Bechara v Bates (No 3)
[2023] FCA 1559
•11 December 2023
FEDERAL COURT OF AUSTRALIA
Bechara v Bates (No 3) [2023] FCA 1559
Appeal from: Bates v Bechara (No 2) [2021] FCCA 1809, Bates v Bechara (No 3) [2021] FedCFamC2G 155 and Bates v Bechara (No 4) [2021] FedCFamC2G 304 File number: NSD 38 of 2022 Judgment of: MARKOVIC J Date of judgment: 11 December 2023 Catchwords: BANKRUPTCY – appeal from orders made by the Federal Circuit and Family Court of Australia (then the Federal Circuit Court of Australia) following review of a decision made by a registrar to make a sequestration order against the estate of the appellant – where review is a hearing de novo – whether primary judge erred in finding that the Federal Circuit Court’s jurisdiction was invoked under s 43 of the BankruptcyAct 1966 (Cth) – the proper construction of s 43(1)(b) of the Bankruptcy Act – whether subss 43(1)(b)(i) to (iii) of the Bankruptcy Act are to be read cumulatively and not alternatively – whether Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 is plainly wrong – whether Re Vassis; Ex parte Leung (1986) 9 FCR 518 is plainly wrong – whether primary judge erred in analysis of evidence against rr 4.04, 4.05 and 4.06 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) – whether primary judge erred in finding that non-compliance with the Bankruptcy Rules was not of such a nature as to cause substantial injustice within the meaning of s 306(1) of the Bankruptcy Act – whether primary judge erred in finding that appellant was required to comply with r 2.04 and r 2.06 of the Bankruptcy Rules on a review application – appeal dismissed Legislation: Bankruptcy Act 1966 (Cth) ss 41 subs (3)(c)(i), 43 subs (1)(a) and subs (1)(b), 47, 52 subs (1) and subs (2), 306 subs (1)
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) r 1.04
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 189(2)
Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) rr 1.03, 1.04, 2.04, 2.06, 4.04, 4.05 and 4.06
Federal Circuit Court of Australia Act 1999 (Cth) s 57(2) and s 104(2)
Federal Circuit Court Rules 2001 (Cth)
Cases cited: Adams v Lambert (2006) 228 CLR 409
Bechara v Bates (2021) 286 FCR 166
Bechara v Bates (No 2) [2020] FCA 659
Bhagat v Global Custodians Ltd [2002] FCA 926
Carver v de Robillard [2006] FCA 1041
Compton v Ramsay Healthcare Australia Pty Ltd (2017) 256 FCR 345
de Robillard v Carver (2007) 159 FCR 38
Fuller JR, in the matter of Alford v Alford (2017) 252 FCR 168
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Owners of the Ship Shin Kobe Maru v Empire Shipping Co Inc (1994) 181 CLR 404
Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256
Re Vassis; Ex parte Leung (1986) 9 FCR 518
Robson v Body Corporate for Sanderling at Kings Beach CTS 2942 (2021) 286 FCR 494
SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 158 Date of hearing: 1 November 2023 Solicitor for the Appellant: Mr AR Martin of Martin Legal Counsel for the Respondent: The Respondent appeared in person. Solicitor for the Respondent: Bannister Law ORDERS
NSD 38 of 2022 BETWEEN: MARIA BECHARA
Appellant
AND: MR PHILIP BATES
Respondent
ORDER MADE BY:
MARKOVIC J
DATE OF ORDER:
11 DECEMBER 2023
THE COURT ORDERS THAT:
1.The appeal is dismissed.
2.The appellant is to pay the respondent’s costs of the appeal, with such costs to be paid out of the appellant’s estate in accordance with the priority in s 109(1)(a) of the Bankruptcy Act 1966 (Cth).
3.On or before 8 January 2024 the respondent is to file any application for payment of his costs to be assessed as a lump sum together with an affidavit in support, in accordance with paragraphs 4.10 to 4.12 of the Costs Practice Note (GPN-Costs), and submissions, not exceeding three pages in length.
4.In the event that an application is filed by the respondent in accordance with Order 3 above:
(a)the parties are to confer and on or before 15 January 2024 provide the Associate to Markovic J proposed consent orders as to costs; or
(b)if the parties are unable to agree on the appropriate order as to costs, on or before 22 January 2024 the appellant is to file and serve any affidavit in response, in accordance with paragraphs 4.13 to 4.14 of the Costs Practice Note (GPN-Costs), and her submissions, not exceeding three pages in length.
5.In the event that the parties are unable to agree on the appropriate order as to costs, unless a party requests an oral hearing, the question of costs will be dealt with on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MARKOVIC J:
This is an appeal from orders made by the Federal Circuit and Family Court of Australia (Div 2) (previously and at the time the first orders the subject of appeal were made the Federal Circuit Court of Australia) on 5 August 2021, 15 October 2021 and 30 November 2021 including orders affirming a sequestration order made by a registrar against the estate of the appellant, Maria Bechara, on 5 July 2016, dismissing Ms Bechara’s application filed pursuant to s 104(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (now repealed) (FCC Act) for review of the exercise of a power by a registrar and for the petitioning creditor’s, Mr Bates, costs in amounts fixed by the Federal Circuit Court to be paid from Ms Bechara’s estate in accordance with the Bankruptcy Act 1966 (Cth).
The reasons for making the orders now the subject of appeal are found in three decisions of the primary judge:
(1)reasons published on 5 August 2021: see Bates v Bechara (No 2) [2021] FCCA 1809 (first judgment or PJ1);
(2)reasons published on 15 October 2021: see Bates v Bechara (No 3) [2021] FedCFamC2G 155 (second judgment or PJ2); and
(3)reasons published on 30 November 2021 in relation to costs: see Bates v Bechara (No 4) [2021] FedCFamC2G 304 (costs judgment).
HISTORY OF THE PROCEEDING
The troubled procedural history of this proceeding leading up to its remittal to the Federal Circuit Court can be found in the reasons of Allsop CJ in Bechara v Bates (No 2) [2020] FCA 659 and of a Full Court of this Court in Bechara v Bates (2021) 286 FCR 166 (Allsop CJ, Markovic and Colvin JJ) (Bechara (FCAFC)).
The relevant facts for the purpose of the appeal are set out below.
On 11 December 2015 bankruptcy notice no. BN 186864 claiming the sum of $127,936.91 arising from judgments of the Local Court of New South Wales and Supreme Court of New South Wales was issued by the Official Receiver on behalf of Mr Bates and served upon Ms Bechara.
On 30 December 2015 Ms Bechara applied to set aside the bankruptcy notice. That application was dismissed by a registrar on 5 April 2016 (5 April 2016 Order).
On 7 April 2016 Mr Bates presented a creditor’s petition which was amended on 17 May 2016 to reflect a new hearing date, in accordance with orders made by a registrar on 13 May 2016. The creditor’s petition stated:
1.The respondent debtor owes the applicant creditor the amount of $127,936.91 for nonpayment of judgment sums ordered against the respondent debtor in finalised Local Court proceedings No 2014/00159095 and finalised Supreme Court proceedings No 2015/00115082, as per final judgment given by the General Division of the Local Court of NSW in Sydney on 20 March 2015 and 2 April 2015, and final judgment given by the Common Law Division of the Supreme Court of Sydney on 18 November 2015, plus the interest accrued since date of judgments.
2.The applicant creditor does not hold security over the property of the respondent debtor.
3.At the time when the act of bankruptcy was committed, the respondent debtor:
(a)was ordinarily resident in Australia;
(b)had a dwelling house or place of business in Australia;
(c)was carrying on business in Australia either personally or by an agent or manager;
4.The following act of bankruptcy was committed by the respondent debtor within 6 months before presentation of this petition:
The respondent debtor failed to comply on or before 5 April 2016 (being the extended date for compliance) with the requirements of a bankruptcy notice served on her on 16 December 2015 or to satisfy the Court that she had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that she could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.
5.The applicant creditor provides the following information, to the extent it is known to the applicant creditor, for use by the Australian Financial Security Authority:
(a)the registered business name of the respondent debtor is Bechara & Company
(b)the business address of the respondent debtor is Suite 216, 303 Castlereagh Street, HAYMARKET NSW 2000.
On 5 July 2016 a registrar of the Federal Circuit Court made a sequestration order against the estate of Ms Bechara.
On 25 July 2016 the appellant filed an application pursuant to s 104(2) of the FCC Act seeking review of the decision of the registrar made on 5 July 2016. A summary of the proceedings which followed, including in this Court and the High Court of Australia, is set out in Bechara (FCAFC) at [38]-[72], [97]-[138]. It is not necessary to repeat that summary here.
The issues which arose before the Full Court of this Court in Bechara (FCAFC) included, relevantly: the nature of a de novo hearing by way of review of a sequestration order in bankruptcy made by a registrar; whether the creditor’s petition was stale; and, if so, the remedial consequences thereof.
On 16 March 2021 the Full Court in Bechara (FCAFC) found, among other things, that Ms Bechara’s creditor’s petition was not stale and that applications for review of an exercise of delegated power by a registrar should be reheard by a judge de novo as soon as reasonably practicable. The Full Court made the following orders:
1.The orders of the Federal Circuit Court of Australia made on 8 December 2016 dismissing the Interim Application filed on 25 July 2016 and ordering costs; on 3 March 2017 dismissing the Application in a Case filed on 5 January 2017 and ordering costs; and on 17 May 2017 dismissing the Application in a Case filed on 2 May 2017 and ordering costs be quashed and set aside.
2.The application for review, in the form of the Interim Application filed on 25 July 2016, of the order of Registrar Tesoriero made on 5 July 2016 that the estate of Maria Bechara be sequestrated under the Bankruptcy Act 1966 (Cth) and of the order concerning costs be remitted to the Federal Circuit Court of Australia for hearing according to law as a de novo hearing of the creditor’s petition filed on 7 April 2016, to be heard as soon as reasonably possible.
3.The first respondent pay the applicant’s costs of the application, such costs, and all other outstanding orders for costs as between the parties in litigation in the Federal Circuit Court of Australia, the Federal Court of Australia and the High Court of Australia, not be enforced and no steps be taken to enforce such costs until after orders are made consequent upon the hearing of the creditor’s petition in the application for review.
Consequent on the making of those orders the creditor’s petition was remitted to the Federal Circuit Court.
THE PROCEEDING BEFORE THE FEDERAL CIRCUIT COURT
The first judgment (PJ1)
The primary judge identified the issues to be considered on the de novo hearing including:
(1)the nature of a de novo hearing where a party seeks review by the Federal Circuit Court of the exercise of power by a registrar;
(2)the scope and operation of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) and in particular whether a debtor, having sought review of a decision pursuant to s 104(2) of the FCC Act, is nonetheless obliged to comply with the requirements of the Bankruptcy Rules as a person who intends to appear at the hearing of a petition and to file and serve a notice of appearance and a notice stating his or her grounds of opposition to the making of a sequestration order (each in prescribed form) together with an affidavit in support of the grounds of opposition;
(3)the consequences of a failure to comply with the requirements referred to in (2) above;
(4)upon consideration of the evidence, whether the court’s jurisdiction is attracted;
(5)whether the court was satisfied of the matters of which proof is required by s 52(1) of the Bankruptcy Act;
(6)whether Ms Bechara had satisfied the court that, for another reason, a sequestration order ought not be made;
(7)whether Mr Bates had failed to comply with any of the requirements of the Bankruptcy Rules in the manner which was complained of, for the first time, in Ms Bechara’s closing address; and
(8)in relation to any such failures found, whether the proceeding was invalidated and how s 52(2) and s 306 of the Bankruptcy Act operated in all of the circumstances.
The first judgment sets out the primary judge’s reasons in relation to each of the above issues, save as to the operation of s 52(2) and s 306 of the Bankruptcy Act (see [13(8)] above), in relation to which the primary judge adjourned the proceeding so as to afford the parties time to make further submissions.
By way of summary, the primary judge’s conclusions in the first judgment can be found at the following paragraphs:
(1)the conduct of the de novo hearing: at PJ1 [164]-[165];
(2)jurisdiction: at PJ1 [169], [172]-[269];
(3)acceptance of an act of bankruptcy: at PJ1 [170]-[171];
(4)proof of the matters required by s 52(1) of the Bankruptcy Act: at PJ1 [272]-[284];
(5)dismissal of the petition pursuant to s 52(2) of the Bankruptcy Act: at PJ1 [285]-[291]; and
(6)Ms Bechara’s objection based upon rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules: at PJ1 [292]-[331].
At PJ1 [31]-[38] the primary judge set out the statutory framework for the sequestration of a debtor’s estate and then referred to the nature of a de novo hearing. As to the latter, the primary judge identified that the powers conferred upon registrars, as may be prescribed by the rules of the Federal Circuit Court, include powers to make a sequestration order, to make an order against the estate of a debtor and to dismiss a creditor’s petition. His Honour observed (at [38]) that “[e]ssential to the validity of delegation of judicial power to a Registrar of the Commonwealth is a guarantee that the exercise of such power remains subject to supervision by the court”.
His Honour observed that a de novo hearing is a rehearing of the creditor’s petition at which the creditor bears the onus of establishing the matters with which s 52(1) of the Bankruptcy Act is concerned and the bankrupt only bears the onus imposed by s 52(2) of the Bankruptcy Act. His Honour further observed that “[i]n that context, the Full Court [in Bechara (FCAFC)] said nothing to suggest that the de novo hearing was one in which the debtor was in any way relieved of compliance with the requirements of” r 2.04 and r 2.06 of the Bankruptcy Rules: at PJ1 [41].
At PJ1 [44]-[58] the primary judge turned to the procedural framework for creditors’ petitions. In particular, the primary judge noted that where a debtor intends to take part in the hearing of a creditor’s petition, he or she must file a notice of appearance in prescribed form in accordance with r 2.04 of the Bankruptcy Rules and that r 2.06 is engaged where, relevantly, a debtor intends to oppose a petition (see below).
Before the primary judge, the solicitor-advocate appearing for Ms Bechara, Mr Martin, submitted that for the purposes of a de novo hearing of a petition r 2.04 and r 2.06 of the Bankruptcy Rules were “utterly irrelevant” and did not apply. The primary judge did not agree with and ultimately rejected that submission. In doing so his Honour first stated the following propositions at PJ1 [60]:
… The principles considered below are important as informing the approach to be taken in the proper determination of the hearing of a creditor’s petition, including a de novo hearing. From the authorities considered, the following propositions may be stated:
(a)rr 2.04 and 2.06 form an essential part of the procedural framework within which a Bankruptcy Court is to determine, promptly, a creditor’s petition;
(b)upon presentation, a creditor must support a petition by an affidavit deposing to matters stated in it. Equally, when a debtor intends to appear at, and oppose, a petition, notice must be given of the grounds on which it is intended to do so. The symmetrical nature of the procedures to be adopted in the proper administration of bankruptcy is apparent. The essential purpose of the notice is to identify each of the matters which a debtor intends to rely upon in opposing the petition. Conversely, it is not the intention of the entitlement to appear at a petition, either at the hearing or on a de novo hearing, that the matters which a debtor intends to dispute only be exposed for the first time in cross-examination let alone in closing submissions;
(c)the primary function of the creditor’s verifying affidavit is to impose a requirement for acceptance of the presentation of a petition that it be supported by some sworn evidence. Once a debtor intends to oppose the petition, depending on the grounds of opposition, the function of the verifying affidavit may be spent. While the court remains bound to discharge its duty to consider for itself whether or not it is satisfied of proof of the matters required by s 52(1), where notice of grounds of opposition identify the particular bases why a petition is to be challenged, those grounds further define what the Bankruptcy Court must consider;
(d)notice of the grounds upon which it is intended to oppose a petition ought to be stated with particularity and supported by affidavit. That is so, irrespective of whether the intended grounds are directed to the matters in the petition, including jurisdiction, service, compliance with the Bankruptcy Rules, solvency or some other sufficient cause. Nonetheless, the court may be satisfied that an objection is ‘dilatory.’ Lack of clarity or ambiguity about the nature of a debtor’s intended grounds of opposition inform the approach to be taken at the hearing, including on a de novo hearing;
(e)despite failure to give notice of grounds of opposition, the court does not dispense with proof of the matters required by the Act or rules. Further, until there has been a proper investigation of a bona fide issue, a Bankruptcy Court should not proceed to make a sequestration order where it is shown that the opposition to the petition “is based on genuine and arguable grounds”. In either situation, the court remains subject to a duty to examine the underlying facts together with the due observance of relevant provisions of the Act and rules. Opaque, ambiguous or dilatory grounds are in another category;
(f)while a notice of the intended grounds of opposition triggers a requirement to prove ‘afresh’ the matters that are distinctly put in contest, it is not a purpose of the Bankruptcy Rules that a failure to comply with rr 2.04 or 2.06 entitles a creditor to relief without satisfying the court of the matters required by s 52(1);
(g)irrespective of a debtor’s failure to appear, file notice of grounds, evidence or submissions, the court must be satisfied whether a sequestration order ought be made, including upon a de novo hearing of a petition. Upon failure to file any notice or affidavit complying with 2.06, in a particular case, a debtor may be disentitled at a hearing or a de novo hearing from leading evidence in support of a ground. Although a court may adjourn the hearing of a petition to allow a debtor to adduce evidence, there may be no utility in doing so if it is not shown that there is a bona fide ground of opposition to the grant of relief sought by the petition;
(h)the extent of proof that is to be required of a creditor is informed by the grounds on which a debtor intends to oppose the petition and the manner in, and time at, which those grounds have been revealed by the debtor. Absent notice of the grounds upon which a debtor intends to oppose a petition, it is for the court to determine what it will require to be proved. The court “may require proof of such of the matters in the petition as the court thinks right”. It is within the ambit of its discretion not to require proof of matters “outside the notice” and, by extension, not to require strict proof of matters not in any notice. The court retains discretion to adjourn a hearing so as to allow an opportunity to address the want of proof, including of the matters required by s 52(1). It retains discretion to refuse to consider grounds of which no notice is given;
(i)the approach to be taken by the court where a debtor has belatedly identified an intended ground of opposition, involves matters of practice and procedure;
(j)the approach to such matters is necessarily constrained by the special need to determine a de novo hearing of the exercise of power by a Registrar to make a sequestration order as soon as possible. Parties should not approach a de novo hearing as only being an inter partes proceeding or assume that the court may not direct them to proceed without delay. Unless it is impracticable to do so, the public interest of avoiding delay is high.
These propositions are drawn from or informed by the following authorities. …
The primary judge next summarised the relevant authorities before concluding that r 2.04 and r 2.06 of the Bankruptcy Rules “remained equally important and applied to a de novo hearing of Mr Bates’ petition”: at PJ1 [61]-[86]. His Honour stated that the requirement to provide an affidavit in support of any ground of intended opposition to the petition operated as a safeguard against delay and reliance upon grounds that are “opaque, ambiguous, dilatory or lacking in bona fides”. Accordingly, his Honour found that non-compliance with those “imperative obligations” engaged a discretion in the court to afford Mr Bates an opportunity to adduce further evidence in proof of jurisdictional facts and of matters bearing upon a suggested failure to comply with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules: see PJ1 [87].
At PJ1 [90]-[105] his Honour set out the consequences for the proceeding of Ms Bechara’s non-compliance with r 2.04 and r 2.06 of the Bankruptcy Rules, by failing to file a notice of appearance, a notice stating her grounds of opposition to the petition or an affidavit in support of those grounds: at PJ1 [90]-[105].
At PJ1 [108]-[116] the primary judge addressed the standard of proof required to establish facts in the hearing and determination of a creditor’s petition. The primary judge addressed Mr Bates’ evidence. He considered Mr Bates to be an honest and credible witness, who did his best to answer the questions put to him in cross-examination. This was so despite the difficulties presented by, among other things, Ms Bechara’s failure to file any notice identifying with particularity the grounds on which she intended to oppose the petition, the complications arising from a virtual hearing conducted using Microsoft Teams software and the fallibility of human memory where there had been a lapse of time between the events under consideration and the date of hearing.
The primary judge made findings based on the evidence in relation to the following matters:
(1)Ms Bechara’s retainers of Mr Bates. In summary Mr Bates, a barrister, had accepted briefs from Ms Bechara, a solicitor who conducted practice as a principal on her own account, in various matters but he ultimately declined to accept further briefs from her. Mr Bates was given repeated assurances by Ms Bechara that she would pay his outstanding fees and that the source of the payment would be an amount due to be paid to her by another solicitor, Magee. At about Easter 2014 Mr Bates discovered that the moneys which Ms Bechara had said would be the source of payment of his outstanding fees had been paid to Ms Bechara “some time ago”. Mr Bates said that his relationship with Ms Bechara ended because he had been promised payment, had waited a long time and eventually got nothing: at PJ1 [118]-[126];
(2)on 27 May 2014 Mr Bates commenced a proceeding for recovery of his fees in the Local Court: at PJ1 [127]-[128];
(3)the judgments obtained by Mr Bates against Ms Bechara on 1 March 2015, 3 April 2015 and 19 November 2015 for $87,628.38, $1,808.40 and $33,000 respectively, $127,936.91 including interest which had accrued on those sums: at PJ1 [129]-[134];
(4)the bankruptcy notice and the proceedings instituted by Ms Bechara on 30 December 2015 in the Supreme Court and the Federal Circuit Court. The latter was an application to set aside the bankruptcy notice which was dismissed on 5 April 2016: at PJ1 [135]-[140];
(5)Mr Bates’ creditor’s petition presented on 7 April 2016. Orders were made for substituted service of the creditor’s petition on Ms Bechara who then appeared, by a lawyer, on 8 June 2016. The hearing of the petition was adjourned to 5 July 2016 at which time a sequestration order was made by a registrar: at PJ1 [141]-[150]; and
(6)Ms Bechara’s application made pursuant to s 104 of the FCC Act for a re-hearing which took place on 8 December 2016. Ms Bechara’s application sought an order that “[t]he orders made by Registrar Tesoriero be set aside” and an order that the creditor’s petition be dismissed “pursuant to s 52(2)(b) of the [Bankruptcy Act]”. The primary judge observed that Ms Bechara’s application did not rely on s 52(2)(a) of the Bankruptcy Act. Ms Bechara did not appear on 8 December 2016 and her application for review was dismissed. Those orders and subsequent orders made by the Federal Circuit Court (upon Ms Bechara seeking an order for reinstatement of her review application) were quashed by the orders made by the Full Court of this Court in Bechara (FCAFC) (see [11] above): at PJ1 [151]-[160].
The primary judge then turned to consider the creditor’s petition noting that his task was to consider it afresh. His Honour relevantly made a number of findings and considered the arguments put by Ms Bechara.
First, his Honour found that the conditions in s 44(1) of the Bankruptcy Act, upon which Mr Bates might present his petition, were satisfied: at PJ1 [166]-[168].
Secondly, the primary judge considered whether the matters required to be proved by s 43 of the Bankruptcy Act had been established. His Honour noted that Ms Bechara accepted that she had committed an act of bankruptcy by failing to comply with the bankruptcy notice and found that the act of bankruptcy was committed within six months before the presentation of the petition: at PJ1 [169]-[171].
The primary judge observed that Ms Bechara’s closing submissions required consideration of the proper construction of s 43 of the Bankruptcy Act and, in particular, the requirements of s 43(1)(b). Ms Bechara contended that, properly construed, jurisdiction was not engaged unless the requirement of each of subss 43(1)(b)(i), (ii) and (iii) were satisfied. That is, they were said to be cumulative, not alternative. The primary judge did not accept that submission, setting out his reasons why that was so: at PJ1 [176]-[182].
The primary judge found that Mr Bates had established the matters in subss 43(1)(a) and (b)(i)-(ii) to the requisite standard so as to engage jurisdiction. In doing so his Honour said (at PJ1 [192]) that “[n]either the text, context or purpose of the provision support a conclusion that there should be read into s 43(1)(b) a requirement that the court may only make a sequestration order where satisfied by direct proof of matters in that subsection”. The primary judge provided detailed reasons as to why he was satisfied, based on the evidence before him, that the alternative requirements of subss 43(1)(b)(i), (ii) and (iii) were established: at PJ1 [196]-[269]. His Honour was also satisfied that the creditor’s petition had been served on Ms Bechara and that the debt the subject of the petition remained outstanding: at PJ1 [270]-[271].
The primary judge turned to consider s 52(1) of the Bankruptcy Act finding that he was satisfied of the matters required by that subsection and accordingly a prima facie entitlement to a sequestration order was established: at PJ1 [272]-[276].
Ms Bechara opposed the making of a sequestration order on three bases: a challenge to the service of the bankruptcy notice which, the primary judge observed, was abandoned in opening; a failure to establish jurisdiction, which Ms Bechara failed to establish (see [27]-[28] above); and alleged non-compliance with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules, which the primary judge noted was first raised in closing address and was said to be Ms Bechara’s principal ground of opposition. The primary judge then addressed that ground of opposition.
The primary judge observed that it was appropriate to consider the question of compliance with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules for the purpose of engaging the discretion under s 52(2)(b) of the Bankruptcy Act, namely “whether Ms Bechara has discharged the onus of satisfying the Court that there has been, in fact, non-compliance with the rules to which she refers, whether that is a sufficient cause to dismiss the petition and whether the Court should exercise its residual discretion to do so”: at PJ1 [278].
At PJ1 [279] the primary judge stated that the onus placed on the petitioner by s 52(1) of the Bankruptcy Act does not require proof of compliance with the Bankruptcy Rules and that the requirement for proof of compliance with those rules is not located in s 52(1). After referring in general terms to the requirements of r 4.04 and r 4.05 of the Bankruptcy Rules, at PJ1 [284] the primary judge said:
However in light of the procedural history of the matter, including the confined basis on which Ms Bechara proceeded pursuant to par 52(2)(b) of the Act to seek the dismissal of the petition, I have concluded the prima facie entitlement to a sequestration order should not be disturbed unless persuaded by Ms Bechara that the matters relied upon for the purposes of par 52(2)(b) constitute a sufficient other cause in all of the circumstances of this case.
The primary judge observed that: it was a matter of choice as to how a debtor seeks to satisfy s 52(2) of the Bankruptcy Act; absent evidence, difficulty may ensue in doing so; and one basis on which s 52(2) confers power to dismiss a creditor’s petition is that the court is not satisfied with proof of the matters in s 52(1). The primary judge also observed that although subs 52(1) and (2) do not refer to the Bankruptcy Rules, non-compliance with those rules could constitute some other sufficient cause in the circumstances of a particular case: at PJ1 [285]-[287].
Insofar as Ms Bechara relied on non-compliance with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules as constituting “other sufficient cause” not to make a sequestration order for the purpose of s 52(2) of the Bankruptcy Act the primary judge said at PJ1 [292]-[293]:
292In closing address, Mr Martin mounted his final challenge upon an alleged failure to comply with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules. First, he pointed up that the Date and Time of the Hearing (8 June 2016), had not been inserted in the copy of the amended petition as annexed to the affidavit of substituted service to which he referred. Secondly, he submitted that the rule 4 affidavits were non-compliant. Thirdly, he submitted that there was no evidence of a consent of the trustee having ever been served.
293The complaints of non-compliance were said to be constituted by a failure to comply with:
(1)r 4.04(1)(a), being a failure to serve with the petition, an affidavit stating the matters addressed by that rule;
(2)r 4.04(3) (sic), being a failure to exhibit to an affidavit as required by r 4.04(1)(a), a copy of any order finally deciding the application to set aside the bankruptcy notice;
(3)r 4.04(3), being a failure to serve on Ms Bechara, at least five days before the hearing date of the creditor’s petition, a copy of the affidavits required pursuant to r 4.04;
(4)r 4.05, being a failure to serve on Ms Bechara, at least five days before the date fixed for the hearing of the creditor’s petition, an affidavit as required by that rule and any consent to act as trustee of the debtor’s estate filed under s 156A of the Act;
(5)r 4.06(2), being a failure to file the further affidavit as required by that rule.
These rules have overlapping operation.
At PJ1 [301] the primary judge observed that the requirements of r 4.02 and r 4.04 of the Bankruptcy Rules were not engaged in a de novo hearing because a petitioner is not required to re-serve the documents referred to in those rules. The primary judge found that:
(1)contrary to Ms Bechara’s submission, a copy of the amended creditor’s petition in which the Federal Circuit Court’s Registry had inserted the time, place and date for the hearing and which had been served on Ms Bechara was annexed to one of the affidavits: at PJ1 [315]-[316];
(2)neither of the affidavits relied on by Mr Bates was a statement made in compliance with r 4.04(1)(a)(i), (ii) or (iii), although on the facts of the case neither r 4.04(1)(a)(i) nor r 4.04(2) of the Rules applied;
(3)at the time of service of the amended creditor’s petition, there was no affidavit served on Ms Bechara stating, relevantly, whether an application had been made by her in relation to the bankruptcy notice, that Ms Bechara’s application to set aside the bankruptcy notice had been dismissed on 5 April 2016, and that therefore her application for an extension of time to comply with the notice and to set aside the notice had been finally decided, as required by r 4.04(1)(a)(ii), (iii) or r 4.04(3): at PJ1 [320]; and
(4)while a copy of the order made on 5 April 2015 dismissing Ms Bechara’s application to set aside the bankruptcy notice had not been served with the amended creditor’s 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: at PJ1 [321].
In relation to r 4.05 of the Bankruptcy Rules, which provides that service of certain documents must be effected no later than five days before the date fixed for hearing of the petition, the primary judge:
(1)was satisfied that there was compliance with r 4.05(a) and (b) and that service of the amended creditor’s petition which contained the verifying affidavit was effected more than five days before the sequestration order was made on 5 July 2016: at PJ1 [324];
(2)found that r 4.05(c) had not been complied with because an affidavit which set out the matters required by r 4.04(1)(a)(ii) or (iii) had not been served with the amended creditor’s petition, or five days before the date fixed for the hearing of the petition and the order made on 5 April 2016 had not been attached to any such affidavit: at PJ1 [325]; and
(3)found the submission that there had been a failure to comply with r 4.05(d) to be misconceived, noting that the obligation to do so is not engaged in circumstances where a consent had not been filed: at PJ1 [326].
In relation to r 4.06 of the Bankruptcy Rules, which concerns additional affidavits to be filed before the hearing of a creditor’s petition, the primary judge noted that compliance with r 4.06(3) and (4) was not contested and that r 4.06(5) was not relevant. However, his Honour found that no affidavit complying with r 4.06(2) had been filed. That rule required the creditor to file an affidavit stating that the documents to be served under r 4.05 had been served and when and how they were so served. His Honour noted that such non-compliance had occurred in the context of the matters addressed above (see [36] above): at PJ1 [329]-[331].
The second judgment (PJ2)
The second judgment addressed an issue raised for the first time by Ms Bechara in closing submissions, namely the operation of s 52(2) of the Bankruptcy Act insofar as any non-compliance with the Bankruptcy Rules may have been affected by the operation of s 306(1) of Bankruptcy Act.
The primary judge concluded that: no defect in any document or the proceeding within the meaning of s 306(1) of the Bankruptcy Act had been identified; any non-compliance which had occurred was an irregularity within the meaning of s 306(1) of the Bankruptcy Act; and 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 did result in non-compliance with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules: at PJ2 [15].
At PJ2 [16] the primary judge found that each procedural failure constituted an irregularity which was not of a substantive kind and consequently s 306(1) of the Bankruptcy Act operated automatically to save the petition from invalidity. His Honour continued:
… 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].
In relation to the operation of s 306(1) of the Bankruptcy Act the primary judge said at PJ2 [18] that:
(1)section 306 has no application to defects which are not formal. Non-formal or substantive defects invalidate a proceeding and s 306 cannot save it;
(2)formal defects or other irregularities may not, without more, invalidate a proceeding;
(3)as to 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;
(4)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;
(5)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;
(6)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;
(7)invalidity may not result where the court is satisfied that the injustice can be remedied by an appropriate order, for example an adjournment; and
(8)in such cases, the court reserves 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.
At PJ2 [19]-[20] the primary judge set out how s 306(1) of the Bankruptcy Act operated in light of other provisions of the FCC Act and the Bankruptcy Act noting that:
(1)the power conferred by s 306(1) should be read in the context of s 30(1)(b) of the Bankruptcy 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;
(2)section 57(2) of the FCC Act (which is replicated in s 189(2) of the Federal Circuit and Family Court of Australia Act 2021 (Cth)) provides that the court may, on such conditions as it 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; and
(3)rule 1.04 of the Bankruptcy Rules (which is replicated in r 1.04 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth)) informs the scope of the power conferred by s 306(1) of the Bankruptcy Act.
At PJ2 [31], after setting out the authorities which considered the application of s 306 of the Bankruptcy Act, his Honour stated:
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 [sic] 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.
The primary judge noted that Ms Bechara alleged a number of failures to comply with the Bankruptcy Rules, many of which were factually inaccurate. His Honour found that Mr Bates had not complied with the Bankruptcy Rules in several respects, all of which turned upon the same substantive issue, that is the failure to adduce evidence in relation to Ms Bechara’s application to set aside and extend the time for compliance with the bankruptcy notice and to exhibit a copy of 5 April 2016 Order. His Honour summarised these failures at PJ2 [33] 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 primary judge noted at PJ2 [49] that in cases of defect or irregularity the court must evaluate the significance and importance of the defect or irregularity in the circumstances of the case and concluded that the procedural omissions upon which Ms Bechara sought to rely were not substantive. Adopting the analysis of the Full Court of this Court in de Robillard v Carver (2007) 159 FCR 38, the primary judge concluded at PJ2 [50] that the complaints of non-compliance with the Bankruptcy Rules did not go to jurisdiction. That is, the procedural irregularities did not provide a basis to satisfy the primary judge that there was any, or any substantial, injustice which might invalidate the proceeding or be capable of being ameliorated by the making of an appropriate order under s 306(1) of the Bankruptcy Act.
The primary judge concluded that he was not satisfied that Ms Bechara had suffered any substantial injustice in the proceeding flowing from the failure to comply with the rules in question. Accordingly, his Honour found that it was unnecessary to identify whether any order would be necessary to remedy such injustice and that s 306(1) takes effect and saves the creditor’s petition from invalidity that would otherwise arise from the irregularities. As a separate matter, the primary judge did not accept that there had been any injustice in the proceeding 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 the 5 April 2016 Order. His Honour found that a copy of the order was exhibited to an affidavit during the de novo hearing: at PJ2 [51]-[52].
The primary judge concluded that Mr Bates had discharged his onus of establishing proof of the matters under s 52(1) of the Bankruptcy Act and, having regard to s 52(2), his Honour was not satisfied by Ms Bechara of any sufficient reason why an order ought not to be made. Additionally, the primary judge observed that he could not ignore the substantial delay that had attended the proceeding and the corresponding prejudice caused to other creditors. The primary judge concluded that the court should affirm the registrar’s decision to make a sequestration order against Ms Bechara’s estate: at PJ2 [62]. At PJ2 [63]-[64] his Honour continued:
63Had 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 noncompliance 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.
64Had 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.
GROUNDS OF APPEAL
Ms Bechara relies on a second amended notice of appeal (NOA) which comprises some 66 paragraphs and is, with respect, somewhat prolix comprising matters in the nature of submissions rather than identifying, with precision, how it is said that the primary judge erred. However, in summary Ms Bechara contends that:
(1)the primary judge erred in finding that the Federal Circuit Court’s jurisdiction was invoked. This ground raises the proper construction of s 43(1)(b) of the Bankruptcy Act and, in particular, a contention that Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 is plainly wrong and alleges that the findings made by the primary judge that Ms Bechara was personally present and ordinarily resident in Australia in April 2016, had a dwelling house in April 2016 and/or had a place of business in Australia, are wrong: at NOA [5]-[41];
(2)the primary judge erred in his analysis of the evidence against rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules and, insofar as the primary judge found there to be non-compliance with those rules, erred in finding that the non-compliance was not of such a nature as to cause substantial injustice to Ms Bechara within the meaning of s 306(1) of the Bankruptcy Act: at NOA [42]-[58]; and
(3)the primary judge erred at PJ1 [3]-[107] in finding that Ms Bechara was required to comply with r 2.04 and r 2.06 of the Bankruptcy Rules on a review application and, although she concedes that “nothing seems to eventuate from that error”, Ms Bechara contends that “the fervour of the Court’s condemnation might be thought to have infected” the primary judge’s thinking on discretionary matters, including the wrongful exercise of s 306(1) of the Bankruptcy Act and the costs judgment: at NOA [64].
LEGISLATIVE FRAMEWORK
Section 40(1)(g) of the Bankruptcy Act concerns “[a]cts of bankruptcy” and relevantly provides:
(1)A debtor commits an act of bankruptcy in each of the following cases:
…
(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i)where the notice was served in Australia—within the time fixed for compliance with the notice; or
(ii)where the notice was served elsewhere—within the time specified by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
…
Section 47 of the Bankruptcy Act sets out the requirements for a creditor’s petition. It provides:
(1)A creditor’s petition must be verified by an affidavit of a person who knows the relevant facts.
(1A)If the rules of court prescribe a form for the purposes of this subsection, the petition must be in the form prescribed.
(2)Except with the leave of the Court, a creditor’s petition shall not be withdrawn after presentation.
Section 43(1) of the Bankruptcy Act, which is headed “Jurisdiction to make sequestration orders”, provides:
(1) Subject to this Act, where:
(a)a debtor has committed an act of bankruptcy; and
(b)at the time when the act of bankruptcy was committed, the debtor:
(i)was personally present or ordinarily resident in Australia;
(ii)had a dwelling‑house or place of business in Australia;
(iii)was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv)was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
Section 52(1) of the Bankruptcy Act sets out the matters of which the Court requires proof before a sequestration order is made. It provides:
At the hearing of a creditor’s petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
Section 52(2) of the Bankruptcy Act empowers the Court to dismiss a petition and provides:
If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a)that he or she is able to pay his or her debts; or
(b)that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
Rule 1.03 of the Bankruptcy Rules provides that those Rules are made under the FCC Act.
Rule 1.04 of the Bankruptcy Rules concerns “[a]pplication of [the Bankruptcy Rules] and other Rules of the [Federal Circuit Court]” and provides that unless the Federal Circuit Court otherwise orders, the Bankruptcy Rules apply to a proceeding in the Federal Circuit Court to which the Bankruptcy Act applies.
Part 2 of the Bankruptcy Rules is titled “General”. Relevantly:
(1)rule 2.04 provides that a person who intends to appear at the hearing of a petition must file a notice of appearance in accordance with the prescribed form; and
(2)rule 2.06 concerns “[o]pposition to application, interim application or petition” and provides:
A person who intends to oppose an application (including an interim application) or a petition must, at least 3 days before the date fixed for the hearing of the application or petition or, with the leave of the Court, at the hearing:
(a)file a notice of appearance in accordance with Form B4; and
(b)file a notice in accordance with Form B5 stating the grounds of opposition; and
(c)file an affidavit in support of the grounds of opposition; and
(d)serve the notices and supporting affidavit on the applicant.
Part 4 of the Bankruptcy Rules concerns creditors’ petitions and applies to a creditor’s petition seeking a sequestration order against the estate of a debtor.
The requirements for a creditor’s petition and supporting affidavit are set out in r 4.02 of the Bankruptcy Rules which provides:
(1)For subsection 47(1A) of the Bankruptcy Act, a creditor’s petition must be in accordance with Form B6.
(2)The affidavit (the verifying affidavit) verifying the petition required by subsection 47(1) of the Bankruptcy Act must:
(a) be included in the petition in accordance with Form B6; or
(b) accompany the petition.
(3)The petition must also be accompanied by any affidavits relating to the petition required by rule 4.04.
(4)Unless the petition is faxed, or sent by electronic communication, to a Registry for filing, the petition must also be accompanied by sufficient copies of the petition for service and proof of service.
(5)If the petition is accompanied by the verifying affidavit in accordance with paragraph (2)(b), a copy of the petition must be attached to the verifying affidavit.
Rule 4.04 of the Bankruptcy Rules concerns creditors’ petitions founded on a failure to comply with “bankruptcy notice etc.” and relevantly provides:
(1)If a creditor’s petition is founded on an act of bankruptcy specified in paragraph 40(1)(g) of the Bankruptcy Act, the petition must also be accompanied by:
(a) an affidavit stating:
(i)that the records of the Court and the records of the Federal Court have been searched and no application in relation to the bankruptcy notice has been made; or
(ii)that an application was made in the Court or in the Federal Court (as the case may be) for an order setting aside the relevant bankruptcy notice and the application has been finally decided; or
(iii)that an application was made in the Court or in the Federal Court (as the case may be) for an order extending the time for compliance with the bankruptcy notice and the application has been finally decided; and
(b) an affidavit of service of the relevant bankruptcy notice.
(2)If an affidavit required by paragraph (1)(a) states the matters referred to in subparagraph (1)(a)(i), a copy of the search must be attached to the affidavit.
(3)If an affidavit required by paragraph (1)(a) states that an application referred to in subparagraph (1)(a)(ii) or (iii) was made, a copy of the order finally deciding the application must be attached to the affidavit.
…
Rule 4.05 of the Bankruptcy Rules is titled “Documents to be served” and provides that:
Unless the Court otherwise orders, at least 5 days before the date fixed for the hearing of a creditor’s petition, the applicant creditor must serve on the respondent debtor:
(a)the creditor’s petition; and
(b)a copy of the affidavit, or affidavits, verifying the petition required by subsection 47(1) of the Bankruptcy Act; and
(c)if applicable, a copy of the affidavits relating to the petition required by rule 4.04; and (d) a copy of any consent to act as trustee of the debtor’s estate filed under section 156A of the Bankruptcy Act.
Rule 4.06 of the Bankruptcy Rules is titled “Additional affidavits to be filed before hearing”. It relevantly provides:
(1)Before the hearing of a creditor’s petition, the applicant creditor must comply with this rule.
(2)The applicant creditor must file an affidavit that:
(a)states that the documents required to be served under rule 4.05 have been served, and when and how they were served; and
(b)has attached to it a copy of the documents that were served and proof of service in relation to the documents.
CONSIDERATION
I address each category of error alleged by Ms Bechara (summarised at [48] above) in turn below.
Jurisdiction
The first category of error alleged by Ms Bechara concerns the question of whether the Federal Circuit Court had jurisdiction to entertain the creditor’s petition presented by Mr Bates. Ms Bechara’s challenge to the primary judge’s reasons is two-fold: first, she contends that the primary judge erred in his construction of s 43(1)(b) of the Bankruptcy Act; and secondly, she contends that the primary judge erred in finding that Mr Bates had established each of the requirements of subss 43(1)(b)(i), (ii) and (iii) of the Bankruptcy Act.
The construction of s 43(1)(b) of the Bankruptcy Act
Ms Bechara submits that the primary judge fell into error because Mr Bates, as creditor, did not establish a prima facie entitlement to the making of a sequestration order on the bases relied upon in paragraph 3 of his creditor’s petition. This was because the Federal Circuit Court could not have been satisfied on the balance of probabilities that Ms Bechara:
(1)was ordinarily resident in Australia; and
(2)had a dwelling house in Australia; and
(3)had a place of business in Australia; or
(4)was carrying on business in Australia personally or by an agent or by an agent or manager,
when the act of bankruptcy occurred on 5 April 2016.
Ms Bechara contends that s 43(1)(b) of the Bankruptcy Act requires each aspect of paragraph 3 of the creditor’s petition to be proved and that the legislation makes it clear, by inserting the word “or” at various points, that paragraphs 3(a), (b) and (c) of the creditor’s petition are cumulative and not alternative. At the heart of this submission is Ms Bechara’s contention that the proper construction of s 43(1)(b) of the Bankruptcy Act requires subss 43(1)(b)(i) to (iii) to be read cumulatively and not alternatively. To that end, Ms Bechara submits that: the decision in Re Mendonca is not binding on this Court; this Court ought to reconsider the decision in Re Mendonca as it misreads the language in s 43(1)(b) of the Bankruptcy Act to arrive at an unnaturally narrow construction of what the legislation is intended to mean; and if the legislature had intended the requirements of s 43(1)(b) to be read alternatively then it would have used the word “or” at the end of each subsection. She submits that instead the legislature inserted the word “or” sparingly at the end of s 43(1)(b), between subs (iii) and subs (iv), “for a reason”, without further explanation.
The primary judge addressed the question of the proper construction of s 43(1)(b) of the Bankruptcy Act at [172]-[182] of the first judgment. As set out at [27] above, his Honour concluded that the requirements of the section were alternative and not cumulative. There was no error in his Honour’s interpretation of s 43(1)(b) of the Bankruptcy Act.
The starting point for the ascertainment of the meaning of a statutory provision is its text. At the same time regard should be had to the provision’s context and purpose: see SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 at [14] (Kiefel CJ, Nettle and Gordon JJ), [37]-[38] (Gageler J). The plurality in SZTAL went on to observe that considerations of context and purpose “simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected”.
As the primary judge recognised, s 43 of the Bankruptcy Act confers jurisdiction on the court to make a sequestration order. In Owners of the Ship Shin Kobe Maru v Empire Shipping Co Inc (1994) 181 CLR 404 at 421 the High Court said that “[i]t is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words”. But that is what Ms Bechara seeks to do by the construction of s 43(1)(b) of the Bankruptcy Act that she urges.
Ms Bechara’s interim application dated 25 July 2016 sought dismissal of the creditor’s petition pursuant to s 52(2)(b) of the Bankruptcy Act without any particularisation. The primary judge observed that of the three bases which Ms Bechara contended constituted “other sufficient reasons” not to make a sequestration order: the first, concerning service of the bankruptcy notice and creditor’s petition was abandoned; the second, concerning jurisdiction was put in issue during cross-examination of Mr Bates but was otherwise raised without notice; and the third, the alleged failure to comply with aspects of the Bankruptcy Rules, was raised in closing address: at PJ1 [10].
The primary judge then made some further “preliminary observations” in relation to the conduct of the review hearing. At PJ1 [15] his Honour said that save for the protracted procedural history of the proceeding he would have otherwise refused to consider the three bases advanced by Ms Bechara in seeking to oppose the making of a sequestration order. That is, despite the failure to comply with the procedures in the Bankruptcy Rules to notify grounds of opposition prior to a hearing, the primary judge considered the bases upon which Ms Bechara opposed the making of a sequestration order for the purposes of s 52(2) of the Bankruptcy Act.
At PJ1 [30]-[107] the primary judge considered Ms Bechara’s submissions that she was not obliged to comply with r 2.04 and r 2.06 of the Bankruptcy Rules and concluded that he could not accept those submissions. While Ms Bechara disagrees with this conclusion, she does not say how his Honour erred and, in effect, submits that even if his Honour did err, nothing eventuates from that error. Having regard to his Honour’s reasoning I am not satisfied that there was any error in the conclusion that on a hearing de novo r 2.04 and r 2.06 of the Bankruptcy Rules apply equally as they did at the initial hearing before the registrar. Of course a party may seek to be excused from compliance with those rules and any others that may apply. But there is nothing in the text of the Bankruptcy Act or the Bankruptcy Rules to suggest those rules do not apply equally. Given the nature of a hearing de novo, where the court hears the matter afresh based on the law and evidence as they stand at the time of that hearing, it follows that there ought to be compliance with the rules by all parties and, in any event, there is no place in the proper and efficient administration of justice for a party to raise arguments without proper notice.
There is also nothing to suggest that the primary judge’s “condemnation” for non-compliance with r 2.04 and r 2.06 of the Bankruptcy Rules infected his Honour’s exercise of discretion. Ms Bechara does not allege bias on the part of the primary judge but another specie of “infection” of his Honour’s consideration. I do not understand the basis for the criticism or how it is said his Honour erred in the exercise of his discretion. Certainly, his Honour returned to Ms Bechara’s failure to put Mr Bates and the court on notice of her grounds of opposition until late in the piece at a number of points in his Honour’s reasons. It seems that Ms Bechara’s conduct of her opposition to the making of a sequestration order extended the time required for hearing and led to several adjournments. All this the primary judge found to be contrary to the requirement to conduct the review as efficiently and expeditiously as possible. His Honour also referred to at least one authority where a debtor did not put the creditor on notice of a ground of opposition, raising it only in his closing submissions and the Court refused to permit that ground to be argued: at PJ2 [22] and [40] referring to Carver v de Robillard [2006] FCA 1041 at [44]-[45] (Lindgren J). But his Honour did not take that course. His Honour addressed each of Ms Bechara’s grounds of opposition, despite the time at which they were raised.
I am not satisfied that the primary judge’s finding that a debtor is required to comply with r 2.04 and r 2.06 of the Bankruptcy Rules for the purpose of a hearing de novo was in error. Nor am I satisfied that Ms Bechara has established that “the fervour of the court’s condemnation might be thought to have infected the court’s thinking on discretionary matters, such as the wrongful exercise of s 306(1) [of the Bankruptcy Act] and regarding the costs judgment”. I am not satisfied that the primary judge either condemned the conduct with any fervour as alleged or at all. His Honour disapproved of the conduct in terms that were firm, as he was entitled to do.
Finally, to the extent that Ms Bechara alleges that any such conduct infected the costs judgment I note that there is no ground of appeal otherwise levelled at that judgment and Ms Bechara accepts that, if she is unsuccessful in her appeal, it should stand. Similarly, Mr Bates agreed that if Ms Bechara is successful in her appeal the orders made for payment of his costs would be set aside.
Ms Bechara has failed to make out [59]-[64] of the NOA.
CONCLUSION
Ms Bechara has not made out any of her grounds of appeal. The NOA should be dismissed.
The parties agreed that costs would follow the event. Accordingly, Ms Bechara should pay Mr Bates’ costs of the appeal. Those costs should be paid out of Ms Bechara’s bankrupt estate with the same priority accorded by s 109(1) of the Bankruptcy Act.
Mr Bates informed the Court that, in the event he was successful, he would seek payment of his costs in a lump sum. I will make orders to permit Mr Bates to make any such application within a fixed period of time. If the parties can agree that costs should be quantified in a lump sum and on the quantum of the lump sum they can submit proposed orders to me to be made in Chambers. If the parties cannot agree on either or both of those matters, Ms Bechara is to file and serve any evidence and short submissions in reply. Unless a party requests an oral hearing, I will determine the questions of whether costs should be quantified in a lump sum and, if they should, quantification of those costs on the papers.
I will make orders accordingly.
I certify that the preceding one hundred and fifty-eight (158) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic. Associate:
Dated: 11 December 2023
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