Lamb v Sherman

Case [2023] FCAFC 85

FEDERAL COURT OF AUSTRALIA

Lamb v Sherman [2023] FCAFC 85  

Appeal from: Sherman v Lamb [2023] FCA 168
File number: QUD 60 of 2023
NSD 450 of 2022
Judgment of: RARES, ROFE AND DOWNES JJ
Date of judgment: 25 May 2023
Date of final orders:  5 June 2023
Catchwords:

BANKRUPTCY AND INSOLVENCY – appeal from making of sequestration order – where, at 4:37pm on last day for compliance, bankrupt lodged by electronic communication application to set aside bankruptcy notice under s 41(6A) of Bankruptcy Act 1966 (Cth) – whether application to set aside bankruptcy notice is “made” to the Court within meaning of s 41(6A)(b) by electronic lodgment of application or by its acceptance for filing – where r 2.01(1)(a) of Federal Court (Bankruptcy) Rules 2016 (Cth) provides application must be “made” by filing – where r 2.25(3) of Federal Court Rules 2011 deems electronic lodgment after 4:30pm to be filed, if accepted, on next business day – whether act of bankruptcy committed within six months before presentation of petition as required by ss 44(1)(c) and 52(1) of the Act – where Registrar purported to extend time for compliance with bankruptcy notice after application lodged – whether Registrar’s orders extending time for compliance capable of affecting earlier act of bankruptcy – when application to set aside bankruptcy notice “made” within the meaning of s 41(6A) of the Act – held: appeal dismissed.

PRACTICE AND PROCEDURE – operation of rr 2.21-2.25 of Federal Court Rules 2011 regarding document lodgment and filing – when document lodged by electronic communication is filed pursuant to r 2.25.

Legislation:

Bankruptcy Act 1966 (Cth) ss 33(1)(c), 40(1)(g), 41(6A), 41(7), 44(1)(c) and 52(1)

Federal Court of Australia Act 1976 (Cth) ss 25(6) and 35A

Federal Court (Bankruptcy) Rules 2016 (Cth) rr 1.04 and 2.01

Federal Court Rules 2011 rr 2.21(1), 2.23, 2.24, 2.25(1), 2.25(3), 2.26 and 2.27
Cases cited:

David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265

Guss v Johnstone (2000) 171 ALR 598

Johnston v Vintage Developments Pty Ltd [2006] FCAFC 171

Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404

PurdenPty Ltd v Registrar in Bankruptcy (1982) 43 ALR 512; 64 FLR 306

Re Daunt; Ex parte McIntyre and Yates (1905) 5 SR NSW 533

Streimer v Tamas (1981) 37 ALR 211; 54 FLR 253
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 65
Date of hearing: 25 May 2023
Date of last submissions:  31 May 2023
Counsel for the appellant: Mr G Handran KC and Mr R Kipps
Solicitor for the appellant: NicholasBlack Lawyers
Counsel for the respondent: Mr N Ferrett KC and Mr J Moxon
Solicitor for the respondent: Romans & Romans Lawyers

ORDERS

QUD 60 of 2023

NSD 450 of 2022
BETWEEN:

SIOBHAN LAMB

Appellant
AND:

SHELDON SHERMAN

Respondent

ORDER MADE BY:

RARES, ROFE AND DOWNES JJ

DATE OF ORDER:

25 MAY 2023

THE COURT…

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AGLC
Lamb v Sherman [2023] FCAFC 85
Case
[2023] FCAFC 85
Decision Date

CaseChat Overview and Summary

Lamb v Sherman involved a dispute between Ms Lamb and Mr Sherman regarding a bankruptcy notice. The matter came before the court on appeal from the decision to make a sequestration order. The primary legal issues were whether Ms Lamb's application to set aside the bankruptcy notice was "made" to the Court within the meaning of s 41(6A)(b) of the Bankruptcy Act 1966 (Cth) by the electronic lodgment of the application or by its acceptance for filing, and whether the act of bankruptcy occurred within six months before the presentation of the petition. The court had to consider the operation of the relevant Federal Court Rules regarding document lodgment and filing.

The court found that Ms Lamb's application to set aside the bankruptcy notice was made to the Court by its acceptance for filing, not by the electronic lodgment of the application. The court reasoned that the Federal Court (Bankrupcy) Rules require an application to be "made" by filing, and the Federal Court Rules deem an electronically lodged document filed if accepted after 4:30pm on the last day for compliance. The court also determined that the act of bankruptcy occurred within the required timeframe, and therefore, the appeal was dismissed.

As a result of the court's decision, the orders made in respect of the interim application filed on 27 March 2023 were set aside, and Mr Sherman was ordered to pay 75% of Ms Lamb's costs of the interim application. The court allowed the parties to confer and bring in draft orders to give effect to these reasons. If they could not agree, they were to make written submissions limited to one page within seven days of these reasons being published.

Orders

Orders of the court

1. Order 2 made on 24 April 2023 be varied so that it reads:

“The question of what orders should be made in respect of the interim application filed on 27 March 2023 be referred for the consideration of the Full Court and heard together with the appeal in proceeding QUD60/2023”

2. The question referred to the Full Court in order 1 above be answered as follows:

“The orders which should be made in respect of the interim application filed on 27 March 2023 are:

1. Pursuant to r 1.39 of the Federal Court Rules 2011, time be extended so as to permit the respondent to bring the interim application filed on 27 March 2023.

2. Pursuant to s 35A(5) of the Federal Court of Australia Act 1976 (Cth), order 2 made on 14 July 2022 and order 2 made on 6 October 2022 be set aside.

3. The applicant pay 75% of the respondent’s costs of the respondent’s interim application.”

[Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

In turn, Mr Sherman seeks orders nunc pro tunc (which he did not seek below) that he be granted leave, first, to challenge, on a review under s 35A of the Federal Court of Australia Act 1976 (Cth), the Registrar’s extension orders which he now seeks be set aside on the basis that they had been made without jurisdiction (because Ms Lamb’s application to set aside the bankruptcy notice had not been filed within the time it fixed for compliance, as required by s 41(6A) of the Bankruptcy Act) and, secondly, to amend the petition to assert that Ms Lamb had committed an act of bankruptcy on 25 November 2022, after the Registrar had refused to grant Ms Lamb any further time for compliance with the bankruptcy notice. On 24 April 2023, Rares J ordered that the first of these issues, that arose in the proceeding that Ms Lamb instituted by the application under s 41(6A), be referred to this Full Court pursuant to s 25(6) of the Federal Court Act. BACKGROUND The parties agreed the following facts about the progress of the application, namely: ·Ms Lamb was served with the bankruptcy notice on 25 May 2022 and had until 15 June 2022 to comply with it. The bankruptcy notice required her to either pay the amount claimed by Mr Sherman as the judgment creditor, settle with him to his satisfaction or apply to set it aside before the time for compliance; ·at 4:37pm on 15 June 2022, Ms Lamb’s solicitors electronically lodged using the Court’s electronic filing system her application to set aside the bankruptcy notice;·Ms Lamb’s solicitors emailed an unsealed copy of the application and its supporting affidavit to Mr Sherman’s solicitors at 5:34pm that afternoon; ·at 2:27pm and 2:28pm on 16 June 2022, Mr Sherman’s solicitors conducted searches on the Commonwealth Courts Portal which did not disclose that any application to set aside the bankruptcy notice had been filed;·at 2:44pm on 16 June 2022, the Registry accepted Ms Lamb’s application for filing;·at 3:16pm on 16 June 2022, Mr Sherman’s solicitors lodged the petition electronically and served Ms Lamb with it at 3:40pm on that day;·on 14 July 2022, at the first hearing of the application before the Registrar, both parties were legally represented, the Registrar made the first of the extension orders and adjourned the hearing of the application to 6 October 2022; ·on 6 October 2022, the Registrar made the second of the extension orders and adjourned the hearing of the application to 24 November 2022; ·on 24 November 2022, the Registrar heard the application and reserved his decision, but made no orders extending the time for compliance with the bankruptcy notice; and·on 8 December 2022, the Registrar gave oral reasons and dismissed the application. On 27 March 2023, Mr Sherman filed an application under s 35A of the Federal Court Act to review the Registrar’s decisions to make the extension orders. The parties also agreed the following facts about the progress of the petition as it progressed concurrently with, but separately to, the application, namely: ·on 6 July 2022, another Registrar ordered Ms Lamb to file and serve any notice stating her grounds of opposition to the petition and affidavits by 4:00pm on 20 July 2022. Ms Lamb did not file any notice of grounds of opposition or affidavits until 7 February 2023 and, thus, did not comply with the order of 6 July 2022; ·on 27 July 2022, another Registrar adjourned the hearing of the petition to 19 October 2022; ·on 19 October 2022, the latter Registrar adjourned the hearing of the petition to 30 November 2022;·on 30 November 2022, another Registrar adjourned the hearing of the petition to 8 February 2023;·on 7 February 2023, Ms Lamb filed a notice of opposition in which, relevantly, she asserted that, first, pursuant to s 52(2)(a) of the Bankruptcy Act, she was solvent and able to pay her debts, and, secondly, “[t]he petition is defective as it incorrectly identifies the act of bankruptcy alleged to have been taken by [Ms Lamb]”. The notice of opposition raised four other grounds with which it is not necessary for us to deal; and·on 8 February 2023, Mr Sherman’s counsel asserted in their outline of submissions that orders of the Court to extend time on an application to set aside a bankruptcy notice necessarily fell away if that application were dismissed, as his Honour did in the event.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Last, Mr Sherman’s application to amend the petition is hopeless. Section 44(1)(c) requires that the act of bankruptcy upon which the petition is founded must occur prior to its institution. Here, he sought to rely on an act of bankruptcy that occurred on 25 November 2022, well after the presentation of the petition, which falls outside the express words of s 44(1)(c), “[t]he act of bankruptcy on which [a] petition is founded” must be one committed “within six months before” its presentation under s 44(1)(c). That application should be dismissed. CONCLUSION It follows that the appeal fails, Mr Sherman’s application to have the extension orders set aside should be allowed and those orders should be set aside, and his application to amend the petition must be dismissed. We will allow the parties to confer and bring in draft orders to give effect to these reasons. If they cannot agree, they should make written submissions limited to one page within seven days of these reasons being published.

Ratio Decidendi

Legal Principle Established

Mr Sherman contended that Streimer 37 ALR 211 was plainly wrong because, unless and until the Court made an extension order and an extension order remained in place throughout the proceeding, an incurable act of bankruptcy would occur, regardless of a mistake of the kind that occurred in that decision, namely that the judge had overlooked continuing an extension order when adjourning overnight. He submitted that he should be allowed to seek to set aside the Registrar’s extension orders, first, on this basis and, secondly, because the application was made only when it was accepted for filing on 16 June 2022, being after the time for compliance with the bankruptcy notice had expired. CONSIDERATIONDid Ms Lamb commit an act of bankruptcy on 15 June 2022? When an application is “made” Although Ms Lamb’s solicitors lodged her application under r 2.21(1)(d) of the Federal Court Rules on the last day for compliance with the bankruptcy notice, that lodgment occurred after 4:30pm. The critical question here is, when was that application under s 41(6A) “made”?How the legislative provisions operate A debtor commits an act of bankruptcy by force of s 40(1)(g) of the Bankruptcy Act if he or she has been served in Australia with “a bankruptcy notice under this Act” and does not “within the time fixed for compliance with the notice” comply with its requirements or satisfy the Court that he or she has a counterclaim, set-off or cross-demand of the kind specified in s 40(1)(g). However, if, before the expiration of the time fixed for compliance with the bankruptcy notice, the debtor has applied to the Court for an order to set the bankruptcy notice aside on the ground that he or she has a counterclaim, set-off or cross-demand referred to in s 40(1)(g) and the Court has not determined that question before the expiration of the time for compliance, then s 41(7) deems that the time for compliance is extended until and including the day on which the Court determines that issue. In that context, s 41(6A) can be seen to operate consistently with the scheme of the Bankruptcy Act in providing certainty as to whether a debtor has committed an act of bankruptcy. That is because the section requires that, as a jurisdictional precondition of the Court having power to make any order extending the time for compliance with a bankruptcy notice or setting it aside, the debtor “make” that application to the Court before the expiration of the time for compliance with the bankruptcy notice. As explained above, because an application to set aside a bankruptcy notice is not one in a proceeding already commenced, r 2.01(1)(a) of the Federal Court (Bankruptcy) Rules provides that “a person must make” it “by filing an application in accordance with Form B2” (emphasis added). The Federal Court (Bankruptcy) Rules apply the Federal Court Rules as to how documents are filed in the Court (r 1.04(2)(a)). Thus, in order to determine when an application under s 41(6A) is made to the Court for the purposes of r 2.01(1)(a) of the Federal Court (Bankruptcy) Rules, it is necessary to consider the operation of rr 2.21-2.25 of the Federal Court Rules.