Constantinidis v Hatton
[2006] FMCA 860
•5 July 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CONSTANTINIDIS v HATTON | [2006] FMCA 860 |
| BANKRUPTCY – Creditor’s petition – separate questions – whether judgment relied on irregularly obtained or otherwise defective – where costs order made against debtor as informant in Local Court proceedings confirmed by District Court and costs order made by District Court – subsequent Local Court certificate of judgment relied on in bankruptcy notice – whether notice founded on consolidated judgment or two separate judgments – whether judgment deficient on its face – where bankruptcy notice directed payment to creditor – whether costs order could be met by payment to registrar of the Local Court – whether bankruptcy notice invalid. |
| Bankruptcy Act 1966 (Cth) Bankruptcy Regulations 1996 (Cth) |
| Adams v Lambert [2006] HCA 10 Bass v Permanent Trustee Co. Ltd (1999) 198 CLR 334 Biritz v National Australia Bank Limited [2002] FCAFC 172 Re Bond; Ex parte Hong Kong Bank of Australia Limited (1991) 33 FCR 426 Commonwealth Bank of Australia v Jeans [2005] FCA 569 Cummings v Raeffaele [2000] FCA 675 Foote v Midwest Finance Pty Limited (1997) 158 ALR 320 G.P.W. Aussie Exports v Latin (1998) 85 FCR 324 In Re Low; Ex parte Argentine Gold Fields [1891] 1 QB 147 James v Federal Commissioner of Taxation (1955) 93 CLR 631 Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 61 Klewer v Walton [2004] FCAFC 284 Klewer v Walton [2005] HCA trans 522 Mercantile Mutual Custodians v O’Brien [2006] FCA 1627 Re Francis; Ex parte Gartrell (1983) 77 FLR 80 Rainsford v State of Victoria [2005] FCAFC 163 Re Wheeler [1982] 1 WLR 175 Ryan v Mahony (1972) 126 CLR 212 |
| Applicant: | ACHILLES CONSTANTINIDIS |
| Respondent: | VINCENT FRANCIS HATTON |
| File Number: | SYG3193 of 2005 |
| Judgment of: | Barnes FM |
| Hearing date: | 31 March 2006 |
| Date of Last Submission: | 28 April 2006 |
| Delivered at: | Sydney |
| Delivered on: | 5 July 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr WC Terracini SC |
| Solicitors for the Applicant: | Turks Legal |
| Counsel for the Respondent: | Mr M. Lee |
| Solicitors for the Respondent: | Levitt Robinson |
ORDERS
That the separate questions be answered as follows:
Question: Whether the judgment relied upon in the creditor’s petition (the judgment) was irregularly obtained?
Answer: Not on the basis contended for by the respondent.
Question: Whether the judgment is otherwise defective or liable to be set aside?
Answer: Not on the basis contended for by the respondent.
Question: Is the Bankruptcy Notice invalid?
Answer: Not on the basis contended for by the respondent.
Question: If the answer to any of questions 1 to 3 is ‘yes’, whether sufficient cause exists, within the meaning of s.52(2)(b) of the Bankruptcy Act 1966 (Cth) for a sequestration order not to be made?
Answer: Not applicable.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG3193 of 2005
| ACHILLES CONSTANTINIDIS |
Applicant
And
| VINCENT FRANCIS HATTON |
Respondent
REASONS FOR JUDGMENT
These proceedings
On 2 November 2005 the applicant creditor, Achilles Constantinidis, filed a creditor’s petition in this Court seeking a sequestration order against the estate of the respondent debtor, Vincent Francis Hatton on the basis of a claimed act of bankruptcy consisting of a failure to comply with the requirements of a bankruptcy notice issued on 25 July 2005. The bankruptcy notice claimed that a debt of $47,248.04 was owing pursuant to a judgment of the Local Court of New South Wales on 19 April 2005 together with interest. Attached to the bankruptcy notice was a copy of a certificate of judgment issued by the Local Court on 6 May 2005 under the Local Courts (Civil Claims) Act 1970 stating that the plaintiff (the creditor) had recovered judgment against the defendant (the debtor) in the sum of $46,200.00. The bankruptcy notice stated that payment of the debt could be made to Mr Constantinidis c/- TurksLegal (his solicitors) at an office address in Sydney.
On 31 March 2006 the respondent filed a notion of motion seeking that questions in a schedule to the notice of motion be determined separately and before any other issue in these proceedings on the basis that the facts were as stated in the affidavit of Larina Michelle Alick, the solicitor with carriage of the matter for the applicant, sworn on
3 January 2006 and filed on 4 January 2006.
The questions in the schedule to the notice of motion are as follows:
(1) Whether the judgment relied upon in the creditor’s petition (“the Judgment”) was irregularly obtained?
(2) Whether the judgment is otherwise defective or liable to be set aside?
(3) Is the Bankruptcy Notice invalid?
(4) If the answer to either (sic) questions (1) to (3) is “yes”, whether sufficient cause exists, within the meaning of s.52(2)(b) of the Bankruptcy Act 1966 (Cth), for a sequestration order not to be made?
Counsel for the applicant conceded that if I answered any of the first three questions in the affirmative and from that answered the final question in the affirmative that would finally dispose of the creditor’s petition. Pursuant to Part 17.02 of the Federal Magistrates Court Rules 2001 I ordered that the questions in the schedule to the notice of motion of 31 March 2006 be determined separately and before any other issue in the proceedings. The parties each made oral submissions and provided post-hearing written submissions. This judgment addresses the questions in the schedule to the notice of motion.
Counsel for the respondent contended that on the uncontested (and hence agreed) facts as revealed in the affidavit of Larina Michelle Alick (see Bass v Permanent Trustee Co. Ltd (1999) 198 CLR 334 and Rainsford v State of Victoria [2005] FCAFC 163) there was a fatal insuperable difficulty lying at the heart of the creditor’s petition which could not be cured. It was contended that the creditor’s petition could not succeed as a matter of law because the judgment relied on was irregularly obtained or was otherwise defective or liable to be set aside and, in the alternative, that the bankruptcy notice underlying the creditor’s petition was invalid.
Agreed facts
It is necessary to have regard to the agreed facts as stated in Ms Alick’s affidavit. Relevantly, on 14 April 2000 Mr Hatton (as informant) caused to be issued a summons in the Local Court of New South Wales against Mr Constantinidis (as defendant) pursuant to ss.75 and 145B of the Justices Act 1902 in proceedings No.20117791 of 2000, alleging that he had committed an offence under s.178BA of the Crimes Act 1900 (dishonestly obtaining money by deception for the benefit of a named company).
However on 2 September 2002 the Local Court granted Mr Hatton leave to withdraw the summons on the basis that he was to pay Mr Constantinidis’ costs. On 17 September 2002 the Local Court ordered that the amount of such costs be $40,200 plus GST.
Mr Hatton filed an appeal against that costs order in the District Court of New South Wales in proceedings File No 02/12/1007. On
11 February 2003 Justice R. Blanch AM of the District Court dismissed Mr Hatton’s appeal. A certificate of appeal dated 5 February 2005 given by a registrar of the District Court under s.178 of the Evidence Act 1995 and annexed to Ms Alick’s affidavit records that the following orders were made by the District Court:
Appeal dismissed. Orders of magistrate confirmed. Other orders: order appellant to pay respondent $6,000 costs of appeal.
On 19 April 2005 the solicitor for Mr Constantinidis filed an application to register an order in the Local Court, requesting that the two costs orders in the total sum of $46,200 be entered as one judgment in the Local Court. The application was made on a form headed Local Court (Civil Claims) Act 1970. A copy of the application is attached to Ms Alick’s affidavit. It bears file number 111643 of 2005. It stated that on 19 April 2005 an order was made by the Local Court whereby the judgment debtor, Mr Hatton, was ordered to pay an amount of $46,200, that since that time he had made no payments, that he was in breach of the terms of the order in that the amount required to be paid had not been paid within the period allowed under the order. It requested that the order be registered as a judgment in the sum of $46,200.
On 6 May 2005 the Local Court issued a certificate of judgment under the Local Courts (Civil Claims) Act 1970 stating that the judgment creditor was Mr Constantinidis, the judgment debtor Mr Hatton, that the plaintiff had “recovered judgment against the defendant on 19 April 2005 in the sum of $46,200” and that interest was payable on the judgment debt. It is this certificate of judgment that is relied on in the bankruptcy notice issued on 25 July 2005 against Mr Hatton for a judgment debt of $46,200 plus interest, for a total sum of $47,248.04. The bankruptcy notice was served on Mr Hatton on 28 August 2004.
Respondent’s contentions
In light of these agreed facts counsel for the respondent described the essence of the respondent’s eventual argument (after conceding that the applicable statutory regime was as contended for by counsel for the applicant) as follows:
a. the Bankruptcy Notice and Creditor’s Petition are invalid by reason of the fact that they refer to a ‘consolidated’ judgment, which is deficient on its face; and
b. even if the judgment was not deficient on its face, the Bankruptcy Notice is invalid because part of the consolidated judgment (the District Court judgment) could have been discharged in a manner other than required in the Bankruptcy Notice.
Method of discharge of judgment issue
It is convenient to outline the second of these arguments first. In oral submissions counsel for the respondent had contended that the Local Court costs order had been made pursuant to the Criminal Procedure Act 1986, which was said to have been in force at the relevant time. At the hearing the respondent’s argument was put on the basis of the effect of the provisions of this Act. However, in post-hearing submissions counsel for the applicant submitted that the applicable legislation was the Justices Act 1902. Counsel for the respondent then conceded that, as the applicant contended, the award of costs in the Local Court at the relevant time (September 2002) was governed by s.81 of the Justices Act 1902 which remained in force until 7 July 2003 and that section 81(1A) of the Justices Act was applicable. It provided:
When making an order dismissing the information, complaint or charge against a defendant, the Justice or Justices may order that the prosecutor or complainant pay to the defendant such professional costs as the Justice or Justices consider to be just and reasonable.
It was agreed that the Local Court costs order was awarded in favour of and was payable to Mr Constantinidis (as defendant in the Local Court proceedings) under s.81(1A) of the Justices Act 1902.
These concessions for the respondent mean that he cannot succeed in the argument put in oral submissions to the effect that the bankruptcy notice was invalid because the judgment relied on was defective in that it required payment of that part of the costs awarded in the Local Court on 17 September 2002 to the applicant rather than, as was said to be mandated by the Criminal Procedure Act 1986, to the registrar of the Local Court.
In written submissions counsel for the respondent maintained the submission that the bankruptcy notice was invalid insofar as it required payment to the creditor. However this submission was directed to the manner of payment of that part of the debt consisting of the District Court costs order. The respondent’s original contention had been that the District Court costs order was made pursuant to the power contained in s.28(3) of the Crimes (Local Courts Appeal and Review) Act 2001. In post-hearing submissions it was conceded for the respondent that, as counsel for the applicant contended, at the time the District Court costs order was made (11 February 2003) the provisions of the Justices Act 1902, as they applied to appeals from the Local Court to the District Court, were still in force. It was therefore accepted that the District Court costs order was made pursuant to s.133A of the Justices Act 1902 which provided in subsection (3) that:
The District Court may make such order as to costs to be paid by either party (including the Crown) as it thinks just …
Section 133A(1)(a) of the Justices Act 1902 provided that one of the options open to the District Court after hearing an appeal (instead of dismissing the appeal) was to confirm the order appealed against. I return to the significance of this provision, but note that the suggestion at the hearing by counsel for the respondent that the orders made by the Chief Judge of the District Court were “probably” ineffective because his Honour purported to “confirm” the orders of the Local Court has no substance (cf s.27(2) of the Crimes (Local Courts Appeal and Review) Act 2001).
It is now common ground that payment of the District Court costs order was to be made in accordance with s.133T of the Justices Act 1902, which at the relevant time was as follows:
If the District Court orders an appellant or a respondent to pay costs under this Part, or makes any other order for the payment of money under this Part, the District Court must:
(a) Direct that the costs or other amount to be paid to the clerk of the Local Court where the matter the subject of the appeal or application for leave to appeal concerned was originally heard and
(b) state a time within which the costs or other amount must be paid.
In post-hearing submissions counsel for the applicant stated that inspection of the District Court file had revealed that on 14 March 2003 a notice was sent to the respondent and to the solicitors for the respondent “requiring payment of the outstanding costs amounts to the Clerk of the Local Court within 28 days”. Counsel for the respondent was content to proceed on the basis that this statement was correct, despite the absence of evidence to that effect before the Court. Hence for the purposes of these proceedings it is an accepted fact that the District Court sent such a notice to the respondent on 14 March 2003 in relation to the amount of $46,200. I accept that, as counsel for the applicant pointed out (and as was not disputed), this was in accordance with s.133T of the Justices Act 1902. The notice reflected the mechanism by which the court could recover the costs payable to Mr Constantinidis, such costs to be remitted to him after being received by the Local Court.
The respondent submitted that under the applicable statutory scheme, at all times the District Court judgment for $6,000 could have been discharged by payment of that amount to the Clerk of the Local Court (under s.133T of the Justices Act 1902) rather than by payment to Mr Constantinidis as specified in the bankruptcy notice. On this basis it was submitted that the bankruptcy notice was invalid as such defect was not a mere formal defect or irregularity within s.306 of the Bankruptcy Act 1966 because it could reasonably mislead a debtor as to what was necessary to comply with a bankruptcy notice.
Consolidated judgment issue
More generally it was contended for the respondent that the judgment relied on in the bankruptcy notice (and hence the creditor’s petition) was irregularly obtained or otherwise defective or liable to be set aside, that the bankruptcy notice was invalid and on this basis that sufficient cause existed for a sequestration order not to be made. The respondent’s contention in this regard was also modified in post-hearing submissions on the basis of acceptance that the applicable statutory regime was as contended by counsel for the applicant.
The respondent contended that there was no statutory basis for ‘channelling’ the two separate judgments of the Local Court and District Court into one and that the application to the Local Court of
19 April 2005 could not operate to “transmogrify” or channel the two judgments for costs into one “consolidated” judgment.
There is longstanding authority that a bankruptcy notice cannot be based on two or more judgment debts (see s.40(1)(g) of the Bankruptcy Act 1966, In Re Low; Ex parte Argentine Gold Fields [1891] 1 QB 147 and Re Bond; Ex parte Hong Kong Bank of Australia Limited (1991) 33 FCR 426). If a bankruptcy notice is based on two judgments it will be void and hence incapable of supporting a valid creditor’s petition (G.P.W. Aussie Exports v Latin (1998) 85 FCR 324 and Mercantile Mutual Custodians v O’Brien [2006] FCA 1627).
However there is also authority to the effect that separate judgments or orders may be “channelled” into one order which may found a valid bankruptcy notice (see in particular Re Wheeler [1982] 1 WLR 175; Cummings v Raeffaele [2000] FCA 675 and the discussion in Biritz v National Australia Bank Limited [2002] FCAFC 172 at [11] – [12]).
It is not disputed that the respondent failed to pay the total costs ordered ($46,200) in accordance with the District Court notice of
14 March 2003. It is necessary to consider the operation of the provisions of the Fines Act 1996.
Relevantly, while Division 2 of Part 2 of the Fines Act 1996 deals with payment of fines to the registrar of the court as specified in the notice of the fine, Part 6 of the Act provides for civil enforcement of certain orders for the payment of costs and other amounts money. Section 109 of the Fines Act provides that Part 6 of the Act (dealing with civil enforcement) applies to the enforcement of payment of certain categories of orders referred to as “ancillary money orders” including (in s.109(1)(b)):
“any costs (including expenses or disbursements) payable by a person under an order made by a court in proceedings for an offence that were brought otherwise than by a law enforcement officer.”
In oral submissions counsel for the respondent contended that the Fines Act clearly applied to the Local Court orders (because of the express reference to the Fines Act in s.217 of the Criminal Procedure Act). It was also suggested that it was arguable that the District Court judgment was also caught by s.110 of the Fines Act. The respondent was prepared to proceed on this basis. It was submitted however that on the basis that the Fines Act did apply, it applied to the orders as two separate judgments.
However counsel for the applicant contended that both the Local Court and District Court orders were made under the Justices Act (this was conceded by the respondent) and that the Part 6 civil enforcement provisions of the Fines Act were applicable, as discussed below following the respondent’s failure to pay the total costs ordered in accordance with the District Court notice of 14 March 2003. In submissions in reply the respondent did not address further the operation of the Fines Act or the applicant’s arguments in that respect. However, both the Local Court and District Court are “courts” for the purposes of the Fines Act (see s.3(1)). The costs order made by the Local Court in September 2002 is of the nature that would fall within the s.109(1)(b) definition. By s.109(2)(b) proceedings for an offence include proceedings on appeal in respect of proceedings for an offence. Thus the costs order of the District Court on appeal from the Local Court would also be an “ancillary money order” within s.109 of the Fines Act.
At all relevant times s.110 of the Fines Act provided:
1. Subject to section 109A, an ancillary money order is enforceable as if it were a judgment for the payment of that amount under the Local Courts (Civil Claims) Act 1970.
2. The order may be entered in the records of any Local Court on which jurisdiction is conferred by that Act as a judgment given in that Local Court for a debt due to the person to whom the payment is required to be made by that order.
3. The order may be so entered even though the order was made by a Court that is not a Local Court or the amount ordered to be paid exceeds the jurisdictional limit of a Local Court.
4. The method of enforcement provided by this section does not affect any other remedy for enforcement provided by any other Act or law.
Section 110(1) has since been amended by the Civil Procedure Act 2005 to refer to that Act.However at the times in issue in these proceedings, s.110(1) referred to the Local Courts (Civil Claims) Act 1970. Section 109A provided:
“Division 2 of Part 2 applies to the payment of ancillary money orders in the same way as it applies to the payment of fines.”
As indicated, the respondent was prepared to proceed on the basis that both costs orders were “ancillary money orders” as defined in the Fines Act, but submitted that the two judgments for costs were to be enforced separately in accordance with the provision of the Fines Act.
On this basis, it was submitted for the respondent that the applicant’s application of 19 April 2005 filed in the Local Court sought that the Registrar make an order that the two judgments, made in different courts, be registered as one judgment of the Local Court. It was contended that this application by which a judgment was to be entered under a new proceedings number for what were described as “administrative purposes” in Ms Alick’s affidavit did not “channel” the two judgment into one.
It was also suggested for the respondent that the coversheet of the application to indicated that registration was sought under the Legal Profession Act 2004 (NSW), as a tick appeared to be placed next to that alternative on the printed form. It was pointed out that the costs orders in issue were not costs orders under the Legal Profession Act. It was submitted that such judgments were to be enforced pursuant to the provisions of the Fines Act as separate judgments of the Local Court and the District Court and that there was no basis in law for the applicant calling in aid an entirely different procedure under a different Act which had no relevance whatsoever to the judgments which had been obtained against the respondent (although I note that, as Counsel for the applicant suggested this tick could also be seen as marking the application as for registration under the Justices Act which was the legislation listed above Legal Profession Act on the printed form.)
More generally it was said to be relevant that the application of
19 April 2005 was on a form which was for an application under Part 39 Rule 3 of the Local Court (Civil Claims) Rules 1988. Part 39 Rule 3 of the Local Court (Civil Claims) Rules was as follows at the relevant time:
“Where a conviction or order (not being an order referred to in s.70 of the Act), made under any Act, operates as an order for the payment of money under the Act or may be enforced under the Act, the conviction or order shall not be enforceable unless there has been filed with a Registrar a certificate of the conviction or order”.
Part 39 Rule 3 excluded an order referred to in s.70 of the Local Court (Civil Claims) Act 1970 which was as follows:
Any order made under this Act by a court for the payment of an amount of money by one person to another shall, for the purposes of Division 6 of Part 4 and Part 5, be deemed to be a judgment.
It was submitted for the respondent that, even assuming it could be said that the orders made in different courts at different times could become one judgment by operation of the Fines Act, such a judgment would not be distinguishable from a s.70 judgment and hence on its face, Part 39 Rule 3 had no application. There was said to be authority supporting the view that Part 39 Rule 3 was not applicable. In Klewer v Walton [2004] FCAFC 284 the Full Court of the Federal Court considered a similar statutory regime. In considering Part 39 Rule 3 the Court held at [13] that a Local Court costs order made under the Justices Act was not relevantly distinguishable from an order made under the Local Courts (Civil Claims) Act 1970, suggesting that it was likely that Part 39 Rule 3 was not intended to apply to judgments of the Local Court. On this basis a Local Court costs order made under the Justices Act was not subject to the limits on enforcement in Part 39 Rule 3. An application for special leave to the High Court was refused. In refusing special leave McHugh J noted (see Klewer v Walton [2005] HCA Trans 522) that the Federal Court had dismissed the applicant’s appeal on the grounds that the Local Court costs order was not distinguishable from an order under s.70 of the Local Courts (Civil Claims) Act 1970. He found that there was no prospect of success in an appeal.
On the basis of Klewer v Walton it was submitted for the respondent that, even accepting that the judgments could be enforced in accordance with the Local Court (Civil Claims) Act 1970 (by operation of s.110(1) of the Fines Act), the reason why they could be so enforced was because the Full Court of the Federal Court said that they were in effect an order under s.70 of the Local Courts (Civil Claims) Act 1970 and thus specifically excluded from Part 39 Rule 3. Accordingly it was submitted that the applicant could not invoke the Part 39 Rule 3 procedure in respect of an order that was not distinguishable from an order under s.70 of the Local Courts (Civil Claims) Act 1970.
Hence it was contended for the respondent that there was no statutory basis for “channelling” the two separate judgments into one by virtue of the application of 19 April 2005. While there was a certificate of judgment from the Local Court dated 6 May 2005 which was relied on as the foundation for the bankruptcy notice and referred to in the creditor’s petition, that judgment was said to be based on a fundamental misapprehension of the way in which costs orders made in criminal proceedings should be enforced. It was submitted that, consistent with principles that require the Court to go behind a judgment if there appeared to be “substantial reasons for doubting whether there really was a debt due to the petitioning creditor” (see Commonwealth Bank of Australia v Jeans [2005] FCA 569 at [13] per Hely J referring to Ryan v Mahony (1972) 126 CLR 212), it could not be said that the certificate of judgment relied upon by the applicant reflected a true debt.
Thus it was submitted that to the extent that there was a debt owing by the respondent to the applicant, it arose by operation of the statutory regime explained by the Full Court of the Federal Court in Klewer v Walton (that is, pursuant to a Local Court costs order enforceable pursuant to the provisions of the Fines Act and also under the District Court order either enforceable pursuant to the Fines Act or as an order of the District Court) but that the respondent did not owe any money whatsoever in relation to a judgment obtained in the circumstances in which the judgment evidenced by the Local Court certificate of judgment had been obtained. In other words it was contended that merely giving a certificate of judgment was not the end of the matter as it had been demonstrated that there really was not a debt due in respect of that judgment because the judgment relied upon was one which had been shown to be irregularly obtained or was otherwise defective or liable to be set aside.
Section 306 Bankruptcy Act issue
It was further contended for the respondent in post-hearing submissions that, insofar as it was argued for the applicant that if there was a defect in the bankruptcy notice it was a mere formal defect or irregularity. It was submitted that the bankruptcy notice was a nullity as it failed to meet a requirement made essential by the Bankruptcy Act, being the proper identification of the judgment and the manner of discharge of the obligation imposed by the judgments under which the liability arose. Reference was made to the recent decision of the High Court in Adams v Lambert [2006] HCA 10 at [24] – [27] in relation to the operation of s.306 of the Bankruptcy Act. It was contended that as there was no suggestion that any substantial injustice had been caused in this case the question was whether the posited defect was a formal defect or an irregularity.
It was contended that Adams v Lambert reinforced that it was difficult to contemplate a defect more fundamental than what was required to be done in order to comply with the bankruptcy notice and suggested that in this case the bankruptcy notice could plainly have reasonably misled a debtor as to what was necessary to comply with the notice (in particular by specifying that payment could be made to the creditor) and hence that the defect was not merely formal.
It was submitted that the creditor’s petition should be dismissed with costs for these reasons alone, without taking into account the other grounds that had been identified in the amended notion of intention to oppose the creditor’s petition. On this basis it was submitted that the questions in the schedule to the notice of motion should each be answered ‘yes’.
Applicant’s contentions
The applicant contended in essence that once the respondent failed to pay the costs order in accordance with the District Court notice of
14 March 2003 (which required payment to the Clerk of the Local Court within 28 days in accordance with s.133T of the Justices Act) the amount of costs was then recoverable as a judgment debt by the applicant pursuant to the Fines Act. Once the costs order was not satisfied the order could then be entered in the Local Court as a judgment due to the applicant pursuant to s.110(2) of the Fines Act. Hence it was said the Local Court certificate of judgment referred to an order validly entered by the Local Court pursuant to the provisions of the Fines Act and validly incorporated the amounts of both the Local Court and District Court costs orders as permitted by s.110(3) of the Fines Act.
The applicant adopted the respondent’s argument that both costs orders were “ancillary money orders” as defined in the Fines Act (see s.109(2)) as confirmed in Klewer v Walton at [5] – [6]. Counsel for the applicant noted that the respondent had relied on and referred to s.110(1) of the Fines Act 1996 but had made no reference to the terms of s.110(2) and s.110(3). It was submitted that these provisions permitted the costs orders to be entered in the records of the Local Court as a judgment given in the Local Court. It was noted that s.110(3) provided that an ancillary money order may be entered in the records of the Local Court even though the order was made by a court that was not a Local Court (and that ‘Court’ was defined in s.3 of the Fines Act to include both the District Court and the Local Court).
Counsel for the applicant argued that the total costs order could be entered in the Local Court as a judgment due to the applicant pursuant to s.110(2) of the Fines Act 1996 and submitted that this was what had occurred following the applicant’s application of 19 April 2005. On this basis, once the matter was entered as a judgment of the Local Court, the person to whom the debt was due and who therefore obtained the benefit of the judgment was said to be the applicant (not the Registrar or Clerk of the Local Court). It was submitted that there was, accordingly, no defect in the certificate of judgment or in the Bankruptcy Notice which claimed amounts payable to the creditor pursuant to the notice.
In the alternative it was submitted for the applicant that if some defect in the bankruptcy notice was found to exist, it was a formal defect or irregularity which would not invalidate the notice and that the notice was not reasonably capable of misleading the debtor as to the manner in which he could comply with the notice.
Reasoning
It is necessary to consider further the relevant orders which created the debt relied on in the bankruptcy notice and the statutory framework governing the making of the orders.
The schedule to the bankruptcy notice gives particulars of the debt as a judgment or order for $46,200 plus interest. No issue has been taken in relation to the calculation of interest. Attached to the bankruptcy notice is the Local Court certificate of judgment which refers to the plaintiff having recovered judgment against the defendant in the sum of $46,200. The certificate of judgment is described as having issued under Part 26 Rule 7 of the Local Courts (Civil Claims) Rules 1988 which provides:
(1) Subject to subrule (3), the registrar shall, on the filing of a request therefore, furnish to any party to any action a certificate of any judgment, or a certified copy of any judgment or order, a form of which is filed in the action.
(2) A party applying for a certificate of a judgment shall include in the request filed therefore a statement of any amount paid in respect of the judgment.
(3) While enforcement of a judgment is stayed the registrar shall not issue a certificate or certified copy of the judgment except by order of the court.
It is not in dispute that the original orders in issue are:
(i) the costs order made by the Local Court on 2 September 2002 that the informant (the respondent) pay the defendant’s (the applicant’s) costs;
(ii) the order as to quantum made by the Local Court on 17 September 2002 which was “Total costs to be paid by informant to defendant $40,200 plus GST”; and
(iii) the orders of the District Court of 11 February 2003 which were as follows: “Appeal dismissed. Orders of Magistrate confirmed. Other orders: Order Appellant [respondent in these proceedings] to pay respondent [applicant in these proceedings] $6000 costs of Appeal”.
It is now not disputed that the Local Court orders (i) and (ii) were made pursuant to s.81 of the Justices Act 1902 and, by s.81(1A), the costs were at that time payable to the defendant (the applicant in this case).
No issue has been taken about Mr Hatton’s right of appeal to the District Court against the Local Court costs order. Section 120 of the Justices Act 1902 (in force at the time) provided for an appeal against an order of a Magistrate. The now repealed s.122 gave a right of appeal to every person who had “been adjudged to pay any costs of a defendant”.
Relevantly, under s.133A of the Justices Act 1902 as it stood at the time of the appeal, the powers of the District Court on such an appeal were as follows:
(1) The District Court may, after hearing an appeal, determine the appeal by dismissing the appeal or by doing any one or more of the following:
(a) confirming, quashing, setting aside or varying the conviction, order or sentence appealed against,
(b) increasing or reducing the sentence appealed against,
(c) making such other orders as it thinks just.
(2) In determining an appeal, the District Court may exercise any function that the Magistrate who made the conviction or order might have exercised.
(3) The District Court may make such order as to costs to be paid by either party (including the Crown) as it thinks just, except as provided by section 133R.
The contention of the respondent that there was no statutory basis for “channelling” the two separate judgments (of the Local Court of
2 September 2002 and the District Court of 11 February 2003) into one may be seen as a contention that the bankruptcy notice was defective and invalid because it was not founded upon a final judgment or order as required under the Bankruptcy Act (see s.40(1)(g)). Section 41(2) of the Bankruptcy Act provides that a bankruptcy notice must be in accordance with the form prescribed by the Regulations (see Regulation 4.02 of the Bankruptcy Regulations and Form 1). The form prescribed requires the creditor to attach to the notice a copy of the judgment or order relied upon. In this case the document attached to the bankruptcy notice is a copy of the certificate of judgment issued by the Registrar of the Local Court on 6 May 2005.
As indicated above, it is clear that a bankruptcy notice is a nullity if it relies on more than one judgment debt (see cases cited at [2] in Cummings v Raeffaele (2000) 175 ALR 107 per Moore J). However it was also recognised in Cummings v Raeffaele (also see Re Wheeler (a debtor) [1982] 1 WLR 175) that several orders can be “channelled” into one order which may found a valid bankruptcy notice. There may “in the end” only be one final order (Biritz v National Australia Bank Limited at [13] and Re Wheeler at 182 per Lawton LJ (with whom Brightman and Fox LJJ agreed). I am satisfied that that is what occurred in this case.
Under s.133A(1)(a) of the Justices Act the District Court had power to “confirm” the costs order of the Local Court. In Cummings v Raeffaele at [13] Moore J pointed out (in relation to an appeal to the District Court under an earlier version of the Justices Act 1902) that such an appeal was by way of hearing de novo even if limited to the issue of costs. Similarly, s.132 of the Justices Act (in force at the relevant time in these proceedings) provided for an appeal to be by way of a “rehearing” (albeit generally on the transcripts of evidence). Section 133A (like s.125 considered in Cummings v Raeffaele) required the District Court to “determine” the “appeal” and empowered it to “confirm” the “order” appealed against. In such circumstances, as in Cummings v Raeffaele at [14], it is apparent from the District Court Certificate of Appeal that in confirming the Local Court’s order for costs Blanch J was himself determining the issue of the costs of the Local Court proceedings. (See s.133A(2) of the Justices Act 1902). In my view, the confirmation of the orders of the Magistrate “took effect as a fresh order in respect of the costs of the trial”. (Cummings v Raeffaele at [14]). At the same time the District Court made an ancillary costs order in relation to the costs of the appeal (s.133A(3)). Together these orders constituted not only the orders disposing of the appeal but also a final judgment for the purposes of the Bankruptcy Act 1966 being one final judgment for the purposes of s.40(1)(g) of the Bankruptcy Act 1966.
The respondent argued that because under s.133T of the Justices Act 1902 the District Court must direct payment to the Clerk of the Local Court, at the time the bankruptcy notice was issued the debt was owed to the court and not to the applicant, or, at the least, that part of the consolidated judgment (the costs of appeal in the District Court) could have been discharged by payment to the Local Court and not as required in the bankruptcy notice. It is relevant however that, consistent with s.133T, on 14 March 2003 a notice was sent to the respondent and his solicitors by the District Court requiring payment of the “outstanding costs amounts” (that is, the total amount of $46,200) to the Clerk of the Local Court within 28 days. The notice is not before the Court. It is apparent that such notice would constitute notice of a fine imposed by the District Court under s.9 of the Fines Act 1996. As contended by the applicant, it is clear that this was the mechanism by which the court could recover the costs payable to Mr Constantinidis such costs to be remitted to him after being received by the Local Court. There is no suggestion that the respondent sought further time to pay the fine or otherwise made arrangements for payment under Division 2 of Part 2 of the Fines Act 1996 (see s.109A of the Fines Act).
Once the respondent failed to pay the costs order in accordance with the notice of 14 March 2003 (which, akin to the notice considered in Klewer v Walton [2004] FCAFC 284 at [6], directed payment by a particular date which, it is not disputed, was 28 days from 14 March 2003), then, consistent with the approach taken in that case, the costs order (in its entirety) was enforceable under s.110 of the Fines Act 1996 as if it were a civil judgment under the Local Court (Civil Claims) Act 1970 for the payment of that amount ($46,200) by the due date: that is, as if it were a debt due “to the person to whom the payment is required to be made by that order” as stated in s.110(2) of the Fines Act 1996, in this case the applicant.
Moreover, once the total costs order was not satisfied in accordance with the notice of 14 March 2003 the order could be entered in the records of the Local Court as a judgment given in that court “for a debt due to the person to whom payment is required to be made by that order” (s.110(2) of the Fines Act) even if the order was an order of a court other than the Local Court (s.110(3)).
If the District Court judgment did not of itself channel the orders into one consistent with the approach taken in Cummings v Raffaele, then, as contended by the applicant, following the District Court notice of
14 March 2003, subsections 110(2) and 110(3) of the Fines Act permitted both the Local Court and District Court costs orders to be entered in the records of the Local Court as “a judgment” given in that court. The District Court notice sent to the respondent on 14 March 2003 required payment of the outstanding “costs amounts”, that is, the total of $46,200. Following non-compliance with that notice s.110 of the Fines Act came into play. Thereafter the total costs ordered were validly incorporated in the Local Court certificate of judgment by virtue of s.110(3) of the Fines Act. In other words the “channelling” did not depend on the application to register the order made in the Local Court on 19 April 2005 in the manner contended for by the respondent.
Once the order had been entered as a judgment of the Local Court (as certified in the certificate of judgment) under the Fines Act the person to whom the debt was due was the applicant (the petitioning creditor) as claimed in the bankruptcy notice. That is so even if the respondent could have discharged any of his liability by payment to the Registrar of the Local Court within the 28 days allowed in the District Court notice of 14 March 2003.
The certificate of judgment annexed to the bankruptcy notice was issued pursuant to Part 26 Rule 7 of the Local Courts (Civil Claims) Rules 1988. While the respondent takes issue with the efficacy of the application of 19 April 2005, such application was not the mechanism for channelling or “transmogrifying” two costs orders. That occurred by virtue of the judgment of the District Court (or, in the alternative, by virtue of the operation of the Fines Act).
It is the case that the form of the application filed on 19 April 2005 was an application to register an order as a judgment under Part 39 Rule 3 of the Local Court (Civil Claims) Rules and that in Klewer v Walton the Full Court of the Federal Court suggested at [13] that “it is likely that Part 39 Rule 3 was not intended to apply to judgments of the Local Court”. However if the order in question was an order not distinguishable from an order referred to in s.70 of the Local Courts (Civil Claims) Act 1970, the filing of a certificate of the order under Part 39 Rule 3 (the issue in question in Klewer v Walton) would seem to be superfluous. The order would be deemed to be a judgment for enforcement purposes without the need for the filing of a certificate of the order. Part 39 Rule 3 operates as a restriction on enforcement of an order. Where it applies the order cannot be enforced unless a certificate of the order has been filed with the Registrar. In Klewer v Walton it was contended that before a writ of execution could issue the respondent in that case had to file a certificate of the Local Court costs order relied on with the Registrar of the Local Court. It was in that context that it was suggested that Part 39 Rule 3 would not apply to a costs order not relevantly distinguishable from an order under s.70 of the Local Courts (Civil Claims) Act 1970 that was deemed to be or was to be treated as a judgment of the Local Court, although the Court also noted the absence of any evidence that a certificate of the order had not been filed with the Registrar of the Local Court.
Importantly the Court also stated in Klewer v Walton at [13]:
Further, the rules cannot impose a condition for the enforceability of a judgment which is inconsistent with s.110 of the Fines Act and s.58 of the Local Courts (Civil Claims) Act and should not be interpreted as doing so. We have therefore concluded that Pt 39 r 3 does not apply to an order of the Local Court that is deemed to be or is to be treated as a judgment of the Local Court. Accordingly, Pt 39 r 3 does not apply to the costs order.
In other words, on this approach filing a certificate of the order in compliance with Part 39 Rule 3 would not be a prerequisite to enforcement. In the present case, even if the form used to request a certificate of judgement referred to Part 39 Rule 3, what is important is that, following a request, the Local Court issued a certificate of judgment pursuant to Part 26 Rule 7 of the Local Courts (Civil Claims) Act 1970 as to a judgment in the sum of $46,200 entered in the records of the court. Part 26 Rule 7 provides for such a certificate to be provided on the filing of a “request” which includes a statement of any amount paid. This request may have been made on the form used for an application for registration of an order for the purposes of compliance with Part 39 Rule 3 (which was also the form used for registration in accordance with the Justices Act which was the relevant legislation in relation to appeals to the District Court). However the issue of the certificate of judgment was consistent with the operation of ss.110(2) and (3) of the Fines Act.
It is also important to note that it is the Local Court certificate of judgment that is relied on in the bankruptcy notice, not the application of 19 April 2005. Whether or not the applicant used the right form (or ticked Legal Profession Act 2004 or Justices Act 1902) to request a copy of the certificate of judgment issued consistent with the Justices Act 1902 and the Fines Act 1996 does not affect the validity of the certificate of judgment or the judgment which it evidences.
It has not been established that there is any lack of validity in the judgment or in the Local Court certificate of judgment, that it was irregularly obtained or was otherwise defective or liable to be set aside. Further, once the certificate of judgment issued, consistent with the provisions of the Fines Act discussed above, the debt was enforceable as a debt due to the creditor and hence would be discharged by payment to the creditor. There was no defect in the bankruptcy notice so providing.
Hence it is not, strictly speaking, necessary to consider whether any defect in the Bankruptcy Notice was a formal defect or irregularity, as no defect has been established. However, in case I am wrong, and the debt due under the District Court judgment could have been discharged by payment to the Registrar of the Local Court as an alternative to payment to the creditor as specified in the Bankruptcy Notice, I have considered the respondent’s contention that the specification of payment to the creditor constituted a defect in the Bankruptcy Notice which could reasonably mislead a debtor as to what was necessary to comply with the notice and which hence was outside s.306 of the Bankruptcy Act (see Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 61 at 81 – 83 and James v FCT (1955) 93 CLR 631).
The respondent’s contention in this respect was originally put on the basis that the Local Court order could be satisfied by payment to the Registrar of that court under the Criminal Procedure Act 1986. As discussed above, in post hearing submissions it was conceded for the respondent that this Act was not applicable, but then suggested that the District Court judgment could have been discharged by payment to the Clerk of the Local Court instead of to the creditor (because of s.133T of the Justices Act).
If, contrary to my view, that is the case despite the respondent’s failure to comply with the District Court notice of 14 March 2003 and the operation of s.110 of the Fines Act 1996, nonetheless, for the reasons set out below, I am satisfied that if as the provision for payment to the creditor constitutes a defect in the bankruptcy notice it is a formal defect or irregularity within s.306 of the Bankruptcy Act 1966 and does not invalidate the notice.
Counsel for the respondent suggested that such a defect was analogous to that considered in Re Francis; Ex parte Gartrell (1983) 77 FLR 80. In Foote v Midwest Finance Pty Limited (1997) 158 ALR 320 at 321 Foster J summarised what occurred in Re Francis as follows:
In that case the bankruptcy notice required the debtor to pay the judgment debt to the District Court Registrar at Orange whereas the District Court judgment required the debtor to pay the amount of the judgment debt to the Registrar of the District Court at Dubbo. Lockart J considered the effect of this error in the notice at 84. His Honour said:
“The notice does not comply with s.41(2)(a)(i) [of the Bankruptcy Act] or with the prescribed forms. In my opinion the defect in the notice is of kind which could reasonably mislead the debtor and cannot be regarded as merely formal under s.306.”
It was acknowledged that s.41(2)(a)(i) of the Bankruptcy Act 1966 was no longer in the form that it was in 1983, but nonetheless contended that the principle continued to apply. In Foote Foster J went on to state at 321 that the “underlying rationale of these cases is that the bankruptcy notice must make clear to the debtor what he or she must do to comply with the requirements and thus avoid the consequences of committing an act of bankruptcy. If he or she is left uncertain in this regard then the notice is rendered invalid and non-compliance with it does not have that serious effect.”
Foster J concluded that the bankruptcy notice must be regarded as a nullity. Hence it was not capable of grounding the act of bankruptcy relied upon in the creditor’s petition before the court and the creditor’s petition therefore was dismissed. As his Honour stated, if a bankruptcy notice was capable of misleading the debtor then it must be regarded as a nullity even if the particular debtor in question was not in fact misled (at 322). (Also see Kleinwort Benson v Crowl and James v Federal Commissioner of Taxation to the same effect).
It was argued for the respondent that similarly the bankruptcy notice in this case was not capable of grounding the act of bankruptcy relied on in the creditor’s petition presented by the applicant as it was a nullity because it failed to meet a requirement made essential by the Bankruptcy Act 1966, being the proper identification of the manner of discharge of the obligation imposed by the judgment under which the liability arose. In post-hearing submissions for the respondent reference was made to the recent decision of the High Court in Adams v Lambert [2006] HCA 10 in relation to the operation of s.306 of the Bankruptcy Act. However in Adams v Lambert the High Court held that a misdescription of the statutory provision under which interest was claimed was a formal defect or irregularity which (by virtue of s.306 of the Bankruptcy Act 1966) did not invalidate the bankruptcy notice. The court found that what was relevant under s.306 was “misleading a debtor about what is necessary to comply with the Act” (at [27]) but that the misdescription of the relevant section of the District Court Act 1973 in the bankruptcy notice in issue was not capable of misleading the debtor as to what he had to do to comply with the Bankruptcy Act 1966 (at [30]). The question was said to be “whether the misdescription involved a failure to meet a requirement made essential by the [Bankruptcy] Act.” (ibid. and see [34]).
In post-hearing submissions the respondent did not address the applicant’s contentions about the operation of the civil enforcement provisions of the Fines Act 1996 and the submission that the Local Court issued a certificate of judgment referring to an order validly entered by the Local Court pursuant to ss.110(2) and 110(3) of the Fines Act 1996 incorporating the total amount of the costs order. Even if the respondent is correct in contending that after that time the District Court judgment could still be discharged by payment to the Clerk of the Local Court, once the total costs orders was enforceable as a judgment for payment of that amount under the Local Courts (Civil Claims) Act 1971 entered in the records of the Local Court as a judgment given in that Court the debt was due to the applicant and could be discharged by payment to the applicant. Hence it was not inaccurate for the bankruptcy notice to state that “Payment of the debt can be made to” the creditor. Payment to the creditor would constitute compliance with the notice by the debtor. In this sense the notice properly identified the judgment and the manner of discharge of the obligation imposed by the judgment because of the operation of the civil enforcement provisions of the Fines Act 1996. In my view it was not “misleading a debtor about what [was] necessary to comply with the notice” (see Adams v Lambert at [27]). If an alternative method of payment was available, then the reference to the available option which would constitute compliance with the bankruptcy notice and discharge the debtor’s liability to the creditor was no more than a formal defect or irregularity within s.306 of the Bankruptcy Act 1966. It would not invalidate the notice or be such that the sequestration order ought not to be made.
The first three separate questions in the schedule to the notice of motion should be answered in the negative. Because of the broad way in which such questions are expressed it is preferable in these proceedings to confine the answers to a negative response on the basis contended for by the respondent. The fourth question does not arise in the absence of a positive answer to any of questions 1 to 3. I will hear submissions in relation to costs and appropriate directions for listing the creditor’s petition for hearing.
I certify that the preceding seventy-four (74) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 5 July 2006.
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