Boorowa Shire Council v Booth
[2001] FMCA 31
•31 May 2001
FEDERAL MAGISTRATES COURT OF AUSTRALIA
BOOROWA SHIRE COUNCIL v BOOTH [2001] FMCA 31
BANKRUPTCY ACT – bankruptcy – review of Registrar’s sequestration order – grounds not previously before Registrar – solvency of applicant – solvency not proved
BANKRUPTCY ACT – bankruptcy notice – grounds to set aside – inclusion in street address of post office box held not to be incorrect address and not to mislead or confuse – notice failing to inform debtor that he could make application to the Federal Magistrates Court of Australia – held not to invalidate bankruptcy notice – failure to identify correct statutory provision under which interest was claimed – omission of reference to s.39 of Local Courts (Civil Claims) Act 1970 (NSW) held to invalidate bankruptcy notice – Australian Steel v Lewis followed
CASES REFERRED TO:
Martin & Anor v Commonwealth Bank of Australia [2001] FCA 87 followed and discussed.
Re Kwiatek 89 ALR 631 followed.
Eastern Pastoral Co Pty Limited v McFarlane [1999] FCA 172 referred to.
David Sarikay v Victorian Work Cover Authority [1997] FCA 1372 approved.
Farthing and Alegna Pty Limited v Boylan [2001] FMCA 31 referred to.
Lee v McNulty [2000] FCA 1519 considered.
Atkinson v Oakleigh Holdings Pty Limited [2000] FCA 1547 followed.
The Australian Steel Company Pty Limited v Lewis [2000] FCA 1915 followed.
Kirk v Ashdown [1999] FCA 1664 not followed.
Bendigo Bank Limited v Williams [2000] 98 FCR 377 referred to.
Shephard v Blueberry Farms of Australia (Corindi) Limited [2001] FMC2 discussed.
Wright and Wright v Australian and New Zealand Banking Group Limited [2001] FCA 38 not followed.
Clyne re; ex-parte Deputy Commissioner of Taxation (1983) 50 ALR 137 referred to.
Cachia v Hanes & Anor 120 ALR 385 followed.
Applicant:BOOROWA SHIRE COUNCIL
Respondent: STUART EDGAR JOHN BOOTH
File No:SZ179 of 2000
Delivered on: 31 May 2001
Delivered at: Sydney
Hearing Date: 25 May 2001
Judgment of: Raphael FM
REPRESENTATION:
Solicitor for the Applicant
to the Notice of Motion: Mr S Golledge of The Argyle Partnership
Solicitor for the Respondent Mr D Bowles of Bowles Lawyers
to the Notice of Motion:
ORDERS:
Sequestration Order of 27 March 2001 set aside, Petition dismissed.
Applicant creditor to pay respondent debtor’s costs from 5.00 pm 24 May 2001.
Debtor to pay costs of the Trustee from 27 March to 5.00pm. on
24 May 2001. Applicant creditor to pay costs of the Trustee from 25 May 2001.
FEDERAL MAGISTRATES COURT OF AUSTRALIA AT
SYDNEY
SZ 179 of 2000
BOOROWA SHIRE COUNCIL
Applicant
and
STUART EDGAR JOHN BOOTH
Respondent
REASONS FOR JUDGMENT
History
On 27 March 2001 Registrar Tesoriero in his capacity as a Registrar of the Federal Magistrates Court made a sequestration order against the estate of Stuart Edgar John Booth. The petitioning creditor was the Boorowa Shire Council, the local Council for the area in which Mr Booth lived. In an affidavit of Peter Anthony Faulkner dated 18 May 2001, filed on behalf of the creditor, the creditor deposed to the fact that a Statement of Liquidated Claim for $7,256.85 plus $229.00 interest was issued out of the Young Local Court on 25 October 1999. The debtor lodged a confession of the claim and an application to pay by instalments which was opposed and the matter was adjourned until 19 May 2000. On that date the application was dismissed by the court as the debtor failed to appear. On 23 June 2000 the debtor lodged a Notice of Motion to set aside the judgment entered by confession and after a hearing by the court on the return date the debtor’s Notice of Motion was refused and dismissed. On 20 July 2000 a bankruptcy notice was issued on behalf of the Council for a debt of $7,842.65.
The debtor failed to comply with the terms of the bankruptcy notice and on 22 December 2000 a creditor’s petition was issued out of this court. On 9 March 2001 the parties appeared before Registrar Quinn and the matter was adjourned until 27 March 2001 so that the debtor could file an affidavit of his assets and liabilities in order to prove solvency. On 27 March 2001 there was no appearance by the debtor and no affidavit had been filed although a document consisting of approximately 20 pages was sent by fax to the Registry. The Registrar made a sequestration order against the estate of the Mr Booth on that date.
The proceedings
The matter comes before me pursuant to a Notice of Motion for review dated 18 April 2001. It is now firmly established that a review of a Registrar’s decision in bankruptcy constitutes a complete re-hearing of the matters before the Registrar even to the extent of reproving on the day of the hearing those formal matters required by Order 77 sub-rules 19(3) and 19(4) of the Federal Court Rules (Martin & Anor v Commonwealth Bank of Australia [2001] FCA87). It is also well established that at a hearing de novo the parties are not limited to the arguments made in the hearing before the Registrar (Re Kwiatek 89 ALR 631.
Mr Bowles, who appeared for the debtor, provided the court with six additional grounds of opposition to the petition and also argued that the order should be set aside on the grounds that the applicant was solvent. The applicant gave evidence in support of this aspect of his application. I will deal with each of these grounds in turn.
(i) Solvency
The onus of proof lies with a debtor who seeks to prevent the making of a sequestration order on the grounds of his or her solvency. In order to establish his solvency Mr Booth tendered to the court two documents which set out his alleged assets and liabilities. Under cross-examination from Mr Golledge who appeared for the creditor and in answer to questions from myself it soon became obvious that Mr Booth was one of those persons who find it difficult to distinguish between the assets of a company which he controls and the assets that he owns personally. It appears that most of the assets to which Mr Booth laid claim were assets of a company in which he had a 79% interest and to which he had transferred those assets (possibly in breach of s.120 of the Bankruptcy Act) approximately one year ago. On the other hand, the debts to which he admitted were a confection of his own prior to the existence of the company, and the company’s. In his submissions Mr Bowles very fairly said that he “conceded that the debtor is not insolvent to the extent that he can pay the debt now. He can realise assets to pay the debt.” In fact he cannot do that, only the company can do so and unless the company was placed in liquidation and such assets as it had were distributed to the shareholders, the only way Mr Booth could access the assets of the company would be way of loan. This would be substituting one set of creditors for another creditor and does not indicate solvency. I am of the view that the debtor has not satisfied the onus of establishing solvency and would not change the Registrar’s order on that basis.
The next grounds of opposition all relate to the form of the bankruptcy notice and were not put before Registrar Tesoriero.
(ii)Failure to provide an address for payment at which the creditor could be found
The bankruptcy notice purports to be in form 1 pursuant to Regulation 4.02 of the Bankruptcy Regulations. In paragraph 1 it states:
“Boorowa Council of: Market Street Boorowa New South Wales 2586 claims you owe the creditor a debt of $7,842.65 as shown in the schedule.”
In paragraph 4 it states:
“4Payment of the debt can be made to: Boorowa Council
of:P O Box 96 Market Street Boorowa New South Wales 2586
On page 5 of the notice it states that the person who applied for this notice to be issued is David Phillipot whose address for service is:
“C/- Boorowa Council, Boorowa Council Chambers, Market Street Boorowa, NSW, 2586, tel: 02 63853-303 (BH) Fax No 02 63853-562.
The vice complained of by the debtor is the inclusion of the words “P O Box 96” in the address given in paragraph 4. Mr Bowles argued that a P O Box was not an address:
“At which the creditor can be found in order, among other things, to notify the debtors where the documents might be served and where the debt might be paid.”
(Eastern Pastoral Co Pty Limited v McFarlane [1999] FCA 172).
In support of his contention Mr Bowles referred the court to David Sarikay v Victorian Work Cover Authority [1997] FCA 1372 where the learned Chief Justice held that a post office box could not constitute an address for service for the purposes of Order 7 Rule 6(1) of the Federal Court Rules.
I discussed the requirements for an appropriate address in Farthing and Alegna Pty Limited v Boylan [2001] FMCA 31.
In this case I am not satisfied that the address quoted is not an address at which the creditor can be found. The debtor gave evidence that he was aware that the Council offices were in Market Street Boorowa, he had been there. He also gave evidence that the post office was in Marsden Street Boorowa and he had been there as well. If the notice had given as the address for payment the post office box at the post office, then I would have been inclined to follow the decision of Black CJ in Sarikay. But to my mind what occurred here was not the inclusion of an incorrect address, but the inclusion of a totally otiose reference to a post office box in what was otherwise a correct and well known address. If the debtor had on the last minute of the last day wished to comply with the terms of the bankruptcy notice he would have taken himself to Boorowa Council at Market Street Boorowa, the same place given as the address of the creditor in paragraph 1 and the address for service of the person who issued the notice, Mr Philpott, on page 5. Having decided that the address was not incorrect I must also decide whether or not the inclusion of the P O Box number was likely to mislead, confuse or perplex a debtor. I do not think it would.
(iii)The Bankruptcy Notice failed to inform the debtor that he could make application to the Federal Magistrates Court of Australia
When the Federal Magistrates Court of Australia first commenced in July 2000 the prescribed forms under the Bankruptcy Act were not changed in order to make reference to it. They were changed at a later date pursuant to the Bankruptcy Amendment Regulations 2000 (No 2) SR 2000 No 220. They amended Schedule 1 by deleting from paragraph 5(b) of the form the words “Federal Court” and inserting “Court (that is the Federal Court of Australia or the Federal Magistrates Court)”. The amending Regulations which were dated 10 August 2000 were notified in the Commonwealth Gazette on 17 August 2000. Regulation 2 provides “These Regulations are taken to have commenced on 1 July 2000”.
The failure of a bankruptcy notice prior to the amending Regulations being gazetted not referring to the Federal Magistrates Court has been considered in two Judgments of the Federal Court – Lee v McNulty [2000] FCA 1519 and Atkinson v Oakleigh Holdings Pty Limited [2000] FCA 1547. Both these Judgments agree, although for slightly different reasons, that the failure to refer to the Federal Magistrates Court did not invalidate the notice. Heary J in Atkinson concluded that this was because of the provisions of s.48(2) of the Acts Interpretation Act 1901 (Cth) which was the fall back position adopted by Moore J in McNulty. Although both of their Honours suggested that the then forthcoming decision of the five member Full Court in The Australian Steel Company Pty Limited v Lewis [2000] FCA 1915 might affect these decisions I am of the view that the decision as handed down would not detract from the force of the argument brought in respect of s.48(2) and that I can safely follow Heary J in this regard. I find that the failure to include reference to the Federal Magistrates Court does not invalidate the bankruptcy notice, nor was it misleading or confusing.
(iv)The bankruptcy notice fails to identify the correct statutory provision under which interest was claimed
The bankruptcy notice in contention states in the attachment which is required by the Regulations that:
“In the matter of Boorowa Council v Stuart Booth interest is payable on the judgment debt at the rate prescribed for the purposes of s.95(1) of the Supreme Court Act, 1970 (Currently 10% pa from 1/3/2000).
Following the attachment is a Certificate of Judgment in Form 49 which states in paragraph 3:
“3 Interest is payable on the judgment debt at the rate PRESCRIBED FOR THE PURPOSES OF S.95(1) OF THE SUPREME COURT ACT, 1970. (CURRENTLY 10%PA FROM 1/3/2000)
The effect of the attachment is to set out accurately the manner in which interest on the judgment debt is calculated. What it does not do is to comply with that part of the statutory form of bankruptcy notice found in Regulation 4.02 of the Bankruptcy Regulations which includes the following:
“If interest is being claimed in this bankruptcy notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this bankruptcy notice. The document must state:
(a)The provision under which the interest is being
claimed; and(b)The principal sum on which, the period for which, and
the interest rate or rates at which, the interest is being claimed.It is argued that the provision under which interest is being claimed in respect of these proceedings is s.39 of the Local Courts (Civil Claims) Act 1970 (NSW) which states:
“39 Interest on Judgment Debt
(1)Unless a court orders in a particular case that interest be not payable, interest shall, subject to sub-section (3), be payable on so much of the amount of the judgment debt as is from time to time unpaid.
(2)Interest payable under sub-section (1) in respect of a judgment debt shall:
(a)…
(b)be calculated at such a rate as may be prescribed by the Rules, …
The rate prescribed by the Rules is the rate prescribed for the purposes of s.95(1) of the Supreme Court Act 1970.
In Kirk v Ashdown [1999] FCA 1664 a Full Bench of the Federal Court considered a bankruptcy notice in which there was no mention either of the provision under which interest was claimed nor under which it was calculated. The court held at para 23:
“We consider that the omission to specify the source of the obligation to pay interest should also be regarded as a formal defect or irregularity, and that no substantial injustice has been caused by that omission.”
The court found that irregularity was curable by resort to s.306 of the Bankruptcy Act 1966 (Cth).
The decision in Kirk v Ashdown was not followed by another Full Bench in Bendigo Bank Limited v Williams [2000] 98 FCR 377. In order to resolve the dichotomy between two Full Benches of the same court a direction under s.20(1)A of the Federal Court of Australia Act was given and a special Full Bench of five members appointed to sit in the case of Australia Steel (supra). The vice in the bankruptcy notice considered in that case was that the wrong provision under which interest could be claimed was inserted. In that case the creditor had wrongfully inserted as the provision under which interest was claimed s.111 of the Supreme Court Act of Victoria when in fact it was s.100(7) of the Magistrates Court Act. By majority of three to two their Honours set aside the bankruptcy notice adopting what they described as a purposive approach. They said at paragraph 44:
“The evident purpose behind the requirement that the source of the entitlement to interest be disclosed having been thwarted by the omission of the source, the notices are invalid.”
They went on to say at paragraph 47:
“In our opinion Kirk v Ashdown was wrongly decided and the result in Bendigo Bank is correct.”
These matters were considered by Federal Magistrate Driver in Shephard v Blueberry Farms of Australia (Corindi) Limited [2001] FMC2 in paras 39-45. His Honour found that he was bound to follow the decision in Australian Steel. He found that the creditor had made an error by saying “interest is claimed pursuant to s.94 of the Supreme Court Act 1970”. He was correct in this, although he was not correct when he said:
“The certificate of judgment attached to the bankruptcy notice identified s.95(1) of the Supreme Court Act as the provision under which the applicable rate of interest was prescribed. The certificate correctly identified the provision under which the interest was claimed for the purposes of the bankruptcy notice.”
In Shephard, as in this case, the correct section under which interest was claimed was s.39 of the Local Court (Civil Claims) Act.
In Wright and Wright v Australian and New Zealand Banking Group Limited [2001] FCA 38 his Honour Beaumont J dealt with a bankruptcy notice in which there was a debt of well over $1,000,000.00, clearly in excess of the limit of the Local Courts of New South Wales. In the attachments to the notice dealing with interest it stated:
“Interest claimed pursuant to s.39 of the Local Courts (Civil Claims) Act 1970 as prescribed for the purposes of s.95(1) of the Supreme Court Act 1970.”
His Honour found that he could distinguish this case and Australian Steel in the following way:
“25 Applying that “purposive” reasoning to the present case, the purposive test is satisfied in the present context; first, it is obvious from the copy judgment attached that it was a judgment of the Supreme Court; secondly it is equally obvious from a commonsense and ordinary reading of the response given to note 2 that it was intended to refer to the Supreme Court Act and that the additional reference to the Local Court Act was plainly inadvertent, and should accordingly be ignored.”
But Wright differs from the instant case in which there is no indication of the provision under which interest is claimed. This has its parallel in Kirk v Ashdown which the Full Bench in Australian Steel held was wrongly decided and I am unable to accept Mr Golledge’s invitation to strike out on my own when faced with this weight of authority.
In the circumstances I must find that the creditor has failed to comply with the requirement that the bankruptcy notice be in accordance with the prescribed form which is itself a requirement made essential by the Bankruptcy Act and on this ground dismiss the petition.
The finding which I have made means that I am not required to decide the difficult question raised by the decision of the Full Bench in Martin v CBA as to the effect of a decision following a hearing de novo to make a sequestration order. Martin appears to require that a new sequestration order be made (given the requirement for up to date affidavits and the prohibition on backdating orders (Clyne, re;
ex-parte Deputy Commissioner of Taxation(1983) 50 ALR 137)). This leaves extant the sequestration order previously made by the Registrar. You cannot have two sequestration orders and the court would thus appear to be required to set aside the first in order to allow the second to proceed. The effect would appear to be that the relation back period would no longer apply from the date of the original sequestration order but from the sequestration order made by the court under its review powers. However, this is a matter for decision by some future court.
Costs
Although I have ordered that the sequestration order be set aside and the petition be dismissed I do not believe that it is appropriate that I should award the debtor any costs prior to 5.00p.m. on 24 May 2001. It was only on this day that the debtor’s solicitors advised the creditor’s solicitors of the additional grounds of opposition to the petition which included that ground upon which I have found in his favour. Up until that time the only ground to set aside the petition was the ground of solvency and I have found that the debtor has not established this to my satisfaction. The debtor was self-represented up until the first mention of this matter before me on Tuesday 22 May 2001 and it is not appropriate to award a self-represented litigant costs (Cachia v Hanes & Anor 120 ALR 385). I make no order as to costs in respect of the hearing of the petition before Registrar Tesoriero and I order that the applicant creditor pay the respondent debtor’s costs incurred after 5.00p.m. on 24 May 2001.
I also order that the debtor pay the costs of the trustee from 27 March to 5.00p.m. on 24 May. The applicant to pay the trustee’s costs from 25 May to date.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Dated: 31 May 2001
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