Envee Energy Pty Ltd (In Liquidation) v Stockford
[2007] FMCA 1426
•20 August 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ENVEE ENERGY PTY LTD (IN LIQUIDATION) v STOCKFORD | [2007] FMCA 1426 |
| BANKRUPTCY – Service of bankruptcy notice out of Australia – failure to obtain leave. BANKRUPTCY – Failure to attach judgment making order for costs – validity of bankruptcy notice. |
| Bankruptcy Act 1966; ss.40(1)(g), 43(1) Federal Court of Australia Act 1976; s.51 |
| Battenberg v Restrom (2006) 149FCR 128 Re Mendonca: ex parte Commissioner of Taxation (1969) 15 FLR 256 Re Hanlin: ex parte South Properties Development Pty Ltd (1985) 9 FCR 357 T & S Recoveries Pty Ltd v Skalkos [2004] FCA 816 Sogelease Australia Ltd v Griffin (2003) 128 FCR 399 Emanuele v Australian Securities Commission (1997) 188 CLR 114 Johnstone v Vintage Developments Pty Ltd [2006] FCAFC 171 Re: Testro Bros Consolidated Ltd [1965] VR 18 Re Macchia; ex parte Macchia v Nilant (2000) 172 ALR 158 Nilant v Macchia (2000) 104 FCR 238 Adams & Lambert (2006) 80 ALJR 679 ANZ Banking Group Ltd v Menso [2006] FMCA 1522 |
| Applicant: | ENVEE ENERGY PTY LTD (IN LIQUIDATION) ACN 074 632 081 |
| Respondent: | MARTIN STOCKFORD |
| File number: | BRG 584 OF 2007 |
| Judgment of: | Wilson FM |
| Hearing date: | 17 August 2007 |
| Date of last submission: | 17 August 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 20 August 2007 |
REPRESENTATION
| Counsel for the Applicant: | N/A |
| Solicitors for the Applicant: | Irish Bentley Lawyers |
| The Respondent in person: | No appearance |
ORDERS
That the applicant be granted leave, nunc pro tunc, to serve a bankruptcy notice out of Australia, and on the respondent, in Thailand.
It is declared that service of the bankruptcy notice was properly effected on the respondent on 4 June 2007.
The application for a sequestration order is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 584 of 2007
| ENVEE ENERGY PTY LTD (IN LIQUIDATION) ACN 074 632 081 |
Applicant
And
| MARTIN STOCKFORD |
Respondent
REASONS FOR JUDGMENT
This matter was referred to me by the Deputy Registrar. Two issues were said to require my determination:
a)Whether the person who swore the affidavit verifying the creditor’s petition had sufficient knowledge to do so; and
b)Whether the applicant’s failure to obtain leave to serve the bankruptcy notice outside of Australia should be excused.
The first matter is easily disposed of. The applicant creditor is a corporation, in liquidation. Its books and records are under the control of its liquidator. The affidavit verifying the creditor’s petition was sworn by a solicitor acting on behalf of the applicant. In his affidavit, the solicitor says:
1. I am the solicitor for the (sic) application and have knowledge and carriage of this matter. I have access to the books and records of the applicant and am authorised to make this affidavit on the applicant’s behalf.
2. The statements made in paragraphs 1, 2 and 3 of the creditor’s petition are within in my own knowledge true.
The solicitor has sworn a further affidavit, filed 14 August 2007.
In this affidavit the solicitor swears that he has access to the books and records of the applicant corporation and physically inspected them.
The order relied upon to issue the bankruptcy notice was an order for costs made in the Supreme Court of Queensland on 13 March 2007, which were assessed on 10 May 2007. It seems that the same firm of solicitors acted on behalf of the applicant company in that litigation, before it was placed into liquidation. The solicitor would therefore have had personal knowledge of the matter stated in paragraph 1 of the creditor’s petition. The same solicitors act on behalf of the liquidator of the applicant company and have access to the records of the company. The solicitor states that he has physically inspected the books and therefore can swear to the matters in para.2 of the petition. I will shortly return to the matters stated in para.3 of the petition, related as they are to s.43 Bankruptcy Act 1966 (“the Act”). I am satisfied that having regard to his involvement in the matter, the solicitor is able to swear to the contents of paragraph 3 of the petition.
I am therefore satisfied that the affidavit verifying the creditor’s petition complies with the formal requirement of the Act.
The second question raised above is one which, to my knowledge, is not subject to direct authority. Section 40(1)(g) of the Act provides that a debtor commits and act of bankruptcy in the following case:
(g)if a creditor who has obtained against the 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)where the notice was served elsewhere – within the time fixed for the purpose by the order giving leave to effect the service.
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.
In the present case the debtor was served with the bankruptcy notice in Thailand. The debtor was personally served by a director of the applicant company. However, leave was not obtained prior to such service, as required by s.40(1)(g) of the Act. The bankruptcy notice was issued on 29 May 2007. The liquidator of the applicant has sworn, in an affidavit filed 14 August 2007, that he was instructed by the director of the applicant that the respondent was likely to be difficult to locate, and to be a flight risk. It was ascertained that the respondent would be in Thailand from 30 May 2007 and would be meeting with the director of the applicant on 4 June 2007. Accordingly, the liquidator of the applicant instructed its solicitors to file a bankruptcy notice and to arrange for the director to serve the respondent personally in Thailand. As I have said, the bankruptcy notice was filed on 29 May 2007 and was served on 4 June 2007.
The principles upon which leave could be granted under s.40(1)(g) of the Act have not been clearly stated. The Act applies to persons who are not Australian citizens (s.7(1) of the Act) but it is not suggested in the present case that the respondent is other than an Australian citizen. Section 43(1)(b) of the Act contemplates commission by a debtor of an act of bankruptcy whilst out of Australia. In Battenberg v Restrom (2006) 149FCR 128 the Full Federal Court said, at [17]:
“It must therefore have been intended that such a person be amenable to service of a bankruptcy notice, not withstanding the fact that he or she was out of Australia”
Reference was made to Re Mendonca: ex parte Commissioner of Taxation (1969) 15 FLR 256 at 261. In that case, when dealing with extraterritorial service of a creditor’s petition, Gibbs J (as his Honour then was) said:
“These provisions give the Court ample power to order service outside the jurisdiction, and it seems to me that once the Court sees that a petition is presented in circumstances which bring the case within s.43(1), but the debtor has absconded from Australia, the Court will normally order service on the debtor out of the jurisdiction. Clearly the present case is one in which the petitioning creditor should be permitted to serve the petition out of the jurisdiction”
In Battenberg at [19] their Honours observed that it is clear that a bankruptcy notice may be served outside of Australia, subject to leave being granted by the Court. Their Honours did not descend to any consideration of what circumstances would attract leave. Ordinarily, an application is made for substituted service.
I return later to the question of whether or not such leave would have been granted had it been applied for before service of the bankruptcy notice. It is necessary however to deal first with the question of whether the failure to obtain leave to serve the bankruptcy notice out of Australia is fatal to the validity of such service.
The applicant creditor relies on s.306(1) of the Act which provides:
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.
In my view, service of a bankruptcy notice is within the ambit of “proceedings under this Act”. However, a strict view has traditionally been taken as to the need for proper service of a bankruptcy notice. In Re Hanlin: ex parte South Properties Development Pty Ltd (1985)
9 FCR 357 at 358 Pincus J pointed out that the date of service of a bankruptcy notice is plainly of central significance. The act of bankruptcy defined by s.40(1)(g) depends upon service of the notice, and occurs at the expiration of the time fixed after service of the notice. His Honour was not prepared to waive any irregularity as to service in that case under s.306(1) of the Act. His Honour said that service of a bankruptcy notice is a juristic act in a special category.
However, more recently it has been held that regulation 16.01 of the Bankruptcy Regulations 1996 applies to the method of service of bankruptcy notices: T & S Recoveries Pty Ltd v Skalkos [2004] FCA 816; Sogelease Australia Ltd v Griffin (2003) 128 FCR 399.
In considering whether or not for failure to obtain leave to serve a bankruptcy notice out of the jurisdiction is an irregularity, I have derived assistance from the decisions of the High Court in Emanuele v Australian Securities Commission (1997) 188 CLR 114 and of the Full Federal Court in Johnstone v Vintage Developments Pty Ltd [2006] FCAFC 171.
In Emanuele the Court dealt with the failure to obtain leave, as required by s.459P(2) of the Corporations Law, before applying for an order that a company be wound up in insolvency. Their Honours considered that this was a mere defect or irregularity in the exercise of the Court’s jurisdiction which did not affect the validity of the order made. The defect or irregularity may be cured by granting leave nunc pro tunc. Toohey J approached the matter by asking whether the language of the section made the prior obtaining of leave a condition of the court’s jurisdiction. His Honour indicated that other provisions in the Corporations Law empowered the court to wind up an insolvent company. His Honour followed the well established principle discussed in cases such as Re: Testro Bros Consolidated Ltd [1965] VR 18 and held that a nunc pro tunc order was appropriate: see pp 131-132.
In Johnstone v Vintage Developments Pty Ltd the Full Court considered whether a party could be joined after expiry of a limitation period in the absence of a prior grant of leave. The Court considered this against the context of s.51 Federal Court of Australia Act 1976 which is substantively the same terms as s.306(1) of the Bankruptcy Act 1966. Their Honours, by applying Emanuele, granted leave to join a party out of time.
In Re Macchia; Ex Parte Macchia v Nilant (2000) 172 ALR 158 Lee J considered that what constitutes a formal defect or irregularity for the purposes of s.306(1) of the Act is a matter of fact: see [69]. On appeal (Nilant v Macchia (2000) 104 FCR 238) an appeal was allowed. In their decision the Full Court traced the origins of s.306(1) of the Act and its application to bankruptcy notices. Their Honour’s reasoning at [27] compels the conclusion that questions as to service of a bankruptcy notice can be dealt with under s.306(1) of the Act.
The most recent and authoritive discussion of the proper application of s.306(1) is the decision of the High Court of Australia in Adams & Lambert (2006) 80 ALJR 679. At [18] their Honours said:
“The question whether the defect or irregularity is a formal defect or irregularity, and whether substantial injustice has been caused and cannot be remedied, are separate and distinct, the latter question arising only if the former is answered in the affirmative.”
Therefore, it is not correct to argue in the present case that because no substantial injustice has been occasioned to the respondent the failure to obtain prior leave to serve the bankruptcy notice out of Australia must be a formal defect or irregularity.
At paragraphs [24] – [28] their Honours reason that deciding whether there is a formal defect or irregularity must be decided as a process of statutory construction, in the context of the Act as a whole, informed by the general purpose of the legislation and the particular purpose of the provision relating to bankruptcy notices. That is, one must look at the defect or irregularity against the scheme and purpose of the Act in order to see if there is a short coming in a matter made essential by the Act.
In the present case service of a bankruptcy notice does not confer jurisdiction on the Court. Rather it is a preliminary step to the commission of an act of bankruptcy. The making of a sequestration order requires the Court to be satisfied of the matters in ss.43 and 52 of the Act.
In the present case the bankruptcy notice was served personally on the respondent, albeit out of Australia. In my view the scheme of the Act, properly construed, is to ensure that a bankruptcy notice comes to the attention of the debtor so as to allow him or her sufficient time to satisfy the debt. In this case that purpose was served by the bankruptcy notice being personally served on the respondent and the usual time being allowed for the debtor to take action. Further, at subsequent meeting between the respondent and the liquidator of the applicant the consequences of a failure to comply with the bankruptcy notice were pointed out to the respondent. He was then back in Australia.
Further, when the question is asked whether an order would have been made under s.40(1)(g) for service out of Australia, in light of the only evidence available on that point, had such an application been made before service, the question would be answered in the affirmative. There is nothing to suggest that the debtor ought to have been allowed more time to comply with the bankruptcy notice. Of course, the answer to that enquiry may differ according to the facts of a particular case. Therefore, applying the reasoning in Emanuele and Johnstone I conclude that the failure to obtain an order for leave to serve a bankruptcy notice out of Australia prior to its actual service was an irregularity within the ambit of s.306(1) of the Act and an order should be made nunc pro tunc that leave to effect such service be granted.
There is no injustice to the respondent in such a course being followed. As I have said, the respondent was personally served with the bankruptcy notice. Prior to the expiry of the time allowed by the bankruptcy notice for payment of the debt, the debtor confirmed that he had been personally served and was told the date upon which time for compliance with the bankruptcy notice would expire. The respondent debtor has taken no steps to set aside the bankruptcy notice, nor to challenge service of it. This is notwithstanding the fact that he was personally served with the creditor’s petition in Australia on 13 July 2007. That petition relies for an act of bankruptcy on non-compliance with the bankruptcy notice.
Accordingly, in my view it is appropriate to order that leave be granted nunc pro tunc to serve the bankruptcy notice on the respondent out of Australia and in Thailand.
Another matter has arisen, on my having read the material filed in this case. The bankruptcy notice has attached to it the assessment of costs made on 10 May 2007, but not the order of Justice Phillippides made on 13 March 2007, by which the respondent was ordered to pay the applicant’s costs. In ANZ Banking Group Ltd v Menso [2006] FMCA 1522 I concluded that the failure to attach the order or judgment ordering costs in favour of a party was not a formal defect or irregularity, and could not be excused under s.306(1) of the Act. In that case I considered at length the reasons why the order of assessment of costs was not, of itself, sufficient and that the original order should also have been attached to the bankruptcy notice. There is exactly the same problem in the present case. I must conclude therefore, that the failure to attach the order of Justice Phillippides renders the bankruptcy notice in this case prima facie invalid. It cannot be saved by s.306(1) of the Act.
Having concluded that the bankruptcy notice is invalid, I must dismiss the application for sequestration order.
A fresh bankruptcy notice will have to be served, attaching the correct judgment, as well as the order for assessment of costs. Hopefully, that bankruptcy notice can be served in Australia so as to avoid the need for any further application for leave.
The orders will therefore be as follows:
(1)That the applicant be granted leave, nunc pro tunc, to serve a bankruptcy notice out of Australia, and on the respondent in Thailand.
(2)It is declared that service of the bankruptcy notice was properly effected on the respondent on 4 June 2007.
(3)The application for a sequestration order is dismissed.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 20 August 2007
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