ANZ Banking Group Ltd v Menso

[2006] FMCA 1522

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ANZ BANKING GROUP LTD v MENSO [2006] FMCA 1522

BANKRUPTCY – Bankruptcy notice – validity – attachment of judgment or order relied on – whether non-attachment of judgment or order relied on is a formal defect or irregularity – creditors petition – solvency – creditors petition – other sufficient cause not to make a sequestration order.

Bankruptcy Act, ss.40(1)(g); 40(3)(b); 41(1)(a)(ii); 41(!)(b)(ii); 41(2); 52(2)(a); 52(2)(b); 306(1)
Bankruptcy Regulation, 4.02
Rules of the Supreme Court of Queensland, Order 91 r.116
Supreme Court Act 1991 (Q) Schedule 2
Uniform Civil Procedure Rules (Queensland), 661; 684; 685; 688; 691; 736(2); 736(5); 795; Chapter 17, Divs.5 and 6; Chapter 19

Adams v Lambert (2006)225 ALR 396; 80 ALJR 679
Attorney-General v Great Eastern Railway Co (1879) 11 Ch D 449
Australian Bankruptcy Law & Practice, Darvall and Fenton
Australian Securities Commission v Macleod (1994) 54 FCR 309
Bienstein v Bienstein (2003) 195 ALR 225
Biritz v National Australia Bank Ltd (2002) 189 ALR 707
Re Boyd; ex parte McDermott [1895] 1 QB 611
Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441
Evans v Duff [2003] FMCA 605
Evans v Duff [2004] FCA 1643
Re Faithfull (1885) 14 QBD 627;
Franks v Warringah Council [2003] FCA 1047; (2003) 131 FCR 287
Re Gibbs; ex parte Triscott (1995) 65 FCR 80; 133 ALR 718
Greenbushes Ltd v Casey [2002] FMCA 45
Hall v Nominal Defendant (1966) 117 CLR 423
Halsbury’s Laws of Australia Vol. 20 [325-9000], [325-9010], [325-9515]
International Alpaca Management Ltd v Ensor [1999] FCA 72
James v Federal Commissioner of Taxation (1955) 93 CLR 631
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Licul v Corney (1976) 180 CLR 213
Re Luckins; ex parte Columbia Pictures Industries (1996) 67 FCR 549
McGregor v Clancy & Triado Pty Ltd (1991) 100 ALR 431
McIntosh v Shashoua (1931) 46 CLR 494
Edith Moore (respondent) (1936) 8 ABC 283
Moran v Lydiard Financial Services Pty Ltd (2005) 3 ABC (NS) 698
Project Blue Sky Inc. v Australian Broadcasting Authority [1998] 194 CLR 355
Sandell v Porter (1966) 115 CLR 666
Re Scerri (1998) 82 FCR 146 at 149
Re Skinner’s and Smith’s Application (1982) 45 ALR 553
Stec v Orfanos [1999] FCAFC 457
Toll v Poinciana Cooperative Housing Society Ltd [2004] FMCA 992
Townsville City Council v Tait [2004] FMCA 260
Wilmot v Buckley (1984) 2 FCR 540
Worchild v The Drink Nightclub (Qld) Pty Ltd (2005) 224 ALR 339

Applicant: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

Respondent: MARIO JOHN MENSO

File number: BRG399 of 2006

Judgment of: Wilson FM

Hearing date: 22 September 2006

Date of last submission: 22 September 2006

Delivered at: Brisbane

Delivered on: 13 October 2006

REPRESENTATION

Counsel for the Applicant: Mr P. Hay

Solicitors for the Applicant: Gadens Lawyers

Counsel for the Respondent: Ms A. Wheatley

Solicitors for the Respondent: Quinn and Scattini Lawyers

ORDERS

1. The application for a sequestration order is dismissed.

2. The respondent pay the applicant’s costs thrown away as a result of the amendment of the Notice of Grounds of Opposition, to be taxed in accordance with the Federal Court Rules on the solicitor and client basis.

3. Otherwise, the applicant pay the respondent’s costs of and incidental to the application to be taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG399 of 2006

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

Applicant

And

MARIO JOHN MENSO

Respondent

REASONS FOR JUDGMENT

1. The applicant creditor seeks a sequestration order against the estate of the respondent debtor.  By amended notice filed 9 August 2006, the debtor opposes the making of a sequestration order on five grounds:

   “1. On Wednesday, 2 August 2006, the respondent has paid the entire judgment sum of &10,367.90 referred to in the bankruptcy notice to the Applicant. Accordingly, since the respondent does not owe any further money to the applicant other than costs in respect of the Applicant’s Petition in this proceeding, the court should not make a sequestration order against the respondent pursuant to Section 43(1) of the Bankruptcy Act 1966 (Cth) (“Act”).

   2.     Further and/or in the alternative, the court should not make a sequestration order against the Respondent, because the respondent is not insolvent.

   3.    Further and/or in the alternative , the court should not make a sequestration order against the respondent, because the Respondent has a counter-claim against the Applicant in the sum of $286,686.72 in the District Court of Queensland proceedings number BD264/05 (“the District Court proceeding”), which exceeds the amount of the judgment debt of $10,367.90.

   4.   Further, once the court makes a sequestration order against the Respondent, the Respondent’s entitlement to further prosecute his counterclaim against the Applicant in the District Court proceedings will be stayed pursuant to Section 60(2) of the Act.  As such, the Respondent’s entitlement to pursue his counterclaim against the Applicant should not be stifled.

   5.   Further and/or in the alternative, the Bankruptcy Notice contains a fatal defect as the Order of the Court imposing liability is not referred to and/or attached to the Bankruptcy Notice, merely the assessment of the costs; this renders the Bankruptcy Notice a nullity and means that the act of bankruptcy relied on by the Applicant is not valid t support the Creditor’s Petition.”

Validity of the bankruptcy notice

1. It is convenient to first consider the validity of the bankruptcy notice.  It was issued on 12 May 2006.  It is claimed that the debtor owes the creditor $10,367.90 as a consequence of three costs orders made in the District Court of Queensland.  The bankruptcy notice is in the prescribed form.  By paragraph 2 it states, in part:

   “A copy of the judgments or orders relied upon by the creditor is attached.”

2. Annexed to the bankruptcy notice are three documents, each of which is described as “Registrar’s Order for Costs Assessed”. Each was made by Senior Deputy Registrar Houghton on 2 May 2006.  In each, the “Initiating Document” is described as a “Costs statement filed 7 February 2006”.  Each of the documents is in the same format.  Each provides:

   “THE ORDER OF THE COURT IS THAT:

   1.  The plaintiff’s costs against the defendant to be paid pursuant to an order dated [dated specified] are assessed at [amount specified].”

3. Each document specifies a different order of the District Court by which costs were ordered to be paid by the debtor, and the amount of those costs as assessed by Senior Deputy Registrar Houghton. The total of the three assessments is the total amount claimed in the bankruptcy notice.

4. The debtor contends that the bankruptcy notice is a nullity because the original orders by which costs were ordered to be paid were not attached to the bankruptcy notice.  It is common ground that such orders were not attached.  The applicant says that there was no need to do so, it being sufficient to attach copies of the orders of the Senior Deputy Registrar.

5. Section 40(1)(g) Bankruptcy Act, relied on by the creditor in this case, requires that there be a ‘final judgment or final order” in favour of a creditor against a debtor.  Section 40(3) of the Act relevantly provides:

   “(3)  For the purposes of paragraph (1)(g):

   …

   a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained…”.

6. By s.47(2) of the Act a bankruptcy notice must be in accordance with the form prescribed by the regulations.  Regulation 4.02(1) provides that for the purposes of s.41(2), the form of bankruptcy notice set out in Form 1 is prescribed. In the present case, there is no submission that the correct form was not used, and the only omission relied on relates to the judgments or orders which should have been attached to the bankruptcy notice.

7. The principal issue for determination is whether the assessments of costs attached to the bankruptcy notice in this case were each a final judgment or order, wither within the ordinary meaning of that phrase as used in the Act, or within the extended meaning given to it by s.40(3)(b) of the Act, by which the debtor was obliged to pay the creditor a sum of money not less than the prescribed amount. As Branson J observed in Franks v Warringah Council [2003] FCA 1047; (2003) 131 FCR 287 at [17] consideration of authority discloses the importance, so far as the law of bankruptcy is concerned, of the particular regime in force in the relevant jurisdiction for the assessment and recovery of legal costs. This is because the status of an order of an officer of a court authorized to assess the amount payable under an order of a court which requires the payment of unquantified legal costs is dependent on the terms of the statutory instrument governing the relevant order or certificate.

8. The determination of the present application is further complicated by the fact that, in Queensland, there are decisions of this court which have reached opposite results as to the validity of a bankruptcy notice to which only the order of a Registrar quantifying costs is attached.

9. Technically, a judgment is a decision which concludes an action, whereas an order is any other judicial determination; 20 Halsbury’s Laws of Australia paragraph [325-9000] citing Australian Securities Commission v Macleod (1994) 54 FCR 309 at 311-12. The word ‘order’ is used to describe all forms of judicial decision. A judgment or order is final, as opposed to interlocutory, if it finally disposes of the rights of the parties: 20 Halsbury’s Laws of Australia paragraph [325-9010] citing Licul v Corney (1976) 180 CLR 213 at 225; Hall v Nominal Defendant (1966) 117 CLR 423 and Bienstein v Bienstein (2003) 195 ALR 225. The question as to whether an order is final is determined by reference to the nature of the order rather than the nature of the application as a result of which the order was pronounced: Attorney-General v Great Eastern Railway Co (1879) 11 Ch D 449. An interlocutory application may result in a final order.

10. For this reason, a judgment obtained in an action to recover the amount of costs due under an interlocutory order (which order could not itself found a notice) can be a final order sufficient to found a bankruptcy notice: Re Boyd; ex parte McDermott [1895] 1 QB 611; ex parte Moore; in re Faithfull (1885) 14 QBD 627 at 633; Re McAlister; ex parte McAlister; Edith Moore (respondent) (1936) 8 ABC 283; Re Skinner’s and Smith’s Application (1982) 45 ALR 553 at 555.

11. Even if it is not a final order as commonly understood, an order for costs may be deemed to be a final judgment by s.40(3)(b) Bankruptcy Act if it is enforceable in the same manner as a final judgment.  Therefore, it is to the terms of the relevant legislation that attention must be focused, to see which is the order that is enforceable.

12. There are, of course, two separate questions.  The first is whether an order for costs can be a final order, which it clearly can.  Therefore, there is no question that if each of the orders of the District Court whereby costs were ordered to be paid by the respondent were attached to the bankruptcy notice, together with the assessments of those costs (for without them the respondent would not know the amount required to be paid) the bankruptcy notice would be unimpeachable. The second question, which arises on this application, is the form of the order which must be attached to the bankruptcy notice. This arises because of the two stage process often involved: first the making of the order for costs, and, secondly, the qualification of those costs.  Many of the decided cases deal with the first question rather than the second.

13. It should be borne firmly in mind that it is the court which makes an order for costs.  A Registrar who assesses the quantum of those costs is not making any order as to which party is entitled to recover them.

14. In Queensland, the function of the Registrar is to assess costs, if a court orders a party to pay another party’s costs: Uniform Civil Procedure Rules 684 (“UCPR”). By UCPR 685, if by an order a party is entitled to costs, those costs are to be “assessed costs”. By UCPR 691 a party cannot recover any costs from another party other than under the rules or an order of the court.  This makes it clear, in my view, that absent some entitlement to costs under a particular rule, it is to the order of the court imposing the costs order that one must look to source the obligation to make payment.

15. UCPR 688 provides:

    “If costs are assessed other than under an order for costs, any order of the registrar for payment of an amount found to be payable may be enforced in the same way as an order for the payment of money.”

16. This rule is important.  Although it is inapplicable in the present case because here three orders for costs were made, its place in the scheme of the rules is important to understand.  The rules contemplate at least two scenarios where costs have to be paid: first, by reason of an order of the court; and secondly, where by operation of a legislative provision one party must pay the order’s costs (for example, on a discontinuance of action) or the acceptance of an offer to settle.  The wording of the rule raises the question of whether only costs assessed other than under an order for costs can be directly enforced. This leaves unresolved the characterization of an assessment of costs under an order for costs, and how that is to be enforced.  Put another way, does UCPR 688 simply make applicable to those cases where there is no order for costs a regime which otherwise applies, or are those cases where there is an order for costs to be treated differently because of the fact that such an order has been made?

17. In my opinion, the answer to that question is found in Chapter 19 of the UCPR. In Schedule 2 to the Supreme Court Act 1991 (Q.) “money order” is defined to mean:

    “an order of the court, or part of an order of the court, for the payment of an amount, including an amount for damages, whether or not the amount is or includes an amount for interest or costs.”

18. Thus, where a court orders one party to pay another its costs, it is the original order, rather than the assessment of those costs, which constitutes the “money order”. This is because it is the original order which obliges one party to pay money to another.  The order of the Registrar assessing the costs does not contain such an obligation.  It merely quantifies the costs.  This is made clear by the form of order made by the Senior Deputy Registrar in these cases, where the amount assessed was “to be paid pursuant to an order dated” specifying the original order of the court.  Where, however, there is no such adjudication it is necessary for there to be a rule such as UCPR 688 to create the obligation in the form of an order of the court.

19. Therefore, in my view, the proper construction of the rules is that where there is an order for costs made by a court, it is that order (once quantified) which is enforced as the “money order” under Chapter 19 UCPR.  Where there is no such order, one needs to be created, so that it can be enforced, and that is the purpose of UCPR 688. There is no need for the UCPR to refer to the assessment of costs under an order because such an order is already a “money order” capable of enforcement, once the costs have been quantified.

20. This characterization means that it is the original order for costs which is enforceable and not the assessment of those costs by the Registrar.  The balance of the statutory scheme supports that construction.

21. UCPR 691 provides that a party cannot recover any costs of the proceeding from another party other than under the rules or an order of the court.  The procedure for the assessment of costs is set out in Chapter 17, Divisions 5 and 6 of the UCPR. A procedure is provided for the objection to items of cost claimed, and for the Registrar to make determinations in that regard.  Division 6 concludes with Rule 736 which relevantly provides:

    “(1)The registrar must state in the form of an order the amount at which a costs statement has been assessed.

    (2)… the registrar must not, without the consent of the parties to the assessment, sign the order within 14 days after the date of the assessment.

    (3) If a notice of objection is given under rule 739, the registrar must not sign the order until after the reconsideration procedure ends.

    (4)However, if no notice of objection is given under rule 739. the registrar must sign and file the order.

    (5)    The order, once signed and filed, is final.”

22. The 14 day period referred to in UCPR 736(2) coincides with the time allowed for objection and any request for reconsideration under UCPR 739(2). In my opinion, this statutory scheme leads to the result that the assessment of costs when first made by the Registrar is not a final order, because it does not finally determine the rights of the parties. 

    
    

    A right of objection and reconsideration is provided for.  However, once that right has been exercised and dealt with, or if it is not exercised, than the order of the Registrar is a final order.  That is made plain by the language of UCPR 736(5).

23. The order referred to in UCPR 736 replaces the allocatur or certificate provided for in the previous rule: Rules of the Supreme Court of Queensland Order 91 r.116.  Counsel for the creditor pointed to the language of UCPR 736(5) and submitted that it conclusively decided the issue in favour of the creditor. However, merely providing that the order of the Registrar was a final order (in the sense that the Registrar was then functus officio) and concluded the issue as between the parties of the quantification of the costs, that does not mean that that order was, of itself, enforceable against the other party.  What UCPR 736(5) does, in my opinion, is to provide that if either party wishes to challenge the assessment of costs outside the 14 day period provided for, this can only be done by first having the court set aside the order.

24. Further, in order to enforce an order for costs, the order of the Registrar must be filed: UCPR 661(3) and (4). That has occurred in the present case.

25. Although the order of the Registrar assessing costs is a final order, the next question is whether the order of the Registrar, whereby the amount of costs is assessed and quantified, is a final order sufficient to comply with s.40(1)(g) when read with s.41(1)(a)(ii) or 41(1)(b)(ii) Bankruptcy Act. That is, simply on the order of the Registrar, does the creditor have a final order “against a debtor” which in my view means a judgment which can be enforced against the debtor for at least the statutory amount. Although the language of the sections just referred to does not say so in express terms, it is obvious that what is required is a judgment or order requiring the debtor to pay the creditor the requisite amount.  There is no doubt that the order of the Registrar is a final order, but does it require the debtor to pay the money to the creditor? Or is that obligation imposed by the original order, by which the costs were ordered to be paid? The answer to this question appears in the form of the order of the Registrar which makes it clear that the obligation to pay is pursuant to the original order. All the order of the Registrar does is to quantify those costs.

26. I therefore conclude that, on a proper construction of the UCPR, the final order of the Registrar is not enforceable of itself. As such, the orders of the Senior Deputy Registrar in this case were not final orders within the common meaning of that phrase in s.40(1)(g) Bankruptcy Act.

27. It next has to be considered whether the orders are caught by s.40(3)(b) Bankruptcy Act. In my opinion, they are not, because the orders of the Registrar, are not “money orders”. They are not enforceable in their own right. Therefore, they cannot fall within the scope of s.40(3)(b).

1. It is then necessary to see whether this construction of the statutory scheme, and my characterization of the final orders made by the Senior Deputy Registrar in this case, is supported or contradicted by authority.

2. A useful starting point is the judgment of Drummond J in Re Gibbs; ex parte Triscott (1995) 65 FCR 80; 133 ALR 718. That case was factually different from the present because there both the original order of the court and the taxing officer’s certificate were attached to the bankruptcy notice. It was also decided before the introduction of the UCPR. His Honour usefully traced the history of the legislation currently found in s.40(1)(g) Bankruptcy Act.  His Honour said at 721:

   “If a notice is to satisfy the requirements of s. 41(1) and (2) as to form, it must correctly identify the source of the applicant’s liability to make the payment demanded by the notice. A bankruptcy notice will be bad if it identifies the certificate of taxation, rather than the judgment under which the costs are authorized to be taxed, as the final judgment: Cartwright v Baker [1975] 2 All ER 970 and Wilmot v Buckley (1984) 2 FCR 540 at 543. Before the judgment or order of the court awarding costs can constitute a final judgment or order for the purposes of s. 40, it must be one which the debtor can satisfy by payment, since it is only such a judgment or order in respect of which a notice of the kind referred to in the subsection can be issued. Until the amount of the costs has been fixed, it is not possible for the debtor to tender an amount which will satisfy his liability to costs under the order. The source of the debtor’s liability to make the payment demanded in respect of a judgment or order for costs is the judgment or the order; but because nothing is payable in respect of that liability until the costs have been quantified by taxation, the notice must refer to both the judgment or order and to the taxing officer’s determination, if it is to be valid in form.”

3. As counsel for the creditor submitted in this case, the statutory regime was different at the time Drummond J decided Gibbs. As Drummond J observed, at 722, before a party who had obtained a judgment or order of the Supreme Court of Queensland for costs in its favour was entitled to execute on the order for costs it must both obtain the taxing officer’s certificate of taxation and file it in the court. That is still the case as the decision of the Registrar after an assessment of costs takes effect as an order, but it must still be filed before the order for costs can be enforced. However, as I have observed, what is executed is the original order for payment (ie the “money order”) and not the order of the Registrar. As Drummond J makes clear the bankruptcy notice must identify the source of the debtor’s liability to make payment. In the present case, by only attaching the orders of assessment, which themselves refer to the original orders made, the creditor has failed to comply with that basic requirement.

4. As to why this is the preferable construction, a simple example will suffice. Under UCPR 685(2)(a) a court may order a party to pay a specified percentage of assessed costs. The costs would fall to be assessed by the Registrar, as discussed, but one would need to make reference to the original order to know what percentage of the assessed costs were payable. A person confronted only with the assessment of costs would not know if that was the total amount of costs, which had to be halved, or the half share which he or she was liable to pay.

5. Historically, the function of the taxing officer was to determine the amount payable under the earlier order of the court awarding costs. This was done by the issue of a certificate of taxation or an allocatur. The certificate constituted the authority to the relevant party to enforce, or commence proceedings to enforce, the amount of costs allowed by the taxing officer. In 20 Halsbury’s Laws of Australia, at para [325-9515] it is observed that in the Northern Territory, Queensland and Victoria the rules of court now refer to an order by the taxing officer or costs assessor in place of a certificate of taxation. However, the fact that the assessment by a Registrar is in the form of an order does not conclude the question of whether that order is, of itself, enforceable. This was the reasoning which led Drummond J to explain, at pp 724-5, why a certificate of taxation signed by a taxing officer of the Family Court is not a final order: McGregor v Clancy & Triado Pty Ltd (1991) 100 ALR 431.

6. Therefore, Gibbs is not binding authority for the proposition that under the statutory regime now in force in Queensland, it is necessary to annex both the original order awarding costs and the order of the Registrar assessing those costs, although it favours that conclusion.

7. Stec v Orfanos [1999] FCAFC 457 was discussed by Branson J in Frank v Warringah Council at [18] and [19]. As Her Honour there observed whilst the order of the court may be the ultimate source of the obligation on the debtor to pay the costs, that obligation was reflected in the allocatur, and it was the allocatur itself which determined finally the debt due to the creditor. There the allocatur itself was enforceable as a judgment of the Supreme Court of South Australia. In that respect, the legislation was materially different to the UCPR. However, the decision highlights that the issue to be resolved is whether the order of the Registrar assessing costs is, of itself, enforceable, as an order of the court.

8. Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441 was factually similar to the present case. There three costs orders were made against the debtor. The costs were taxed. A bankruptcy notice was issued and attached a copy of the order of the taxing master. Copies of the original costs orders were not attached to the notice. Finkelstein J held that the failure to attach copies of the costs orders constituted a failure to meet an essential requirement of the Bankruptcy Act and the notice was therefore a nullity. At [7] his Honour said:

   “It is clear enough that an allocatur be a taxing master is not a judgment or order for the payment of money: Re Crump; ex parte Crump (1891) 64 LT 799. The obligation to pay costs is founded in the judgment or order of the court requiring a party to pay costs to be taxed. Under the Rules of the Supreme Court of Victoria it is provided that where a taxing master assesses costs the result shall be stated in the form of an order: see O 63.56(1). However, by O 63 r 11 such an order can only be enforced as a judgment for the payment of money where the costs are taxed otherwise than under a judgment or order for costs. So, where the rules make provision for the payment of costs in the absence of an order, for example when an action is discontinued, the order of the taxing master will be an order that is capable of being enforced and one that may be described as a final order; see Pepper v McNiece (1941) 64 CLR 642 at 657. Where, as here, a taxing master undertakes a taxation in consequence of an order made by a judge of the court, the taxing master’s order is not capable of enforcement. It is not, therefore, a final judgment or order of the Supreme Court and cannot be relied upon to found a petition. Accordingly, the bankruptcy notice is defective in that there was not attached to it copies of the final orders which were the foundation fore the debt described in the notice.”

9. I agree with his Honour’s analysis. I note that Gray J also followed his Honour’s reasoning in Moran v Lydiard Financial Services Pty Ltd (2005) 3 ABC (NS) 698. The orders of the Senior Deputy Registrar in the present case were not orders for the payment of money. They were assessments of the proper costs recoverable under an earlier order of the court. His Honour’s analysis of the relevant rules in Victoria accords with my analysis of the relevant Queensland rules.

10. In Franks Branson J also considered Commonwealth Bank v Horvath (Junior) and observed that the Rules of the Supreme Court of Victoria considered by Finkelstein J contained no equivalent provision to that considered in Stec v Orfanos. The latter is therefore of no assistance.

11. Wilmot v Buckley (1984) 2 FCR 540 is also of no assistance. There it was held that a certificate of taxation is not, without the entry of a judgment in the action, a final judgment or final order within the meaning of s.40(1)(g) Bankruptcy Act. The decision turned on the relevant New South Wales rule which required a party to enter judgment for the taxed costs before the order could be enforced.

12. Greenbushes Ltd v Casey [2002] FMCA 45 was a decision of Bryant CFM (as her Honour then was) dealing with the relevant legislation of the Northern Territory. It seems inconsistent with the decision of Finkelstein in Horvath. In the Northern Territory, the relevant rules were in a similar form to those in Queensland. Rule 63.12 of the Northern Territory rules was in similar form to UCPR 688. Her Honour thought that this provision was strictly redundant in view of Order 66 of the Northern Territory rules which is to the same effect as UCPR 795. At [49] her Honour said:

    “This provision is strictly redundant having regard to O 66 and the definition of “judgment”. It cannot mean, in the absence of express words, that where there is a judgment or order for costs that an order of the Taxing Master may not be enforced in the same manner as a judgment for money.”

13. In my opinion, the reasoning of her Honour is flawed. Her Honour overlooks the fact that an order for costs made by a court can be enforced, once the costs are quantified. It is necessary to have a provision such as Rule 63.12 (NT) to cater for the situation where there is no order, but a legislative obligation to pay costs. It is then necessary for there to be a court document, in the form of an order, which can be enforced. In Queensland the rules speak in terms of a money order. Thus, the obligation to pay costs must be transformed into a money order. The means of doing so is by a rule such as UCPR 688 in Queensland, or Rule 63.12 (NT). Therefore, the provision is not “redundant” as her Honour thought. In the case of an order of the court, whereby one party is ordered to pay the other’s costs, it is that order which is enforced, not the assessment of the Registrar. I respectfully prefer the reasoning of Finkelstein J in Horvath to that of Bryant CFM in Greenbushes.

14. In Biritz v National Australia Bank Ltd (2002) 189 ALR 707 at [12] the Full Federal Court (Sackville, Finkelstein and Allsop JJ) said:

    “Speaking generally, in the absence of specific provision in legislation or rules, a certificate or allocatur by a taxing master is not a judgment or order for the payment of money: Re Crump; ex parte Crump (1891) 64 LT 799. The obligation to pay costs is to be found in the judgment where the costs are ordered. So the certificate may not be “in the end only one final order”. As it turns out, however, it is not necessary to come to any final view on this issue, for any difficulties that might exist in the general case do no arise in relation to costs orders made in the Supreme Court of Victoria.

15. At paragraph [13] their Honours said:

    “In the Supreme Court a party may become liable to pay costs because an order for their payment is made or because the rules make provision to that effect. An example of a case where the rules provide for the payment of costs is on the acceptance of an offer of compromise. In such a case the costs may be taxed under O 63.10 and according to O 63.11(1) the amount can be recovered as if on a judgment. However, whenever costs are taxed the taxing master no longer issues a certificate as in the past. Now the result of the taxation must be stated in the form of an order (O 63.56(1)) which is to be authenticated and filed in the ordinary way (O 63.56(4)). Moreover the taxing master may, after the conclusion of the taxation of any bill, make a final order with respect to the amount at which he or she allows the costs (O 63.56(2)). Accordingly, where there has been a taxation of a composite bill covering a number of costs orders that results in a single sum for costs which is recorded in an order, there is in the end only one final order.

16. The demonstrates that their Honours were concerned with dealing with the argument that where there was a single assessment of several costs orders, the result was one final order issued by the Registrar quantifying the costs to be paid. This addressed the argument raised by the debtor in that case that the bankruptcy notice could not be based on two or more judgment debts. Their Honours did not address the question pivotal to the present application, which is if the several costs orders were to be enforced, would it be necessary to enforce the orders imposing the liability, or the order making the assessment. In the first passage quoted, their Honours were of the view that except where the rules expressly make the order of the Registrar enforceable as a judgment, that order is not a money order. There is no rule in the UCPR (other than UCPR 688, which is inapplicable in this case) which makes the order of the Registrar enforceable as a money order. I do not consider that the decision in Biritz is inconsistent with that of Horvath.

17. In Worchild v The Drink Nightclub (Qld) Pty Ltd (2005) 224 ALR 339 the Full Federal Court held that an order of the Deputy District Registrar of the Federal Court was a final order capable of founding a bankruptcy notice. Order 62 r.45(3) Federal Court Rules provides that where costs remain unpaid 14 days after taxation, the registrar shall, at the request of the party in whose favour the costs are awarded, draw up, sign and seal an order in their favour. The form of order was:

    “The court orders that the applicant pay the sum of $24,000 to the respondents.”

18. It can immediately be seen that, in those circumstances, due to the wording of the legislation, the obligation to pay derives from the order of the Registrar, which operated as an order in its own right. Their Honours considered that the sufficiency of attaching only the order of the Registrar depended on whether the order is one for the payment of money. Unlike a certificate of taxation, an order under O62 r.45(3) directs the payment of money.  Their Honours said at [10] that an important element in determining whether an order is final or not is whether it is capable of enforcement and execution. The Court applied the decision of von Doussa J in Re Draper; ex parte Australian Society of Accountants, in which his Honour said that even if there were any doubt about that matter it is removed by the provisions of s.40(3)(b). Re Luckins; ex parte Columbia Pictures Industries (1996) 67 FCR 549 at 559.

19. In my view, the scheme of the UPCR is quite different to that of the Federal Court Rules.

20. I then turn to the Queensland cases. In Evans v Duff [2003] FMCA 605 Rimmer FM expressed the view, at [17,] that the order of the Registrar quantifying costs may be relied on as a final order for the purpose of s.40(1)(g) of the Act. Without any analysis of the rationale for the two rules, her Honour accepted that the effect of UCPR 736 and 688 was that an assessment of costs by the Registrar, consequent upon an order of the court, “may be enforced in the same way as an order for payment of money” (Reasons [18]). The rules do not say that. UCPR 688 applies, as I have said, to those cases where there is no order of the court. There is no rule which says that where there is such an order, assessment and order of the Registrar may be enforced as a money order (emphasis added). The critical question is whether the order can be enforced, as opposed to whether it is final, a distinction not identified by her Honour. In Evans v Duff [2004] FCA 1643, on an appeal from a sequestration order subsequently made against the same debtor, Spender J said at [34]:

    “I am quite satisfied that the order of Acting Senior Registrar Mitchell of 24 December 2003 is a final order of the Supreme Court, and is capable of founding a bankruptcy notice, but the fact is that the petition is not supported by the act of bankruptcy alleged in the petition.”

21. The form of order in that case is set out at paragraph [6] of his Honour’s reasons. It does not, by its terms, do anything other than assess the costs ordered to be paid by Mackenzie J. after reciting the history of the matter, and the application before Rimmer FM, to which I have already referred, his Honour made the statement quoted. The first part of his Honour’s statement is unexceptional, and accords with UCPR 736(5). It is the second part of the statement that I disagree with. It does not form part of the ratio of his Honour’s decision, and does not seem, from my reading of the reasons for judgment, to have been the subject of argument. It was a statement made per incuriam. I respectfully disagree with it.

22. In Townsville City Council v Tait [2004] FMCA 260 Coker FM dealt with an argument that a costs order attached to the bankruptcy notice was not the relevant final judgment or order. The competing arguments were set out by his Honour at paragraph [27] of the reasons for judgment. His Honour was strongly influenced by the language of UCPR 736(5), but, despite formulating the issue at paragraph [31] of the reasons, did not differentiate between whether an order assessing costs was a final order, and whether it was a “money order”. In my view this is a fundamental flaw in his Honour’s reasoning. His Honour concentrated on whether the order assessing the costs was a final order. Because of UCPR 736(5) it plainly was. His Honour so found at [39] – [43]. However, his Honour has then apparently assumed that because it is a final order, the order of the Registrar assessing costs could be enforced as a money order of itself. His Honour has not explained how this necessarily follows. As I have explained, the language of the UCPR is to the contrary. I would therefore respectfully disagree with his Honour’s decision.

23. The final Queensland decision to which reference should be made is that of Baumann FM in Toll v Poinciana Cooperative Housing Society Ltd [2004] FMCA 992. His Honour was there confronted with a factual situation comparable to the present case. Only the order of the Registrar assessing costs previously ordered by the court was attached to the bankruptcy notice. At paragraph [16] his Honour said:

    “The order attached to the Bankruptcy Notice was an assessment of costs made by a Registrar pursuant to the power conferred by Rule 684 of the Uniform Civil Procedure Rules 1999 (Qld) (“the UCPR”). The order of the Registrar was not an order under r. 688 of the UCPR, and it seems to me that as a result the assessment of itself could not “be enforced in the same way as an order for the payment of money”.

24. His Honour referred to the judgment of Branson J in Franks and to that of Finkelstein J in Horvath. His Honour concluded that it was insufficient merely to attach the order of the Registrar, and not to attach the original order of the court awarding costs (Reasons paragraph [20]). His Honour found that both orders should have been attached to the bankruptcy notice (Reasons paragraph [24]). Although the reasoning of his Honour is brief, I respectfully agree with the result of the decision in Toll.

25. The applicant creditor submits that ground 5 of the respondent’s Notice Stating Grounds of Opposition, referred to at the commencement of these reasons, is demonstrably wrong, because the orders of the District Court are referred to in the orders of Senior Deputy Registrar Houghton, and that is sufficient. I reject the submission. The ground of opposition also asserts that the order imposing the liability to pay costs was not “attached” to the bankruptcy notice. What must be attached to the bankruptcy notice is the judgment or order relied on. That must mean the judgment or order imposing the liability to pay the debt upon which the bankruptcy notice is founded. It is not sufficient compliance, in my opinion, for the document which is attached to the bankruptcy notice to simply refer to the order imposing the liability to pay the amount subsequently assessed for costs. A copy of the actual order should be attached. I have reached the conclusion that the orders which should have been attached were the orders of the District Court.

1. I should add that my conclusions are consistent with the views of the learned authors of Australian Bankruptcy Law & Practice, Darvall and Fenton, at paragraph [40.1.235].

2. In those circumstances, and as there is no authority binding on me to the contrary, to which I was referred by counsel, I conclude that the failure to attach copies of the three orders of the District Court, as well as the three orders which were attached (cf Thorpe v Bristile Ltd (1997) 80 FCR 331 at 348), renders the bankruptcy prima facie invalid.

The application of s.306 Bankruptcy Act

1. Although neither counsel initially referred to this section, during argument I raised the issue of whether, in light of the relatively recent decision of the High Court in Adams v Lambert (2006)225 ALR 396; s.306 might assist the applicant if I were to find that a failure to attach copies of the original judgments was a failure to strictly comply with the regime laid down by the Act in relation to the form of the bankruptcy notice.

2. Section 306(1) of the Act provides:

   “Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”

3. The critical question in the present case is whether the failure to attaché the correct orders to the bankruptcy notice can be described as a formal defect or an irregularity. The second issue raised by the subsection must be resolved in the applicant’s failure. There is no injustice, let alone substantial injustice, caused to the respondent by the form and content of the bankruptcy notice in the present case. The respondent well knows from the content of the bankruptcy notice how much he is required to pay, and the source of the obligation to pay. As was pointed out by counsel for the applicant, the original orders of the District Court are in fact referred to in the attached orders of the Senior Deputy Registrar.

4. In Horvath, supra, Finkelstein J dealt with the argument that the failure to attach copies of the three costs orders could be cured under s. 306. His Honour’s view, expressed at paragraph [9] of the reasons, was that a bankruptcy notice, being a document which sets in motion the whole process leading to bankruptcy must be very strictly and narrowly construed. At paragraph [12] his Honour observed that a bankruptcy notice will also be a nullity if it fails to meet an essential requirement of the Bankruptcy Act, citing Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71at 79-80, which in turn relied on James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644. His Honour therefore formulated the question as being whether the failure to attach a copy of the three costs orders was a failure to meet an essential requirement of the Act, and held that it was (at [22]). That is also the view of the learned authors of Australian Bankruptcy Law & Practice, supra at [41.2.13]. It is a view supported by Re Scerri (1998) 82 FCR 146 at 149, Moran v Lydiard Financial Services Pty Ltd, supra at [13] – [17], and Worchild v The Drink Nightclub (Qld) Pty Ltd, supra, at [8].

5. Adams v Lambert is the latest pronouncement of the High Court on s.306(1) of the Act. It concerned a situation where the creditor served a bankruptcy notice wherein the claim for interest was erroneously said to be pursuant to one section of the relevant Act rather than another. There was no question of any miscalculation. In a joint judgment of the seven justices, a purposive construction of the Bankruptcy Act, consistent with the approach of the court in Project Blue Sky Inc. v Australian Broadcasting Authority [1998] 194 CLR 355 at 390-1, was applied. It is relevant to observe that, at paragraph [11] of their reasons, the justices described the requirement to attach a copy of the judgment or order relied upon as a feature “of particular importance”. Whether this means the same as a requirement made essential by the Act is a matter of impression, but the fact that their Honours referred to this particular feature suggests that it is one of the most obvious requirements that have to be complied with.

6. At [18] their Honours said:

   “The questions whether the defect or irregularity is a formal defect or irregularity, and whether substantial injustice has been caused and cannot be remedied, are separate and distinct, the latter question arising only if the former is answered in the affirmative.”

7. At paragraphs [24] - [28] their Honours reasoned that deciding whether there is a formal defect or irregularity must be decided as a process of statutory construction, in the context of the Act as a whole, informed by the general purpose of the legislation and the particular purpose of the provisions relating to bankruptcy notices.

8. The learned authors of Australian Bankruptcy Law & Practice, supra, at [RE 4.02.15] say, after referring to the line of authority discussed above:

   “It is not yet entirely clear whether this strict view would still be the law following the High Court’s decision in Adams v Lambert (2006) 3 ABC (NS) 935; 80 ALJR 679; [2006] HCA 10, but it may well be, because the failure to annex the judgment may be regarded as an entire failure to meet a requirement made essential by the Act, and because it might be held to be a sufficiently substantial error not to be able to be cured under s. 306(1). The High Court in Adams v Lambert restricted its comments to overruling the line of authority concerning incorrectly stating the statutory provision pursuant to which interest was claimed…”

9. See also the learned authors’ comments at paragraph [41.2.05], although they tend to beg the question of what is “substantive” and how that differs from “formal”.

10. In my view, the High Court went further than the learned authors suggest. It clarified the question of how one is to determine whether a defect in the bankruptcy notice is a “formal” defect or irregularity. This is to be done by looking at the defect or irregularity against the scheme and purpose of the Bankruptcy Act in order to see whether there is a shortcoming in a matter made essential by the Act.

11. Where, as in the present case, the whole bankruptcy process is founded on a judgment or order, and the failure to comply with that judgment (ss.40(1)(g), 40(3), 41(1) and Reg 4.02) in my view it is an essential requirement of the Act that the judgment or order relied upon be attached to the bankruptcy notice. It is not sufficient for the creditor to be able to say that there is no injustice because the debtor is not misled, or that the relevant judgment order is referred to in another document attached to the bankruptcy notice. In those circumstances, it could not be said that the omission of the judgment or order relied upon was a formal defect or irregularity.

12. Accordingly, I conclude that s.306(1) of the Act does not assist the applicant creditor.

13. Having concluded that the bankruptcy notice is invalid, I dismiss the application for a sequestration order.

Solvency

1. It is not strictly necessary for me to deal with this issue, having regard to my conclusion as to the validity of the bankruptcy notice. However, on the hearing of the application, the issue was the subject of evidence, and the respondent was cross-examined. The parties have delivered submissions addressing the issue. In those circumstances, it is appropriate for me to state my conclusions on this issue, in case a higher court takes a different view as to the validity of the bankruptcy notice.

2. The applicant creditor proved the matters referred to in s.52(1) of the Act. Indeed, there was no contest on those issues. Rather, the hearing concentrated on whether the respondent satisfied the court that he was able to pay his debts, within the meaning of s.52(2)(a) of the Act, or whether he had demonstrated some other sufficient cause within the meaning of s.52(2)(b) of the Act, that a sequestration order should not be made.

3. It was accepted, in accordance with authority, that the respondent bore the onus of satisfying the court why a sequestration order should not be made, under s.52 of the Act. Nor was there any contest as to the applicable test of solvency, described in the oft-quoted passage from the judgment of Barwick CJ in Sandell v Porter (1966) 115 CLR 666.

4. The respondent adduced evidence that he had tendered the amount sought in the bankruptcy notice. The fact of tender was not disputed, but the applicant made the point, in my view correctly, that a creditor is entitled to reject a tender, and that fact does not establish other sufficient cause within the meaning of s.52(2)(b) of the Act: McIntosh v Shashoua (1931) 46 CLR 494. Accordingly, ground 1 in the Notice Stating Ground of Opposition is without substance. The fact remains, however, that the respondent has proved that he has excess funds of $10,367.90, and those funds are still available to him.

5. The respondent has sworn four affidavits. The affidavits establish, and it was not suggested otherwise, that he is in secure employment in the mining industry. He has provided pay slips evidencing what he says is a net weekly income of at least $1200.  He was challenged on the amount of his income, and it was put to the respondent that he had been selective in the production of pay slips in order to give the court an inflated view of his weekly income.

6. I accept the respondent’s evidence as to his average weekly income. He gave what were, in my view, adequate explanations of discrepancies in his payslips.

7. The respondent has, however, given different accounts of the excess of income over liabilities that he enjoys. In his affidavit filed 27 July 2006 he asserted an excess of income over expenses of $731 per week. In his affidavit filed 7 August 2006 he asserted a monthly surplus of $671.30. He was further challenged on these amounts. The applicant’s counsel usefully analysed the respondent’s bank accounts to demonstrate a level of expenditure higher than deposed to by the respondent. Even with such analysis, which satisfies me that the respondent does not have the spare capacity that he claims, it seems that the respondent manages to pay his debts as and when they fall due. There is no evidence of any defaults or other debts outstanding, other than to the applicant. Nor is there any evidence that the respondent is selling assets to meet ongoing expenses.

8. The applicant also relies on the respondent’s failure to disclose obvious debts, such as monies owed for legal fees, monies owed to credit providers, and the receipt of unexplained sums of money into his bank account. The applicant also relied on errors in the respondent’s evidence regarding his ownership of a property at Ravenswood, and an encumbrance over that property.

9. In my view, none of these matters gainsay the evidence that the respondent is able to pay his debts as they fall due. The respondent is in secure employment with income sufficient to meet his ongoing commitments. He may, from time to time, sail close to the wind in terms of having sufficient money available to pay bills, but I am satisfied that he manages to do so. The respondent retains, as I have said a sum of money exceeding $10,000.00 which is available to him to meet any extraordinary expenses. Further, he has assets which he can realize to meet any debts that may accrue. Admittedly the precise value of those assets was not proven, but nor did the applicant point to any specific liability which it said the respondent could not meet.

10. I am satisfied, on balance, that the respondent is able to pay his debts within the meaning of s.52(2)(a), as discussed by Katz J in International Alpaca Management Ltd v Ensor [1999] FCA 72.

Other sufficient cause

1. The applicant seeks a sequestration order in respect of a debt of $10,367.90. One cannot help but suspect that the applicant is seeking that order to prevent the respondent from continuing to defend the District Court proceedings currently on foot between the parties. if the applicant is successful in those proceedings and obtains a judgment debt for the amount of its claim, it will plainly secure a sequestration order on the evidence presently available. Why it did not wait until the conclusion of the District Court proceedings is a matter of concern.

2. It is true that the respondent did not attempt to set aside the bankruptcy notice. However, having concluded that the bankruptcy notice is invalid, this matter could only be relevant to the issue of costs.

3. It is not appropriate, not is it possible, for me to make any findings on the respondent’s prospects of success in the District Court proceedings between the parties. All I have are the pleadings in that action, together with some evidence that the respondent had been dilatory in the prosecution of his counterclaim, and in certifying the matter as ready for trial.

4. It appears from the pleadings that the applicant seeks to recover some $241,540.18 together with further sums for interest, being monies said to be owing under various facilities that the respondent held with the applicant, and being the deficiency after properties offered as security had been sold. By his defence and counterclaim, the respondent claims that the bank failed to serve proper notices required under the facility documents, and made representations which he relied upon that it was not necessary to comply with default notices which had been issued. The respondent also alleges that the applicant’s conduct in making certain representations was misleading and deceptive, and that it acted unconscionably and in breach of an asserted duty of care in its conduct toward the respondent. The respondent also alleges that the applicant sold the properties available as security at an undervalue.

5. As I have said, I have nothing other than the pleadings. They are sworn to, at least so far as the defence and counterclaim is concerned.  In those circumstances, it is not possible to say that the respondent has good prospects, or indeed any prospects, in the action. I note that there is no evidence that the respondent sought to restrain the sale of the mortgaged properties. There is also evidence that the applicant did not succeed in, or did not persist with, an application for summary judgment. I think at best it can be said that it had not been demonstrated that the respondent’s claims against the applicant in the District Court are frivolous or vexatious. I would not be prepared to conclude, however, that on the material currently available, the respondent’s prospects of success in those proceedings are such as to constitute other sufficient cause to decline to make a sequestration order.

6. No other factor is pointed to as constituting other sufficient cause for declining to make a sequestration order.

Costs

1. Orders for costs have been made against the respondent by this court on prior occasions due to his conduct of the proceedings. The applicant has submitted that when the matter came before the court on 9 August 2006 the respondent sought to raise for the first time the question of the validity of the bankruptcy notice. The applicant submits that its application for costs thrown away on an indemnity basis was reserved.

2. There seems no good reason why the applicant should not have its costs thrown away as a result of the late amendment to the Notice of Grounds of Opposition. The respondent could have made an application to set aside the bankruptcy notice, but chose not to do so. That would have obviated the need for the extensive evidence going to the issue of solvency.

3. I will hear the parties further as to costs, but the order I tentatively propose to make are as follows:

   i)The application for a sequestration order is dismissed;

   ii)The respondent pay the applicant’s costs thrown away as a result of the amendment of the Notice Stating Grounds of Opposition, to be taxed in accordance with the Federal Court Rules on the solicitor and client basis;

   iii)Otherwise, the applicant pay the respondent’s costs of and incidental to the application to be taxed in accordance with the Federal Court Rules.

I certify that the preceding eighty-seven (87) paragraphs are a true copy of the reasons for judgment of Wilson FM

A/Associate:  Bev Schmidt

Date:  13 October 2006