirable in this matter to express a provisional view on the likely prospects of success of the special leave application. There are authorities which suggest that, at least where the prospects of success may be regarded as "slight" (Bryant) or strong (Baker), the prospects of obtaining special leave to appeal or of duress on an appeal may be relevant: see also Beckwith. 16 There is little upon which, at this stage the Court can determine the prospects of the applicant obtaining special leave to appeal to the High Court. However, I think it is worthy of note that the decision of the Full Court, while adverse to the applicant, was upon a basis different from that upon which his liability was assessed by the trial judge. He was found to have been negligent by the trial judge. The Full Court reversed that finding. It found, however, that his contract with the respondent to dismantle the steel superstructure around the dinosaur included an implied term that he would take reasonable care in the carrying out of that contract. It also found that he did not comply with that term of his contract by engaging an independent contractor in the particular circumstances of the matter. The applicant alleges, according to his outline of contentions filed with the High Court in support of the application for special leave to appeal, that that gives rise to the question whether, in the circumstances, an implied term in a contract to exercise due care in the performance of such a contract is adequately satisfied by the engagement of an independent contractor, or whether there is some persisting obligation beyond that which the applicant failed to discharge. It is sufficient at this point, in my view, to conclude that there is some prospect of the applicant obtaining special leave to appeal from the High Court. 17 I also bear in mind the applicant's undertaking not to dispose of any of his assets, other than in the ordinary course of business, pending the hearing and determination of his application for special leave to appeal to the High Court. He does not have significant assets, but they include an apparently valuable piece of land from which his business is conducted. It is secured by a mortgage granted to a lending institution, but upon which at present no monies are owing. Otherwise his business seems largely to constitute a business operated without credit. He has no bank overdraft. Although the terms of the undertaking proffered by him have been the subject of criticism by the respondent, I discern from the undertaking the general intention on his part of preserve his assets other than to expend money in the ordinary course of the operation of his business. I am prepared to accept an undertaking generally in those terms. I will give the respondent liberty to speak further to the terms of that undertaking or alternatively what order I shall make to ensure that the applicant cannot dispose of any of his assets other than in the ordinary course of his business, and that he notifies the respondent of any individual item of expenditure in excess of a figure of say $5,000, pending the hearing and determination of this application. 18 In those circumstances, on balance, it is my view that it is appropriate to accede to the present application. There is an issue as to whether an order so made would bring the application to an end, in my view the appropriate order is simply to adjourn the application to a date subsequent to the time upon which the applicant has indicated that he anticipates his application for special leave to appeal to the High Court will be heard. If that application is unsuccessful, then the time will not be further extended. If the application is successful, then it will be necessary to consider whether the time within which he may comply with the bankruptcy notice should be extended pending the hearing and determination of the appeal to the High Court. It may be significant in that regard to know, at that point, whether a stay of execution of the judgment of the Full Court of the Supreme Court has been granted. 19 Accordingly, upon the applicant proffering an undertaking that he will not dispose of any of his assets, other than in the ordinary course of his business or for normal living expenses, pending the hearing and determination of this application, and further that he will notify in writing the respondent by its solicitor not less than forty-eight hours before he pays or incurs any individual item of expenditure in excess of $5,000, and further that he not borrow any monies on the existing security granted by him over his land, I propose to adjourn this application to 29 August 2001 at 9.00 am for further hearing. 20 The applicant will have to decide whether, in that period, he seeks in the Supreme Court a stay of the judgment. I give the parties liberty to apply on short notice, including so that the respondent may have the matter re-listed for further hearing if the High Court refuses to grant special leave to appeal. Upon that undertaking being given, I extend the time for the applicant to comply with the bankruptcy notice served upon him by the respondent on 10 April 2001 until 4.00 pm on 29 August 2001, or until such other date as the Court or a judge may determine. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 19 July 2001 Counsel for the Applicant: Ms S Maharaj Solicitor for the Applicant: Marrone & Co Counsel for the Respondent: Mr A L Dal Cin Solicitor for the Respondent: Lynch Meyer Date of Hearing: 4 July 2001 Date of Judgment: 19 July 2001