Frenchmans Lodge Nursing Home Pty Ltd v Lutman
[2014] FCCA 287
•21 February 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FRENCHMANS LODGE NURSING HOME PTY LTD v LUTMAN | [2014] FCCA 287 |
| Catchwords: BANKRUPTCY – Creditor’s Petition – Bankruptcy Notice served on debtor did not attach copy of final judgment/s or final order/s founding it – whether failure to attach copy of final judgment/s or final order/s is an error curable by s.306(1) of the Bankruptcy Act 1966 (Cth). |
| Legislation: Bankruptcy Act 1966, ss.41(2), 306(1) Bankruptcy Regulations 1996, reg.4.02 |
| American Express International Inc v Held [1999] FCA 321 Stockco Ltd v Denize [2011] NZHC 1746 Thompson v Metham [1999] FCA 935 |
| Applicant: | FRENCHMANS LODGE NURSING HOME PTY LTD (ACN 000 525 517) |
| Respondent: | KIM LUTMAN |
| File Number: | SYG 2810 of 2013 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing date: | 10 February 2014 |
| Delivered at: | Sydney |
| Delivered on: | 21 February 2014 |
REPRESENTATION
| Solicitor for the Applicant: | Mr J. Green of CCSG Legal |
| The Respondent: | The Respondent did not appear |
ORDERS
The Creditor’s Petition filed on 13 November 2013 be dismissed.
The Applicant Creditor bear its own costs of the proceedings.
The Applicant Creditor provide the Official Receiver in Sydney with a copy of these orders within two days of today’s date.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2810 of 2013
| FRENCHMANS LODGE NURSING HOME PTY LTD (ACN 000 525 217) |
Applicant
And
| KIM LUTMAN |
Respondent
REASONS FOR JUDGMENT
Introduction
On 13 November 2013 Frenchmans Lodge Nursing Home Pty Ltd (ACN 000 525 217) (“Frenchmans Lodge”) filed a creditor’s petition in this Court (the “Petition”) against Kim Lutman (“Lutman”). The Petition was first returnable before a registrar of this Court on 11 December 2013. The Petition was stood over on a number of occasions and on 10 February 2014 was referred to this Court for hearing.
At the hearing on 10 February 2014 Mr Green, appearing for Frenchmans Lodge, indicated that there was an error in the bankruptcy notice upon which the Petition (the “Bankruptcy Notice”) was founded and the Petition had been referred to this Court to decide whether that deficiency could be cured by s.306(1) of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”). The error in the Bankruptcy Notice was that, despite being properly issued by the Australian Financial Security Authority (“AFSA”), the Bankruptcy Notice that was served on Lutman was served without a copy of the final judgment/s or final order/s founding it attached.
Applicant’s Submissions
Mr Green contends that what the Court is required to do in respect of these proceedings is decide whether or not the attachment of the final judgment/s or final order/s founding a bankruptcy notice to it when served on a debtor is an essential requirement under the Bankruptcy Act or whether or not it is a simply a defect that can be cured by s.306(1) of the Bankruptcy Act. If the Court finds the failure to be a defect or irregularity that can be cured by s.306(1) the next step is to then assess the considerations in respect of whether there has been substantial injustice by virtue of the fact a copy of the final judgment/s or final order/s has been left out.
Mr Green accepts that a final judgment/s or final order/s must be attached to a bankruptcy notice when it is issued by AFSA. That is a requirement under the s.41(2) of the Bankruptcy Act and reg.4.02 of the Bankruptcy Regulations 1996 (Cth) (the “Bankruptcy Regulations”). Mr Green accepts that it is reasonable to assume that the entire bankruptcy notice as issued by AFSA is what will be served on the debtor, however, in respect of the Petition, this is not what occurred.
When the issued Bankruptcy Notice was returned electronically to the representatives of Frenchmans Lodge, the Bankruptcy Notice and the final judgment/s or final order/s were attached as two separate files or documents. These documents were then also electronically sent to the process server who had been engaged to effect service of the Bankruptcy Notice, however, the process server then only served the Bankruptcy Notice without attaching thereto the final judgment/s or final order/s on Lutman.
Mr Green refers the Court to a decision of the High Court of New Zealand in Stockco Ltd v Denize [2011] NZHC 1746 per Abbott AJ and indicates it was a proceeding of a similar nature to the Petition before this Court, however, the New Zealand proceedings are in relation to an application to set aside a bankruptcy notice and had not reached the stage of a creditor’s petition being filed. In Stockco (supra) two bankruptcy notices failing to attach a copy of the final judgment/s or final order/s founding them were served on two debtors. The debtors then applied to have the bankruptcy notices set aside on the basis that there was no final judgment/s or final order/s attached to either, amongst other grounds.
At [22] of Stockco his Honour Abbott JA stated:
22. …It is also common ground that a copy of the sealed judgment was not served on Mr and Mrs Denize at the time they were served with the bankruptcy notices, but that the sealed judgment had previously been served on their solicitors at the address for service for the proceeding in which judgment was given.
His Honour continued at [24]-[25]:
24. Counsel for Stockco acknowledged that the notices were defective, but argued that the defects did not invalidate the notices, and that s 418 did apply to bankruptcy notices and should be applied to cure the omissions.
25. Counsel for Mr and Mrs Denize did not pursue an argument that the Registrar should not have issued the bankruptcy notices at all after it was established that copies of the underlying judgment were filed with the request to issue the notices.
Abbott AJ then made the following findings at [33]-[35]:
33. There was no evidence to suggest that Mr and Mrs Denize were under any misapprehension as to the judgment in respect of which the bankruptcy notices were issued. Through their solicitors, they defended the summary judgment application and a sealed judgment served on them; and appealed parts of the judgment. The bankruptcy notice contained an express reference to that judgment. It cannot be said that they were unaware of the judgment, or that there could be any room for confusion about it. Indeed, counsel for Mr and Mrs Denize acknowledged that it was a technical argument and that Mr and Mrs Denize were aware of what was occurring.
34. In those circumstances, and in the absence of any evidence that Mr and Mrs Denize have been prejudiced by the omission, s 418 applies. I make an order that Stockco may rely on the bankruptcy notices notwithstanding the omission.
35. … There may well be cases where the absence of that paragraph and the judgment will cause embarrassment or confusion to the debtor or some other form of prejudice which should count against the application of s 418. In my view, this is not one of those cases.
Mr Green indicates that he has been unable to locate a judgment of the Federal Court or the Federal Circuit Court that has traversed similar issues as those in the Petition currently before the Court. Accordingly, he relies on the decision in Stockco for an application under s.306(1) of the Bankruptcy Act to cure the default with respect to service of the Bankruptcy Notice and that Frenchmans Lodge be allowed to move on the Petition.
In respect of Lutman, Mr Green filed in court and read the Affidavit of Benjamin Fry sworn 31 January 2014. Annexed to the Affidavit is correspondence from Lutman indicating her willingness and desire to file a debtor’s petition herself. She was fully on notice of the debt, has had an opportunity to seek to set aside the Bankruptcy Notice and has had an opportunity to either represent herself or engage legal representation to contest the Petition. She has chosen not to do so and has further indicated her willingness to file a debtor’s petition because she understands she cannot pay her debts as and when they fall due. Mr Green submits this is a matter where s.306(1) applies as there would be no substantial injustice to Lutman.
In respect of the omission of the final judgment/s or final order/s on the Bankruptcy Notice, Mr Green argues that for the purposes of the Petition it is not a fundamental defect which could not be cured by s.306(1). However, he has been unable to locate any authority specifically on point in respect of this issue.
Consideration
Statutory Framework
Section 41(2) of the Bankruptcy Act states:
Bankruptcy Notices
…
(2) The notice must be in accordance with the form prescribed by the regulations.
Regulation 4.02 of the Bankruptcy Regulations states:
Form of bankruptcy notices
(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.
(2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).
Form 1 is found at Schedule 1 of the Bankruptcy Regulations. Under the sub-heading “Claims that you owe the following debt” at point 1 the words “1. Amount as per the attached final judgment/s or final order/s (note A).
Section 306 of the Bankruptcy Act states:
Formal defect not to invalidate proceedings
(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 personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.
Authorities
In Thompson v Metham [1999] FCA 935, his Honour Katz J considered the validity of a bankruptcy notice where, amongst other considerations, it was submitted the bankruptcy notice was served without a copy of the final judgment/s or final order/s founding it. At [23]-[25] his Honour stated:
23. In Re Scerri (1998) 82 FCR 146, Beaumont J considered the validity of a bankruptcy notice which had had attached to it neither a copy of the relevant judgment nor a document purporting to contain particulars of the judgment. His Honour held that the notice was invalid, saying (at 149), “The prescribed form of notice in Form 1 does, in para2, stipulate that a copy of the judgment be attached. ... [T]hat provision was not complied with. ... I would regard this as more than a formal defect for the purposes of s306 [of the Act]".
24. Subs306(1) of the Act, to which Beaumont J was referring, 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.”
It was held by the High Court in Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 76 (Mason CJ and Wilson, Brennan and Gaudron JJ), that the act of issuing a bankruptcy notice is a proceeding under the Act, with the consequence (it appears) that subs306(1) is capable of applying to the form of a bankruptcy notice itself.)
25. Essentially the same view as that which had been taken by Beaumont J in Scerri was later taken by Finkelstein J in Commonwealth Bank of Australia v Horvath (1999) 161 ALR 441 (FCA) and by Kenny J in American Express International Inc v Held [1999] FCA 321 (unreported; 29 March 1999), each of their Honours holding that failure to attach to a bankruptcy notice a copy of the judgment or order relied upon by the creditor led to incurable invalidity of the notice. Subs306(1) of the Act could not save it.
In American Express International Inc v Held [1999] FCA 321 her Honour Kenny J considered a matter where the final judgment/s or final order/s founding a bankruptcy notice was not attached to it when served. Her Honour stated at [13]-[17]:
13. What, then, is a “formal defect or an irregularity” in a bankruptcy notice for the purpose of s 306(1) of the Bankruptcy Act? A defect is substantive and not formal if it means that the notice fails to meet a requirement made essential by the Act: see James v FCT [1955] HCA 75; 93 CLR 631 at 644 and Kleinwort Benson [1988] HCA 34; 165 CLR 71 at 79. Moreover, if the defect in the notice is of such a kind as could reasonably mislead a debtor as to a pertinent matter, it is not a formal defect and the notice cannot be validated by s 306(1): see Pillai[1970] AC 1124 at 1135; James v FCT [1955] HCA 75; 93 CLR 631 at 644; and Kleinwort Benson [1988] HCA 34; 165 CLR 71 at 79-80.
14. Is the failure to attach a copy of the judgment or order relied upon by a creditor a failure to comply with an essential requirement of the Bankruptcy Act? I think that it is. The purpose of the requirement to be implied from clause 2 of Form 1 is to identify for the debtor the judgment or order upon which the notice is founded: cf Commonwealth Bank of Australia v Horvath (Junior) (unreported, Finkelstein J, 24 February 1999). In a case such as this, the identification of the relevant judgment or order is an essential element in establishing an adequate foundation for the bankruptcy notice which, in turn, is an essential element in establishing a sufficient foundation for the debtor's bankruptcy.
15. In Commonwealth Bank of Australia v Horvath (Junior), Finkelstein J also concluded that the failure to attach a copy of the relevant judgment or order constituted a failure to comply with an essential requirement of the Bankruptcy Act. So too did Beaumont J in Scerri v Cahill (unreported, 17 March 1998). Cf Haros v National Australia Bank Limited (unreported, Ryan J, 24 November 1997) and In re Cartwright; Ex parte Cartwright v Baker [1975] 1 WLR 573. As Finkelstein J observed in Horvath (Junior), it is important for the administration of justice that there be uniformity in the principles applied by judges in administering the bankruptcy law. That consideration provides a further reason for holding that the bankruptcy notice served on the debtor was a nullity by virtue of the petitioning creditor's failure to attach a copy of the relevant judgment or order to the notice.
16. If it mattered (and, in view of my conclusion, I do not think it does), I should think that the failure to attach a copy of the judgment or order underpinning the bankruptcy notice was a defect of such a kind which could reasonably mislead a debtor, notwithstanding that it did not actually do so. It is, of course, not said in this case, as in Haros, that there is more than one judgment extant between the petitioning creditor and the debtor. The debtor has not to date taken any steps to set aside the bankruptcy notice or to oppose the creditor's petition. He apparently concedes that he owes the debt referred to in the notice. But the fact that the defect did not mislead the debtor is, as the authorities show, immaterial as to whether or not the defect was merely formal: see, e.g., Pillai [1970] AC 1124 at 1135; James v FCT [1955] HCA 75; 93 CLR 631 at 644; and Kleinwort Benson [1988] HCA 34; 165 CLR 71 at 79-80. In my view, the petitioning creditor's failure to attach a copy of the judgment to the bankruptcy notice served on the debtor (who was unrepresented and then in his late seventies and who had, it seems, fallen on hard times when his business of forty years failed) was a defect which had the capacity reasonably to mislead: cf Re Wimborne; Ex Parte The Debtor (1979) 24 ALR 494at 499 and Re Wong; Ex Parte Kitson [1979] FCA 67; (1979) 27 ALR 405 at 410, both per Lockhart J.
17. I find that the bankruptcy notice served on the debtor was a nullity and that it did not found an act of bankruptcy for the purposes of s 40(1)(g) of the Bankruptcy Act. Accordingly, the petition must fail.
Conclusion
The authorities cited at [17]-[18] above make it absolutely clear that the failure to attach a copy of the founding final judgment/s or final order/s to a bankruptcy notice is an error that cannot be cured by s.306 of the Bankruptcy Act. Notwithstanding that Lutman is not contesting the Petition and, indeed, appears quite ready to accept the consequences of bankruptcy, her Honour Kenny J’s statement in Held (supra) at [15] that “it is important for the administration of justice that there be uniformity in the principles applied by judges in administering the bankruptcy law” should be applied in this circumstance.
Accordingly, I propose to follow the authorities cited above. The failure by Frenchmans Lodge to attach a copy of the final judgment/s or final order/s to the Bankruptcy Notice is not a formal error of the nature that can be cured by s.306(1) of the Bankruptcy Act and renders the Bankruptcy Notice a nullity. The failure of the debtor to comply with the Bankruptcy Notice did not found an act of bankruptcy for the purposes of s.40(1)(g) of the Bankruptcy Act. Consequently, the Petition fails and should be dismissed with Frenchmans Lodge bearing its own costs.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 21 February 2014
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