Re Jago, N.H. v Ex Parte Paal Frame Pty Ltd

[1989] FCA 52

Re: NOEL HAROLD JAGO
Ex parte: PAAL FRAME PTY LTD
No. P 2498 of 1987
FED No. 52
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN
CAPITAL TERRITORY
Einfeld J.(1)

CATCHWORDS

Bankruptcy - hearing of petition - application for sequestration order - expiry of creditor's petition - extension of petition's life - effect of annulment of bankruptcy on life of a petition - effect of an order by a superior court of record which is later set aside - sequestration order void or voidable - accidental listing of reinstated creditor's petition after expiry - the slip rule - inherent jurisdiction of the Court

Bankruptcy Act 1966 - ss 31A, 52, 154

Federal Court of Australia Act 1976 - s 5

HEARING

SYDNEY

#DATE 28:2:1989

Solicitors for the Mr Sheehan
debtor Legal Aid Commission NSW

Counsel and solicitors Mr Ronzani
for the petitioning creditor instructed by

Coleman & Greig Solicitors

ORDER

Order that the period at the expiration of which the petition will lapse be sixteen months from the date of its presentation.

Order sequestration of the estate of the debtor.

Order that costs, including reserved costs, be taxed and paid by the debtor according to the Act.

Direct that a draft of this order be delivered to the Registrar within 7 days in accordance with Rule 124(2) of the Bankruptcy Rules.

NOTE: Settlement and entry of these orders is dealt with in accordance with Rule 124 of the Bankruptcy Rules.

JUDGE1

On 12 December 1988, the day before this matter came before the Court, a consent application was made by Noel Harold Jago (the debtor) and Paal Frame Pty Ltd (petitioning creditor) that the Registrar in Bankruptcy give a direction pursuant to section 31A(9) of the Bankruptcy Act (the Act) to have the hearing of the creditor's petition brought before the Court. Section 31A(9) provides:

31A(9) Where at any time before or during the hearing of a proceeding that involves the exercise of a power referred to in sub-section (1) by a Registrar -

(a) the Registrar considers that it is not appropriate for the proceeding to be heard by the Registrar under this section; or

(b) an application is made to the Registrar for the proceeding to be heard by a Court,

the Registrar shall not hear, or continue to hear, the proceeding and shall make appropriate arrangements for the proceeding to be heard by the Court.

The relevant power in subsection (1) was the power to adjourn the hearing of the proceeding.

1. The petitioning creditor obtained judgment against the debtor in the District Court of New South Wales for $16,307 on 22 December 1986. A Bankruptcy Notice was subsequently issued on 4 September 1987 claiming the sum of $21,874.62, made up of $19,270 together with interest of $2,604.62 from the date of judgment to 1 September 1987. Despite a claim by the debtor that he had made a counter-claim on the solicitors for the petitioning creditor on 28 September 1987, a creditor's petition was subsequently issued on 27 November 1987 and presented to the Court on 1 December 1987, claiming the sum of $21,874.62.

2. After a notice of intention to oppose the petition was filed on 10 February 1988, the matter went before the Registrar on 14 July 1988, on which day a contested application for an adjournment by the debtor was not granted and a sequestration order was subsequently made. On 8 November 1988 the matter came before the Court after an application for an annulment dated 2 September 1988 had been filed by the debtor. On that day, there were appearances by the debtor and trustee although there was no appearance for the petitioning creditor. In his report under section 19 dated 3 November 1988, the trustee did not oppose an order for the annulment of the bankruptcy provided three conditions were met. These were:
   

(a) that the debt owing to Citicorp Bank be discharged in full

(b) that the unsecured creditors' debts be discharged in full

(c) that the costs of the trustee and administration be paid in full

1. Having been informed that the petitioning creditor was aware of the proceedings before the Court on 8 November, the Court made the following consent orders on the basis of short minutes prepared by the parties and filed in Court:
   

1. The sequestration order be annulled

2. The petition be re-listed before the Registrar on 5 December 1988

3. Costs and expenses of the trustee to be paid by the applicant

4. Costs of petitioning creditor reserved and to be dealt with at the hearing of the petition

1. An undertaking by the applicant not to file a notice of opposition to the petition was noted. It was the intention of the parties that the applicant meet the trustee's conditions before a rehearing of the petition. The trustee indicated that if the sequestration order were annulled and the relevant payments were not made by the debtor by the date of the adjourned hearing, he would not propose the making of another sequestration order. No such payments appear to have been made.

2. No application was made pursuant to section 52(5) for an extension of the petition's life. In fact the Court's attention was not directed to the fact that the adjourned date of 5 December 1988 would take the petition beyond its 12 month statutory limit. The expiry of this time apparently escaped the notice of the parties.

3. On 5 December 1988, the matter was adjourned to 12 December 1988 on which date the Registrar directed that the matter again be brought before the Court. The petitioning creditor was prepared to proceed with the hearing of the petition and the obtaining of a sequestration order. The debtor appeared, and did not oppose the hearing of the petition because of the undertaking given when the sequestration order was annulled. However, before the hearing of the petition could proceed, an issue arose as to whether the creditor's petition was stale.

4. Subsections (4) and (5) of section 52 provide:
   

(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. By virtue of section 52(4), the petition lapsed on 30 November 1988, unless the sequestration order made on 14 July 1988 saved it despite that order having subsequently been annulled.

2. In Re Lymberopoulos ex parte James Smith (1983) 68 FLR 157 it was held by Fisher J that although a creditor's petition has lapsed by effluxion of the time set by section 52(4), it does not mean the proceedings are concluded. At 161 his Honour said:
   

The debtor's contention that upon the lapsing of the creditor's petition through effluxion of time the court has no jurisdiction to hear and determine any other matters, i.e. is functus officio, is misconceived. The proceedings before the court were without doubt initiated and set in train by the presentation of the creditor's petition. However, in consequence of the institution of proceedings many matters in addition to the making of a sequestration order arise for consideration and determination by the court. In the simplest of cases even the petitioning creditor may seek the making of orders over and above those referred to in the sequestration order, i.e. appointment of a private trustee, costs etc. Likewise the debtor's opposition to the making of a sequestration order is only one of a number of remedies and consequential orders he may seek. The creditor's petition to the court seeking the making of a sequestration order initiates and specifies the essential nature of the proceedings but it does not represent the totality of the proceedings. It follows that the fact that, by effluxion of time and the impact of s.52(4), the creditor's petition lapses does not mean or require that the proceedings are concluded and that there is nothing before the court upon which it can adjudicate. The lapse of the creditor's petition means that there is no longer a petition for a sequestration order before the court and thus no basis upon which such an order can be made. However, the proceedings continue and the court has in my opinion jurisdiction to make all other consequential or ancillary orders, and in effect all appropriate orders other than a sequestration order.

1. It follows that the Court can still proceed to determine the issues before it even though the petition has lapsed. Here they are:
   

(1) What is the effect of the annulment of a sequestration order upon the life of the creditor's petition on which it was pronounced?

(2) Does annulment mean that a sequestration order is void ab initio, or is a sequestration order voidable only by and from the time of the annulment?

(3) Can the creditor's petition now be extended pursuant to section 52(5) so that the hearing can proceed and a new sequestration order granted?

Annulment

1. The making of an order annulling the bankruptcy pursuant to section 154 has the effect of setting aside the sequestration order and bringing an end to the bankruptcy: see Re Deriu (1970) 16 FLR 420; Re Bond (1978) 22 ALR 287; Re Anasis (1985-86) 63 ALR 287.
   Life of a Creditor's Petition

2. In Re Young Ex Parte Smith (1985) 59 ALR 385, the issue was whether the Court has power to extend the life of the creditor's petition after the period of 12 months has expired. A Full Court of this Court (Bowen CJ, Sweeney and Lockhart JJ) held at 207:
   

Section 52(4) and (5) cannot be considered independently of each other. They are designed to ensure that a petition has no life beyond a maximum of twenty-four months from the date of its presentation. It has an automatic span of twelve months from the date of its presentation, but it cannot survive beyond the initial twelve month period without an order of the court. The life of a petition may, however, at any time during its life, be brought to an end by the making of a sequestration order on the petition or by the dismissal or withdrawal of the petition.

There are sound reasons why there should be no uncertainty surrounding the time during which a petition is pending. The presentation of a petition is an event which determines many rights duties and liabilities of bankrupts and creditors under bankruptcy law and from which important consequences flow. For example, before a debtor becomes a bankrupt, the court may appoint a trustee to take control of his property (s 50), stay legal proceedings against his person or property (s 60), or order his arrest in certain circumstances and the seizure of his property (s 78) - in each case after the presentation of the petition against him.

After a debtor becomes a bankrupt, the date of commission of an act of bankruptcy and the date of presentation of the petition on which he was made a bankrupt are critical for various purposes including the determination of the period of relation back (s 115), the ascertainment of the property divisible amongst his creditors (s 116), the avoidance of preferences (ss 122 and 123), the avoidance of voluntary settlements (s 120) and the repayment by creditors to the trustee of his estate of moneys received as a result of execution by those creditors against his property (s 118).

In Re Hibbard Ex Parte Playroom Pty Ltd, unreported 5 December 1988, Pincus J also said that once the 12 months had expired, the petition could not be extended.

Submissions of creditor

1. It was submitted that the petition still has life in it even though 12 months had lapsed without an order of the Court extending the period. The creditor put the view that the fact that the annulment of the sequestration order had been made, did not mean that the order was a nullity. Rather, the creditor said, it meant that the sequestration order was a valid order of the Court until it was set aside by the Court. The creditor argued that the sequestration order was not made void ab initio by the annulment pronounced after it had been made. The creditor said that because the Federal Court is a superior Court of record by virtue of section 5 of the Federal Court Act, a sequestration order is only voidable.

2. In Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 156, the facts were that the debtor had presented a debtor's petition before a creditor's petition was presented by the Deputy Commissioner of Taxation and upon which a sequestration order was made. The sequestration order was set aside by the High Court in Clyne v Deputy Commissioner of Taxation (No.3) (1984) 58 ALJR 398, which then adjourned the matter to this Court. When the matter resumed, the petitioning creditor claimed that the amount was still owing. The debtor argued that the Court had no jurisdiction to proceed with the hearing on the basis that the petition had lapsed. Toohey and Wilcox JJ as members of a Full Court of this Court stated at 157-8:
   

Section 52(4) provides for the lapse of a petition unless "a sequestration order is made on the petition" within twelve months or time is extended. The petition was presented on 4 January 1983 and a sequestration order was made within twelve months of that date, namely on 7 October 1983. That sequestration order has now been set aside by the High Court as being beyond power but that does not mean that the order was a nullity. The Federal Court is a superior court of record: see s 5(2) of the Federal Court of Australia Act 1976 (Cth). An order of a superior court of record which is, for any reason, irregular is not a nullity, but merely voidable: see Cameron v Cole (1943) 68 CLR 571 at 590-591, 598, 599 and 604-5; Taylor v Taylor (1979) 143 CLR 1 at 7-8. This approach was implicity adopted by the majority justices in the High Court in this case when they referred at 400 to decisions where a second sequestration order had erroneously been made on a petition founded on a debt provable in the existing bankruptcy. They went on: "It was held that the creditor had no legal right to the second sequestration order which should be rescinded. The proper course was, in our opinion, to annul rather than to rescind the order." Annulment would, of course, have been unnecessary if the second order, which was - for the same reasons as in the present case - beyond power, had been a nullity when made. One of the two events specified in s 52(4) as necessary to prevent lapse of the petition did occur.

1. The Court held that the making of a sequestration order on a creditor's petition within twelve months of the date of presentation of the petition prevents the petition from lapsing under section 52(4) of the Act even if that sequestration order is subsequently set aside, because an order of a superior court of record is merely voidable.
   Debtor's submissions

2. The debtor argued that the creditor's petition had no life and therefore that the hearing could not proceed. The debtor put the view that the effect of the annulment on the sequestration order was to make the sequestration order and procedures leading up to it void ab initio.

3. The debtor also submitted that the sequestration order made by the Registrar exercising power under section 31A(1)(n) was not validly exercised because section 31A(8) provides:
   

31A(8) Where at a hearing of a proceeding that involves the exercise of a power referred to in paragraph (1)(n) in relation to a sequestration order . . . . . a person opposes the making of that order, the Registrar shall not hear, or continue to hear, the proceeding and shall make appropriate arrangements for the proceeding to be heard by the Court.

1. In Deputy Commissioner of Taxation v Clyne in this Court, Jenkinson J discussed the provisions of section 52(4) and (5) and said at 161:
   

A legislative intention to restrict the period during which a creditor's petition may continue pending is to be discerned in s 52(4) and (5). The means adopted to give effect to that intention may be open to question: in Re Draper; Ex Parte Brosalco Pty Ltd (1983) 48 ALR 656, McGregor J held that s 52(5) did not preclude the exercise, more than twelve months after the presentation of a creditor's petition, of a power, which his Honour held to be conferred by s 33(1)(c), to order that the period at the expiration of which the petition would lapse should be a period of twenty-four months from the date of presentation of the petition, but the judgment debtor submitted that s 52(5) did preclude the exercise of any such a power. If McGregor J were in error on both points - as to neither of which is it necessary to express an opinion - and s 52(4) and (5) operate to deny courts exercising jurisdiction in bankruptcy power to prevent or, perhaps one should say, undo, after the expiration of twelve months from the date of presentation of a creditor's petition, the lapse of that petition, which was pending at the expiration of that period and upon which no sequestration order had been made before the expiration of that period, yet that manifestation of the legislative intention would not in my opinion afford any clear guidance as to whether the words "a sequestration order is made on the petition", in s 52(4), comprehend the making of a sequestration order which is subsequently set aside on appeal. An intention to circumscribe the power of courts exercising jurisdiction in bankruptcy to enable a petition to remain on foot before a hearing which results in a sequestration order or dismissal or withdrawal of the petition has taken place does not in my opinion betoken an intention also to deny or to circumscribe that power in the uncommon circumstances to which the setting aside of a sequestration order on appeal gives rise. The construction of the subsections ought not, I think, to be much influenced by any presumption concerning legislative intention in relation to those uncommon circumstances. The natural meaning of the final clause of s 52(4) is that the occurrence of one or other of three actual events is specified within an ascertainable period of time. The subsection as a whole declares a legal consequence of the passage of a period of time without the occurrence of any of those three actual events in that period. There is in my opinion nothing in the legislative context to suggest that any of those three actual events are to be understood as of significance in s 52(4) only if the legal effect of the event continues undisturbed by subsequent order of a court. The three events are selected, it would seem, because the occurrence of any of them signifies a normal termination of a proceeding the duration of which it is intended by the legislature to control. There is in my opinion nothing in s 52(4), or elsewhere in the Act, to suggest that in s 52(4) or (5) an attempt has been made to exercise that control, after the proceeding has terminated upon the occurrence of one of those three events, in relation to the unusual supervenient events to which ss 37(1), 38 and 154(1) may give rise.

1. Jenkinson J concluded that even if the sequestration order were characterised as void ab initio, as argued by the debtor, that might not preclude a conclusion that for the purposes of section 52(4), a sequestration order had been made before the expiration of the 12 month period commencing on the date of presentation of the petition. However, his Honour cited Cameron v Cole (1943) 68 CLR 571 at 590-91 per Rich J; 598-99 per McTiernan J; 604-7 per Williams J; Latham CJ contra at 584-86 as authority for the conclusion that it should not be so characterised.

1. In that case a bankruptcy petition was adjourned with a direction from the Court designed to ensure that the debtor was notified of the date of the hearing. The debtor was not notified and a sequestration order was duly made. The Court then annulled the sequestration order and directed that the petition be reheard. A sequestration order was again made at the rehearing. The High Court held that the order of annulment did not prevent the Court proceeding to a rehearing of the petition or the making of a second sequestration order. Latham CJ in dissent regarded the Federal Court as an inferior Court and the sequestration order was therefore void and not voidable. At 586 he stated:
   

The question whether the order of sequestration of 22nd December 1942 was null and void in the full sense, and not merely voidable, was not argued. But, if the two recent decisions in the Court of Appeal to which I have referred are to be accepted, it appears to me that it should be held that the order was null and void ab initio. If this was the case the order remained null and void and there was no need to have recourse to the provisions of s. 124 for the purpose of getting rid of it. In order to keep the record clear, the court could set aside the order under an inherent jurisdiction, but there was no necessity to do so. The hearing on 22nd December 1942 was a nullity (as in Hart's Case (1943) 169 LT 60), and there was no need to order a rehearing when there had been no true and legal hearing. The hearing on 13th August 1943, when the order appealed against was made, should, I think, be regarded as the only and original hearing. Accordingly, though I agree with the appellant's contention that there is no power under s. 124 to order a rehearing after annulment of a sequestration order, I am of opinion that the contention is irrelevant in the circumstances of this case.

1. The rest of the Court was of a different view, and held that the Federal Court was a superior Court. It therefore found that the first sequestration order which had been annulled was not void ab initio. Rich J considered that the Court had inherent jurisdiction to set aside the first sequestration order and that the order was appropriate and effective. At 589 he stated:
   

The next ground taken is that his Honour had no jurisdiction to direct a rehearing of the petition. I am unable to agree with this. It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justitiae, to have any determination which affects him set aside; and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside (Craig v. Kanssen (1943) 1 KB 256 at 262). In such a case there has been no valid trial at all. The setting aside of the invalid determination lays the ghost of the simulacrum of a trial, and leaves the field open for a real trial (Crane v. Director of Public Prosecutions (1921) 2 AC 299 at 332, 333). In principle, therefore, there is no objection to the course taken by the learned judge in proceeding to rehear the petition when the invalid order has been set aside.

1. Discussing Cameron v Cole in Re Anasis Ex Parte Total Aust Ltd (1985) 11 FCR 127, Burchett J concluded at 133 that the sequestration order though voidable is not void, citing Deputy Commissioner of Taxation v Clyne (above).

2. It seems to follow that where the Court has made a sequestration order which is subsequently annulled within the 12 months period, it is permissible for an order to be made after the 12 months period pursuant to section 52(5), to continue the life of the petition. This is apparently because the order or the annulment operates as a type of suspension of the period of the petition.

3. Although not raised by either counsel in this case, it should be mentioned that an alternative argument on this issue is that the Court could use the slip rule under its inherent jurisdiction to rectify the problem of extending the life of the petition: see Re Hibbard Ex parte Playroom Pty Ltd (above); Re Young Ex parte Smith (above); Streimer v Tamas (1981) 37 ALR 211; Re Draper Ex parte Brosalco Pty Ltd (1983) 48 ALR 656. This petition lapsed because when the petition was stood over to 5 December 1988, the parties did not realise and it was not brought to the attention of the Court that the adjournment would take the petition beyond the 12 month period. Had this been done, an order would have been made pursuant to section 52(5) and the petition would not have lapsed.

4. In Hibbard it was argued by counsel for the petitioning creditor that the slip rule was available to remedy the oversight even though the order pursuant to section 52(5) which was omitted by the slip was not asked for. Pincus J at page 2 noted that the Bankruptcy Rules do not provide for the correction of such a slip: but see L. Shaddock and Associates Pty Ltd v The Council of the City of Parramatta (1982) 151 CLR 590 at 594 where the High Court corrected an oversight by adding an order for payment of interest.

5. Pincus J referred to prior cases which had considered the issue and stated at pages 2-3:
   

The question whether the slip rule is able to be used in such a case as this was left open by the Full Court in Re Young; Ex parte Smith (1985) 59 ALR 385 at 391. In that case, it was decided that s.33(1)(c) gives no power to extend the duration of a petition after 12 months from its presentation. The Court dealt with Re Draper; Ex parte Brosalco Pty Ltd (1983) 48 ALR 656, in which it was held that such an order for extension could possibly be based on the slip rule.

1. In discussing whether the Court could make an order under section 52(5) on this basis, Pincus J stated at page 4:
   

Shaddock's case is one where the slip was of the same basic kind as here - i.e. the error was not a misrecording of the Court's intention, but due to a failure on the part of counsel to ask for an order of an ancillary kind which the Court would plainly, if asked, have made. A Court has, in those circumstances, a discretion to alter its own order, even by addition of an order not originally asked for. Such an order is exceptional in the sense that the slip rule is one of the exceptions to the principle that an order may not be changed except on appeal: Bailey v Marinoff (1971) 125 CLR 529 at 539. The difficulty in the way of the application of the slip rule here is that amendment of the order for adjournment by adding an order under s.52(5) would not be merely an infringement of the (general but not absolute) rule that the Court's orders, once perfected, are final. It would also be an infringement of the requirement in s.52(5) that any order extending the petition be made before the expiration of the period of twelve months commencing on the date of presentation of the petition. It does not appear to me that, on the proper construction of s.52(5), an order for extension may lawfully be made, after the twelve months' period has ended, predated so as to fall within the twelve months.

1. His Honour therefore held that that the petitioning creditor's application for correction of the order of a previous date by adding to it an order under section 52(5) could not be made in the circumstances although at page 5 he said:
   

I therefore hold, in accordance with the submissions of counsel for the debtor, that the Court has no power to remedy the mistake which was made. In case the matter goes further, I should make it clear that the case is one in which it would be appropriate to exercise the power to correct the slip, if any such power existed. It appears to me unnecessary, however, to set out the rather unfortunate facts, disclosed by the evidence, which underlie the view just expressed.

Pincus J in substance held that the problem could not be overcome by the exercise of any inherent jurisdiction of the Court.

1. It is true that there seems little room for any inherent jurisdiction if attention is limited to the terms of the statutory and regulatory provisions. However, with every respect to his Honour whose thoughtful and erudite reasoning I have carefully considered, I am of a different opinion in relation to the slip rule. As I understand the position, the slip rule does not need to be expressly permitted by legislative or regulatory enactment before it can be availed of. Indeed it seems to have been designed to deal with situations where the legal framework does not deal at all or adequately with the correction of an accidental oversight or error by the Court in expressing or giving effect to its intention, or to what would have been its intention if the parties had not failed to seek an appropriate order or draw the Court's attention to factors which would influence the achievement of the obvious intention. If applicable statutory provisions or the common law otherwise dealth with this situation, there would be no need for the rule at all.

2. In this case it is obvious that when the sequestration order was annulled on 8 November 1988, the petition would have been relisted before its expiry on 1 December 1988 to permit its valid rehearing if the parties had realised and drawn the Court's attention to the imminence of its expiry. On the authorities, this seems to me in principle to be a matter to which the slip rule may be applied. Respectfully contrary to the views of Pincus J, it seems to me that if this did not permit an order to be made under section 52(5) extending the life of the petition in these circumstances, the rule would effectively become meaningless in contexts of this kind. That is not my understanding of the rule.

3. On both these bases, then, I order that the period at the expiration of which the petition will lapse be 16 months.

4. The petitioning creditor stated that it sought a sequestration order if the Court was satisfied that the petition still had life in it or could be extended. I note the affidavits of Christian Nobis, sworn on 12 December 1988 as to debt, Natalie Garner sworn 5 December 1988 as to search in the District Court of New South Wales at Parramatta and of Stephen Gray sworn 5 December 1988 as to search in the Registry.

5. I am satisfied that the debtor committed an act of bankruptcy as alleged on 14 October 1987 in the amended petition. I am satisfied with the proof of the matters of which section 52(1) of the Act requires proof. I make a sequestration order against the estate of the debtor. I order that costs, including reserved costs, be taxed and paid by the debtor according to the Act. I direct that a draft of this order be delivered to the Registrar within 7 days in accordance with Rule 124(2) of the Bankruptcy Rules.