DL Collections v Nguyen

[2006] FMCA 427

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DL COLLECTIONS v NGUYEN [2006] FMCA 427

BANKRUPTCY – Dismissal of petition on grounds that bankruptcy notice was defective – where the notice was issued without obtaining leave to issue execution contrary to s.107(2) District Court Act (NSW) – whether notice of assignment had been received by debtor – whether failure to date and stamp the notice by Official Receiver invalidated the notice.

COSTS – Whether indemnity costs should be awarded.

Bankruptcy Act 1966, ss.40(1)(g), 41(3)(b)
District Court Act 1973 (NSW), s.107(2)

Cawood v Cawood (2000) FCA 1786
Abigroup Limited v Abignano (1992) 39 FCR 74
Reasonable Endeavours Pty Limited v Dennehy (2001) 182 ALR 195
Beson v Dean FCA unreported 1 December 1997, Branson J
Rasile v Ground & Foundation Supports Pty Limited [2003] FMCA 568
McIntosh v Shashoua (1931) 46 CLR 494
Re: O'Sullivan; Ex parte Bank of New Zealand (1991) 30 FCR 112
Prudential-Bache and Prudential-Bache Securities v Warner [1999] FCA 1143
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 77
Marshall v GeneralMotors Acceptance Corporation Australia [2003] FCAFC 45

Applicant: DL COLLECTIONS PTY LTD
(ACN 111 186 997)

Respondent: PETER NGUYEN

File Number: SYG3292 of 2005

Judgment of: Raphael FM

Hearing date: 7 March 2006

Date of Last Submission: 7 March 2006

Delivered at: Sydney

Delivered on: 7 March 2006

REPRESENTATION

Solicitors for the Applicant: Hassett Dixon

Counsel for the Respondent: Mr J K Chippindall

Solicitors for the Respondent: C K Lawyers

ORDERS

1. Creditor’s petition dismissed.

2. Applicant to pay respondent’s costs to be taxed, if not agreed, according to the Federal Court Act and Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG3292 of 2005

DL COLLECTIONS PTY LTD
(ACN 111 186 997)

Applicant

And

PETER NGUYEN

Respondent

REASONS FOR JUDGMENT

1. I have before me an application for a sequestration order against the estate of Peter Nguyen commenced by way of a creditor’s petition presented to this court on 10 November 2005.  The applicant is the assignee of a judgment debt obtained by a company known is Chilfrog Pty Limited (ACN 069 960 925) against the judgment debtor on 2 July 2003 in the sum of $561,452.16.

2. The petition cites as the act of bankruptcy the debtor's non compliance with a bankruptcy notice served on the debtor on 5 May 2005.  A copy of the bankruptcy notice is annexed to an affidavit of service of Jonathan Hassett dated 8 December 2005 and it indicates that the petitioning creditor, the assignee, was the company issuing the notice.  The bankruptcy notice also exhibits a stamp at the top of the first page with the letters NN and the numbers 153/05. But on page 6 of the bankruptcy notice in a square box marked "for official use only", neither the date of the bankruptcy notice nor the usual stamp and signature of the official receiver or delegate appears.  There is an affidavit also from Mr Hassett dated 24 February 2006 in which he deposes to the fact that the bankruptcy notice was issued on or about 30 March 2005 and a copy of a receipt from the Insolvency Trustee Service Australia is exhibited.  In a further affidavit filed on 6 March 2006 Mr Hassett exhibits a letter from ITSA dated 3 March 2006 which states:

   “Due to an administrative oversight the bankruptcy notice was not dated or stamped by the Official Receiver on page 6 of the notice.”  [An inadmissible statement]

   And then underneath that:

I apologise for any inconvenience which has been caused by this oversight.

Yours sincerely

Anita Cindric

For the Official Receiver”

1. The debtor opposes the making of a sequestration order on the grounds that the bankruptcy notice upon which the petition is based is invalid.  He makes these points in that regard:

   i)the notice is defective in form in that it does not contain the Official Receiver's stamp, nor does it contain a date;

   ii)the notice is capable of misleading a debtor by its failure to contain a stamp or date and also by the inclusion within it of a paragraph numbered 2A relating to the assignment, a copy of which was annexed to the bankruptcy notice;

   iii)the notice was issued at a time when the creditor was not entitled to issue such a notice because the judgment upon which it was based was effectively stayed. The effective stay comes about by operation of s.107(2) of the District Court Act.

   iv)no proper notice of the assignment was given to the debtor.

2. I will deal first with the objection I consider to be instantly fatal to the creditor's case and that is the issue of the bankruptcy notice at a time when the judgment was effectively stayed. Section 40(1)(g) Bankruptcy Act 1966 (the “Act”) states that an act of bankruptcy has been committed

   “if a creditor who has obtained against a debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:   

   (i)where the notice was served in Australia - within the time specified in the notice;  or

   (ii) ...

   (iii)comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set off or cross-demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained; 

3. At the time of the issue of the bankruptcy notice the District Court Act 1973 was the operable Act in relation to this judgment. Section 107(2) is in the following form:

   “The registrar shall not, without the leave of the Court granted on application made by the judgment creditor, issue a writ of execution to enforce a judgment:

   (a) ...

   (b) if since the judgment was given or entered up any change has taken place, whether by assignment, death or otherwise, in the persons entitled or liable to execution under the judgment ...”

   The relevant District Court rule at the time was in the following form:

   (1)An application for leave to issue execution under section 107(2) of the Act shall -

   (a) be made, unless the Court otherwise orders, after notice of the motion is served on any person against whom execution is sought to be issued."

4. It is common ground that no application by way of notice of motion was issued or served on the debtor. The authorities make it clear that the failure to seek leave of a Court to apply for a warrant of execution (where required) means the execution of a judgment is stayed for the purposes of ss.40(1)(g) and 41(3)(b) of the Act; Cawood v Cawood (2000) FCA 1786; Abigroup Limited v Abignano (1992) 39 FCR 74; Reasonable Endeavours Pty Limited v Dennehy (2001) 182 ALR 195; Beson v Dean FCA unreported 1 December 1997, Branson J.

5. The creditor sought to rely against this weight of authority on a decision of the former Chief Federal Magistrate in Rasile v Ground & Foundation Supports Pty Limited [2003] FMCA 568. In that case there had been an assignment of the judgment debt but before the issue of the bankruptcy notice the judgment debt had been reassigned to the original creditor. Her Honour was able to distinguish between the cases which I have cited and the one before her and held that the bankruptcy notice was valid. The case before me is so clearly within the factual context of the cases decided by the Federal Court that I am able to follow them without concern.

6. I am quite satisfied that at the time that this bankruptcy notice was issued execution of the judgment was effectively stayed by virtue of the fact that no application for leave to issue the writ of execution had been made. There is a very good reason why this requirement exists. It is because the judgment debtor may well have a set off against the assignee of the judgment debt and should be allowed to invoke that set off before execution. A reflection of this right is contained in the extract from s.40(1)(g) of the Act that I have cited entitling a debtor to set off the amount of any debt owing to him by the judgment creditor that could not have been raised in the original proceedings. A set off that a debtor might have against an assignee would be such an allowable set off.

7. I think this disposes of the proceedings.  In case I am wrong I would say in relation to Mr Chippindall's other points that I am satisfied that notice of the assignment was given.  In the affidavit of the debtor he annexes a letter dated 29 March 2005 which states:

   Accordingly, we note that the judgment debt as originally owed to Chilfrog Pty Limited has now been assigned to DL Collections Pty Limited.

   And there is annexed to that letter a copy of the deed of assignment which is dated and signed.  But even if the notice of assignment was somehow bad, it is clear from the decision of the High Court in McIntosh v Shashoua (1931) 46 CLR 494 that the owner of an equitable assignment of a debt is capable of petitioning for the sequestration of the debtor.

8. In regard to the point made about the signature and stamping of the bankruptcy notice I am somewhat less sanguine.  There are two competing decisions of the Federal Court; Re: O'Sullivan; Ex parte Bank of New Zealand (1991) 30 FCR 112, and Prudential-Bache and Prudential-Bache Securities v Warner [1999] FCA 1143. In the first case Foster J held that a failure to stamp and sign the bankruptcy notice was a fatal flaw which could not be saved by section 306(1). That decision was made in the knowledge of the authority of Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 77. In Prudential-Bache the factual circumstances were somewhat different.  A properly "issued" bankruptcy notice did exist which had been stamped and signed, but it was inaccurate.  The solicitors for the creditor sent the notice back amended and requested the Official Receiver to re-issue this new notice.  That was done but due to an oversight the date was omitted as was the stamp and signature.  His Honour dealt in some detail with the meaning of the word "issue" and came to the conclusion that a bankruptcy notice under the number the amended document held had been issued by the Official Receiver.  He therefore found that the failure on the part of the Official Receiver to add the date and stamp on this amended document was no more than a formal defect.

9. His Honour did have before him a considerable body of evidence on affidavit from the Official Receiver as to its practice in relation to the issue of bankruptcy notices.  I have no such evidence.  I only have the letter which I have quoted.  Given the views of the Full Bench expressed in Kleinwort Benson (supra) and later affirmed in Marshall v GeneralMotors Acceptance Corporation Australia [2003] FCAFC 45 I would tend to the view expressed by his Honour Foster J. In the circumstances I am satisfied that the bankruptcy notice upon which the petition is based is invalid and I must therefore dismiss the petition and order the applicant DL Collections Pty Limited to pay the respondent debtor's costs.

10. Mr Chippindall has asked that I make an order that costs be paid on an indemnity basis.  The basis upon which Mr Chippindall makes this argument is that in his usual thorough manner he had prepared and provided the creditor with a detailed set of submissions which included the point made about the failure to obtain leave to issue a warrant of execution.  He argues to that extent these proceedings were otiose because the creditor should have withdrawn.  Whilst I think there is some strength to that argument the creditor was entitled to test the matter in Court.  She did have the former Chief Federal Magistrate's decision in Rasile in her favour and she most certainly had what I considered to be good arguments in relation to some of the points raised by Mr Chippindall particularly that in regard to the notice of assignment.   I think that the better order is that costs be paid on a party-party basis, to be taxed, if not agreed, in accordance with the Federal Court Act and Rules and to include any reserved costs.

I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: