McDowell v Fox
[2002] FMCA 254
•13 November 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| McDOWELL v FOX | [2002] FMCA 254 |
BANKRUPTCY – Application to set aside bankruptcy notice and for an extension of time for compliance – alleged defects in the bankruptcy notice – whether the judgment supporting the bankruptcy notice contained errors – whether more than one judgment or order relied upon – whether judgment or order relied upon was a final order – whether the bankruptcy notice and attachments contained inconsistencies – whether the bankruptcy notice provided a practical means for payment of the debt – whether the interest attachment to the bankruptcy notice referred to the wrong provision under which interest was claimed.
COSTS – Whether costs should be awarded where a party is unsuccessful on all points raised, but succeeds on a point raised by the Court.
PRACTICE AND PROCEDURE – Desirability of the Federal Magistrates Court providing consistent guidance with the Federal Court on the interpretation of bankruptcy notices.
Bankruptcy Act 1966 (Cth), ss.27, 30, 33, 40,41
District Court Act 1973 (NSW)
Federal Magistrates Act 1999 (Cth), s.18
Federal Magistrates Court (Delegation to Registrars) Rules 2000
Local Courts (Civil Claims) Act (NSW) 1970, s.39, 39A
Legal Profession Act 1987 (NSW), ss.208J, 208JB, 208K, 208KE, 208KF
Supreme Court Act 1970 (NSW), s.95(1)
Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33
Boorowa Shire Council v Booth [2001] FMCA 31
Circle Credit Co-operative Ltd v Lilikarkis (2000) 99 FCR 592
Cosco v Tsatsoulis [2002] FCA 358
GMAC v Marshall [2002] FCA 1006
Jiminez v Welcome Homes Real Estate Pty Ltd [2001] FMCA 122
Opie v Opie (1951) 84 CLR 362
Re Bedford; ex parte H C Sleigh (Qld) Pty Ltd (1967) 9 FLR 497
Re Bond; ex parte Hong Kong Bank of Australia Ltd (1991) 105 ALR 581
Re McAlpine (1987) 80 ALR 29
Shephard v Blueberry Farms of Australia (Corindi) Ltd[2002] FMCA 2
Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337
Wright v Australia and New Zealand Banking Group Ltd [2001] FCA 386
| Applicant: | KAREN FRANCES McDOWELL |
| Respondent: | HENRY ALLAN FOX |
| File No: | SZ693 of 2002 |
| Delivered on: | 13 November 2002 |
| Delivered at: | Sydney |
| Hearing Date: | 15 October 2002 |
| Judgment of: | Driver FM |
REPRESENTATION
| Solicitors for the Applicant: | Mr J Cunningham John Cunningham, solicitor |
| Counsel for the Respondent: | Mr P Rodionoff |
| Solicitors for the Respondent: | Brian Muir & Co |
ORDERS
That bankruptcy notice NN1298 of 2002 be set aside.
That there be no order as to costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ693 of 2002
| KAREN FRANCES McDOWELL |
Applicant
And
| HENRY ALLAN FOX |
Respondent
REASONS FOR JUDGMENT
Introduction
Karen McDowell is a solicitor. Henry Fox is a former client. Ms McDowell has applied pursuant to ss.30 and 41 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) to set aside bankruptcy notice NN1298 of 2002 served upon her or, alternatively, for an extension of time to comply with the bankruptcy notice pursuant to ss.41(6A) or (7). The applicant seeks to set aside the bankruptcy notice, which arose out of a costs determination on disputed solicitor and client costs, on the following grounds:
a)the bankruptcy notice is said to be defective as to substance and to form;
b)there is subsisting claim in the New South Wales Local Court, which claim is yet to be fully quantified, but which is said to be in excess of the sum claimed in the bankruptcy notice;
c)the matters pertaining to the entry of judgment following the costs determination have not been resolved. Leave to appeal has been sought and a stay of proceedings is in place in the Local Court;
d)the issue of the bankruptcy notice is said to be an abuse of process.
Alternatively, the applicant seeks an extension of time for compliance with the bankruptcy notice until after the determination of the appeal proceedings and the Local Court proceedings. The application is resisted by the respondent creditor.
In addition to her application the applicant relies upon three affidavits by herself. These were sworn on 15 August 2002, 3 September 2002 and 17 September 2002, and filed on 16 August 2002 and 20 September 2002. In addition, the applicant relies upon a solicitor’s affidavit by John Cunningham, filed in Court on 15 October 2002. Mr Cunningham’s affidavit is in reply to an affidavit by Michael Edward Cassin, a consultant acting on behalf of the respondent, which affidavit was filed on 30 September 2002 and is relied upon by the respondent.
The bankruptcy notice was issued following a review and determination of practitioner and client costs under the Legal Profession Act 1987 (NSW) (“the Legal Profession Act”). The applicant debtor was required to refund $10,400.09 to the respondent creditor.
Consideration and findings
Mr Cunningham made written and oral submissions for the applicant and Mr Rodionoff made written and oral submissions for the respondent. A wide range of issues were raised by Mr Cunningham and were responded to by Mr Rodionoff. In addition, I raised an issue myself relating to the validity of the bankruptcy notice, which Mr Cunningham and Mr Rodionoff made oral submissions on at trial. I will deal with each of these issues in turn, to the extent necessary to resolve these proceedings.
Alleged defects in substance and form of the bankruptcy notice
The first matter raised is that the bankruptcy notice has been altered on its face subsequent to the issue of the bankruptcy notice. While it is acknowledged that such alteration is pursuant to an order of this Court Mr Cunningham asserts that it is for the Official Receiver to issue and alter the bankruptcy notice or give authority to do so. No such authority has been granted. Mr Cunningham asserts that this defect renders the bankruptcy notice ineffective: Circle Credit Co-operative Ltd v Lilikarkis (2000) 99 FCR 592. Mr Cunningham also relies upon Re McAlpine (1987) 80 ALR 29 where a bankruptcy notice, as in this case, had been altered by hand and there was no initialling of the correction or any stamping to indicate that the change had been made prior to the issue of the bankruptcy notice. His Honour Spender J held that notice invalid.
The circumstances of the alteration are that an application for substituted service was made and Registrar Tesoriero made an order for substituted service on 18 July 2002. He imposed conditions regarding service and gave authority to amend the bankruptcy notice to reflect those conditions. A copy of the bankruptcy notice was required to be given to the Official Receiver in Sydney.
On this issue I agree with and adopt the submissions made by Mr Rodionoff:
The applicant has conceded that the hand written alteration in paragraph 3 of the bankruptcy notice was made pursuant to an order of this Court authorising such an alteration. A sealed copy of that order was served on her with the bankruptcy notice.
The order made by the registrar was clearly within his power. Section 33(1)(b) of the Bankruptcy Act permits the Court to allow the amendment of any notice under the Bankruptcy Act. Section 27 of the Bankruptcy Act gives the Federal Court and the Federal Magistrates Court concurrent jurisdiction in bankruptcy. The Federal Magistrates Court (Delegation to Registrars) Rules 2000, rule 1.4(1) delegates to registrars the power of the Court in relation to s.33 of the Bankruptcy Act.
Even if the power had not been specifically conferred on the Court by the Bankruptcy Act and the rules referred to above, s.18 of the Federal Magistrates Act 1999 (Cth) is wide enough to authorize the making of the order.
In the present case, the specific authorizing of the registrar to make the order he has made and the alteration being made by virtue of that authority is to be contrasted with the unauthorised alteration of the bankruptcy notice in the cases relied on by the applicant.
There is no defect in the bankruptcy notice by reason of the amendment.
Error in judgment debt
The applicant asserts that the judgment debt is overstated by the amount of 50 cents. At trial, the applicant asserted a second error, being an overstatement of $40. Notice regarding the first error had been given under s.41(5) of the Bankruptcy Act and I accepted a further notice relating to the alleged overstatement of $40. Mr Cunningham submits that both of these are errors of calculation made in the determination of costs upon which the judgment supporting the bankruptcy notice is founded. He relies upon Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 in support of the submission that the bankruptcy notice is invalid by reason of an overstatement.
Again, I agree with and adopt the submissions of Mr Rodionoff on this point. Walsh v DCT establishes that a bankruptcy notice is valid if it claims the amount for which execution could be levied. The creditor has obtained a judgment for the amount in respect of which the bankruptcy notice was issued. The facts are that a costs assessor ordered repayment of a particular amount by the applicant to the respondent. That repayment was upheld on review by a review panel. I am not persuaded that I should go behind the judgment in order to deal with an asserted arithmetical error or errors. Even if I were persuaded to go behind the judgment an arithmetical error in arriving at the judgment would not render the judgment a nullity for the purposes of founding a bankruptcy notice: Re Bedford; ex parte H C Sleigh (Qld) Pty Ltd (1967) 9 FLR 497. The applicant’s challenge on this ground fails.
More than one judgment or order relied upon
Mr Cunningham submits that a bankruptcy notice is a nullity if founded upon more than one judgment or order: Re Bond; ex parte Hong Kong Bank of Australia Ltd (1991) 105 ALR 581. He asserts that there were several orders and one judgment made in this matter, being a certificate as to determination of costs dated 4 May 2001 (annexed to the bankruptcy notice); a certificate as to determination of costs by a review panel dated 2 November 2000 (annexed to the applicant’s affidavit sworn 17 September 2002); amended certificate as to determination of costs by the review panel dated 21 February 2002 (annexed to the bankruptcy notice); copy of certificate of judgment dated 6 May 2002 in respect of the judgment entered on 9 May 2001 (also annexed to the bankruptcy notice).
Mr Rodionoff responds that the applicant’s submission shows a misunderstanding of the way in which an assessment process is undertaken under the Legal Profession Act. The first step is for a costs assessor to issue to each party a certificate that sets out his determination (s.208J of the Legal Profession Act). Under s.208JA(4) upon the filing of such a certificate with a court of competent jurisdiction, it is taken to be a judgment of that court. Section 208JB sets out a mechanism for amending a determination for an inadvertent error. Section 208K provides that the determination is final and no appeal is available except as provided by the legislation. The Legal Profession Act also provides a mechanism for review of a cost assessor’s decision. Under s.208KE the operation of a determination is suspended during a review. Where, as here, the original assessment is affirmed the original costs determination remains the operative order. The review panel decision only replaces the original assessment pursuant to s.208KF(2) if the review panel sets aside the original costs assessment determination.
I am satisfied that only one judgment is relied upon, that being the judgment evidenced by the certificate of judgment issued by the Local Court on 6 May 2002. That certificate evidences the judgment recovered on 9 May 2001 following the original costs determination, which was unaffected by the review. The review documents are only annexed to the bankruptcy notice for completeness and there is no confusion created thereby.
Judgment or order relied upon not “final order”
Mr Cunningham submits that if the judgment relied upon is the judgment recovered on 9 May 2001 it has been superseded. He observes also that that judgment was issued in three names and that the review certificate only named the respondent creditor.
A related ground of attack advanced by Mr Cunningham is that the creditors are said to be misdescribed or uncertain, given that the bankruptcy notice is issued in the name of the respondent creditor only, whereas there were three parties, including the respondent creditor, to the costs judgment.
I reject both of these submissions. The original costs determination has not been superseded by the review. The respondent properly relies upon s.40(3)(b) of the Bankruptcy Act, which was enacted to overcome the problem identified in Opie v Opie (1951) 84 CLR 362. No appeal against the costs judgment was on foot when the bankruptcy notice was issued. Also, it is clear that the respondent creditor alone was responsible for payment of the fees due to the applicant debtor and that only he obtained the benefit of the costs determination: exhibit R1.
Alleged inconsistencies between the bankruptcy notice and its attachments
This is a matter of fact. The applicant in her affidavit sworn 15 August 2002 asserts a number of discrepancies between the bankruptcy notice and its attachments. I see no such inconsistency. In my view, all of the amounts claimed in the bankruptcy notice are explicable by reference to and consistent with the attachments to the bankruptcy notice.
No practical means of payment of debt
Mr Cunningham submits that the address and facsimile details of the respondent creditor as disclosed on the face of the bankruptcy notice are inaccurate: paragraph 3.9 of the applicant’s affidavit sworn 15 August 2002 and the annexures thereto. The applicant complains that the respondent’s address is not attended during normal business hours and that the creditor has not nominated an agent. She also asserts that the facsimile and phone line, although accurate, is also used for internet access and is commonly unavailable.
I do not accept that the matters complained of by the applicant sustain the argument that there was no practical means of payment of the debt. It seems that the applicant debtor was attempting to negotiate an agreement for payment. The applicant does not dispute that the contact details shown on the bankruptcy notice were those of the respondent creditor. There was no necessity for the applicant to telephone or fax the respondent. If she had wished to pay the debt she could have done so by ordinary pre-paid post to the address provided by the respondent in the bankruptcy notice.
The interest claim
A matter not raised by the applicant debtor, but raised by me at trial, is whether the bankruptcy notice is invalid by reason of a failure to comply with the prescribed form of bankruptcy notice concerning the interest annexure. The bankruptcy notice claims interest in the sum of $1,037.70 and includes note 2 to the prescribed form of bankruptcy notice requiring a document to be attached to the bankruptcy notice, setting out the provision under which interest is being claimed, the principal sum on which, the period for which and the interest rate or rates at which interest is being claimed. The document attached to the bankruptcy notice, in purported compliance with this obligation, is a letter from the Local Court at North Sydney setting out the basis of calculation of the interest claimed. This includes a reference to the principal sums at various times upon which interest has been calculated, the rates of interest applied and the relevant period. The letter includes the words:
interest pursuant to s.39A of the Local Courts (Civil Claims) Act 1970 (NSW) has been calculated as follows…
It was conceded by Mr Rodionoff that s.39A is the wrong provision. That section relates to pre-judgment interest. The correct provision is s.39(1) of the Local Courts (Civil Claims) Act 1970 (NSW) (“the Local Courts Act”). The question is whether the error in the identification of the correct provision under which interest is claimed invalidates the notice.
The decision of the Full Federal Court in Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 establishes that a failure to identify correctly in the interest rate annexure the provision under which interest is claimed will invalidate the bankruptcy notice, and that resort cannot be had to s.306 of the Bankruptcy Act to correct the defect as a formal defect. In Shephard v Blueberry Farms of Australia (Corindi) Ltd [2001] FMCA 2 I held invalid a bankruptcy notice where the interest rate annexure incorrectly identified the provision under the Supreme Court Act 1970 (NSW) (“the Supreme Court Act”) under which interest was claimed. The annexure, as here, incorrectly identified a provision relating to pre-judgment interest when it should have identified the provision relating to post judgment interest. I note that the same view has been taken by the Federal Court in relation to provisions of the District Court Act 1973 (NSW): Cosco v Tsatsoulis [2002] FCA 358. In my view, the same conclusion must be drawn in relation to the provisions of the Local Courts Act. A bankruptcy notice which fails to identify the appropriate post judgment interest provision suffers from an irremediable defect and will be held invalid. This bankruptcy notice does not have annexed to it a document identifying the appropriate post judgment interest provision and so is invalid because it suffers from an irremediable defect.
I mention for completeness that this is a different question from that which has vexed this Court concerning whether a bankruptcy notice is valid if it identifies merely the provision under which interest is calculated, rather than the provision under which interest is claimable. In Shephard v Blueberry Farms I ventured the opinion that it would be sufficient for a bankruptcy notice based upon a judgment in the Local Court in New South Wales to identify s.95(1) of the Supreme Court Act as the provision under which interest is calculated. Raphael FM took the opposite view in Boorowa Shire Council v Booth [2001] FMCA 31. Upon reflection, I followed the decision of Raphael FM in Jiminez v Welcome Homes Real Estate Pty Ltd [2001] FMCA 122. In GMAC v Marshall [2002] FCA 1006 his Honour Gyles J disapproved of this Court’s decisions in Boorowa Shire Council v Booth and Jiminez v Welcome Homes Real Estate and preferred my original approach in Shephard v Blueberry Farms of Australia. While that decision is not strictly binding upon this Court, it is a highly persuasive authority which should be followed unless it is contradicted by a decision of the Full Federal Court. There are respectable arguments supporting both lines of authority. Both s.39(1) of the Local Courts Act and s.95(1) of the Supreme Court Act are provisions under which, in general terms, interest is claimed arising out of Local Court proceedings. The first provides the legal authority, while the latter is the provision under which the rate is fixed. A similar approach is taken to post judgment interest in this Court. On that view, while s.39(1) is strictly the correct provision, a reference to s.95(1) is not wrong, because the rate has to be calculated before interest can be recovered. On that view, both provisions are provisions under which interest is claimed in Local Court proceedings. The stricter view is that there can only be one correct provision. In addition, while a debtor could in theory proceed from s.39(1) through to s.95(1) to gain an understanding of the interest claim if only the former were mentioned, to proceed backwards from s.95(1) is very difficult, if not impossible.
The answer to the problem in my view needs to be pragmatic. This Court should strive to avoid a position where registrars exercising delegated powers from both courts are presented with conflicting authorities from each court about how the validity of a bankruptcy notice should be determined. Accordingly, a bankruptcy notice having attached to it an interest rate annexure which identifies either s.95(1) of the Supreme Court Act or s.39(1) of the Local Courts Act as the provision under which interest is claimed on a judgment of the New South Wales Local Court should be accepted as valid. Similarly, a bankruptcy notice and interest rate annexure which identifies both provisions is valid and should not be taken to be confusing: Wright v Australia and New Zealand Banking Group Ltd [2001] FCA 386. However, a bankruptcy notice and interest rate annexure which fails to identify either of those provisions as supporting a claim for post judgment interest will be invalid. Section 39(1) of the Local Courts Act is the proper provision to include and practitioners should be encouraged to use that provision in preference to s.95(1) of the Supreme Court Act.
It is not necessary to go on to consider the other matters raised by the applicant in opposition to this bankruptcy notice. For completeness, however, if I should be found to be wrong on the question of the interest annexure, I add that I am not persuaded by Mr Cunningham’s submissions on those other issues. He asserts that a stay of proceedings has been obtained in the Local Court pending an appeal. However, it is plain that no stay was in place when the bankruptcy notice was issued and served. Neither am I persuaded that the bankruptcy notice is otherwise an abuse of process. Further, I am not persuaded that the applicant has a counter-claim, set off or cross demand of equal or greater value than the amount claimed in the bankruptcy notice. I accept that the applicant could not have set up the counter-claim in the costs assessment proceedings, but the provisions of the costs agreement between the parties relied upon by the applicant to support the counter-claim have already been found by the costs assessor not to support a claim for costs of the kind now claimed. In my view, the claim made by the applicant, if pursued, has very poor prospects of success and therefore does not support the assertion of a counter-claim, set off or cross demand of equal or greater value than the amount claimed under the bankruptcy notice.
I will order that the bankruptcy notice be set aside. Although the applicant has been successful in that she has obtained the relief she seeks, she has not been successful on any ground she has advanced. Rather, she has been successful on the basis of an issue raised by me at trial. In the circumstances, I have decided that there should be no order as to costs.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 13 November 2002
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