Re Nicholson, P.A. v Ex parte McCarthy, J.J. (trading as McCarthy & Associates)

[1993] FCA 1031

1031 j 93

dUDGMENT No. . , m , . . . . . . . . . . . . . W.., .......

IN THE FEDERAL COURT OF AUSTRALIA

EXERCISING FEDERAL JURISDICTION	NO VN 2549 of 1993
1N BANKRUPTCY

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

RE:  PETER ALEXANDER NICHOLSON

Judgment Debtor

EX PARTE:  PETER ALEXANDER NICHOLSON

Applicant

AND:  JAMES JOHN McCARTHY

(TRADING AS MCCARTHY & ASSOCIATESL

Respondent

COURT :  NORTHROP J

PLACE: MELBOURNE

m:  15 DECEMBER 1993 16 FEB 1994

FEDERAL COURT OF

EX TEMPORE REASONS FOR JUDGMENT REDISTRY

The history of the matter presently before the Court is

most unfortunate and is one which tends to bring the law into
disrepute. On 18 June 1992, Peter Alexander Nicholson, as
defendant, signed a consent order to be made in proceedings

pend~ng in the Magistrates' Court of Victoria at Sandringham,

in which he was being sued by James John McCarthy trading as Messrs McCarthy and Associates, solicitor, as plaintiff, who had previously been his solicitor and was suing, presumably, for costs arising out of acting for Mr Nicholson. The consent

settlement of this action. Payments to be a s follows

order leaving out the heading which shows who the parties

were, was as follows:

" B y Consent:

Order defendant pay plaintiff $8,000.00 in full & final

further	$2,000.00 by 22/8/92
further	$2,000.00 by 22/9/92 and
balance of	$2,000.00 by 22/10/92"

The consent order was slgned by the plaintiff and by the defendant. That amount, apparently, was not paid.

A certificate of summary conviction or order made

pursuant to the Magistrates' Court Rules and stamped with the
stamp of the Magistrates' Court of Victoria, the Southern
Courts Registry, on 8 October 1993, is before the Court. This
order contains what, on its face, may well be typographical
errors in that the payments to be made were said to be

$2000.00 by 22 July 1993, a further $2000.00 by 22 August

1993, and the other two by various dates in 1992. There is

sonething definitely wrong with that. Relying on that
certificate, the plaintiff, being the judgment creditor,
applied for a bankruptcy notice which, apparently, was issued
on 15 October 1993. There are a number of strange features in

that bankruptcy notice. It is arguable that the bankruptcy

notice does not comply with Form 4 of the Bankruptcy Rules.
For instance, it is headed "In the Federal Court of Australia,

General Division, Bankruptcy District of the State of Victoria". A bankruptcy notice is not a Court document. That heading is completely wrong. The beginning of the form of the bankruptcy notice itself does not comply with the beginning of Form 4, although it may well be that paragraph 1 overcomes that deficiency, but there is also included in the bankruptcy notice other amounts, including a fee for issuing a warrant of execution in the Magistrates' Court and matters of that kind,

showing a total amount owing of $10,350.95, whereas the

judgment debt was for $8000. The notice, which is a 14 day

notice, requires the judgment debtor to pay the sum of
$10,350.95 to the judgment creditor, or to secure the payment

of the debt. It then contains the other requirement which is

included by reason of section 41(g) of the Bankru~tcv	Act,
being:

"AND FURTHER TAKE NOTICE that l£, within the period set

out above, you fail either to comply with either of the
abovementioned requirements of this notice or to satisfy
the Federal Court of Australia that you have a counter-
claim, set-off or cross demand equal to or exceeding the
sum specified in paragraph (a), being a counter-claim,
set-off or cross demand that you could not have set up in
the action/proceeding in which the judgment/order was
obtained, you will have committed an act of bankruptcy on

which bankruptcy proceedings may be taken against you."

There is before the Court today an affidavit of service

of that bankruptcy notice on M r Nicholson, in which it is said that it was served on him at 11.30 am on 27 October 1993, that being a Wednesday. The affidavit states that, at the time of

service, Mr Nlcholson said he was the person mentioned in the

bankruptcy notice, but he denied he owed the sum of $10,350.95

to the judgment creditor. That affidavit of service was sworn
before a Registrar of the Magistrates' Court of Victoria, at
the court house at Frankston, on 27 October 1993.

In purported conformity with the notice contained in the bankruptcy notice which I have read out, on 11 November 1993,

M r Nicholson filed in the Registry of the Registrar in

Bankruptcy, in the Bankruptcy District of the State of Victoria, an affidavit in purported conformity with subsection 41(7) of the Bankru~tcv Act. Again, that affidavit is wrongly headed as being in the Federal Court of Australia, when it is not a Court document. The matter came before a Deputy Registrar in Bankruptcy and, pursuant to Bankruptcy Rule 10, the Deputy Registrar in Bankruptcy formed the view that the affidavit did not satisfy the requirements of subsection 41(7)

of the Bankru~tcv Act, which provides as follows:

"(7) Where, before the expiration of the time fixed for

compliance with the requirements of a bankruptcy notice,
the debtor has filed with the Registrar an affidavit to
the effect that he has such a counter-claim, set-off or
cross demand as is referred to in paragraph 40(l)(g), and
the Court has not, before the expiration of that time,
determined whether it is satisfied that the debtor has
such a counter-claim, set-off or cross demand, that time
shall be deemed to have been extended, immediately before
its expiration, until and including the day on which the

Court determines whether it is so satisfied."

The nature of thac subsection has been discussed recently

in a judgment given by me on 8 October 1993, in the matter Dohertv and Ors Ex Parte: Mur~hv and Allen, matter No VN

1166 of 1993. Before lunch I gave a copy of those reasons for
this case. Rule 10 of the Bankruptcy Rules provides a procedural method by which cases where an affidavit has been filed purportedly in compliance with subsection 41(7) are to be brought before the Court. On its face, it appears that there is an error in Rule 10, in that it refers to filing an application, the application to contain certain details.	judgment to each of the counsel representing the parties in to an affidavit. Rule 10 in its current form almost amounts
to nonsense. It seems to treat the affidavit as if it were an application. Subsection 41(7) does not require an application to be filed. The affidavit is to be filed. The filing of the affidavit operates as an automatic extension of time for
compliance with the bankruptcy notice until the Court is able to determine whether it is satisfied with the requirements of the affidavit. This is all explained in some detail in &
Doherty mentioned earlier. Unfortunately, Rule 10 does give rise to problems, and it is a matter that should be drawn to the attention of the persons responsible for making the
Bankruptcy Rules, to enable a correction to be made.
The matter came before a Deputy Registrar in Bankruptcy, as I said before, and under Rule 10, that Deputy Registrar in Bankruptcy had certain functions to perform. He formed the
view that the affidavit did not satisfy the requirements specified in the bankruptcy notice, and accordingly he endorsed on the affidavit the words "Application insufficient - no case raised" and forwarded that affidavit
back to the solicitors for Mr Nicholson.

To compound the errors, the letter, dated 18 November

1993, under which the Deputy Registrar in Bankruptcy forwarded

M r

the affidavit, as endorsed, to the solicitors for Deputy Registrar in Bankruptcy as Deputy District Registrar of the Court. Again, that is completely wrong. In exercising the powers under Rule 10, the Deputy Registrar in Bankruptcy

Nicholson, was on the letterhead of the Federal Court of

is exercising powers conferred upon a Registrar Ln Bankruptcy,
not upon a Registrar or Eeputy Registrar of the Court. The
letter should not have been on the Court letterhead but should

have been on the letterhead of the Registrar in Bankruptcy.

The Important feature, for present purposes, is that the

second paragraph of that letter reads as follows and I quote:

"An affidavit of counter-claim must be filed within the

I have considered the affidavit of counter-claim as though it were filed in time."

time for compliance stipulated in the bankruptcy notice. service of the bankruptcy notice but for present purposes

On the material presently before the Court the 14 day

required action to be taken before the end of Wednesday, 10

bankruptcy notice, being served on Wednesday, 27 October 1993, days after service of the notice on Mr Nicholson, excluding the day on which the notice was served. Since it was served on Wednesday, 27 October, the affidavit should have been filed

before midnight on 10 November 1993. Non-compliance with the

notice by that time, if the bankruptcy notice were valid, and

the failure to file an affidavit within that time would have had the effect that an act of bankruptcy had occurred on the expiration of that time, being midnight on 10 November 1993. The affidavit filed by M r Nicholson was in fact filed on

11 November, after the act of bankruptcy had been committed,

if the bankruptcy notice were valid. These times are conceded

by counsel for Mr Nicholson but counsel has sought an
adjournment of the hearing of thls matter to enable him to
ascertain whether in fact service of the bankruptcy notice was
on 27 October or a later date. It is said that the chances
are very slight of this occurring but it is something which
has not been adverted to in detail and his client should have

the opportunity to consider the matter. It is a difficult

argunent to put having regard to the warning given in the letter from the Deputy Registrar notifying Mr Nicholson's solicitor of his conclusion.

The matter comes before the Court today on an application under s14 of the Bankru~tcv Act seeking to set aside the

decision of the Deputy District Registrar made on 18 November. or not. I do not need to decide that today. There is strong support for the view that if in fact the affidavit does comply or conform to the requirements of the bankruptcy notice and subsection 41(7) of the Bankruptcv Act, the filing of the affidavit has the effect of extending the time for compliance

with the bankruptcy notice. Any action taken by a Registrar

required is a method of bringing the matter before the Court. The Deputy Registrar was not acting as an officer of the	in Bankruptcy cannot affect that position whatsoever. What is and unless acting in conformity with powers delegated pursuant
to section 31A of the Bankru~tcv	Act, has no power of a quasi
judicial nature at all as a Registrar of the Court.	I do not

see in that section any reference to the exercise of powers
under subsection 41(7) of the Bankruptcy Act.

Counsel for the judgment creditor has opposed the granting of the adjournment. He states he is not in a position to respond to any of the issues raised as to the

validity of the bankruptcy notice and in so doing is quite
correct because that matter has not been raised formally in
these proceedings. But in all the circumstances of this case
and having regard to the problems associated with the
formalities of the documents this is a case where I am
disposed to grant the adjournment sought by Mr Nicholson. The
only question that arises therefore is what order should be
made as to costs.

Counsel for F!! Nicholson has said that, in the

circumstances, he could not oppose the making of an order that
Mr Nicholson pay the costs of today. Those costs are not the
cost of the proceedings, they are not the cost of the
application which has been issued in this case and filed on

7 December 1993. It is not appropriate to make any orders

today in relation to the costs of those proceedings.	It is
possible that this is a case where there should be no order as

to costs at all because of the unsatisfactory nature of the
documentation from both sides on the record but in the
circumstances I will make an order that the judgment debtor

pay the costs of today to be taxed.

I propose to adjourn the further hearing of this matter

until the first Wednesday of t e n of this Court, namely 9 affidavits to be relied upon will need to be filed well before that date. If the matter is not to proceed for various reasons, notice should be given to the opposing party. This could arise by the judgmenr: creditor deciding to commence again with the proper form of documentation. It could arise in regard to the judgment debtor deciding he cannot challenge the date of service of the bankruptcy notice as being 27 October. In any event, this LS a case where the solicitors for the parties should apply some common sense and a real professionaiism to determine what is to happen to the present proceedings. Already there has been too much action of a kind which is to be deplored from professional persons. It is about time that that was corrected. I say no more.

Accordingly the orders of the Court are:

1.    The application is adjourned to Wednesday, 9 February

1994, at 9.30 am;

2.    The judgment debtor to pay the costs of the day to the

judgment creditor, the costs to be taxed.

I certify that this and the preceding eight (8) pages are a
true copy of the Ex Tempore Reasons for Judgment of The

Honourable Mr Justice R.M. Northrop.

Associate: @&'@$W

Date:  /My-

JUDGES' CHAh4BERS

FEDERAL COURT OF AUSTRALlA

4, AUSTRALIA L	450 LITTLE ROURIiE STREET
J33=:$Gg<<ccCL	MELBOURXE, 3000

14 February 1994

MS Sonia Cornale
Records Clerk

Library and Information Services

" Principal Registry

'-	Federal Court of Australia Level 16 Law Courts Building Queens Square SYDNEY NSW 2000
Dear Sonia
Re: Computerised Leaal Information Retrieval System
I enclose the following judgments for inclusion in the data base of Federal Court Judgments:
1. Moduline Ptv Ltd v Geoffrev Norman Davis and Others No VG 408 of 1992

, 2. .' Peter Alexander Nicholson Ex Parte: Peter Alexander

' Nicholson v James John McCarthv (Tradina as McCarthv &

Associates )

No VN 2549 of 1993

3.

Denis Maher Ex Parte: Elizabeth Joanne Marie Maher v No VB 1969 of 1991

The word processing disks containing the above judgments are enclosed. Please return the disks to me when appropriate.

Thank you

he Hon Mr Justice Northrop

Enc