Bates v Bechara (No 2)
[2021] FCCA 1809
•5 August 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Bates v Bechara (No 2) [2021] FCCA 1809
File number(s): SYG 821 of 2016 Judgment of: JUDGE A KELLY Date of judgment: 5 August 2021 Catchwords: BANKRUPTCY – application for de novo review – where Registrar has exercised delegated power and made order for sequestration of debtor’s estate – where parties engaged in protracted litigation including with respect to existence of debt, appeal from judgment of Local Court, appeal to Court of Appeal – application to set aside service of bankruptcy notice – where debtor exhibits bankruptcy notice, the service of which is in issue – where debtor pursues proceedings in the Federal Court of Australia and High Court of Australia – where application for review remitted to be heard as soon as is reasonably possible – where parties seek succession of adjournments – where Court directs submissions in advance of hearing – where debtor intended to oppose creditor’s petition – where only issue advanced by debtor’s written outline challenges service of bankruptcy notice and petition – challenge as to service withdrawn – where no notice given challenging jurisdiction – where no notice given challenging failure to comply with Federal Circuit Court (Bankruptcy) Rules 2016 – failure to comply with rule 2.06 – grounds of opposition not set out in prescribed Form or supported by affidavit – where debtor foreshadowed evidence of solvency may be adduced – no affidavit as to solvency or any other matter filed – where petitioning creditor taken by surprise during cross-examination that jurisdiction in issue – where petitioning creditor taken by surprise during closing address that debtor’s ‘principal’ and third ground for opposing petition was want of compliance with Bankruptcy Rules – whether rules complied with – consequences of non-compliance – where debtor renews application for adjournment – adjournment not opposed – applicable principles – matters required by s 52(1) satisfied – whether debtor has satisfied the court that for other sufficient cause petition should be dismissed – application stood over for further submissions as to s 306 PRACTICE & PROCEDURE – creditor’s petition – parties obligations to comply with Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) – presentation of petition – conditions upon presentation – function of rules to facilitate hearing – obligations to serve and file affidavits with petition and before hearing – obligations of persons intending to oppose the grant of relief – requirement to file and serve notice of appearance, notice in prescribed form stating grounds of opposition and affidavit in support of those grounds – nature of review – debtor’s true grounds of opposition not revealed before cross-examination and closing address – whether obligation to file notice of grounds of opposition to petition applies on de novo hearing – role of verifying affidavit in light of issues raised by notice of grounds of opposition – parties ordinarily to be allowed some opportunity to adduce further evidence – duty of Court to consider compliance with Bankruptcy Act and Bankruptcy Rules by petitioner and persons seeking to appear or oppose the relief sought in petition – public and private interests served by proper administration of bankruptcy laws – change in status of debtor upon making of sequestration order – special importance of conducting application for review of Registrar’s decision promptly – added importance of prompt review where sequestration order was made – whether compliance with Bankruptcy Rules – whether non-compliance invalidates proceeding – application stood over for further submissions upon s 306 Legislation: Acts Interpretation Act 1901 (Cth) s 25C
Bankruptcy Act 1883 (UK) s 6, 7
Bankruptcy Act 1966 (Cth) ss 5, 7, 27, 30, 32, 34A, 37, 40, 41, 43, 44, 47, 51, 52, 53, 109, 153A, 187
Civil Procedure Act 2005 (NSW) s 101
Federal Circuit Court of Australia Act 1999 (Cth) ss 3, 81, 99, 102, 103, 104
Judiciary Act 1903 (Cth) s 39B
Bankruptcy Rules 1870 (UK) r 36
Bankruptcy Rules 2015 (UK) r 171
Federal Circuit Court (Bankruptcy) Rules 2006 (Cth)
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) rr 1.03, 1.04, 1.07, 2.01, 2.02, 2.03, 2.04, 2.05, 2.06, 3.01, 3.02, 3.03, 4.02, 4.04, 4.05, 4.06, 4.08, 5.01, 6.01, 6.05, 6.06, 6.11, 6.12, 6.16, 7.05, sch 1 pt 1 items 5, 9, 10
Federal Circuit Court Rules 2001 (Cth) rr 1.06, 4.05, 4.08, 10.05, 20.01, 20.02, 20.03, 21.02
Federal Court Rules (Amendment) 1997 (Cth)
Federal Court Rules 1977 (Cth) rr 9, 11
Federal Court Rules 1997 (Cth) rr 10, 11Cases cited: ABT17 v Minister for Immigration and Border Protection [2020] HCA 34; (2020) 383 ALR 407
Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137
Alam v QBE Insurance (Australia) Ltd [2018] FCA 1560
ANZ Banking Group Ltd, In the matter of James v James [2016] FCA 332
Badge v Smithdene Pty Ltd [2021] FCCA 1195
Baghti & Baghti [2012] FamCA 711
Bates v Bechara [2021] FCCA 1693
Bechara v Bates (2021) 388 ALR 414
Bechara v Bates (No 2) [2020] FCA 659
Bechara v Bates (No 3) [2015] NSWSC 1588
Bechara v Bates (No 4) [2015] NSWSC 1722
Bechara v Bates [2018] FCA 460
Boensch v Somerville Legal [2021] FCAFC 79
Briginshaw v Briginshaw (1938) 60 CLR 336
Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460
C Pty Ltd v Sommer [2021] FCAFC 87
Cain v Whyte (1932) 48 CLR 639
Compton v Ramsay Health Care Australia Pty Ltd (2017) 256 FCR 345
Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588
de Robillard vCarver [2007] FCAFC 73
Donoghue v Russells (A Firm) [2021] FCA 798
Evans v Federal Commissioner of Taxation (1989) 89 ATC 4540
Ex parte Barne, In re Barne [1886] 16 QBD 522
Ex parte Cunningham, In Re Mitchell [1884] 13 QBD 418
Ex parte Dodd, In re Ormston [1876] 3 Ch D 452
Ex parte Learoyd In re Luttman [1880] 13 Ch D 321
Ex parte Warburg; In Re Whalley [1883] 24 ChD 364
Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18
Fuller JR, in the matter of Alford v Alford (2017) 252 FCR 168
Harris v Caladine (1991) 172 CLR 84
In re a Debtor [1943] Ch 210
In re a Debtor, Ex parte A Debtor [1935] Ch 353
In re Dale [1876] 3 Ch D 322
In re Duleep Singh, Ex parte Cross (1890) 7 Mor 228
In Re Raatz [1897] QBD 81
In Re Sanders; Ex parte Sanders [1894] 63 NS 734
John Alexander’s Clubs Pty Ltd v White City Tennis ClubLtd (2010) 241 CLR 1
Jones v Dunkel (1959) 101 CLR 298
Jones v Thomson [2017] FCA 125
Kleinwort Benson Australia Pty Ltd v Crowl (1988) 165 CLR 71
Maria Bechara (trading as Bechara and Company) v Bates [2016] NSWCA 294
Martin v Commonwealth Bank of Australia (2001) 217 ALR 634
Martin v Federal Commissioner of Taxation (1953) 90 CLR 470
Michael Wilson & Partners v Slater [2014] FCCA 2871
Napiat Pty Ltd v Salfinger; Re Salfinger (No. 7) (2011) 202 FCR 264
Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404
Pioneer Permanent Building Society Ltd v Parrott [2003] FCA 517
PMT Partners Pty Ltd v Australia National Parks & Wildlife Service (1995) 184 CLR 301
Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355
Rail Corporation New South Wales v Brown (2012) 82 NSWLR 318
Re Dagnall (1896) 2 QB 407
Re Kerle, Ex parte Simpson [1898] 19 NSWR 26
Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256
Re Reynolds (1915) 2 KB 186
Re Sarina, ex parte Wollondilly Shire Council (1980) 30 ALR 266
Re Taylor; Ex parte NatWest Bank Ltd (1992) 37 FCR 194
Re Vassis; Ex parte Leung (1986) 9 FCR 518
Restom v Battenberg [2007] FCA 46
Sandell v Porter (1966) 115 CLR 666
Sarina v Council of the Shire of Wollondilly (1980) 43 FLR 163
Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372
Sogelease Australia Ltd v Griffin, in the matter of DJ Griffin [2003] FCA 453, 128 FCR 399
Stratton v Bowles (No 2) [2015] FCA 43
Szepesvary v Weston as trustee of the bankrupt estate of Szepesvary [2018] FCAFC 224
Tarabay v Fifty Property investments Pty Ltd [2009] NSWSC 617
Theophile v Solicitor-General [1950] 1 All ER 405
Totev v Sfar (2008) 167 FCR 193
Tran v Pu (2015) 228 FCR 562
Transport Industries Pty Ltd v Longmuir (1997) 1 VR 125
Wren v Mahony (1972) 126 CLR 212
Zdrilic v Hickie (2016) 246 FCR 532E.T. Baldwin, A Treatise upon the Law of Bankruptcy and Bills of Sale (Stevens and Haynes, 8th ed, 1900)
Herzfeld and Prince, Interpretation (Thomas Reuters, 2nd ed, 2020)
McDonald et al, McDonald, Henry and Meek’s Australian Bankruptcy Law and Practice (Law Book Company, 4th ed, 1968)
McDonald et al, McDonald, Henry and Meek’s Australian Bankruptcy Law and Practice (Law Book Company, 6th ed, 2021
D.C. Pearce and R.S. Geddes, Statutory Construction in Australia (LexisNexis Butterworths, 9th ed, 2019)Number of paragraphs: 334 Date of last submissions: 5 August 2021 Date of hearing: 14 May, 8 June, 11 June, 19 July, 26 July, 2 August 2021 Place: Melbourne The Applicant: In person Solicitor for the Respondent: HWL Ebsworth Solicitor-advocate for the Respondent: Mr. A. R. Martin ORDERS
SYG 821 of 2016 BETWEEN: PHILIP BATES
Applicant
AND: MARIA BECHARA
Respondent
ORDER MADE BY:
JUDGE A KELLY
DATE OF ORDER:
5 AUGUST 2021
THE COURT ORDERS THAT:
(1)Pursuant to ss 67-68 of the Federal Circuit Court of Australia Act 1999 (Cth), direct that the parties be allowed to appear and to make submissions before the Court by video and audio link.
(2)Subject to paragraph (3) of this Order, pending the easing of current temporary restrictions on movement effected by Public Health (Covid-19 Temporary Movement and Gathering Restrictions) Order 2021 (NSW), the further hearing of the amended petition dated 17 May 2016 be adjourned to a date to be fixed for the delivery of any further submissions upon the application to this proceeding of ss 52(2) and 306(1) of the Bankruptcy Act 1966 (Cth).
(3)Subject to such amendments as may be effected to the Public Health (Covid-19 Temporary Movement and Gathering Restrictions) Order 2021 (NSW), the amended petition be fixed for further hearing as soon as is reasonably possible.
(4)The costs of and incidental to the hearing of the amended petition be reserved.
REASONS FOR JUDGMENT
JUDGE A. KELLY
Introduction
These reasons for judgment provide my findings and conclusions, so far as can presently be done, in an application filed 25 July 2016 pursuant to s 104(2) of the Federal Circuit Court Act 1999 (Cth) (FCC Act) seeking review of a decision made by a Registrar on 5 July 2016 to make a sequestration order against the estate of the respondent, Ms Bechara. These reasons should be read with Bates v Bechara [2021] FCCA 1693 which addresses the procedural history of the de novo hearing. It incorporates the findings and defined terms employed in that decision.
The application has been remitted to this court to be heard as soon as reasonably possible. At the outset, I note that no evidence of solvency has been adduced and it was not in issue.
By way of overview, the following issues are raised upon this de novo hearing of the creditor’s petition presented by Mr Bates on 7 April 2016. First is consideration of a renewed application for an adjournment of the hearing until the end of the current Greater Sydney lockdown. Secondly is consideration of the nature of a de novo hearing where a party seeks review by the court of the exercise of power by a Registrar. Thirdly is consideration of the scope and operation of the Bankruptcy Rules and in particular whether a debtor, having sought review of a decision pursuant to s 104(2) of the FCC Act, is nonetheless obliged to comply with the requirements of the Bankruptcy Rules as a person who intends to appear at the hearing of a petition to file and serve a notice of appearance, a notice stating his or her grounds of opposition to the making of a sequestration order (each in prescribed form) together with an affidavit in support of the grounds of opposition. Fourthly, it is necessary to consider the consequences of failure to comply with those requirements. Fifthly, is consideration, upon the evidence, of whether jurisdiction of this court is attracted. Sixthly is whether the court is satisfied of the matters of which proof is required by s 52(1) of the Act. Seventhly is whether the respondent has satisfied the court that for other reason a sequestration order ought not be made. Eighthly is whether the petitioner has failed to comply with any of the requirements of the Bankruptcy Rules in the manner complained of, for the first time, in the debtor’s closing address. Ninthly, as concerns any such failures as are found, whether the proceeding is invalidated and how ss 52(2) and 306 of the Act operate in all of the circumstances of this case.
For the reasons below I have concluded the court should deliver judgment upon all of the matters raised at the hearing to this point, save that the parties should be afforded an opportunity to make further submissions upon the operation of ss 52(2) and 306 of the Act. For that purpose, the proceeding will be adjourned until the restrictions presented by the current lockdown of Greater Sydney have been eased to the point that access can be gained to the debtor’s file retained by her advocate, Mr Martin. In summary, I have concluded as follows.
A debtor who intends to appear at the hearing of a petition is obliged to file and serve a notice of appearance, a notice stating his or her grounds of opposition to the making of a sequestration order together with an affidavit in support of the grounds of opposition. A person who, before the hearing, has not filed grounds of opposition and/or an affidavit that supports each ground of opposition may not do so without leave. Where a person intending to oppose a petition but who has not filed grounds of opposition supported by affidavit, appears at the hearing of a petition, it is a matter of discretion whether he or she may be permitted to appear and be heard. The court should not be required to consider grounds that lack substance or bona fides.
The entitlement to a de novo hearing of a creditor’s petition is engaged, without more, by the making of a sequestration order and the filing of an application. However, the entitlement conferred by s 104(2) is not at large. Section 104(2) is the vehicle by which a de novo hearing of the petition occurs. Relevantly, where the review is of the exercise of power by a Registrar who had made a sequestration order, the de novo hearing of the petition entails consideration afresh of the proceeding pursuant to s 52(1)-(2). The hearing continues to be regulated by procedures governing the entitlement of persons who intend to appear at and oppose a petition. Contrary to Ms Bechara’s submissions, the obligations imposed by the Bankruptcy Rules apply no less upon the review of a decision pursuant to s 104(2) of the FCC Act.
Where a party seeks review by the court of the exercise of power by a Registrar, the court is required to hear the petition promptly upon the evidence that was filed before the Registrar and subject to leave, does so upon the evidence and materials before the Registrar. Compliance with the obligations stated in [5] above will inform the approach taken upon the de novo review, including where no notice of the grounds and no affidavit supporting those grounds are filed.
Separate considerations are raised by the failure to comply with those requirements including whether it was a purpose of the Bankruptcy Rules that an act done in breach of its provisions should invalidate an entitlement to appear and be heard to oppose the petition. Irrespective of such failures, the petitioner is to satisfy the court a sequestration order ought to be made.
I am satisfied of the matters of which proof is required by s 52(1) of the Act and that Mr Bates has established a prima facie entitlement to the making of a sequestration order.
By her interim application dated 25 July 2016, the only basis upon which Ms Bechara sought dismissal of the amended petition was stated to be “pursuant to s 52(2)(b) of the Bankruptcy Act 1966.” Although the question has been raised a number of times since 2016, ultimately, on the de novo hearing, solvency was not in issue. The three bases upon which Ms Bechara sought to discharge the onus pursuant to s 52(2) of satisfying the court that for other sufficient cause an order should not be made were not completely revealed until the time of closing submissions. The first, service of the bankruptcy notice and petition, have been abandoned: Bates v Bechara [2021] FCCA 1693, [17], [33], [53]-[62]. Secondly, jurisdiction was put in issue during cross examination but otherwise without notice. As a consequence, Mr Bates was granted leave to adduce further evidence which had been prepared hurriedly and many years after the relevant events: Bates v Bechara [2021] FCCA 1693, [18], [29], [113]-[125]. I am satisfied the jurisdiction of this court is engaged and that it may hear the petition. Thirdly, in closing address complaint was made of failure to comply with certain of the Bankruptcy Rules: Bates v Bechara [2021] FCCA 1693, [64], [136]. I have found that certain of those rules were complied with and that others were not. It remains to consider whether the identified failures to comply with such rules invalidates the proceeding. Subject to the application of s 306 of the Act, the respondent has not satisfied the court that for any other reason a sequestration order ought not be made. Given the matters below, submissions as to ss 52(2) and 306 will be heard as soon as is reasonably possible after the easing of temporary restrictions in Greater Sydney.
Further preliminary observations are apposite in light of the history of this proceeding.
The Act does not rest upon any policy whereby a creditor should be entitled to a sequestration order against the estate of a recalcitrant, but solvent, debtor. The insistence upon due formality in “an application by a creditor for the sequestration of the estate on the basis of insolvency” serves an essential public interest. The centrality of solvency in the law of bankruptcy bears several aspects. In light of the quasi-criminal nature of the proceeding, it recognises the public interest directed to sequestration orders not being made against the estate of persons who are solvent. One aspect of that public interest arises from the critical importance of recognising that the interests of creditors (other than the petitioner), of being paid in full should not be prejudiced by the making of a sequestration order that should not be made. A corollary of that public interest is the due administration of an insolvent estate for the general body of existing and potential creditors. Delay is inimical to such proper administration. Importantly, an order for the sequestration of a person’s estate effects a change in the debtor’s status and has the significant personal consequences that this entails: Wren v Mahony (1972) 126 CLR 212, 223-225; Kleinwort Benson Australia Pty Ltd v Crowl (1988) 165 CLR 71, 82; Sarina v Council of the Shire of Wollondilly (1980) 43 FLR 163, 165-166; Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372, 376-377; Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137, 148; Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632 (Culleton), [40]-[46], [55]; Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132, [55]; Bechara v Bates [2021] FCAFC 34; Boensch v Somerville Legal [2021] FCAFC 79, [85]-[88]. In Boensch, the Full Court considered the obligations owed towards self-represented litigants in bankruptcy proceedings. So here, in the case management of the present appeal it had been pointed out to Ms Bechara’s lawyers that her only likely source of relief was via a challenge under s 39B of the Judiciary Act 1903 (Cth). On the appeal that view was affirmed.
An earlier, prescient observation that “the merits of the bankruptcy proceeding have almost been lost in the mists of procedure and time in this case” was something of an understatement: Bechara v Bates (No 2) [2020] FCA 659, [27]. The requirement for the prompt conduct of a review pursuant to s 104 of the FCC Act is especially required in hearing a creditor’s petition de novo where an order for the sequestration of a debtor’s estate has been made: Bechara v Bates [2021] FCAFC 34, [92], [176].
Given the long delay in this proceeding, these requirements were both magnified and impeded in this case. Contextually, if this petition is dismissed, given the age of Mr Bates’ judgment and orders, they cannot be used to found a new bankruptcy notice: Act, s 41(1)(c)(i).
The conduct of this de novo hearing is the antithesis of what should have been expected, particularly in light of r 20.02(2) of the FCC Rules and the Full Court’s order. Save for the procedural history of the proceeding since 2016, upon the principles considered below, I would otherwise have refused to consider each of the three bases advanced on behalf of Ms Bechara in seeking to oppose the making of a sequestration order. Given that procedural history, however, it is as well to hear and determine the only grounds for opposing the petition.
Attention should have been, but was not, paid to several requirements of the Bankruptcy Rules. Just as Mr Bates was obliged to file a creditor’s petition in prescribed form with a verifying affidavit and affidavits of search and debt, so too, if Ms Bechara intended to appear at, and oppose, the petition, she was no less obliged to give notice of her intention to appear, to give notice, in prescribed form, stating each of her grounds of opposition, and, to serve an affidavit in support of those grounds. Regrettably, she has never done so. Ms Bechara also failed to identify, by her outline of submissions, the grounds that were to be relied upon against the grant of relief. Articulation of the precise issues in contest should have occurred before the hearing.
The volume of business in this court is a matter of notoriety. Had the intended grounds of opposition been identified in advance of the de novo hearing, the court would have been better able to hear the petition promptly. Where propositions were advanced without notice or reference to authority, the court was then left to consider the issues raised for itself.
Mr Martin submitted that it would entail serious error to reason that on hearing the petition de novo, Ms Bechara was obliged to provide a notice of the grounds of her opposition supported by affidavit. Mr Bates bore the onus of proving matters required by s 52(1). However, he was entitled to but did not know the grounds on which Ms Bechara truly intended to oppose the petition. Solvency, and any other matters to be relied upon as constituting a sufficient cause to not make a sequestration order, were matters for Ms Bechara. On the de novo hearing, each onus was unchanged. In light of Ms Bechara’s failure to state her intended grounds of opposition, consistently with principle, including a Bankruptcy Court’s duty to be satisfied of compliance with the Act, the Bankruptcy Rules and the proper case management of the proceeding, Mr Bates was entitled to some opportunity to adduce evidence upon the issues in contest: cf Bechara v Bates [2021] FCAFC 34, [33]-[37], [72], [74], [91]-[94].
A further adjournment
In Bates v Bechara [2021] FCCA 1693, the history of the de novo hearing was provided. All that remains is a reply. A record of the troubled history of the matter is detailed in earlier judgments: Bechara v Bates [2021] FCAFC 34; Bechara v Bates (No 2) [2020] FCA 659.
In Bates v Bechara [2021] FCCA 1693 at [139], reasons were provided as to the grant, on 19 July and again on 26 July 2021, of adjournments that afforded Mr Martin opportunities to take steps to obtain access to his file. On each of those dates orders were made addressing the relief sought by the debtor’s application in a case dated 15 July 2021. The application made on 26 July 2021 that the proceeding be adjourned in its entirety until after the end of the Greater Sydney Covid-19 lockdown was refused but the hearing was adjourned to 2 August 2021 for the reasons given. This disposed of all relief sought in the application in a case.
On 2 August 2021, Mr Martin ‘renewed’ his application for such adjournment, doing so without notice or any further evidence. Instead, reliance was placed upon the application dated 15 July 2021 and the circumstance that Mr Bates had, it was said, given his consent to the application. As I had explained to the parties on 19 July 2021, but for that consent I would have proceeded on that date. I did not regard Mr Bates’ consent to the application made on 26 July 2021 as a matter attracting particular weight: Bates v Bechara [2021] FCCA 1693, [260].
Mr Martin submitted he had now cured the defect that existed on 26 July 2021 by obtaining a copy of the reply submissions of Mr Bates and that he had also read the judgment given on that date. Mr Martin identified each of the paragraphs in that reply submission which contained factual premises with which his client may take issue (being pars [13]-[19], [21], [23]-[24]), and made his submissions identifying each of the matters that he relied upon in support of his renewed application for an adjournment of the hearing of the proceeding until after the Greater Sydney lockdown had ceased, for the matter to be listed for mention and then relisted for hearing thereafter. Mr Martin reiterated the submissions that had been made on 26 July 2021, including his exposure to the risk of infection, fines and sanctions by The Law Society of New South Wales. Despite having read Bates v Bechara [2021] FCCA 1693, no attempt was made to engage with the terms of the Public Health (Covid-19 Temporary Movement and Gathering Restrictions) Order 2021 (Order) or to demonstrate why, contrary to the conclusions reached in that judgment, it prohibited or precluded Mr Martin from returning to his offices in Sydney or prevented him from securing the delivery of his file to his farm.
Although the submissions were unsupported by any evidence, Mr Martin advanced a number of matters dealing with his usual business practice including as to the manner in which he retained paper files and that he habitually appeared in superior courts. Submissions were made as to the likely volume of material in the file retained in this matter (5,000 to 6,000 pages) and of the fact that he had not asked for a long period to address other material on earlier occasions.
Mr Martin submitted he ‘knew’ what the provisions of s 306 of the Act said and knew what he would need to check in order to consider the matters raised by Mr Bates’ reply.
A number of issues were raised pertaining to Mr Martin’s personal circumstances, those of his children and the circumstances of the solicitor who has assisted him in the conduct of this matter (and those of her children). None of those matters had been raised by him at any earlier stage. Reference to those matters may be had in the transcript of proceedings on 2 August 2021. While those matters were not the subject of evidence I have no doubt of Mr Martin’s sincerity in relation to the issues that he raised. It was submitted that the
Covid-19 pandemic presented the greatest challenge faced in Australia since the Second war and the greatest medical challenge since the Spanish flu pandemic. In those circumstances, having regard to his personal circumstances and the risk posed by Covid-19 and the sanctions he or his employees may face, Mr Martin submitted the further adjournment should be granted.
Mr Bates did not consent to but did not oppose the relief sought and submitted (if it was of assistance to the court), that he was content to rely upon his written submission in reply.
The principles to be applied in relation to the adjournment of a part heard proceeding were addressed in Bates v Bechara [2021] FCCA 1693, [169]-[175]. For the reasons given in that decision at [175]-[253], I concluded that the Order did not, as had been submitted, prohibit absolutely all entry into Greater Sydney by Mr Martin or employees of Martin Legal Pty Ltd for the purposes of obtaining the file in order that it was available to him during the course of Mr Bates’ oral submission in reply. As observed in that decision, the court was not taken to particular provisions of that Order which prevented entry by a solicitor into the offices of Martin Legal Pty Ltd to obtain the file or the delivery of that file to the farm where Mr Martin habitually resides. Nonetheless, Mr Martin remains insistent that he should not be required to enter his Sydney office or for the solicitor who is assisting him to do so. Although his earlier affidavit spoke in terms of his having directed his staff to work from their homes throughout Greater Sydney, he did not explain why some other staff member could not obtain and make arrangements for the delivery of the file to his farm.
No submission or evidence was adduced whether Mr Martin has been vaccinated for Covid-19. No submission or evidence was adduced that at present civil proceedings are not occurring in the state or federal courts and tribunals in New South Wales.
In light of the other matters raised by Mr Martin and having regard to the stance adopted by Mr Bates, including that he was content to rely upon his written reply, I decided to proceed in the determination of the issues raised in the hearing to this point including upon contentions as to want of compliance with the Bankruptcy Rules but to reserve to each of the parties a final opportunity to address the operation of ss 52(2) and 306 of the Act after the restrictions currently in place as a result of the Order have eased to the point where Mr Martin’s file could be obtained. Upon consideration of the parties’ submissions, in light of the conduct of the hearing to this point, I concluded that there would be no prejudice to either of them if all other issues were addressed at this stage and that to do so would conform to the objective sought to be achieved by the order to deal with the proceeding as soon as was reasonably possible. This conclusion was reached in light of the parties’ written and oral submissions, the evidence that has (and has not been) led, and the forensic choices this reflected upon the de novo hearing. I concluded that the considerations addressed in Bates v Bechara [2021] FCCA 1693, [254]-[279] remained no less valid, but were subject to Mr Martin’s personal circumstances.
Applicable principles
In light of Ms Bechara’s submission that it would entail serious error to regard her as being obliged on a de novo hearing to have filed a notice of appearance and notice of grounds of opposition to the petition together with an affidavit in support of those grounds, it is necessary to consider the applicable statutory framework, the nature of a de novo hearing, the procedural framework provided by the Bankruptcy Rules and FCC Rules and the consequences of non-compliance with those provisions as informed by relevant authority. For the reasons below, I do not accept that on a de novo hearing, a person who intends to appear at and oppose a creditor’s petition is relieved of the obligations which regulate the hearing of a petition.
(1) Statutory framework – sequestration of a debtor’s estate
Part III of the Act, Courts, comprises ss 27-37. This court shares jurisdiction in bankruptcy with full power to decide all questions, whether of law or fact, in any case of bankruptcy: s 27(1), 30(1). It may rescind, vary, discharge or suspend the operation of certain orders: s 37.
Part IV of the Act is arranged in six divisions and, relevantly, provides by: Div 1, for Acts of Bankruptcy (ss 40-42); Div 2, for Creditors Petitions (ss 43-54), and; Div 4, for the Effects of Bankruptcy (ss 58-63).
Where seized of jurisdiction, a Bankruptcy Court has power, subject to the conditions and constraints imposed by the Act, and where satisfied of the matters required by the Act, to make an order for the sequestration of the estate of a person who has committed an act of bankruptcy, including by failure to comply with a bankruptcy notice: Act, ss 27, 40, 41, 43, 44 and 52.
Pt IV of the Act, Div 2 concerns Creditors’ petitions. In aid of the jurisdiction conferred to make a sequestration order, the Bankruptcy Rules govern proceedings under the Act, make particular provision for creditors’ petitions and provide the procedures that regulate the entitlement of persons to appear at the hearing of a petition and what must be done by those who intend to oppose the making of a sequestration order. These provisions confirm the due formality of bankruptcy proceedings in general and of creditors’ petitions in particular.
Before exercising discretion whether to make a sequestration order, the court shall require proof of the matters required by s 52(1), comprising proof of the matters in the petition, service and debt. Paragraph 52(1)(a) allows that for the purposes of proof of the matters stated in the petition, “the court may accept the affidavit verifying the petition as sufficient.” The permissive terms in which par 52(1)(a) authorises the court to accept a verifying affidavit as being sufficient for such purposes is explained by principles informing the conduct of a hearing of a creditor’s petition, including whether it is unopposed or opposed, whether the debtor or any other person intends to oppose the grant of relief, the grounds upon which it is intended to do so, the other evidence that is before the court and the parties’ submissions. The permissive nature of the power to accept the verifying affidavit as being sufficient proof may also be informed by whether a debtor has properly given notice of the grounds upon which it is intended to oppose the grant of relief at the hearing of the petition and an affidavit in support.
Upon being so satisfied of the matters in s 52(1), which includes that the jurisdictional facts required by s 43(1) have been established to the requisite standard, a creditor has a prima facie entitlement to a sequestration order: Cain v Whyte (1932) 48 CLR 639, 646. However, this entitlement remains subject to the powers to adjourn or to dismiss a petition where the court is not satisfied it should do so or has been satisfied by the debtor of her or his solvency or that for other sufficient cause a sequestration order ought not to be made: Act, 52(2). At the hearing of a petition, the only onus borne by a debtor “against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s 52(2).”
(2) Nature of de novo hearing
Registrars, who are officers of this court, are conferred with such powers of the court as may be prescribed by the Rules of Court: FCC Act, ss 99(1)(a), 102(1), 102(2)(f), 102(2)(i), 102(6). The rules may delegate to Registrars certain powers which, when exercised by a Registrar are “taken, for all purposes, to have been exercised by the” court: FCC Act, s 103(1)-(2). Amongst the powers of the court that may be exercised by a Registrar are powers to make a sequestration order, powers to make such an order against the estate of a debtor and power to dismiss a creditor’s petition: Bankruptcy Rules, r 2.02(1), Sch 1, Items 5, 9, 10.
Essential to the validity of delegation of judicial power to a Registrar of the Commonwealth is a guarantee that the exercise of such power remains subject to supervision by the court:
Harris v Caladine(1991) 172 CLR 84, 94-96, 123-124, 164; Totev v Sfar (2008) 167 FCR 193, [13], [51], [91]-[100]; Tran v Pu (2015) 228 FCR 562, [19]; Zdrillic v Hickie (2016) 246 FCR 532, [16]-[3], [89]; Bechara v Bates (No 2) [2020] FCA 659, [3]-[4], [23]; Bechara v Bates [2021] FCAFC 34, [1]-[2], [17]-[27]. The validity of the exercise by a Registrar of a delegated power to make an order for the sequestration of a debtor’s estate is achieved by conferring upon a party an entitlement to apply to the court, in the manner provided, for a review of the Registrar’s exercise of power. Where review is sought, the court is required to conduct a hearing de novo: FCC Act, s 104(3). FCC rules, r 20.03(a); Tran v Pu [2015] 228 FCR 562, [19]; Zdrillic v Hickie (2016) 246 FCR 532, [89]; Bechara v Bates [2021] FCAFC 34, [27]. As was recently observed, in ABT17 v Minister for Immigration and Border Protection (2020) 383 ALR 407 at [59], classifications such as a ‘de novo hearing’ are “sometimes better understood as descriptive phrases than as categories defined by “immutable characteristics or inflexible boundaries”. There, Nettle J (with whom Edelman J agreed at [113]), observed at [59] that:
Invariably, the true character of any administrative review, like the true character of an appeal from a judicial decision, is a question of statutory intent to be determined by reference to the jurisdiction, powers, composition and functions of the body from whose decision the review lies, as well as the powers and functions of the body in which the power of review is reposed. (Citation omitted)
In Bechara v Bates, the Full Court cautioned in relation to a de novo review pursuant to s 104 of the FCC Act against an overly mechanical or rigid classification of that statutory context. The Court observed of the nature of review provided by s 104: [2021] FCAFC 34, [149]-[150]:
It must take its place in its statutory context, which here includes s 103(2) of the Circuit Court Act. Section 103(2) means a sequestration order has been made and the debtor’s status has changed. The hearing is de novo in the original jurisdiction and proceeds again, on the same petition. However, the hearing is undertaken in order to ensure the supervision of the exercise of delegated judicial power by the Registrar. The mere bringing of the application for review does not invalidate, revoke or suspend the exercise of that delegated authority. It remains a valid exercise of delegated judicial power but subject to the review. The form of the review hearing is a de novo consideration, but while that review is pending the delegated authority by which the Registrar made the order (in the present case, the sequestration order) remains in existence and so too the order made in its exercise.
Therefore, if after concluding the de novo review the judge would otherwise make a sequestration order, that is, all the matters in s 52(1) are proved and no matter in s 52(2) arises to stand in the way of a conclusion that a sequestration order ought be made, the application for review will be dismissed and the exercise of delegated authority will remain operative. The Court may make this clear by affirming the order of the registrar. On the other hand, if the conclusion reached on the de novo review is that the petition should be dismissed (whether or not for reasons that were available or present before the registrar), that order will be made, and the sequestration order set aside or annulled. (Citation omitted)
Those observations should be read with the Full Court’s statements at [27(a)-(d)] of its reasons which make plain that, once the now bankrupt debtor has applied for review of the Registrar’s exercise of power in making the sequestration order, it is “the hearing of the creditor’s petition on the de novo review” that has been “re-enlivened for this purpose”; namely, the purpose of securing that the exercise of delegated power by a Registrar retains validity as a result of the Constitutional guarantee conferred by s 104(2) of the FCC Act to seek a review of that exercise. With reference to its consideration of Totev v Sfar, the Full Court concluded at [152]:
Thus, even after two years from the presentation of the petition, the hearing of the creditor’s petition on the de novo review, re-enlivened for this purpose, could take place. There may seem some tension in saying that it is a hearing de novo of the creditor’s petition, but at the same time recognising the effect of the registrar’s order until set aside or annulled. That, however, is but a consequence of the nature of the review in its full statutory context. The availability of the review is an aspect of the delegated authority. It is not an appeal to detect error. One begins again. But the application once filed does not affect the order made by the registrar. If, on a hearing de novo, the entitlement for a sequestration order is made out, the protection of the supervision has been effected. There is no call to interfere with the effect of the earlier making of the order. If after full rehearing afresh, de novo, again the judge considers that a sequestration order is appropriate, he or she will not interfere with the registrar’s order, will dismiss the application for review and affirm the registrar’s order. We leave aside consideration of circumstances where on review some error was shown in the registrar’s order such that a view is taken that the order should not have been made then, but it is clear that the order should now be made. Section 104(3) would appear to be wide enough to encompass such a circumstance. (Emphasis added)
See also Commonwealth Bank of Australia v Doggett [2017] FCA 1176, [2] (O’Callaghan, J) and cases cited, appeal dismissed: [2019] FCAFC 19.
Insofar as the Full Court distinguished a circumstance in which a judge on review identified some error in a Registrar’s order, but otherwise concluded that a sequestration order should now be made, that observation must be read in the context of the whole of the reasoning, including that the de novo hearing is not an appeal concerned with the detection of error. Rather, the reasoning at [27], [149]-[152] confirms that the de novo hearing is a re-hearing of the petition, at which re-hearing the creditor bears the onus of the matters with which s 52(1) is concerned and that the only onus borne by the bankrupt is that imposed by s 52(2). It is a ‘full’ hearing of the petition ‘afresh’ in which ‘one begins again.’ In that context, the Full Court said nothing to suggest that the de novo hearing was one in which the debtor was in any way relieved of compliance with the requirements of rr 2.04 and, more importantly, r 2.06.
The Full Court concluded that especially in cases of bankruptcy, the de novo rehearing should be heard as soon as is reasonably practicable and explained that this was so by reason that a sequestration order changed “the status of a debtor, enlivens powers of a trustee and brings about changes to property. Delay is not only prejudicial to the debtor or bankrupt, but also to the creditor and potentially to members of the public”: [176]. It is useful to recognise the public and private aspects of proceedings for a sequestration order. As concerns the debtor, the immediate change in status and potential quasi-criminal consequences have been noted. So too, the property of the debtor vests in a trustee who assumes control of the estate. As concerns the petitioning creditor, the making of the order involves, in practical and legal effect, the substitution for a right to enforce a liability by way of execution, with a right to participate rateably in the property of the bankrupt that is available for distribution to all creditors of the estate. As concerns other creditors, the order forecloses them from pursuing legal proceedings, establishing liability by judgment and requires that they share rateably in the bankrupt’s estate. Other creditors are thereby foreclosed from effecting execution against a debtor for recovery of their total liability. Further, as concerns the wider public interest, there is the dual interest in seeing that persons who are not insolvent are not made bankrupt and that the estate of those who are be administered in an orderly manner for the benefit of all creditors.
The change of a debtor’s status does not deprive a bankrupt of his or her Constitutional guarantee to apply for review of that exercise of power. The entitlement is to a de novo hearing. Defining the scope and content of the review is to be determined by reference to the jurisdiction, powers, composition and functions of the Registrar (from whose decision the review lies), and the powers and functions of the court in whom the power of review is reposed. Those matters have been considered. Since the court is obliged to conduct a full hearing of the petition afresh and in which the hearing of the petition begins ‘again’, ‘afresh’ and ‘anew’, it is difficult to see why on review a debtor is in any way relieved of the obligations to inform the petitioning creditor and the court of his or her intention to oppose the relief being sought, to give notice identifying the grounds of such opposition and to make an affidavit in support of those grounds. In short, there is no reason to conclude that an applicant, against whom a sequestration order has been made, should be in some position of advantage on a de novo review by reason that no notice of grounds (or supporting affidavit) for opposing a petition have been filed. For those reasons, I do not accept the submission that upon de novo hearing of the creditor’s petition, Ms Bechara was relieved of the obligations which attach upon a debtor who intends to participate in a hearing and to oppose the grant of relief.
(3) Procedural framework – creditor’s petitions
The “proper administration of the bankruptcy jurisdiction” is addressed by the Bankruptcy Rules and “reflect the accumulated experience and wisdom of courts administering this important jurisdiction over many years. They also provide a disciplined framework for judges and Registrars to adopt when exercising the jurisdiction”: Culleton (2017) 343 ALR 632, [109]; see also, Bechara v Bates [2021] FCAFC 34, [74], [91].
The Bankruptcy Rules are rules made under the FCC Act: r 1.03: FCC Act, s 81. Those rules, approved by judges of the court, represent the current promulgation of rules regulating the proper administration of its bankruptcy jurisdiction. They are harmonised with the provisions of the Bankruptcy Rules. Earlier promulgations of such rules were the Federal Circuit Court (Bankruptcy) Rules 2006, the Federal Court Rules 1977 and were drawn from earlier state based rules and rules made under bankruptcy acts of the United Kingdom. The Bankruptcy Rules were part of a significant regulatory reform of Australia’s insolvency laws as effected by the Insolvency Law Reform Act 2016 (Cth) which gave additional effect to the protective nature of the bankruptcy jurisdiction. One product of that reform was to retain the requirements of the Bankruptcy Rules in controlling the conduct of a hearing of a creditor’s petition.
Unless the court otherwise orders, the Bankruptcy Rules apply to a proceeding in the court to which the Act applies: r 1.04(1). To the extent that they are relevant and not inconsistent with the Bankruptcy Rules, the FCC rules also apply to a proceeding under the Act: r 1.04(2). Rule 1.07 concerns the subject, Forms, and provides for the approval of designated forms as may be required for the purpose of the Bankruptcy Rules. Rule 1.07(4) addresses the issue of compliance with the Bankruptcy Rules in cases where a document is substantially in accordance with an approved form, or only has such variations as the nature of the case requires: see also, Acts Interpretation Act 1901 (Cth), s 25C. Forms prescribed for use in proceedings under the Act represent part of the streamlined process that has been approved to secure the proper administration of the bankruptcy jurisdiction and include a prescribed form to be used as a notice of appearance (Form B4), a notice stating grounds of opposition to application, interim application or petition (Form B5), and affidavits: cf FCC Act, par 3(2)(b).
When presenting a petition, a creditor must use the prescribed form to do so. The creditor must verify the petition by an affidavit by a person who knows the relevant facts: Act, s 47(1), 47(1A); Bankruptcy Rules, r 1.07; see also, Culleton (2017) 343 ALR 632, [104].
Where a creditor’s petition is founded upon an act of bankruptcy specified in par 40(1)(g) of the Act, the petition must be accompanied by certain affidavits: Bankruptcy Rules, rr 4.04(1). A creditor seeking the making of a sequestration order must conduct searches and file certain documents and affidavits immediately prior to the hearing of the creditor’s petition so as to satisfy the court that the debt upon which reliance was placed is still owing and to identify whether the NPII contains any references to the debtor and confirms that there are no details on the NPII of a debt agreement about the debt on which the creditor relies: r 4.05, 4.06.
Part 2 of the Bankruptcy Rules, General, comprises rr 2.01 – 2.06. While parties may adjourn a first hearing date of other proceedings by consent, they may not adjourn a creditor’s petition by consent: FCC rules, r 10.05; Bankruptcy Rules, r 2.05. Relatedly, where a debtor applies for review of a Registrar’s decision, it too must be listed as soon as possible and, unless it be impracticable to do so, within 14 days: FCC rules, r 20.02(2).
The Bankruptcy Rules confer an entitlement, constrained by the requirements they state, upon a debtor or other person who intends to appear on the hearing of a petition and to oppose it. Where a debtor intends to take part in the hearing of a creditor’s petition, she or he must file a Notice of Appearance in prescribed form: r 2.04. A debtor may appear as of right, while persons who are not a party to the petition, can only take part in the hearing by leave: r 2.03(1). As noted, where, relevantly, a debtor intends to oppose the petition, r 2.06 is engaged.
Accepting the right to seek review pursuant to s 104(2), entitlements to appear, to participate in a hearing and to oppose a petition are not at large. They remain subject to all proper procedural controls including those under the Bankruptcy Rules and by case management. Part 2 of the Bankruptcy Rules addresses two matters concerning debtors who intend to appear at a hearing and who seek to oppose a creditor’s petition, Appearance at hearing (r 2.04), and Opposition to application . . . or petition (r 2.06). Relevantly, those rules read:
2.04 Appearance at hearing or examination
A person who intends to appear at the hearing of [a] . . . petition, . . . must file a notice of appearance in accordance with Form B4.
2.06 Opposition to application, interim application or petition
A person who intends to oppose an application . . . a petition must, at least 3 days before the date fixed for the hearing of the . . . petition, or, with the leave of the Court, at the hearing:
(a)file a notice of appearance in accordance with Form B4; and
(b)file a notice in accordance with Form B5 stating the grounds of opposition; and
(c)file an affidavit in support of the grounds of opposition; and
(d) serve the notices and supporting affidavit on the applicant.
As the text of r 2.06 makes clear the obligations it imposes apply to the hearing of a petition.
The evident and important purpose of r 2.04 is to create an obligation that a debtor who wishes to oppose a petition must inform a creditor that he or she intends to appear at the hearing. The giving of that notice implicitly informs a petitioner of the likelihood that the petition will be opposed and so be on notice of the requirement to satisfy the court of proof of the matters in the petition. Further, the plain object of r 2.06 to file and serve a notice in prescribed form stating the grounds of opposition together with an affidavit in support, in advance of the hearing, is to inform the petitioning creditor and the court of those intended grounds and to require that any evidence that is to be relied upon in support of those grounds has been reduced to writing. In more recent iterations of the Bankruptcy Rules, the scope of the obligation to give notice of the grounds relied upon in opposing the making of a sequestration order has been augmented by the addition of a requirement to make an affidavit in support of those grounds.
Rule 2.06 is expressed in imperative and cumulative terms. The rule, as applied to a debtor who intends to oppose a petition, reflects principles of ‘enduring’ importance “that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt”: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137, 148; Culleton (2017) 343 ALR 632, [36]-[38].
The requirements to make, file and serve “an affidavit in support of the grounds of opposition”, operate in the context of the differing onus of proof that is born by a creditor and debtor in relation to the matters addressed by s 52(1)-(2) respectively. Both the text of r 2.06(c) and the context in which it appears (in rules concerned with procedures for the proper administration of bankruptcy laws), express requirements concerned to govern the steps that must be taken by, relevantly, a debtor who intends to appear, participate in a hearing and oppose a petition. Rule 2.06 forms part of the streamlined process to assist a congested court and assist it in the prompt determination of petitions in a context where orders may effect a fundamental change to “the status of the debtor to a bankrupt and affects the rights of creditors”: cfJones v Thomson [2017] FCA 125, [66]; see also, Bechara v Bates [2021] FCAFC 34, [173].
Accepting that s 104 of the FCC Act serves to secure the Constitutional guarantee upon which delegation of judicial power depends, especially where a fundamental change to a debtor’s status has occurred, the entitlement to seek a hearing afresh of a petition nonetheless remains subject to all proper procedural orders, and, by extension, compliance with the rules which constrain the entitlement to oppose a petition: cf Bechara v Bates [2021] FCAFC 34, [74]. Especially is that so where the s 104(2) application is to be determined promptly. As concerns the entitlement to a de novo hearing of a creditor’s petition, s 104 operates upon a premise that the Bankruptcy Rules apply to the original hearing of the petition. Expressed in other terms, why is the court and the petitioning creditor not entitled to understand, in advance of a de novo hearing, what are the precise grounds upon which a petition is being opposed? There is every reason to conclude that compliance with the imperative obligations in rr 2.04 and 2.06 assumes greater importance once the entitlement to seek review under s 104(2) has been engaged.
This de novo hearing is governed by the 2016 Bankruptcy Rules and FCC rules. The requirement upon persons wishing to oppose a petition to file grounds of opposition and a supporting affidavit are of long-standing (appearance, grounds and supporting affidavit) and have existed, for over a century: see Federal Court Rules 1977, Or 77, rr 9, 11. While Or 77 was replaced in its entirety by the Federal Court Rules (Amendment) 1997, those substantive requirements were restated. Each of those rules contained prescribed forms, including for a notice of intention to oppose any application (Form 149) and a creditor’s petition (Form 150). The 1977 and 1997 rules each permitted a party wishing to oppose a petition to file such documents at a hearing “with the Court’s consent.” This safeguard, which existed to allow an indulgence to debtors who, through inadvertence, had failed to comply with the rules, was not intended to permit a ground of opposition to be concealed until closing address.
In applying for a review of a Registrar’s decision to make a sequestration order, the applicant for review: must use a prescribed form of application (Form B3A); must serve the trustee at least seven days before the date fixed for the hearing; must give notice of the application to each person known to be a creditor, and, must serve notice of the application on each creditor at least seven days before the hearing date: Bankruptcy Rules, Div 7.2, r 7.05. More broadly, corresponding imperative obligations are also imposed upon persons seeking to discharge various summons for examination: cf rr 6.05, 6.11, 6.16. In each such case, a person applying for the discharge of any summons: must file their application in accordance with a prescribed form; must file an affidavit setting out the grounds in support of the application, and; must file their application and supporting affidavit before the date fixed for the examination.
Nothing in rr 2.04, 2.06 or Div 7.2 of Pt 7 of the Bankruptcy Rules contain any indication suggesting that a person who seeks to exercise the Constitutional guarantee conferred by s 104(2) of the FCC Act is in any way relieved of the anterior obligations imposed by rr 2.04 and 2.06 to file a notice of appearance, a notice of grounds of objection to the grant of a petition and an affidavit in support of those grounds or from serving such documents at least three days before the hearing of the creditor’s petition. There is every reason why those rules are also intended to streamline the process on de novo review, particularly in light of the prejudicial effect of delay upon a debtor, petitioner and other creditors: cf Bechara v Bates [2021] FCAFC 34, [92], [176]; cf Bechara v Bates (No 2) [2020] FCA 659, [30]. Any other conclusion would be inimical to the proper administration of the bankruptcy jurisdiction.
(4) Grounds of opposition to relief & affidavit
Mr Martin submitted that for the purposes of a de novo hearing of a petition, rr 2.04 and 2.06 were “utterly irrelevant” and did not apply to a de novo review (Transcript, P-63.40-45, 73.45). For the reasons above and upon the authorities considered below, I disagree.
The consequences, if any, flowing from failure to comply with rr 2.04 and 2.06 must necessarily depend upon the circumstances of each particular case. The issue assumes particular importance in the present de novo hearing. Mr Martin was emphatic in his submission that, Ms Bechara’s application having been remitted, the court would commit serious error to conclude, having exercised her entitlement to seek review of the Registrar’s exercise of power, that Ms Bechara was nonetheless obliged to comply with rr 2.04 and 2.06 in relation to a
de novohearing of Mr Bates’ petition. No decision was cited in support of the position he advanced. The opportunities afforded to the parties to make submissions on the issue were not taken. The principles considered below are important as informing the approach to be taken in the proper determination of the hearing of a creditor’s petition, including a
de novohearing. From the authorities considered, the following propositions may be stated:
(a)rr 2.04 and 2.06 form an essential part of the procedural framework within which a Bankruptcy Court is to determine, promptly, a creditor’s petition;
(b)upon presentation, a creditor must support a petition by an affidavit deposing to matters stated in it. Equally, when a debtor intends to appear at, and oppose, a petition, notice must be given of the grounds on which it is intended to do so. The symmetrical nature of the procedures to be adopted in the proper administration of bankruptcy is apparent. The essential purpose of the notice is to identify each of the matters which a debtor intends to rely upon in opposing the petition. Conversely, it is not the intention of the entitlement to appear at a petition, either at the hearing or on a de novo hearing, that the matters which a debtor intends to dispute only be exposed for the first time in cross-examination let alone in closing submissions;
(c)the primary function of the creditor’s verifying affidavit is to impose a requirement for acceptance of the presentation of a petition that it be supported by some sworn evidence. Once a debtor intends to oppose the petition, depending on the grounds of opposition, the function of the verifying affidavit may be spent. While the court remains bound to discharge its duty to consider for itself whether or not it is satisfied of proof of the matters required by s 52(1), where notice of grounds of opposition identify the particular bases why a petition is to be challenged, those grounds further define what the Bankruptcy Court must consider;
(d)notice of the grounds upon which it is intended to oppose a petition ought to be stated with particularity and supported by affidavit. That is so, irrespective of whether the intended grounds are directed to the matters in the petition, including jurisdiction, service, compliance with the Bankruptcy Rules, solvency or some other sufficient cause. Nonetheless, the court may be satisfied that an objection is ‘dilatory.’ Lack of clarity or ambiguity about the nature of a debtor’s intended grounds of opposition inform the approach to be taken at the hearing, including on a de novo hearing;
(e)despite failure to give notice of grounds of opposition, the court does not dispense with proof of the matters required by the Act or rules. Further, until there has been a proper investigation of a bona fide issue, a Bankruptcy Court should not proceed to make a sequestration order where it is shown that the opposition to the petition “is based on genuine and arguable grounds”. In either situation, the court remains subject to a duty to examine the underlying facts together with the due observance of relevant provisions of the Act and rules. Opaque, ambiguous or dilatory grounds are in another category;
(f)while a notice of the intended grounds of opposition triggers a requirement to prove ‘afresh’ the matters that are distinctly put in contest, it is not a purpose of the Bankruptcy Rules that a failure to comply with rr 2.04 or 2.06 entitles a creditor to relief without satisfying the court of the matters required by s 52(1);
(g)irrespective of a debtor’s failure to appear, file notice of grounds, evidence or submissions, the court must be satisfied whether a sequestration order ought be made, including upon a de novo hearing of a petition. Upon failure to file any notice or affidavit complying with 2.06, in a particular case, a debtor may be disentitled at a hearing or a de novo hearing from leading evidence in support of a ground. Although a court may adjourn the hearing of a petition to allow a debtor to adduce evidence, there may be no utility in doing so if it is not shown that there is a bona fide ground of opposition to the grant of relief sought by the petition;
(h)the extent of proof that is to be required of a creditor is informed by the grounds on which a debtor intends to oppose the petition and the manner in, and time at, which those grounds have been revealed by the debtor. Absent notice of the grounds upon which a debtor intends to oppose a petition, it is for the court to determine what it will require to be proved. The court “may require proof of such of the matters in the petition as the court thinks right”. It is within the ambit of its discretion not to require proof of matters “outside the notice” and, by extension, not to require strict proof of matters not in any notice. The court retains discretion to adjourn a hearing so as to allow an opportunity to address the want of proof, including of the matters required by s 52(1). It retains discretion to refuse to consider grounds of which no notice is given;
(i)the approach to be taken by the court where a debtor has belatedly identified an intended ground of opposition, involves matters of practice and procedure;
(j)the approach to such matters is necessarily constrained by the special need to determine a de novo hearing of the exercise of power by a Registrar to make a sequestration order as soon as possible. Parties should not approach a de novo hearing as only being an inter partes proceeding or assume that the court may not direct them to proceed without delay. Unless it is impracticable to do so, the public interest of avoiding delay is high.
These propositions are drawn from or informed by the following authorities.
Neither of the managing clerk’s 2016 affidavits addressed the requirements of rr 4.04(1)(a)(ii) or (iii) or r 4.04(3). In the result, at the time of service of the amended petition, there was no affidavit served on Ms Bechara as required by those rules stating, relevantly, whether: an application had been made by Ms Bechara in relation to the bankruptcy notice (as had occurred); Ms Bechara’s application to set aside the bankruptcy notice had been dismissed on 5 April 2016, and; thereby, her applications for an extension of time to comply with the notice and to set aside the notice had been finally decided. Apart from the omission to serve with the amended petition an affidavit stating the matters required by r 4.04(1)(a)(ii) or (iii), nor was there attached to any affidavit a copy of the order made on 5 April 2016 (ABI, Doc B3).
Contextually, one of the annexures to Mr Bates affidavit made on 13 May 2021 was a copy of the order made on 5 April 2016 dismissing Ms Bechara’s application to extend the time for compliance with and set aside the bankruptcy notice. While a copy of that order had not been served with the amended petition or before the hearing on 5 July 2016, it had been served on 13 May 2021, before the completion of the de novo hearing of the petition.
(3) Rule 4.05
Rule 4.05, which addresses the subject, Documents to be served, reads:
Unless the Court otherwise orders, at least 5 days before the date fixed for the hearing of the creditor’s petition, the applicant creditor must serve on the respondent debtor:
(a) the creditors petition; and
(b)a copy of the affidavit, or affidavits, verifying the petition required by subsection 47(1) of the Bankruptcy Act; and
(c)if applicable, a copy of the affidavits relating to the petition required by rule 4.04; and
(d)a copy of any consent to act as trustee of the debtor’s estate filed under section 156A of the Bankruptcy Act.
In contrast with r 4.04, the obligations created by r 4.05 are concerned with requirements for service, no later than 5 days before the date fixed for the hearing of the petition, on the debtor of certain documents. Those documents are identified by pars 4.05(a)-(d).
I am satisfied that the requirements of r 4.05(a)-(b) were complied with. The sequestration order was made by the Registrar on 5 July 2016. More than five days before that date, service was effected of the amended petition which contained the verifying affidavit. Inserted in the amended creditor’s petition exhibited to the affidavit of service, was the time, date and place to which the hearing of that petition had been adjourned.
For the reasons above, r 4.05(c) had not been complied with. That is because there had not been served either with the amended petition, or five days before the date fixed for the hearing of the petition, an affidavit stating the matters required by rr 4.04(1)(a)(ii) or (iii) and the order made on 5 April 2016 had not been attached to any such affidavit: r 4.04(3).
It was further submitted there had been a failure to comply with r 4.05(d) in that Ms Bechara had not been served, at any time, with a copy of any consent to act as trustee filed under s 156A of the Act. The submission was misconceived. The obligation in par 4.05(1)(d) to serve upon the debtor “any consent to act as trustee of the debtor’s estate filed under section 156A of the Bankruptcy Act” necessarily assumes that such a consent has been filed. The obligation to do so is not engaged where, as here, no such consent has been filed. As provided by s 160 of the Act, and as has occurred in this case, the Official Trustee is the trustee of the estate. In evidence on the de novo hearing, was a letter from the Official Trustee dated 3 February 2021 together with evidence of the Official Trustee’s statutory appointment.
During argument before the Full Court, a copy of the trustee’s appointment was printed for and supplied to the parties who have had that appointment since February 2021.
However, neither before the Registrar, nor in this court, was there evidence that Mr Bates had served before the date fixed for the hearing of the amended petition, affidavits addressing the matters required by pars 4.05(c) being the r 4.04 affidavit or attached 5 April 2016 order.
(4) Rule 4.06
Rule 4.06, which addresses the subject, Additional affidavits to be filed before hearing reads, insofar as is material to the present proceeding:
(1)Before the hearing of a creditor’s petition, the applicant creditor must comply with this rule.
(2)The applicant creditor must file an affidavit that:
(a)states that the documents required to be served under rule 4.05 have been served, and when and how they were served; and
(b)has attached to it a copy of the documents that were served and proof of service in relation to the documents.
(3)The applicant creditor must file an affidavit, of a person who has, no earlier than the day before the hearing date for the petition, National Personal Insolvency Index, that:
(a)-(c). . .
(4)The applicant creditor must file an affidavit of a person who knows the relevant facts that:
(a)-(b). . .
(5). . .
Compliance with r 4.06(3) and (4) was not contested. Rule 4.06(5) is not relevant.
Rule 4.06 imposes requirements that must be observed before the hearing. Neither before the Registrar, nor in this court, had an affidavit been filed complying with r 4.06(2); namely, an affidavit stating that the documents required to be served under r 4.05 had been served, nor when and how they were so served. Nor were such documents exhibited to that affidavit.
Non-compliance with that rule occurred in the circumstances and in the context of the matters which have been addressed above.
CONCLUSION
These reasons explain why I have rejected the submission that the obligations to file and serve a notice of address for service, a notice stating each ground on which it was intended to oppose the petition and an affidavit in support of each ground are not utterly irrelevant or otiose for the purposes of a de novo hearing of the petition. They also explain why I am satisfied by proof of each of the matters stated in the petition including the facts necessary to engage the jurisdiction of this court to make a sequestration order. Service of the petition and the fact the debts upon which reliance was placed are still owing have each been proved. I have concluded that Mr Bates has a prima facie entitlement to the making of a sequestration order.
The first and second ground of opposition to the petition have been rejected.
The third, and principal, ground of opposition – non-compliance with the Bankruptcy Rules – has been addressed. The consequences of non-compliance with these requirements fall to be decided at a later time. Mr Bates has filed a written reply and confirmed his willingness to rely upon that submission and so obviate the need. Orders will be made to allow for the further adjournment of the hearing in order that, once Mr Martin has been able to obtain access to his file, he will be able to address the issues presented by s 306(1) of the Act and whether upon those bases his client has discharged the onus under par 52(2)(b) of satisfying the court that for other sufficient cause a sequestration order ought not be made.
I certify that the preceding three hundred and thirty-four (334) numbered paragraphs are a true copy of the Reasons for Judgment of Judge A Kelly. Associate:
Dated: 5 August 2021
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