D.C.T. v Moss (No. 2)
[2006] FMCA 225
•17 February 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| D.C.T. v MOSS (No. 2) | [2006] FMCA 225 |
| BANKRUPTCY – Whether authorisation of Official Receiver extending time for service of bankruptcy notice required to be served with bankruptcy notice – Regulation 4.02A(2)(b) of Bankruptcy Regulations – condition in authority that notice be served – Official Receiver power – whether requirement made essential by the Act or Regulations. |
| Bankruptcy Regulations 1996, sub-reg.4.02A(2)(b) Bankruptcy Act 1966, s.306 Federal Magistrates Court Rules 2001, r.1.06 |
| Moss v Downey [2005] FMCA 1923 Vincent Harley Alexander v Russell Ashby Partiger [1998] 1030 FCA Wasilenia v DCT [2003] FMCA 8 Australian Steel Co (Operations) Pty Ltd v Lewis (2001) 109 FCR 33 Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 |
| Substituted Applicant Creditor: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent Debtor: | CHRISTOPHER MOSS |
| File Number: | MLG 849 of 2005 |
| Judgment of: | McInnis FM |
| Hearing date: | 1 February 2006 |
| Delivered at: | Melbourne |
| Delivered on: | 17 February 2006 |
REPRESENTATION
| Counsel for the Substituted Applicant Creditor: | Mr. A. Fox |
| Solicitors for the Substituted Applicant Creditor: | Russell Kennedy Solicitors |
| Counsel for the Respondent Debtor: | Mr. B. Fried |
| Solicitors for the Respondent Debtor: | The Law Offices of Barry Fried Solicitors |
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 849 of 2005
| DEPUTY COMMISSIONER OF TAXATION |
Substituted Applicant Creditor
And
| CHRISTOPHER MOSS |
Respondent Debtor
REASONS FOR JUDGMENT
A creditor's petition filed on 14 September 2005 seeks a sequestration order against Christopher Moss (“the debtor”). The petition had been filed by James Patrick Downey (“the petitioning creditor”) who then claimed to be owed an amount of $13,980.54 by the debtor.
The Deputy Commissioner of Taxation (“the substituted applicant”) claimed an amount owed by the debtor of $414,164.18. That amount comprised a sum of $348,706.50, being a judgment debt due under a file or judgment obtained in the Supreme Court of Victoria at Melbourne on 14 August 2003, and a sum of $65,457.68, being judgment interest on the judgment debt.
The bankruptcy notice relied upon by the petitioning creditor was issued on 13 April 2004. Pursuant to sub-reg.4.02A(2)(b) of the Bankruptcy Regulations 1996 (“the Regulations”) the Official Receiver extended the period of service for the bankruptcy notice issued on
13 April 2004 until 13 April 2005. That authorisation of the Official Receiver is dated 5 November 2004 (“the authority”).
The extension of time for service of the bankruptcy notice was necessary as the bankruptcy notice issued on 13 April 2004 had not been served, as required by reg.4.02A(2)(a), within a period of six months commencing on the date of issue of that notice.
The petitioning creditor had relied upon an affidavit of service of bankruptcy notice sworn by Peter Graham Woods on 24 May 2005 where the deponent states as follows:
“2. That on the 8th day of March, 2005 at 12.25 o'clock in the afternoon I served CHRISTOPHER MOSS with a sealed copy of the Bankruptcy Notice No. 533/2004 together with Extension of the Bankruptcy Notice dated 5th November 2004 and Certified Extract of order made 2nd September 2003 annexed thereto and signed by the Official Receiver issued on the application of JAMES PATRICK DOWNEY by handing it to him personally at Brownport Road, Nangiloc in the said State.
3. ...
4. Now produced and shown to me at the time of swearing this my Affidavit and marked with the letter “A” is a sealed copy of the said Bankruptcy Notice No. 533/2004 together with the Extension of the Bankruptcy Notice dated 5th November 2004 and Certified Extract of order made 2nd September 2003 annexed thereto signed and sealed by the Official Receiver.
5. ...”
The debtor, in a notice of intention to oppose the petition filed
3 October 2005, relied upon the following ground:
“1. The Extension of Bankruptcy Notice: VN 533 of 2004 dated
5 November 2004 was not served on the Respondent / Debtor and as such the Bankruptcy Notice issued on 13 April 2004 was entitled to be ignored by the Respondent / Debtor.”
The issue concerning service of the authority was raised by the debtor in opposition to a notice of motion by the substituted creditor referred to earlier in this judgment. The Court heard the notice of motion on
19 December 2005 and allowed the application resulting in the Commissioner of Taxation being substituted on the petition as the Applicant Creditor (see Moss v Downey [2005] FMCA 1923). In that judgment I stated the following:
“12. Dealing with the issue of whether not the authorisation of official receiver dated 5 November 2004 was not served on the respondent debtor. I note and accept the submissions made before the Commissioner that in this case the current regulations do not make that a requirement. Even if it were a requirement and it is noted that affidavit material relied upon by the initial petitioning creditor includes an affidavit of service sworn by Peter Graham Woods, 24 May 2005, which verifies services of the Bankruptcy notice including the authorisation of Official Receiver. Even if I accept for the present purposes as appears to be clearly deposed to by the debtor that that document was not served upon the debtor than I find in the present case that at the very least that is simply an issue of fact to be determined upon the hearing of the creditor's petition.
13. In any event on the material before me, I am satisfied that the regulations no longer make the service of that authorisation necessary. In either event that is a matter which can properly be dealt with before the hearing of the creditor's petition. Likewise, in my view, the issue of whether or not indeed there is any indebtedness to the National Australia Bank or indeed the issue of solvency are both issues which can and should properly be dealt with upon the hearing of the creditor's petition.”
As clearly foreshadowed in that judgment, the issue of service of the bankruptcy notice, including service of the copy of the authority was a matter to be determined on the hearing of the creditor's petition. It is that issue which I indicated to parties should be dealt with as a preliminary issue before proceeding to consider other issues relevant in deciding whether to make a sequestration order against the debtor.
It is noted that on the authority the following appears:
“Note: a copy of this authority extending the bankruptcy notice should also be served on the debtor.”
It is common ground that there is no specific regulation which appears to require a copy of the authority extending the bankruptcy notice to be served.
It is argued on behalf of the debtor that nevertheless, the failure to serve the authority is fatal to the creditor's petition. It was argued that the Bankruptcy Act 1966 (“the Act”) does require service of the authority.
Reference was made to a decision of Lindgren J in Vincent Harley Alexander v Russell Ashby Partiger [1998] 1030 FCA. In that case the Court, in delivering an ex tempore decision, dealt with an application seeking to set aside a bankruptcy notice. Although an order to set aside the bankruptcy notice was sought in that case, it was clear the validity of the notice was not in question, nor was any issue taken as to the form of the bankruptcy notice. The issue raised concerned reg.4.02A of the Regulations. In delivering a decision of the court, Lindgren J stated the following:
“The "commencement date" referred to is defined in Bankruptcy Regulation 1.03 as meaning 16 December 1996. Accordingly, reg 4.02A applied to the bankruptcy notice and required that it be served by 16 November 1997, or within any further period that the Official Receiver might allow, whether before or after 16 November 1997.
On 7 April 1998, nearly five months after 16 November 1997, the Official Receiver:
"pursuant to Bankruptcy Regulation 4.02A, extend[ed] the period for service of the Bankruptcy Notice issued against Vincent Harley Alexander, on 16 May 1997, to 16 October 1998."
The bankruptcy notice and a copy of this "Extension of Time for Service of Bankruptcy Notice" dated 7 April 1998 were received by the applicant by mail on 26 June 1998. The applicant submits that the service of the bankruptcy notice upon him was ineffective on two grounds. First, he submits that although the extension provided for in par (b) of sub-reg 4.02A(2) may be allowed by the Official Receiver at a time outside the original period of six months, it must be applied for within that period. This construction arises, according to the submission, from the "need for the Court to exercise control over the Official Receiver". It is put that it is not likely that Parliament intended a bankruptcy notice to be available indefinitely, subject only to the granting of an extension by the Official Receiver. In my view, the construction contended for by the applicant reads an unjustified qualification into par 4.02A(2)(b). The paragraph does not expressly or by implication suggest that the Official Receiver may grant an extension only if it is applied for during the original period of six months. Moreover, it does not offend common sense to think that an extension might be applied for and granted long after the expiry of the original period of six months. The terms of a bankruptcy notice (see reg 4.02 and Form 1) are able to work satisfactorily long after expiry of that period, since they require the debtor to do certain things within 21 days after "service" of the bankruptcy notice.
The policy behind reg 4.02A seems to be to save the creditor the inconvenience and expense of procuring the issue of a fresh bankruptcy notice. This view is consistent with the distinction between reg 4.02A and the former Bankruptcy Rule 9, which was as follows:
"9 (1) Service of a bankruptcy notice may be effected within a period of 6 months after the day on which it is issued or within such extended period as the Court or the Registrar allows by an order made before the expiration of that period or of any extended period previously allowed.
(2) Where a bankruptcy notice is served on a person after the expiration of 6 months after the day on which it is issued, a copy of the order, or the last order, as the case may be, extending the time for serving the notice shall be served on the person at the same time as the notice is served on the person.
(3) Service of a bankruptcy notice on a person is of no force and effect unless service is effected within the period within which service may be effected under subrule (1)." (emphasis supplied)
Under the former Bankruptcy Rule 9, the order, and, therefore the application for it, had to be made during the currency of the operative period of the bankruptcy notice. If the intention underlying the present regulation had been that the order, but not the application for it, might be made outside the six months period, the drafter would surely, against the background of the former Rule, have so provided expressly.
The construction as formulated by the applicant would, taken literally, itself produce an untoward result which the drafter should not be taken to have intended. That untoward result is that even if an extension was applied for and ordered within the six month period, an application for a further extension could not be sought outside that period, albeit during the currency of the extended period of the bankruptcy notice. This would have been possible under former Bankruptcy Rule 9. The drafter should not be taken to have intended to introduce such a new restriction. But even if the construction advanced on behalf of the applicant were reformulated to encompass applications for extension made within the original period as extended, I would reject it for the other reasons which I have given above.”
It is submitted by the debtor that that decision proceeded on the basis that if in fact the authority was not served then there may have been a different result.
In any event it is submitted that even if there is no specific regulation requiring service of the authority then it may be regarded as an administrative act carried out by the Official Receiver, who has a discretion to accede to a request made bona fide. Reference was made to a decision of Raphael FM in Wasilenia v DCT [2003] FMCA 8 and in particular the following paragraph where his Honour states:
“14.Although an extension of the time for service of a bankruptcy notice is an administrative act carried out by the Official Receiver, the regulation does not require him to grant the extension. The Official Receiver therefore has a discretion and that discretion is informed by the material before him. …”
It was submitted by the debtor that there is an administrative discretion invested in the Official Receiver incidental to his role as to the terms and conditions in which an extension of time is granted. It was argued that in this instance the extension of time authority referred to earlier in this judgment contains the express stipulation as to the notice being required to be served.
In the alternative, it was argued by the debtor that a failure to serve the authority is analogous to a failure to annex a certified copy of a judgment to a bankruptcy notice or a failure to correctly state the proper statute upon which interest is claimed. In both instances, it is argued, the debtor is capable of being misled. Reference was made to Australian Steel Co (Operations) Pty Ltd v Lewis (2001) 109 FCR 33. It is relevant to set out the following passages from that decision after the Court referred to the High Court decision in Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71):
“38 It is clear from the majority's judgment read as a whole that their Honours were not saying that capacity to mislead is the only test as to whether a defect is substantive, as distinct from formal. There is another and separate test, namely whether an essential requirement of the Act has not been met. Each is a subset of issue [ii]. On the facts of Kleinwort Benson both tests were held not to have been satisfied. Finally, the majority noted that, there being a formal defect or irregularity, s 306(1) operated automatically. There had been no evidence presented and no claim made of actual injustice. Therefore their Honours held (at 81) there was no basis upon which an opinion could be formed to deny the operation of s 306(1).
Determining whether a requirement is made essential
39 Kleinwort Benson decides that a bankruptcy notice that does not contain a requirement made essential by the Act is not a valid notice. In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391 McHugh, Gummow, Kirby and Hayne JJ, after discarding the elusive distinction between directory and mandatory requirements as a test of validity, said:
"A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the 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 purpose of the whole statute'."
In the light of this passage, it can be seen that a requirement is "made essential" within the Kleinwort Benson principle when the enquiry as to purpose discloses the intention that an act done in breach should be invalid. See also Deputy Commissioner of Taxation v Woodhams (2000) 169 ALR 503 at 512-513.
It was submitted on behalf of the substituted creditor that service of the authority is not required by the regulations and is not a requirement thereby made essential, either under the Bankruptcy Act 1966 (“the Act”) or the Regulations, and that the authority of “Australian Steel” does not apply.
In the alternative it was submitted that even if it was found that the authority was not served, then this could only be regarded as a formal defect or irregularity, which would not invalidate the Substituted Applicant's application. Reliance was placed upon s.306 of the Act and r.1.06 of the Federal Magistrates Court Rules 2001 (“the Rules”). That rule provides that the Court may dispense with compliance with the rules.
Reasoning
It should be noted at the outset that the debtor has consistently denied in affidavit material before the Court being served with a copy of the authority. He does not deny being served with the bankruptcy notice, though there is a dispute as to whether that notice was served on 8 or 28 March 2005. That dispute, along with whether or not the authority was in fact served, is a factual matter which will be determined depending on the outcome of my decision in relation to the preliminary issue of whether or not the authority has to be served.
Whilst both parties have relied upon the authorities referred to earlier in this judgment, it is my view, that in the absence of any statutory or regulatory requirement the Court is entitled to consider the notation which appears on the authority, where the Official Receiver clearly states in that notation that a copy of the authority "should also be served on the debtor".
In my view, the issue then does not relate though may be analogous to the authorities dealing with a requirement made essential by the Act or Regulations. When exercising the discretion the Official Receiver undoubtedly has in matters of this kind, a specific requirement has been added to the authority requiring it to be served on the debtor. The logic of that requirement is impeccable.
If the authority had not been required to be served upon a debtor then the mere service upon the debtor of a bankruptcy notice which in this instance was issued on 13 April 2004 and not served as required by reg.4.02A(2)(a) within six months commencing on the date of issue of the notice would result in service out of time of a bankruptcy notice. The debtor receiving a bankruptcy notice in those circumstances, without the authority, would be entitled to conclude that the bankruptcy notice is stale. It is not necessarily permanently invalid as the regulations clearly provide for the Official Receiver to authorise service of the notice for a further period, whether within or outside the period of six months.
In this case, although the debtor in an affidavit has deposed to receiving advice from a solicitor that he need not respond to the bankruptcy notice, it is not necessary for me to determine that issue specifically on the facts in this case. It is sufficient to note that where a regulation provides for service within six months of issue of a bankruptcy notice, it would be misleading for a debtor to simply receive a bankruptcy notice served outside that period without being informed that the Official Receiver had issued an authorisation pursuant to reg.4.02A(2)(b) extending the period of time for service. As a practical matter it is entirely appropriate for the Official Receiver to endorse upon the authorisation the requirement that that document be served upon the debtor.
I conclude that where an extension of time is authorised by an Official Receiver pursuant to reg.4.02A(2)(b) of the Regulations, that authority should, as indicated by the Official Receiver, be served upon the debtor as it adds to the debtor's state of knowledge concerning the bankruptcy notice and its validity. Without either advice or indeed a copy of the authority providing adequate notice to the debtor that the period of time has been extended, then the debtor is entitled to conclude that a bankruptcy notice served outside the six-month period is at that point of no effect.
Although the Act and Regulations do not specifically include a requirement for service of the authority extending time, it is clear to me that it effectively becomes a part of the bankruptcy notice process which should be properly served along with the bankruptcy notice as issued. It would be artificial and contrary to the spirit and intent of the legislation to fail to serve the authority extending the time for service of the bankruptcy notice.
In this case it would appear that the petitioning creditor sought to comply with the Official Receiver's note that a copy of the authority extending the bankruptcy notice should also be served on the debtor. It remains for the Court to consider whether in fact the authority was served. That factual dispute will be determined upon the evidence, as indicated to the parties at the resumed hearing.
Rule 1.06 of the Rules does not assist the Substituted Creditor. It cannot be used to retrospectively overrule the condition properly imposed by the Official Receiver that the authority should also be served on the debtor.
Having decided that in my view the authority should be served on the debtor, it is now necessary for the Court to consider whether in fact that notice was served and to otherwise consider the matters relevant in relation to the petition now relied upon by the Substituted Applicant.
I shall make appropriate directions for the further conduct of the hearing.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 17 February 2006
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