Perry v O'CONNOR

[2017] FCCA 1197

FEDERAL CIRCUIT COURT OF AUSTRALIA

PERRY v O'CONNOR [2017] FCCA 1197

Catchwords:
BANKRUPTCY – Where Creditor’s Petition lapses – where no basis established for an order under r.39.05 of the Federal Court Rules.

Legislation:

Bankruptcy Act 1966, s.52.

Federal Circuit Court of Australia Act 1999, s.43.
Federal Court Rules 2011, r.39.05.

Cases cited:

Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131

Wu v Li [2017] FCA 500

Applicant: KISTEN PERRY TRADING AS PERRY LEGAL

Respondent: FRANK O'CONNOR

File Number: SYG 254 of 2016

Judgment of: Judge Altobelli

Hearing date: 13 October 2016, 16 February 2017

Date of Last Submission: 18 May 2017

Delivered at: Wollongong

Delivered on: 9 June 2017

REPRESENTATION

Counsel for the Applicant: Mr Tang

Solicitors for the Applicant:  Perry Legal

The Respondent is self-represented.

ORDERS

1. The Application in a Case filed 16 May 2017 is dismissed. 

2. The Creditor’s Petition filed 8 February 2016 is dismissed.

3. Liberty be granted to the Respondent to relist the matter within 28 days by application to the Court in Chambers in relation to costs.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 254 of 2016

KISTEN PERRY

Applicant

And

FRANK O'CONNOR

Respondent

REASONS FOR JUDGMENT

Introduction 

1. These reasons for judgment explain the Orders that the Court has made in Bankruptcy proceedings between the parties.  The Applicant filed a Creditor’s Petition on 8 February 2016.  The Respondent filed Notice of Grounds of Opposition to the same on 9 June 2016.  The matter was first listed for hearing on 13 October 2016.  On that date it was adjourned part heard to 16 February 2017.  The adjournment was necessitated due to the Applicant’s non-attendance at Court.  She had been required to give evidence.

2. The evidence was concluded on 16 February 2017, and judgment reserved.  During the course of writing the judgment, it became apparent that the Creditor’s Petition had already lapsed on 8 February 2017.  This was drawn to the parties’ attention by my Chambers.

3. On 16 May 2017 the Applicant caused to be filed an Application in a Case in which she sought an Order pursuant to r.39.05 of the Federal Court Rules, to amend the Orders made on 13 October 2016 to include an Order extending the Creditor’s Petition filed 8 February 2016 until 8 February 2018. The Respondent opposed the Orders sought by the Applicant.

4. The Creditor’s Petition having lapsed by operation of law the Court must decide whether its Order made on 13 October 2016 should be retrospectively amended to include an order extending the life of the Creditor’s Petition. 

5. Another issue which arose, however, is that the Applicant’s Application in a Case was filed late. On 14 March 2017 the Applicant was directed to file and serve any application under s.52(5) of the Bankruptcy Act 1966 (‘the Act’) within 42 days.  She failed to do so.  The Respondent opposed the granting of leave by the Court to rely on the application filed late. 

Background

1. The manner in which the litigation was conducted creates the very strong impression that it was a bitter dispute between the Applicant solicitor, and her former client, the Respondent.  The Creditor’s Petition refers to Local Court judgment debts in the vicinity of $60,000.  The Respondent disputed his liability to pay this debt, made a number of very serious allegations about the propriety of both the Applicant and others engaged in her firm, and otherwise denied that he was insolvent.

2. The Applicant was at all times represented by Mr Tang of Counsel who referred several times during the course of the proceeding to his experience in the bankruptcy jurisdiction.  Whilst the Respondent was at one stage legally represented, he represented himself throughout the period that the matter was in my docket.  The Respondent presented as an intelligent and articulate man who seemed very familiar with the legal system and appeared able to access legal resources to assist him in his case when needed.

3. The parties agreed that in circumstances where the Court had heard all the evidence on the contested Creditor’s Petition, it would deal with all outstanding issues before the Court.  In other words, it would rule on whether the Applicant was entitled to rely on an Application in a Case filed outside of the period allocated.  If leave was granted, the Court would rule on the matters raised in the Application in a Case.  If the life of the Creditor’s Petition were extended, the Court would then adjudicate on the substantive issue between the parties.

Should leave be granted to the Applicant to rely on a late filed Application in a Case?

1. On 14 March 2017 the Applicant was directed to file and serve any application and evidence about the lapsing of the Creditor’s Petition within 42 days.  It should have been filed by 25 April 2017.  It was not filed until 17 May 2017 - the day before the issue was listed for determination by the Court.  Whilst no satisfactory explanation was given for the late filing of the application, and whilst the lateness of the filing of the document reflects a surprising insouciance on the part of the Applicant, the fact is that the Respondent suffered no prejudice if leave were granted.   Accordingly, that leave is granted.

The Application under rule 39.05 of the Federal Court Rules 2011

1. Rule 39.05 states:

   The Court may vary or set aside a judgment or order after it has been entered if:

   (a)    it was made in the absence of a party; or

   (b)    it was obtained by fraud; or

   (c)    it is interlocutory; or

   (d)    it is an injunction or for the appointment of a receiver; or

   (e)    it does not reflect the intention of the Court; or

   (f)    the party in whose favour it was made consents; or

   (g)    there is a clerical mistake in a judgment or order; or

   (h)    there is an error arising in a judgment or order from an accidental slip or omission.

2. Doing the best the Court can to understand the submissions made by Counsel for the Applicant, the Applicant relies on paragraph (h) of r.39.05.

3. The Application in a Case is supported by the affidavit of the Applicant affirmed 16 May 2017.  The Applicant’s personal knowledge of relevant matters was limited and she referred accordingly, to communications that she had with her Counsel, Mr Tang.  It was the Applicant’s belief, based on her Counsel’s belief, that Counsel had raised the issue of extending the time before which the Creditor’s Petition would lapse before Registrar Hannigan when the matter came before the learned Registrar on 30 June 2016.  The Court interposes that the order made by Registrar Hannigan on 30 June 2016 does not reflect that belief.  The learned Registrar allocated the matter to my docket, and made some procedural directions. 

4. In any event, on 18 April 2017, the Applicant deposes to having received a copy of the transcript of proceedings before Registrar Hannigan on 30 June 2016.  Her reading of the transcript confirmed that it did not contain any reference to extending the Creditor’s Petition.  She agreed, to use her own words, that “that line of inquiry has been exhausted.”

5. At paragraph 8, the Applicant deposed as follows:

   “I verily believe that there has been an inadvertence by all parties regarding the life of the creditor’s position, and that had the matter properly resumed on 13 October 2016 or shortly thereafter, then this issue would never have been raised, given that the life of the creditor’s position was months away from that point in time, until 6 February 2017. Unfortunately, this matter was adjourned to a date after that date, without any of the parties bearing in mind the expiry date or lapsing of the creditor’s petition.”

6. The Applicant in paragraph 9 expressed her belief that had the lapsing issue been known, an application for extension would have been made at the time, and would have been granted.

7. At paragraph 10, the Applicant explains that the basis of her application under r.39.05 was paragraph (h). She explains that her contention is that the Orders of 13 October 2016 should have included an Order for the extension of time of the Creditor’s Petition.

8. At paragraph 11, the Applicant, in effect, acknowledged that the lapsing of the petition had also been overlooked by the parties when the matter was finally heard on 16 February 2017.  She expressed her belief at paragraph 11 that this was the sort of situation where the Court may exercise its discretion suitably to cure the matter by an order nunc pro tunc to cure the lapsing of the petition.

9. The Respondent relied on an affidavit that he affirmed on 17 May 2017 and filed on that date. He deposes to the effect that in his opinion both Counsel for the Applicant, and the solicitor from the Applicant’s firm who was at all relevant times in attendance, were aware of the provisions of s.52(5) of the Act, or should most certainly have been aware of the same. He pointed to the numerous opportunities that they had to request extension. He asserted that there was no “error arising in a judgment or order”, let alone one arising from “an accidental slip or omission.” It was clear that the Respondent’s position was that the Applicant’s omissions were in no way attributable to him, and that he would be considerably disadvantaged by the granting of leave.

10. Section 52(4) and 52(5) the Bankruptcy Act relevantly states:

    (4)  A creditor's petition lapses at the expiration of:

    (a)  subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or

(b)  if the Court makes an order under subsection (5) in relation to the petition--the period fixed by the order;

unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.

(5)  The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor's petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.

1. Whilst this Court, the Federal Circuit Court, does have its equivalent of a slip rule in r.16.05, that rule does not include the power to correct an accidental slip or omission. By operation of s.43(2)(b) of the Federal Circuit Court of Australia Act 1999, the Federal Court Rules apply, with necessary modifications, to the practice and procedure of this Court, to the extent that the Federal Court Circuit Rules are insufficient. Thus, r.39.05 of the Federal Court Rules apply.

2. In Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131, the Full Court of the Federal Court discussed the scope of the slip rule at paragraphs 26-31 of their judgment:

   26.The purpose of the slip rule is to avoid injustice to litigants (Gould v Vaggelas (1985) 157 CLR 215 at 274‑5) by ensuring that the court’s judgment or order reflects its intention at the time the order was made or the judgment was published, or reflects the intention that the court would have had but for the failure that caused the accidental slip or omission: Symes v Commonwealth(1987) 89 FLR 356 at 357. It may be exercised to prevent unintended consequences of the order and in this way give effect to the court’s intentions: Newmont Yandal Operations Pty Ltd v The J Aron Corporation and the Goldman Sachs Group Inc (2007) 70 NSWLR 411 (“Newmont Yandal”) at [116], [185], [194]. It is not confined to errors or omissions of the court; it extends to errors or omissions resulting from the inadvertence of a party’s legal representative: L Shaddock & Associates Pty Ltd v Parramatta City Council [No 2] (1982) 151 CLR 590 (“Shaddock”) at 594‑5.

   27.In Streimer v Tamas (1981) 37 ALR 211 Shepherd J suggested that the slip rule could be used to retrospectively extend the life of a bankruptcy notice. Later, in DDB Needham Sydney Pty Ltd v Elyard Corporation Pty Ltd (1995) 131 ALR 213 his Honour applied the rule to extend the time in which a winding up application could be determined. The Full Court dismissed an appeal from that decision in Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385 (“Elyard”). On the appeal the Court accepted that the slip rule may be invoked “where the proposed amendment is one upon which no real difference of opinion can exist” but noted that it does not apply if the amendment is a matter of controversy and does not extend to mistakes resulting from a deliberate decision (at 390‑1 per Lockhart J, Black CJ agreeing).

   28.Section 459R(1) of the Corporations Law (now the Corporations Act 2001 (Cth)), with which Elyard was concerned, required that an application to wind up a company in insolvency be determined within six months after it was made.  Section 459R(2) conferred a discretion on the Court to make an order extending the period in which the application must be determined but only in special circumstances and, relevantly, only where the order was made within the six month period, or as last extended under the subsection.  Section 459R(3) provided that an application is dismissed if not determined as required by the section.  Counsel for the appellant in Elyard argued that the language of s 459R(2) required any application for an extension of time to be made before expiry of the period which had been the subject of an earlier extension made within the six month period, and that the application to wind up the appellant company was dismissed by operation of s 459R(3). In rejecting that argument, Lockhart J said at 391‑3:

   In my opinion, the argument rests on a misconception of the nature and operation of the slip rule.  This is the case because the later order corrects the earlier order, and speaks from the date of the earlier order, which then operates with full force as corrected.  Hence, the order made by the primary Judge in this case, on 9 August 1995, corrected the order of the registrar of 9 June 1995, which then operated with full force from 9 June 1995.  The slip rule, with retrospective operation, corrected the earlier order … The essential purpose of the slip rule is to give effect to the intention which the Court would have had, if it were not for the failure which led to the accidental slip or omission.

   …It is irrelevant that the later order ... which corrected the earlier order, was made after the expiration of the statutory time limit.  The earlier order as corrected, and speaking by operation of the later order from the earlier date, operated with full force from a time which was within the statutory time frame.

   …

   [O]nce the earlier order has been corrected it speaks from the date of the earlier order, and it is deemed to have always operated from that date.

   29.Lindgren J at 401‑2 expressed the same view.  Black CJ agreed at 387-8. 

   30.In Griffiths the Full Court expressed some disquiet about the decision in Elyard but declined to overrule it. It said (at [52]) that, although Elyard did not directly bind the Court in applying s52 of the Bankruptcy Act, it would cause substantial confusion in insolvency practice if a different approach were taken in the bankruptcy jurisdiction.

   31.Ms Flint maintained that Griffiths was not binding on this Court (the relevant remarks being obiter) and ought not be followed, and that Elyard was distinguishable.  Nevertheless, during the hearing of the appeal Ms Flint accepted that the slip rule could be used in an appropriate case to extend the life of a creditor’s petition after it had lapsed.  Ultimately her submission was that its operation was not engaged in the circumstances of this case.

3. The Court notes that the common theme of the judgments referred to above is that the slip rule may be invoked where the proposed amendment is one upon which no real difference of opinion can exist, or where no exercise of independent discretion is necessary. 

4. The Full Court in Flint pointed out that for the slip rule to apply there must be an order in need of correction. It is hard to see how the order of 13 October 2016 may be so described. As the Full Court points out at paragraph 38 of its reasons, by application to the present facts, if on 13 October 2016 an application had been made by the Applicant to extend the Creditor’s Petition under s.52 of the Act, the Court would have been required to consider whether it was just and equitable to extend the petition, and if so, on what terms the order should be made. It is simply not possible to conclude that such an order would have been made without doubt. The petition did not lapse until three and a half months later. The history of the matter strongly suggests that the Respondent would have opposed the application. Had the application been made, the Court could have considered adjourning the hearing to an earlier date, given the ramifications of expiry. It is simply not possible for the Applicant to confidently, and dogmatically, assert that had the issue been raised on 13 October 2016, the order would have been made.

5. In the recent decision of Wu v Li [2017] FCA 500, Rares J observed at paragraphs 47-49:

   47.In my opinion, the creditor’s submissions should be rejected. The Bankruptcy Act contemplates that a creditor’s petition must be adjudicated upon and a final order made in the ordinary course within a finite period of 12 months under s 52(4)(a), unless an extension of time of no more than a further 12 months is ordered under s 52(5). There is another temporal requirement ins 44(1)(c) that indicates the importance that the Parliament attached to the Court’s dealing with a creditor’s petition promptly. That is, that the creditor’s petition must be founded on an act of bankruptcy committed within six months before the presentation of the petition.

   48.Proceedings on a bankruptcy notice and a petition have the potential to result in a change of status for a person who commits an act of bankruptcy or is adjudicated bankrupt. A change in status occasioned by the making of a sequestration order has profound consequences for the bankrupt and his or her creditors. The bankrupt loses many of his or her freedoms to enter into transactions, to carry on business and to own and deal with real or personal property which become vested in, and under the control of, his trustee in bankruptcy, being either the official trustee or a registered trustee. Moreover, the bankrupt’s after-acquired property vests in the trustee as soon as it is acquired by or devolves on the bankrupt, subject to any provision to the contrary in the Act (s 58(1)).

   49.These considerations suggest that the decision under s 52(5) to extend the time before which a creditor’s petition lapses, coupled with the statutory requirement that the Court must consider whether any such extension is just and equitable, should not be treated as a matter of course.

6. Again, it is clear that nothing can be taken for granted in a slip rule application.

7. On the facts of the present case, the Court finds it impossible to understand how as at 13 October 2016 it could be said that it made an accidental omission or slip.  It is not even possible to infer this, given that the petition had months to run before it expired.  The Court accepts that the situation might be different if judgment had been reserved shortly before the expiration of the Creditor’s Petition, but that is not the situation here. 

8. In all likelihood, what happened in this case is that after my Chambers had communicated with the parties about the lapsing of the petition, the Applicant’s hindsight took over her perspective on the case rather than there being any genuine situation for the invocation of the slip rule.

9. In any event, Rares J in Wu v Li also raises the issue at paragraph 66 of his reasons that the orders made by the Court on 13 October 2016 adjourning the proceedings part heard ‘were not orders of a kind that were capable of being varied under r.39.05(h) or the slip rule. That is because neither “order” could have been the subject of any appeal.’

1. In any event, and even putting aside the Respondent’s inevitable opposition to the application, the Applicant’s Application in a Case sought that the Creditor’s Petition filed 8 February 2016 be extended until 8 February 2018.  It is highly unlikely, with great respect to the Applicant and those advising her, that the Court would have extended the petition for that period.  The policy considerations for dealing with these applications are self-evident.

Conclusion

1. The Application in a Case filed by the Applicant on 16 May 2017 is dismissed.  The Creditor’s Petition filed 8 February 2016, having lapsed on 8 February 2017, is dismissed.  Should the Respondent wish to be heard on the question of costs, leave is granted to relist at any time in the next 28 days by communication with Chambers.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Judge Altobelli

Date: 9 June 2017