Donnelly v Edelsten

[1992] FCA 135

Re: MAX CHRISTOPHER DONNELLY
And: GEOFFREY WALTER EDELSTEN
No. W 497 of 1988
FED No. 135
Bankruptcy
(1992) 34 FCR 556

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
IN THE BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Ryan J.(1)

CATCHWORDS

Bankruptcy - Discharge by effluxion of time - notice of objection to discharge - notice allegedly lodged at Australian Document Exchange, not noted on Court file - onus of proving time and fact of filing - effect of failure to file notice - meaning of s.152 Bankruptcy Act, r.195 Bankruptcy Rules, "formal defect or irregularity" - application for extension of time to file notice of objection - scope of Court's discretion - s.33 Bankruptcy Act, "expressly provided to the contrary" - effect of discharge by effluxion of time - whether Court can retrospectively nullify discharge effected by operation of s.149(2)(b).

Bankruptcy Act: s.33; s.149; s.152; s.306.

Bankruptcy Rules: r.49; r.195.

Federal Court Rules: O.1 r.5A; O.1 r.11.

Van Reesema v Official Trustee (1983) 69 FLR 424.

Chorlton v Lings (1868) LR 4 CP 374.

Re Karounos; Ex Parte Official Trustee (1989) 25 FCR 177.

Powell v Official Trustee (1990) 26 FCR 444.

Bater v Bater (1906) p 209.

HEARING

MELBOURNE

#DATE: 20:3:1992

Counsel for the Applicant: Mr W. Caldwell QC and Mr R. Harper

Solicitor for the Applicant: Isenberg Spedding and Player

Counsel for the Bankrupt/
Respondent: Mr N.H.M. Forsyth QC and Mr H.A. Aizen

Solicitor for the Bankrupt/
Respondent: Mowbray Erdynast

ORDER

1. That the application be dismissed.

2. That the applicant pay the respondent's taxed costs of the application.
   NOTE: Settlement and entry of orders with in O.124 of the Bankruptcy Rules.

JUDGE1

By an application dated 18 September 1991, the applicant who, on 11 March 1988 was appointed trustee of the bankrupt estate of the respondent Geoffrey Walter Edelsten ("Dr Edelsten") seeks a declaration that the applicant on or about 6 March 1991 filed a valid notice of objection to Dr Edelsten's discharge from bankruptcy and a declaration that Dr Edelsten remains an undischarged bankrupt. In the alternative, the applicant seeks, pursuant to s.33 of the Bankruptcy Act 1966, an extension of time for the filing of a notice of objection to Dr Edelsten's discharge from bankruptcy.

1. The evidence discloses that on or about 6 March 1991 there was prepared in the office of the applicant trustee a notice of objection to Dr Edelsten's discharge from bankruptcy invoking the following grounds:
   

"(a) That the bankrupt is able, or is likely within 5 years from the date of the bankruptcy to be able, to make a significant contribution to his estate.

(b) That the discharge of the bankrupt by force of this section would prejudice the administration of his estate.

(c) That the bankrupt has failed to co-operate in the administration of his estate.

(d) That the conduct of the bankrupt, either in respect of the period before or the period after the date of the bankruptcy, has been unsatisfactory."

1. The notice of objection was prepared in the form of an original and three copies. One copy was posted to Dr Edelsten who was then an inmate of Her Majesty's Prison, Goulburn, and was received by him. Another copy was prepared for sending under cover of a letter dated 6 March 1991 addressed to "The Official Receiver, Attorney General's Department DX 746, Sydney." and was apparently received on behalf of the Official Receiver. The third copy, as it was intended to do found its way onto the trustee's file.

2. The original notice of objection cannot be found on the relevant file kept by the Registrar in Bankruptcy for the Bankruptcy District of New South Wales or elsewhere in the office of that Registrar.

3. Section 149 of the Bankruptcy Act, so far as is relevant, provides:
   

"(1) Subject to this section, a person who becomes a bankrupt after the commencement of this section is, by force of this section, unless sooner discharged in accordance with section 150, discharged from bankruptcy upon the expiration of 3 years from the date of the bankruptcy.

(2) Subject to this section, a person who was an undischarged bankrupt immediately before the commencement of this section is, by force of this section, discharged from bankruptcy -

(a) in a case where the bankrupt became a bankrupt more than 3 years before the commencement of this section - upon the commencement of this section; or

(b) in any other case, unless sooner discharged in accordance with section 150 - upon the expiration of 3 years from the date of the bankruptcy.

(3) A bankrupt is not discharged from bankruptcy by virtue of this section if -

(c) the Registrar, the Inspector-General or the trustee has entered, or a creditor has, with the leave of the Court, entered, an objection, in accordance with the prescribed form and in the prescribed manner, to the discharge of the bankrupt by force of this section and the objection has not been withdrawn or lapsed before the time when the bankrupt would have been so discharged but for this sub-section; or

(d) an order of the Court under sub-section (12) is in force in relation to the bankrupt."

1. By r. 49(1) and (2) of the Bankruptcy Rules it is provided:
   

"(1) For the purposes of paragraph 149(3)(c) of the Act, a person may enter an objection to the discharge of a bankrupt by filing a notice of the objection, in accordance with Form 23, at any time before the bankrupt would have been discharged but for sub-section 149(3) of the Act.

(2) A person who enters an objection to the discharge of a bankrupt shall cause a copy of the notice and, where the objection is entered by leave of the Court, a copy of the order granting leave, to be served on:

(a) where the trustee is a registered trustee - the Official Receiver;

(b) the trustee; and

(c) the bankrupt."

1. The following relevant definition occurs in r.4(1) of the Bankruptcy rules:
   

""filed", in relation to a document, means filed with the Registrar in Bankruptcy for the appropriate District and "file" and "filing" have corresponding meanings;"

1. I have also been referred by Counsel for the trustee to O.1 r.5A of the Rules of this Court which provides:
   

"(1) This rule applies to any document, other than an originating process, which is required or permitted by the Rules to be filed.

(2) A document to which this rule refers may be filed at any Registry.

(3) (a) A document to which this rule refers may be -

(i) posted to a Registry; or

(ii) left, addressed to the Federal Court of Australia, at its box at the Australian Document exchange,

with a written request that the document be filed.

(4) A document is filed under this rule when it is accepted in the Registry to which it is sent.

(5) An officer of the Court shall mark on the document the date of its acceptance.

(6) Whenever copies of a filed document are required by the Rules to be returned to the filing party, such copies are to be made available for collection but need not be posted to that party."

1. I am not persuaded that O.1 r.5A of the Federal Court Rules applies to the filing of documents under the Bankruptcy Act. The power to make rules prescribing the practice and procedure of courts having jurisdiction under that Act is exclusively conferred by s.315(1) on the Governor-General. Neither the Act nor the Bankruptcy Rules made pursuant to that power incorporate by reference O.1 r.5A of the Federal Court Rules. Moreover, it is expressly provided by O.1 r.11 of the Federal Court Rules that:
   

"(1) Except as to Order 41 (which relates to form of documents), these Rules do not apply to proceedings under the Bankruptcy Act 1966.

(2) Subject to Order 41, the practice and procedure of the Court in relation to proceedings under the Bankruptcy Act 1966 shall be in accordance with the Bankruptcy Rules and the Bankruptcy (Offences) Rules as in force for the time being."

9A. In any event, the reference in O.1 r.5A (3)(ii) to the Australian Document Exchange is, in my view, merely facultative and does not obviate the need for acceptance of the document in the Registry as contemplated by O.1 r.5A(4).

1. The evidence leaves open three reasonable hypotheses to explain the absence of any indication of the filing of the notice of objection in this case. The first is that the document went astray in Mr Donnelly's office before transmission to the Document Exchange. Some support for that hypothesis is provided by the absence of any evidence of a written request or instruction that the original notice be delivered to the Document Exchange or otherwise filed with the Registry. Nor is there evidence of any note that either of those steps was in fact taken, or of a covering letter like that sent with the copy to the Official Receiver which was also forwarded through the Document Exchange.

2. The second hypothesis is that the document was lodged at the Document Exchange but was mistakenly or wrongly intercepted or otherwise was lost or mislaid there. The third hypothesis is that the notice was in fact received by the Registrar in Bankruptcy but was subsequently lost in his office or wrongfully abstracted from it.

3. Putting the case as its most favourable for the trustee, the third hypothesis is not inherently more probable than the other two. Accordingly, the trustee has not discharged the onus, which I consider he bears, of proving that before the time when Dr Edelsten would have been discharged from bankruptcy he had entered an objection in accordance with the prescribed form and in the prescribed manner.

4. It thus becomes necessary to consider the trustee's alternative application for an extension of time within which to file the notice of objection. That application is made under paragraph (c) of s.33(1) of the Bankruptcy Act which provides:
   

"(1) The Court may -

(a) upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally;

(b) at any time allow the amendment of any written process, proceeding or notice under this Act; or

(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act, or any time fixed by the Court or the Registrar under this Act (other than the time fixed for compliance with the requirements of a bankruptcy notice), for doing an act or thing or abridge any such time."

It has been submitted on behalf of the trustee that recourse to that paragraph is available because s.149 does not "expressly provide to the contrary". In support of a narrow interpretation of that expression in s.33(1)(c) it is pointed out that the paragraph confers on the Court a wide discretion to grant or refuse an extension of time as the circumstances of each case require. Accordingly, so it is argued, the scope for the exercise of that discretion should not be narrowed unnecessarily by the Court's being overly astute to find an express provision to the contrary in some other section like s.149.

1. However, in Van Reesema v Official Trustee (1983) 69 FLR 424 Sweeney J., as a member of a Full Court of this Court, held, at 432, that s.33(1)(b) which confers a similarly wide discretion not in terms displaced by any express provision to the contrary, "should not be used to produce the effect that a bankrupt who has been discharged by operation of s.149(2)(b) should revert to the status of being undischarged". Moreover, in the immediately preceding paragraphs, also at 432, his Honour observed:
   

"What the official receiver needed was an order, pursuant to s.33(1)(c), under which the court may extend before its expiration, or if the Act does not expressly provide to the contrary, after its expiration, any time limited by the Act for doing an act or thing. Had such an application been made, it should, in my opinion, have been refused.

Section 149 expressly provides to the contrary, within the meaning of s.33(1)(c), in that it provides that if the three years have passed, without the entry of an objection which satisfies the requirements of subs. (4), a bankrupt is discharged. It does not contemplate that a bankrupt so discharged may revert to the status of being undischarged by some later order. If there were a power to extend the time for entry of an objection to discharge, it would have to be wide enough to cover a case where no objection of any kind had been entered. The fact that certain conduct which is lawful for a discharged bankrupt is unlawful for one who is undischarged, tells against the existence of any such power."

See also per Sheppard J. at 439.

1. The phrase "expressly provided to the contrary" in s.33(1)(c) does not require that some other section must, in terms, state that the Court cannot extend time for doing a particular act. It is sufficient if a limitation of that kind on the power of the Court is plainly, clearly or explicitly indicated by the other section. See the definition of "expressly" supplied by the Oxford English Dictionary and cp. Chorlton v Lings (1868) LR 4 CP 374 per Byles J at 393-394.

2. In my view, s.149(1), by stipulating, subject only to the exceptions contained in the section itself, that a bankrupt is discharged from bankruptcy upon the expiration of three years from the date of the bankruptcy, does expressly contradict the existence of a power in the Court, derived from elsewhere in the Act, to extend time retrospectively so as to nullify the automatic discharge.

3. I am reinforced in this conclusion by bearing in mind, as did Sheppard J in Re Karounos; Ex Parte Official Trustee (1989) 25 FCR 177 at 183 "the nature of what is involved (in s.149), namely, the status of persons who are made bankrupt". See also Powell v Official Trustee (1990) 26 FCR 444 per Jenkinson J at 446. A similar suggestion that there is something like a presumption that a change of status, regular on its face, is irreversible was made in a different context by the Court of Appeal in Bater v Bater (1906) p 209 per Romer L.J. at 237 and per Cozens-Hardy L.J. at 239.

4. Mr Caldwell QC who appeared with Mr Harper for the trustee referred to s.152 of the Bankruptcy Act as negating the notion that a discharge from bankruptcy once effected is irreversible. That section provides:
   

"(1) A discharged bankrupt shall, notwithstanding his discharge, give such assistance as the trustee reasonably requires in the realization and distribution of such of his property as is vested in the trustee.

(2) A discharged bankrupt who fails to comply with sub-section

(1) is guilty of contempt of court.

(3) Where a discharged bankrupt fails to comply with sub-section

(1), the Court may, if it thinks fit, on the application of the Registrar or the trustee in the bankruptcy -

(a) where the bankrupt was discharged by an order of a court - rescind the order; or

(b) where the bankrupt was discharged by force of section 149 of this Act - set aside the discharge.

(4) The rescission of an order of discharge or the setting aside of a discharge under this section does not affect the validity of any sale or disposition of property or payment duly made or act done after the discharge of the bankrupt and before the rescission of the order of discharge or the setting aside of the discharge."

1. I do not regard that section as detracting from the automatic change of status effected by s.149(2)(b). Rather, it confers on the Court a discretion prospectively to reverse that change of status, in the event of a certain, narrowly defined, default by the discharged bankrupt. That is quite different from the exercise of the discretion invited by the trustee in the present case which would have the effect that the change of status never occurred.

2. Attention was next drawn on behalf of the trustee to s.306 of the Bankruptcy Act which provides:
   

"(1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

(2) A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a deed entered into under this Act does not invalidate an act done by him in good faith."

1. The short answer to reliance on that section is provided by the observation of Sweeney J in Van Reesema v Official Trustee (supra) at 433 that:
   

"On appeal, counsel for the trustee submitted that the objection entered was not invalidated because it suffered only from a formal defect or irregularity. If one were to assume, without deciding, that a notice of objection is "a proceeding under this Act" within the meaning of s.306(1), I would not regard the deficiencies of the present notice as a formal defect or irregularity. In my opinion, it was not entered on one of the only grounds permitted by s.149(4), as it departed in fundamental respects from the requirements of the statute.

The words of s.306(1) seem inappropriate to the consideration of a notice of objection to discharge. The provision that proceedings are not invalidated, unless the court before which the objection is made "is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court", can be readily applied where a proceeding with a formal defect or irregularity has been initiated against a respondent and the applicant seeks to rely upon s.306. There it is the respondent who may have suffered "substantial injustice which cannot be remedied by an order of that court". Here the Act provides that on the happening of a certain event, namely the entry of an objection, a person is not discharged from bankruptcy and that event has not happened. The purported entry of an objection on a ground which is, in my view, fundamentally different from that specified in s.149(4)(a) is not to be given the effect which by the statute arises only upon the entry of an objection so specified."

1. To like effect Sheppard J. concluded in the same case, at 439:
   

"Reliance was placed by the trustee on s.306(1) which provides that proceedings under the Act are not invalidated by a formal defect or an irregularity unless the court is of opinion that it has caused substantial injustice which cannot be remedied by an order of the court. Although I consider the objection to be a proceeding under the Act for the purposes of this provision, I do not think that the defect is formal nor is it a mere irregularity. For reasons already given the defect goes to the very substance of the matter."

1. Parity of reasoning leads me to conclude that no power to extend time for the filing of a notice of objection is conferred by r.195 of the Bankruptcy Rules, sub-rr (1) and (2) of which provide:,
   

"(1) Subject to sub-rule (2), non-compliance with these Rules does not render a proceeding void unless the Court so directs.

(2) Where the provisions of these Rules have not been complied with in relation to a proceeding -

(a) the proceeding may be set aside, either wholly or in part, as irregular, or may be amended or otherwise dealt with in such manner and upon such terms as the Court thinks fit; or

(b) the Court may, upon such terms as the Court thinks fit, relieve a party from the consequences of non-compliance with these Rules."

1. Assuming, as Sweeney J. did in Van Reesema v Official Trustee (supra), that a notice of objection is a proceeding under the Act, the failure to file it is not a mere non-compliance with the Bankruptcy Rules. It is a failure to establish a condition precedent prescribed by the Act itself to precluding an automatic discharge from bankruptcy. If I am right in concluding that the Court has no power under the Act to relieve from that failure, that absence of power cannot be supplied by resort to a provision in the Rules.

2. For these reasons I am led to conclude that the Court has no discretion to permit the filing of a notice of objection after a discharge has occurred upon the expiration of three years from the date of the bankruptcy as contemplated by s.149(2)(b). Accordingly, the application must be dismissed with costs.