Daly v Watson

[1994] FCA 361

PATRICK MICHAEL DALY v. DANIEL WATSON AND JOAN WATSON
No.G226 of 1994
FED No. 361/94
Number of pages - 11
Bankruptcy
(1994) 128 ALR 309

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
DAVIES(1), BEAUMONT(2) AND GUMMOW(2) JJ

CATCHWORDS

Bankruptcy - creditor's petition - whether affidavit verifying creditor's petition complies with s.47(1)(b) - matters not within own knowledge - source of information and belief not given - other evidence available as proof of petition.

Bankruptcy Act 1966, s.43, s.47(1)(b), s.52(1) and (2), s.306(1)
Bankruptcy Rules, r.12, 132(1)(c)

Re Williams (1968) 13 FLR 10.

HEARING

SYDNEY, 23 May 1994
#DATE 7:6:1994

Counsel and Solicitors Mr. P.R. Clay instructed by
for Appellant: Messrs Dennis Cooney

Counsel and Solicitors Mr. M.R. Aldridge instructed by
for Respondents: Messrs Marshall Marks Kennedy

ORDER

THE COURT ORDERS:
Appeal dismissed, with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DAVIES J I have had an opportunity to read the reasons for judgment prepared by Beaumont and Gummow JJ. I agree with the orders which their Honours propose and, in general, with their reasons for judgment.

1. Section 47(1) of the Bankruptcy Act 1966 (Cth) provides:-
   

"A creditor's petition:

(a) shall be in accordance with the prescribed form;

(b) shall be verified by the affidavit of a person who has knowledge of the facts; and

(c) shall be served as prescribed."

In my opinion, a petition which is not verified as required by s.47(1) is liable to be struck out. The section states the requirements for the commencement of proceedings in bankruptcy and should be complied with, as a matter of substance, absent good reason to the contrary.

1. However, a solicitor may have sufficient knowledge to verify a petition. The term "knowledge" is to be read in the light of well understood practice. It does not denote direct personal knowledge of every issue of fact but rather knowledge of the type which in the past has been thought sufficient to justify a deponent to swear to the truth of the statements in the petition. In my view, it would encompass the knowledge of a solicitor who had been concerned in the matters leading up to the creation of the debt or in the collection of the debt or in legal proceedings to obtain judgment and who was aware of the debtor's residential address and of the fact of non-payment. Knowledge of this type is sufficient knowledge for affidavits verifying petitions and is different from the strict proof which may be required on the hearing of a contested petition.

2. Thus, in In re Carrara Marble Co (1896) WN 87, which concerned the analogous procedure of a petition for the winding-up of an insolvent company at a time when the rules specified that the verifying affidavits be that of the petitioner, Vaughan Williams J allowed the statutory affidavit to be made by a clerk to the solicitors acting for overseas petitioners. It appeared that the clerk had full knowledge of the proceedings to obtain judgment for the debt on which the petition was founded. In In Re The Brandy Distrillers Co (1901) WN 37, in which the Attorney-General wished to petition in respect of a revenue debt, Rigby, Vaughan Williams and Stirling LJJ held that the affidavit of the solicitor to the Inland Revenue should be accepted.

3. In In re African Farms Ltd (1906) 1 Ch 640, Warrington J held that an affidavit by an attorney and agent of the petitioner should be accepted, the petitioner being overseas. His Lordship observed at 641- 2:-
   

"It is plain here that the attorney knows the material facts ..."

In the same vein, the Companies (Winding-up) Rules 1949 (UK) were amended in 1979 to provide specifically:-

"30 (2) The affidavit shall be made by the petitioner, or by one of the petitioners, if more than one, or by some person, such as a director, company secretary or similar officer, or a solicitor, who has been concerned in the matter on behalf of the petitioner."

It is instructive to note the words "who has been concerned in the matter".

1. Knowledge is different from mere instructions. A solicitor who has been concerned in legal proceedings and other steps to recover a debt may well have sufficient knowledge. But if he knows no more about the facts of the matter than the instructions he has received from his client as to the debtor's residence, as to the incurring of the debt, and of the fact that the debt is unpaid, he would not, in my opinion, have sufficient knowledge to swear the affidavit.

2. In the present case, the solicitor made an affidavit in the usual form. The solicitor's affidavit was admitted without objection. It was prima facie evidence of what it stated. It verified that the solicitor made the affidavit from his own knowledge. There was no evidence to the contrary. It was conceded that the solicitor made the affidavit on information and belief. But that did not amount to a concession that the solicitor did not have knowledge in the sense that I have outlined. Accordingly, the debtor did establish that there was a failure to comply with the requirements of s.47(1).

3. The debtor gave notice that he intended to rely upon the point that the solicitor did not have personal knowledge of the facts stated in the petition. But, as is usual in a contested petition, when matters in dispute should be strictly proved, other evidence was adduced before the trial judge which established the petitioner's case.

4. Accordingly, the trial Judge was correct in ordering that the debtor's estate be sequestrated. I agree with the orders proposed.

JUDGE2

INTRODUCTION
BEAUMONT AMD GUMMOW JJ This appeal raises questions as to the requirements of the bankruptcy laws with respect to the method of proof of the matters stated in a creditor's petition, and, in particular, the scope and function of the affidavit verifying the petition in this connection. The background to the appeal is as follows.

1. By their petition presented on 8 October 1993, the respondents petitioned the Court for a sequestration order against the estate of the appellant. The following statements were made in paras. 1, 2 and 3 of the petition:
   

"1. The debtor was at the date of the commission of the act of bankruptcy specified in paragraph 4 ordinarily resident in Australia.

2. The debtor is justly and truly indebted to us in the balance of $87,490.10 being the amount due under the final judgment recovered in the District Court of New South Wales at Sydney on the 29th day of April 1992 together with interest at the following rates on the following amounts:-

...

3. We do not, nor does any person on our behalf, hold any security over the property of the debtor or any part of it for the payment of the amount specified in paragraph 2."

1. In para.4 of the petition, an act of bankruptcy by failure to comply with the requirements of a bankruptcy notice was alleged.

2. By an affidavit sworn on 7 October 1993, which is important for our purposes, and which purported to verify the petition, Phillip James Brand, solicitor, said:
   

"1. I am the person authorised by the petitioning creditor in the petition hereunto annexed and marked "A" to make this affidavit. Annexed hereto and marked with the letter "B" is a copy of the Authority dated 14 February 1992 ('the Authority').

II. The statements contained in paragraphs 1, 2 and 3 of the petition are within my own knowledge true." (Emphasis added)

1. (By the annexed authority, the respondents authorised Mr. Brand to act on their behalf in, amongst other things, presenting a bankruptcy petition against the appellant. Nothing turns on this for present purposes.)

2. By grounds of opposition filed on behalf of the appellant, the solicitor for the appellant relied on the following, amongst other, grounds:
   

"1. The agent of the Petitioning Creditors is not duly authorised to seek a sequestration order against the Debtor.

2. The agent of the Petitioning Creditors is not duly authorised to swear the Affidavit required by Rule 21(b).

...

4. A sequestration order ought not be made."

1. After a contested hearing on the petition, Hill J made a sequestration order. This is an appeal from that order.

2. The grounds of appeal, as stated in the notice of appeal, are as follows:
   

"1. His Honour erred in finding that the affidavit verifying the creditors petition complies with Section 47(1)(b) of the Bankruptcy Act ("The Act") if it is sworn on information and belief.

2. His Honour erred in finding that the Affidavit of Philip James Brand sworn on 7 October 1993 complied with Section 47(1)(b) of the Act.

3. His Honour erred in finding that the failure of Philip James Brand to depose as to the source of the information of any facts or circumstances set out in his Affidavit of 7 October 1993 which were not within his personal knowledge was a formal defect or irregularity.

4. His Honour erred in making the sequestration order."

THE LEGISLATIVE PROVISIONS
9. By s.43(1) of the Bankruptcy Act 1966 ("the Act") it is provided as follows:

"43(1) Subject to this Act, where:

(a) a debtor has committed an act of bankruptcy; and

(b) at the time when the act of bankruptcy was committed, the debtor:

(i) was personally present or ordinarily resident in Australia;

...

the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.

1. Section 44 of the Act prescribes conditions on which a creditor may petition, none of which is material for our purposes.

2. Section 47(1) of the Act prescribes requirements as to a creditor's petition as follows:
   

"47(1) A creditor's petition:

(a) shall be in accordance with the prescribed form;

(b) shall be verified by the affidavit of a person who has knowledge of the facts; and

(c) shall be served as prescribed."

(Emphasis added)

1. Section 52(1) and (2) makes provision with respect to proceedings and orders on a creditor's petition as follows:
   

"52(1) At the hearing of a creditor's petition, the Court shall require proof of:

(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(Emphasis added)

(b) service of the petition; and

(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:

(a) that he is able to pay his debts; or

(b) that for other sufficient cause a sequestration order ought not to be made;

it may dismiss the petition."

1. Rule 12 of the Bankruptcy Rules deals, relevantly, with the procedure for the presentation of a creditor's petition as follows:
   

"12(1) A creditor may present a petition seeking the making of a sequestration order against the estate of a debtor by filing the petition with a Registrar in Bankruptcy.

(2) A petition shall be in accordance with Form 5 and shall have attached to it, or written on it, a note, for signature and stamping by the Registrar, in accordance with Form 6.

(3) At the time when a petition is filed, the petitioning creditor shall:

(a) furnish to the Registrar so many copies of the petition as are required for service and for annexure to any affidavits of service;

(b) file the affidavit verifying the petition required by paragraph 47(1)(b) of the Act;"

(Emphasis added)

1. It is not disputed that the present petition is in accordance with Form 5 in Schedule 1 of the Bankruptcy Rules. The rules do not prescribe any form of affidavit verifying a creditor's petition. However, provision is made by r.132 with respect to the form of affidavits generally. By r.132(1)(c), it is provided:-
   

"132(1) An affidavit shall:

...

(c) state the source of the information of any facts or circumstances set out in the affidavit that are not within the deponent's own knowledge;"

THE PROCEEDINGS AT FIRST INSTANCE
15. At the commencement of the hearing of the petition, Mr. Clay, appearing for the appellant, applied for an adjournment on the basis that the appellant wished to proceed under Part X of the Act. The adjournment application was refused by his Honour. Mr. Clay then informed the primary Judge that since the appellant had signed an authority under Part X, insolvency would not be put in issue. However, the petition was "...opposed on certain technical bases".

1. Mr. Andrews, appearing for the respondents, first read, without objection, an affidavit of service of the bankruptcy notice sworn by Colin Girdler on 10 September 1993. The hearing then proceeded as follows:
   

"MR ANDREWS: As a consequence the act of bankruptcy occurred on 6 September. I take your Honour now to the creditor's petition, dated 7 October 1993. It was executed under a general authority, dated 14 February 1992. HIS HONOUR: There will be an affidavit verifying I presume?

MR ANDREWS: Yes, your Honour. I take your Honour to the affidavit verifying paragraphs 1, 2 and 3 of the petition of Phillip James Brand.

HIS HONOUR: So is there any objection to that affidavit? MR CLAY: Yes, your Honour, because I do require Mr Brand to be cross-examined but I understand the concession will be made for the purpose of these proceedings. Mr Brand swore the affidavit on information and belief; not on his direct knowledge.

HIS HONOUR: Well, you are not able to read it unless you set out the sources of the information, if it is not on direct information.

MR CLAY: One of my grounds is that the petition is bad because it is not supported by an affidavit of a person to person knowledge and there is one authority in relation to that. There is an authority against that. HIS HONOUR: Yes. However, the other problem might be that the rules provide you can have evidence on affidavit and belief if you set out the sources of the belief. MR CLAY: Yes, that is a general ruling in relation to affidavits, yes.

HIS HONOUR: Yes, in relation to bankruptcy, yes. Anyhow, are you objecting to the affidavit or just taking the point that the affidavit does not fulfil the rule? MR CLAY: I do not object to the affidavit, your Honour. MR ANDREWS: Your Honour, this is a formal affidavit, in fact, of the three paragraphs which Mr Brand has - - - HIS HONOUR: Well, so far the document says that the statements are not true, with his own knowledge. Now, the difficulty about it is, well how do I read it now if you tell me that is not true?

MR ANDREWS: Your Honour, as far as paragraph 3 is concerned, which was paragraph 3 of the petition which states that no security was held, that is in fact the only statement which could be said to be sworn on information and belief. The first two statements are - - - HIS HONOUR: The difficulty I have, though, is you have an affidavit that says the statements are true in paragraphs 1, 2 and 3. Now you come along and say, you concede that he does not know that of his own knowledge. How do I treat the affidavit?

MR ANDREWS: Your Honour, I deal with it this way by referring your Honour to the case of Re Cirillo where an almost identical circumstance arose."

1. (His Honour was then referred to the reasoning in Re Cirillo (1992) 36 FCR 279, at 285, where von Doussa J said:
   

"The requirements as to a creditor's petition are set out in s.47 of the Act. Paragraph 47(1)(b) requires that a creditor's petition shall be verified by the affidavit of a person who has 'knowledge of the facts'. In ordinary language, a person may have knowledge of facts even if that knowledge has been gained on information which is believed to be true, supplied by others and not by direct experience. In many instances it is probable that a petitioning creditor would not of his own knowledge know directly whether a debtor was within Australia, or even ordinarily resident in Australia at the date of the act of bankruptcy alleged. Enquiry by or on behalf of the petitioning creditor may give rise to a state of knowledge on the part of the petitioning creditor but such knowledge would be based on information and belief. In my opinion para.47(1)(b) should be construed so as to permit an affidavit by a person who has knowledge based on information and belief. The affidavit would then follow the form prescribed by r.132 of the Bankruptcy Rules, and in particular 'shall ... state the source of the information of any facts or circumstances set out in the affidavit that are not within the deponent's own knowledge'.

In my opinion the requirements of the Act and Rules would have been sufficiently fulfilled had Mr. Petroff sworn an affidavit verifying the truth of para.1 of the petition based on knowledge gained from information and belief. However he deposed that the statement contained in para.1 of the petition was within his 'own knowledge'. Strictly speaking, this was not so. However, the defect arising in the petition in consequence of this misstatement is, in my opinion, a formal defect or an irregularity validated by s.306(1) of the Act. The defect, such as it was, could not possibly have misled the debtor as the fact sworn to was in reality true and correct to the knowledge of the debtor. The fifth ground of opposition therefore fails.")

1. Discussion then ensued before Hill J as to whether there existed other evidence that, as stated in para.1 of the petition the appellant was, at the relevant time, ordinarily resident in Australia. Mr. Andrews tendered evidence to this effect, principally in documentary form. That evidence was not then, or now, the subject of any challenge.

THE REASONING AT FIRST INSTANCE
19. The primary Judge, in addressing the question whether the respondents had proved the matters stated in para.1 of the petition, said:

"In the present case, additional evidence has been adduced. That evidence comprised evidence of service or attempts of service which made it clear that, at the relevant times, the debtor resided at 86 Gooraway Drive, Castle Hill. That evidence was supplemented additionally by evidence of an application for finance in which the debtor had himself admitted that he lived at that address and had done so for two years previously.

There is also evidence on affidavit and belief, setting out the source of that belief from Mr Andrews, the solicitors for the petitioning creditors, which, while not directly verifying the provisions of paras. 1, 2 and 3 of the petition, verifies the facts contained in those paragraphs. Despite this evidence, counsel for the debtor submits that the petition must fail, having regard to the fact that the actual affidavit verifying the petition does not set out the sources of information and belief and the person swearing the affidavit did not go into the witness box and set them out.

This, it is submitted, is what is required, having regard to the decision of von Doussa J in Re Cirillo... In my view, that is not what von Doussa J decided. What his Honour decided was that, in the facts of that case where an affidavit verifying the petition was said to have been made on the deponent's own knowledge, but was in fact made on information and belief, there was a formal defect or irregularity which could be validated by s.306(1) of the Act.

As his Honour said (at 711):

'The defect, such as it was, could not possibly have misled the debtor as the fact sworn to was in reality true and correct to the knowledge of the debtor.' On the facts of that case the deponent of the affidavit had gone into the witness box and given the source of his belief, namely income tax returns, which established the residence of the debtor. In the present case, while that has not happened, there is evidence before the Court which makes it clear that the debtor could not possibly have been misled and that the facts sworn to are, in reality, true and correct. The debtor has not, of course, sought to go into evidence to contradict the facts in any way. In so saying, I do not suggest that there is any obligation on the part of the debtor so deferred."

THE CONTENTIONS FOR THE APPELLANT
20. On behalf of the appellant, the grounds of appeal were developed before us in two ways. One emphasised the need to comply with the formal statutory requirements; the other called in aid the Court's discretion to refuse to make a sequestration order in appropriate circumstances. On the formal branch of the argument, it was said that Mr. Brand's affidavit did not, and could not, comply with the requirements of s.47(1)(b). Specifically, it was submitted that Mr. Brand did not have, and could not have, direct or actual knowledge of the facts which were required to be verified. If, the argument ran, it were permissible for the deponent to rely upon matters not within his knowledge, then the requirements of r.132(1)(c) had to be complied with, that is, the respondent had to state the source of his information and this was not done. It was then said that the respondents' failure to comply with the requirements of the Act and Rules in the above respects was a serious matter and not a "formal" defect which might have been cured by the operation of s.306(1). In the second place, it was submitted that the Court should demonstrate its disapproval of the respondent's conduct in failing to comply with a requirement as important as s.47(1)(b) of the Act by declining to make a sequestration order.

CONCLUSIONS ON THE APPEAL
21. In our opinion, there is no substance in the appellant's submissions.

1. It is beyond argument that the primary Judge had jurisdiction under s.43 of the Act to entertain the application for a sequestration order. In exercising that jurisdiction, his Honour was bound by the provisions of s.52(1) of the Act to require proof of the matters there specified. Although s.52(1)(a) contemplates the possibility that the Court may accept the affidavit verifying the petition as sufficient proof of the matters stated in the petition, this is not to say that this evidence cannot be supplemented for the purposes of the final hearing. Indeed, it is well settled that, at the hearing, a petitioning creditor may supplement the formal affidavit material (see Parsons v Bunge (1941) 64 CLR 421; Re Chu; Ex parte R.S.L. Permanent Building Society Ltd. (1976) 15 ALR 173 per Riley J at 176-7).

2. It is true that at a final hearing, a different question could arise as to the admissibility of any of this material, whether original or supplementary. It is clear that, in this connection, the usual rules of evidence apply, as Gibbs J pointed out in Re Williams (1968) 13 FLR 10 (at 22-3) as follows:
   

"...although the evidence in support of a sequestration order may be given by affidavit, that does not mean that the ordinary rules of admissibility are relaxed or that affidavits containing hearsay statements may be used. The petition must be strictly proved, by admissible evidence, and the affidavits in support of the petition must be the affidavits of persons who can swear to the statements contained therein of their own knowledge ... except that where there is a large business or company proof of non- payment of the debt may be given inferentially as the result of the general evidence of a person who has inquired and bases his negative evidence on the regular course of recording payments and whatever other routine information is relevant ... In the present case the affidavits were founded on hearsay, although some of them were expressed in a form that did not reveal this fact. The evidence on which the sequestration order was founded was inadmissible."

1. It is hardly necessary to add that, even if some evidence is technically inadmissible, it does not follow that a sequestration order ought not to be made upon other evidence. In Williams, Gibbs J went on to say (at 25):
   

"While I agree that it is right for this Court to insist upon a strict adherence to the rules of evidence in the conduct of bankruptcy proceedings, it does not follow that because hearsay evidence has been received it can necessarily be said that there has been a miscarriage of justice, and if the direct evidence that has been given in relation to the issues shows that what was stated on hearsay was true, justice has not miscarried. In the present case Williams has had an opportunity to present all the evidence that he wished to present on the issues whether the debt was owed and the act of bankruptcy committed. On the evidence which he has seen fit to put before me, I have, as I have said, found that the findings made by Clyne J were correct."

1. In the present case, the affidavit verifying was expressed in a form that did not reveal that it was founded on hearsay. The deponent was not called to give oral evidence in chief, or cross- examined. Although the respondents conceded that, if called, the deponent would have acknowledged that the source of his knowledge was hearsay, they were able to rely on other evidence, which was accepted by his Honour, to prove the matters which s.52 required to be established. It is now acknowledged by the appellant that the primary Judge's findings on the supplementary evidence is not challenged. It must follow, in my opinion, that the question whether the evidence in the affidavit verifying the petition was, in truth, in admissible form, is in the present circumstances, immaterial: It is clear that there was other evidence on the point and that this evidence, which was not seriously disputed, established the requisite facts.

2. Moreover, in our view, Hill J was correct in holding that, if there was a defect in the affidavit verifying the petition, it was a formal deficiency only, in the sense that, as a matter of substance, there was other evidence to establish the matters which were not in dispute. In its essence, the argument for the appellant was that, if the affidavit verifying the petition was not, in truth, in admissible form, this was a fatal, self-executing defect, such that the petition ought to be dismissed, either as a matter of right or in the exercise of the discretion given by s.52 to make, or to refuse to make, a sequestration order. We cannot accept that the proper function of the Court on the hearing of a petition should be restricted in this way. It is one thing to insist upon the proper application of the rules of evidence where there is no other evidence to prove the matters stated in the petition. It is another to claim, as here, that, if an objection is taken that evidence in the affidavit verifying the petition is bad in form, it follows that the deficiency cannot be remedied by other material which is in admissible form and which, as here, is, as a matter of substance, not contentious.

3. Put differently, the appellant's argument ignores the possibility that supplementary evidence can, where appropriate, be adduced. In the present case, such evidence was tendered and accepted by his Honour. It was not seriously disputed. It followed that any defect asserted by the appellant was, in truth, formal. No serious suggestion of a substantial injustice as a consequence of any such deficiency could be made. It must follow that, if necessary, the provisions of s.306(1) of the Act applied (see Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 81).

4. This appeal is entirely without merit and should be dismissed, with costs.