Black v Mills
[2015] FCCA 1110
•14 April 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BLACK v MILLS | [2015] FCCA 1110 |
| Catchwords: BANKRUPTCY – Bankruptcy Notice – whether bankruptcy notice should be set aside due to overstatement of amount due by debtor – application for a sequestration order – proof of matters required on creditor’s petition – sequestration order made. |
| Legislation: Bankruptcy Act 1966, ss.41, 46, 52 Federal Circuit Court Rules 2001 (Cth), rr.13.03(C), 21.15 |
| Re Walsh (1982) 65 FLR 87; 47 ALR 751 Walsh v Deputy Commissioner of Taxation (Cth) (1983) 77 FLR 61, 47 ALR 616; Olivieri v Stafford (1989) 24 FCR 413 (FC) Re Cirillo; Ex parte Commissioner of Taxation [1992] FCA 266; (1992) 36 FCR 279 Satchithanantham v Multilink Investments Pty Limited [2002] FCA 1277 Dennis v Miller & Ors [2012] FMCA 25 St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094 Re Janice Bain; Ex Parte: Offset Alpine Printing Ltd [1998] FCA 195 Franks v Equititrust Limited [2012] FMCA 1180 Croker v Commissioner of Taxation [2005] FCA 127 |
| Applicant: | RICHARD BLACK |
| Respondent: | BERNADETTE MILLS |
| File Number: | SYG 3051 of 2014 |
| Judgment of: | Judge Nicholls |
| Hearing date: | 14 April 2015 |
| Date of Last Submission: | 14 April 2015 |
| Delivered at: | Sydney |
| Delivered on: | 14 April 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr C K Stewart |
| Solicitors for the Applicant: | R D Black & Associates |
| Respondent: | No Appearance |
THE COURT ORDERS THAT:
A sequestration order is made against the estate of Bernadette Mills.
The applicant creditor’s costs be paid from the estate of Bernadette Mills in accordance with the Bankruptcy Act 1966 (Cth).
Under the Bankruptcy Regulations 1996 (Cth) a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
THE COURT NOTES THAT:
The Court notes that the date of the act of bankruptcy is 31 October 2014.
CERTIFICATION
Pursuant to r. 21.15 of the Federal Circuit Court Rules 2001 (Cth), the proceedings reasonably required the employment of an advocate by the applicant.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3051 of 2014
| RICHARD BLACK |
Applicant
And
| BERNADETTE MILLS |
Respondent
REASONS FOR JUDGMENT
(Ex tempore; Revised from Transcript)
I have before me today a creditor’s petition filed by Mr Richard Black (“the applicant”) on 4 November 2014 seeking a sequestration order under Section 43 of the Bankruptcy Act 1966 (“the Act”) against the estate of Ms Bernadette Mills (“the respondent”).
The petition was said to be based on the respondent’s failure to comply with the requirements of a bankruptcy notice. The Bankruptcy Notice was served on the respondent on 9 October 2014.
The debt on which the applicant relies for the making of a sequestration order is described in [1] of the creditor’s petition of 4 November 2014. It is in the following terms:
“1. The respondent debtor owes the applicant creditor the amount of $17,664.60 for Judgment No. 2010/00379739 for $12,904.45 entered on 5 November 2010 at Sutherland Local Court with interest of $4,760.15 totalling $17,664.60.”
The debt was related to a Supreme Court Cost Assessors’ Certificate under s.368 of the Legal Profession Act 2004 (NSW) which was registered as a judgment on 15 November 2010.
Background
The creditor’s petition first came before a Registrar of the Federal Court of Australia on 9 December 2014. At that time the applicant appeared in person and the respondent, located in Perth, appeared by telephone. The matter was adjourned until 3 February 2015.
At the first Court date, the Registrar had concerns about the amount of the debt stated in the Bankruptcy Notice. The matter was adjourned at the first Court date, amongst other things, to allow the respondent to consider whether or not she would oppose the petition on the grounds of an overstatement of debt.
The applicant attended a directions listing before the District Registrar on 3 February 2015. The respondent did not appear. From what I understood from submissions made, the District Registrar had concerns about the validity of the Bankruptcy Notice. Specifically, that the judgment founding the Bankruptcy Notice included a filing fee of $78 for registration of the relevant certificate. The District Registrar took the view that the inclusion of a filing fee in judgments registering a costs assessment certificate, had been held, by authorities of the Federal Court and this Court, to invalidate a Bankruptcy Notice. I understood that he determined that the matter, for reason of this question, should be referred to a Judge of this Court for resolution.
The District Registrar had raised concerns he had with the applicant regarding the fact that the judgment founding the Bankruptcy Notice included a filing fee for registering the certificate.
The applicant was of the view that the present matter was distinguishable from previous authorities on the facts, and that the principles in the authorities, to which reference had been made, were “incorrect”. The applicant further submitted that in the alternative, where there has been an overstatement of the debt, pursuant to s.41(5) of the Act, then the requisite notice of dispute of the grounds of the overstatement of the debt had not been served by the respondent. Given the nature of these claims, the District Registrar determined that it was appropriate for the matter to be referred to a Judge of this Court.
By orders made on that day (3 February 2015) the matter was listed before this Court. Order 3 made on that day directed the solicitor for the applicant to:
“3… send written notification to the Respondent (or their solicitor on record) of details of the time, date and place of the next Court date and the details of any orders made today and if seeking to proceed to provide an affidavit proving this notification before the next Court date.”
Before the Court
The matter came before this Court on 25 March 2015. The applicant was represented by Mr C K Stewart of counsel. There was no appearance by, or on behalf of, the respondent.
There was no evidence before the Court to indicate that the applicant had complied with Order 3 of 3 February 2015. I could not be satisfied that the respondent had been provided with reasonable notice of the Court event. I adjourned the hearing until 14 April 2015 to allow the applicant to attend to that matter.
It is of note that as at 14 April 2015, no action had been taken by the respondent to file any notice pursuant to s.41(5) of the Act, regarding the validity of the Bankruptcy Notice, or any submissions in support of any such notice.
The applicant sought to rely on the following in support of his petition:
1.The creditor’ petition filed on 4 November 2014.
2.The applicant’s affidavit verifying the creditor’s petition sworn 3 November 2014.
3.The affidavit of service of bankruptcy notice of Helen Shaw sworn on 15 October 2014.
4.The applicant’s affidavit of final debt sworn on 8 December 2014.
5.The affidavit of service of creditor’s petition of Helen Shaw sworn on 17 November 2014 annexing a copy of the creditor’s petition (“A”), the affidavit verifying the creditor’s petition (“B”) and the affidavit of service of the bankruptcy notice (“C”).
6.The applicant’s affidavit of final search sworn on 8 December 2014 .
7.The applicant’s affidavit of final search sworn on 3 February 2015 (leave was granted to file in Court on 14 April 2015).
8.The applicant’s affidavit of final debt sworn on 3 February 2015 (leave was granted to file in Court on 14 April 2015).
9.The applicant’s written submissions filed in Court on 25 March 2014, relating to the issue of the deficiency in the bankruptcy notice.
At the resumption of the hearing on 14 April 2015 the applicant was again represented by counsel. The respondent did not appear. There was no indication by the respondent to the Court of any intention to appear, and respond, or defend, what was being put against her.
The applicant sought to rely on the affidavit of service of Mr Richard Black of 8 April 2015, filed in Court today. Leave was granted for the affidavit of service to be read in Court. I am satisfied, having regard to the evidence before me, that the respondent, was served and had reasonable notice of today’s hearing. I determined it was appropriate to proceed to hearing pursuant to r.13.03(C)(1)(e) of the Federal Circuit Court Rules 2001 (Cth)(“the FCC Rules”).
The Issues
The applicant seeks a sequestration order against the estate of Bernadette Mills. In light of the referral from the District Registrar, there are two issues for the Court to consider:
1.Whether there is a deficiency in the Bankruptcy Notice based on an overstatement of the debt in the notice, due to the inclusion of a $78 filing fee in the founding judgment, such that the Bankruptcy Notice is invalid.
2.If the answer to that question is in the negative, whether the petitioning creditor has proven the matters required under s.52(1) of the Act for a sequestration order to be made.
Consideration
The applicant filed written submissions in Court on 25 March 2015. In relation to the first question, of whether the bankruptcy notice was rendered defective because of an overstated debt, due to the filing fee having been included in the founding judgment,
Of relevance is subsection 41(5) of the Act, which is in the following terms:
“A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the mis-statement."
In my view, there is ample authority to support the proposition that, pursuant to s.41(5) of the Act, that if no notice is given by the judgment debtor under s.41(5) of the Act, then the bankruptcy notice is not liable to be set aside by reason only of the overstatement (Re Walsh (1982) 65 FLR 87; 47 ALR 751 per Lockhart J at [92] (“Re Walsh”); Walsh v Deputy Commissioner of Taxation (Cth) (1983) 77 FLR 61, 47 ALR 616; Olivieri v Stafford (1989) 24 FCR 413 (FC) at 428, per Gummow J; Re Cirillo; Ex parte Commissioner of Taxation [1992] FCA 266; (1992) 36 FCR 279 per von Doussa J and Satchithanantham v Multilink Investments Pty Limited [2002] FCA 1277).
In the current circumstances, there is no evidence before the Court to indicate that the respondent has raised any complaint, let alone a notice, pursuant to s.41(5) of the Act, within the applicable period (Dennis v Miller & Ors [2012] FMCA 25 per Smith FM).
However, this may not be determinative of the matter. It is the case that there can be circumstances where, notwithstanding the absence of any notice by the debtor, the bankruptcy notice may nonetheless be invalid, such that no notice is required by the debtor. That is to be understood in the sense that if the bankruptcy notice is a nullity, there is nothing to require a notice to issue. Mr Stewart understood this in his submissions.
An example of this is where a bankruptcy notice fails to set out in the relevant schedule the amount of credits received by the judgment creditor, and significantly overstates the amount due by failing to take them into account in the reduction of the judgment debt claims. In these circumstances, s.41(5) of the Act has no application, since the notice cannot be relevantly said to be defective only by reason of the amount specified in the notice exceeding the amount in fact due (St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094 at [28] per Heerey J).
However, in the current case, no reduction of the judgment debt has been made, or calculated in the Bankruptcy Notice. This circumstance is, therefore, not available to the respondent in the current proceeding.
However, even in light of this, a bankruptcy notice which fails to claim payment of a judgment debt in accordance with the judgment (an overstatement), and no notice is given under s.41(5) of the Act, and there is no payment of the correct amount under s.41(6) of the Act, may still, in certain circumstances, be invalid.
For example, where the amount claimed in the notice has a number of errors as to the judgment debt outstanding and as to the calculation of the interest, and due to the errors, a reasonable person reading the document would consider that something was claimed in addition to the judgment sum and interest, the notice was set aside (Re Janice Bain; Ex Parte: Offset Alpine Printing Ltd [1998] FCA 195 (“Re Bain”)). However, this also does not apply to the current case.
I understood from the applicant’s submissions that the authorities which gave rise to the Registrar’s and District Registrar’s concerns were Franks v Equititrust Limited [2012] FMCA 1180 (“Franks”) at [16] and Croker v Commissioner of Taxation [2005] FCA 127 (“Croker”). Those cases held that the inclusion of a filing fee in a bankruptcy notice effectively invalidates a bankruptcy notice in circumstances where the debtor has given valid notice under s.41(5) of the Act (Franks [16] and Croker). This is due to the fact that the inclusion of an amount in the judgment that was beyond the amount certified was not authorised by legislation (Rankine v Lord (2011) 9 ABC (NS) 142).
There are three issues that arise in the contemplation of question (1) (at [17] above), in the present circumstances. First, whether the inclusion of a filing fee effectively invalidates a bankruptcy notice in circumstances where no notice has been relevantly given under s.41(5) of the Act (Franks at [16]). Second, whether the current circumstances are sufficient, in light of relevant authority, to set aside the Bankruptcy Notice for invalidity due to a number of errors in the outstanding judgment debt that would lead a reasonable person to consider that something other than the judgment debt was being claimed (Re Bain). Third, whether the filing fee can be dealt with under s.107(1)(a) of the Service and Execution of Process Act 1992 (Cth) (“SEPA Act”), or offset by claiming it under Schedule 3 of the Federal Court Rules 2011 (Cth).
Turning to the first issue, the applicant submitted, that on its face, the Bankruptcy Notice was deficient in the sense contemplated by Franks at [16] and Croker. This was due to the fact that the Bankruptcy Notice included a $78 certificate fee (the filing fee) in the judgment sum. On the evidence before the Court, the fact that the $78 filing fee was included in the judgment debt owed, is not contested by the applicant.
However, the applicant submits that Franks and Croker can be distinguished on the facts, and the law ([1] of the applicant’s written submissions). The applicant claimed that in both those cases s.41(5) applications had been made, and relevant notices given within time, by the respective respondents. In the present circumstances, no such application has been made, or notice given. The applicant argued that Franks was not applicable in the present circumstances, as unlike Franks and Croker, no notice was given under s.41(5) of the Act, to the effect that it could not be said the Bankruptcy Notice was invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due.
Despite the opportunity given to the respondent debtor in this matter by the Registrar, there is no relevant evidence, for example, in the form of an affidavit of service of the requisite notice, pursuant to s.41(5) of the Act, before the Court. Nor is there anything otherwise apparent to indicate that the respondent has taken any steps to provide any such notice, or to indicate that she intended to do so within the requisite time, or for that matter, at any time later.
The applicant submits that as the notice was not issued within the required time limit, the judgment debt is not invalidated merely due to the inclusion of filing fees within the founding judgment.
I agree. Franks and Croker are distinguishable from the circumstances of this case on this point. It is, therefore, appropriate to follow the authorities set out at [20] above and apply the proposition derived from these authorities to s.41(5) of the Act to this case. This is particularly so given the absence otherwise of other factors, to relevantly invalidate the Bankruptcy Notice. As I understood it, the District Registrar’s concern about the possible invalidity of the Bankruptcy Notice was the $78 filing fee. With reference to s.41(5) of the Act, this is the “only” matter apparently raised, said to possibly render the Bankruptcy Notice invalid.
For the sake of completeness, I note that the applicant’s other arguments would not have assisted him in the circumstances of this case.
In the alternative, the applicant further sought to distinguish the present circumstances from those in Franks and Croker. He argued that the interest in the present case was only calculated on the judgment sum, not the judgment sum and the certificate fee, such as in Franks and Croker. He stated that the present circumstances could be distinguished as the “overpayment had been strictly quarantined and it has not infected the interest calculation” ([2] at applicant’s written submissions). Further, that a claim for damages arose in Croker, but did not arise it the present circumstances.
The applicant further submitted that in those authorities, the bankruptcy notices were “required” to be dismissed due to a number of defects that were considered “gross”. I note the appropriate sense of the use of that term. The applicant submitted that those defects did not arise in the present circumstances ([3] of the applicant’s written submissions). Those defects were a failure to include all parties to the costs assessment; the inclusion of pre-judgment interest and a damages award of $1 million dollars in Croker.
The applicant argued that the overpayment or defect of the bankruptcy notice, effectively the errors in the notice, have to be “gross” for the Court to set aside the notice. The applicant submits that the $78 overpayment does not rise to the level of a “gross” defect, such as those in the relevant authorities ([5] of the applicant’s written submissions).
These submissions fail to take into account that the inclusion of the filing fee, of itself, on the authority of Franks and Croker, effectively invalidates the bankruptcy notice, in circumstances where relevant notice is given. Croker is plainly binding on this Court. While Franks is not strictly binding, I am not persuaded that it is wrong and, therefore, not to be followed. Had the relevant notice been given, pursuant to s.41(5) of the Act, then the applicant would not have succeeded on this point.
I note, also, that the applicant attempted to further distinguish Franks and Croker on the basis of such different elements as interest, damages. failure to include all relevant parties, and the amount of the misstatement of the debt as “gross” (see [36] – [38] above). In Franks, the inclusion of the filing fee, of itself, in the amount said to be owing was sufficient to “effectively invalidat[e] the notice” (Franks at [16]). The argument set out at [36] – [38] above is not a relevant consideration in the specific circumstances that lead to a bankruptcy notice being rendered invalid by the inclusion of a filing fee (Franks at [16]).
It may, however, be a relevant consideration as to whether it brings this case into the circumstances of Re Bain or Re Walsh. That is, for an argument against the significance, or seriousness, of the error, which would lead to invalidation in relevant circumstances (issue 2 above at [28]).
As the Registrar, correctly in my view, found, the fact that interest was not claimed is irrelevant for the present matter since first, no interest was in fact claimed, and second, the immediate issue was the inclusion of the filing fees in the judgment debt, as opposed to interest. However, the issues in Franks which led to the finding of invalidity of the Bankruptcy Notice went beyond the “only” concern in the current case. That is, the filing fee. I reiterate emphasis on the word “only” as being drawn from section 41(5) of the Act.
The third issue raised by the applicant’s submissions is that the overstated debt can be dealt with under s.107(1)(a) of the SEPA Act which allows for recovery of the costs and expenses incidental to registration of the judgment.
Section 107(1)(a) of the SEPA Act is in the following terms:
“(1) The following are recoverable in proceedings by way of enforcement of a judgment that is registered under subsection 105(1):
(a) the reasonable costs and expenses of, and incidental to, obtaining and lodging the copy of the judgment; and”
In my view, of relevance is s.105(1) of the SEPA Act, which is in the following terms:
“(1) Upon lodgment of a sealed copy of a judgment, or a fax of such a sealed copy, the prothonotary, registrar or other proper officer of the appropriate court in a State other than the place of rendition must register the judgment in the court.”
It appears that this provision allows for the recovery of the costs and expenses incidental to the lodging of a copy of the judgment in an appropriate Court of a state other than the place of rendition. That is, a copy of a finalised decision to be enforced.
The applicant submits that the filing fee of the costs assessment certificate can be claimed as an incidental cost, pursuant to s.107(1)(a) of the SEPA Act, and therefore cannot be considered an error that would lead to invalidation of the Bankruptcy Notice.
In my view, the applicant’s assertion misconceives the relevant provisions. These provisions deal with settled judgments which are sought to be subsequently enforced. It is not relevant to the current circumstances, where the filing fees incurred with the filing of the costs assessment certificate, were incurred in circumstances where a judgment was yet to be delivered. In my view, s.107(1)(a) of the Act cannot not be said to be relevant in the current circumstances as the cost was not incurred in the relevant enforcement of the judgment, but incurred in the period leading to the making of the judgment.
The applicant has not made any relevant submission, or pointed to any relevant authorities, as to why the filing fee could be understood as an “incidental” under the SEPA Act, so as not to reveal a relevant error leading to invalidation of the Bankruptcy Notice.
It is of note, that s.107(1)(a) of the SEPA Act did not apply in Crokers case (at [10]):
“…My attention was not directed to any provision equivalent to s 107(1)(a) of the Service & Execution of Process Act (Cth) which, in cases to which it applies (and the present is not such a case) allows recovery of the costs and expenses incidental to the lodging of a copy of the judgment in an appropriate Court of a State other than the place of rendition.”
[Emphasis added].
The applicant submits that the overpayment in the Bankruptcy Notice can be offset by the applicant not claiming it in Schedule 3 costs, allowed under the Federal Court Rules 2011 (Cth). However, no relevant submission or satisfactory explanation of the applicability of this, in the current circumstances was proffered to the Court. In any event, it would seem that this proposed undertaking is contingent on some future action on the applicant’s part, such that it is not relevant in the present circumstances. This cannot be seen to be a relevant consideration in the current case.
In all, I am satisfied that the Bankruptcy Notice, by operation of section 41(5) of the Act, is not invalid by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount, in fact, due.
Proof of matters specified in s.52(1) of the Act
I now turn to whether the applicant has proved the matters specified in s.52(1) of the Act. I am satisfied of the following matters.
1.Ms Bernadette Mills was served with the Bankruptcy Notice on 9 October 2014 at 12.30pm (the affidavit of service of bankruptcy notice of Helen Shaw sworn on 15 October 2014).
2.The creditor’s petition filed by Mr Richard Black on 4 November 2014, and returnable before the Court on 14 April 2015, is in accordance with Form 6 of the Federal Circuit Court (Bankruptcy Rules 2006 (Cth) (“Bankruptcy Rules”) (see in particular, r.4.02(1) of the Bankruptcy Rules and the creditor’s petition of 4 November 2014).
3.The matters stated in paragraphs 1, 2, 3 and 4 of Mr Black’s creditor’s petition are verified in accordance with Part 2 of Form 6 and those matters, therefore, are proved (r.4.02 of the Bankruptcy Rules). Those matters are that the respondent owes Richard Black $ 17,664.60 pursuant to a judgment entered in the Sutherland Local Court, Richard Black holds no security over any property of the respondent, that, at the time when the act of bankruptcy was committed, the respondent was, among other things, personally present in Australia and was ordinarily resident in Australia; and that Bernadette Mills failed to comply on, or before, 31 October 2014 with a bankruptcy notice served on her on 9 October 2014 (the applicant’s affidavit sworn on 3 November 2014 verifying the creditor’s petition).
4.The creditor’s petition was accompanied by an affidavit stating that on 8 December 2014 the computer records of the Federal Court and of this Court had been searched and no application had been made in relation to the Bankruptcy Notice issued to the respondent (r.4.04(1)(a) of the Bankruptcy Rules and the applicant’s affidavit of final search of 8 December 2014).
5.On 8 November 2014, being more than five days before the date fixed for the hearing of the creditor’s petition filed by Richard Black, Bernadette Mills was served with, amongst other things, a sealed copy of the creditor’s petition, an affidavit of service of the Bankruptcy Notice on Bernadette Mills sworn by Helen Shaw on 15 October 2014, and an affidavit verifying the creditor’s petition sworn by Richard Black on 3 November 2014 (r.4.06(2) of the Bankruptcy Rules).
6.Finally, leave was granted to file in Court on 14 April 2015, an affidavit of debt and an affidavit as required by r.4.06 of the Bankruptcy Rules (the applicant’s affidavit of final search sworn on 3 February 2015 and the applicant’s affidavit of final debt sworn on 3 February 2015).
Conclusion
I am satisfied that the petitioning creditor has proved the matters he is required to prove under s.52(1) of the Act and that a sequestration order should be made against the estate of Bernadette Mills.
The applicant also seeks certification that it was reasonable to engage counsel to appear in these proceedings pursuant to r.21.15 of the FCC Rules. The relevant test is one of reasonableness. While Ms Mills did not appear at the hearing it was nonetheless reasonable for the applicant to engage counsel. This is particularly so given the nature of the concern raised by the District Registrar and the Registrar of the Federal Court. Counsel’s submissions were most helpful in assisting the Court in clarifying aspects of Mr Black’s case and circumstances. While there is no doubt that Mr Black, as a solicitor, could have acted in a competent manner, the involvement of Mr Stewart was appropriate to ensure the presentation of the case in the manner which eventuated. The arguments relating to relevant law also benefited from the involvement of counsel. It is appropriate that such a certificate be granted, and I will do so.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of Judge Nicholls
Associate:
Date: 30 April 2014
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