LFDB v Ms S M

Case [2018] FCA 1397

FEDERAL COURT OF AUSTRALIA

LFDB v MS S M [2018] FCA 1397

File number: NSD 1448 of 2018
Judge: MARKOVIC J
Date of judgment: 13 September 2018
Catchwords: BANKRUPTCY – where pseudonyms are used to describe both the debtor and creditor’s name on a bankruptcy notice – whether the bankruptcy notice is a nullity because, by using pseudonyms instead of naming parties, it fails to fulfil the public interest objectives of bankruptcy – whether the bankruptcy notice is a nullity because the debtor could have been misled as to the identity of the creditor – application dismissed.
Legislation:

Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41, 49, 306(1)

Bankruptcy Regulations 1996 (Cth) regs 4.02, 4.03, 13.03, Sch 1, Sch 8

Federal Court (Bankruptcy) Rules 2016 (Cth) rr 4.04(1), 4.06(3)

Cases cited:

Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137

Culleton v Balwyn Nominees Pty Ltd (2017) 343 ALR 632; [2017] FCAFC 8

LFDB v SM (No 3) [2017] FCA 80

LFDB v SM [2017] FCAFC 178

Matheson v Scottish Pacific Business Finance Pty Ltd [2005] FCA 670

McWilliam v Jackson (2000) 96 FCR 561

Re Hansen; Ex parte Hansen (1985) 4 FCR 590

Viavattene v Birch [2015] FCCA 2676

Date of hearing: 15 August 2018
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 44
Counsel for the Applicant: Mr M Maconachie
Solicitor for the Applicant: Knight Family Lawyers
Counsel for the Respondent: Dr C Ward SC
Solicitor for the Respondent: Marque Lawyers

ORDERS

NSD 1448 of 2018
BETWEEN:

LFDB

Applicant
AND:

MS S M

Respondent

JUDGE:

MARKOVIC J

DATE OF ORDER:

13 September 2018

THE COURT ORDERS THAT:

1.The application filed on 13 August 2018 be dismissed.

2.The applicant pay the respondent’s costs.

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


REASONS FOR JUDGMENT

MARKOVIC J:

  1. On 13 August 2018 the applicant, LFDB, commenced this proceeding.  At that time LFDB sought orders on an ex parte basis, including orders extending the time for compliance with bankruptcy notice BN225015 issued on 18 July 2018 and received by him on 24 July 2018 (Bankruptcy Notice) and abridging the time for service of the application on the respondent, MS S M.  Ex parte orders to that effect were made.  Relevantly, the time for compliance with the Bankruptcy Notice was extended up to and including 15 August 2018 and the application was adjourned for hearing to 15 August 2018, at which time it was listed before me as the commercial and corporations duty judge. 

  2. LFDB seeks an order that the Bankruptcy Notice be set aside.  LFDB contends that the Bankruptcy Notice is a nullity by reason of defects that deprive it of essential criteria of a bankruptcy notice in that it fails to name any addressee; fails to name any creditor; the description of the purported creditor is ambiguous; and it is incapable of supporting…

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Details
AGLC
LFDB v Ms S M [2018] FCA 1397
Case
[2018] FCA 1397
Decision Date

CaseChat Overview and Summary

LFDB has brought an application seeking to set aside a bankruptcy notice served on it by SM, contending that the notice is a nullity on the basis that it does not name any addressee or creditor. LFDB contends that this defect is fatal to the notice because it fails to meet the public interest objectives of bankruptcy and could have misled LFDB as to the identity of the creditor. SM contends that the notice is valid and that LFDB has not demonstrated that any substantial injustice has occurred. The court was required to determine whether the Bankruptcy Notice was a nullity because it failed to name the addressee and creditor, and whether LFDB could have been misled as to the identity of the creditor. The court found that the use of pseudonyms in the Bankruptcy Notice did not render it a nullity. The court found that the public interest policy which underpins bankruptcy does not require the naming of the addressee and creditor in a particular form, and that the use of pseudonyms did not cause substantial injustice. The court also found that LFDB could not have been misled as to the identity of the creditor because it was aware of the pseudonyms used and the history of litigation between LFDB and SM. The application to set aside the Bankruptcy Notice was dismissed, with costs awarded to SM.

Orders

Orders of the court

1. The application filed on 13 August 2018 be dismissed.

2. The applicant pay the respondent’s costs.

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

Background

Background to the litigation

LFDB seeks an order that the Bankruptcy Notice be set aside. LFDB contends that the Bankruptcy Notice is a nullity by reason of defects that deprive it of essential criteria of a bankruptcy notice in that it fails to name any addressee; fails to name any creditor; the description of the purported creditor is ambiguous; and it is incapable of supporting a creditor’s petition or of fulfilling the public interest objectives of bankruptcy. Those defects are alleged to arise because of the use of pseudonyms in the Bankruptcy Notice to name the debtor and creditor.background LFDB and SM are pseudonyms which have been used to describe the applicant and respondent respectively in a number of proceedings before the courts in New Zealand, in the Federal Circuit Court of Australia (Federal Circuit Court) and in this Court. Details of the orders made in the Federal Circuit Court and this Court requiring the use of those pseudonyms are set out at [7] below. The Bankruptcy Notice, insofar as it names the addressee/debtor and the creditor, is relevantly in the following form: The Bankruptcy Notice claims a total debt of $6,558,934.61 made up of the “attached final judgement/s or final order/s” plus “interest accrued since date of judgment/s or order/s” less “payments made and/or credit allowed since judgment/s or order/s”. A “Schedule of Post-Judgment Interest Calculation” (Schedule) is annexed to the Bankruptcy Notice. The Schedule sets out the seven proceedings in which orders were made requiring payment by LFDB and the interest calculated on each amount the subject of those orders. The Bankruptcy Notice annexed copies of the orders which made up the amount claimed in the Bankruptcy Notice and which are also included in the Schedule. It is evident that the orders made, which are the subject of the amount claimed in the Bankruptcy Notice, are the result of a long history of litigation between LFDB and SM in the courts in New Zealand, in the Federal Circuit Court and this Court. Some of that history is set out by a Full Court of this Court (Besanko, Jagot and Lee JJ) in LFDB v SM [2017] FCAFC 178, which concerned an appeal against orders dismissing an application made by the appellants, LFDB and companies associated with LFDB, under s 72(1) of the Trans-Tasman Proceedings Act2010 (Cth) (Trans-Tasman Act) seeking to set aside the registration of two judgments of the High Court of New Zealand obtained by SM against LFDB and companies associated with LFDB. Under the heading “Relevant Background” at [10]-[17] and [20]-[21] the Full Court said:10LFDB and SM lived together in a domestic relationship in Australia and New Zealand for some time until they separated in early 2009. As noted at [2(a)] above, the second to fifth appellants are companies associated with LFDB.11In March 2009, SM commenced an action against LFDB in the Family Court of New Zealand seeking division of property under the NZ Act. In October 2011, the proceeding was transferred to the High Court of New Zealand. By this time, remarkably, the parties “had indulged in 23 interlocutory applications, 53 affidavits, 7 court judgments (all directions), 5 judicial conferences and a hearing, one appeal to the High Court, a High Court application and hearing, and further High Court proceedings involving a mortgagee sale”: see SM v LFDB [2012] NZHC 1152 at [7] per Priestley J.12This litigious saga had costs consequences for LFDB and after a failure to pay adverse costs orders dating back to January 2010, described by Priestley J as “longstanding and conspicuous”, an order was made in September 2012 providing that unless the costs ordered were paid by LFDB, then he was “to be barred from taking any further part in the proceedings currently before this Court”. Apparently, at the heel of the hunt, on the last day before this self-executing order took effect, the relevant costs were paid: see SM v LFDB [2014] NZCA 326; [2014] 3 NZLR 494 at 497 [10] (Court of Appeal of New Zealand).13In July 2013, after another unsuccessful stage of the litigation, LFDB was ordered to pay a further fixed sum for adverse costs plus interest within seven working days. The judge making the order (Ellis J) gave SM leave “to seek unless orders in the event that [LFDB] fails to pay any part of those amounts as directed”.14Payment was not made and in August 2013, Ellis J ordered:If LFDB does not pay to SM’s solicitors by 5:00pm on Monday, 9 September 2013 (New Zealand time) the sum of $24,435.08 plus interest accrued due at 5% per annum from 10 May 2013 to date of payment:LFDB shall be debarred from taking any further part in the proceedings presently before this Court...15Ellis J, in her reasons for making this second self-executing order (Unless Order), explained that the order: …in question was made principally because of my view that SM’s preparation for the trial in February was being unduly and unfairly prejudiced by her comparative lack of access to funds (a considerable proportion of which is said by her to constitute relationship property)… The effect of LFDB’s failure to meet the costs awards, in circumstances where I had formed the view that he had the means to do so, was therefore particularly acute.16An appeal was lodged in relation to the Unless Order and a number of interlocutory skirmishes followed, however, in October 2013, LFDB paid the amount specified in the Unless Order and the following month, Ellis J was persuaded to discharge the Unless Order: SM v LFDB [2013] NZHC 3105. This discharge was also the subject of an appeal and in July 2014, the Court of Appeal of New Zealand allowed the appeal and made an order reinstating the Unless Order, with the consequence of debarring LFDB from taking any further part in the proceeding: SM v LFDB [2014] NZCA 326; [2014] 3 NZLR 494. 17In doing so, the Court of Appeal held that LFDB had “deliberately flouted” the Unless Order, and characterised the breach as contumacious and agreed that Ellis J was right to observe “that [LFDB] continued to play “some protracted game of ‘chicken’ with the Court”” (at 502 [33]).…20Not daunted, LFDB sought leave to appeal the decision of the Court of Appeal. At first the application for leave was successful but in December 2014, leave was revoked (LFDB v SM [2014] NZSC 197; (2014) 22 PRNZ 262) when the Supreme Court of New Zealand became aware of yet another costs order. In revoking leave, the Court noted: [25] When the Court granted leave to appeal it was appreciated that [LFDB] had demonstrated a defiant attitude to past orders and that the trial Judge was concerned at the prospect of this conduct causing continuing prejudice to the respondent. But the Court also understood that he had paid what was due on outstanding costs orders, and saw the case as suitable for addressing the issues we have mentioned. [26] The further information we received at the hearing made clear that [LFDB’s] ongoing conduct of the litigation was such that it would inevitably create more continuing problems for the respondent and the courts than we had appreciated at the time leave was granted. In light of that information, the Court has formed the view that the manner in which [LFDB] has continued to conduct the proceeding is oppressive. It is clear the court system is being abused. [27] [LFDB’s] offer to make payment of the ordered costs in response to the indication at the hearing that the Court would consider withdrawing leave does not persuade us otherwise. It came too late. Plainly he has always had the means to comply with the unless orders in issue. [LFDB] is gaming the court system. It is intolerable for [SM] to be faced with this and inappropriate for the Court to countenance such abuse of its process.21Accordingly, the Unless Order remained extant and LFDB was debarred from taking any further part in the substantive proceeding.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

It follows that, in my opinion, LFDB has not succeeded in relation to the second issue. LFDB could not have been misled as to the identity of the creditor named in the Bankruptcy Notice.conclusion LFDB has not succeeded in establishing that the Bankruptcy Notice is a nullity. Accordingly, the application to set aside the Bankruptcy Notice should be dismissed. Costs should follow the event. I will make orders accordingly.

Ratio Decidendi

Legal Principle Established

MS SM referred to Viavattene v Birch [2015] FCCA 2676, a decision of the Federal Circuit Court, in which Judge Jarrett said at [14]-[15]:14.It is necessary for the bankruptcy notice to follow the judgment upon which it relies. That includes the description of the parties to the judgment: Swart v Carr(No.2) [2008] FMCA 1204 at [14]. Here there are two judgments, only one of which has the correct spelling of the applicant’s surname. The name on the bankruptcy notice is also incorrect. 15.However, whilst the proper identification of the creditor to a bankruptcy notice might be said to be an essential requirement of a bankruptcy notice (see for example, Re Hansen; Ex parte Hansen (1985) 4 FCR 590), formal errors in a bankruptcy notice do not result in its invalidity unless they cause “substantial injustice”: Kyriackou v Shield Mercantile Pty Ltd (2004) 138 FCR 324 at 336. “The touchstone of invalidity is thus whether any error is “capable of misleading” a debtor in a manner that results in “substantial injustice” ”: Yang v Mead [2009] FCA 1202 at [15].consideration In support of his contention that the Bankruptcy Notice is a nullity LFDB essentially raised two issues for determination by the Court. First, whether the way in which the addressee and creditor are named in the Bankruptcy Notice render it a nullity because of the public interest policy which underpins bankruptcy; and secondly, whether the addressee, LFDB, was likely to be misled as to the identity of the creditor named in the Bankruptcy Notice. I consider each of these issues in turn below.The first issue In relation to this issue, LFDB relies largely on the public interest policy which underpins bankruptcy. He submitted that:(1)the Act and subordinate instruments make it an essential requirement of a bankruptcy notice that both the addressee and the creditor be named and that such requirements put the alleged debtor on unequivocal notice of the circumstances and consequences faced by that debtor, as asserted by the named creditor, and inform creditors and the general public of the circumstances of the alleged debtor;(2)the consequences of issuing a bankruptcy notice to a debtor in an anonymous form is that any search of the relevant court’s records will not return a result. Thus, if a proceeding was commenced by the anonymous creditor in respect of an anonymous debtor, other creditors would not become aware of that proceeding so as to be able to participate as supporting creditors or to seek to be substituted as petitioning creditor. Accordingly, the purpose of s 49 of the Act, in seeking to prevent a multiplicity of proceedings, would not be achieved should any other creditor seek to have the same debtor bankrupted;(3)any proceeding under a creditor’s petition would also have to be anonymous as the bankruptcy notice would necessarily become a public document upon filing of the petition and the verifying affidavit which must attach it;(4)whilst suppression orders might suit the creditor’s purposes, they would subvert the fundamental public interest principle upon which the process of bankruptcy is founded. It is of central importance that the creditor be named in a bankruptcy notice so as to ensure that the addressee does not misunderstand the notice and its ramifications;(5)it must be of equal importance that the debtor be named in a bankruptcy notice so as not to subvert the fundamental public interest objective of bankruptcy law. To allow any act of bankruptcy to occur by reason of an anonymous bankruptcy notice would cause substantial injustice to the addressee and to any other creditor who would necessarily remain unaware of the act of bankruptcy and unaware of any proceedings commenced in respect of it. It is thus an essential requirement of a bankruptcy notice that it name both the debtor and the creditor; and (6)in this case not only is the public interest foundation of bankruptcy subverted by the anonymisation of the addressee and creditor but the addressee is left uncertain about the identity of the creditor.