Jennings v Over 50s Mutual Friendly Society Limited

[2007] FCA 430

FEDERAL COURT OF AUSTRALIA

Jennings v Over 50s Mutual Friendly Society Limited [2007] FCA 430

KENNETH ROSS JENNINGS v OVER 50S MUTUAL FRIENDLY SOCIETY LIMITED (ACN 087 649 054) AND OFM CAPITAL LIMITED (ACN 007 108 509)

VID 1669 OF 2005

MARSHALL J
23 MARCH 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1669 OF 2005

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

KENNETH ROSS JENNINGS
Appellant

AND:

OVER 50S MUTUAL FRIENDLY SOCIETY LIMITED
(ACN 087 649 054)
First Respondent

OFM CAPITAL LIMITED (ACN 007 108 509)
Second Respondent

JUDGE:	MARSHALL J
DATE OF ORDER:	23 MARCH 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal is dismissed.

2.The appellant pay the respondents' costs of the appeal, such costs to be treated as costs of the petitioning creditors in the bankruptcy.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1669 OF 2005

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

KENNETH ROSS JENNINGS
Appellant

AND:

OVER 50S MUTUAL FRIENDLY SOCIETY LIMITED (ACN 087 649 054)
First Respondent

OFM CAPITAL LIMITED (ACN 007 108 509)
Second Respondent

JUDGE:	MARSHALL J
DATE:	23 MARCH 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. Mr Jennings is a bankrupt. A Federal Magistrate sequestrated his estate. He appeals from that order to this Court. The Court below made the sequestration order after dealing with a creditors’ petition issued by the respondent creditors in reliance on a bankruptcy notice issued on 9 August 2005 (‘second bankruptcy notice’). Mr Jennings contends that the issue and service of that bankruptcy notice was an abuse of process. His Honour below rejected that contention. The issue for current determination is whether his Honour correctly rejected that contention.

   FACTUAL BACKGROUND

2. The respondents obtained a judgment against Mr Jennings in the Supreme Court of Victoria in the sum of $175,859.31. They issued a bankruptcy notice (‘first bankruptcy notice’) and served it on Mr Jennings on 17 December 2004. They issued a creditors’ petition, in reliance on that notice, in January 2005 (‘first creditors’ petition’).

3. On 4 August 2005, the first creditors’ petition came on for hearing before Registrar Wood. The Registrar referred to an apparent defect in the bankruptcy notice and adjourned the hearing of the creditors’ petition to 22 August 2005.

4. On 9 August 2005 the respondents issued the second bankruptcy notice.

5. On 15 August 2005, the respondents informed Mr Jennings that they intended to withdraw the first creditors’ petition at the 22 August 2005 hearing, with no order as to costs. In a later communication that day Mr Jennings’ solicitors told the respondents’ solicitors:

   ‘(W)e assume from the tenor of your letter of today’s date that you do not intend to pursue the creditor’s petition….’

6. On 16 August 2005, the respondents’ solicitors told Mr Jennings’ solicitors that they would seek costs against Mr Jennings at the 22 August 2005 hearing, unless he consented to the withdrawal of the first creditors’ petition, with no order as to costs. Later that day, Mr Jennings received in the mail the second bankruptcy notice.

7. On 17 August 2005, Mr Jennings’ solicitors wrote to the respondents’ solicitors giving his consent to the withdrawal of the first creditors’ petition, with no order as to costs.

8. On 9 September 2005, the respondents issued a creditors petition in reliance on the second bankruptcy notice (‘second creditors’ petition’). The hearing of that petition led to the orders the subject of the appeal.

   MR JENNING’S CONTENTIONS

9. Mr Jennings submits that an abuse of process arises from the overlap between the second bankruptcy notice served on 16 August 2005 and the first creditors’ petition based on the first bankruptcy notice, concerning the same debt.  Mr Jennings contends that on 16 and 17 August 2005, the respondents availed themselves of two competing notices.  He says that this situation left him uncertain as to how, or whether, he should respond to the second bankruptcy notice.  He contends that the Federal Magistrate wrongly characterised the period of confusion to be too brief to work a substantial abuse of process justifying the dismissal of the second creditors’ petition.  This is because of the ‘quasi-penal’ nature of sequestration and the strict time limits to comply with the bankruptcy notices provided for by the Bankruptcy Act 1966 (Cth).

10. Mr Jennings accepts that a creditor is entitled to issue a second bankruptcy notice to cure a defect in an earlier notice. However, he contends that the creditor must elect as to which notice he intends to rely on, so the debtor knows which notice is the one with which compliance is necessary.  This is because it is the purpose of the bankruptcy notice to inform the debtor to whom, and what amount, he or she must pay to avoid an act of bankruptcy.

    THE RESPONDENTS’ CONTENTIONS

11. The respondents submit that it is permissible to issue two successive bankruptcy notices concerning the same judgment debt and this can be done to overcome perceived defects in the first notice.

12. The respondents contend that for Mr Jennings’ submissions to succeed, the Court must be satisfied that the circumstances surrounding the issue of the second notice make it an abuse of process.

13. The respondents submit that the issuing of the second notice may be an abuse of process if it occurs for the purpose of embarrassing the debtor or is affected by bad faith.

14. The respondents accept that where a creditor issues two bankruptcy notices, the creditor is required to elect which notice the debtor is required to comply with and the failure to make and convey such an election may be an abuse of process.  The respondents further accept that the creditor must avoid causing confusion to the debtor about what he or she should do to avoid an act of bankruptcy.

    CONSIDERATION

15. I do not consider that the service and issuing of the second bankruptcy notice amounted to an abuse of process.  The respondents served their second bankruptcy notice because they desired to overcome a perceived defect in the first notice.  They did not intend to embarrass or confuse Mr Jennings. 

16. The shortness of time after receiving the second bankruptcy notice after which Mr Jennings was able to give instructions to his solicitors to agree to a withdrawal of the first creditors’ petition shows that Mr Jennings was not embarrassed or confused.  The inescapable conclusion is that he was well aware that the respondents intended to rely on the second bankruptcy notice and not on the first bankruptcy notice or on the first creditors’ petition. The facsimile transmission received by his solicitors mid-afternoon on 16 August 2005, before he received the second bankruptcy notice, must be seen in the context of the dispute between the parties as to the costs consequences of the withdrawal of the first creditors’ petition in circumstances where the respondents were pressing for its withdrawal, albeit without formally conceding a defect in it.  There was no abuse of process, whether ‘substantial’ or otherwise.

17. I agree with counsel for the respondents that Mr Jennings was not required to make an election between compliance with the first creditors’ petition and the second bankruptcy notice. The day before the service of the second bankruptcy notice, the respondents' solicitors informed Mr Jennings’ solicitors of their intention to withdraw the first creditors’ petition.  They were unable to do so without leave of the Court (see s 47(2) of the Bankruptcy Act).  

18. The respondents issued a notice of contention in which they took issue with some findings of the Court below.  As the appeal has not succeeded, it is unnecessary to deal with those grounds.  The Court orders as follows:

    (1)the appeal is dismissed;

    (2)the appellant pay the respondents' costs of the appeal, such costs to be treated as costs of the petitioning creditors in the bankruptcy.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.

Associate:

Dated:        23 March 2007

Counsel for the Appellant:	Mr S Minahan
Solicitor for the Appellant:	Mitrakas Savas & Co
Counsel for the Respondent:	Mr M Galvin
Solicitor for the Respondent:	Logie-Smith Lanyon
Date of Hearing:	23 March 2007
Date of Judgment:	23 March 2007