Re T.J. Farley Ex Parte Hargoss P/L

[1992] FCA 573

Re: T.J. FARLEY
EX PARTE: HARGOSS PTY LTD
No. V B1840 of 1992
FED No. 573
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Olney J.(1)

CATCHWORDS

Bankruptcy - exercise of delegated power by registrar - review of order made by registrar - effect of amendment of s. 37 - whether Court may review sequestration order made by registrar.

Bankruptcy - matters required to be proved on making of sequestration order - proof that debt relied upon by petitioning creditor still owing - default judgment pre-dating act of bankruptcy set aside after petition issued and judgment given for creditor on re-hearing - creditor relying on subsequent judgment - whether creditor proved debt on which it relied was still owing.

Bankruptcy Act, ss. 31A, 52(1) and 37

Family Law Act 1975

Harris v. Caladine 172 CLR 84

McNamara v. Longford (1931) 45 CLR 267

HEARING

MELBOURNE

#DATE 10:8:1992

Counsel and solicitors for
the debtor: Ms J. Davies instructed

by Dunemann Sutherland Pty

Counsel and solicitors for the
substituted petitioning creditor: Ms E. Williamson instructed

by Brady, Kinnane and Towers

Mr T. Clarke appeared for the Official Trustee in Bankruptcy.

ORDER

The Court orders that:

1. The order for the sequestration of the estate of the debtor made

by Deputy Registrar Morris on 25 June 1992 be affirmed;

2. The debtor's application filed 15 July 1992 be dismissed;

3. The costs of the substituted petitioning creditor of and

incidental to the application be taxed and paid in accordance with the statute as part of the costs of the petition.

Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application pursuant to subsection 31A(6) of the Bankruptcy Act to review the exercise of power by a deputy registrar whereby a sequestration order was made against the estate of the debtor on 25 June 1992.

1. Two discrete, and so far as I am aware, novel questions of law call for determination. The first goes to the question of whether the review function of the Court under subsection 31A(6) still applies in respect of a sequestration order made in the exercise of power delegated to a registrar. The second involves the construction of paragraph 52(1)(c) of the Act.

2. The following brief chronology will help to set the context in which the application has been made.
   

13 September 1991 - The debtor committed an act of bankruptcy when he failed to respond to a bankruptcy notice issued on behalf of the petitioning creditor. 24 September 1991 - Creditor's petition presented. 15 January 1992 - Petition served.

11 February 1992 - Upon the return of the petition, the petitioning creditor withdrew, there being a dispute as to the debt relied upon. 19 March 1992 - IOOF Building Society (IOOF) substituted as petitioning creditor. (In support of its application to be substituted as petitioning creditor IOOF relied upon a final judgment recovered in the Magistrates' Court of Victoria at Echuca on 9 August 1990.) 26 March 1992 - Judgment in favour of IOOF Building Society set aside. 24 June 1992 - Claim by IOOF re-heard in the Magistrates' Court at Echuca and judgment given for the plaintiff.

25 June 1992 - Sequestration order was made against the estate of the debtor by deputy registrar. 15 July 1992 - Application to review filed.

1. The exercise of certain powers of the Court may be delegated to a registrar of the Court pursuant to section 31A of the Bankruptcy Act. So far as is presently relevant that section provides:
   

31A(1) Subject to subsection (2), the following powers of the Court under this Act may, if a Judge of the Court, in writing, directs, be exercised by a Registrar of the Court in relation to a proceeding:

...

(n) the power to make a sequestration order against the estate of a debtor under subsection 52(1) and the power under subsection 52(2) to dismiss a creditor's petition;

...

(4) The provisions of this Act and the rules that relate to the exercise by the Court of a power that is, by virtue of subsection (1), exercisable by a Registrar apply in relation to the exercise of the power by a Registrar under this section as if the references in those provisions to the Court were references to the Registrar.

(5) Notwithstanding any other provision of this Act and any provision of the Public Service Act 1922 or of any other law, a Registrar is not subject to the direction or control of any person or body in relation to the manner in which the Registrar exercises the powers pursuant to subsection (1).

(6) A party to a proceeding in which a Registrar has exercised any of the powers of the Court under subsection (1) may, within the time prescribed by the rules, or within any further time allowed in accordance with the rules, apply to the Court to review that exercise of power.

(7) The Court may, on application under subsection

(6) or of its own motion, review an exercise of power by a Registrar pursuant to this section and may make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised. ...

(9) Where at any time before or during the hearing of a proceeding that involves the exercise of a power referred to in subsection (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.

(10) In this section -

"Registrar" means the Registrar, a Deputy Registrar, a District Registrar or a Deputy District Registrar, of the Court; "the Court" means the Federal Court of Australia when exercising jurisdiction under this Act.

1. The exercise of the judicial power of the Commonwealth is a matter upon which the High Court has had occasion to deliberate not infrequently, and it would appear that the stage has been reached where it is recognised that in appropriate circumstances the exercise of the judicial functions of a Court may be delegated to a person who is not a judge of the Court appointed in accordance with section 72 of the Constitution.

2. In Harris v. Caladine 172 CLR 84 the High Court considered provisions of the Family Law Act 1975 which empowered the judges of the Family Court to make rules delegating to the registrars of the Court all or any of the powers of the Court other than certain specified powers. The constitutional validity of an order made by a registrar pursuant to power delegated in accordance with the Act was challenged and the Court held that the order was valid. Relevant to the present circumstances Mason C.J. and Deane J. said at p 95:
   

It seems to us that, so long as two conditions are observed, the delegation of some part of the jurisdiction, powers and functions of the Family Court as a federal court to its officers is permissible and consistent with the control and supervision of the Family Court's jurisdiction by its judges. The first condition is that the delegation must not be to an extent where it can no longer properly be said that, as a practical as well as a theoretical matter, the judges constitute the court. This means that the judges must continue to bear the major responsibility for the exercise of judicial power at least in relation to the more important aspects of contested matters. The second condition is that the delegation must not be inconsistent with the obligation of a court to act judicially and that the decisions of the officers of the court in the exercise of their delegated jurisdiction, powers and functions must be subject to review or appeal by a judge or judges of the court. For present purposes it is sufficient for us to say that, if the exercise of delegated jurisdiction, powers and functions by a court officer is subject to review or appeal by a judge or judges of the court on questions of both fact and law, we consider that the delegation will be valid. Certainly, if the review is by way of hearing de novo, the delegation will be valid. The importance of insisting on the existence of review by a judge or an appeal to a judge is that this procedure guarantees that a litigant may have recourse to a hearing and a determination by a judge. In other words, a litigant can avail him or herself of the judicial independence which is the hallmark of the class of court presently under consideration.

The other judges who constituted the majority in Harris v. Caladine expressed similar views.

1. It would appear therefore that section 31A of the Bankruptcy Act has been carefully and deliberately drawn so as to ensure that, within the limits of the section, certain judicial functions of the Court may be exercised by a registrar who is duly authorised. Indeed, the validity of the section and the order made pursuant to it have not been put in issue.

2. I turn now to consider section 37 of the Bankruptcy Act which since 11 July 1992 has provided:
   

37. (1) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this Act or may suspend the operation of such an order.

(2) The Court does not have power to rescind or discharge, or to suspend the operation of:

(a) a sequestration order; or

(b) an order for the administration of the estate of a deceased person under Part XI.

The proposition is put on behalf of IOOF that the effect of subsection 37(2) is to prevent the Court from exercising the power to review given by subsection 31A(6) in respect of a sequestration order made by a registrar.

1. The power of review contained in subsection 31A(6) goes to the heart of the power to delegate to a registrar and if subsection 37(2) is to be construed as preventing the review of a sequestration order made by a registrar, then the very basis for the exercise of that power disappears. Having regard to the special role that the review power has in the scheme of section 31A it is unlikely that Parliament intended, by enacting subsection 37(2), to so radically affect the operation of section 31A. If such was intended, one would expect the intention to be expressed in clear terms.

2. In any event I do not think that the process of review envisaged by subsection 31A(6) would ever involve the rescission, discharge or suspension of an order made by a registrar. The review function involves a re-hearing of the proceeding in question de novo. At the end of the review, the Court's options are to either affirm or set aside the order made by the registrar. If the registrar's order is set aside then the Court may substitute its own order or make no order, as the circumstances of the case require. This is quite different from the rescission, discharge or suspension of an existing order.

3. In my opinion the present application is competent.

4. The debtor says that the exercise of power by a registrar should be reviewed because first, he refused to grant the debtor an adjournment on 25 June 1992, and second, he could not have been satisfied with the proof of one of the matters which he was required by subsection 52(1) to be satisfied before he could exercise the power to make a sequestration order against the estate of the debtor.

5. Subsection 52(1) provides:
   

52. (1) At the hearing of a creditor's petition, the Court shall require proof of -

(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(b) service of the petition; and

(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing,

and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

1. The point taken by the debtor is that the debt proved by IOOF on 25 June 1992 was not the debt upon which the creditor relied. The reasoning is that when the order substituting IOOF as petitioning creditor was made it had a judgment against the debtor, but that judgment was set aside and on 24 June 1992 a new judgment was recovered. And so, it is said, the debt owing on 24 June 1992 was not the same debt as existed when the order for substitution was made on 19 March 1992.

2. In an affidavit sworn 26 February 1992 and filed in support of the application to be substituted, the secretary of IOOF deposed in paragraph 3:
   

The Debtor is justly and truly indebted to the said company in the sum of $5,936.91 being the amount due under the final judgment recovered in the Magistrates Court of Victoria at Echuca on the 9th August, 1990 in the sum of $4,478.27, the consideration for such debt being:-

$4,478.27 Moneys had and received. $ 308.50 Magistrates' Court costs. $4,786.77 Judgment debt.

Interest on Judgment debt $ 637.26 9th August, 1990 to 1st May, 1991 @ 19.6% $ 333.11 1st May, 1991 to 29th October, 1991 @ 15% $ 179.77 30th October 1991 to 18th February, 1992 @ 13.2%

$5,936.91

1. In a further affidavit sworn 24 June 1992 and filed for the purpose of providing the proof required by paragraph 52(1)(c) the same official said:
   

2. On the 26th of March, 1992 the judgment debt entered in the Magistrates' Court of Victoria at Echuca on 9th August, 1990 was set aside on the grounds that the initiating complaint was not brought to the personal attention of the Judgment Debtor and leave was granted to defend the proceedings.

3. At the hearing of the matter in the Magistrates' Court of victoria at Echuca on the 24th June, 1992, T.J. Farley was ordered to pay $4,478.27 for monies had and received plus $1,430.50 costs plus $197.00 interest being a total of $6,105.77 to IOOF Building Society.

1. McNamara v. Longford (1931) 45 CLR 267 is authority for the proposition that a creditor who is substituted for the petitioning creditor must be a person whose debt was in existence at the time of the act of bankruptcy alleged in the petition. It therefore must be the case that the debt upon which the substituted creditor relied in this case must have been in existence prior to 13 September 1991. The fact that IOOF obtained judgment by default against the debtor on 9 August 1990 is sufficient to establish that the cause of action upon which both the default judgment and the subsequent judgment were obtained was in existence prior to the date of the act of bankruptcy.

2. Whilst the facts in McNamara v. Longford differ from those in the present case they do nevertheless provide a basis upon which to counter the debtor's argument. In McNamara the act of bankruptcy was committed on 8 September 1930. The creditor who was substituted for the original petitioning creditor obtained judgment on 16 December 1930 upon a cause of action which arose in part on 25 September 1930 and in part on 18 November 1930. Although the judgment of Gavan Duffy C.J. throws no light on the question, it is apparent from the extracts from the argument of counsel and the comments made from the bench that it was the date when the debt first became due and not the date of the judgment which was decisive.

3. In the present case, the debt for which IOOF recovered judgment on 9 August 1990 was the same debt for which it recovered judgment on 24 June 1992. I have no hesitation in concluding that the debt upon which IOOF relied throughout its involvement in the proceedings leading up to the making of the sequestration order was in existence at the date of the act of bankruptcy and was still owing on 25 June 1992 when the sequestration order was made. The judgment did not extinguish the debt, rather it had the effect of precluding the creditor from again suing on the same cause of action. I reject the arguments advanced on the debtor's behalf in relation to paragraph 52(1)(c).

4. Nor do I think there is any strength in his complaint that the registrar refused him an adjournment on 25 June 1992. It is said that had he been given the opportunity, he could have made arrangements for payment of the judgment. But he had known for some time that the re-hearing of the proceedings in the Echuca Magistrates' Court was to occur on the day prior to the adjourned hearing of the petition. Had he been so minded he could have made arrangements to pay in the event that judgment went against him. Given the history of the proceedings it is quite clear that by 25 June 1992 time had run out for the debtor.

5. I would affirm the decision of the registrar.