Bates v Bechara (No 3)
[2021] FedCFamC2G 155
•15 October 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)Bates v Bechara (No 3) [2021] FedCFamC2G 155
File number(s): SYG 821 of 2016 Judgment of: JUDGE A KELLY Date of judgment: 15 October 2021 Catchwords: BANKRUPTCY – application for review of exercise of power by registrar – creditors petition – de novo hearing – creditor establishes prima facie entitlement to the making of sequestration order – whether debtor has satisfied the court petition should be dismissed – where solvency not in issue – whether for other sufficient cause sequestration order ought not be made – where in closing address for first time new ground for opposing petition that creditor had not complied with Federal Circuit Court (Bankruptcy) Rules 2016 – where some instances of alleged non-compliance not made out and in other instances are established – applicable principles – whether non-compliance constitutes other sufficient cause – whether petition defective or invalidated by irregularity – no defect – non-compliance constitutes irregularity – effect of irregularity – s 306(1) engaged automatically unless court of opinion substantial injustice has been caused – no evidence of prejudice – no actual prejudice demonstrated – where absence of evidence or claim preclude finding of prejudice – objection not taken at any point between institution of proceeding in 2016 and closing address in 2021 – proceeding not invalidated – debtor does not satisfy court for other sufficient cause that sequestration order ought not be made – residual discretion in s 52 does not favour refusal of relief – order affirmed. Legislation: Bankruptcy Act 1966 (Cth), ss 30, 41, 52, 306
Federal Circuit and Family Court of Australia Act 2021 (Cth), ss 100, 189
Federal Circuit Court Act 1999 (Cth), ss 57, 104
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth), rr 1.04, 2.04, 2.06, 4.02, 4.04, 4.05, 4.06
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth), r 1.07
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr 1.04, 2.04, 2.06, 4.02, 4.04, 4.05, 4.06
Federal Circuit Court Rules 2001 (Cth)Public Health (Covid-19 Temporary Movement and Gathering Restrictions) Order 2021 (NSW)
Cases cited: Adams v Lambert (2006) 228 CLR 409
Bates v Bechara [2021] FCCA 1693
Bates v Bechara (No 2) [2021] FCCA 1809
Bechara v Bates (2021) 388 ALR 414
Carver v de Robillard (2006) 5 ABC(NS) 21
Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632
Curtis v Singtel Optus Ltd (2014) 225 FCR 458
Deputy Commissioner for Taxation v Woodhams (2000) 199 CLR 370
de Robillard v Carver (2007) 159 FCR 38
Grant v Green and Associates Pty Ltd [2021] FCA 934
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Malek v Macquarie Leasing Pty Ltd (2007) 156 FCR 552
Martin v Commonwealth Bank of Australia (2001) 217 ALR 634
Napiat Pty Ltd v Salfinger; Re Salfinger (No. 7) (2011) 202 FCR 264
Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143
Totev v Sfar (2008) 167 FCR 193Division: Division 2 General Federal Law Number of paragraphs: 68 Dates of hearing: 14 May, 8 June, 11 June, 19 July, 26 July, 2 August and 13 October 2021 Place: Melbourne Applicant: In person Respondent: No appearance ORDERS
SYG 821 of 2016 BETWEEN: PHILIP BATES
Applicant
AND: MARIA BECHARA
Respondent
ORDER MADE BY:
JUDGE A KELLY
DATE OF ORDER:
15 OCTOBER 2021
ORDERS AND DECLARATIONS:
1.Pursuant to ss 202-203 of the Federal Circuit and Family Court of Australia Act2021 (Cth), direct that the parties be allowed to appear and to make submissions before the Court by video and audio link.
2.Declare that the amended creditor’s petition filed on 17 May 2016 is not invalidated for want of non-compliance with rr 4.04(1), 4.04(3), 4.05(c) or 4.06(2) of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) or, insofar as they are applicable, the equivalent provisions of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth).
3.The sequestration order made against the estate of the respondent on 5 July 2016 be affirmed.
4.The interim application filed on 25 July 2016 seeking review of the exercise of power by a registrar of the court pursuant to s 104(2) of the Federal Circuit Court Act 1999 (Cth) be dismissed.
5.Within 7 days of this order the petitioner file and serve any submissions (not exceeding four pages), and annexing a draft proposed order disposing of any question of costs.
6.Within 7 days after service of the submissions and draft order pursuant to paragraph (5) of this Order, the respondent file and serve any submissions (not exceeding four pages) and annexing a draft proposed order in relation to of any question of costs.
7.Any issue of costs be decided on the papers.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE A KELLY
Introduction
These reasons for judgment explain why orders were made dismissing an interim application filed on 25 July 2016 pursuant to s 104(2) of the Federal Circuit Court Act 1999 (Cth) (FCCA) seeking review of a decision made by a registrar on 5 July 2016 to make a sequestration order against the estate of the respondent debtor, Ms Bechara. These reasons should be read with Bates v Bechara [2021] FCCA 1693 which addressed the procedural history and Bates v Bechara (No 2) [2021] FCCA 1809 which, so far as material, concluded Mr Bates had established upon this de novo hearing of his petition, a prima facie entitlement pursuant to s 52(1) of the Bankruptcy Act 1966 (Cth) (Act) to the making of a sequestration order. These reasons incorporate the findings and defined terms employed in the earlier decisions.
A discretionary factor relied upon by the debtor in obtaining an order for remitter of the application for a review of the registrar’s power had been that she should be free to put her solvency in issue: Bechara v Bates (2021) 388 ALR 414, [45], [166]. In the event, no evidence of solvency was led: Bates v Bechara [2021] FCCA 1693, [15]-[16]. Solvency not being in issue, the only question remaining was whether Ms Bechara had satisfied the court that for other sufficient cause a sequestration order ought not be made: Act, par 52(2)(b).
At no stage has the debtor filed a notice of grounds of opposition to the petition or any affidavit in support of those grounds. As noted in Bates v Bechara (No 2), I disagreed in the debtor’s submission that a notice of grounds of opposition to a creditor’s petition was ‘utterly irrelevant’ to the de novo hearing to the petition: [2021] FCCA 1809, [14], [59]-[60], [91], [107], [295].
At the hearing, three grounds were advanced in opposition to the petition.
The first ground (service), being the only ground foreshadowed in the debtor’s submissions before me, was abandoned in circumstances where it had in fact been conceded in an appeal before the Full Federal Court: Bates v Bechara [2021] FCCA 1693, [54]-[62]. As the Full Court observed in relation to the first de novo hearing in 2016, “By this time, she plainly knew of the petition and no issue of service could sensibly arise at the de novo rehearing in December 2016.”: Bechara v Bates (2021) 388 ALR 414, [52]. Yet it was the only ground notified in advance of the de novo hearing upon remitter by the Full Federal Court in 2021.
The second ground (jurisdiction) only emerged in cross-examination, as a result of which the petitioner, who had been taken by surprise, was granted leave to adduce further evidence: Bates v Bechara [2021] FCCA 1693, [18]. The objection based on jurisdiction was rejected: Bates v Bechara (No 2) [2021] FCCA 1809, [182]-[269].
The third and ‘principal’ ground of opposition, which was only raised in closing address, was that at the time of service of his amended petition and the hearings of the creditor’s petition before the Registrar and on this de novo review, Mr Bates had failed to comply with certain provisions of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules): Bates v Bechara [2021] FCCA 1693, [18], [135]-[138]. Certain contentions of procedural error were factually accurate. Section 306(1) of the Act concerns the invalidity of proceedings by reason of formal defects and irregularities. Since this ground had not been raised earlier, the petitioner was afforded an opportunity to consider the matter in reply and for which an adjournment was required since all available sitting time had been taken up by the debtor.
Save as to the petitioner’s reply, the hearing was at an end. The debtor’s advocate accepted that the only reason s 306 was being raised in reply was because his objection to compliance with the Bankruptcy Rules had been raised for the first time in his closing address: Bates v Bechara: [2021] FCCA 1693, [270]. The debtor’s advocate 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: Bates v Bechara (No 2) [2021] FCCA 1809, [24]. Responding to those matters, the petitioner stated he was content to rely upon his written reply: Bates v Bechara (No 2) [2021] FCCA 1809, [26].
In all of those circumstances, and where the Full Court had directed the de novo hearing be heard as soon as was reasonably possible, I decided the issues raised in the hearing to this point including upon contentions as to want of compliance with the Bankruptcy Rules but determined to afford the parties a final opportunity to address the operation of s 52(2) insofar as any non-compliance with the Bankruptcy Rules may be affected by the operation of s 306(1) of the Act: Bates v Bechara (No 2) [2021] FCCA 1809, [29], [285]-[287], [334].
The reasons given in Bates v Bechara (No 2) [2021] FCCA 1809 contain my conclusions, relevantly, in relation to: the conduct of the de novo hearing, [164]-[165]; jurisdiction, [169], [172]-[269]; acceptance of an act of bankruptcy, [170]-[171]; proof of the matters required by s 52(1), [272]-[284]; dismissal of the petition pursuant to s 52(2), [285]-[291], and; the debtor’s objection based upon rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules: [292]-[331].
In the intervening period, an order was made which resulted in the lockdown of Great Sydney. Mr Martin objected to the court hearing Mr Bate’s reply in circumstances where, he said, he could not obtain access to his file during the Greater Sydney lockdown. He relied upon the Public Health (Covid-19 Temporary Movement and Gathering Restrictions) Order 2021 (NSW) (Order), doing so without referring to any particular provision of that Order. The debtor sought but was refused an open ended adjournment until the end of the lockdown. Upon my consideration of the applicable regulations, they did not have the unqualified effect asserted by the debtor’s advocate. I was not persuaded the debtor had demonstrated good reason why the court should allow an open ended adjournment of the proceeding where the only step then outstanding was an oral reply: Bates v Bechara [2021] FCCA 1693 at [135]-[284]. An oral reply is no longer required. At no stage was any submission made identifying the substantive basis upon which the Order prohibited or prevented the debtor’s advocate from entering Greater Sydney obtaining his file or prohibited or prevented his staff from collecting it and arranging for its delivery to his farm. Nor was any submission made identifying any sustainable proposition which the debtor had been prevented from putting. Nor was serious injustice identified so as to warrant the continued deferral or conclusion of this hearing.
An adjournment was granted to afford the debtor’s advocate a limited opportunity to obtain access to his file. A week later, on 2 August 2021, after publication of the first reasons, the debtor made an oral application for a further adjournment, relying on circumstances that had not been previously conveyed to the court. The adjournment was not opposed by Mr Bates. Despite the absence of any notice or evidence, orders were made to adjourn hearing pending the easing of the temporary restrictions on movement effected by the Order: Bates v Bechara (No 2) [2021] FCCA 1809, [19]-[29].
When it became apparent that those temporary restrictions were to be eased, the court notified the parties that the matter would be relisted. On 11 October 2021, the solicitor-advocate who had acted for the debtor wrote to the court and copied the solicitor who had retained him to appear, Mr Payne of HWL Ebsworths, stating that he no longer held instructions to act for the debtor. Nothing further was said to explain the circumstances in which he no longer held instructions, including whether his retainer had been terminated or he had declined to act further. There was no evidence of when HWL Ebsworths had withdrawn their instructions or when they had been instructed by the debtor to do so. The paucity of information on the withdrawal of instructions was notable in the face of findings made in the first reasons which identified restrictions upon the ability of an advocate, without leave, to withdraw their appearance at a hearing: [2021] FCCA 1691, [280]-[284]. The petitioner’s lawyers were asked to communicate with the debtor and her lawyer, Mr Payne, reminding them the matter was listed (the advocate’s letter dated 11 October 2021 having been copied to Mr Payne.)
When the matter was called on 12 October 2021, the petitioner appeared. Two calls were made for the debtor who did not appear. There was no appearance by Mr Payne (who had appeared on several occasions since 2016). No communication was received from the debtor or her solicitor in relation to the matter (then or thereafter). Having confirmed that the petitioner was content to rely upon his written reply submission, I reserved my decision.
For the reasons below, I have concluded that to the extent there has been non-compliance with the Bankruptcy Rules, this did not invalidate the petition. Within the meaning of s 306(1) of the Act, no defect in any document or the proceeding has been identified. Rather, such non-compliance as has occurred involved irregularities within the meaning of s 306(1). The material substantive failures to file an affidavit stating that on 5 April 2016 Ms Bechara’s application to set aside and extend the time for compliance with the bankruptcy notice had been dismissed (and to exhibit a copy of the order made), did result in non-compliance with several rules as explained in Bates v Bechara (No 2) [2021] FCCA 1809, [292]-[331].
Each procedural failure constituted an irregularity which was not of a substantive kind. Consequently, in the first instance, s 306(1) operated automatically, to save the petition from invalidity. Section 306, however, may operate to invalidate a petition in the circumstances for which it provides including where the court declines to exercise discretion to remedy a formal defect or irregularity or by making orders that might avoid substantial injustice. Here, the first time objection was made to the making of the sequestration order grounded upon non-compliance with those rules was over five years after the petition was served. No evidence was filed in support of the objection. Upon the submissions made, I am not satisfied of any actual or substantial injustice being caused by the irregularities of which complaint is belatedly made. Had I been of the opinion that injustice of the requisite kind might be caused, orders would have been available to remedy it, however, no such orders are required. Had I been persuaded of prejudice, I would have declined to dismiss the petition on this basis as constituting some “other sufficient cause”: Stratton v Bowles (No 2), [2015] FCA 43, [27].
Applicable principles - invalidity
The Act recognises that, on occasion, proceedings may entail error. Section 306(1) provides:
306 Formal defect not to invalidate proceedings
(1)[In proceedings] Proceedings under this Act are not invalidated by a formal defect or any regularity, unless the Court before which the objection on that ground is made is of 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.
(2)[In appointment] . . . .
Upon my consideration of s 306(1) and the authorities which address it, the section operates at a number of levels. First, it has no application in relation to defects which are not formal. Non-formal, or substantive, defects invalidate a proceeding and s 306 cannot save it. Secondly, formal defects or other irregularities may not, without more, invalidate a proceeding. Thirdly, as respects formal defects and irregularities, s 306(1) operates automatically to save a proceeding from invalidity unless the other requirements of that section, including discretionary powers, are engaged. Fourthly, where s 306(1) may operate, it is not engaged unless an objection has been taken as to the validity of the proceeding on a ground which might invalidate the proceeding. Fifthly, where objection is taken, the objector bears the onus of identifying the relevant injustice and of satisfying the court it should be regarded as being ‘substantial’ in all the circumstances. Sixthly, whether or not a formal defect or irregularity may invalidate a proceeding depends upon the court having formed an opinion that it has been satisfied by the objector of a potential for substantial injustice arising from such defect or irregularity in the proceeding. Seventhly, invalidity may not result where the court is satisfied that the injustice cannot be remedied by an appropriate order (such as an adjournment). Eighthly, in such cases, there is reserved in the court a discretionary power to conclude the proceeding is not invalidated where substantial injustice may be ameliorated by making orders to address the effect of the formal defect or invalidating event.
The power conferred by s 306(1) should be read in the context of par 30(1)(b) of the Act which confers power on a Bankruptcy Court to make such orders as it considers necessary for the purposes of carrying out or giving effect to the Act in any case or matter. Further, s 57(1) of the Federal Circuit Court Act 1999 (Cth) provides that the court may, on such conditions (if any) as the court thinks fit, make an order declaring that the proceeding is not invalid by reason of a defect that it considers to be formal or by reason of an irregularity. That power is now replicated in s 189 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FC&FCAA).
The rules applied in bankruptcy also inform the scope of the power conferred by s 360(1). In Part 1 of the Bankruptcy Rules, Preliminary, r 1.04, addresses the subject, Application of these Rules and other Rules of the Court. Rule 1.04 confers powers to order that the Bankruptcy Rules do not apply to a proceeding to which the Act applies, and in some circumstances extends, the operation of the Federal Circuit Court Rules 2001 (Cth), to a proceeding under the Act. Rule 1.04 reads:
(1)Unless the Court otherwise orders, these Rules apply to a proceeding in the Court to which the Bankruptcy Act applies.
(2)The other Rules of the Court apply, to the extent that they are relevant and not inconsistent with these Rules, to a proceeding in which the Court to which the Bankruptcy Act applies.
Rule 1.04 is replicated in the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth).
The approach to be taken to the application of s 306 has been considered in a number of seminal authorities: see, e.g., Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71; Adams v Lambert (2006) 228 CLR 409. Other authorities confirm that where rules such as rr 4.04, 4.05 and 4.06 have not been observed, the court may waive or dispense with such compliance: see, e.g., Martin v Commonwealth Bank of Australia (2001) 217 ALR 634, [16]; Totev v Sfar (2008) 167 FCR 193, [15]; Napiat Pty Ltd v Salfinger; Re Salfinger (No. 7) (2011) 202 FCR 264, [96]; Curtis v Singtel OptusLtd (2014) 225 FCR 458, [58]-[67]; Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632, [108].
Carver v de Robillard (2006) 5 ABC(NS) 21 is instructive. The debtor’s amended notice of grounds of opposition made express challenge to service of the bankruptcy notice and petition. At trial, Lindgren J, observed of r 4.05 that the rule did not exclude the possibility of waiver. His Honour did so in circumstances where the debtor had never filed any appearance and the original notice stating grounds of opposition had not raised any ground as to service. Lindgren J observed that it had long been held that an objection to service must be taken promptly. As concerned ‘Further arguments’, his Honour declined to entertain submissions respecting non-compliance including as to rr 4.02 and 4.06, on the basis that they ‘lay outside’ the debtor’s amended notice of grounds of opposition: [2006] FCA 1041, [1], [38]-[41], [44]-[45].
Although an appeal from the decision was upheld, the order setting aside the petition was made because it was not open to make a finding of service of the bankruptcy notice, a matter of which strict proof is required and is an element of proof required by par 52(1)(b) of the Act: de Robillard vCarver (2007) 159 FCR 38, [1], [66]-[72]. Obiter statements by the Full Court otherwise rejected the debtor’s submission that the proceeding was incurably flawed by reason of non-compliance with the Bankruptcy Rules: [2007] FCAFC 73, [87]-[92]. The Full Court accepted that complaints of non-compliance with rr 4.02, 4.04 and 4.06 were factually accurate but held that non-compliance with those rules did not go to jurisdiction and did not “provide any basis upon which to decide the appeal” in favour of the debtor. Buchanan J, with whom Moore and Conti JJ agreed, rejected the debtor’s submission that the proceeding was incurably flawed by reason of non-compliance with r 4.02: [91]-[95]. In its rejection of a further ground raised on appeal, the Full Court entertained no doubt that the debtor had not suffered any substantial injustice as a result of the demonstrated irregularities under those rules: [121].
Many of the cases which consider s 306 involve bankruptcy notices, as to which great strictness is required: Kleinwort Benson (1988) 165 CLR 71, 81-82 (Deane J). A bankruptcy notice will be invalidated by a defect, other than a formal defect. A defect will be substantive, and not merely formal, if the document “is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.” Kleinwort Benson (1988) 165 CLR 71, 80 (Mason CJ, Wilson, Brennan and Gaudron JJ). In a similar vein, Deane J stated at 83, albeit in dissent as to the result “A debtor faced with the demands of a bankruptcy notice is entitled to expect that the notice does not positively and significantly mislead him about the effect of compliance with its terms”; see also Deputy Commissioner for Taxation v Woodhams (2000) 199 CLR 370, [40] (The Court). In Grant v Green and Associates Pty Ltd [2021] FCA 934, [28] Wigney J held that “A ‘formal defect or irregularity’ for the purposes of s 306 of the Bankruptcy Act is a defect that could not reasonably mislead the debtor.” In other cases, a bankruptcy notice will be a nullity where it fails to comply with a requirement that is made essential by the Act: Curtis v Singtel OptusLtd (2014) 225 FCR 458, [62].
Those principles are grounded upon the effect which failure to comply with a bankruptcy notice has upon a debtor’s status, including that non-compliance with the notice may constitute an act of bankruptcy sufficient to support the presentation of a petition and in turn given rise to quasi penal consequences. Those events may also have consequences upon other creditors and preclude them from taking steps to enforce recovery of their own debts. “The sequestration order can affect the lives of ordinary people very deeply”: Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 (Robson) [2021] FCAFC 143, [7], [51].
If a document is objectively not capable of misleading the debtor, or does not do so in a positive and significant way, it will constitute a formal defect or irregularity which attracts the operation of s 306(1). Section 306(1) then “operates automatically unless the Court is of opinion that substantial injustice has been caused by the defect or irregularity and that then justice cannot be remedied by an order of the court”: Kleinwort Benson (1988) 165 CLR 71, 81.
In Kleinwort Benson, the plurality considered that where no evidence had been presented and no claim of actual injustice had been made, there was no basis for the formation of the opinion required by s 306(1) “to deny the operation of s 306(1).” Although Deane J dissented in the result, his Honour accepted that the Act contained provisions which served to avoid potentially invalidating consequences. This reasoning suggests that the debtor may establish substantial injustice for the purposes of objecting on a ground to which s 306(1) applies by evidence or by submission. But in either case, it is fundamental that an objection be taken, that the ground relates to a matter to which s 306(1) applies and that substantial injustice is made out.
Where objection is raised as to a defect or invalidity, the precise nature of the complaint must be identified. Qualitative differences may arise as for example of a defect in the content of a bankruptcy notice or a petition on the one hand, and an irregularity in service on the other. Even then, an important distinction should be drawn between service of a bankruptcy notice and service of the petition or ancillary documents. In particular, it must be recognised that service of a bankruptcy notice is the catalyst for the running of time in which to comply with the notice, where failure to do so may constitute an act of bankruptcy. Insistence upon strict compliance with service of a bankruptcy notice is long established: see, e.g. de Robillard vCarver (2007) 159 FCR 38. So too, proof of service of a petition is a matter made essential by par 52(1)(b): Totev v Sfar (2008) 167 FCR 193. Contrastingly, the Act and rules recognise that in the nature of proceedings errors may occur. For that reason, both the Act and rules contain savings provisions against invalidity and confer power to avoid the fact of irregularity as by ‘otherwise’ ordering that particular rules do not apply to a proceeding.
Where objection is raised to a defect or irregularity in a proceeding and that substantial injustice had been caused, the court must then consider whether the error constitutes a formal defect or irregularity. Defects other than formal defects or irregularities do not attract the operation of s 306(1). The kind or degree of defect or irregularity that may be regarded as being formal “is to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provision” under consideration: Adams v Lambert (2006) 228 CLR 409, [26]. As the Court held, for the purpose of deciding the proper construction of s 306, the ‘better test’ is to ask whether it was a purpose of the legislation that the act done in breach of the relevant provision should be regarded as invalid, including upon consideration of the text of the provision, the context in which it appears and the scope and object of the legislation. Substantial errors are capable of attracting a beneficial operation of s 306(1). Notwithstanding that provisions of the Act may be expressed in imperative terms, they remain subject to exculpatory provisions found elsewhere: see, e.g., ss 30, 41(5), 306. By extension, the same may be said of the Bankruptcy Rules. Such provisions also assume the possibility of failure to comply with statutory requirements, including a formal defect or irregularity in relation to the conduct of the proceeding: see, e.g., rr 1.04(1), 4.05.
The fact that a requirement is expressed in imperative terms is not conclusive and the practical significance of an error may well vary according to the circumstances of the case: Adams v Lambert (2006) 228 CLR 409, [23]-[31] (The Court); see also Malek v Macquarie Leasing Pty Ltd (2007) 156 FCR 552, [17]; Curtis v Singtel OptusLtd (2014) 225 FCR 458, [58]-[67].
To remove a proceeding from the automatic initial operation of s 306(1) which may save the proceeding from invalidity, a party (including a debtor) must raise an objection to the validity of a proceeding grounded upon the presence of a defect or irregularity and satisfy the court, either that the identified defect or irregularity is not formal but substantive, and that substantial injustice will be caused by the presence of that formal defect or irregularity. If there is no evidence or submission upon which the court can consider the question of substantial injustice, there is no basis for an opinion that injustice of that quality has been, or would be, sustained. Absent an opinion of the kind required by s 306(1), no occasion arises to make any order which might otherwise be required to remedy or ameliorate the substantial injustice being complained of. If the court is satisfied of the potential for substantial injustice, the power conferred by s 306(1) is engaged and the court is authorised to save a proceeding from invalidity by the making of orders that k to address the consequences of the formal defect or other irregularity. That is a fact intensive exercise involving the exercise of discretion in the particular case.
Non-compliance with Bankruptcy Rules
In summary, although the debtor raised a panoply of alleged failures to comply with the rules, several of those objections were factually inaccurate. However, I concluded the petitioner had not complied with the Bankruptcy Rules in several respects, each of which turned on the same substantive issue, being a failure to adduce evidence in relation to the application brought by Ms Bechara to set aside and extend the time for compliance with the bankruptcy notice and to exhibit a copy of the final order dismissing that application.
The cascading series of failures to comply with the Bankruptcy Rules were as follows:
1)the petitioner’s affidavits did not contain a statement made in compliance with pars 4.04(1)(a)(ii) or (iii). To repeat the finding in Bates v Bechara (No 2) [2021] FCCA 1809, at [315], there was not accompanying the amended petition an affidavit stating whether: (i) a search of the Bankruptcy Courts had been undertaken and that no application in relation to the bankruptcy notice had been made (which was not relevant), or; (ii) an application had been made to either court for an order setting aside the bankruptcy notice and that such application had been finally determined; or, (iii) an application had been made to either court for an order extending the time for compliance with the bankruptcy notice, which application had been finally decided. As to this I noted each of those matters were known by the debtor;
2)at the time of the hearing of the petition before the registrar, there was not attached to the petitioner’s affidavits in compliance with s 4.04(3), a copy of the order made on 5 April 2016 which finally decided each of the applications referred to in rr 4.04(1)(a)(ii) and (iii) respectively. However, a copy of that order was exhibited to an affidavit filed for this de novo hearing: [2021] FCCA 1809, at [319]-[321];
3)r 4.05(c) had not been complied with as 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 again, the order made on 5 April 2016 had not been attached to any such affidavit as required by r 4.04(3): [2021] FCCA 1809, at [325];
4)r 4.06(2) had not been complied with as no affidavit stating that the documents required to be served under r 4.05 had been served. Nor had such documents been exhibited to an affidavit: [2021] FCCA 1809, at [330].
The failure to comply with those rules overlapped in material respects. In each case, the substantive failure was a failure to depose to the matters addressed by the order made on 5 April 2016; namely, that the debtor had applied for the bankruptcy notice to be set aside and that her application had been dismissed on that date: [2021] FCCA 1809, [317]. As observed in the earlier reasons, these were matters known by the debtor including that she had not appealed from the order made on that date. These matters were not addressed in her opening submissions: [2021] FCCA 1693, [10], [55]-[61]; [2021] FCCA 1809, [118], [138]-[139].
The objection based on the failure to comply with the rules was reformulated in several ways. In substance, the complaint made in closing address was that Ms Bechara had not been served at the time of service of the amended petition (or before the hearing of the petition), with an affidavit stating that her application to extend the time for compliance with, and to set aside, the bankruptcy notice had been dismissed on 5 April 2016 and to attach a copy of the order which finally decided that application. Ms Bechara knew her application had been dismissed. 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. Contextually, 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.
Resolution
Demonstration of error is not part of the exercise of de novo review of the exercise of power by a registrar: Robson, [2021] FCAFC 143, [20], [63].
The court was satisfied of its jurisdiction to make a sequestration order, including that it was admitted the debtor had committed an act of bankruptcy: Act, s 43(1)(a); Bates v Bechara(No 2) [2021] FCCA 1809, [171]. The court has been persuaded to the requisite standard of the matters of which proof is required by s 52(1)(a), the matters stated in the petition; (b) service, and; (c) the admitted fact that the judgment debts remain owing. For the reasons given in Bates v Bechara(No 2) [2021] FCCA 1809. Having regard to the way in which Ms Bechara framed her application, I address the failure to comply with rr 4.04, 4.05 and 4.06 on the basis that each of those matters is relevant for the purposes of par 52(2)(b), both for the purposes of determining whether the court has been satisfied by her that for other sufficient cause a sequestration order ought not be made, and in addressing the discretion conferred by s 52 whether to dismiss the petition, despite being satisfied of a matter pursuant to s 52(2).
As noted, the petitioner has established a prima facie entitlement to a sequestration order. For the purposes of this de novo hearing, Mr Bates’ solicitor, Ms Chai, affirmed affidavits on 23 April 2021, on 10 June 2021 and again on 12 October 2021 satisfying the requirements of rr 4.06(3)-(4). I am satisfied that yet a further search has been made of the NPII confirming the matters required by r 4.06(3) and that the debt upon which Mr Bates relied (for the purposes of seeking that a sequestration order be made against the estate of Ms Bechara), remains due. As Mr Martin made clear throughout the hearing, no point was taken as to rr 4.06(3)-(4).
Issues of solvency, service and jurisdiction have been addressed. Insofar as non-compliance with the Bankruptcy Rules may engage the discretion conferred by s 52 of the Act to dismiss the petition, this essentially turns upon the fact and nature of any non-compliance, the operation and purpose of s 306 of the Act and any related provisions in the Act and any applicable rules.
It was well open to have adopted the course taken in de Robillard of declining to address the complaints at all as they were not contained in any notice of grounds or supported by affidavit. Given the procedural history of the matter it seemed preferable not to adopt that course.
The requirement for strict compliance with provisions relating to bankruptcy notices and petitions cannot be understated, particularly having regard to the consequences which flow from a failure to comply with the notice and the very real potential for a change in the debtor’s status and quasi penal consequences that may ensue. In that context, the court’s insistence on due formality is readily understandable. It was fully explained in the dissenting judgment of Deane J in Kleinwort Benson. For the reasons above, a distinction, recognised in s 306(1), is drawn between defects which are substantive, those which are formal and other irregularities.
In this case, the debtor’s belated objection raised in closing address did not involve any allegation grounded on a defect in the bankruptcy notice, the petition or amended petition. The attack based on service of the bankruptcy notice had been finally determined by the order made on 5 April 2016 dismissing the debtor’s application to set aside the bankruptcy notice. Her attack based on service of the petition had been settled by the Full Court as an issue that was beyond any sensible argument (although that fact was not drawn to this court’s attention).
The failures to comply with the identified provisions of the Bankruptcy Rules are not defects within the meaning of s 306(1) but are properly characterised as irregularities arising in the proceeding. That is, Ms Bechara complains of matters that are of a qualitatively different nature from a substantive defect in a foundational document or its service. Ms Bechara’s complaint relates to the absence of an affidavit stating that an order was made on 5 April 2016 dismissing her application to extend the time for compliance with, and to set aside, the bankruptcy notice and to attach a copy of that order. While it had not been served with the amended petition, a copy of the order dismissing the application to set aside the bankruptcy notice made on 5 April 2016 was attached to an affidavit made by Mr Bates on 13 July 2021. While extensive objections were raised to much of the material adduced (however hurriedly, by Mr Bates for the purposes addressing the new jurisdictional objection), no objection was raised to the tender of that order. Further, this, the third and ‘principal’ objection to the petition was not taken until closing address and had not been taken at any time in the period 2016 – 2021. To describe the objection as having not being made ‘promptly’ would not be unfair.
An objection based on non-compliance with the subject rules could and should have been raised in July and December 2016. Had Ms Bechara filed a notice stating the grounds on which she intended to oppose the petition at the time it was listed for hearing, and had that notice articulated the grounds of which she now complains, supported by affidavit, Mr Bates would have been on notice that non-compliance with each of the rules was squarely in issue. In that event, at least two possibilities were open. Mr Bates may have remedied the failures to comply with those rules; alternatively, had he not been able to do so by the time of the hearing, the court may have adjourned the petition. Contrastingly, in the way in which Ms Bechara has pressed a submission that non-compliance with these rules constituted an incurable defect in the proceeding if the petition is now dismissed, I note the judgment and orders obtained by Mr Bates in 2014-2015 could no longer be relied upon in seeking that a further bankruptcy notice be issued by the Official Receiver. I am not prepared to assume or speculate upon whether in July 2016 the Registrar may not have applied s 306(1) of the Act and concluded the irregularities now complained of did not invalidate the proceeding. The debtor not having given any notice that non-compliance with the rules was an intended ground for opposing the petition, nor do I assume the registrar may have waived compliance with those rules as the Full Court in Martin vCommonwealth Bank of Australia and Totev v Sfar accepted might occur.
Accordingly, I do not assume that the sequestration order made on that date would not or should not have been made by the registrar in 2016.
While each of rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules employ the term ‘must’ in relation to the obligations they impose for the hearing of a creditor’s petition, Adams v Lambert confirms that the use of that term is not dispositive of the operation of s 306(1). Moreover, those rules are not framed in identical terms and in some cases expressly permit that the court may ‘otherwise order’. And in all cases, those rules remain subject to the power conferred by r 1.04(1) above which also permits the court to order that the Bankruptcy Rules do not apply to a proceeding to which the Act applies: see also, r 4.05.
Having regard to the express constraints imposed by s 52(1) of the Act upon the discretionary power to make a sequestration order and the settled approach to be taken to the construction of a provision which confers power on a court, I do not see why a purpose of the Act or Bankruptcy Rules is that the act of proceeding upon the hearing of a creditor’s petition where rr 4.04, 4.05 or 4.06 have not been complied with should necessarily invalidate a petition in all cases.
Having regard to the purpose of the Act, the provisions relating to creditor’s petitions and the particular purpose of the rules under consideration, I do not consider that compliance with those rules is made essential in all cases such that a failure to comply with such rules necessarily invalidates the proceeding. A contrary conclusion would be inconsistent with the power conferred by s 306(1) to alleviate from the consequences of non-compliance with such rules even in cases where the court was satisfied of the potential for substantial prejudice. Nothing expressed in those conclusions should be misunderstood as suggesting that a purpose of those rules is to alleviate a creditor from the essential requirement to satisfy the court of the matters required by s 52(1) of the Act before an order could be made or that the Bankruptcy Court does not remain subject to its duty to be satisfied whether such an order should be made. It is only to recognise that s 306(1) recognises that errors may occur in the conduct of a proceeding, enables objection to be raised to the validity of the proceeding and, where substantial prejudice is demonstrated or may result, confers a discretionary power to address that consequence.
In cases of defect or irregularity, the court is to evaluate the significance and importance of the defect or irregularity in the circumstances of the case: Curtis v Singtel OptusLtd (2014) 225 FCR 458, [62] citing Adams v Lambert (2006) 228 CLR 409, [26]-[29]. In my opinion, the procedural omissions upon which Ms Bechara now seeks to rely are not substantive.
Adopting the Full Court’s analysis in de Robillard, the complaints of non-compliance with the rules, being factually accurate, did not go to jurisdiction. In this case, the procedural irregularities did not provide any basis for a conclusion that Ms Bechara had satisfied the Court of any, or any substantial, injustice such as might invalidate the proceeding or as might be capable of being ameliorated by the making of an appropriate order under s 306(1) of the Act.
To adapt the reasoning in Kleinwort Benson, a formal defect or irregularity automatically attracts the operation of s 306(1) unless the court is of the opinion that substantial injustice has been caused by the defect or irregularity and that injustice cannot be remedied by an order of the court. Absent evidence or any submission identifying any actual injustice, there is no basis upon which an opinion could be formed to deny the operation of s 306(1). Despite the several opportunities afforded to her to do so, Ms Bechara made a forensic choice not to file any evidence. A consequence of that decision is that she has denied herself an opportunity to provide evidence of injustice. Viewed objectively, the procedural history, including the stated entitlement to keep her ‘powder dry’ supports an available inference that from at least March 2021, Ms Bechara intended to advance as a ground for opposing the petition that there had been non-compliance with the rules. I am fortified in that conclusion by Mr Martin’s opening statement that he had nothing further to say in relation to the rules “at that time”. In those circumstances, not having filed a notice of intended grounds of opposition, or affidavit in support, or any opening submission identifying the third and ‘principal’ ground of opposition (or to have addressed the issue in any way, including during cross examination, until closing address), I was not satisfied by the debtor of any substantial injustice in this case flowing from the failure to comply with the subject rules. For that reason, there is no foundation for an opinion that the failure to comply with those rules has caused any, or any substantial, injustice to Ms Bechara. Accordingly, it is unnecessary to identify whether any order would be necessary to remedy such injustice. Upon that reasoning, s 306(1) takes effect and saves the petition from invalidity which could otherwise arise from those procedural irregularities.
Separately, I do not accept that there has been any injustice occasioned in this case arising from the want of compliance with the applicable rules in failing to inform Ms Bechara by affidavit that her application to extend the time for compliance with and dismiss the bankruptcy notice had been dismissed on 5 April 2016 or to exhibit a copy of that order. Indeed, a copy of the order was exhibited to an affidavit during the de novo hearing.
The irregularities of which she complains could not have misled her in any way. Ms Bechara well knew that her application to set aside the bankruptcy notice had been dismissed and that she had not appealed the decision dismissing that application. Those facts were known by her months before the hearing of the petition in 2016. Insofar as Mr Martin framed his submissions by reference to a failure to file the requisite affidavits, the fact of non-compliance with those rules was also known by Ms Bechara. Objectively, nothing more was required than to examine the relevant affidavits to confirm each instance of non-compliance. Failure to comply with those rules was objectively apparent to anyone who cared to consider the question. That the errors had no potential to mislead is a significant factor in the consideration of s 306(1).
I am satisfied that non-compliance with rr 4.04, 4.05 and 4.06 has been of no practical effect. Although Ms Calais’ affidavits did not avert to the fact, this court had finally determined that Ms Bechara’s application to set aside the bankruptcy notice be dismissed. There was no appeal and there could be no possible prejudice to Ms Bechara in relation to this aspect of the matter; she had been represented at, and well knew, of the dismissal of her application.
Insofar as complaint was made of failure to comply with the 13 May 2016 order, the order made on that date was overtaken by events. In particular, Ms Bechara appeared at the adjourned hearing on 8 June 2016. Further, following the making of the sequestration order and upon Ms Bechara having filed her application for review pursuant to s 104(2), when the matter was listed for hearing on 27 September 2016, she was represented by her long-standing solicitor, Mr Payne, who sought a further adjournment. Mr Payne was present in court when an order was made that the de novo hearing be set down for 10:00am on 8 December 2016.
Having regard to the way in which this proceeding has been conducted, including, in particular, the failure to state the grounds on which it was intended to oppose the petition, it would be inimical to the proper administration of the bankruptcy jurisdiction to treat as invalid the presentation of the creditor’s petition on the de novo hearing by reason of belated complaints of non-compliance. It is difficult to ignore that, at one and the same time, Ms Bechara contends for absolute and strict insistence on due formality and at the same time does so where there has been a total disregard for such formality on her part (P-55.30-40, P-63.40-45). The obiter reasoning of the Full Court in de Robillard, undermines the approach for which she contends.
Procedural as distinct from substantive requirements are capable of waiver. Apart from the few occasions where orders were made in her absence, more recently Ms Bechara has been legally represented by experienced practitioners. She has not made her objection to compliance with the subject rules promptly. Nor has she ever articulated her complaint in any notice stating her grounds of opposition to the petition or affirmed those grounds by affidavit. In the particular circumstances of the case, there was ample support for a conclusion that Ms Bechara waived compliance with rr 4.04, 4.05 and 4.06. In those circumstances, had it been necessary to do so, I would have been prepared to ‘otherwise order’ that, to the extent there had been a want of compliance with the subject rules, they would not apply on this de novo hearing.
Discretionary considerations
I do not accept the submission that the entitlement conferred by s 104(2) to seek a review of a registrar’s decision is at large. In my view, the entitlement remains subject to an obligation to comply with rr 2.04 or 2.06 of the Bankruptcy Rules. To approach the question from the perspective that Ms Bechara had a bare right to seek review and, without more, to engage the jurisdiction of review by filing an application in the prescribed form, the generality of that contention paid insufficient attention to the public and private nature of bankruptcy, including that reviews from the exercise of power by a registrar should be conducted promptly (especially upon review of the making of a sequestration order), and the need for compliance with the rules which govern the conduct of bankruptcy proceedings. To adapt the Full Court’s reasoning: “As an applicant for review of a sequestration order she was entitled (as a Constitutional imperative), subject to all proper procedural orders, to a hearing de novo of the creditor’s petition”: (2021) 388 ALR 414. [74], [89], [91]; see also, Culleton, [109].
Difficulties encountered in the determination of the de novo review of the application have arisen from Ms Bechara’s failure to reveal until closing address her intention to oppose the petition on any non-compliance with those rules. As addressed in Bates v Bechara (No 2) [2021] FCCA 1809 at [295], the failure to disclose this ground until closing address was entirely unacceptable and upon the principles identified by Allsop CJ in the authorities there referred to, this has resulted in unnecessary, avoidable, delay, the waste of valuable public resources and the incurring of significant costs which would not have occurred had the Bankruptcy Rules been observed from the outset; that is, since July 2016.
It may be recalled that the concealment of the third and principal ground of opposition occurred in circumstances where it was explicitly stated no point would be taken in relation to the need for repeated compliance with r 4.06(3)-(4). To have deployed a strategy of not disclosing reliance upon non-compliance with other Bankruptcy Rules on the basis that there was no rule preventing the adoption of that course ignored the requirement that parties are obliged to ensure that dispositive issues are squarely raised in order that each party is on clear notice and cognisant of the issues to be addressed at a hearing.
Had Ms Bechara complied with her obligation in July 2016 to file a notice stating each of the intended grounds of opposition to the petition, even if it had been necessary to adjourn the hearing, again, to allow the petitioner to file further evidence in compliance with those rules (or even to extend to Ms Bechara another opportunity to pay out her creditors in good faith), the objection raised so late in the proceeding and without notice brings into sharp contrast considerations of why in this case the court should not exercise its discretion in favour of dismissing the petition. As observed, the judgment and orders upon which Mr Bates relied for the issue of the bankruptcy notice and the presentation of his petition are now of such an age that they could no longer be used for those purposes: Act, s 41(1)(c)(i).
In the combined circumstances that: Ms Bechara has now admitted her indebtedness, an act of bankruptcy and service of the petition; jurisdiction to make an order has been established; Mr Bates has discharged the onus of satisfying the court by proof of the matters required by s 52(1); no evidence of solvency has been tendered, and; where non-compliance with the relevant rules was never articulated in any notice stating grounds of opposition or disclosed until closing address, I have not been satisfied by Ms Bechara of any sufficient reason why an order ought not be made. In addition, I cannot ignore the substantial delay which has attended this proceeding and the corresponding prejudice caused to other creditors: (2021) 388 ALR 414, [176]. Finally, given the order for this court to determine the de novo hearing as soon as is reasonably possible, and in light of the extended opportunities that have been afforded to Ms Bechara, I conclude that the court should not dismiss the petition, but should instead affirm the registrar’s decision to make a sequestration order against Ms Bechara’s estate.
Had non-compliance with the relevant rules otherwise constituted some cause for dismissal of the petition, I would not have accepted such non-compliance to be a sufficient cause to do so in this case. Even then, I would not have exercised the discretion conferred by s 52(2) of the Act in favour of dismissal. Finally, despite the submission that it would be inutile to adjourn the petition to allow Mr Bates an opportunity to address the issues of non-compliance first raised in closing address, I would have adopted that course had I not concluded that the court should affirm the registrar’s exercise of power to make a sequestration order.
Had I been of the opinion that an objection grounded on non-compliance of the kind identified in this case had the potential to cause substantial prejudice, for the reasons above, I would have made orders pursuant to s 306(1) and/or rr 1.04(1) and 4.05 of the Bankruptcy Rules to relieve from the consequences of non-compliance with such rules.
Conclusion
On the review of exercise of power by a registrar, the court “may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.” FCCA, s 104(3); FC&FCAA, s 100(2): cf Robson, [2021] FCAFC 143, [223]-[239], [247]-[248]. Upon the principles stated by the Full Court in Bechara v Bates (2021) 388 ALR 414, [149]-[152], while the de novo review is pending, the registrar’s order made on 5 July 2016 “remains in existence.” As the Court explained, if upon concluding the de novo review all the matters in s 52(1) are proved and no matter in s 52(2) “arises in the way 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.”
Where, as here, Ms Bechara raised issues for the first time which were not considered by the registrar, it is to distract from the core function of a de novo review to ask whether the registrar would or would not have granted or dismissed or adjourned the hearing of the petition. Upon concluding this de novo review, and not being required to embark upon a process that is concerned with identification of the detection of error by the registrar, it appears to me to be preferable not to interfere with that order. To adopt that course is to confirm that there has been but one exercise of judicial power by leaving undisturbed the order that remains in place: cf Robson, [2021] FCAFC 143, [3]-[4], [38], [40], [65], [202], [238], [298]. Conformably with that reasoning, an order has been made affirming the order made on 5 July 2016.
There are three residual matters to be addressed.
First, it was not suggested that the fate of Ms Bechara’s undisclosed pending application before the High Court was a matter that should be taken into account in relation to her third and principal ground of review. Secondly, insofar as Ms Bechara flagged an application for annulment during the application for review, the circumstances necessary for consideration of that application do not arise. Thirdly, each party sought costs and did so on the basis that such costs should follow the event. Directions will be made to allow them to file submissions in relation to costs, particularly in light of the Full Court orders and findings on this issue.
I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment of Judge A Kelly. Associate:
Dated: 15 October 2021
2
21
8