La Pegna v Deputy Commissioner of Taxation

[2006] FMCA 1643

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LA PEGNA v D.C.T. [2006] FMCA 1643

BANKRUPTCY – Application to set aside notice – adjournment – extension of time for compliance – failure to file accompanying affidavit with application – jurisdictional objection – whether formal defect or irregularity.

PRACTICE AND PROCEDURE – Adjournment.

Bankruptcy Act 1966, ss.41(5),(6A), 306(1)
Federal Court Act, 1976 (Cth), s.51(1)
Federal Magistrates Act, 1999 (Cth), s.57(1)
Federal Magistrates Court Bankruptcy Rules, 2006 rr. 3.02 and 3.03

Adams v Lambert (2006) 3 ABC(NS) 835, [2006] HCA 10
ASIC v Forge (2003) 133 FCR 487
Hubner v ANZ Banking Group Ltd [1998] FCA 1779
Hubner v Australia and New Zealand Banking Group Ltd (1999) 88 FCR 445; [1999] FCA 385
Myers v Myers [1969] WAR 19
Re Athans, Ex parte Athans (1991) 29 FCR 302
Re Geard, Ex parte Reid (unreported, Federal Court of Australia, Sheppard J, 11 February 1994)
Re Lentini & Anor; Ex parte Lentini & Anor v CSR Limited(t/as The Readymix Group) (1991) 29 FCR 363
Re Riordan; Ex parte Riordan v Direct Acceptance Corporation Ltd (1995) 63 FCR 147
Sali v SPC Ltd (1993) 116 ALR 625
Streimer v Tamas (1981) 37 ALR 211
Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337

First Applicant:	LUIGI LA PEGNA
Second Applicant:	MARIANTONIA LA PEGNA

Respondent: DEPUTY COMMISSIONER OF TAXATION

File Number: (P)PEG206 of 2006

Judgment of: Lucev FM

Hearing dates: 18 & 30 October 2006

Date of Last Submission: 30 October 2006

Delivered at: Perth

Delivered on: 6 November 2006

REPRESENTATION

Counsel for the Applicant: Mr F Carles

Solicitors for the Applicant: Carles Solicitors

Counsel for the Respondent: Ms C Thompson

Solicitors for the Respondent: ATO Legal Services Branch

ORDERS

1. The First Applicant’s Application for adjournment of the Application be dismissed.

2. That the First Applicant’s Application be dismissed, both as to interim and final relief.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

(P)PEG206 of 2006

LUIGI LA PEGNA

First Applicant

MARIANTONIA LA PEGNA

Second Applicant

And

DEPUTY COMMISSIONER OF TAXATION

Respondent

REASONS FOR JUDGMENT

Application and orders sought

1. By application dated 18 August 2006 (“the Application”) the applicants sought:

   a)interim orders for the time for the applicants to comply with the Bankruptcy Notice dated 17 May 2006 to be extended until 14 days after final determination of the Application; and

   b)final orders that:

   i)the Bankruptcy Notice dated 17 May 2006 be set aside; and

   ii)the Respondent pay the Applicants’ costs of this Application.

2. It is common ground that no affidavit in support of the Application was filed until the time for compliance with the Bankruptcy Notice had expired. The First Applicant did not file an affidavit until 24 August 2006.

Substantive issues – the facts

1. On 7 February 2006 the Respondent issued proceedings against the First Applicant in the District Court of Western Australia.[1] 

   [1]  Proceedings were also issued against the Second Applicant, but by reason of the dismissal of the Application in relation to the Second Applicant, save as to costs, those proceedings are irrelevant. 

2. The sum claimed was $343,391.48.[2]

   [2]  Affidavit of Luigi La Pegna sworn 24 August 2006 (“La Pegna’s 24 August Affidavit”) para. 1 and Annexure GLP1.

3. On 11 May 2006 the Respondent entered default judgment in the amount of $314,843.83 against the First Applicant.[3]

   [3]  La Pegna’s 24 August Affidavit, para.5 and Annexure GLP2; Affidavit of Christopher Simon Lee Agostini sworn 28 August 2006 (“Agostini’s 28 August Affidavit”), para. 3 and Annexure CSLA1.

4. It appears that the judgment debt comprised:

   a)$258,001.19 in respect of a Running Balance Account (“RBA”) deficit debt (together with general interest charged calculated up to and including 4 May 2006) due and payable by the First Applicant in his capacity as a partner in partnership with the Second Applicant as L & M La Pegna;

   b)$56,147.14 in respect of an RBA deficit debt (together with general interest charged calculated up to and including 4 May 2006) due and payable by the First Applicant in his own personal capacity; and

   c)$695.50 in respect of costs.[4]

   [4]  Agostini’s 28 August Affidavit, para. 5.

5. A Bankruptcy Notice issued to the First Applicant on 17 May 2006.[5]  Between 11 and 17 May 2006 no payments were made by the First Applicant, and no credits were available to the First Applicant, to reduce the judgment debt.[6]

   [5]  Agostini’s 28 August Affidavit, para. 7 and Annexure CSLA3.

   [6]  Agostini’s 28 August Affidavit, para. 13.

6. The Bankruptcy Notice was personally served on the First Applicant on 29 July 2006.[7]

   [7]  La Pegna’s 24 August Affidavit, para. 8; Agostini’s 28 August Affidavit, para. 11.

Proceedings to 18 October 2006

1. The Application came before Registrar Gilich on 30 August 2006. Registrar Gilich made certain orders for the filing of affidavits and submissions and otherwise adjourned the matter for hearing before me at 10.15 am on 18 October 2006.  No orders were made with respect to the interim orders sought by the Applicants.

2. When the matter came before me on 18 October 2006 I made further orders in relation to the First Applicant (Luigi La Pegna) with respect to the filing and service of affidavits and submissions by the parties, and otherwise adjourned the matter to 2.15 pm on 30 October 2006. 

   
   

   In relation to the Second Applicant (Mariantonia La Pegna) the Application was dismissed save as to costs. 

3. On 18 October 2006 counsel appeared for the First Applicant, but only to argue for an adjournment.  The basis for the adjournment then sought was that there was said to be a conflict of interest between the solicitors acting for the First Applicant and the First Applicant. 

   
   

   The conflict was said to arise from the Respondent’s objections to the Application, those objections relevantly including the First Applicant’s alleged failure to comply with rr 3.02 and 3.03 of the Federal Magistrates Court Bankruptcy Rules, 2006 (“FMC Bankruptcy Rules”) by reason of the failure of the First Applicant to file an accompanying affidavit setting out the grounds for setting aside the Bankruptcy Notice when it filed the Application.[8]

   [8]   Respondent’s Submissions, 16 October 2006, paras. 11, 13 and 23-25 (“Respondent’s Submissions”); Affidavit of Paul Thomas Williams sworn 18 October 2006 (“Williams Affidavit”), paras. 1-4 and Annexures PTW 1-3.

4. The First Applicant’s then solicitors asserted that the effect of the conflict of interest was that their retainer (and that of counsel) must be suspended, and possibly terminated, pending receipt of independent legal advice concerning the alleged conflict of interest.[9]

   [9]   Williams Affidavit, para. 2 and Annexures PTW 1 and 2.

5. Over objection from the Respondent I held that an adjournment ought be granted.  Argument followed as to the period for which an adjournment ought be granted.  I was persuaded by submissions from counsel for the First Applicant that the matter ought to be adjourned to 30 October 2006, rather than the afternoon of 20 October 2006. 

   
   

   This was to allow the First Applicant to obtain appropriate advice on the alleged conflict of interest, and, if necessary, brief new solicitors and counsel.  It was on that basis that the proceedings were adjourned to 30 October 2006 for further hearing of the Application.  It was, or ought to have been, in my view, apparent to all parties that it was the manifest intention of the Court to hear the matter to finality on

   
   

   30 October 2006. I note that counsel for the First Applicant actually sought a longer adjournment (than to 30 October 2006), which I refused to grant.

Events from 18 October 2006 to 30 October 2006

1. On Friday 20 October 2006 Paul Williams of Williams & Co, the former solicitors for the First Applicant telephoned Mr Carles of Carles Solicitors and left an urgent message for Mr Carles to contact him. 

   
   

   Mr Carles did so, and was informed by Mr Williams that a conflict of interest had arisen and asked whether Mr Carles would be able to act in this matter.  Mr Carles agreed to meet with the First Applicant the following Monday, 23 October 2006.[10]

   [10]  Affidavit of Alan Francois Carles sworn 26 October 2006 (“Carles’ Affidavit”), para. 2.

2. Mr Carles received “certain relevant documents” from Williams & Co on 23 October 2006,[11] and on 24 October 2006 requested further relevant documents from Williams & Co.[12] Carles says that as at 12.45 pm on 26 October 2006 he was yet to receive the further documents requested by him from Williams & Co. He says that he particularly sought clarification as to whether a notice was given under s.41(5) of the Bankruptcy Act, 1966 (Cth) (“Bankruptcy Act”) and whether an extension of time for compliance with the Bankruptcy Notice had been obtained.  He says that these issues have a considerable bearing on the submissions to be made on behalf of the First Applicant.[13]

   [11]  Carles’ Affidavit, para. 3.

   [12]  Carles’ Affidavit, para. 4.

   [13]  Carles’ Affidavit, para. 7.

3. Carles met with the First Applicant on 23 October 2006.  He obtained instructions to put an offer to the Respondent to resolve the matter.[14]  There followed an exchange of correspondence between the First Applicant’s solicitors and representatives of the Respondent.[15]  Following the rejection of the offer to resolve the matter by the Respondent the First Applicant’s solicitors telephoned Mr Hershowitz, who had appeared as counsel for the First Applicant in the proceedings on 18 October 2006, with a view to briefing him to appear at the hearing on 30 October 2006.  Mr Hershowitz was unavailable. 

   
   

   Mr Hershowitz does not appear to have been contacted until

   
   

   26 October 2006.[16]

   [14]  Carles’ Affidavit, para. 3.

   [15]  Carles’ Affidavit, para. 5.

   [16]  Carles’ Affidavit, paras. 5 and 6 and Annexure A.

4. On 26 October 2006 a Notice of Change of Solicitor was filed with the Court by Carles Solicitors, replacing Williams & Co, for the First Applicant.

Hearing on 30 October 2006

1. At the hearing on 30 October 2006 the First Applicant made a further application for adjournment.  The First Applicant requested an adjournment of “a further two weeks from 30 October 2006 in order to properly assess the facts and the legal issues and to properly present the First-Named Applicant’s case.”[17] 

   [17]  Carles’ Affidavit, para. 8.

The First Applicant’s further bases for adjournment application

1. The First Applicant also sought that the proceedings be adjourned (and an order extending the time for compliance of the Bankruptcy Notice be made) to enable the amount claimed in the Bankruptcy Notice to be paid in full upon settlement of the sale of the South Perth property, which sale, it was asserted would make the debtor solvent.[18]

   [18]  First-Named Applicant’s Outline of Submissions filed 27 October 2006 (“”First Applicant’s 27 October Submissions”), para. 5.

Adjournment and application – determination

1. The First Applicant relies on the history of the proceedings to support an adjournment.  It says that:

   a)the Respondent’s objections to the Application based on the alleged failure to comply with rr.3.02 and 3.03 of the FMC Bankruptcy Rules was first raised in submissions on 16 October 2006;[19] and

   b)the First Applicant’s former solicitors acted promptly and reasonably in referring the matter to the current solicitors, and the current solicitors also acted promptly and reasonably, including seeking to brief counsel who had previously been brief by the former solicitors in the matter.[20]

   [19]  First Applicant’s 27 October Submissions, para. 3.

   [20]  First Applicant’s 27 October Submissions, para. 4.

2. The Respondent opposes the Application to adjourn based on the history of the proceedings.  It says that the former solicitors had failed to take any action until 20 October 2006, and it was not until

   
   

   23 October 2006 that new solicitors were retained.  The Respondent says that the new solicitors have had the opportunity to consider the matter for a week from the date of their appointment, in circumstances where the issues would have been argued, but for the Respondent’s objection, on 18 October 2006.[21]

   [21]  Respondent’s Supplementary Submissions in Opposition to First-Named Applicant’s Application to Set Aside Bankruptcy Notice filed 30 October 2006 (“Respondent’s Supplementary Submissions”), paras. 2-4.

3. No further adjournment will be granted.  By the time the current application for adjournment was made the Application had been on foot for two months.  It is significant to note that the First Applicant says it needs a further two weeks to assess the facts and legal issues, when this was exactly what was contemplated when the last adjournment was granted to allow exactly that to happen, after the new solicitors had been appointed. That adjournment was for 12 days, that is, almost two weeks. Further, it is appropriate to note that, notwithstanding all that has happened, no steps have been taken by the First Applicant’s solicitors (either former or current) to brief specialist tax counsel. This is a matter which counsel for the First Applicant suggested in argument might be necessary.  There was no evidence before the Court of steps taken to brief specialist tax counsel, and counsel for the First Applicant conceded that it was a matter which had only “dawned” on him in the “last couple of days”, but it remains the case that no steps (not even seemingly a phone call) to brief specialist tax counsel have yet been taken.

4. The proceedings were specifically adjourned to 30 October 2006 to hear the matter.  The proceedings were adjourned to 30 October 2006, and not 20 October 2006, over objection from the Respondent. 

   
   

   In ordinary circumstances the conduct for the solicitors for the First Applicant might not be considered dilatory.  But, in the circumstances of this case, where the matter has been adjourned to a specific date for hearing, and a request for a longer adjournment had already been rejected, it is my view that the conduct of both the former and current solicitors was dilatory.  The former solicitors took two days from the time of the last hearing before contacting the current solicitors.  It was five days after the last hearing before the First Applicant was seen by the current solicitors. The current solicitors, rather than concurrently briefing counsel and trying to settle the matter, simply sought to settle the matter and left the briefing of counsel until 26 October 2006, that is, the second last working day before the hearing.  Further, in the face of what the First Applicant says are complex tax issues, specialist tax counsel has not been briefed (despite the recognition of the need to do so), and it would appear that nothing, or almost nothing (not even a telephone call) has been done in that regard. 

5. Whether an appeal is granted is a matter of discretion, having regard to case management issues[22] and the prejudice to the parties.[23]  

   
   

   The jurisdictional objection aside, the First Applicant (and the Respondent) ought to have been ready to argue this matter on

   
   

   18 October 2006.  The matter was specifically adjourned to 30 October 2006 to allow the First Applicant to deal with the jurisdictional objection.  As I have observed above, in the particular circumstances of this case, the First Applicant has been dilatory.  The Respondent ought not be prejudiced by further delay. Having now got the matter up twice, and, on the face of the Bankruptcy Notice, being a creditor for a substantial debt, there is a prejudice to the Respondent if the matter is further adjourned.  There may also be prejudice to other creditors, and I take that, and the public or community interest, into account also in refusing an adjournment on this ground.[24]

   [22] Sali v SPC Ltd (1993) 116 ALR 625 at 629 per Brennan, Deane and McHugh JJ.

   [23] Myers v Myers [1969] WAR 19 at 21 per Jackson J.

   [24] ASIC v Forge (2003) 133 FCR 487 at 489 and 491 per Branson and Stone JJ, [2003] FCAFC 274 at paras 9 and 15 per Branson and Stone JJ, FCR 493 per Emmett J, FCAFC paras 27, 29 and 30 per Emmett J (“Forge”).

6. I also reject the Application for an adjournment based on the forthcoming settlement of the sale of the South Perth property, and the assertion that as a consequence of that, the First Applicant will be solvent.

7. I do so because solvency of the debtor is not a ground on which to set aside a bankruptcy notice properly obtained.[25] If the debtor is solvent a court may refuse to grant a sequestration order, if that order is sought.[26] As Counsel for the Respondent, Ms Thompson, properly points out, the bankruptcy process is not debt collection.[27]

   [25] Re Athans, Ex parte Athans (1991) 29 FCR 302 at 310 per Hill J (“Athans”).

   [26] Athans at 310 per Hill J.

   [27] Athans at 311 per Hill J.

8. It must be remembered that issuance of a bankruptcy notice based on properly issued final judgment, followed by a failure to comply with the bankruptcy notice, brings about an act of bankruptcy upon which all creditors, and not merely the Respondent, can found a petition.[28]  

   
   

   It does not require a bankruptcy notice founded upon a judgment debt provable in bankruptcy.[29]  Furthermore, the legislative purpose is to “identify markers or criteria that point towards insolvency”.[30]  That is done for the benefit of the public, and that is a benefit to which the Court must have regard when exercising a discretion which is not a general discretion (as is, for example, the jurisdiction to make a sequestration order).[31]  Part of that public interest, as well as a matter in the interests of creditors generally, is to ensure that in the determination of the relation back date no unfair advantage is obtained by the better informed or more resolute creditors.[32]

   [28] Athans at 311 per Hill J; Re Geard, Ex parte Reid (unreported, Federal Court of Australia, Sheppard J, 11 February 1994); Byron at 270 per Lehane J.

   [29] Forge FCR at 490-491 per Branson and Stone JJ, FCAFC at para 15 per Branson and Stone JJ, FCR 494 per Emmett J, FCAFC paras 32-33 per Emmett J.

   [30] Forge FCR at 493 per Emmett J, FCAFC at para 30 per Emmett J.

   [31] Forge FCR at 491 per Branson and Stone JJ, FCAFC at para 15 per Branson and Stone JJ, FCR at 493 per Emmett J, FCAFC paras 27, 29 and 30 per Emmett J.

   [32] Forge FCR at 489 per Branson and Stone JJ, FCAFC at para 9 per Branson and Stone JJ.

9. The application for a further adjournment is therefore rejected.

Extension of Time for Compliance

1. In this case the First Applicant has not appealed, and not sought to stay, the judgment on which the judgment debt is based. Given that default judgment was granted, no defence having been filed, and that judgment was handed down on 11 May 2006, there would now probably be no point in seeking to appeal, or seeking a stay. Thus, s.1(6A)(a) of the Bankruptcy Act is not relied on for the extension of time for compliance. Rather, s.41(6A)(b) of the Bankruptcy Act is relied on.  

   
   

   It provides that where an application has been made to the Court to set aside a bankruptcy notice, before the time for compliance with the bankruptcy notice has expired, the Court may extend time.[33]

   [33] Subject to s 41(6C) of the Bankruptcy Act, which is not presently relevant.  

2. The question arises as to what constitutes an application, and whether absent an affidavit setting out the grounds of the application there is in fact an application, or an application in accordance with the Bankruptcy Act.  This is intertwined with the question of whether a failure to file the affidavit in support of the Application is a formal defect or irregularity, and this issue must be considered before determining whether time for compliance ought to be, or can be, extended.

Formal Defect or Irregularity

1. The Respondent says that to enliven the Court’s jurisdiction to set aside a bankruptcy notice both the Application and accompanying affidavit must have been filed within the time allowed  for compliance with the Bankruptcy Notice, that this has not occurred in this case, and that there is therefore no discretion to extend time.

1. The First Applicant says that the Application was filed in time, and it is only the accompanying affidavit which was filed out of time, but that that failure is a formal defect or irregularity capable of cure under s.306(1) of the Bankruptcy Act.

2. Both parties referred to Hubner v ANZ Banking Group Ltd[34] [1998] FCA 1779 (“Hubner”), a decision of Dowsett J. In Hubner an application to set aside a bankruptcy notice was challenged on the basis that no affidavits accompanied the application to set aside, as required by O.77 r.13 of the Federal Court Rules (“FC Rules”).  Dowsett J referred to s.51(1) of the Federal Court Act, 1976 (Cth) (“FC Act”) which provided that no proceedings in the Federal Court are invalidated by a formal defect or irregularity.

   [34] [1998] FCA 1779 (“Hubner”).

3. Section 51(1) of the FC Act is in very similar terms to s.306(1) of the Bankruptcy Act, and almost identical terms to s.57(1) of the Federal Magistrates Act, 1999 (Cth) (“FM Act”).  In both instances they are certainly terms to the same effect as s.51(1) of the FC Act.  Both s.51(2) of the FC Act and s.57(2) of the FM Act go on to provide the respective courts with power to make a declaration that a proceeding is not invalidated by reason of a formal defect or irregularity.

4. In Hubner, Dowsett J made a simple one line pronouncement:

   “Undoubtedly, the failure to file appropriate affidavits constituted a formal defect or irregularity.”

5. Dowsett J did not analyse what might constitute a formal defect or irregularity. Section 306(1) of the Bankruptcy Act was not referred to.[35]  No authority was cited.

   [35] Had s.306(1) of the Bankruptcy Act been referred to it might have made no difference given the similarity of its terms with s 51(1) of the FC Act.

6. Hubner was appealed.[36]  In Hubner Appeal the Full Court of the Federal Court noted that Dowsett J “held that the proceedings were defective in that the applications to set aside the bankruptcy notice were not accompanied by appropriate affidavits” as required by the FC Rules.[37]  There is however no analysis of what constitutes a formal defect or irregularity, and no examination of the relevant provisions of any Act, Regulations or Rules.

   [36] Hubner v Australia and New Zealand Banking Group Ltd (1999) 88 FCR 445; [1999] FCA 385 (“Hubner Appeal”).

   [37] Hubner Appeal FCR at 447 per Cooper, Keifel and Tamberlin JJ, FCA at para 10 per Cooper, Keifel and Tamberlin JJ. Interestingly, the Full Court did not say that this was a formal defect or irregularity, but it probably does not matter as it is probably implied in their further finding that they were “not satisfied that any error has been shown in the reasons of [Dowsett J]”: Hubner Appeal FCR at 447 per Cooper, Keifel and Tamberlin JJ, FCA at para 12 per Cooper, Keifel and Tamberlin JJ.

7. The First Applicant’s 27 October Submissions rely heavily on the decision in Re Lentini & Anor; Ex parte Lentini & Anor v CSR Limited (t/as The Readymix Group).[38]  In Lentini Neaves J held that “it is not essential that the affidavit in support be filed within the time [for compliance].  It is sufficient if the affidavit is filed within a reasonable time”.[39]  Thus, the application to set aside was “properly to be treated as an application to set aside the bankruptcy notice though on unspecified grounds”.[40]

   [38] (1991) 29 FCR 363 (“Lentini”).

   [39] Lentini at 373 per Neaves J.

   [40] Lentini at 373 per Neaves J.

8. The decision in Lentini was squarely based on rr.102 and 103 of the Bankruptcy Rules, 1968 (Cth). Rule 102 which provided for the application to set aside to be made did “not require that the grounds upon which the order is sought be stated.”[41]  Rule 103 required the filing of an affidavit in support of the application to set aside to state the grounds on which the order sought in the application should be made, but did not prescribe when the affidavit had to be filed.[42]

   [41] Lentini at 373 per Neaves J.

   [42] Lentini at 373 per Neaves J. I note that counsel for the Respondent tendered a copy of rr.102 and 103 in the hearing, and I have had an opportunity to check the wording against the decision of Neaves J, and it suffices to say, with respect, that the import of rr.102 and 103 is accurately put in Lentini at 373.

9. Lentini is distinguishable because it was based on the Bankruptcy Rules, 1968 which are different in form, and do not contain in rr.102 and 103, the seemingly mandatory requirement in r.3.01 of the FMC Bankruptcy Rules that the application “must” be accompanied by an affidavit stating the grounds in support of the application. Lentini is further distinguishable because it does not consider s.306(1) of the Bankruptcy Act, or any statutory equivalent.

10. In Adams v Lambert[43]the High Court considered the validity of a bankruptcy notice where interest had been claimed under the correct Act, but the wrong section of the Act. The mistake was held to be a formal defect or irregularity under s.306(1) of the Bankruptcy Act which did not invalidate the bankruptcy notice.  The correct completion of the form prescribed by the regulations was held not to be a requirement made essential by the Bankruptcy Act, and therefore not a substantive defect.  The High Court said that to hold otherwise would be to attribute to the legislature an overwhelming preference for form over substance.[44]

    [43] (2006) 3 ABC(NS) 835, [2006] HCA 10 (“Adams”).

    [44] Adams ABC(NS) at 845-846 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ, HCA at paras 32-35.

11. The High Court in Adams addressed s.306 of the Bankruptcy Act specifically, and said:

    “If a requirement is made essential by the Act, then a failure to meet that requirement is not a formal defect or an irregularity within the meaning of s.306. Whether a requirement is made essential is to be decided by a process of statutory construction undertaken in the manner described above.”[45]

    [45] Adams ABC(NS) at 844 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ, HCA at para 28.

12. The “method described above” was a reference to determination of the question of construction of “the words “a formal defect or irregularity” [being] …one to be decided by reading s.306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular provisions relating to bankruptcy notices.”[46]

    [46] Adams ABC(NS) at 843 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ, HCA at para 26.

13. It appears to me that the appropriate approach in this matter is to endeavour to apply the principles set out in Adams dealing specifically with the approach to s.306(1) of the Bankruptcy Act, rather than following Hubner or Hubner Appeal wherein no detailed consideration was given to the question of what constitutes a formal defect or irregularity under s 306(1).

Was the validity of the Bankruptcy Notice disputed under s.41(5)?

1. Section 41(5) of the Bankruptcy Act provides as follows:

   “A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.”

2. In Walsh v Deputy Commissioner of Taxation[47] Gibbs CJ (with whom the other Justices agreed) said:

   “There is no doubt that a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s.41(5) … that he disputes the validity of the notice on that ground.”[48]

   [47] (1984) 156 CLR 337 (“Walsh”).

   [48] Walsh at 339 per Gibbs CJ.

3. The Bankruptcy Act, by s.41(5), requires that timely notice, that is notice within the time allowed, be given by the First Applicant, that he “disputes the validity of the notice on the ground of the misstatement” (emphasis added). The question in this case is whether the First Applicant has done so.

4. There are no grounds in the Application.  Nor are there grounds in the “supporting affidavit”, because there is no supporting affidavit attached to the Application.  Therefore, within the “time allowed” there is no notice of a dispute to the validity of the Bankruptcy Notice “on the ground of the misstatement”.

5. The language of s.41(5) does not, in my view, admit of an application without grounds, and in particular “the ground of the misstatement”. It follows that the ground must be stated in the application, or in an affidavit accompanying the application, or perhaps in some other proper form which might constitute “notice”, within the “time allowed”.

6. Therefore, the failure to file an affidavit (or some other form of notice) within the time allowed is an essential requirement of s.41(5) of the Bankruptcy Act, and therefore an essential requirement of an application to set aside a bankruptcy notice.  Such a failure is not a formal defect or irregularity.

7. This construction is generally in accord with the principles underlying the Bankruptcy Act.  Clearly, an application to set aside a bankruptcy notice must, generally, be made within time.[49] Section 41(6A) represents a limited exception to that general rule, and must be interpreted accordingly.  If the requirements of the Bankruptcy Act have not otherwise been met, in this case the s.41(5) requirements, then there can be no application for the purposes, in this case, of s.41(6A)(b) of the Bankruptcy Act.

   [49] Walsh; Streimer v Tamas (1981) 37 ALR 211; Re Riordan; Ex parte Riordan v Direct Acceptance Corporation Ltd (1995) 63 FCR 147.

FMC Bankruptcy Rules

1. Looked at in that way set out above it is then easy to see why r.3.02(1) the FMC Bankruptcy Rules is drafted so as to make mandatory an application accompanied by an affidavit stating the grounds in support of the application.

2. In my view the provisions of r.3.02(1) the FMC Bankruptcy Rules reinforce the conclusion that an affidavit accompanying the application stating grounds is an essential requirement under the Bankruptcy Act, and therefore a failure to do so is not a formal defect or irregularity.

Jurisdictional Objection – Ruling

1. The Respondent’s jurisdictional objection is upheld.  In my view the Court does not have jurisdiction to hear this Application.  Given that ruling it is unnecessary to deal with the other matters argued.

Orders

1. The Court makes the following orders:

   a)the First Applicant’s Application for adjournment of the Application be dismissed; and

   b)that the First Applicant’s Application be dismissed, both as to interim and final relief.

2. I will hear the parties as to costs.

I certify that the preceding fifty-six (56) paragraphs are a true copy of the reasons for judgment of Lucev FM

Associate: 

Date: 6 November 2006