Gaudron v Dalwood
[2001] FMCA 111
•27 Nov 2001
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GAUDRON v DALWOOD | [2001] FMCA 111 |
| BANKRUPTCY – bankruptcy notice – authority of person to obtain the notice – management of creditor’s estate by manager under NSW law – whether the manager authorised to act as agent – whether creditor required a tutor or litigation guardian. |
Bankruptcy Act 1966 (Cth), ss.41(6A), 308
Bankruptcy Regulations
Federal Magistrates Court Rules
Legal Profession Act 1987 (NSW)
Local Courts (Civil Claims) Act 1970 (NSW)
Mental Health Act 1990 (NSW)
Protected Estates Act 1983 (NSW), ss.4, 24
Re Brocklebank (1877) 6 Ch D 358
Re Kassab; ex parte Commissioner of Taxation (1994) 55 FCR 305
| Applicant: | JENNIFER GAUDRON |
| Respondent: | BERYL DALWOOD |
| File No: | SZ599 of 2001 |
| Delivered on: | 27 Nov 2001 |
| Delivered at: | Sydney |
| Hearing Date: | 13 Nov 2001 |
| Judgment of: | Driver FM |
REPRESENTATION
| Counsel for the Applicant: | Mr P Walsh |
| Solicitors for the Applicant: | Shaw McDonald |
| Counsel for the Respondent: | Mr C George |
| Solicitors for the Respondent: | Morgan Lewis Alter Lawyers |
ORDERS
The application is dismissed.
The applicant is to pay the respondent’s costs of the proceedings, including any reserved costs, which if not agreed, are to be assessed and paid in accordance with the Federal Court Rules.
Pursuant to rule 11.14 of the Federal Magistrates Court Rules, to the extent that the respondent’s costs are not met by the applicant, the costs incurred by Ms Helena Movsas as litigation guardian may be met from the income or assets of the respondent.
Settlement and entry of these orders may be effected pursuant to Order 36 of the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ599 of 2001
| JENNIFER GAUDRON |
Applicant
And
| BERYL DALWOOD |
Respondent
REASONS FOR JUDGMENT
Introduction
I have before me an application by JENNIFER GAUDRON to set aside bankruptcy notice number NN1821/01 issued and dated
6 August 2001 which was served on the applicant on 12 September 2001. A copy of the bankruptcy notice accompanied the application. The applicant also sought an extension of time for compliance with the bankruptcy notice up to and including the hearing of the application to set aside the notice.
On 2 October 2001 Registrar Kavallaris granted an extension of time up to and including 16 October 2001 pursuant to s.41(6A) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) and Rule 30.03 of the Federal Magistrates Court Rules 2001 (“Federal Magistrates Court Rules”). On that date I gave directions for the future conduct in the matter. I did not grant any further extension of time, with the result that, subject to the outcome of the application to set aside the bankruptcy notice, an act of bankruptcy was committed on 17 October 2001. However, the respondent gave an inter partes undertaking not to file and serve a creditor’s petition until 13 November 2001, being the date fixed for the hearing of the application. On that date, the respondent extended that undertaking until 27 November 2001 by which date I indicated I would be ready to give judgment in the matter.
The application was supported by an affidavit by David Paul Courtenay which set out the grounds on which the application was made. These were:
a)the creditor is not a person who has the legal capacity to bring the bankruptcy notice;
b)the judgment on which the bankruptcy notice is founded is irregular and/or invalid insofar as the creditor had no capacity to bring that action;
c)the creditor’s address stated on the bankruptcy notice is wrong and in breach of a requirement made essential by the Bankruptcy Act or in the alternative, is defective and has the capacity to mislead;
d)the creditor (BERYL DALWOOD) cannot and can never be found at the address for payment of debt rendering the notice in breach of a requirement made essential by the Bankruptcy Act, or in the alternative, is defective and has the capacity to mislead;
e)the person who applied for the notice is not an authorised agent of the creditor, rendering the notice in breach of a requirement made essential by the Bankruptcy Act, or in the alternative, is defective and has the capacity to mislead; and
f)the Court should go behind the judgment.
When the matter reached trial only grounds (a) and (e) were pursued. The reasons for the abandonment of the other grounds were that proceedings had been commenced to set aside the judgment supporting the bankruptcy notice but those proceedings had been unsuccessful. In addition, Mr Walsh, for the applicant, conceded that if it was established that the person bringing the bankruptcy notice as agent of the creditor had the capacity to do so and that the creditor did not require a tutor or litigation guardian, then it could not be contested that the bankruptcy notice was in proper form.
A further affidavit made by the applicant Jennifer Gaudron on 7 November 2001 was not relied upon by the applicant at trial, although three annexures to that affidavit (annexures JG8, JG9 and JG11) were tendered on behalf of the applicant.
The history of this matter is set out in the affidavit by Helena Jenny Movsas, made on 11 October 2001, which was relied upon by the respondent. The respondent is a 92 year old woman who, on 8 November 1996, suffered a brain stem infarction. In consequence, on 25 November 1996, the New South Wales Guardianship Board ordered the respondent’s estate to be subject to management under the Protected Estates Act 1983 (NSW) (“the Protected Estates Act”) and appointed Ms Movsas to be the manager of the estate. The order of the Guardianship Board was annexed to the affidavit of Ms Movsas and was also exhibit JG8 relied upon by the applicant.
On 16 December 1996 Ms Movsas was given an authority and directions by the Protective Commissioner. Attachment B to Ms Movsas’ affidavit is a copy of that authority and directions which was also exhibit JG11 relied upon by the applicant.
In early 1996 the applicant had become the holder of one issued share in a company called Essendene Investments Pty Limited (ACN 060 125 439) (“Essendene”). The share was held by the applicant on trust for the respondent. The applicant was also a director of Essendene.
Early in 2000 Ms Movsas commenced steps to remove the applicant as a director of Essendene and to transfer the share to herself. By letter dated 15 February 2000 Ms Movsas was given authority by the Protective Commissioner to take steps to remove the applicant as a director of Essendene and to have the share transferred to herself. That authority is annexure H to Ms Movsas’ affidavit. On 1 June 2000, pursuant to that authority, Ms Movsas commenced proceedings in the Supreme Court which were successful, with orders being made on 21 June 2000 and entered on 27 July 2000.
In accordance with the Legal Profession Act 1987 (NSW) the costs of those proceedings were assessed. Costs were assessed in the amount of $21,300.
On 30 March 2001 Ms Movsas was given authority by the Protective Commissioner to enforce any order for costs relating to the proceedings in the Supreme Court. That authority is attachment L to Ms Movsas’ affidavit.
On 10 April 2001 a request for a certificate of judgment was filed in the Downing Centre Local Court. On 17 April 2001 a certificate of judgment was issued by the Local Court. A later application made by the applicant in the Local Court to pay by instalments was unsuccessful.
It is the judgment of the Local Court evidenced by a certificate of judgment issued pursuant to the Local Courts (Civil Claims) Act 1970 (NSW) for costs in the sum of $21,356 (including court costs in that court) that has led to the present bankruptcy notice in issue. It is common ground that the judgment debt has not been paid.
Consideration of the issues
At trial, Mr Walsh for the applicant, sought an order setting aside the bankruptcy notice on the bases, first that Ms Movsas was not a person authorised or empowered by law to act on behalf of a creditor of unsound mind and was not a person duly authorised to act as an agent, pursuant to s.308 of the Bankruptcy Act. Secondly, Mr Walsh argued that a tutor (or litigation guardian) was required for the issuing of a bankruptcy notice in the present circumstances. Mr Walsh argued that the terms of the management order (exhibit JG8), the limited guardianship order (exhibit JG9) and the directions issued by the New South Wales Supreme Court (exhibit JG11) do not provide authority for Ms Movsas to bring a bankruptcy notice. It is clear from exhibit JG11 that Ms Movsas has no general authority to institute legal proceedings in the name of Ms Dalwood. Under the heading “Legal Proceedings” the directions made by the Court empowered Ms Movsas to employ a solicitor from time to time for the purpose of carrying out any necessary legal work in connection with the management of Ms Dalwood’s property, both real and personal, but not actual management or commencement of legal proceedings. However, under the heading “Further Applications” Ms Movsas was directed to make any and/or further applications to the Court as to the administration and management of the property to the office of the Protective Commissioner. Pursuant to that direction Ms Movsas made several applications to the Commissioner and received several specific authorities. Importantly, on 30 March 2001, the Protective Commissioner authorised and empowered Ms Movsas to employ solicitors and counsel to conduct proceedings to recover legal costs in respect of, inter alia, the Essendene proceedings. It was in pursuance of this authority that Ms Movsas gave instructions to obtain an assessment of costs, and to obtain a certificate of judgment in the Local Court for those costs, as well as to resist the application for payment by instalments. Ms Movsas relies upon the same authority for the bringing of the bankruptcy notice, given that the judgment debt has not been paid.
Mr Walsh relied upon the exclusion of legal proceedings from the general powers conferred on Ms Movsas by the Supreme Court in its directions on 16 December 1996. He also relied upon the decision of the Full Federal Court in Re Kassab; ex parte Commissioner of Taxation (1994) 55 FCR 305 in support of the proposition that while the issuing of a bankruptcy notice is not the commencement of a legal proceeding it is a proceeding in relation to property which is significantly related to legal proceedings in as much as the debtor, on receipt of a bankruptcy notice, must either comply with it or apply to this Court or to the Federal Court to set it aside. Mr Walsh concedes that Ms Movsas was given authority on 30 March 2001 to recover as a debt the legal costs that had been awarded but asserted that bankruptcy proceedings, including the issuing of a bankruptcy notice, are not proceedings for the recovery of a debt. The question, therefore, is whether the authority granted to Ms Movsas on 30 March 2001 to take proceedings for the recovery of costs was sufficient to support the issuing of the bankruptcy notice. If it was then, subject to the issue of the requirement of a tutor or litigation guardian, Ms Movsas could rely upon s.308 of the Bankruptcy Act to obtain the bankruptcy notice in the name of Ms Dalwood.
Re Kassab was a case concerning a creditor’s petition. It is clear from the observations made by the Full Court at page 313 of the report of that decision that the Court rejected the proposition that bankruptcy proceedings were proceedings for the recovery of an income tax debt. Their Honours pointed out that a creditor’s petition invokes the jurisdiction of a court in bankruptcy to make a sequestration order which will enable the debtor’s estate to be administered in bankruptcy for the benefit of his or her creditors generally. The order of sequestration, if made, transforms the position of the petitioning creditor and of the unsecured creditors generally. It follows that a creditor’s petition should not be regarded as a debt recovery proceeding. It is a proceeding seeking an order for the orderly management of the affairs of a debtor.
However, there is a distinction between a bankruptcy notice and a creditor’s petition. A bankruptcy notice is not a legal proceeding at all and is similar to the making of a statutory demand for payment of a debt under the Corporations Law. It is a form of process putting a debtor on notice that if a debt is not paid by a certain time then a sequestration order may be sought against the debtor. While it is true that the courts have, from time to time, disapproved of the use of bankruptcy notices as a tool to seek to compel payment of debts from solvent debtors, bankruptcy notices are in fact a part of ordinary debt recovery processes. Bankruptcy notices have on occasion been set aside in circumstances where the debtor clearly had the capacity to pay but was simply refusing to pay. In this case, nothing has been put before me on either side as to the capacity of the applicant to pay the debt. In any event, I do not draw from the decision in Re Kassab support for the proposition put by Mr Walsh that a bankruptcy notice is not a step forming part of the process of debt recovery which Ms Movsas was authorised to take pursuant to the authority given to her on 30 March 2001.
Nevertheless, Mr Walsh submitted that a tutor or litigation guardian should have been appointed for the purpose of issuing the bankruptcy notice. Mr Walsh conceded that a bankruptcy notice is not a legal proceeding but pointed out that it was akin to a legal proceeding in as much as the debtor was compelled to commence a legal proceeding if he or she chose not to comply with the bankruptcy notice. There are several difficulties with that argument. The first is that the requirement for a tutor or litigation guardian derives from rules of court governing the institution and conduct of legal proceedings in the court. In the case of this Court the matter is dealt with under division 11.2 of the Federal Magistrates Court Rules. I made orders for the appointment of Ms Movsas as the litigation guardian of the respondent for the purposes of these present proceedings. However, it is clear from Rules 11.08 and 11.09 that the requirement for a litigation guardian only arises once a legal proceeding has been commenced in the Court. Accordingly, there is no need for a litigation guardian to be appointed before a bankruptcy notice can be issued. The need for a litigation guardian only arises if an when legal proceedings are instituted in relation to that bankruptcy notice. The need for a litigation guardian arises in accordance with the rules of court, not on the basis of what might have been the position under the general law, well before the enactment of the Bankruptcy Act: Re Brocklebank (1877) 6 Ch D 358.
The other difficulty with the argument is that this Court and the Federal Court have concurrent jurisdiction under the Bankruptcy Act. The Federal Court operates under rules in relation to tutors. This Court operates under rules in relation to litigation guardians. The rules are not the same. There would be no basis upon which a creditor could determine whether a tutor or litigation guardian should be appointed prior to the institution of any proceedings in the Federal Court or this Court because the creditor would not know whether a tutor or litigation guardian was appropriate.
I find, therefore, that the appointment of a tutor or litigation guardian was not required for the issuing of the bankruptcy notice at issue in these proceedings and the authority given to Ms Movsas by the Protective Commissioner on 30 March 2001 for the recovery of legal costs was sufficient to empower her to obtain the bankruptcy notice. I do not think, however, that that authority would support the institution of bankruptcy proceedings in the form of a creditor’s petition, for the reason that, as was established in Re Kassab, such bankruptcy proceedings are not debt recovery proceedings. A specific authority would be required from the Protective Commissioner before Ms Movsas was empowered to file a creditor’s petition. Mr George, for the respondent, sought to distinguish Re Kassab by reference to s.24 of the Protected Estates Act which sets out the powers as to property in the management of states by the Protective Commissioner. In addition to a range of powers relating to the management of property the Commissioner is specifically empowered to bring and defend legal proceedings on behalf of a protected person. However, that power has been withheld from Ms Movsas by the Supreme Court, subject to such specific authorisations as may be made by the Protective Commissioner. The only relevant authority Ms Movsas has received from the Protective Commissioner is to take legal proceedings to recover a debt. Legal proceedings seeking a sequestration order do not fit that description. A specific authority from the Protective Commissioner would be required to support sequestration action.
As I have already noted, it was conceded, on behalf of the applicant, that if the authority of Ms Movsas was established and it was established that a tutor or litigation guardian was not required for the bankruptcy notice, then there was no challenge to the form of the bankruptcy notice, noting that the form of the bankruptcy notice was in compliance with the form prescribed by the Bankruptcy Regulations and that Ms Movsas disclosed that she was acting as the creditor’s authorised agent in the bankruptcy notice. Nevertheless, I see some need to consider s.308 of the Bankruptcy Act in this regard as it was not clear at trial whether that agency derived from s.308(d) or s.308(c) of the Bankruptcy Act.
Section 308 of the Bankruptcy Act does not appear to have been the subject of any reported judicial consideration, except in relation to companies. The section relevantly provides that, subject to the Bankruptcy Act, for the purposes of the Act:
(c) a person of unsound mind may act by a person authorized or empowered by law to act for him or her; and
(d) any person may act by his or her agent duly authorized in that behalf.
The words “person of unsound mind” in s.308(c) is a now outmoded term which has been superseded by the term “patient”. The term “patient” is defined in s.4 of the Protected Estates Act as having the same meaning as in the Mental Health Act 1990 (NSW). Essentially, this means a person who is suffering a mental disability. It is clear from the Protected Estates Act that that Act deals with the management of estates of “patients” and other persons who are not “patients” but who are otherwise incapable of managing their affairs. Ms Dalwood has a physical infirmity as a result of the brain stem infarction she suffered which is preventing her from managing her own affairs. She is not, however, in my view a “patient”. It follows that she is not, in my view, a “person of unsound mind” for the purposes of s.308. Accordingly, for the purposes of the Bankruptcy Act, Ms Movsas’ agency was supported by s.308(d). Accordingly, no issue arises as to the form of bankruptcy notice obtained by Ms Movsas. That notice disclosed, in accordance with the prescribed form, that Ms Movsas was not the creditor but was the creditor’s authorised agent. The prescribed form does not offer any other alternative. What then the position would have been if Ms Dalwood had been a person of unsound mind one is left to speculate about. Parliament drew a distinction in s.308 between persons authorised by law to act for persons of unsound mind, and agents. The prescribed form of bankruptcy notice draws no such distinction. The intention may have been to reduce the four distinctions as to capacity set out in s.308 to two in the prescribed form of bankruptcy notice. That appears to me to be the likely result but I do not have to resolve that issue in these proceedings.
For the foregoing reasons I have decided that the application should be dismissed. I will hear the parties as to costs.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 20 November 2001