Thomas Richard Wenkart v Gennaro Abignano & Anor [1998] FCA 162 (5 March 1998)

Last Updated: 9 March 1998

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - application to set aside bankruptcy notice - notice based on judgment of Supreme Court of New South Wales - judgment required formal undertaking to be given - undertaking not given - whether creditor in position to issue immediate execution of the judgment.

Supreme Court Act 1970 (NSW)

Bankruptcy Act 1966 (Cth)

Supreme Court Rules (NSW)

Beson v Dean (Branson J, 1 December 1997, unreported), considered.

Wilstshire-Smith v Mellor Olsson (1995) 57 FCR 572, followed.

Re Solomon; Ex parte Reid (1986) 10 FCR 423, cited.

Ex parte Blanchett; Re Keeling (1886) 17 QBD 303, cited.

Re Exell; Ex parte Martin (1995) 134 ALR 623, cited.

THOMAS RICHARD WENKART v

GENNARO ABIGNANO & ANOR

NG 7080 of 1998

BRANSON J

SYDNEY

5 MARCH 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7080 of 1998

BETWEEN:	THOMAS RICHARD WENKART Applicant
AND:	GENNARO ABIGNANO First Respondent GENALLCO PTY LIMITED Second Respondent
JUDGE(S):	BRANSON J
DATE OF ORDER:	5 MARCH 1998
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The bankruptcy notice be set aside.

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	NG 7080 of 1998

BETWEEN:	THOMAS RICHARD WENKART Applicant
AND:	GENNARO ABIGNANO First Respondent GENALLCO PTY LIMITED Second Respondent

JUDGE(S):	BRANSON J
DATE:	5 MARCH 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

This is an application to set aside a bankruptcy notice served on the applicant ("Dr Wenkart"), or alternatively, for an extension of time within which to comply with the notice.

THE BANKRUPTCY NOTICE

The bankruptcy notice was issued on 24 December 1997 and served on the applicant on 5 January 1998. The first two paragraphs of the bankruptcy notice read as follows:

"1. Gennaro Abignano and Genallco Pty Limited ("the creditor") of Unit 4, 3 Kelray Place, Asquith, NSW, 2077 claims you owe the creditor a debt of $1,338,344.82, as shown in the Schedule.

2. The creditor claims that the debt is due and payable by you. A copy of the judgment or order and the Deed of Assignment dated 10 December 1997 relied upon by the creditor are attached. At the time of applying for this Notice, execution of the judgment or order had not been stayed."

The schedule to the bankruptcy notice shows a judgment debt of $1,307,537.10 plus a claim for interest accrued since the date of judgment of $30,807.72. An interest calculation attached to the bankruptcy notice discloses that the claim for interest is a claim made pursuant to s 95(1) of the Supreme Court Act 1970 (NSW). Interest is claimed from 29 September 1997, described as the date when the judgment took effect.

The judgment attached to the bankruptcy notice ("the Judgment") is a judgment of the Commercial Division of the Supreme Court of New South Wales ("the Supreme Court") in Action No 50057/95. It is necessary to set the Judgment out in full.

"JUDGMENT that:

1. The Defendant pay the Plaintiff $1,307,537.10.

2. The Defendant pay the Plaintiff's costs of the proceedings.

This judgment takes effect on 29 September 1997.

IN RELATION TO THE FIRST CROSS CLAIM -

3. THE COURT DECLARES THAT GENNARO ABIGNANO and GENALLCO PTY LTD are jointly and severally liable to indemnify ABIGROUP LIMITED in respect of Abigroup Limited's liability to pay the Plaintiff the amount of $1,307,537.10.

4. Upon the undertaking to the Court by ABIGROUP LIMITED to pay to the Plaintiff the amount of $1,307,537.10 without deduction therefrom immediately upon payment of that amount to ABIGROUP LIMITED by GENNARO ABIGNANO and GENALLCO PTY LTD, THE COURT ORDERS THAT GENNARO ABIGNANO and GENALLCO PTY LTD pay to ABIGROUP LIMITED the amount of $1,307,537.10.

5. THE COURT FURTHER ORDERS that GENNARO ABIGNANO & GENALLCO PTY LTD pay ABIGROUP LIMITED'S costs of the First Cross Claim including the costs which ABIGROUP LIMITED has been ordered to pay to the Plaintiff.

IN RELATION TO THE SECOND CROSS CLAIM -

6. THE COURT DECLARES that ALAN PITMAN is liable to indemnify GENNARO ABIGNANO and GENALLCO PTY LIMITED in respect of GENNARO ABIGNANO'S liability to indemnify ABIGROUP LIMITED referred to in paragraph 3.

7. Upon the undertaking to the Court given by GENNARO ABIGNANO and GENALLCO PTY LIMITED to pay the amount of $1,307,537.10 to ABIGROUP LIMITED without deduction therefrom, immediately upon payment of that amount to GENNARO ABIGNANO and GENALLCO PTY LIMITED by ALAN PITMAN, THE COURT ORDERS that ALAN PITMAN pay GENNARO ABIGNANO and GENALLCO PTY LIMITED the amount of $1,307,537.10.

8. THE COURT FURTHER ORDERS that ALAN PITMAN pay GENNARO ABIGNANO and GENALLCO PTY LIMITED'S costs of the Second Cross Claim including the amount of costs for which GENNARO ABIGNANO and GENALLCO PTY LIMITED are liable under paragraph 5.

9. The Second Cross Claim be dismissed as against HEALTH 24 (PROPERTIES) PTY LTD and THOMAS RICHARD WENKART.

IN RELATION TO THE THIRD CROSS CLAIM -

10. THE COURT DECLARES that THOMAS RICHARD WENKART is liable to indemnify ALAN PITMAN in respect of his liability to indemnify GENNARO ABIGNANO under paragraph 6.

11. Upon the undertaking to the Court by ALAN PITMAN to pay to GENNARO ABIGNANO the amount of $1,307,537.10 without deduction therefrom, immediately upon payment of that amount by THOMAS RICHARD WENKART to ALAN PITMAN, and so long as he holds such sum or any part thereof to receive and hold the same on trust for GENNARO ABIGNANO, THE COURT ORDERS that THOMAS RICHARD WENKART pay ALAN PITMAN the amount of $1,307,537.10.

12. THE COURT FURTHER ORDERS that THOMAS RICHARD WENKART pay ALAN PITMAN'S costs of the Third Cross Claim including the amount of costs for which ALAN PITMAN is liable to pay to GENNARO ABIGNANO under paragraph 8.

Ordered: 29 September 1997

Entered: 30 September 1997 "

Also attached to the bankruptcy notice is a deed of assignment dated 10 December 1997 between Allan Pitman of the first part and Gennaro Abignano and Genallco Pty Ltd of the second part. For present purposes, the crucial provisions of the deed of assignment are clauses 1 and 2, which read as follows:

"1. RECITALS:

1.1 In Supreme Court Proceedings Commercial Division Number 50057 of 1995 ("the Proceedings") the Assignees have obtained judgment against Pitman in the amount of $1,307,537.10 plus interest and costs ("the Abignano Judgment").

1.2 In the Proceedings Pitman has obtained judgment against Thomas Richard Wenkart ("Wenkart") in the sum of $1,307,537.10 plus interest and costs ("The Pitman Judgment").

1.3 Pitman has agreed to assign the benefit of the Pitman Judgment to the Assignees by way of a partial distribution of his assets to a creditor in the form of the Assignees, in exchange for a release from the Assignees of the debt owing to them by Pitman.

2. ASSIGNMENT

2.1 Pitman hereby assigns to the Assignees absolutely all of Pitman's rights, title and interest in the Pitman Judgment and all interest accrued and to accrue thereon, and all rights and entitlements which Pitman has against Wenkart under the Pitman Judgment.

2.2 The Assignees accept the assignment of the Pitman Judgment, and in full satisfaction and discharge of the debt owing by Pitman to the Assignees under the Abignano Judgment, and hereby release Pitman from that debt."

BACKGROUND

The background to the proceedings in the Supreme Court is as follows. Sandtara Pty Ltd leased certain premises to Cenrin Pty Ltd. The obligations under that lease were guaranteed by Abigroup Ltd. Abigroup Ltd obtained an indemnity in respect of any liability which it might incur under the guarantee from the respondents to this application ("the respondents"). They in turn obtained an indemnity from Allan Pitman ("Mr Pitman"). Mr Pitman claimed in the Supreme Court proceedings that he had received an oral indemnity in respect of any prospective liability of his from Dr Wenkart. Cenrin Pty Ltd went into liquidation and the liquidator disclaimed the lease. Sandtara Pty Ltd sued Abigroup Ltd on its guarantee. In turn Abigroup Ltd sought indemnity from the respondents who sought indemnity from Mr Pitman. Mr Pitman sought indemnity from Dr Wenkart. Before the Supreme Court, none of the indemnities of Abigroup Ltd, the respondents nor Mr Pitman was in issue. Dr Wenkart unsuccessfully disputed the indemnity allegedly given by him to Mr Pitman.

Dr Wenkart has lodged an appeal against the Judgment challenging the finding that he had given an oral indemnity. The respondents have also lodged an appeal against the Judgment challenging the quantum of damages awarded. Dr Wenkart sought a stay of the orders made on 29 September 1997 concerning him, namely paragraphs 10, 11 and 12 of the Judgment. On 28 October 1997, an order was made in the Court of Appeal that the Judgment be stayed against Dr Wenkart on condition that Dr Wenkart provide a bank guarantee to the Registrar of the Supreme Court within fourteen days in the sum of $1,307,537.10. At the same time, it was ordered that Dr Wenkart's appeal be expedited. Such appeal is currently fixed for hearing on 24 March 1998. Dr Wenkart has not met the condition of the stay order made in his favour. There is no effective order for a stay of the Judgment so far as Dr Wenkart is concerned. There are presently no other operative stay orders affecting the Judgment.

On 24 December 1997, a Registrar of the Supreme Court issued garnishment notices in favour of the respondent founded on the Judgment. Such notices require payment of the sum of $1,307,537.10 plus interest thereon calculated from 29 September 1997. On 12 January 1998, a Registrar of the Supreme Court issued a writ for levy of property of Dr Wenkart in execution of the Judgment with interest thereon calculated from 29 September 1997.

On 13 February 1998, an application by Dr Wenkart to stay, amongst other things, the garnishment notices and the writ of execution referred to above, failed. The reasons for decision of Hunter J, the trial judge in Supreme Court Action No 50057/95, given on that day include reference to a matter which assumed importance before me. That matter involves the significance of the opening words of paragraph 11 of the Judgment in the circumstances that surrounded the making and entry of such order, and certain subsequent events.

Although paragraph 11 of the Judgment is expressed to be made "[u]pon the undertaking to the Court by ALAN PITMAN to pay to GENNARO ABIGNANO the amount of $1,307,537.10 without deduction", no formal undertaking by Mr Pitman to that effect had been given to the Supreme Court as at the date of the Judgment.

An undertaking by Mr Pitman in the terms of paragraph 11 of the Judgment was filed in the Supreme Court on 13 February 1998. The reasons for decision of Hunter J given on 13 February 1998 include the following passage:

"It is said that in the absence of the provision of the undertaking by Pitman, prior to the making of the order, that the order in paragraph 11 for Wenkart to pay Pitman the subject sum was of no effect. I do not agree. In the light of the application I have no doubt that I would be more comfortable with having laid to rest at first instance the rights and obligations of the parties by taking formal undertakings at the time. However, I think the manner in which the matter was approached by me and by the parties at the time envisaged the provision of formal undertakings either then or at an appropriate time before or on payment of the subject judgment sum.

I reject that part of the application so far as it is based upon the proposition that the order in paragraph 11 is, for some reason, defective by reason of the absence prior to today of an undertaking in terms of paragraph 11, by Mr Pitman.

I think it follows from that finding that there is no occasion to interfere with any of the actions taken by or on behalf or through Pitman to enforce the order for payment as set out in paragraph 11 of the judgment.

...

In my view questions of retrospectivity do not arise. I treat the order made in paragraph 11 as operative and capable of enforcement from the time the order was made and, further, that steps could be taken under that order, short of payment being made by Wenkart of the judgment sum, without the proffering of the undertaking to the Court before or upon payment of that judgment sum."

The above reasons were, of course, delivered ex tempore. His Honour has not had the opportunity to settle them. Without intending any disrespect, I am obliged to say that I do not find their intended tenor and effect easy to ascertain. Conflicting submissions in this regard have been put to me by senior counsel for the respective parties.

Mr Ellicott QC, appearing with Mr Muddle for the respondents, submitted, in effect, as follows:

(a) The reasons for decision of Hunter J of 13 February 1998 indicate that his Honour regarded the undertaking referred to in paragraph 11 of the Judgment as having effectively been given on 29 September 1997;

(b) Dr Wenkart's obligation to make payment to Mr Pitman pursuant to paragraph 11 of the Judgment came into immediate effect on 29 September 1997 notwithstanding the absence of any formal undertaking by Mr Pitman to the Supreme Court;

(c) Notwithstanding the express references in paragraph 11 of the Judgment to the sum of $1,307,537.10, such paragraph is to be understood as requiring Dr Wenkart to pay the sum of $1,307,537.10 plus interest thereon under s 95(1) of the Supreme Court Act 1970 (NSW) calculated from 29 September 1997.

Mr McClellan QC, counsel for Dr Wenkart, submitted that paragraph 11 of the Judgment did not give rise to any obligation on Dr Wenkart to make payment to Mr Pitman until Mr Pitman gave the undertaking to the Supreme Court referred to in paragraph 11 of the Judgment. Mr McClellan referred particularly to the conclusion of Hunter J in his reasons for decision of 13 February 1998 that "steps could be taken under that order [ie paragraph 11 of the Judgment], short of payment being made by Wenkart of the judgment sum, without the proffering of the undertaking to the Court before or upon payment of that Judgment sum." (emphasis added)

It seems to me that Hunter J, whilst regarding the giving of an undertaking by Mr Pitman in terms of paragraph 11 of the Judgment as a formality having regard to the attitude of the parties on 29 September 1997, nonetheless intended a formal undertaking by Mr Pitman to be given to the Supreme Court. So much is, I consider, made plain by the statement in his Honour's reasons for decision of 13 February 1998 that the manner in which the matter was approached on 29 September 1997 "envisaged the provision of formal undertakings either then or at an appropriate time before or on payment of the judgment sum".

It is not seriously in dispute that no actual undertaking was given by Mr Pitman to the Supreme Court earlier than 13 February 1998, although his willingness to give such an undertaking had apparently been made plain on 29 September 1997. I understand Hunter J, by his reasons for decision of 13 February 1997, to have indicated that he regarded paragraph 11 of the Judgment as operative from 29 September 1997, subject to the condition that payment of the sum referred to in such paragraph could not be required from Dr Wenkart unless Mr Pitman had earlier proffered his undertaking to the Supreme Court or so proffered it at the time of such payment. I acknowledge that such understanding does not fit comfortably with his Honour's conclusion to that there was "no occasion to interfere with any of the actions taken by or through Pitman to enforce the order for payment as set out in paragraph 11 of the judgment." However, I am not able to understand the passages set out above from his Honour's reasons for decision of 13 February 1998 in any other way.

On 23 February 1998, the Court of Appeal declined to stay any execution proceedings against Dr Wenkart.

CONSIDERATION

Section 41 of the Bankruptcy Act 1966 (Cth) ("the Act") so far as is here relevant, provides as follows:

"(1) An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that:

(a) is described in paragraph 40(1)(g); and

(b) is for an amount of at least $2,000.

(2) The notice must be in accordance with the form prescribed by the regulations.

(3) A bankruptcy notice shall not be issued in relation to a debtor:

(a) except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;

(b) if, at the time of the application for its issue, execution of the judgment or order to which it relates has been stayed; or

(c) [not here relevant]."

Section 40(3)(d) of the Act provides as follows:

"For the purposes of paragraph (1)(g):

...

(d) a person who is for the time being entitled to enforce a final judgment or final order for the payment of money shall be deemed to be a creditor who has obtained a final judgment or final order;".

The respondents rely on the deed of assignment dated 10 December 1997, plus the garnishment notices and the writ for levy of property issued by the Supreme Court, in contending that they were, as at the date of the bankruptcy notice, entitled to enforce paragraph 11 of the Judgment.

A number of arguments was put to me on behalf of Dr Wenkart challenging the effectiveness, in the circumstances which have happened, of the deed of assignment of 10 December 1997. I do not find it necessary to deal with such arguments. Nor do I find it necessary to give detailed consideration to the garnishment notices and the writ of levy of property issued by the Registrar of the Supreme Court. The import of such notices and writ has been argued before, and determined by, Hunter J. I do not understand the Court of Appeal on 23 February 1998 to have questioned Hunter J's approach to the garnishment notices and the writ of levy of property. It seems to me to be appropriate, in the circumstances of this case, for the ruling of Hunter J, as I understand it, as to the effect of the garnishment notices and the writ of levy of property issued by the Supreme Court to be accepted and acted upon this Court.

I have recently given consideration to the requirement of s 41(3)(b) of the Act that a bankruptcy notice is not to be issued if, at the time of the application for its issue, execution of the judgment relied upon for its issue, has been stayed (Beson v Dean (Branson J, 1 December 1997, unreported)). In that case, an assignee of the benefit of a judgment of the Supreme Court had not obtained the leave of that Court to enforce the judgment as required by Part 42 rule 2(1) of the Supreme Court Rules 1970 (NSW). I set aside the bankruptcy notice on the ground that it had been issued in disregard of the requirements of s 41(3)(b) of the Act that a bankruptcy notice shall not be issued in relation to a debtor "if, at the time of the application for its issue, execution of the judgment ... has been stayed".

The circumstances of this case are to be distinguished from those which arose in Beson v Dean. Here, the respondents have obtained the issue of the garnishment notices and the writ of execution of property by the Supreme Court. No problem arises of lack of compliance with Part 44 r 2(b) of the Supreme Court Rules. However, Hunter J of the Supreme Court, on an application to stay the notices and the writ, has given consideration to their effect. As I understand his Honour's reasons for decision of 13 February 1998, his Honour has held that the effect of the garnishment notices and the writ of execution of property falls short of requiring Dr Wenkart to pay the sum referred to in paragraph 11 of the Judgment without the proffering by Mr Pitman to the Supreme Court of the undertaking referred to in paragraph 11 of the Judgment. As at the date of the issue of the bankruptcy notice, no such undertaking had been proffered by Mr Pitman to the Supreme Court.

In Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572 at 584-585, the Full Court of this Court approved the following passage from the judgment of Beaumont J in Re Solomon; Ex parte Reid (1986) 10 FCR 423 at 425-426:

"It is well established that, for the purposes of s 41(3)(b), execution is deemed to be stayed where a judgment creditor is not `in a position to issue immediate execution upon it ...'." (citations omitted)

What is meant in the above passage by the words "in a position to issue immediate execution upon it" is, in my view, explained by reference to the following passage from the judgment of Bowen LJ in Ex parte Blanchett; Re Keeling (1886) 17 QBD 303 at 307:

"The right to compel a debtor to pay at the risk of committing an act of bankruptcy, by serving on him a bankruptcy notice, is one given only to a creditor who has prosecuted his claim to judgment, and if execution of the judgment has not been stayed - to a creditor between whom and the full fruition of his claim there stands only a process of the law uncompleted. It is only this kind of creditor who is now entitled to issue a bankruptcy notice."

See also the consideration of the meaning of the word "execution" in s 40(1)(g) and s 41(3) of the Act in Re Exell; Ex parte Martin (1995) 134 ALR 623 at 627-630.

In this case, although there is no operative stay order in respect of paragraph 11 of the Judgment, and the creditors have obtained the issue of garnishment notices and a writ of levy of property based upon the Judgment, Hunter J, who made the orders reflected in the Judgment, has determined, as I understand him, that paragraph 11 of the Judgment becomes effective, so as to require payment of the sum therein referred to, only upon Mr Pitman giving an undertaking to the Supreme Court in the terms set out in paragraph 11 of the Judgment. His Honour has held that such undertaking may be given "at an appropriate time before or on payment of the judgment sum". No such undertaking had been given by Mr Pitman as at the date of the issue of the bankruptcy notice. To use the words of Bowen LJ in Blanchett's Case, the respondents were not, at the date of the issue of the bankruptcy notice, creditors between whom and the full fruition of their claim there stood only a process of the law uncompleted.

The bankruptcy notice will be set aside.

In the circumstances I do not consider it appropriate to give consideration to the alternative arguments advanced on behalf of Dr Wenkart that the time for compliance with the bankruptcy notice should be extended pending the hearing and determination of certain proceedings in the Supreme Court. If another bankruptcy notice is served on Dr Wenkart before the determination of such proceedings, the question of extension of time for compliance with such notice should be considered having regard to the circumstances then prevailing.

I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate:

Dated:

Counsel for the Applicant:	P D McClellan QC
Solicitor for the Applicant:	Solomon Garland Partners
Counsel for the Respondent:	R J Ellicott QC, with W G Muddle
Solicitor for the Respondent:	Bruce & Stewart
Date of Hearing:	24, 25 February 1998
Date of Judgment:	5 March 1998