D.C.T. v C. Compton
[2009] FMCA 1286
•23 December 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| D.C.T. v C. COMPTON | [2009] FMCA 1286 |
| BANKRUPTCY – Creditor’s petition – whether service of bankruptcy notice – whether affidavit of search compiled with Bankruptcy Rules. |
| Bankruptcy Act 1966 (Cth), ss.40, 52, 306 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.2.06, 4.04 |
| Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10 Atkinson v Oakleigh Holdings Pty Ltd (2000) 105 FCR 15; [2000] FCA 1547 Commissioner of Taxation v Kelly (2001) 110 FCR 561; [2001] FCA 844 de Robillard v Carver (2007) 159 FCR 38; [2007] FCAFC 73 Hussain v King Investment Solutions Pty Ltd (2006) 153 FCR 428; [2006] FCA 905 Kidney v Fitzpatrick [2007] FMCA 943 Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71; [1988] HCA 34 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | CLAIRE COMPTON |
| File Number: | SYG 1285 of 2009 |
| Judgment of: | Barnes FM |
| Hearing dates: | 21 October 2009 & 16 November 2009 |
| Date of Last Submission: | 14 December 2009 |
| Delivered at: | Sydney |
| Delivered on: | 23 December 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr D M Jay |
| Solicitors for the Applicant: | Legal Services Branch, Australian Taxation Office |
| Counsel for the Respondent: | Mr L Shipway |
| Solicitors for the Respondent: | Kemp Strang |
ORDERS
A sequestration order be made against the estate of Claire Compton.
The applicant creditor’s costs (including reserved costs, if any) be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
A copy of this order is to be provided to the Official Receiver in Sydney within two (2) days.
The Court notes that the date of the act of bankruptcy is 8 December 2008.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1285 of 2009
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| CLAIRE COMPTON |
Respondent
REASONS FOR JUDGMENT
On 28 May 2009 the applicant, the Deputy Commissioner of Taxation (the DCT), filed and presented a creditor’s petition seeking that a sequestration order be made against the estate of the respondent, Claire Compton. The creditor’s petition was said to be based on an act of bankruptcy consisting of a failure by the debtor to comply on or before 8 December 2008 with the requirements of a bankruptcy notice said to have been served on her on 17 November 2008. Both the creditor's petition and the bankruptcy notice claimed that the debtor owed the creditor the amount of $66,515.76, consisting of an amount due under a final judgment obtained in the District Court of New South Wales on 13 June 2008 inclusive of costs, plus interest on the judgment up to 3 November 2008. The bankruptcy notice (bankruptcy notice NN4236 of 2008) was issued by the Official Receiver on 4 November 2008.
The respondent filed a notice of opposition to the petition on 11 August 2009 on the basis that she was not served with the bankruptcy notice and therefore had not committed an act of bankruptcy within s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (the Act).
The matter was heard at the same time as the creditor’s petition filed and presented by the DCT seeking that a sequestration order be made against Mrs Compton’s husband, Peter Geoffrey Compton, on the basis of a failure to comply with a bankruptcy notice based on the same debt.
In an affidavit sworn on 13 September 2009 Mrs Compton attested that she had read the affidavit of service of the bankruptcy notice sworn by Bernard John Hensler on 1 December 2008 and that she “was not served with a copy of the Bankruptcy Notice as deposed to by Mr Hensler”. She denied that she had the conversation with Mr Hensler deposed to in the affidavit of service of the bankruptcy notice or any conversation with Mr Hensler at all. She claimed that to the best of her knowledge she had never met Mr Hensler.
Mrs Compton went on to attest that, while the “debt claimed by the Deputy Commissioner of Taxation in the Bankruptcy Notice [was] purportedly based on a Default Judgment obtained by the Deputy Commissioner of Taxation against [her] in the District Court of New South Wales at Sydney in proceedings no. 1892 of 2008”, at “no time was [she] served with a copy of the Statement of Claim in the District Court proceedings”. She stated that the first she knew of the existence of the District Court proceedings, the default judgment obtained by the DCT and the bankruptcy notice was when she was served with a copy of the creditor's petition in these proceedings.
The evidence relied on by the applicant in relation to service of the bankruptcy notice includes the affidavit of Bernard John Hensler sworn on 1 December 2008 and filed on 28 May 2009 in which Mr Hensler attested that on 17 November 2008 at 4.35 pm he served Mrs Compton with a true copy of the bankruptcy notice to which was annexed details of interest claimed and a true copy of the judgment:
…by delivering them to CLAIRE COMPTON personally at: 28 BEACH DRIVE KILLCARE, in the State of New South Wales.
Mr Hensler stated in his affidavit that he identified the person served as the said Claire Compton:
… by reason of the following statements made at the time of service:
I said: “Is your name CLAIRE COMPTON?”
She replied: “Yes”.
I then said: “Are you the person referred to in this bankruptcy notice as CLAIRE COMPTON?”
She replied: “Yes”.
Annexed to the affidavit of service of bankruptcy notice are what are said to be true copies of the said bankruptcy notice and annexures. It appeared initially that Mr Hensler may not be available if required for cross-examination as he had moved to Hong Kong, but he was located.
The applicant also relied on an affidavit of Mark Adam Stephenson sworn on 1 October 2009 and filed on 7 October 2009. Counsel for the Comptons initially indicated that he had been instructed that this affidavit (and the similar affidavit in relation to service on Mr Compton) had not been served on the solicitors for the Comptons. However the applicant tendered a copy of a letter from the Assistant Commissioner for Taxation to the solicitors for the Comptons dated 12 October 2009 which, among other things, enclosed by way of service the affidavits relating to service of bankruptcy notices sworn by Mark Adam Stephenson as well as copies of the affidavits of service of the bankruptcy notices sworn by Bernard Hensler. Counsel for the Comptons did not pursue the contention that the respondent’s solicitors were not served with copies of Mr Stephenson’s affidavits.
Mr Stephenson is the operations manager of the Process Serving Department of Newcomen Commercial Services. He attested that Mr Hensler had been employed by that organisation to perform duties as a process server for approximately three years up until February 2009. Mr Stephenson’s understanding was that Mr Hensler left this employment to take up employment in Hong Kong.
Mr Stephenson attested that:
Immediately upon completion of service of an item, the process server is required to complete a ’Process Field Report’.
Annexed to his affidavit was what was said to be “a true copy of the ‘Process Field Report’” completed by Mr Hensler “at the time of service” of the bankruptcy notice on Mrs Compton in this matter. The process field report was completed to indicate that service on Mr Compton of a bankruptcy notice was on 17 November 2008 at 4.35 pm by personal service on a male. No details of any conversation or means of identifying the person are recorded.
Mr Hensler and Mrs Compton were both required for cross-examination. Mr Hensler’s cross-examination took place on 21 October 2009 as he was visiting Australia at that time. The hearing was adjourned for cross-examination of Mrs Compton and completion on 16 November 2009. Mr Compton, who also claimed that he was not served with a bankruptcy notice, was also cross-examined. The parties agreed that the evidence of each of the witnesses should be evidence in each of the proceedings.
In this case there is a factual dispute between the parties on the issue of service of the bankruptcy notice. The applicant’s case is that Mrs Compton was personally served with the bankruptcy notice by Mr Hensler on 17 November 2008. Mrs Compton denied that she was served with a copy of the bankruptcy notice as deposed to by Mr Hensler.
Mr Hensler is an experienced process server who, as at November 2008, had four years of experience. His evidence was that at that time he was serving 50 to 70 documents in the Central Coast area in a typical week. The procedure adopted was that he gave information to his boss about what happened in relation to each service and his boss drew up the affidavit accordingly. Mr Hensler then “signed off on it”. In cross-examination Mr Hensler stated that he usually gave the information to his boss within 7 to 14 days of the service and that the affidavit would be written and signed on the day he provided the information.
Mr Hensler agreed that it would only be if “something unusual” occurred that the content of the affidavit of service, insofar as it referred to a conversation, would be amended. When it was put to him that what was in the affidavit was not a record of what he had told his boss had occurred in terms of a conversation, Mr Hensler explained: “We say exactly these words every service” and if the conversation was different then “we will relate that information in the affidavit.”
Mr Hensler stated that he specifically remembered attending a property at Killcare on the afternoon of 17 November 2008 (the day Mrs Compton was said to have been served), that he recalled the property he attended on that day and that he could describe how it appeared from the street.
When asked if he had been back to the property after he had effected service at that address on 17 November 2008, Mr Hensler replied that he had gone back again two days later (consistent with the fact that his evidence was that he served Mr Compton on 19 November 2008). When questioned about his evidence of his recollection of service on Mrs Compton he explained that he had a mental picture of each place he had been to for his work, based on its address.
Mr Hensler stated that he could recall the conversations he had with both Mr and Mrs Compton. He agreed that not everything said was necessarily recorded in his affidavit and gave as an example that he had asked Mrs Compton if Mr Compton was at home and that she had told him that “he gets home after 6.30”. Mr Hensler also said that while he did not have a photograph of Mr or Mrs Compton, he had been to the house to serve one or both of the Comptons on an earlier occasion in a different matter.
Mrs Compton’s affidavit evidence was that she was not served with a copy of the bankruptcy notice as deposed to by Mr Hensler and also that at no time was she served with a copy of the statement of claim in the District Court proceedings that gave rise to the debt claimed by the DCT in the bankruptcy notice.
In cross-examination Mrs Compton stated that she had “never had anyone hand me a bankruptcy notice”. However, rather than making a positive assertion that she had not been served with a copy of the statement of claim in the District Court proceedings, Mrs Compton stated that she could not recall being served with that document. When shown a copy of an affidavit of service of Gavin Bellamy sworn 20 May 2008 attesting to personal service on her at her home with a copy of the District Court statement of claim, Mrs Compton’s evidence was that she did not “recall getting that at all, no” and suggested that “I have a lot of people come to my front door and ask if I’m the person living there”. The cross-examination of Mrs Compton continued as follows:
Do many of them serve documents on you?‑‑‑Mm. We have papers belonging to the shop that sometimes get dropped off and for identification they have to know who they’re handing them to.
Right. So it may be that this document was served on you and you just don’t recall?‑‑‑If he had said what it was I would recall.
And if he’d given you a copy of the document, would you recall?‑‑‑If it was in an envelope, yes I would.
Whether or not it was in an envelope – if it wasn’t in an envelope, what effect would that have had?‑‑‑It would put some urgency on the thing – I’d be very frightened.
So is it possible, also, that Mr Hensler came to your front door, asked your name, and gave you a document, but now that you just don’t recall?‑‑‑No, because it says that he introduced himself and said his name.
Sorry, which one are you talking about, Mr Hensler, or‑ ‑ ‑ ?‑‑‑Hensler, Mr Hensler.
So you’re saying that it may be that the statement of claim was served on you, but you don’t recall; is that right?‑‑‑I don’t recall.
And it is possible that the bankruptcy notice was served on you but you just don’t recall?‑‑‑You mean the – the other one?
Yes?‑‑‑I would have recalled someone introducing themselves and handing it to me.
When you say, “introducing themselves”, what do you mean by that?‑‑‑Well, he – Mr Hensler, he is says – said in one of the things that he said his name was Bernard Hensler and he was serving me with a ‑ ‑ ‑
Have you got his affidavit there with you?‑‑‑No, I haven’t.
I don’t think that’s what the affidavit says?‑‑‑It was in one of the papers we had.
What Mr Hensler says is:
I identified the person served, by me, as Claire Compton.
I don’t think he identifies himself?‑‑‑Well, I think my husband has a copy of the – one of the bits of paper that it says it on.
Right, and so if someone had identified themself, that’s when you say you would recall that person?‑‑‑If someone had identified themselves, yes, and said it’s a bankruptcy thing, my mind would go ‑ ‑ ‑
And if they hadn’t identified themselves, would that have had a different effect? If they’d just said, “Are you Claire Compton” and handed you a bankruptcy notice?‑‑‑Well, the thing is, he says that he said it was a bankruptcy one so you’re coming about someone coming to the door and just handing me a piece of paper and not saying what the piece of paper is, which is two different things.
Mrs Compton also gave evidence about the time that Mr Compton was at work. Such evidence went to whether Mr Compton was likely to have been at home at 7.10 pm on 19 November 2008, the time at which Mr Hensler claimed to have served him with the bankruptcy notice. Mrs Compton’s evidence was that her husband had “never worked til 6.30 at night” and that “[t]he shop closes at 7 pm on Sundays and 8 o'clock every other day of the week. So it means that, usually, he or my son aren’t home till about 8.30”.
Having read the affidavits and observed the deponents and heard their evidence in cross-examination, where there is a conflict in the evidence I prefer the evidence of Mr Hensler to that of Mrs Compton.
Mr Hensler showed a clear and consistent recollection of the events and circumstances of service. He is an independent witness and has not been shown to have any personal interest in fabricating his evidence. The manner in which he gave his evidence was confident and convincing.
Counsel for the respondent submitted that in circumstances where Mr Hensler was serving 50 to 70 documents a week, a delay of 14 days between the alleged date of service on Mrs Compton and the preparation and swearing of the relevant affidavit of service was sufficient time to cast doubt on the accuracy of the matters deposed to by Mr Hensler. However Mr Hensler was not asked whether he made a contemporaneous record about the service of each document (as attested to by Mr Stephenson). He was able to answer in detail all the questions that were put to him. He explained that the words of service used in the affidavits of service in relation to each of the Comptons were based on the standard words they used every service. He was prepared to concede matters where he did not have actual knowledge or recollection of the facts, for example in relation to the format of the affidavit drawn up by his boss.
In isolation, Mr Hensler’s claim that he remembered what he was doing on the afternoon (but not the morning) of 17 November 2008 may not seem particularly plausible, but Mr Hensler provided an explanation for his recollection of particular jobs based on having a mental picture of each place when told the address. He was not asked about his specific recollection of what he was doing on 19 November 2008.
Also, while Mr Hensler stated that he could describe how the Comptons’ property appeared from the street, counsel for the Comptons declined to invite him to do so. Instead, he was given a document which apparently contained a picture of a house. Mr Hensler considered the picture and was able to state that it was not the Comptons’ house, although there were some similarities in the type of brick and style of house. In re-examination he provided a description of the front of the Comptons’ house.
Importantly, Mr Hensler stated in cross-examination that he had served the Comptons (or possibly just Mr Compton) previously at the Killcare address in a different matter. I am satisfied and I accept that he recollected the appearance of the Comptons’ house and I accept his evidence that he attended at that house on both 17 and 19 November 2008 and personally served Mrs Compton with the bankruptcy notice on 17 November 2008. Hence I reject the evidence of Mrs Compton on that issue. Her evidence was equivocal and at times evasive and somewhat lacking in logic. For example, she gave evidence that Mr Hensler said he introduced himself personally, but in reaching that conclusion she relied on a piece of paper her husband “has a copy of”. Mr Hensler’s affidavit evidence was not to this effect.
In cross-examination Mrs Compton did not maintain her positive assertion that she was not served with the statement of claim, although she did in relation to the bankruptcy notice. However I am not satisfied on her evidence that she was not served with the bankruptcy notice. Mr Compton’s evidence did not address the issue of service on Mrs Compton.
Two process servers, Mr Bellamy and Mr Hensler, swore that they served Mrs Compton. She could not recollect either of these events. I also note that Mrs Compton’s evidence that Mr Compton was usually not home until 8.30 pm and never home at 6.30 pm (relevant to whether he was served at 7.10 pm on 19 November 2008) was contrary to the sworn evidence of two process servers as to the time at which Mr Compton was served at his home (in the morning on each occasion). In an affidavit of service of the District Court statement of claim tendered in these proceedings, Gavin Bellamy swore that he served Mr Compton personally at 11.05 am on 10 May 2008 (a Saturday) at his home at Killcare. In addition, in an affidavit of service of the creditor's petition in relation to Mr Compton sworn on 18 June 2009, Wayne Stewart stated that he served Mr Compton personally at 11.25 am on 14 June 2009 (a Sunday) at his home at Killcare. Mr Stewart was not required for cross-examination. In the absence of corroborative evidence, I did not accept that Mrs Compton’s evidence on this matter supported the proposition that Mr Compton could not have been at home to have been served with the bankruptcy notice at 7.10 pm on 19 November 2008 as attested to in the affidavit of Mr Hensler. Nor is it supportive of the veracity of Mrs Compton’s evidence generally.
As I am satisfied that Mrs Compton was personally served with the bankruptcy notice on 17 November 2008, the basis of opposition to the petition in the notice of opposition filed on 11 August 2009 is not made out.
Affidavits of Search
At the hearing on 16 November 2009 counsel for the Comptons submitted that the affidavits of search relied on by the applicants in each of the proceedings did not address all the matters required to be addressed under r.4.04 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (the Bankruptcy Rules).
Rule 4.04 is as follows:
(1) If a creditor's petition is founded on an act of bankruptcy mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the petition must also be accompanied by:
(a) an affidavit stating:
(i) that the records of the Court and the records of the Federal Court have been searched and no application in relation to the bankruptcy notice has been made; or
(ii) that an application was made in the Court or in the Federal Court, as applicable, for an order setting aside the relevant bankruptcy notice and the application has been finally decided; or
(iii) that an application was made in the Court or in the Federal Court, as applicable, for an order extending the time for compliance with the bankruptcy notice and the application has been finally decided; and
(b) an affidavit of service of the relevant bankruptcy notice.
(2) If an application mentioned in subparagraph (1) (a) (ii) or (iii) was made, a copy of the order finally deciding the application must be attached to the affidavit required by paragraph (1) (a).
The applicant submitted that this issue should have been raised in the notice of grounds of opposition to the application and pointed to the fact that counsel for the respondent had (properly) conceded that it was a matter that only came to his attention on the weekend prior to the adjourned hearing date. It was contended that the DCT had no prior notice of the basis of the claim and, if it had done so, may have taken steps (if necessary) to amend any alleged defect.
However each of the parties made post-hearing written submissions in relation to this issue. In all the circumstances, notwithstanding that the notice of opposition did not include this ground, I consider it appropriate to dispense with the strict requirements of r.2.06(2) of the Bankruptcy Rules insofar as that rule requires that a person who intends to oppose a petition must, at least three days before the date fixed for the hearing of the petition or with leave of the court at the hearing, file a notice in accordance with Form 5 stating the grounds of opposition, file an affidavit in support of the grounds of opposition, and serve the notices and supporting affidavit on the applicant.
The Comptons’ contention was that the filing of an affidavit that addressed all the matters required by r.4.04 of the Rules was a requirement “made essential” by the bankruptcy legislation and that the DCT’s failure to comply with it invalidated the petitions in both proceedings such that they should be dismissed.
In these proceedings the creditor's petition is founded on an act of bankruptcy mentioned in paragraph 40(1)(g) of the Bankruptcy Act and hence r.4.04 of the Bankruptcy Rules applies. The affidavit in question is the affidavit of Allison Serje affirmed on 28 May 2009 which accompanied the petition and relevantly stated:
(3) On 28 May 2009 I did search the records of the Federal Court of Australia and the records of the Federal Magistrates Court of Australia in relation to Bankruptcy Notice No. NN4236/08 issued on the application of the applicant creditor against the respondent debtor, dated 4 November 2008.
(4)It appears from my searches that the respondent debtor has not made an application to the Court to set aside the bankruptcy notice nor to extend the time for compliance with the bankruptcy notice.
The respondent contended that the wording of paragraph four of the affidavit of Ms Serje addressed subrules 4.04(1)(a)(ii) and (iii) of the Bankruptcy Rules but did not address subrule 4.04(1)(a)(i) in that the search affidavit did not disclose whether an “application” generally had been made in relation to the bankruptcy notice (that is, an application other than an application to set aside the bankruptcy notice or to extend the time for compliance with the bankruptcy notice). It was suggested that while it was not possible to state exhaustively the types of applications that might be made that would fall outside subrules 4.04(1)(a)(ii) and (iii), they would include applications alleging abuse of process or for administrative review of a relevant administrative decision leading to the issue of the bankruptcy notice.
Counsel for the Comptons conceded that he could identify no case that had considered either this specific contention or, indeed, any other non-compliance with r.4.04, but submitted that the court would be assisted by cases dealing with general principles. It was contended that the “starting point” was Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10 in relation to whether a defect was a “formal defect or an irregularity” liable to be cured under s.306 of the Bankruptcy Act and hence not such as to give rise to invalidity unless the court was of the opinion that substantial injustice had been caused by the defect or irregularity that could not be remedied by an order of the court.
The Comptons conceded that the “defect” in the search affidavit did not cause substantial injustice to either of them and that no application within r.4.04(1)(a)(i) had in fact been made in either matter that would have been disclosed by a search affidavit had it been worded so as to address all the matters required under r.4.04.
It was said, nonetheless, that there was an issue as to whether the defect was a mere “formal defect or an irregularity” or whether it was a failure to meet a requirement “made essential” by the legislation in the manner considered in Adams v Lambert, applying Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71; [1988] HCA 34.
Reference was made to the fact that in Adams v Lambert, the High Court explained (at [26]) that determining whether a particular requirement of the legislation was “made essential” required a process of statutory construction, as follows:
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.'" (Footnotes omitted)
It was submitted that the general purpose and object of the bankruptcy legislation was to create a regime for the fair and efficient disposal of bankruptcy proceedings, among other things, and that the legislation (consisting of the Act and the subordinate and other legislation enacted in support of it (including the Bankruptcy Rules)) set out a detailed procedure that must be followed by creditors (and respondents) before a creditor’s petition would be granted based on an act of bankruptcy under s.40(1)(g) of the Act.
In particular, it was submitted that r.4.04 (misdescribed as “regulation 4.04” in the respondent’s submissions) contained requirements that were said to be “self-evidently” aimed at ensuring that a creditor made appropriate enquiries to confirm that the respondent had not taken any of the steps available at law to challenge or postpone the consequences of the bankruptcy notice that had been served, and that the creditor was prevented from proceeding in reliance on a bankruptcy notice in circumstances where appropriate enquiries had not been made as to whether the debtor had taken steps to challenge the bankruptcy notice.
On this basis, it was said that r.4.04 protected the respondents and placed on the applicant creditor the burden of establishing that the respondent debtor had not taken any of the steps available to it to avoid bankruptcy. It was submitted that the suggested defect was analogous to the defect considered in Commissioner of Taxation v Kelly (2001) 110 FCR 561; [2001] FCA 844, in which the creditor had failed to refer in its bankruptcy notice to the jurisdiction of the Federal Magistrates Court, as required by the then recently amended regulations. In that case Katz J held that the notice was a nullity as it failed to meet a requirement made essential by the Act, following the approach of Heerey J in Atkinson v Oakleigh Holdings Pty Ltd (2000) 105 FCR 15; [2000] FCA 1547 at [16]:
I have come to the same conclusion as Moore J but prefer to do so on the basis of s 48(2). As to the first basis, since the sole criterion of a bankruptcy notice now is that it "must be in accordance with the form prescribed by the regulations" (s 41(2)), and the sole raison d'etre of the amending regulations was to require a notice to refer to the Federal Magistrates Court as well as the Federal Court, it is not easy to see why this is not a requirement "made essential by the Act": Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79. A court is not at liberty to hold that some matters expressly required to be stated are essential but others, also the subject of express requirement, are not: Bendigo Bank Ltd v Williams (2000) 98 FCR 377 at 389.
Neither Kelly nor Atkinson v Oakleigh Holdings are directly in point, as they relate to whether a bankruptcy notice was a nullity as failing to meet a requirement of the Bankruptcy Regulations.
The applicant cited no authority in relation to the consequences of a failure to comply with the Bankruptcy Rules (which are Rules of Court not regulations made under the Bankruptcy Act) in an affidavit relied on in support of the creditor’s petition, as distinct from a failure to comply with the Act or Regulations in a bankruptcy notice or creditor’s petition.
I note that in Hussain and Another v King Investment Solutions Pty Ltd (2006) 153 FCR 428; [2006] FCA 905, in the context of considering the provisions of the Federal Magistrates Court Rules that were predecessors to the requirements now found in the Federal Magistrates Court (Bankruptcy) Rules, Gyles J pointed out (at [25]) that:
There is a critical difference between rules of court, on one hand, and statutory obligations on the other.
Gyles J went on to state (at [25]) that there was “always an overriding power in the Court to dispense with the effect of rules of court”. His Honour rejected a contention that a failure to serve an application to set aside a bankruptcy notice within three days, as required under the rules of court, rendered the application a nullity. Similarly, I am of the view that it is open to me to dispense with the requirement of strict compliance with the Bankruptcy Rules.
Counsel for the applicant referred to the fact that in Kidney v Fitzpatrick [2007] FMCA 943 at [34] – [35], Mowbray FM referred to the fact that in a case where there had been “substantial compliance” with the Rules in an affidavit, his Honour could see no prejudice to the respondent if he were to dispense with full compliance with the rule in question, as matters “concerning the bankruptcy notice and the application to set it aside were very much known to the respondent and to the Court”. On that basis Mowbray FM found that it would “serve no useful purpose” for the court to adjourn to permit the filing of further affidavits covering the matter which had recently been before it.
In de Robillard v Carver (2007) 159 FCR 38; [2007] FCAFC 73 at [95] the Full Court of the Federal Court rejected a “contention that proceedings commenced by filing the creditor’s petition were incurably flawed and beyond jurisdiction because of non-compliance with r 4.02 of the Bankruptcy Rules” (in that case the Bankruptcy Rules of the Federal Court, which are in substance in the same form as the Bankruptcy Rules of the Federal Magistrates Court). That contention had been put on the basis that there was no affidavit of service of the bankruptcy notice accompanying the creditor’s petition when presented as required under r.4.04(1)(b), and no affidavit of service of the bankruptcy notice served five days before the day fixed for hearing.
As in this case, such arguments had not been raised in the (amended) notice of grounds of opposition, although they were included in written submissions filed after the hearing. The primary judge had ruled that he would not permit reliance upon the grounds. In any event the Full Court of the Federal Court observed that these matters did not go to the court’s jurisdiction and did not provide any basis upon which to decide the appeal in the applicant’s favour.
In this case, the only “defect” identified in Ms Serje’s affidavit is that she did not state that “no application in relation to the bankruptcy notice has been made”. In substance the affidavit complied with r.4.04 of the Bankruptcy Rules in that Ms Serje attested that she undertook the necessary court searches and that those searches showed that there was no application to the court, at least no application to set aside the bankruptcy notice and no application extending the time for compliance with the bankruptcy notice.
Counsel for the Comptons conceded that no applications had been made by Mr Compton in relation to the bankruptcy notice and that any defect in the affidavit of search did not cause substantial injustice.
In this case there has been substantial compliance with r.4.04(1) of the Bankruptcy Rules. In any event, given the concession by the respondent that no applications had been made and that any defect in the affidavit of search did not cause substantial injustice, insofar as necessary I would dispense with full compliance with r.4.04(1)(a)(i) on the basis that there has been no prejudice to the respondent.
Moreover, if the failure to use the precise language of r.4.04(1)(a)(i) is a “defect or irregularity” in proceedings under the Bankruptcy Act (a matter on which I was not addressed) and insofar as s.306 is applicable to a “defect” in an affidavit consisting of non-compliance with the Rules, while the absence of substantial injustice is not determinative of whether a defect is a formal defect or irregularity in the sense considered in Adams v Lambert and thus able to be cured within s.306, I am satisfied that any defect in the affidavit of search is clearly a formal defect or irregularity being one of form and not substance and not a basis on which to invalidate the petition.
Hence neither basis for opposition to the creditor’s petition is made out.
Section 52 Requirements
I am satisfied on the evidence before me as to service of the bankruptcy notice on Mrs Compton on 17 November 2008 and that she committed the act of bankruptcy alleged in the creditor’s petition by failing to comply with the requirements of bankruptcy notice NN4236 of 2008 within the time specified. I am satisfied that, as stated in the creditor’s petition, the date of the act of bankruptcy was 8 December 2008, which is within six months of presentation of the petition.
On the evidence before the court, I am satisfied with proof of the matters required by s.52(1) of the Act, including proof of matters stated in the petition; that the petition was presented in correct form for a debt of more than $2,000, with service of the petition; and with the fact that the debt on which the petitioning creditor relies is still owing. In that respect, the applicant filed fresh affidavits of debt and final search on 14 December 2009. Counsel for the applicant indicated that prior to delivery of judgment he would provide the court with further affidavits of final debt and final search. This has been done.
The debtor did not satisfy the court of her ability to pay her debts. In submissions counsel for the Comptons drew the court’s attention to the fact that Mr Compton had given evidence that he was in the process of seeking to sell their business and anticipated that a sale could be completed in a matter of weeks. This was not put on the basis that either Mr or Mrs Compton was able to pay his or her debts. Rather it was sought that if a sequestration order be made, then the court should also stay all proceedings under the sequestration order for a period not exceeding 21 days.
A stay under s.52(3) is a stay of proceedings under a sequestration order and not of the sequestration order itself. I note that this request was made on 16 November 2009. Given the time that has passed, occasioned by the fact that written submissions from the parties were not filed until 7 and 14 December 2009 respectively, I am not persuaded that it is appropriate to grant a stay of proceedings under the sequestration order on the evidence before the court.
Insofar as this might be taken to be an application for an adjournment, I am not persuaded that it is in the interests of the parties or the administration of justice that there be a further adjournment, given that the passage of time has, in effect, allowed the time sought by the Comptons for sale of the business. I also note that while the debt that was the subject of the creditor’s petition was (after allowance for a credit/payment of $1,050) over $65,000, the records of the creditor showed that a significant further amount of over $130,000 was owed to the DCT by the respondent debtor. The submissions made in relation to the possible proceeds of sale of a property or business are not such as to establish that Mrs Compton would be likely to be able to meet the entirety of the debts owed to the DCT. There is no evidence as to the nature or extent of any other indebtedness.
Nor is the material before the court such as to satisfy me that for other sufficient cause a sequestration order ought not to be made.
In all the circumstances, as I am satisfied that the respondent committed the act of bankruptcy alleged in the petition and with proof of the other matters required by s.52 of the Act, a sequestration order should be made against the estate of Claire Compton with the usual order as to costs.
I certify that the preceding sixty-four (64) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 23 December 2009
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