Beaman v Bond
[2015] FCCA 2311
•28 August 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BEAMAN v BOND & ANOR | [2015] FCCA 2311 |
| Catchwords: PRACTICE AND PROCEDURE – Bankruptcy – application for annulment of bankruptcy – whether notice given to creditors – application for waiver of compliance with requirement to give notice to creditors – whether bankruptcy rules of court inconsistent with general rules of court. WORDS AND PHRASES – “must”. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.33(1), 41(6A), 52(3), 73, 153B, 306 Federal Circuit Court of Australia Act 1999 (Cth), ss.57(1), 81 |
| Adams v Lambert [2006] HCA 10, (2006) 228 CLR 409; (2006) 80 ALJR 679; (2006) 225 ALR 396; (2006) 3 ABC(NS) 835 The Shorter Oxford English Dictionary on Historical Principles, Volume II (Oxford: Clarendon Press, 1973) |
| Applicant: | DIANNE ELIZABETH BEAMAN |
| First Respondent: | CRAIG DAVID BOND |
| Second Respondent: | DANIEL PETER JURATOWITCH IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF CRAIG DAVID BOND |
| File Number: | PEG 169 of 2014 |
| Judgment of: | Judge Antoni Lucev |
| Hearing dates: | 9-11 March 2015 |
| Date of Last Submission: | 11 March 2015 |
| Delivered at: | Perth |
| Delivered on: | 28 August 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr P J Hannan and Mr D H Solomon |
| Solicitors for the Applicant: | Solomon Brothers |
| Counsel for the First Respondent: | Ms K F Banks-Smith SC |
| Solicitors for the First Respondent: | Gadens |
| Counsel for the Second Respondent: | Mr D K Skender |
| Solicitors for the Second Respondent: | Hall & Wilcox |
ORDERS
The parties are to confer with respect to appropriate orders to reflect the conclusions reached in the Reasons for Judgment.
The matter be adjourned to a directions hearing at 10.00am on 4 September 2015.
Costs reserved.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 169 of 2014
| DIANNE ELIZABETH BEAMAN |
Applicant
And
| CRAIG DAVID BOND |
First Respondent
| DANIEL PETER JURATOWITCH IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF CRAIG DAVID BOND |
Second Respondent
REASONS FOR JUDGMENT
Introduction
At the conclusion of the substantive hearing in this matter, in which the applicant, Ms Beaman, applies for the annulment of the bankruptcy of the first respondent, Mr Bond, under s.153B of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”), Mr Hannan, co-Counsel for the applicant, rose, and in the best traditions of the Bar, raised an issue, potentially fatal to the applicant’s case, which all parties and the Court had overlooked. That issue was whether the requirements of r.7.03 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (“FCC Bankruptcy Rules”) had been complied with, and whether notice had been given to creditors of the annulment application and of the hearing of the annulment application. It appears that everyone had, as Senior Counsel for the first respondent observed, “assumed that notice had been given”: Transcript, page 140. Notice had not, however, been given, and the question now arises as to whether the failure to serve notice of the application on creditors in the terms of r.7.03 of the FCC Bankruptcy Rules is a fatal omission, or one which might somehow be remedied.
Legislative provisions – annulment of bankruptcy
Rule 7.03 of the FCC Bankruptcy Rules provides as follows:
(1) The applicant must give notice of the application to each person known to the applicant to be a creditor of the bankrupt or a creditor of the estate of the deceased person.
(2) The notice must be in accordance with Form 11.
(3) The applicant must serve the notice on each creditor at least 7 days before the hearing date fixed for the application.
Rule 7.03 of the FCC Bankruptcy Rules appears in Part 7 of the FCC Bankruptcy Rules, Division 7.1 of which deals with annulment of bankruptcy. Rules 7.01 and 7.02 of the FCC Bankruptcy Rules provides as follows:
7.01 This Division applies to the following applications:
(a) an application under section 153B of the Bankruptcy Act for the annulment of a bankruptcy;
(b) …
7.02 (1) The application must set out the grounds on which the annulment is sought.
(2) The application must be served on the trustee at least 7 days before the hearing date fixed for the application.
Section 153B(1) and (2) of the Bankruptcy Act provides as follows:
(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
(2) In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.
There is no dispute that the requirements for the application set out in r.7.03 of the FCC Bankruptcy Rules have not been complied with.
The requirements and structure of r.7.03 of the FCC Bankruptcy Rules
The requirements and structure of r.7.03 of the FCC Bankruptcy Rules, on its face, provide that the applicant “must”:
a)give notice of the application to persons known to be creditors of the respondent;
b)give notice in accordance with Form 11 of the FCC Bankruptcy Rules, which is in the following form:
Form 11 -- Notice to creditors of annulment application
(rule 7.03)
NOTICE TO CREDITORS OF ANNULMENT APPLICATION
IN THE [ name of Court ]
REGISTRY: [ name of Registry ]
No. of [ year ]
IN THE MATTER OF [ name of debtor or bankrupt estate ]
[ name of applicant(s) ]
Applicant(s)
[ name of respondent(s) ]
Respondent(s)
I, [ name ], * applicant/ * applicant's lawyer, give notice that [ name of debtor or person administering estate of deceased debtor ] will be applying for the annulment of the bankruptcy.
The application is to be heard at:
Time and date: [ to be inserted by Registry ]
Place: [ address of court ]
If a creditor wishes to take part in the hearing, the creditor must file and serve a notice of appearance at least 3 days before the hearing date stated above.
* Omit if inapplicable
The following information must appear at the foot of the first page of this notice.
| Filed on behalf of (name and role of party) | ||||
| Prepared by (name of person/lawyer) | ||||
| Law firm (if applicable) | ||||
| | Telephone Fax | |||
| Address for service | ||||
and
c)serve the Form 11 notice on each creditor at least seven days before the hearing date fixed for the application.
“Must” usually mandatory
In statutes and legislative instruments the use of “must” is indicative of an imperative command, either positive or negative, depending upon the word or words which follow it in the relevant statutory provision. It expresses necessity in the sense of an obligation or requirement: The Shorter Oxford English Dictionary on Historical Principles, Volume II (Oxford: Clarendon Press, 1973), page 1376.
The use of “must” in each of the three sub-rules of r.7.03 of the FCC Bankruptcy Rules, means that there is a strong prima facie position that each of the sub-rules must ordinarily be complied with, and that creditors must be given notice in the form and within the time specified in r.7.03: Posner v Collector for Inter-State Destitute Persons (Victoria) (1946) 74 CLR 461; [1947] ALR 61; CLR at 490 per Williams J; Kosovich v Mancini (1982) 31 SASR 272 at 275 and 276 per Millhouse J; Australian Fisheries Management Authority v PW Adams Pty Ltd (1995) 61 FCR 314; (1995) 134 ALR 51; (1995) 39 ALD 481; (1995) 22 AAR 261; FCR at 332 per Sheppard J (with whom Tamberlin J FCR at 334 and Lehane J FCR at 336 agreed).
In dealing with migration legislation which required that applications “must” be lodged within a certain time limit, the Federal Court, having cited Posner and Kosovich as authority for the proposition that “must” is a word of absolute obligation, went on to observe that:
[s]uch an interpretation also accords with the principle that enactments requiring that a specified procedure be followed in courts are usually mandatory and not merely directory.
Wang v Minister for Immigration & Multicultural Affairs (1997) 71 FCR 386; (1997) 151 ALR 717; (1997) 45 ALD 104; FCR at 391 per Merkel J.
In Broad Spectrum Training Pty Ltd & Ors v Bidding Buzz Limited & Ors [2010] FMCA 932; (2010) 244 FLR 335 (“Bidding Buzz”) the Federal Magistrates Court, having set out the passages from the authorities cited above, observed that:
The above authorities strongly indicate that the use of the word “must” in the phrase “must advise” imposes an obligation on the Court to exercise the required function, namely, to advise the parties to use the dispute resolution process, being mediation in this case.
Bidding Buzz at [40] per Lucev FM.
Whether compliance with otherwise mandatory requirement might be waived
The applicant submitted that compliance with r.7.03 of the FCC Bankruptcy Rules might be waived by reason of the terms of r.1.03 of the FCC Bankruptcy Rules which provides as follows:
(1) These Rules apply to a proceeding to which the Bankruptcy Act applies.
(2) The other rules of the Court apply, so far as they are not inconsistent with these Rules, to a proceeding to which the Bankruptcy Act applies.
This proceeding is a “proceeding to which the Bankruptcy Act applies” in that it is an annulment application under s.153B of the Bankruptcy Act.
The reference to the “other rules of the Court” in r.1.03(2) of the FCC Bankruptcy Rules is not defined, but can presently only mean the Federal Circuit Court Rules 2001 (Cth) (“FCC Rules”), as they are the only other relevant rules of this Court.
Rule 1.06 of the FCC Rules provides as follows:
(1) The Court may in the interests of justice dispense with compliance, or full compliance, with any of these Rules at any time.
(2) If, in a proceeding, the Court gives a direction or makes an order that is inconsistent with any of these Rules, the direction or order of the Court prevails in that proceeding.
The following questions arise:
a)whether the requirements of r.7.03 of the FCC Bankruptcy Rules are mandatory and admit of no exception, or whether there are provisions under which otherwise mandatory compliance with the FCC Bankruptcy Rules, and in particular r.7.03, might be waived, and if so, in what circumstances, and whether the circumstances of this case warrant such waiver;
b)whether the provisions of r.1.06(1) of the FCC Rules allowing for compliance to be dispensed with, are “not inconsistent” with the FCC Bankruptcy Rules; and
c)whether, if r.1.06(1) of the FCC Rules is not inconsistent with the FCC Bankruptcy Rules, it is in the interests of justice to dispense with compliance with r.7.03 of the FCC Bankruptcy Rules.
Cases and observations on the cases
Mahmoud v The Owners’ Corporation Strata Plan 811 [2006] FMCA 879 (“Mahmoud”)
In Mahmoud the Federal Magistrates Court was dealing with an application for annulment of a bankruptcy in which there was no evidence that anyone other than the applicant or the Trustee had been given notice of the application to annul the bankruptcy as required by r.7.03 and Form 11 of the then Federal Magistrates Court (Bankruptcy) Rules 2006 (“FMC Bankruptcy Rules”): Mahmoud at [3] per Barnes FM. The applicant sought an adjournment by reason of some form of trauma, and the matter was adjourned, with the Federal Magistrates Court observing that:
… It is appropriate that this matter be adjourned, although not on the indefinite basis sought, because … the petitioning creditor or any other creditors have not been neither given notice of the annulment application. (Sic)
Mahmoud at [8] per Barnes FM.
In Mahmoud the adjournment was simply granted on the basis that the relevant notice had not been given and the Federal Magistrates Court went on to make an order that the applicant serve copies of all material filed by him in the proceedings on the petitioning creditor: Mahmoud at [28] per Barnes FM. It does not appear that in Mahmoud any consideration was given to the nature of the issues which have arisen in this case, or to the necessity to serve not just the petitioning creditor, but all creditors with notice of the application.
Burrell v Reavill Farm Pty Ltd & Ors [2014] FCCA 1449; (2014) 286 FLR 310 (“Burrell”)
In Burrell the issue was whether non-compliance with r.3.02 of the FCC Bankruptcy Rules could be forgiven by the Court under r.1.06(1) of the FCC Rules or r.3.05(1) of the FCC Rules which allowed the Court to extend a time fixed by the FCC Rules. The Court held that it had power under r.1.06(1) of the FCC Rules to dispense with the requirements of r.3.02 of the FCC Bankruptcy Rules if it was in the interests of justice to do so: Burrell at [41], [47]-[48], [55] and [81] per Judge Manousaridis.
In Burrell the Court noted that the FCC Bankruptcy Rules were rules made by the Judges of the Court for or in relation to the practice and procedure to be followed in the Court under s.81(1)(a) of the FCCA Act, and were therefore, rules intended to govern the practice and procedure of the Court in relation to its bankruptcy jurisdiction: Burrell at [38] per Judge Manousaridis. The Court went on to observe that, as with all rules and forms of procedure, the FCC Bankruptcy Rules were not ends in themselves, but means to an end, namely, the attainment of justice: Burrell at [39] per Judge Manousaridis, citing Union Bank of Australia v Harrison, Jones & Devlin Ltd [1910] HCA 44; (1910) 11 CLR 492 at 504 per Griffith CJ (“Union Bank”).
In Burrell the terms of the relevant rules in the FCC Bankruptcy Rules and FCC Rules were set out: Burrell at [40] per Judge Manousaridis, (and see [2], [11] and [13] above) and the Court went on to observe that on a literal reading the FCC Rules did not apply to the FCC Bankruptcy Rules, but that in the Court’s opinion to read the FCC Rules literally would be unwarranted given the terms of s.33(1) of the Bankruptcy Act permitting an extension of time in relation to matters under the Bankruptcy Act, and the Court observed that it “would be odd if the Court had power to extend times limited by the [Bankruptcy] Act, but no power to extend time limited by the rules of procedure” in the FCC Bankruptcy Rules, and therefore both r.1.06(1), the dispensation rule, and r.3.05, the extension of time rule, of the FCC Rules applied to the FCC Bankruptcy Rules: Burrell at [41] per Judge Manousaridis.
The fact that it might be “odd” if the Court had power to extend time limited by the Bankruptcy Act, but not power to extend times under the FCC Bankruptcy Rules, is of itself of no consequence in relation to whether compliance can be dispensed with. What is required is that the “other rules of the Court” under r.1.03(2) of the FCC Bankruptcy Rules, be “not inconsistent with” the FCC Bankruptcy Rules. Thus, if there be a rationale for the finding expressed in paragraph [41] of Burrell, it must be that the provisions of rr.1.06(1) and 3.05 of the FCC Rules are not inconsistent with r.3.02 of the FCC Bankruptcy Rules.
Following the rationale of the High Court’s judgment in Adams v Lambert [2006] HCA 10, (2006) 228 CLR 409; (2006) 80 ALJR 679; (2006) 225 ALR 396; (2006) 3 ABC(NS) 835 this Court in Burrell found that s.306(1) of the Bankruptcy Act, which provides that proceedings under the Bankruptcy Act are not invalidated by a formal defect or irregularity subject to no irremediable substantial injustice having been caused by a formal defect or irregularity, probably did not apply because r.3.02 of the FCC Bankruptcy Rules did not give rise to a formal defect or irregularity under the Bankruptcy Act because the FCC Bankruptcy Rules were made under the provisions of s.81 of the FCCA Act: Burrell at [52] per Judge Manousaridis. The Court did however go on to find that the provisions of s.57(1) of the FCCA Act, in essentially the same terms as s.306(1) of the Bankruptcy Act, did apply, a defect or irregularity being a failure to comply with the requirement to be found in the FCCA Act, namely, the requirement to duly comply with r.3.02 of the FCC Bankruptcy Rules: Burrell at [53]-[54] per Judge Manousaridis.
The Court agrees with the conclusion in Burrell that any formal defect or irregularity which would otherwise invalidate these proceedings would be subject to s.57(1) of the FCCA Act, and it follows that such formal defect or irregularity would not be the subject of s.306(1) of the Bankruptcy Act. For reasons which follow, however, it is unnecessary to consider in any detail the issue of invalidity inherent in the requirements for the application of s.57(1) of the FCCA Act or s.306(1) of the Bankruptcy Act.
Other cases referred to in and arising from Burrell
It is unnecessary to deal with the Federal Court judgments in Hubner v ANZ Banking Group Ltd [1998] FCA 1779, Hussain v King Investment Solutions Pty Ltd [2006] FCA 905; (2006) 153 FCR 428; (2006) 234 ALR 195 at [25]-[26] per Gyles J (“Hussain”), and Crimmins v Glenview Home Units [1999] FCA 515, save for a pertinent observation from Hussain quoted in James v Commonwealth Bank of Australia [2015] FCA 582 at [44] per Katzmann J (“James”), and which is set out at [33] below.
In O’Meara v Deputy Commissioner of Taxation [2009] FCA 1575 (“O’Meara”) the Federal Court held that an application to set aside a bankruptcy notice did not comply with the requirements of r.3.02 of the Federal Court (Bankruptcy) Rules 2006 (Cth) (“FC Bankruptcy Rules”), which is the same as r.3.02 of the FCC Bankruptcy Rules, and that therefore the application was as if no application to set aside the bankruptcy notice was ever filed: O’Meara at [10] per Edmonds J. O’Meara need not be considered further because in that case no application was made for an order dispensing with the applicant’s non-compliance with r.3.02 of the FC Bankruptcy Rules: James at [45] per Katzmann J. This Court’s judgment in La Pegna v D.C.T. [2006] FMCA 1643; (2006) 204 FLR 364 (“La Pegna”) (not referred to in Burrell) was a case where the same conclusion was reached as in O’Meara, but as in O’Meara, in La Pegna there was no application for an order dispensing with non-compliance with, in that case r.3.02 of the FMC Bankruptcy Rules.
Rafaraci v Pearce & Heers [2003] FCA 1307 (“Rafaraci”)
In Rafarici the Federal Court was prepared to waive compliance with O 77 r.43 of the then Federal Court Rules, which save for a time limitation of 14 days in sub-rule (3), was in the same terms as the existing r.7.03 of the FCC Bankruptcy Rules. In that case compliance was waived without a consideration of any rule with respect to dispensing with compliance in the Federal Court Rules, and it is to be noted that there were not at that time separate bankruptcy rules of the Federal Court. It must also be observed in that case that there was a failure to serve essential documents in the process leading to the Sequestration Order, namely the Statement of Claim, Bankruptcy Notice and Creditor’s Petition: see Rafarici at [26] and [30] per Tamberlin J. So, in circumstances where the entire process was poisoned from the outset, it appears that the Court took the view that it had a broad discretion to waive compliance with the requirement to give notice to creditors, albeit without any reference to any relevant rule. It is difficult to see what other judgment the Federal Court might, with respect, have made, without rendering a grievous injustice to the alleged bankrupt. Further, as the Federal Court itself observed, it is difficult to see what creditors might have said to oppose the application for annulment in circumstances where there had been a failure to serve essential documents: Rafarici at [30] per Tamberlin J.
Foreman v Vince [2006] FMCA 128 (“Foreman”)
Foreman was an application for annulment of a bankruptcy before the Federal Magistrates Court in which the former rules of the Federal Magistrates Court, namely, the Federal Magistrates Court Rules 2001 (Cth) (“FMC Rules”), like the former Federal Court Rules, contained within them the relevant bankruptcy rules. In Foreman the Federal Magistrates Court observed that there was an onus on an applicant for annulment to satisfy the Court that the creditor was aware of the proceedings and able to be involved, particularly having regard to the fact that the debt had not been paid: Foreman at [11] per Connolly FM.
Teese v Woodgate [2004] FMCA 558 (“Teese”)
Teese involved an application to annul a bankruptcy under s.153B of the Bankruptcy Act. Having found that the applicant could not establish solvency at the time the sequestration order was made, and therefore was not able to establish, on that basis, a reason why the sequestration order ought not to have been made for the purposes of s.153B of the Bankruptcy Act, the Federal Magistrates Court indicated that the bankrupt had “other problems”: Teese at [12] per Raphael FM. The Federal Magistrates Court went on to observe that:
… Firstly she has failed to comply with the provisions of Part 35 of the Federal Magistrates Court Rules 2001 and in particular with Part 35 Rule 35.03 providing notice to creditors of the application. This failing is to my mind fatal to the bankrupt's application today. These are creditors who have already refused an application by the bankrupt under s.73 of the [Bankruptcy] Act. There is no reason to believe that some or all of them would not have wished to have something to say about this application.
Teese at [12] per Raphael FM (underlining added).
It does not appear to the Court that it was the failure to give notice to the creditors alone which, on the day, was “fatal” to the annulment application. It was the failure to give notice to the creditors in circumstances where those creditors had already refused an application under s.73 of the Bankruptcy Act for a composition or arrangement with creditors, and by reason of which, there was no reason to believe that some or all of those creditors would not have wished to say something about an application by the bankrupt to annul her bankruptcy.
Drake & Anor v Jones [2009] FMCA 298 (“Drake”)
In Drake Mr and Mrs Drake sought to annul bankruptcies arising from their own debtor’s petitions. The Federal Magistrates Court observed that the matter had been listed “on short notice” and that certain requirements of the FMC Bankruptcy Rules had not been met. Creditors had been given some notice in Drake, but the notice was not the “requisite period of notice”: Drake at [10] per Barnes FM. The Federal Magistrates Court observed, citing Rafarici, that the Court might dispense with non-compliance with the FMC Bankruptcy Rules, citing r.1.06 of the then FMC Rules, being in the same terms as r.1.06 of the present FCC Rules: Drake at [11] per Barnes FM. The Federal Magistrates Court further observed that:
a)absence of compliance particularly in relation to proper notice to creditors would normally “be a matter of concern”, but that “in the particular circumstances” of the case it was appropriate to hear the application notwithstanding non-compliance, and it was appropriate to dispense with the requirements of the FCC Bankruptcy Rules, in particular the requirement with respect to notice of the application being served on each creditor at least seven days before hearing under r.7.03(3) of the FMC Bankruptcy Rules;
b)it did not have the benefit of evidence as to the interests and wishes of unpaid creditors, and that had it been minded to exercise the discretion to annul the bankruptcies of Mr and Mrs Drake, “it may have been necessary to consider requiring the requisite period of notice to be given to each of the creditors before making such orders”: Drake at [11] per Barnes FM; and
c)it was not however satisfied that the bankruptcies of Mr and Mrs Drake should be annulled: Drake at [11] per Barnes FM.
The rationale in Drake appears to be that because the Court was not satisfied that the bankruptcies ought to be annulled, and in circumstances where some notice had been given to the creditors, albeit not the requisite period of notice, it was appropriate to dispense with compliance with the required notice to creditors. That is a view which can only be arrived at by inference, as the Federal Magistrates Court did not expressly say why it was that it was dispensing with non-compliance, other than it being in the particular circumstances of the case.
Davis v ABL Nominees Pty Ltd & Anor [2014] FCCA 2069 (“ABL Nominees”)
In ABL Nominees this Court observed that:
Section 33(1)(c) of the Bankruptcy Act does not apply to the applicant’s application to extend time in which to make the application for review. Section 33(1)(c) of the Bankruptcy Act allows for an extension of time to “any time limited by this Act”, “this Act” being the Bankruptcy Act. The power to review a Registrar’s decision arises under s.104(2) of the FCCA Act. The power to extend time arises under s.81(1) of the FCCA Act, which provides the Court with power to make rules of Court with respect to practice and procedure, and r.3.05 of the FCC Rules, which provides that the “Court may extend ... time fixed by these Rules”, and may do so “even if the time fixed has passed”. Because the FCC (Bankruptcy) Rules are silent as to extension of time, the FCC Rules apply with respect to the extension of time by reason of r.1.03(2) of the FCC (Bankruptcy) Rules which provide that “other rules of the Court apply, so far as they are not inconsistent with these Rules, to a proceeding to which the Bankruptcy Act applies.” The Bankruptcy Act otherwise applies to these proceedings because the draft application for review seeks to annul the bankruptcy or have the sequestration order set aside pursuant to ss.52(2) and 153B of the Bankruptcy Act. Rule 1.02A of the FCC (Bankruptcy) Rules provides that those rules are made under the FCCA Act. Likewise, r.1.02A of the FCC Rules provides that it is made under the FCCA Act. It follows from the foregoing that the Court has power to extend time for the filing of an application for review of a Registrar’s decision in bankruptcy proceedings, and that power arises under r.3.05 of the FCC Rules.
ABL Nominees at [14] per Judge Lucev (footnotes omitted).
James
In James the Federal Court was hearing an appeal from an extempore judgment of this Court dismissing an application for review of a Registrar’s decision to set aside a bankruptcy notice. The appeal had not been fixed for hearing and Mr James sought a stay of various proceedings and actions arising from a sequestration order, pending the determination of the appeal: James at [1]-[2] per Katzmann J. This Court had been asked to exercise the power in s.52(3) of the Bankruptcy Act to stay all proceedings under a sequestration order for a period not exceeding 21 days but had refused to do so: James at [6] per Katzmann J. The Federal Court observed that:
a)a review application in this Court was a hearing de novo: FCC Rules, r.20.03;
b)that Mr James had applied for an order under s.41(6A) of the Bankruptcy Act extending time for compliance with the bankruptcy notice until after his application for leave to appeal to the New South Wales Court of Appeal (in relation to a summary judgment in the District Court of New South Wales) had been determined; and
c)this Court had dismissed the review application because, amongst other things:
i)not all the requirements of r.3.02 of the FCC Bankruptcy Rules had been satisfied; and
ii)it held that it had no power to extend time for compliance or to dispense with compliance with r.3.02 of the FCC Bankruptcy Rules, notwithstanding the decision to the contrary in Burrell, which according to this Court at first instance in James “was plainly wrong”: James at [32(b)] per Katzmann J,
and it was a central issue in the appeal as to whether this Court did have power to extend time for compliance with r.3.02 of the FCC Bankruptcy Rules: James at [30]-[32] and [42] per Katzmann J.
Although lengthy, the following quote from James is of considerable assistance in relation to both general and specific issues in relation to whether compliance with the FCC Bankruptcy Rules can be dispensed with, and in its explanation of why O’Meara should be distinguished:
43. There is certainly an arguable case that the primary judge erred in concluding that he had no power to grant Mr James an extension of time or to dispense with strict compliance with r 3.02.
44. In Burrell Judge Manousaridis referred, amongst other things, to three decisions of this Court which the primary judge did not mention in his reasons and which tell against his Honour’s conclusion. It is sufficient for present purposes to refer to one – Hussain v King Investment Solutions Pty Ltd ([2006] FCA 905; 2006) 153 FCR 428 – which was a case where the debtor failed to serve his application to set aside a bankruptcy notice within the three days required by the rules (then r 30.02(4) of the Federal Magistrates Court Rules 2001 (Cth), which Judge Manousaridis observed was in substance the same as r 3.02(3) of the Bankruptcy Rules). There, Gyles J said at [25][26]:
There is a critical difference between rules of court, on the one hand, and statutory obligations on the other. ... [T]here is always an overriding power in the court to dispense with the effect of rules of court. The applicable provision here was r 1.06 of the Federal Magistrates Court Rules 2001 ... In my opinion, the proceeding was not a nullity, as the failure to abide by the rules as to service could have been excused.
45. In Burrell the judgment creditor relied on a decision of Edmonds J in O’Meara v Deputy Commissioner of Taxation [2009] FCA 1575 to the effect that a failure to file an affidavit as required by r 3.02 of the Federal Court (Bankruptcy) Rules 2005 (Cth), which is the same as r 3.02 of the Bankruptcy Rules, “mandates what is required for an application to set aside a bankruptcy notice”, so that if there is non-compliance, “it is as if no application to set aside the Bankruptcy Notice was ever filed”. But Judge Manousaridis said at [47] that O’Meara could not be regarded as authority for the proposition that the court had no power under r 1.06(1) of the Federal Circuit Court Rules to dispense with compliance with any of the Bankruptcy Rules for no application was made to Edmonds J that he do so and his Honour’s attention was never drawn to the three judgments of this Court to the contrary.
46. While I have not had the benefit of full argument on this question, I must say that, far from being “plainly wrong”, the reasoning in Burrell seems to me to be compelling.
47. In Burrell, Judge Manousaridis also held that the debtor’s failure to comply with r 3.02 of the Bankruptcy Rules were formal defects or irregularities which the court could excuse. In this respect, his Honour relied on s 57(1) of the Federal Circuit Court of Australia Act 1999 (Cth), which provides that proceedings in that court are not to be invalidated by a formal defect or irregularity unless the court is of the opinion that substantial injustice has been caused by the defect or irregularity which cannot be remedied by an order of the court.
48. In the present case, the primary judge did not advert to the reasons given in Burrell, let alone explain what was wrong with them. In the circumstances, it is impossible to understand how he could have come to the conclusion that the decision was plainly wrong: see Informax International Pty Ltd v Clarius Group Ltd [2011] FCA 183; (2011) 192 FCR 210 at [53][56] (Perram J).
James at [43]-[48] per Katzmann J (underlining added).
James was decided after this issue was argued before the Court, but the Court has not found it necessary to seek further submissions on it from the parties, because the issues dealt with in James, and in particular its analysis of the dispensation with compliance issue and its analysis of Burrell, were matters squarely addressed in the hearing of this matter before the Court.
It is pertinent, and perhaps telling, that there does not appear to be any case where the failure to give notice to creditors on its own has resulted in the failure of an annulment application.
Importance of Rules of Court
Any waiver under r.1.06(1) of the FCC Rules requires the Court to do what justice appears to require: Rishmawi v Minister for Immigration & Multicultural Affairs [1999] FCA 611 at [7] per Kiefel J, provided that there is a rational basis upon which the discretion may properly be exercised: SZNPI v Minister for Immigration & Citizenship [2010] FCA 106 at [12] per Flick J. Caution is required before too readily departing from the requirements imposed by rules of court: Arifin v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs [2014] FCAFC 61 per North, Flick and Jagot JJ, and SZTKB v Minister for Immigration & Border Protection [2014] FCA 653 at [14] per Flick J.
Consideration
For reasons which follow the Court has concluded that it may dispense with compliance with r.7.03 of the FCC Bankruptcy Rules by reason of the application of r.1.03(2) of the FCC Bankruptcy Rules and r.1.06(1) of the FCC Rules.
Firstly, it accords with general principle as expounded by binding Federal Court authority. Although Hussain and James deal with a different rule in the FCC Bankruptcy Rules that is not under consideration in these proceedings, the general principle with respect to dispensation with compliance with the FCC Bankruptcy Rules expressed in Hussain and James is applicable, and in those circumstances this Court is bound to follow Hussain and James: see Suh v Minister for Immigration & Citizenship [2009] FCAFC 42; (2009) 175 FCR 515; (2009) 108 ALD 470 at [29] per Spender, Buchanan and Perram JJ; Patel v Minister for Immigration [2011] FMCA 19 at [54] per Nicholls FM; Lejmanoski v The University of Western Australia [2013] FMCA 75 at [31] per Lucev FM.
Secondly, the Court ought to follow Burrell unless it is persuaded that Burrell is plainly wrong. Whilst there might be aspects of Burrell which are open to arguably pedantic criticism (see [20] above), the outcome in Burrell is, with respect, plainly right for the reasons expressed in Burrell, and also in ABL Nominees as set out at [31] above. The first instance judgment of this Court in James v Commonwealth Bank of Australia [2015] FCCA 1056 (“James FCC”) can be set to one side, because as indicated in James at [48] per Katzmann J, no reasons were given in James FCC as to why Burrell was said to be wrong and it was therefore impossible to understand how it this Court in James FCC arrived at the conclusion that Burrell was plainly wrong.
Thirdly, in any event, the Court does not consider that there is an inconsistency between the FCC Bankruptcy Rules and the FCC Rules such as to preclude dispensation with compliance by reason of the application of r.1.03(2) of the FCC Bankruptcy Rules and r.1.06(1) of the FCC Rules. The FCC Bankruptcy Rules are not inconsistent with the FCC Rules because there is no provision, expressly stated, that time may not be extended for compliance with the requirement to serve a notice upon creditors. The structure of both the FCC Rules and the FCC Bankruptcy Rules, is such that they obviously contemplate – consistently with the general principles set out above – that compliance with the provisions of the FCC Rules and the FCC Bankruptcy Rules might be dispensed with. Although the giving of notice, its form, and the time for service, are all the subject of mandatory requirements, a proper reading of both the FCC Rules and the FCC Bankruptcy Rules, makes it apparent that it is only mandatory where dispensation is not applied for (and see too: O’Meara, La Pegna, Burrell at [47] per Judge Manousaridis and James at [45] per Katzmann J). For dispensation with compliance to be excluded would require very clear words, particularly in light of r.1.06(2) of the FCC Rules which provides that a direction or order made by the Court which is inconsistent with any rule prevails over the rule. Therefore, dispensation with compliance with r.7.03 of the FCC Bankruptcy Rules is not precluded by r.1.03, and in particular sub-rule (2) thereof, of the FCC Bankruptcy Rules.
The issue then arises as to whether dispensation with compliance with r.7.03 of the FCC Bankruptcy Rules, in whole or part, is in the interests of justice.
In BHP Billiton Ltd v Schultz [2004] HCA 61; (2004) 221 CLR 400; (2004) 79 ALJR 348; (2004) 211 ALR 523 (“Schultz”) the High Court considered the nature of the “interests of justice”: Gleeson CJ, McHugh and Heydon JJ at [15] said:
The interests of justice are not the same as the interests of one party, and there may be interests wider than those of either party to be considered. Even so, the interests of the respective parties, which might in some respects be common (as, for example, cost and efficiency), and in other respects conflicting, will arise for consideration. The justice referred to in s.5 is not disembodied, or divorced from practical reality.
In Schultz Gummow J at [100] observed that the interests of justice “are even-handed”, while Callinan J at [258] referred to the requirement to “do equal justice”.
In order to determine whether dispensing with compliance with r.7.03 of the FCC Bankruptcy Rules is in the interests of justice it is necessary to examine the purpose of giving notice under that rule.
The purposes of giving creditors notice of an application to annul a bankruptcy were eloquently put by Senior Counsel for Mr Bond at hearing: see Transcript, pages 165-162, and might be summarised as follows:
a)to give creditors the opportunity to participate in the proceedings by being notified;
b)to give creditors the opportunity to be heard, if they so wish, and the Court permits; and
c)to allow creditors to protect any property rights or interest that they may have.
In short, r.7.03 of the FCC Bankruptcy Rules exists for the benefit of creditors to allow them to participate in, attend, and protect any property rights or interest that they may have, and which may be affected by the annulment of a bankruptcy in respect of which they are a creditor. That purpose has not yet been fulfilled, or at least properly fulfilled, in this matter.
A fundamental difficulty with simply waiving compliance is that the Court is unable to determine whether there would be any prejudice or injustice arising in respect of any particular creditor if it were to annul Mr Bond’s bankruptcy as sought by Ms Beaman. Nothing might be put before the Court because no creditor would have been properly notified or made aware of their right to participate and be heard.
As to the statement by Griffith CJ in Union Bank concerning rules of court not being ends in themselves, but means to an end, which is the attainment of justice, the attainment of justice in these proceedings is not to be got by simply casting aside the procedural requirement to give notice to creditors of the hearing. Simply dispensing with that requirement might mean that a creditor, with a view of which the Court ought take cognisance or property rights or interests which might need protecting, might be denied procedural fairness by being denied a hearing. The opportunity to be heard is, of course, part of the purpose of r.7.03 of the FCC Bankruptcy Rules. Likewise, the strict application of the terms of the rule, might deny Ms Beaman procedural fairness, and an opportunity to prove and have judgment rendered in her case, in circumstances where that case, which is obviously arguable, had already been fully put before the Court before this issue arose. This is not a case like, for example, Drake, where it was plainly apparent that there was no basis not to annul the bankruptcy.
The interests of justice, and in this instance, the creditors for whom the benefit of bankruptcy laws in large part exist, favour dispensing with compliance with r.7.03 of the FCC Bankruptcy Rules. So far as the parties are concerned the position is less clear. For Ms Beaman the interests of justice are met by dispensing with compliance because it would allow her to proceed with a matter which has already been argued, and which would not see her shut out from a remedy which is envisaged to be available by s.153B of the Bankruptcy Act. For Mr Bond, the failure to dispense with compliance would result in his being successful in his opposition to the annulment application, but on the narrowest of technicalities. In any event, the interests of justice must weigh in the balance the fact that Mr Bond contemplated that these proceedings would go ahead, and has argued them fully, and in that respect he cannot be said to have been prejudiced. Further, if the issue of notice to creditors had arisen, or been noticed, prior to the hearing, Mr Bond would no doubt have been in no different a position to that he presently finds himself in with the matter having been argued, but with notice to creditors having been given, and possibly some creditors having exercised the right to participate in an be heard in the proceedings. In that regard, it cannot necessarily be assumed, without the benefit of any evidence at all, what stance a particular creditor might have taken in relation to the annulment application.
Weighing all of the above matters it seems tolerably clear to the Court that it is in the interests of justice to dispense with compliance with r.7.03 of the FCC Bankruptcy Rules in this matter, and to do so retrospectively.
In many senses the above analysis answers two questions in one: whether the interests of justice favour dispensing with compliance with r.7.03 of the FCC Bankruptcy Rules, and whether it is appropriate to exercise the discretion to do so. In circumstances where dispensing with compliance:
a)ensures that creditors are properly heard;
b)also ensures that Ms Beaman is not prejudiced by having the application dismissed on a technicality; and
c)means that Mr Bond is not significantly prejudiced, and does not find himself in any different a position to that which he might have expected himself to be in,
it is appropriate to exercise the discretion vested in the Court to dispense with compliance with r.7.03 of the FCC Bankruptcy Rules.
In exercising the discretion, and also in considering the issue of the interests of justice, the Court has not lost sight of the well-put argument for Ms Beaman that, in effect, creditors were already on notice of these proceedings by reason of the various circulars to creditors of 25 June and 17 October 2014 and 3 March 2015 which are Exhibits 4, 5 and 6 in the proceedings. In the Court’s view those circulars to creditors no doubt made creditors aware of these proceedings, but did not fulfil the purpose of a notice under r.7.03 of the FCC Bankruptcy Rules by indicating to creditors that they had the opportunity to participate in the proceedings, and the opportunity to be heard if they so wished and the Court so permitted. Further, the circulars to creditors leave open, at least by inference, a suggestion that creditors might have their interests represented by the Trustee in such proceedings, which by reason of the position normally adopted by a trustee in such proceedings, is not necessarily the case. That is not to criticise, or attribute fault to the Trustee, who appears to have done all that is required of him in this respect by the Bankruptcy Act. It reflects a possible interpretation which a creditor without full knowledge of the facts might place upon the information in the circular to creditors, and in so doing, to arrive at an incorrect conclusion. Finally, in this regard, as was so cogently put by Senior Counsel for Mr Bond, the Court ought not assume what stance, if any, any creditor might take if they had properly been given notice of the application for annulment of Mr Bond’s bankruptcy.
In all of the above circumstances it is unnecessary to consider the effect of s.306(1) of the Bankruptcy Act or s.57(1) of the FCCA Act, both dealing in similar terms with whether proceedings are invalidated by a formal defect or irregularity, as the issue does not arise where compliance with r.7.03 of the FCC Bankruptcy Rules is dispensed with.
Section 33(1) of the Bankruptcy Act provides as follows:
(1) The Court may:
(a) upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally;
(b) at any time allow the amendment of any written process, proceeding or notice under this Act; or
(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time.
The extension of time referred to in s.33(1) of the Bankruptcy Act is in relation to an act done under the Bankruptcy Act. In this case, the act of notifying creditors is done under the FCC Bankruptcy Rules, which are made, not “under” the Bankruptcy Act, but under s.81(1)(a) of the Federal Circuit Court of Australia Act 1999 (Cth) (“FCCA Act”): FCC Bankruptcy Rules, r.1.02A; Burrell at [38] per Judge Manousaridis; ABL Nominees at [14] per Judge Lucev.
The provisions of s.33(1) of the Bankruptcy Act do not therefore provide for an extension of time of an act done under r.7.03 of the FCC Bankruptcy Rules.
Rule 3.05 of the FCC Rules deals with extension of time and provides as follows:
(1) The Court may extend or shorten a time fixed by these Rules or by a judgment, decree or order.
(2) A Registrar may extend or shorten a time fixed by these Rules.
(3) …
(4) A time fixed by these Rules or by a judgment, decree or order for service, filing or amendment of a document may be extended by consent without an order.
As is apparent from the judgments in Burrell and ABL Nominees cited above, this is an instance whereby, if it were necessary, the Court might extend time, and is able to do so, under r.3.05 of the FCC Rules. In this instance, however, it seems more appropriate to simply retrospectively dispense with compliance with r.7.03 of the FCC Bankruptcy Rules and to fashion, or to have the parties fashion, appropriate orders to achieve the same effect, and which would have the effect prescribed by r.1.06(2) of the FCC Rules, having regard to the hearing which has already taken place, and the evidence which has already been put before the Court.
Conclusions and orders
The Court has concluded that:
a)compliance with r.7.03 of the FCC Bankruptcy Rules should be dispensed with, retrospectively; and
b)the parties are to confer with respect to an appropriate order to facilitate further proceedings in the matter, and in particular to allow creditors to be notified of these proceedings, the nature of the proceedings, and that they may participate, and if they so wish, be heard in the proceedings, and to put in place an appropriate mechanism for that to occur.
Obviously, creditors will need to have access to the Court file and the transcript of the proceedings, and there will need to be orders for creditors to be allowed access to the Court file and for the transcript of proceedings to be put on to the file (it usually is not), and for creditors to be able to inspect the transcript in the Registry, and take copies of the transcript upon payment of appropriate fees. Likewise, with exhibits tendered in the hearing. Given that the matter has already been the subject of two and a half days of hearing the Court is of the view that a reasonably significant period must be given to creditors to allow them to be notified, take advice, and then if necessary inspect the Court file (including the transcript and exhibits), and take further advice, before finally indicating whether or not they wish to participate in, or be heard in, these proceedings. Having provided that opportunity to the creditors, it would then be appropriate for the matter to be called back on for a further directions hearing, to determine whether further hearings are necessary, and whether any creditors wish to have witnesses recalled for further cross-examination or call evidence or make submissions, and if so, what programming orders need to be put in place.
Having regard to all of the above, the Court will order that the parties confer, and adjourn this matter to a directions hearing at 10.00am on 4 September 2015. If the parties can reach agreement with respect to appropriate orders before that time, they can file consent orders pursuant to r.13.04 of the FCC Rules. If agreement cannot be reached, then each party should prepare draft minutes of proposed orders, and if possible, email these to Chambers by 4.00pm on 3 September 2015. The Court will reserve on the issue of costs until such time as further orders are made on this issue.
I certify that the preceding sixty-one (61) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Associate:
Date: 28 August 2015
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