Brookfield v Yevad - [2002] FMCA 82

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BROOKFIELD v YEVAD

[2002] FMCA 82

BANKRUPTCY – Bankruptcy Notice – application to set aside - whether the failure to comply with time limits set in ss.41(6A) and 41(7) is a bar to an application to set aside a bankruptcy notice simplicita – power under s.30(1) – no bar found where validity of bankruptcy notice impugned.

Bankruptcy Act 1966 (Cth) ss. 30(1), 41(6A), 41(7)

Ian Walter Brookfield and Septic Products Australia Pty Limited (In Liquidation) v Davey Products Pty Limited (FCA unreported 25 September 1998)
Guss v Johnstone (2000) 171 ALR 598
Re Vella ex-parte Seymour (1983) 67 FLR 287
John Richard Riordan ex-parte John Richard Riordan v Direct Acceptance Corporation Limited (Receiver & Manager Appointed) (In Liquidation) (FCA unreported 25 July 1995)
Udowenko & Ors ex-parte Alan Bernard Mitchell [1996] FCA 879

Re Neil James John Duckworth ex-parte Lockett (FCA unreported 12 February 1987)

Edward Arthur Shaddock ex-parte Commonwealth Bank of Australia [1998] FCA 355
Budimir v McMahon [2000] FCA 1312
Streimer v Tomas (1981) 37 ALR 211
Kleinwort Benson Australia Limited v Crowl (1998) 165 CLR 71

Cachia v Hanes (1994) 179 CLR 403

Applicant:

IAN WALTER BROOKFIELD

Respondent:

YEVAD PRODUCTS PTY LTD (FORMERLY DAVEY PRODUCTS PTY LTD) ACN 004 813 192

File No:

AZ 79 of 2002

Delivered on:

17 May 2002

Delivered at:

Adelaide

Hearing Date:

2 May 2002

Judgment of:

Raphael FM

REPRESENTATION

For the Applicant:

Mr Brookfield in person

Solicitors for the Respondent:

Mr D Rydon of Thomson Playford

ORDERS

Application to dismiss dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE

AZ 79 of 2002

IAN WALTER BROOKFIELD

Applicant

And

YEVAD PRODUCTS PTY LTD
(FORMERLY DAVEY PRODUCTS PTY LTD)
ACN 004 813 192

Respondent

REASONS FOR JUDGMENT

This application is an interesting diversion in the long running saga of proceedings between the present applicant, Mr Brookfield and the respondent. Some of the history of the litigation between the parties is set out in the judgment of Mansfield J in Ian Walter Brookfield and Septic Products Australia Pty Limited (In Liquidation) v Davey Products Pty Limited [FCA unreported 25 September 1998]. In that case, as in this, a bankruptcy notice was served upon Mr Brookfield citing a debt of $380,493.82 in respect of a costs order made by Branson J on 19 December 1997 together with interest thereon which, by the date of the issue of this bankruptcy notice, totalled $141,641.24.
The application which is before me is that the bankruptcy notice, the subject of the application, be set aside. It is accepted by Mr Brookfield that the application was made after the time limited for compliance with the bankruptcy notice had expired. It is also accepted that no application under s.41(6A) or s.41(7) Bankruptcy Act 1966 (Cth) was made although the application itself states that it is made under s.41 Bankruptcy Act.
It was explained to Mr Brookfield that an act of bankruptcy has been committed and that there is no power in this court to extend the time for compliance with the bankruptcy notice if the requirements of s.41(6A) or s.41(7) have not been met (see Brookfield v Davey (supra), Guss v Johnstone (2000) 171 ALR 598). Mr Brookfield accepted this fact, however, he wished to proceed with his application to set aside the bankruptcy notice and it had been agreed between the parties before the Registrar that I was to determine, as a preliminary point, whether or not such an application could be made. I was not required to hear the substantive application itself as the advocate for the respondent creditor wished to argue that there was no jurisdiction in the court to hear that application.
The respondent described s.41(6A) and s.41(7) as gates through which any applicant to set aside a bankruptcy notice must pass. But it seems to me that the submission is based upon a mistaken view of the legislation. Whilst it is plain that:
“The power of the court to extend time for the compliance of the bankruptcy notices derived from ss.41(6A) and 41(7) carries with it the power to set aside the notices themselves. Wallin & Anor v MJB Building Services [2001] FMCA 71.”
The real source of power to set aside an invalid or substantially defective bankruptcy notice arises under s.30 reVella ex-parte Seymour 67 FLR 287 at 290.
To the extent that it is necessary I would grant leave to Mr Brookfield to amend his application so as to bring it pursuant to that section in addition to s.41.
The respondent relied on Guss v Johnston (supra) as well as a series of other cases, John Richard Riordan ex-parte John Richard Riordan v Direct Acceptance Corporation Limited (Receiver & Manager Appointed) (In Liquidation) (FCA unreported 25 July 1995); Udowenko & Ors ex-parte Alan Bernard Mitchell [1996] FCA 879; Brookfield, (supra); re Neil James John Duckworth ex-parte Lockett (FCA unreported 12 February 1987) and most strongly of all upon Edward Arthur Shaddock ex-parte Commonwealth Bank of Australia [1998] FCA 355. All these cases deal with applications for time for compliance to be extended. None of them deals solely with an application to set aside a bankruptcy notice. In Shaddock at page 6 of his Honour’s Reasons for Judgment in the final paragraph he says:
“It follows from these authorities and the principles to which they refer that the court has no jurisdiction to entertain the application presently before it. The amendments proposed or sought by the applicant do not solve the problem of jurisdiction. The act of bankruptcy remains.”
But on the next page in the third paragraph his Honour says:
“I am therefore satisfied that an act of bankruptcy had occurred by the end of 9 December 1996 and that accordingly, the application filed on 10 December 1996 is ineffective to ground a jurisdiction in the court to extend time for compliance with the bankruptcy notice.
And in the following paragraph:
“There is no point therefore in allowing the amendments sought as they do not cure the jurisdictional defect created by the absence of the filing of the application on or prior to 9 December 1997.”
It seems to me that all his Honour is doing in this judgment is rehearsing dicta which found its apotheosis in the High Court judgment of Guss v Johnstone (supra). I do not believe this case is authority to prevent an application under s.30 in the absence of an “in time” application under s.41(6A) or 41(7). His Honour cites with approval re Vella (supra). That case effectively heard the applicant’s application under s.30. In Vella at 292 his Honour says:
“It is unnecessary in the present case to determine the ambit of the court’s powers under s.30(1). It is not in doubt that the sub-section gives the court power to set aside a bankruptcy notice in some circumstances. See Sterling’s case (supra) re Sterling (1980) 44 FLR 125. It is sufficient for the present purposes to say that no sufficient basis has been shown for setting aside the bankruptcy notice in this case. Setting aside the notice would not nullify the act of bankruptcy committed by the debtor on or about 12 April 1983…
Mr Dowdy submitted that setting aside the bankruptcy notice would be of some value to the debtor in so far as its continued existence is an embarrassment to her… I can understand her desire, but I do not think it is a sufficient basis for exercising the power under s.30(1).”
Re Vella seems to me to be authority for the proposition that one can hear such an application, which is all that is before me today. Indeed if one looks carefully at the decision in Shaddock one will see that notwithstanding the statements which the respondent submitted placed an insuperable barrier against such an argument, his Honour heard submissions about the validity of the bankruptcy notice. There is no suggestion that he would have done this if he had not been prepared to set aside the bankruptcy notice if those submissions were correct.
The authority which appears to give the most assistance to the respondent is re Neil James Duckworth ex-parte Lockett (FCA unreported 12 February 1987 French J). On page 16 of that judgment, after referring to the power under s.30(1) his Honour says:
“Whether that is the only source of the power or whether there is another source as suggested by his Honour is not necessary for me to decide (referring to re Sterling (supra)).
Suffice to say, the scheme of the Bankruptcy Act is quite inconsistent with the existence of a power to set aside a bankruptcy notice after the time for compliance with it has expired and no extension has been granted.
It follows as a consequence of my decision to dismiss the application to extend the time limited for compliance of the bankruptcy notice that the application to set aside the notice must also be dismissed.”
Duckworth was a case decided at the time a sequestration order was being applied for. The debtor sought to have the time for compliance of the bankruptcy notice extended on the grounds that he had a counter claim against a creditor. This application if brought today would be brought under s.41(7) and a similar application was made in Shaddock. These applications do not go to the validity or otherwise of the bankruptcy notice. They merely provide a reason why the commission of an act of bankruptcy, with its severe effects upon the everyday life and liberty of a debtor, should be suspended until after an investigation is carried out as to the validity of a cross claim. There are other applications made (usually under s.41(6A) that go to the validity of the bankruptcy notice itself and I am of the view that the dicta of French J in Duckworth should be limited to those cases where the bankruptcy notice itself is not impugned.
I am supported in this by a judgment of Merkel J in Budimir v McMahon [2000] FCA 1312. In this case a bankruptcy notice was issued in the name of a deceased person. An application to set aside the notice had been made in time but was unsuccessful. After the act of bankruptcy had been committed following the dismissal of that application the debtor took out an order for review. His Honour did not rely on the authority of Streimer v Tamas (1981) 37 ALR 211 but said this:
“[6]… The sole issue in the proceeding before me is whether a bankruptcy notice issued in the name of a deceased person is a nullity, and therefore is liable to be set aside as invalid.
[7]… I am satisfied that it clearly is and therefore ought to be set aside. The substantive argument put by Counsel on behalf of the TAC is that, as the extension of time to comply with the notice had run out on or about 15 August 2000 the applicant had committed an act of bankruptcy and it was too late for her to apply to set aside the notice. In that regard reliance is placed on s.41G of the Bankruptcy Act 1966. In my view that argument is misconceived. An act of bankruptcy can only occur in respect of a bankruptcy notice that is a valid notice. An act of bankruptcy cannot be committed in respect of a bankruptcy notice that is invalid and therefore a nullity. I am satisfied that the bankruptcy notice in the present case is a nullity, and therefore could not give rise to an act of bankruptcy. In those circumstances it must follow that the applicant is entitled to have the bankruptcy notice set aside.”
Now I do not have to decide the validity of this bankruptcy notice, but I was asked to assume for the purposes of the application that it was invalid by reason other than a cross claim. There is no doubt that had this matter proceeded to the application for a sequestration order the court would have had the power to set aside the bankruptcy notice at that time (Kleinwort Benson Australia Limited v Crowl (1998) 165 CLR 71). If the court can set aside a bankruptcy notice at this time by declaring it a nullity, even where an act of bankruptcy has taken place, it cannot be held to be restrained from doing so between the time at which the act of bankruptcy is committed and the hearing of the petition.
This is not to suggest that the court should open the floodgates to such applications. The court has a discretion as to whether or not it will hear them. There is sufficient authority to suggest that the appropriate time to hear such applications is on the hearing of the petition, that is the common approach and should continue to be followed. It is in the interests of justice that there not be a proliferation of applications. Criticism will no doubt be levelled at the parties in this hearing. But it does raise an interesting point and the procedural method was adopted at the request of the creditor. There were reasons why it was also convenient to the court to deal with the matter in this way. Suffice to say, such an application is likely to be very much the exception.
No formal orders were made about the procedure under which I heard this application, e.g. as a separate decision under Part 17 of the Federal Magistrates Court Rules. I propose to treat it as an application by the respondent for dismissal. I dismiss the respondent’s application. I am unable to order that the respondent pay the applicant’s costs as the applicant is self represented (Cachia v Hanes (1994) 179 CLR 403). The application commenced by the debtor may therefore continue before the Registrar.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: