FEDERAL COURT OF AUSTRALIA James v Hill [2005] FCA 853 BANKRUPTCY – bankruptcy notice – extension of time for compliance – where judgment debtor applied for order setting aside notice in the Federal Magistrates Court – where Federal Magistrate dismissed application but extended time for compliance with notice for two weeks – whether Magistrate had power to do so pursuant to s 41(6A) – where appeal to Federal Court instituted within extended time – where application made for further extension of time pending appeal – whether power to extend time under s 41(6A) Bankruptcy Act 1966 (Cth) ss 41(6A), 41(7) Conway v Jackson (2001) 107 FCR 201, cited James v Abrahams (1981) 34 ALR 657, cited James v Hill [2005] FMCA 743, considered Patane v Asteron Life Ltd (2004) FCA 232, applied Re Udowenko: Ex parte Mitchell (1996) 69 FCR 299, cited Shephard v Chiquita Brands South Pacific Ltd (2004) 1 ABC(NS) 610; [2004] FCAFC 76, applied P.P. McQuade and M.G.R. Gronow, Australian Bankruptcy Law & Practice, 5th Edition, Law Book Co, 1996 DAVID ANTHONY JAMES v TERRY DONALD HILL NSD 949 of 2005 EDMONDS J 22 JUNE 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 949 OF 2005 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: DAVID ANTHONY JAMES APPELLANT AND: TERRY DONALD HILL RESPONDENT JUDGE: EDMONDS J DATE OF ORDER: 22 JUNE 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The respondent's amended motion on notice be dismissed. 2. The time for compliance with bankruptcy notice NN3422/04 issued on 22 December 2004 be extended from 5:00 pm on 22 June 2005 until 14 July 2005 or further order. 3. Costs of the motions be the appellant's costs of the appeal. 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 NSD 949 OF 2005 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: DAVID ANTHONY JAMES APPELLANT AND: TERRY DONALD HILL RESPONDENT JUDGE: EDMONDS J DATE: 22 JUNE 2005 PLACE: SYDNEY REASONS FOR JUDGMENT GIVEN EX TEMPORE (REVISED) 1 On Thursday, 16 June 2005 the appellant moved the Court for an order that time for compliance with bankruptcy notice NN 3422 of 2004 and issued on 22 December 2004 ['the bankruptcy notice'] be extended from 17 June 2005 until determination of these proceedings. 2 In the particular circumstances, namely my agreement to hear the motion on an expedited basis and the inability of the respondent to be represented by counsel on the hearing of the motion, I declined to make the order. I ordered that time for compliance with the bankruptcy notice be extended from 17 June 2005 until 5pm today, Wednesday, 22 June 2005, and stood the motion over until yesterday, Tuesday, 21 June 2005 for further argument. 3 When the motion came back before me yesterday, counsel for the respondent sought, and I granted, leave for there to be filed in Court a notice of motion returnable instanter whereby the respondent moved the Court for an order that the order made on 16 June 2005 that time for compliance with the bankruptcy notice be extended from 17 June 2005 until 5pm on Wednesday, 22 June 2005 be vacated and a declaration that an act of bankruptcy was committed by the appellant on 18 June 2005. 4 Yesterday I heard argument on the first of the orders sought. In short, the respondent contended that I had no power to extend the time for compliance with the bankruptcy notice and for that reason the order of 16 June 2005 should be vacated. Although not covered by the respondent's notice of motion, the respondent's counsel further argued that the order made by the Federal Magistrates Court [Raphael FM] on 3 June 2005 extending time for compliance with the bankruptcy notice until 17 June 2005 was also beyond power and should, on that ground, also be vacated. The consequence was, so the respondent submitted, that the appellant committed an act of bankruptcy at the end of the day on which the Federal Magistrates Court dismissed the application to set aside the bankruptcy notice, namely, at the end of 3 June 2005: See s 41(7) of the Act. 5 After hearing full argument on the orders sought by the respondent, I granted leave to the respondent to file an amended notice of motion incorporating the additional orders sought in the course of his argument before me and reserved my decision on both those orders and the order sought in the appellant's notice of motion stood over from Thursday, 16 June 2005. 6 The respondent's amended notice of motion moves the Court for the following orders: (1) That order 2 made by Raphael FM on 3 June 2005 extending the time for compliance with the bankruptcy notice until 17 June 2005 be vacated or set aside; (2) That the order made by this Court on 16 June 2005 that the time for compliance with the bankruptcy notice be extended from 17 June 2005 until 5pm today be vacated or set aside; (3) A declaration that an act of bankruptcy was committed by the appellant on 3 June 2005; (4) Alternatively, a declaration that an act of bankruptcy was committed by the appellant on 17 June 2005; (5) Costs. 7 The application before the Federal Magistrates Court was commenced on 14 April 2005, that is before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, namely, 21 days from 25 March 2005 – 15 April 2005. The application was therefore timely from the point of view of both s 41(6A) and s41(7) of the Bankruptcy Act 1966 (Cth) ['the Act']. 8 That application sought to set aside the bankruptcy notice or alternatively, sought an extension of time for compliance with it. The first was said to be grounded in s 41(7) of the Act; the second was unstated in the reasons for judgment below, however, on the basis that s 41(6A) of the Act is the sole source of power to extend such time – see James v Abrahams (1981) 34 ALR 657 at 662 and Conway v Jackson (2001) 107 FCR 201 at 205 – there is no other ground on which the alternative application could be raised. 9 On 3 June 2005, the Federal Magistrates Court (Raphael FM) delivered its judgment. In its reasons for judgment it said that it was '… unable to set aside the bankruptcy notice on the grounds requested in the application', [15]. At [16] his Honour said: "The applicant asked alternatively that I extend the time for compliance with the bankruptcy notice until after the hearing of the various cases which have been referred to in these reasons. I would not be prepared to do this. I have had no evidence of the time it might take to bring these cases to court, and as I have already explained, I am doubtful of their prospects of success. It would not be reasonable or in the public interest to prevent the possible commission of an act of bankruptcy in these circumstances. On the other hand, the applicant has asked for a small window of opportunity in which to attempt to comply with the notice. I can see no detriment to the creditor in giving this allowance and I have no evidence of other debts. The orders which I would make are: (1) Application dismissed. (2) Time for compliance with the bankruptcy notice be extended until 17 June 2005. (3) Applicant pay the respondent's costs to be taxed if not agreed according to the Federal Court Act and Rules." 10 The Federal Magistrate's power to extend the time for compliance with the bankruptcy notice until 17 June 2005 has, as I have indicated, been put in issue by the respondent. However, as the application to set aside the bankruptcy notice was made on 14 April 2005, that is, before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, viz., 15 April 2005, I am of a view that the Federal Magistrate's order extending time for compliance until 17 June 2005 was empowered by s 41(6A). 11 Moreover, as the order was made before the end of that day, ie., 3 June 2005, no act of bankruptcy was committed by the appellant on that day: See s 41(7) of the Act and Patane v Asteron Life Ltd (2004) FCA 232 [109], [110], [113]-[115]. 12 For those reasons, I would not be prepared to make the orders (1) and (3) sought in the respondent's amended notice of motion. 13 On 14 June 2005 the appellant filed a notice of appeal in this Court appealing against the whole of the judgment of Raphael FM in the Federal Magistrates Court given on 3 June 2005 on some eight (8) grounds. I have not, for the purpose of these reasons, considered those grounds as to their merit or otherwise. This appeal is listed in the docket of Branson J and the first directions hearing has been fixed for 14 July 2005. 14 The respondent contends that I had no power to make the order I did on 16 June 2005 extending the time for compliance with the bankruptcy notice from 17 June 2005 until 5pm today. By the time I made that order, the appellant's appeal was on foot. Moreover, if I am correct in my conclusion above that Raphael FM was empowered to extend the time for compliance with the bankruptcy notice in reliance on s 41(6A) of the Act, then at the time I ordered the extension of time until 5 pm today, the time for compliance had not expired. 15 In Australian Bankruptcy Law & Practice, 5th Edition, by P.P. McQuade and M.G.R. Gronow, Law Book Co, 1996, the following statement appears at 41.6A.05: "It has been suggested that the Court may have 'inherent jurisdiction to extend the time for compliance with a bankruptcy notice pending the hearing of an appeal from an order dismissing an application to set it aside': Hoven v Goycolea-Silva [2003] FCA 234 at [9] (Emmett J). Nevertheless, it is submitted that no inherent jurisdiction is required in such a case, since 'an application … to set aside the bankruptcy notice' having been made, and being still on foot in the sense of being subject to a pending appeal, the prerequisite under s41(6A)(b) has been met, and statutory jurisdiction exists under s41(6A)." 16 The learned authors refer to the decision of the Full Court of this Court in Shephard v Chiquita Brands South Pacific Ltd (2004) 1 ABC(NS) 610; [2004] FCAFC 76. In that case, Hill and Marshall JJ, after stating that the reasoning adopted by Lindgren J in Re Udowenko: Ex parte Mitchell (1996) 69 FCR 299 was correct said at [40]: "Clearly s41(6A) was intended to be in aid of the application to set aside the judgment or the bankruptcy notice as the case may be. In that context it seems strange that the legislature would intend that so long as at any time in the past there has been an application to set aside a judgment or a bankruptcy notice, and notwithstanding such application has been determined and even notwithstanding the time for compliance is long past, the Court would have the power to extend the time for compliance. Once the application to set aside the judgment or the bankruptcy notice has been finally determined (and it is not necessary to consider here the question of the status of that application during such time as an appeal was current) there is no aid which the power to extend time for compliance can give to the determined application. It follows, in our view, that the power to extend the time for compliance has been spent." [Emphasis added] 17 In the same case, Sackville J said at [55]-[60]: "55. It should be noted that neither Re Sterling nor Re Udowenko was concerned with the exercise of the power in s 41(6A) of the Act in the course of an appeal from a decision to dismiss an application by the debtor to set aside a bankruptcy notice. This point was, however, adverted to by the High Court in Guss v Johnstone. 56. The primary Judge in Guss v Johnstone , Sundberg J, on an application to set aside a bankruptcy notice, made a declaration that the Court was not satisfied that the debtor had a counter-claim, set-off or cross-demand equal to or exceeding the amount of the debt. The debtor argued in the High Court that if the Full Federal Court or the High Court set aside the declaration, it would be of no effect ab initio. Thus, so it was argued, in these hypothetical circumstances the Federal Court would not have effectively determined whether it was satisfied of the matter referred to in s 41(7) (that is, whether the debtor had a counter-claim, set-off or cross-demand). Accordingly, under the terms of s 41(7), time for compliance with the bankruptcy notice would still be running. 57. The Court did not directly address this submission. Rather, their Honours said (at 610-611 [63]) that they were 'unable to accept that whenever, in a proceeding under s 40(1)(g) and s 41(7), a judge at first instance has determined that he or she is not satisfied of the matter referred to in s 41(7), and has declined to interfere with the process initiated by a creditor, no appellate reversal of that decision, whether by the Full Court or by this court, can alter the consequences of the decision. In a proper case it would have been within the power of the Full Court to set aside the declaration made by Sundberg J. The consequences for proceedings and events that had occurred in the meantime would vary with the circumstances, but they could include the same consequences as flowed from the order in Streimer v Tamas, where the statutory power to extend time for compliance with a bankruptcy notice, given by s 41(6A), was exercised after an act of bankruptcy had been committed.' 58. This passage seems to assume that a failure by the debtor to comply with the bankruptcy notice held by Sundberg J to be valid would be an act of bankruptcy, notwithstanding the (hypothetical) setting aside of his Honour´s declaration on appeal. The assumption is consistent with the decisions in Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378 (Fed Ct Bankruptcy/Gibbs J) and Re Hayes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216 (S Ct NSW/Street J), which held that failure to comply with a bankruptcy notice requiring payment of a judgment debt is an act of bankruptcy notwithstanding that the judgment on which the bankruptcy notice is founded is later set aside. 59. In the passage I have quoted from Guss v Johnstone, the High Court appears to regard the power in s 41(6A) of the Act as available to an appellate court in order to undo the effects of what otherwise would be an act of bankruptcy on the part of the debtor (the successful appellant). It seems to follow that s 41(6A) is available to a debtor who seeks an extension of time to comply with a bankruptcy notice in order to render effective the debtor´s successful appeal against an order by the trial Judge dismissing a challenge to a bankruptcy notice. 60. It is not necessary in the present case to consider the precise reach of s 41(6A) of the Act on an appeal against a dismissal of an application to set aside a bankruptcy notice." [Emphasis added] 18 After careful consideration of the argument that was put to me on behalf of the respondent yesterday, my review of the relevant authorities, the fact that at the time I made the order on 16 June 2005 extending the time for compliance with the bankruptcy notice until 5pm today an appeal was on foot from the judgment of the Federal Magistrates Court and that time for compliance with the notice had not at that point in time [16 June 2005] expired, I am of the view that I was empowered by s 41(6A) of the Act to extend the time for compliance with the notice until 5 pm today. 19 For the foregoing reasons, I am not prepared to make the orders (2), (4) and (5) sought in the respondent's amended notice of motion. 20 This brings me to the order sought in the appellant's notice of motion filed on 14 June 2005 and the order I made on 16 June 2005 extending the time for compliance with the bankruptcy notice from 17 June 2005 to 5 pm today. Whether or not the order sought in the appellant's notice of motion should be made is a matter which I think should be considered and decided by the docket judge who will hear the appeal. As indicated above, the first directions hearing is fixed before Branson J on 14 July next and, in the absence of evidence of any prejudice that the respondent may suffer, I therefore propose to make an order extending the time for compliance with the bankruptcy notice from 5 pm, 22 June 2005 until 14 July 2005 or further order. 21 The appellant submits that the costs of the motions should be the appellant's costs of the appeal. The respondent does not oppose an order in those terms. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. Associate: Dated: 23 June 2005 Counsel for the Applicant: Mr D Allen Solicitor for the Applicant: Brooks & Co Counsel for the Respondent: Mr R Glasson Solicitor for the Respondent: Brown & Partners Date of Hearing: 22 June 2005 Date of Judgment: 22 June 2005