Derek George Shephard v Chiquita Brands South Pacific Limited [2004] FCAFC 76 (31 March 2004)

Last Updated: 1 April 2004

FEDERAL COURT OF AUSTRALIA

Derek George Shephard v Chiquita Brands South Pacific Limited

[2004] FCAFC 76

BANKRUPTCY – Power to extend time for compliance with a bankruptcy notice under s 41(6A) – Creditor’s petition presented more than 6 months after act of bankruptcy - Application to extend time made by creditor – The proceedings to set aside the bankruptcy notice were concluded and no longer on foot

STATUTORY INTERPRETATION – re-enactment of a statutory provision – regard to context – the mischief sought to be addressed




Bankruptcy Act 1966 (Cth) s 33(1)(c), s 41(6A), s 41(7), s 44(1)
Bankruptcy Amendment Act 1980 (Cth), s 24
Federal Court of Australia Act 1976 (Cth) s 28(1)


Re Tavella (1953) 16 ABC 166
Re Moss; Ex parte Tyaraf Pty Ltd [1985] FCA 403
Re Halstead; Ex parte Westpac Banking Corporation (No2) [1991] FCA 548; (1991) 32 FCR 394
Lennon v Gibson and Howes Ltd [1919] HCA 15; [1919] AC 709
Re Young; Ex parte Smith (1985) 59 ALR 385
Howarth v Mortgage Acceptance Nominees Limited [1993] FCA 370; (1993) 43 FCR 587
State Bank of NSW v Gomez [2002] FCA 1476
Re Sterling, Ex parte Esanda Ltd [1980] FCA 61; (1980) 30 ALR 77
Re Udowenko; Ex parte Mitchell [1996] FCA 879; (1996) 69 FCR 299
CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1995) 187 CLR 384
McLean v Australia and New Zealand Banking Group Ltd (1993) 42 FCR
Streimer v Tamas (1981) 37 ALR 211
Ebert v Union Trustee Co of Australia Ltd [1961] HCA 29; (1961) 105 CLR 327
Guss v Johnstone [2000] HCA 26; (2000) 171 ALR 598
James v Abrahams [1981] FCA 46; (1981) 34 ALR 657
Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363
Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378
Re Hayes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216
Commissioner for Railways (NSW) v Cavanough [1935] HCA 45; (1935) 53 CLR 220
Wilde v Australian Trade Equipment Co Pty Ltd [1981] HCA 13; (1981) 145 CLR 590


Pearce and Geddes Statutory Interpretation in Australia, Butterworths, Australia, 2001
K Mason and J W Carter, Restitution Law in Australia (1995)
D M Gordon, "Effect of Reversal of Judgment on Acts Done Between Pronouncement and Reversal" (1958) 74 LQR 517


































DEREK GEORGE SHEPHARD V CHIQUITA BRANDS SOUTH PACIFIC LIMITED
N915 of 2003

HILL, SACKVILLE AND MARSHALL JJ
31 MARCH 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 915 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: DEREK GEORGE SHEPHARD
APPELLANT

AND: CHIQUITA BRANDS SOUTH PACIFIC LIMITED
RESPONDENT

JUDGES:	HILL SACKVILLE & MARSHALL JJ
DATE OF ORDER:	31 MARCH 2004
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be allowed.
2. The cross appeal be dismissed.
3. The Respondent pay the Appellant’s costs of the appeal and the cross 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	N 915 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	DEREK GEORGE SHEPHARD APPELLANT
AND:	CHIQUITA BRANDS SOUTH PACIFIC LIMITED RESPONDENT

JUDGES:	HILL, SACKVILLE & MARSHALL JJ
DATE:	31 MARCH 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

HILL and MARSHALL JJ:

1 The Appellant, Mr Shephard ("the debtor") appeals against the judgment of a Judge of this Court granting to the Respondent, Chiquita Brands (South Pacific) Limited ("the creditor") an extension of time in which the debtor could comply with Bankruptcy Notice NN317 of 2001 until 28 May 2003. The creditor cross appeals from that part of the judgment which refused its application pursuant to s 33(1)(c) of the Bankruptcy Act 1966 (the Act) for an extension of time in which to present a Creditor’s Petition against the Cross-Respondent based upon an alleged failure of the debtor to comply with that bankruptcy notice.

2 The background to the present appeals is complex. However, for present purposes the following chronology is all that needs be known. A bankruptcy notice was served upon the debtor on 28 March 2001. Litigation ensued in which the debtor sought to set it aside. It is unnecessary to note the course of that litigation. It concluded with an order of a Federal Magistrate made on 24 June 2002 dismissing the debtor’s application to set aside the bankruptcy notice, and an appeal from that decision was dismissed by Madgwick J on 8 May 2003. Those proceedings are not the subject of the present appeal.

3 There had been successive applications by the debtor to extend the time for compliance with the bankruptcy notice. The last order made was that time should be extended until the date of the Magistrate’s decision. The debtor therefore committed an act of bankruptcy by failing to comply with the bankruptcy notice within the time permitted (as extended from time to time) on 25 June 2002. No further application for an extension of time was made by the debtor. The solicitor for the petitioning creditor apparently overlooked the need on its part to do so. Section 44(1) of the Act prohibits the presenting of a creditor’s petition against a debtor unless the act of bankruptcy on which the petition was founded was committed within six months before the presentation of the petition.

4 Accordingly, by force of s 44 (1), a petition could not be presented by the petitioning creditor unless it was presented between 25 June 2002 and 25 January 2003. None was presented. It was for this reason that the petitioning creditor applied to the Court to seek an extension of the time in which it could present a petition against the debtor until a date later than 25 January 2003. In the alternative the creditor applied also for an order said to be pursuant to s 41(6A) of the Act extending to 28 May 2003 the time for the debtor complying with the bankruptcy notice.

5 The debtor submitted to his Honour that the Court had no power pursuant to s 33 of the Act to extend the time specified in s 44(1)(c) within which the respondent could present a petition. His Honour upheld this submission. However, in respect of the creditor’s alternative application, his Honour found that the Court did have power under s 41(6A), on the application of the petitioning creditor, to extend the time for compliance by the debtor with the bankruptcy notice and made an order accordingly. His Honour ordered the debtor to pay the creditor’s costs.

6 The debtor then appealed to this Court against the grant of the extension of time for compliance with the bankruptcy notice and the creditor cross-appealed against his Honour’s refusal to extend the time in which it could present its petition. These so-called appeals are however interlocutory, so leave to appeal is required. Further, the debtor notified the creditor through submissions which were delivered somewhat late that the debtor proposed to rely on a matter not covered by the Grounds of Appeal filed. Thus, leave would also be required to file amended grounds of appeal to permit the debtor to rely on that new matter.

7 Neither side opposed leave being granted to appeal and counsel for the creditor did not oppose leave being granted to the debtor to file amended grounds of appeal subject to his being granted leave, if required, to file additional written submissions dealing with the new ground of appeal. The Court accordingly grants leave to appeal and leave to the debtor to rely on the new matter, treating the debtor as having filed an amended notice of Appeal. It does so reserving to counsel for the creditor liberty to file additional written submissions should the need arise. It did so on the basis that it was appropriate to grant leave to appeal having regard to the importance of the matters involved in the Appeals. There is no real prejudice to either side in so doing.

The Judgment appealed from

8 The learned Primary Judge dealt first in his judgment with the application of the creditor purportedly based upon s 33(1)(c) of the Act to extend the time in which the creditor might present its petition against the debtor. Section 33 (1)(c) relevantly provides:

"The court may extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act ... for doing an act or thing."

9 Section 44(1)(c) relevantly provides:

"A creditor’s petition shall not be presented against a debtor unless:

(a)	...
(b)	...
(c)	the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition."

10 It was submitted by counsel for the creditor to his Honour that s 44(1)(c) should be construed by reference to its substance, rather than having its construction of it be determined by matters of form. In regard to substance, it was submitted that s 44(1)(c) set down a limit of time within which a creditor might present a petition against a debtor, so that s 33 authorised the bringing of an application to the Court to extend that time being a "time limited by this Act ... for the doing of an act", namely the presentation of a Petition.

11 His Honour indicated that although the matter had not been fully argued before him, he found the argument somewhat attractive. Ultimately though, his Honour noted that there were long standing authorities to the contrary. His Honour referred to Re Tavella (1953) 16 ABC 166, per Clyne J and Re Moss; ex parte Tyaraf Pty Ltd [1985] FCA 403 (unreported, Morling J, 23 August 1985) as holding that the six month period was a condition precedent for the presentation of a petition and not a limitation of time of the kind referred to in s 33(1)(c). Accordingly his Honour dismissed the application of the creditor.

12 His Honour then turned to deal with the alternative application by the creditor for an order extending the time in which the debtor might comply with the bankruptcy notice. His Honour found that the Court did have power to extend the time for compliance with the bankruptcy notice on an application by a creditor. His Honour noted that it had been held that a creditor could make such an application, referring by way of example to Re Halstead; Ex parte Westpac Banking Corporation (No2) [1991] FCA 548; (1991) 32 FCR 394. Indeed, according to his Honour, such applications had frequently been successfully made in the Court. The power though was one which was the subject of a broad discretion. His Honour noted that where an application was made by a debtor, the Court would take into account the prejudice to a creditor as a result of the postponement of the commencement of the bankruptcy and that this was a significant factor which might weigh against the extension of time for compliance in such a case.

13 In this particular case however, his Honour noted that the debtor did not suggest that he had been lulled into a false sense of security by the inaction of the creditor. Further the delay had been caused as a result of the curial processes initiated by the debtor. In his Honour’s view the balance of convenience and of justice lay in favour of the creditor. His Honour accordingly made an order extending the time for compliance with the bankruptcy notice until 28 May 2003.

14 The orders thus made by his Honour are, accordingly, the orders which are the subject of the appeal and cross appeal which are now before the Court.

The Application based upon s 33(1)(c) to extend the time for presentation of the petition

15 Absent authority, it would seem clear from the language of s 44(1)(c) set out above that that section makes the expiration of not more than 6 months from the committing of an act of bankruptcy a condition precedent to the presentation of a petition and that the six months period is not a time limited by the Act for the presentation of a petition. Section 44(1)(c) does not say in terms that a petitioning creditor must present a petition within six months of the day on which the debtor commits an act of bankruptcy, although this may be the effect of the section. It merely provides that a petition may not be presented unless the relevant act of bankruptcy was committed within a six months period. There is a difference. The use of the passive voice here, rather than the active voice, is not just a matter of syntax as counsel for the petitioning creditor submits.

16 The matter is also not, as his Honour noted, free of authority, because although the decided cases are first instance decisions that are not binding upon the Court, they are of long standing authority, particularly the decision of Clyne J in Re Tavella. Accordingly, the Court would be slow to overrule them unless the Court was of the view that they were wrongly decided. The decision in Re Tavella was a decision under the Bankruptcy Act 1924. Section 55(1)(c) of that Act provided that:

"A creditor shall not be entitled to present a petition against a debtor unless the act of bankruptcy on which the petition is grounded has occurred within six months before the presentation of the petition."

17 Clyne J was of the view that the section should be interpreted as meaning what it said. It did not prescribe the doing of an act by the petitioning creditor; rather the question was whether some relevant fact necessary to the validity of a petition had occurred within six months before the creditor’s petition was presented. His Honour referred to authorities in other areas of law in support of his decision.

18 Clyne J was a very experienced bankruptcy Judge. It may be noted that the present legislation was based upon a report written by his Honour and that the present section, which is in substantially the same language as s 55(1)(c) had been enacted as a result of that report. It may be assumed that his Honour in drafting the present section had in mind his Honour’s own decision in Re Tavella. There may even be a principle, perhaps it is just common sense, that the re-enactment of a provision carries with it the presumption that Parliament intended the re-enacted provision to be given its previous interpretation, although this may need be applied with some caution. Certainly the Privy Council in Lennon v Gibson and Howes Ltd [1919] HCA 15; [1919] AC 709 at 711-2 expressed there to be a principle that:

"In the absence of any context indicating a contrary intention, it may be presumed that the Legislature intended to attach the same meaning to the same words when used in a subsequent statute in a similar connection"

19 The learned authors of Pearce and Geddes Statutory Interpretation in Australia, Butterworths, Australia, 2001 note at 3.39 that:

"... the courts adopt the general approach that whenever any legislation is re-enacted after being judicially interpreted, the legislature is to be assumed to have approved that interpretation."

20 Thus, when the interpretation is one that accords with the natural meaning of the words used it is clear that the interpretation adopted in the previous decision should be followed. That is the present case.

21 The subsequent decision of Morling J in re Moss to which his Honour referred was, in our opinion, correctly decided. Morling J made no reference to Re Tavella. However, his Honour noted the decision in Re Young; ex parte Smith (1985) 59 ALR 385 at 390, a case concerning the application of s 33(1)(c) to a different situation where it was, however, pointed out that s 33(1)(c) was directed essentially to the provisions in the Act requiring the doing of certain acts or things within specific times.

22 In our view his Honour was right to dismiss the application of the petitioning creditor and we would accordingly dismiss the creditor’s cross appeal from this part of his Honour’s judgment.

The application under s 41(6A) by the Petitioning Creditor – Did the Court have power?

23 There is nothing in s 41(6A) that specifically requires that an application to extend time for compliance with a bankruptcy notice must be made by the debtor, although it is obvious that ordinarily it would be the debtor, and not the creditor who is interested in extending the time for compliance with a bankruptcy notice so as to avoid committing an act of bankruptcy. The subsection is silent as to whether an application might be made under the subsection by a creditor.

24 For the creditor it is submitted that the plain words of the sub-section should be given effect so that so long as, at some time, an application to set aside the bankruptcy notice had been brought by the debtor it was open to either the debtor or a creditor to apply to the Court to extend the time for compliance with the bankruptcy notice and this was so even where the time for compliance with the notice had expired.

25 Counsel for the creditor relied, inter alia, upon three cases said to have decided that a creditor could bring an application to extend time for compliance by the debtor with the bankruptcy notice, whether or not there was on foot an application to set aside the bankruptcy notice, so long as such an application had been made.

26 The first such case was Halstead v Westpac Banking Corporation [1991] FCA 548; (1991) 32 FCR 394 a decision of Heerey J. In that case his Honour extended the time for compliance with the bankruptcy notice for one month on the application of the creditor. When the order was made the proceedings to set aside the Bankruptcy notice had been dismissed. The application to extend time was made for the same reason as appears in the present case, namely that otherwise the time for presentation of the petition would have passed. The debtor was not represented before his Honour, so his Honour did not have the advantage of full argument on the matter.

27 His Honour appears to have given some weight (at least on the question of whether the discretion should be exercised) to the fact that there was oversight on the part of the creditor making the application in the course of the hearing of the application to set aside the bankruptcy notice when it would readily have been granted. No authority was cited by his Honour on the question of power and his Honour appears to have accepted a literal interpretation of s 41(6A) saying that there was nothing in the language of the subsection or the statute as a whole which precluded the power being exercised by the creditor. His Honour did not advert to the question whether the power was spent once the application to set aside the notice had been determined.

28 The second case in which the question of the exercise of the power in the subsection was considered was Howarth v Mortgage Acceptance Nominees Limited [1993] FCA 370; (1993) 43 FCR 587, a decision of Einfeld J. In that case his Honour accepted that there was power in the Court to extend the time for compliance on the application of a creditor, notwithstanding that the application to set aside the bankruptcy notice had been determined several weeks before and did not discuss the issue. In fact the application brought by the creditor to extend the time for compliance was dismissed on discretionary grounds. It does not seem that the issue of power was debated before his Honour. Whether or not that is so it is clear from the report of the case that his Honour relied upon Halstead and indicated that he agreed with Heerey J that there was nothing in the language of the statues which precluded the power being exercised at the instance of the creditor.

29 The third case relied upon was a decision of Branson J in State Bank of NSW v Gomez [2002] FCA 1476 where an application had been brought by a creditor in circumstances similar to the present case. However, her Honour was of the view that it would not be an appropriate exercise of the Court’s discretion to assist a credit by granting an extension of time so as to achieve that which s 441 of the Act did not allow, namely the presentation of a petition later than 6 months after the act of bankruptcy on which the petition was founded. Her Honour notes that it was not argued before her that the decisions in Halstead or Howarth had been wrongly decided.

30 In support of an interpretation of s 41(6A) permitting an application being brought (although by a debtor) notwithstanding that the application to set aside a bankruptcy notice had been determined it can be argued that there could be a need for the bringing of such an application where the application to set aside the bankruptcy notice had been determine on appeal but an application had been made to the High Court for special leave. Unless and until such leave was granted the proceedings to set aside the bankruptcy notice would have been determined and no appeal would, unless leave was granted, be on foot. On the other hand it can be said that it will in such cases be open to the debtor to apply before the proceedings to set aside the bankruptcy notice have been determined and that it he or she fails to do so, then so be it.

31 It is more difficult to see what policy reasons there might be for permitting a creditor to apply to extend the time for compliance, particularly where the application to set aside the bankruptcy notice had expired, except in a case such as the present where the creditor is seeking to avoid the consequences of s 44(1).

32 However, there is authority or at least dicta to the contrary of the cases to which we have referred. Particularly, through submissions prepared by the Legal Aid Commission on behalf of the debtor, we have been referred to the decision of Lockhart J in Re Sterling, Ex parte Esanda Ltd [1980] FCA 61; (1980) 30 ALR 77 and a decision of Lindgren J in Re Udowenko; Ex parte Mitchell [1996] FCA 879; (1996) 69 FCR 299.

33 Re Sterling has been cited with approval in many cases. It did not specifically deal with the problem which is before the Court. The applicants in that case, the debtors, had applied to set aside the bankruptcy notice served upon them and to extend the time for compliance with the notice. It seems that the question of the Court’s power to set aside the bankruptcy notice was called into question before his Honour. Not surprisingly his Honour held that the Court had such power. While his Honour did not detail the precise basis upon which the power could be upheld, his Honour referred to the fact that it was implicit in s 41(6A) that such power existed. What is of more significance here, however, is that his Honour pointed out at 84:

"The power of the court to extend time for compliance with the requirements of a bankruptcy notice is in aid of the power to set aside the notice itself. Once the court has heard the application to set aside the notice it may dismiss it or set the notice aside. In either case, exercise of the power to extend time for compliance will then be spent" (emphasis added).

34 It is clear that in interpreting a provision of a statute regard must be had to the context in which it appears, and not only for the purpose of resolving any ambiguity but also at the outset where resort to the context may reveal the ambiguity: CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1995) 187 CLR 384 at 408. Context in this sense is used in the broader sense as including the existing state of the law and the mischief sought to be remedied.

35 As Lockhart J pointed out in Re Sterling s 41(6A) was introduced into the Act by s 24 of the Bankruptcy Amendment Act 1980 as were subsections (6B) and (6C). They must be read together with the amendments made by the same act to ss 33 and 41. These latter amendments were , his Honour said, introduced to overcome doubts that existed as to the powers of the court of the Registrar to extend time for compliance with the requirements of a bankruptcy note. The Explanatory Memorandum accompanying the Bill which later became the Bankruptcy Amendment Act 1980 confirm this. Subs 6A made it clear that the power to extend time could only be exercised where proceedings to set aside the judgment or order in respect of which the notice was issued had been instituted or the application to set aside the bankruptcy notice had been filed with the Registrar in each case before the expiration of the time fixed by the Court or the Registrar for compliance with the notice.

36 It follows, clearly enough, as his Honour observed, that the power to extend time is a power conferred in aid of the application to set aside the judgment or order or the application to set aside the bankruptcy notice as the case may be. This may leave open the question whether the application to extend time might be brought by a creditor, rather than the debtor. That is a matter that need not be considered in the present case. However, it does suggest that the proceedings to set aside the bankruptcy notice require that the application to set aside the judgment or the bankruptcy notice as the case may be are on foot at the time the application to extend the time for compliance is brought.

37 Re Udowenko was a case involving an application by the debtors for an extension for time to comply with a bankruptcy notice. It may be noted that the debtors were unrepresented, so that his Honour did not have the assistance of a full argument on the matter before him. An application to set aside the bankruptcy notice had been filed. It was ultimately dismissed. There had also been an application to set aside the judgment on which the bankruptcy notice was based which had been dismissed. Much later, and after a petition had been presented the debtors filed another application to set aside the bankruptcy notice and for an extension of time for compliance. In other words although there was on foot an application to set aside the bankruptcy notice that application had been filed after the time for compliance had expired. The previous application, which had been dismissed, had been filed before the time for compliance had expired. Lindgren J held he had no power to extend the time for compliance. His honour said:

In my view, it is clear on the proper construction of sub-s 41(6A) that the condition of the existence of the power to extend time is not satisfied by the mere institution of a proceeding or making of an application to set aside, which has been dismissed or otherwise ceased to subsist as a current proceeding or application before the time for compliance with a bankruptcy notice has expired; cf McLean v ANZ Banking Group Ltd [1993] FCA 216; (1993) 42 FCR 300 (Ryan J). The reason is that the purpose of an extension of time under sub-s 41(6A) is limited to that of supporting a proceeding or application, that is to say, one which was instituted or filed before expiration of the time for compliance with the bankruptcy notice. Further, some support for this view of the provision is found in the use of the perfect form of the verb ("have been instituted" and "has been filed") in paras 41(6A) (a) and (b) which suggests a proceeding which has been instituted, or an application which has been made, before the expiration of the time for compliance with the bankruptcy notice, and which still subsists at the time when the occasion for exercise of the power to extend time arises."

38 His Honour, in addition to referring to Re Stirling, and cases which had followed it, including McLean v Australia and New Zealand Banking Group Ltd [1993] FCA 216; (1993) 42 FCR 300 per Ryan J at 304-5, noted that the joint judgment of Deane and Ellicott JJ Steimer v Tamas (1981) 37 ALR 211 at 215 assumed that the proceeding or application to set aside to which sub-s 41(6A) refers would be continuing at the time of expiration of the bankruptcy notice.

39 McLean v ANZ Banking Group Ltd did not raise precisely the issue which is presently before the Court. However, what Ryan J there said was not strictly dicta, in that his Honour found that he had in the circumstances of the case no power to extend time for compliance. His Honour said at 305, after a discussion of Re Sterling:

The existence of an application to have the bankruptcy notice set aside is a condition precedent to the exercise of power contained in s 41(6A)(b). The purpose for which an extension of time may be granted is confined by the context of s 41 to facilitating the hearing and determination b y the court of an application to context the validity of a bankruptcy notice or the debt upon which it has been based,

It was submitted...that, provided an application for an extension of time, bona fide when issued, is extant, the court has power later to extend the period for compliance regardless of whether the debtor is then persisting in the application to set aside the bankruptcy notice. However, in my view, s 41(6A) requires a subsisting intention by the debtor to have the bankruptcy notice set aside when the application is heard. In the absence of such a subsisting intention, it would be unnecessary for the court to ask whether, at the date of issuing the application... the debtor was genuinely seeking to have it set aside. The primary position of the debtor is that he does not wish to prosecute his application to set aside the bankruptcy notice. Accordingly, in the absence of an extant application this Court does not have power to extend the time for compliance with the bankruptcy notice."

40 With respect we think the reasoning adopted by Lindgren J is correct. Clearly s 41(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 had been an application to set aside a judgment or a bankruptcy notice, and notwithstanding that such application had been determined and even notwithstanding that the time for compliance had long passed the Court would have 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 time for compliance has been spent. The use of the perfect tense "have been instituted" and "have been filed" is, of itself, not determinative. We were given an extremely lengthy treatise on matters of grammar by counsel for the creditor accompanied by extracts from works on English grammar in support of an argument that the grammatical structure supported the opposite view. We do not accept the submission. Ultimately it is the context of s 41(6A) rather than matters of syntax which lead to the conclusion that the power to extend time under the section is spent once the application to set aside the bankruptcy notice has been disposed of.

41 Accordingly the appeal should be allowed and the cross appeal should be dismissed, both with costs.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Hill & Marshall.

Associate:

Dated: 31 March 2004

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 915 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	DEREK GEORGE SHEPHARD APPELLANT
AND:	CHIQUITA BRANDS SOUTH PACIFIC LIMITED RESPONDENT

JUDGES:	HILL, SACKVILLE & MARSHALL JJ
DATE:	31 MARCH 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

SACKVILLE J:

42 I agree with the reasoning and conclusion of Hill & Marshall JJ on the cross-appeal.

43 I also agree with Hill & Marshall JJ that the learned primary Judge lacked power to make an order on the creditor’s application extending the time for compliance with the bankruptcy notice until 28 May 2003. I shall stated briefly my reasons for reaching this conclusion.

44 In the present case the period for compliance with the bankruptcy notice issued on 28 March 2001 expired on 24 June 2002, the date of the decision of Raphael FM dismissing the debtor’s application to set aside the bankruptcy notice. It appears that the period had been extended until that date by an order of the Magistrate’s Court.

45 It may be that the period for compliance with the bankruptcy notice would have been extended until 24 June 2002 in any event by the operation of s 41(7) of the Act. This is because the debtor’s application to set aside the bankruptcy notice was on the ground that the debtor had a counter-claim, set off or cross demand as referred to in s 40(1)(g) of the Act, thereby attracting the operation of s 41(7). Section 41(7) does not, however, extend the time for compliance of a bankruptcy notice pending an appeal by the debtor (or the creditor, for that matter). The effect of s 41(7) is exhausted when the trial court determines whether it is or is not satisfied that the bankruptcy notice should be set aside on the ground of a claimed counter-claim, set-off or cross-demand: Ebert v Union Trustee Co of Australia Ltd [1961] HCA 29; (1961) 105 CLR 327, at 333; Guss v Johnstone [2000] HCA 26; (2000) 171 ALR 598, at 609 [57].

46 It follows that the period for compliance with the bankruptcy notice was not automatically extended pending determination of the appeal from the Magistrate’s decision. The appeal was in fact dismissed by Madgwick J on 28 May 2003. By then more than six months had elapsed since the act of bankruptcy, which occurred on 25 June 2002 (see s 40(1)(g) of the Act). Since the creditor had not presented a bankruptcy petition in the meantime, it was faced with a difficulty. Section 44(1)(c) of the Act provides that a creditor’s petition is not to be presented against a debtor unless the act of bankruptcy on which the petition is founded was committed within 6 months before presentation of the petition. Hence the need for the creditor to apply to the primary Judge for an order extending time for compliance with the bankruptcy notice.

47 A reader of s 41 of the Act, uninstructed by authority, might form the view that the period of time for compliance with a bankruptcy notice cannot be extended once the debtor has committed an act of bankruptcy. It is now settled, however, that the power in s 41(6A) can be exercised after an act of bankruptcy, provided the conditions specified in the sub-section are satisfied: Streimer v Tamas (1981) 37 ALR 211 (Full Fed Ct); Guss v Johnstone, at 610 [58]. Therefore the fact that the debtor committed an act of bankruptcy on 25 June 2002 is not, of itself, an impediment to the creditor’s application to seek an extension of time for compliance with the bankruptcy notice.

48 It is also settled that there is no statutory grant of power to extend the time for compliance except in accordance with the requirements of s 41(6A) of the Act: James v Abrahams [1981] FCA 46; (1981) 34 ALR 657, at 662 (Full Fed Ct); Guss v Johnstone, at 610 [62]. Thus the only possible source of authority for the order made by the primary Judge in the present case is s 41(6A).

49 The fact that the power in s 41(6A) of the Act can be exercised after an act of bankruptcy does not necessarily mean that the power can be exercised after the proceedings to set aside the bankruptcy notice have been determined. That issue did not arise in Streimer v Tamas. There the application to extend time was made before the proceedings had been concluded (although after the debtor had committed an act of bankruptcy).

50 The issue was, however, expressly addressed by Lockhart J in Re Sterling; Ex parte Esanda Ltd [1980] FCA 61; (1980) 30 ALR 77. His Honour observed (at 81) that the Act does not expressly confer power on the Court to set aside a bankruptcy notice. He held (at 83) that the power conferred on the Court by s 41(6A) of the Act to extend time for compliance with a bankruptcy notice where an application has been made to the Court to set aside the bankruptcy notice, impliedly carries with it the power to set aside the notice itself. Lockhart J then expressed the view (at 83) that the power to extend time for compliance "is in aid of the power to set aside the notice itself". His Honour pointed out (at 84) that once the Court has heard the application to set aside the notice, it may dismiss the application or set the notice aside. In either case "exercise of the power to extend time for compliance will then be spent".

51 Lockhart J’s observations were not part of the ratio of Re Sterling, since the application to extend time in that case had been made by the debtor during the currency of proceedings to set aside the bankruptcy notice. Indeed, his Honour ultimately made an order extending the time for compliance with the notice (at 87). However, his Honour’s observations about the power to extend time being in aid of an application to set aside the bankruptcy notice have frequently been cited with approval: see, for example, Re Lentini; Ex parte Lentini v CSR Limited (1991) 29 FCR 363, at 372, per Neaves J; McLean v Australia and New Zealand Banking Group Ltd [1993] FCA 216; (1993) 42 FCR 300, at 304-305, per Ryan J.

52 What might be described as the temporal issue arising under s 41(6A) of the Act squarely arose for decision in Re Udowenko; Ex parte Mitchell [1996] FCA 879; (1996) 69 FCR 299. There a bankruptcy notice was issued on 19 December 1995. An application by the debtors to set aside the bankruptcy notice was dismissed by a Deputy Registrar of the Court on 4 June 1996. No application to review that order was made. A creditor’s petition was served on 15 August 1996. On 1 October 1996, the debtor sought an extension of time for compliance with the bankruptcy notice.

53 Lindgren J dismissed the application. His Honour reasoned as follows (at 304):

"In my view, it is clear on the proper construction of s 41(6A) that the condition of the existence of the power to extend time is not satisfied by the mere institution of a proceeding or making of an application to set aside, which has been dismissed or otherwise ceased to subsist as a current proceeding or application before the time for compliance with a bankruptcy notice has expired: cf McLean v ANZ Banking Group Ltd [1993] FCA 216; (1993) 42 FCR 300 (Ryan J). The reason is that the purpose of an extension of time under sub-s 41(6A) is limited to that of supporting a proceeding or application, that is to say, one which was instituted or filed before expiration of the time for compliance with the bankruptcy notice. Further, some support for this view of the provision is found in the use of the perfect form of the verb (‘have been instituted’ and ‘has been filed’) in s 41(6A)(a) and (b) which suggests a proceeding which has been instituted, or an application which has been made, before the expiration of the time for compliance with the bankruptcy notice, and which still subsists at the time when the occasion for exercise of the power to extend time arises.

In the present case, by the expiration of the time for compliance on 4 June 1996, the application to set aside the bankruptcy notice which had been filed before that expiration, had ceased to be on foot. Accordingly, there is no proceeding or application satisfying the description in s 41(6A) to which an extension of time ordered by me could be ancillary. I conclude therefore that I lack power to extend time."

54 In my view, despite the respondent’s submission that Re Udowenko should not be followed, Lindgren J’s reasoning is convincing. Section 41(6A), read in context, is not intended to authorise an extension of time to comply with a bankruptcy notice independently of an application to set aside the bankruptcy notice or an application to set aside a judgment in respect of which the bankruptcy notice was issued.

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. In this case, the creditor’s motion was filed after the conclusion of the appellate process in this Court. On any view, at the time the motion was filed, there were no proceedings on foot to set aside the bankruptcy notice. Nor was it suggested to us that proceedings to set aside the judgment or order on which the bankruptcy notice was founded were on foot at that time. Accordingly, it cannot be said that the creditor’s application for an extension of time was in aid of the power to set aside the bankruptcy notice or of proceedings to set aside the judgment on which the bankruptcy notice was based. In these circumstances, the appeal must be allowed and the order made by the primary Judge extending time for compliance with the notice set aside.

61 Three further points should be made.

62 First, the only decision directly contrary to Re Udowenko is Halstead v Westpac Banking Corporation [1991] FCA 548; (1991) 32 FCR 394. For the reasons I have given, and also the reasons given by Hill and Marshall JJ, that case should not be followed.

63 Secondly, it is not necessary to decide whether a creditor can make an application under s 41(6A) of the Act to extend time for compliance with a bankruptcy notice. Even if the answer to that question is in the affirmative, the primary Judge in this case lacked power to make an order extending the time for compliance with the bankruptcy notice. Nevertheless, I note that there is one situation in which it is perhaps arguable that an application by the creditor is in aid of an application to set aside a bankruptcy notice. This is where the debtor succeeds in a challenge to the bankruptcy notice at trial and the creditor successfully appeals. An order by the Court exercising appellate jurisdiction extending time under s 41(6A) of the Act, on the application of the creditor, might be regarded as necessary to give effect to the orders made by the Court on the appeal. However, it is not necessary in this case to explore this question any further.

64 Thirdly, counsel for the debtor in the present case argued that limiting s 41(6A) of the Act to an application in aid of proceedings to set aside the bankruptcy notice, or of the judgment forming the basis for the notice, would expose the creditor to unfairness. Counsel specifically identified the case to which I have already referred, namely where the debtor succeeds on a challenge to the bankruptcy notice and the creditor successfully appeals. If the appeal takes more than six months, so it was argued, the creditor, through no fault of his or her own, would be precluded from relying on the creditor’s act of bankruptcy. The argument assumes that an act of bankruptcy would occur immediately after the trial Judge’s decision to set aside the bankruptcy notice since the order on appeal would presumably effectively expunge the order made by the trial Judge.

65 One answer to this contention is that a creditor, alert to the operation of s 44(1)(c) of the Act, could apply to expedite the appeal. Another is that there would seem to be no obstacle to the creditor, if there is a risk of the appeal process taking longer than six months, to presenting a creditor’s petition founded on the act of bankruptcy constituted by the debtor’s non-compliance with the bankruptcy notice. Obviously, the creditor’s petition could not result in a sequestration order unless the appeal by the creditor against the setting aside of the bankruptcy notice were successful. However, if the creditor’s appeal reversed or set aside the order setting aside the bankruptcy notice (see Federal Court of Australia Act 1976 (Cth), s 28(1)(a), (b), (c)), the general principle is that the order below is annulled ab initio, although action taken pursuant to the order or in reliance on it may be protected: K Mason and J W Carter, Restitution Law in Australia (1995), at [704]; Commissioner for Railways (NSW) v Cavanough [1935] HCA 45; (1935) 53 CLR 220; Wilde v Australian Trade Equipment Co Pty Ltd [1981] HCA 13; (1981) 145 CLR 590, at 602; D M Gordon, "Effect of Reversal of Judgment on Acts Done Between Pronouncement and Reversal" (1958) 74 LQR 517, 518-519. This suggests that the bankruptcy petition could be founded on the debtor’s act of bankruptcy which would be "reinstated" by the order made on the appeal. A third possible answer is referred to in [22] above.

66 I agree with the orders proposed by Hill & Marshall JJ.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.

Associate:

Dated: 31 March 2004

The appellant appeared in person.

Counsel for the Respondent:	Mr H Stowe
Solicitor for the Respondent:	Fishburn Watson O'Brien
Date of Hearing:	13 February 2004
Date of Judgment:	31 March 2004