Cannavo v Allen

[2009] FMCA 1251

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CANNAVO v ALLEN [2009] FMCA 1251

BANKRUPTCY – Application to set aside bankruptcy notice – whether bankruptcy notice a nullity where one copy of the notice not signed by creditor’s agent – whether defect could be cured under s.306 of the Bankruptcy Act.

Acts Interpretation Act 1901 (Cth), s.25C
Bankruptcy Act 1966 (Cth), ss.40, 41, 306
Bankruptcy Regulations 1996 (Cth), regs.4.01, 4.02, 16.01
Corporations Act 2001 (Cth), s.1321
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.3.02

Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10
Chandramouli v Wallader [2001] FCA 808
Circle Credit Co-op Ltd v Lilikakis (2000) 99 FCR 592; [2000] FCA 667
Jensen v Queensland Law Society Inc (2006) 154 FCR 525; [2006] 1206
Kleinwort Benson Australia Limited v James Albert Crowl (1988) 165 CLR 71; [1998] HCA 34
Prudential-Bache Securities (Australia) Ltd v Warner [1999] FCA 1143
The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33; [2000] FCA 1915
Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447; [2000] FCA 574
Vaughan v Beretov [2006] FMCA 1294

Applicant: SEBASTIANO CANNAVO

Respondent: BRIAN HUGH ALLEN (LIQUIDATOR OF FLAMETIME PTY LTD)

File Number: SYG 2200 of 2009

Judgment of: Barnes FM

Hearing date: 7 December 2009

Delivered at: Sydney

Delivered on: 18 December 2009

REPRESENTATION

Counsel for the Applicant: Mr D Allen

Solicitors for the Respondent: V L Macri Lawyers Pty Limited

Counsel for the Respondent: Mr A Reoch

Solicitor for the Respondent: Mr J Dowling

ORDERS

1. The application to set aside Bankruptcy Notice NN3658 of 2009 be dismissed. 

2. The applicant pay the costs of the respondent as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules. 

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2200 of 2009

SEBASTIANO CANNAVO

Applicant

And

BRIAN HUGH ALLEN (LIQUIDATOR OF FLAMETIME PTY LTD)

Respondent

REASONS FOR JUDGMENT

1. On 9 September 2009 the applicant (Mr Cannavo) filed an application to set aside Bankruptcy Notice NN3658 of 2009 issued on 13 August 2009 and served on him on 19 August 2009. The bankruptcy notice was said to be based on two judgments/orders of the District Court of New South Wales of 28 July 2009 and interest thereon. It appeared from the accompanying affidavit of 9 September 2009 sworn by Mr Macri, the solicitor for the applicant, that the basis for the application was that Mr Cannavo had sought an extension of time to apply for a review of a costs assessment in circumstances where the debt relied on to found the bankruptcy notice was an order for costs in favour of the respondent made by the Supreme Court of New South Wales in proceedings between the respondent and the applicant. That costs order had been the subject of an assessment. It then formed the basis for the judgments entered against Mr Cannavo in the District Court of New South Wales in the total sum of $119,161.76. In addition, it was suggested that the applicant sought to rely on an intention to file an appeal against the decision by the respondent Mr Allen (in his capacity as liquidator of Flametime Pty Ltd) to reject the applicant’s proof of debt pursuant to s.1321 of the Corporations Act 2001 (Cth).

2. The respondent filed a notice of opposition and affidavit in relation to these matters and written submissions elaborating on the grounds of opposition.  No submissions were filed by the applicant. 

3. However at the start of the hearing of the application to set aside the bankruptcy notice, counsel for the applicant told the court that no reliance was now placed on the grounds addressed in the affidavit of Mr Macri.  Rather, the applicant sought to contend that the bankruptcy notice was a nullity and should be set aside on the basis that it had not been signed by the creditor’s agent.  Written submissions were handed up in court. 

4. After a short adjournment, counsel for the respondent (who had not received the applicant’s written submissions until shortly before the hearing) indicated that the respondent was ready to proceed with the hearing in relation to the proposed ground for setting aside the bankruptcy notice.  The respondent was given the opportunity to make further written submissions after the hearing should he wish to do so.  He did not wish to take up that opportunity. 

5. Hence in the absence of any evidence of prejudice to the respondent, notwithstanding that the applicant now seeks to rely on a ground which was not stated in the affidavit accompanying the application to set aside the bankruptcy notice, I consider it appropriate to dispense with the requirement in r.3.02(1)(b)(i) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) that the affidavit state the grounds in support of the application. 

6. Rule 3.02(1)(a) of the Federal Magistrates Court (Bankruptcy) Rules requires that an application to set aside a bankruptcy notice be accompanied by “a copy of the bankruptcy notice”.  The application of 9 September 2009 sought that Bankruptcy Notice NN3658 of 2009 which was served on 19 August 2009 be set aside and stated that a copy of “that” Bankruptcy Notice accompanied the application.  The attached copy (as well as the copy annexed to Mr Macri’s affidavit) bears on the top of each page a date stamp of 14 August 2009, the time of 10:27, the letters “FAX”, and the name John Dowling, solicitor (the solicitor for the respondent).  The pages are numbered p.002/012 to p.012/012.  This copy bankruptcy notice bears a copy of a stamp stating that it was issued on 13 August 2009 and of the address and stamp of the Official Receiver.  There is no signature by the creditor’s agent on this copy of the bankruptcy notice. 

7. The respondent tendered in evidence a copy of a facsimile transmission cover sheet of 14 August 2009 indicating that a 12 page facsimile was sent from Mr Dowling (the solicitor for the respondent) to Mr Macri (the solicitor for the applicant) at 10.26 on 14 August 2009 in relation to “Flametown V Cannavo”, “Order for costs (2)” and “Bankruptcy Notice”.  The respondent also called for the production of the copy bankruptcy notice faxed to Mr Macri and tendered that copy.  It is apparent that it is the same as the copy annexed to Mr Macri’s affidavit and also the same as the copy annexed to the application to set aside the bankruptcy notice.  There is no suggestion that service of the bankruptcy notice on Mr Cannavo was effected by facsimile transmission to his solicitor. 

8. I am satisfied on the evidence before the court that both the copy bankruptcy notice annexed to the application to set aside the bankruptcy notice and that annexed to the affidavit of the Mr Macri are copies of the bankruptcy notice faxed to Mr Macri from Mr Dowling’s office on 14 August 2009.  There is no evidence to the contrary from the applicant. 

9. Counsel for the applicant submitted that the Bankruptcy Notice contained an error consisting of the failure of the creditor’s agent to sign it and thereby confirm that he was in fact the creditor’s agent who was authorised by the creditor to have the notice issued, to receive payment and to accept service.  Such an error was said to be one which meant that there was a failure to comply with a matter made essential by the Bankruptcy Act 1966 (Cth) (the Act) or was such as could reasonably mislead a debtor as to what was necessary to comply with the notice (see Kleinwort Benson Australia Limited v James Albert Crowl (1988) 165 CLR 71; [1998] HCA 34 and Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10). On this basis it was submitted that the defect was not a formal defect or irregularity able to be cured within s.306 of the Act.

10. The copy bankruptcy notice faxed to Mr Macri bore the name and Neutral Bay address of the creditor Mr Allen in the first paragraph.  In paragraph four it stated that payment of the debt could be made to John Dowling, Solicitor of an address in Bowral.  In that part of the notice appearing after the Schedule it was stated that the person who applied for the notice to be issued was Mr Dowling.  However on the copy of the bankruptcy notice faxed to Mr Macri there is no signature in the space provided for the confirmation that the person who applied for the notice to be issued was the creditor’s authorised agent with a specified address for service. 

11. The relevant part of the form of the bankruptcy notice (on page 7) was completed as follows in the copy faxed to Mr Macri:

    The person who applied for this notice to be issued is:

    John Dowling, Solicitor for Brian Hugh

    
    

    Allen

    _________________________________

    who confirms by the following signature that he or she is creditor’s authorised agent:

    _________________________________

    and whose address for address for service is:

    John Dowling, Barrister & Solicitor

    Suite 2, 18 Station St,

    Bowral NSW 2576

    PO Box 2226 Bowral NSW 2576

    Telephone and fax numbers

    (including STD code):     Tel: [phone]

    Fax: [phone]

    DX number: Nil

12. The applicant contended that the bankruptcy notice as issued was a nullity, as while it bore a copy of the stamp and signature of the Official Receiver, the issue date of 13 August 2009 and the number NN3658-09, it was not signed by Mr Dowling as agent for the creditor. 

13. The applicant did not put before the court any evidence in relation to the content of the bankruptcy notice served on him.  In that respect the respondent relied on an affidavit of service of Bankruptcy Notice NN3658 of 2009 sworn by Elias Abikhalil on 24 August 2009 and filed in court on 7 December 2009.  Counsel for the applicant advised that on instructions, Mr Abikhalil was not required for cross-examination.  The affidavit of service sworn by Mr Abikhalil attested to service on Mr Cannavo on 19 August 2009 of a signed and sealed copy of the Bankruptcy Notice and of the judgments/orders on which it was based.  The Bankruptcy Notice was said to be “signed and dated by the Official Receiver issued in the [matter of Cannavo] on the Application of BRIAN HUGH ALLEN”. 

14. Mr Abikhalil’s evidence is that on 19 August 2009 Mr Cannavo was served with a bankruptcy notice in the form attached to the affidavit of service in accordance with reg.16.01(1)(c) of the Bankruptcy Regulations 1996 (Cth), (that is, by the bankruptcy notice and annexures being left in an envelope or similar packaging marked with Mr Cannavo’s name at his last-known address). Such service was not disputed by the applicant.

15. Importantly, annexed to the affidavit of service is what is described by Mr Abikhalil in his affidavit as a “true copy” of the Bankruptcy Notice served on Mr Cannavo (and true copies of the judgments/orders).  The copy of the Bankruptcy Notice annexed to Mr Abikhalil’s affidavit is signed by the creditor’s agent on page 7.  There is no suggestion that the signature is not that of Mr Dowling.  On the basis of Mr Abikhalil’s unchallenged evidence I accept that the copy of Bankruptcy Notice NN3658 of 2009 served on Mr Cannavo was signed by Mr Dowling as agent for the creditor. 

16. I note that no issue was taken by the respondent with whether the applicant had complied with r.3.02(1)(a) of the Federal Magistrates Court (Bankruptcy) Rules in circumstances where the copy of the bankruptcy notice filed in connection with the application of 9 September 2009 was a copy of the document faxed to Mr Macri by Mr Dowling, as distinct from a copy of the bankruptcy notice that was served on the debtor.  Hence insofar as it is necessary to do so, I would dispense with any requirement that the copy bankruptcy notice filed with the application to set aside the bankruptcy notice must be a copy of the bankruptcy notice served on the debtor. 

17. Counsel for the applicant then submitted that an inference could be drawn that there was an alteration to the Bankruptcy Notice served on the applicant after it was issued by the Official Receiver by insertion of a signature on the service copy.  It was submitted that any alteration improperly made to the Bankruptcy Notice after it was issued did “not change the fact of what was actually issued by the Official Receiver” and that what was served was not the “actual bankruptcy notice”. 

18. In this case the applicant did not put before the court the actual copy of the Bankruptcy Notice served on him, notwithstanding that it was his case that the Bankruptcy Notice was not signed by the creditor’s agent.  More pertinently, nor did the applicant put before the court any evidence in relation to the form of the Bankruptcy Notice held by the Official Receiver in the office of the Insolvency Trustee Service of Australia (and whether or not it was signed by the creditor’s agent) in support of the proposition that because the copy faxed to the solicitor for the applicant was not signed by Mr Dowling I should infer that the Bankruptcy Notice as issued by the Official Receiver was not signed by Mr Dowling and that the service copy was altered thereafter. 

19. Section 41(1) of the Act relevantly provides that:

    An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:

    (a) a final judgment or order that:

    (i) is of the kind described in s.40(1)(g); and

    (ii) is for an amount of at least $2,000. 

    Section 41(1) makes no reference to the issue of a bankruptcy notice at the behest of an agent of the creditor, however s.41(2) of the Act requires a bankruptcy notice to be in accordance with the form prescribed by the Regulations. Under reg.4.02 the form of bankruptcy notice set out in Form 1 is prescribed. The form envisages that an agent of the creditor may apply for the notice to be issued. Regulation 4.02(2) requires the bankruptcy notice to follow Form 1 in respect of its format, but under reg.4.02(3) this is not to be taken as expressing an intention contrary to s.25C of the Acts Interpretation Act 1901 (Cth) which provides that “[w]here an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient.” 

20. Regulation 4.01 deals with applications for bankruptcy notice and provides that to apply for the issue of a bankruptcy notices a person must lodge with the Official Receiver a “duly completed draft bankruptcy notice” and specified documents in relation to the final judgment or final order relied upon, together with “a copy of the draft bankruptcy notice for the Official Receiver's records and sufficient additional copies of the draft bankruptcy notice for service and for annexure to any required affidavits of service”.  Under reg.4.01(2), if documents are lodged with the Official Receiver in accordance with sub-regulation (1), the Official Receiver must sign and date copies of the bankruptcy notice that have been lodged and return to the applicant the “additional copies” referred to in reg.4.01(1)(c).  There is no evidence before the court in these proceedings as to the practice of the Official Receiver (but see Prudential-Bache Securities (Australia) Ltd v Warner [1999] FCA 1143).

21. There is authority that an amendment to a bankruptcy notice made after its issue would invalidate the notice because the notice that was served on the debtor was not the notice issued by the Official Receiver (see, for example, Circle Credit Co-op Ltd v Lilikakis (2000) 99 FCR 592; [2000] FCA 667 and Chandramouli v Wallader [2001] FCA 808).

22. However in Circle Credit there was evidence before the court that a process server had amended the copy bankruptcy notice served on the debtor, after it had been issued by the Official Receiver (and without his authority) by crossing out the address of the South Australia District Registry of the Federal Court and inserting the address of the Northern Territory Registry.  Heerey J held that it was plain and an “undisputed fact” that what was served on the debtor was not the document issued and signed on behalf of the Official Receiver, but one which was subsequently altered without the Official Receiver’s authority (see Circle Credit at [18]).

23. In Chandramouli v Wallader the bankruptcy notice served on the debtor was materially different from the bankruptcy notice issued by the Official Receiver in that a figure opposite an item in the Schedule which referred to payment of the full amount owed had been blacked out. There was no suggestion that the notice had been reissued by the Official Receiver or amended with his authority (at [3]). Heerey J found that this was not a bankruptcy notice within the meaning of the Bankruptcy Act.

24. Similarly, in Vaughan v Beretov [2006] FMCA 1294 it was not disputed that the form of the bankruptcy notice served on the debtor had been changed from the form in which it was issued by the Official Receiver by alteration of the street number in the debtor’s address. Hence, for the reasons given in Circle Credit, the document served was found not to be a “bankruptcy notice under the Act” as required by ss.40(1)(g), 41(1) and reg.4.01 (at [13]).

25. In contrast in this case the parties do not agree as to the form of bankruptcy notice issued by the Official Receiver. The applicant has not put evidence before the court in this respect. The applicant’s suggested scenario is not the only explanation for the absence of a signature of the creditor’s agent on the copy faxed to the debtor’s solicitor and the presence of a signature on the service copy. It is possible that the faxed copy was inadvertently left unsigned, but that the bankruptcy notice as served is in the form of the copy retained by the Official Receiver (in relation to which there is no evidence).  Importantly, there is no evidence as to whether or not the copy bankruptcy notice retained by the Official Receiver was signed by the creditor’s agent. 

26. I note the distinction drawn in Prudential-Bache (at [16] – [17]) between compliance with reg.4.01 and whether, on the true construction of s.41 of the Act, the Official Receiver “issued the document that was served on the Debtor”.  On the evidence before the court and having regard to the fact that the “true copy” of the bankruptcy notice served on the applicant annexed to Mr Abikhalil’s affidavit was signed by Mr Dowling as agent for the creditor, I am not satisfied that an inference should be drawn that all copies of the bankruptcy notice issued by the Official Receiver lacked the signature of Mr Dowling at the time of issue of the bankruptcy notice, or that the notice served differs from the duly completed draft bankruptcy notice kept in the Official Receiver’s records or that the copy of the bankruptcy notice served on the debtor was amended by insertion of Mr Dowling’s signature after the issue of the bankruptcy notice. 

27. Counsel for the applicant submitted that an adverse inference should be drawn from the failure of Mr Dowling to give evidence in these proceedings to explain what happened.  I am not persuaded that such an adverse inference should be drawn. It is for the applicant to satisfy the court that the Bankruptcy Notice should be set aside.  The applicant, who raised this issue on the day of the hearing, has not established anything more than that one “additional” copy of the bankruptcy notice issued by the Official Receiver did not bear Mr Dowling’s signature. 

28. In particular, while I accept that at least one copy of the bankruptcy notice issued by the Official Receiver was not signed by Mr Dowling, in the absence of any evidence to contradict that of the process server about the bankruptcy notice that was served on the debtor or evidence about whether the copy of the bankruptcy notice retained by the Official Receiver was signed by Mr Dowling, it has not been established that the copy of the bankruptcy notice served on Mr Cannavo was amended after it was issued by insertion of Mr Dowling’s signature and that the Bankruptcy Notice is on that basis invalid.  

1. However that leaves for consideration the issue of whether the fact that one copy of the bankruptcy notice (which was not the copy served on the debtor) did not bear the signature of the creditor’s agent is such as to establish that the bankruptcy notice is a nullity.  Insofar as the absence of signature on such a “spare” copy of the bankruptcy notice is a failure to comply with the Bankruptcy Act or Regulations, I consider that it is a formal defect or irregularity able to be cured under s.306 of the Bankruptcy Act.

2. Section 306(1) of the Act provides:

   Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

3. In ascertaining whether the defect is a formal defect or irregularity within s.306 of the Act one must bear in mind the purpose of the legislation and in particular the provisions relating to bankruptcy notices.

4. In Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10 the Court stated at [18]:

   In its application to a bankruptcy notice, s 306 assumes the possibility of some failure to comply with a statutory requirement; that is, some defect or irregularity.  In the present case, if there had been no failure to comply with a requirement of the Act and Regulations, there would be no issue as to the effect of s 306.  In the event of such a failure, it must be asked whether the defect or irregularity is a formal defect or irregularity within the purview of s 306.  If it is, then it becomes necessary to consider whether substantial injustice has been caused by the defect or irregularity, and whether the injustice cannot be remedied by an order of the court.  The questions whether the defect or irregularity is a formal defect or irregularity, and whether substantial injustice has been caused and cannot be remedied, are separate and distinct, the latter question arising only if the former is answered in the affirmative.  It may be accepted that, if a defect could cause substantial injustice, it may not easily be classified as a formal defect or irregularity.  But the absence of claimed injustice does not conclude the separate question that arises under s 306 about whether the defect or irregularity is a formal defect or irregularity. 

5. The absence of signature of the creditor’s agent on one copy of the bankruptcy notice issued by the Official Receiver is a defect or irregularity in the sense of a failure to comply with a requirement to be found in the Bankruptcy Act, imposed by reference to the Regulations, as to information to be furnished in the bankruptcy notice (see Adams v Lambert at [24]). However, having regard to the purposive approach suggested in Adams v Lambert (at [25] – [26]), I am satisfied that such defect or irregularity is a formal defect or irregularity within s.306 of the Act. Such an error is not a failure to comply with a matter made essential by the Act or one that could reasonably mislead a debtor as to what was necessary to comply with the notice.

6. I note that while the absence of substantial injustice does not conclude the inquiry about whether a defect or irregularity is a “formal” defect or irregularity (Adams v Lambert at [18]), there is no evidence before the court that any injustice, let alone substantial injustice, has been caused by the defect or irregularity in the copy of the bankruptcy notice faxed to the solicitor for the debtor, given that the evidence is that the debtor was served with a bankruptcy notice that was properly signed by the creditor’s agent.

7. In Adams v Lambert the High Court stated at [26]:

   The question of construction raised by the words "a formal defect or an irregularity" is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authority it was said: "A better test ... is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid ... In determining the question of purpose, regard must be had to 'the language of the relevant provision and the scope and object of the whole statute'".

8. Importantly, as the High Court continued in Adams v Lambert at [31]:

   Section 306, in its application to bankruptcy notices, makes it plain that some instances of non-compliance with the requirements as to the form of a notice will not invalidate the notice.  The practical significance of an error or deficiency could vary according to the circumstances of each particular case.  Errors or deficiencies in compliance with requirements as to form may involve questions of degree as well as of kind.

9. Their Honours went on to refer with approval to the conclusion of Lee J (dissenting) in The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 at 66; [2000] FCA 1915 that:

   Properly construed, the Act and Regulations do not express an intention to create a new regime of strict compliance imposed on a judgment creditor issuing a bankruptcy notice.  The tenor of the Act and Regulations is not consistent with that conclusion.  An attempt has been made to recast the process of issue of a bankruptcy notice in terms more understandable to a judgment debtor, but the essential requirements of a bankruptcy notice remain as they have been stated by bankruptcy legislation over many years.

10. Having regard to the purpose of the legislation, it is necessary to consider whether the omission of the creditor’s agent’s signature on the “spare” copy of the Bankruptcy Notice could reasonably mislead a debtor as to what was necessary to comply with the notice.  However what is important is whether the bankruptcy notice that was served on the debtor contained an error that could reasonably mislead a debtor as to what was necessary to comply with the notice.  I am not persuaded that the absence of the signature of the creditor’s agent on a “copy” of the bankruptcy notice, provided as a matter of courtesy to the solicitor for the debtor by the creditor’s solicitor, is such that it could reasonably mislead a debtor as to what was necessary to comply with the notice (for example as to whether payment could be made to the agent), where the bankruptcy notice served on the debtor contained the signature of the creditor’s agent. 

11. Nor has it been established that the absence of such a signature on a “spare” copy of the Bankruptcy Notice issued by the Official Receiver constituted a failure to meet a requirement made essential by the Act so as to exclude the operation of s.306 in the sense considered in Adams v Lambert at [28] – [31] (see Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447; [2000] FCA 574 at [13] – [15] in which the Full Court of the Federal Court rejected the suggestion that every part of the prescribed form should be treated as something made essential by the Act and now see Adams v Lambert). Given that the defect that has been established is the absence of a signature on one copy of the bankruptcy notice issued by the Official Receiver (not the copy retained by the Official Receiver or that served on the debtor), this is not a case in which it can be said that the defect went to the very act of issue of the bankruptcy notice so that there was no issue at all (and hence that s.306 could not apply) (see Prudential-Bache at [17]).

12. As indicated, there is no suggestion that any substantial injustice has been caused.  Hence the “defect” can be cured under s.306 of the Act. The bankruptcy notice is not invalidated on this basis.

13. The grounds in the affidavit accompanying the application to set aside the bankruptcy notice were not pursued.  The applicant has not established that the bankruptcy notice should be set aside.  The application should be dismissed with costs. 

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date: 18 December 2009