Re Wettenhall, Peter Ashton & Anor Ex Parte Deputy Commissioner of Taxation of the Commonwealth of Australia
[1996] FCA 69
•21 Feb 1996
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE
STATE OF VICTORIA No VP 895/95
RE:
PETER ASHTON WETTENHALL and SHIRLEY ANNE WETTENHALL
Debtors
Ex parte:
DEPUTY COMMISSIONER OF TAXATION
OF THE COMMONWEALTH OF AUSTRALIA
Petitioning Creditor
Coram: Olney J
Place: Melbourne
Date: 21 February 1996
REASONS FOR JUDGMENT
This is an opposed bankruptcy petition.
The facts relied upon by the petitioning creditor to justify the making of sequestration orders against the estates of the debtors are as follows. On 26 May 1995 in the Magistrates' Court at Melbourne the petitioning creditor obtained judgment against the debtors for $7,336.00 plus $244.08 for interest and $683.00 costs. On 10 July 1995 the petitioning creditor caused a bankruptcy notice addressed to the debtors to be issued. The bankruptcy notice required the debtors to respond within 21 days of service of the notice. Service was effected on Shirley Anne Wettenhall (Mrs Wettenhall) at 14 Voce Court Belmont Victoria on 25 July 1995. The petitioning creditor asserts that Peter Ashton Wettenhall (Mr Wettenhall) was also served on the same day at the same place. There having been no response from the debtors following service of the bankruptcy notice the petitioning creditor presented a bankruptcy petition on 15 September 1995, it being alleged that the debtors each committed an act of bankruptcy on 15 August 1995 by not making one of the required responses to the bankruptcy notice. Service of the petition was effected on both debtors at 14 Voce Court Belmont on 21 November 1995. Appropriate affidavits of search and of continuation of debt have been filed.
On 29 November 1995 the debtors filed notice of opposition to the making of a sequestration order. The grounds of opposition pleaded are:
Mr Wettenhall has not committed any act of bankruptcy as he has not been served with any notice of bankruptcy (sic, presumably, bankruptcy notice).
Neither of the debtors has committed any act of bankruptcy because the order of the Magistrates' Court is a nullity.
As to the second ground, the debtors say that an order was obtained in default of attendance at a compulsory conference of which no notice was given to them.
Upon the first return of the petition on 11 December 1995 the hearing was adjourned to 14 February 1996. At the same time orders were made for the petitioning creditor to file and serve any further affidavit on which it relied by 10 January 1996 and for the debtors to file and serve any affidavit in support of their notice of opposition by 7 February 1996.
On 8 January 1996 the petitioning creditor filed an affidavit sworn by Avegail Chislett (Ms Chislett), an officer in the Commonwealth Public Service employed in the Debt Collection Service of the Australian Taxation Office at Geelong, which was sworn on 19 December 1995. Ms Chislett has, inter alia, exhibited to her affidavit copies of a complaint issued against the debtors in the Magistrates' Court on 24 February 1995 wherein the petitioning creditor claimed payment of $7,336 pursuant to s 222 APC of the Income Tax Assessment Act 1936 and a copy of a Notice of Pre-Hearing Conference in the Magistrates' Court proceeding dated 11 April 1995 giving notice of a conference to be held on 17 May 1995 at 11.30am. Ms Chislett says that she attended at the pre-hearing conference with the petitioning creditor's solicitor and that the Court waited until 11.50am for the debtors' attendance but they did not appear. On 26 May 1995 judgment by default was entered against both debtors for the amounts previously referred to.
The debtors did not file any affidavit in reply pursuant to the order of 11 December 1995. However, upon the petition being called on for hearing on 14 February 1996 counsel appearing for the debtors tendered affidavits sworn by each debtor on 13 February 1996. Leave was granted for the late filing of these affidavits. At the same time the debtors' counsel sought to have the hearing of the petition adjourned on the ground that the debtors had on 12 February 1996 authorised a solicitor one Anthony Shane Balkin (Balkin) to call a meeting of their creditors for the purposes of Part X of the Bankruptcy Act.
The affidavits of the debtors disclosed that on 12 February 1996 each debtor had signed a document in the form of Form 33B of the Bankruptcy Rules authorising Balkin to call a meeting of creditors pursuant to Part X and that on the same day Balkin had consented in writing to do so. Exhibited to the two affidavits are statements of affairs of the debtors which each says are intended to be filed in the Part X proceedings. Each statement of affairs is dated 13 February 1996 and each is verified by the respective debtor by an affidavit sworn on 13 February 1996. It is said in each affidavit that the meeting of creditors is to take place on 29 February 1996. Mr Wettenhall offers as an explanation of the delay in swearing his affidavit his state of health but Mrs Wettenhall offers no explanation for the delay. Both debtors say they are anxious to avoid the stigma of bankruptcy. Neither affidavit makes any reference to any proposal that the debtors have made for their affairs to be dealt with pursuant to Part X although the Court's records reveal that on 12 February 1996 proposals dated 12 February 1996 were filed on behalf of each debtor in the Part X proceeding.
In relation to the grounds of opposition to the petition Mr Wettenhall says that he did not at any time receive notice of the pre-hearing conference in the Magistrates' Court nor was he aware the such notice had been issued. He further states that he has not been served with the bankruptcy notice. Mrs Wettenhall makes a similar statement in relation to the notice of pre-hearing conference and in relation to the question of service of the bankruptcy notice she says:
4.That I was served with the bankruptcy notice. At the time of the service the process server asked me where my husband was and I said that he was out working (as was the case but that he would be back in the evening). The process server said that he would come back in the evening to serve my husband with his copy however he did not return.
At the hearing on 14 February 1996 leave was granted to the petitioning creditor to file an affidavit of Maryanne Guina, a law clerk employed in the office of the petitioning creditors' solicitor, sworn 14 February 1996. Ms Guina says that on 13 February 1996 she had a telephone conversation with Balkin in relation to the creditors meeting to be held on 29 February 1996. She says Balkin advised her that he had received a request to act in relation to the meeting from Peter Grapsas, the debtors' accountant, on 12 February 1996 but that he had no information to hand in relation to the debtors, the terms of the proposed Part X scheme or who their creditors may be but expected to receive same from Grapsas within the next few days. In the course of the same conversation Ms Guina advised Balkin of the hearing in this Court on 14 February 1996 and he replied that he had no knowledge of the hearing, the nature of the proceedings or the involvement of Messrs Irlicht & Broberg, the debtors' solicitors in this proceeding.
Counsel for the petitioning creditor submits that on the available evidence the authority to Balkin is not effective
for the purposes of Part X by reason of the provisions of s 188(2)(c). Section 188(2) provides:
188(2)An authority signed by a debtor under this section is not effective for the purposes of this Part unless:
(a)the trustee named in it has consented, in writing, to exercise the powers conferred by the authority or the solicitor named in it has consented, in writing, to call the meeting of creditors, as the case may be;
(b)the signature of the debtor to the authority and the signature of the trustee or solicitor to the consent are each attested by a witness; and
(c)within 10 days before signing the authority the debtor gave to the trustee or solicitor:
i)a statement of the debtor's affairs; and
ii)a statement indicating how the debtor proposes that his or her affairs be dealt with under this Part.
Paragraph (c) envisages that the person to whom the authority is given will be in possession of a statement of the debtor's affairs and the debtor's proposals before the authority is signed. There is no scope, as appears to have been the submission of the debtors' counsel, for the Court in some way to grant an extension of time or some other dispensation to regularise an otherwise ineffective authority. In the absence of express statutory authority the power of the Court to allow an extension of time for the doing of an act does not enable the Court to sanction the doing of an act, which can only be done after an event has occurred, before that event has occurred. On the evidence the debtors had not at any time before signing the authority given to Balkin a statement of their affairs or a proposal as required by s 188(2)(c). The authority is not effective and there can be no proceedings under Part X based upon it. Apart from the ineffectiveness of the authority, which in my opinion is a complete answer to the debtors' application for the adjournment of the petition, the surrounding circumstances suggest that the signing of the authority has been resorted to as a mere device to delay the hearing and that in my view is insufficient reason to grant an adjournment.
In relation to the assertion that the bankruptcy notice was not served on Mr Wettenhall, the process server and the debtors were all made available for cross-examination.
Carl Drought (Drought) swore two affidavits on 25 July 1995. In one he deposed to having on 25 July 1995 at 1.00 o'clock in the afternoon served Mrs Wettenhall with the bankruptcy notice by delivering it to her personally at 14 Voce Court Belmont. In the other affidavit he deposes to having served Mr Wettenhall personally on the same day at the same address at "1.10 o'clock in the forenoon". In his oral evidence he corrected the obvious error in the second affidavit which he said should refer to the time as 1.10 o'clock in the afternoon. His evidence discloses that he is a process server of many years' experience. He described the events on 25 July 1995 at 14 Voce Court in these terms. He went to the address and knocked on the door which was answered by a female person who in response to questions identified herself as Mrs Wettenhall and acknowledged herself to be the person named as Shirley Anne Wettenhall in the bankruptcy notice. He then effected service by handing the bankruptcy notice to her. Having done that he says he asked Mrs Wettenhall if her husband was home and was told that he was but was having lunch. He was asked to wait. Mrs Wettenhall then left the front door which was left open and about 10 minutes later a male person who was identified as Mr Wettenhall came to the door. After acknowledging that he was the person named as Peter Ashton Wettenhall in the bankruptcy notice personal service was effected. He then returned to his car where he made a record in a book he keeps for the purpose in which he wrote that personal service was effected on Mrs Wettenhall at 1.00pm and on Mr Wettenhall at 1.10pm.
In response to questions from the bench Drought said that he then continued serving process that day and returned to his office in the late afternoon. Affidavits of service were prepared by a staff member and sworn the following day. When it was drawn to his attention that the two affidavits of service are expressed to have been sworn before the Registrar of the Magistrates' Court at Geelong on 25 July 1995 he said that the affidavits would have been sworn before 4.00pm on that day, 4.00pm being the time the Court House closes and after referring to his record he said that there was a period of several hours in the afternoon during which no process was served and accordingly, he assumes, without having any real recollection, that he returned to the office prior to 4.00pm and completed the affidavits prior to the closure of the Court House.
Drought was cross-examined on a number of issues in particular the matter just mentioned and also on the fact that his record showed that on 25 July 1995 he had served other process at an address about 2 kilometres from 14 Voce Court at 1.10pm. His explanation for the fact that he has recorded having served process at two different addresses at the same time was that he had probably used different clocks e.g. his car clock and his wrist watch, which may not have been set at the same time but otherwise he could offer no explanation.
Mrs Wettenhall clearly had no recollection of the service of the bankruptcy notice. She thought it would have occurred in the evening at a time later in the year than July. She may have been confusing the occasion when the petition was served.
Mr Wettenhall simply denied having received the bankruptcy notice although he did agree that on occasions in the period around July 1995 when he was still working he would go home for lunch.
I am satisfied that service was effected by Drought on the date asserted. Whilst his system of record keeping may be fallible, the fact is that he followed a system of making a contemporaneous record of the service of process, as one would expect of a professional process server. There is no suggestion that the entry made concerning Mr Wettenhall had been added at a subsequent date. Mrs Wettenhall's evidence was too vague to be accorded any weight whilst Mr Wettenhall, although maintaining his denial, was clearly under a degree of stress at the time due to both business and other problems and
I conclude that he is mistaken in his recollection of this particular event.
The ground of objection based on the assertion that the debtors did not have notice of the pre-trial conference in the Magistrates' Court on 17 May 1995 raises a quite different issue.
Counsel for the debtors relies upon decisions at first instance in this Court in Re Marsh; Ex parte Marsh v Paramount Leisure Products Pty Ltd 32 FCR 482 and Re Willshire-Smith; Ex parte Ranale & Taylor Services Pty Ltd 48 FCR 371 as authority for the proposition that a default judgment obtained without service of the originating process should be treated as a nullity and not merely as an irregularity and accordingly a judgment so obtained is incapable of supporting a valid bankruptcy notice. The petitioning creditor does not seek to argue to the contrary but rather to distinguish the facts of the present case from those on which the authorities were decided.
Section 107 of the Magistrates' Court Act 1989 (Vic) provides:
107(1) The Court may, on the application of a party or without any such application, order that a complaint be referred to a magistrate or a registrar for a pre-hearing conference.
(2)A magistrate or registrar must conduct the pre-hearing conference in accordance with the Rules and may -
(a)if the complaint is not settled between the parties, refer it back to the Court; or
(b)at the request of the parties, refer the matter back to the Court for arbitration under Division 7; or
(c)if the complaint is settled between the parties, refer it back to the Court for the making of an order.
Order 22 of the Magistrates' Court Civil Procedure Rules 1989 deals with Pre-Hearing Conferences. Rule 22.02 is as follows:
22.02(1) If a complaint is referred for a pre-hearing conference all parties must attend the conference -
(a)personally; or
(b)by counsel or a solicitor or other person empowered by law to appear for the party; or
(c)in the case of a cause of action for a debt or a liquidated demand, where a party is a corporation, by a person in the exclusive employment of that party who is authorised in writing to appear for that party.
(2) If a party does not attend a pre-hearing conference after receiving notice to attend, the magistrate or the Court constituted by a registrar may -
(a)in the case of failure by a plaintiff, dismiss the complaint; or
(b)in the case of failure by a defendant or other party against whom complaint is made, make an order that that party's notice of defence be struck out.
(3) A defendant whose notice of defence is struck out in accordance with paragraph (2)(b) shall, for the purposes of Rule 10.01, be taken to be a defendant who does not give notice of defence within the time limited for that purpose.
...
The Rules do not appear to contain any provision as to the procedure to be followed in giving notice of a pre-hearing conference. However, the notice of pre-hearing conference exhibited to Ms Chislett's affidavit of 19 December 1995 appears to be a notice sent by the Court and is addressed to the petitioning creditor. The name and address of the petitioning creditor's solicitor appears at the foot of the notice. There is no evidence as to whether a similar notice was addressed to the debtor nor, if there was such a notice, what became of it.
There is a strong inference to be drawn from the provisions of Rule 22.02(2) that the power to strike out a party's notice of defence in the event of the party not attending a pre-hearing conference (which appears to be what occurred in this case) is conditional upon the non-attendance occurring after the party has received notice to attend. The only evidence before this Court is that the debtors did not receive notice to attend the pre-hearing conference and for present purposes it must be assumed that they did not receive such notice. That being the case, the question arises as to whether the subsequent default judgment which followed the striking out of the defence should be treated as a nullity.
The Court's attention has been drawn to Rules 2.01 and 2.03 which provide:
2.01(1) A failure to comply with these Rules is an irregularity and does not render a proceeding or a step taken, or any document or order therein a nullity.
(2)Subject to Rules 2.02 and 2.03, where there has been a failure to comply with these Rules, the Court may -
(a)set aside the proceeding, either wholly or in part;
(b)set aside any step taken in the proceeding, or any document or order therein;
(c)exercise its powers under these Rules to allow amendments and to make orders dealing with the proceeding generally.
...
2.03The Court must not set aside any proceeding or any step in any proceeding or any document or order therein on the ground of a failure to comply with these Rules on the application of any party unless the application is made -
(a)within a reasonable time after the applicant becomes aware of the failure; and
(b)before the applicant has taken any fresh step (save for filing a defence) after becoming aware of the failure.
The petitioning creditor seeks to call in aid Rule 2.01 on the basis that even assuming that the debtors did not receive notice of the pre-hearing conference, the step taken of striking out their defence upon their non-attendance should be regarded as an irregularity and not as a nullity. But that argument overlooks the fact that there is nothing before the
Court to suggest that there has been a failure to comply with the Rules.
The authority of the Court to strike out a defence under Rule 22.02(2)(b) is dependent upon the non-attendance of the relevant party after the party has received notice to attend. It is not the case that the Rules require the Court or a party to serve notice on the party in question so that non-service or irregular service might be regarded as a mere irregularity. Rather it is the case that the exercise of the Court's power is conditional upon receipt of notice by the non-attending party. The provisions of the Rules relating to the service of documents have no relevance in the present context. There is nothing in Order 22 which refers to the service of any notice. The Court may only strike out a defence if the non-attending party has received notice of the conference. In my view the requirement that the party must have received notice of the pre-hearing conference is akin to requiring personal service of notice of the conference.
In Re Marsh Pincus J examined the position in relation to a judgment given in proceedings where the writ had not been served. At p 484-5 he said:
In Crawford v Fisher (1907) 24 WN (NSW) 102, it was held that a judgment of that kind is not a nullity, but is merely irregular. However, a contrary view was expressed in the English Court of Appeal in Craig v Kanssen [1943] KB 256. There, Lord Greene MR said (at 262):
In my opinion, it is beyond question that failure to serve process where service of process is required goes to the root of our conceptions of the proper procedure in litigation. Apart from proper ex parte proceedings, the idea that an order can validly be made against a man who has had no notification
of any intention to apply for it has never been adopted in this country.
The cases were reviewed in another decision of the English Court of Appeal in Re Pritchard; Ex part Pritchard v Deacon (1963) Ch. 502, in which a decision consistent with Craig v Kanssen (supra) was arrived at.
Lastly, it should be mentioned that the decision in Craig v Kanssen has been referred to by the Privy Council with apparent approval; see MacFoy v United Africa Co Ltd [1962] AC 152 at 160.
One difficulty in applying the doctrine of Craig v Kanssen is that rules providing for judgment in default of appearance do not ordinarily stipulate actual service as an express condition of the right to enter judgment. For example, the Rules of the Supreme Court 1986 (Vic) require an affidavit proving service (O 21.01) and those of the Queensland District Court are similarly expressed: r 146. This gives rise to the argument that if there is an affidavit of service, even if it is false, the judgment is not a nullity; but it appears to me that the weight of authority is in favour of the other view. I am of opinion that if a bankruptcy notice is founded on a judgment in default and it is proved or admitted that the originating proceedings were simply not served (I leave aside the case of defective service), the judgment must generally be treated as a nullity; I say "generally" because of the possibility that a statute or rule might provide otherwise.
If the view just expressed is not correct, still in my opinion, on its being shown that a default judgment (founding the bankruptcy motion) was entered although the proceedings were not served, the court should not, in the exercise of its discretion, make a sequestration order. I think, proof or admission of non-service of the originating proceedings would be "sufficient cause" not to make an order within the meaning of s 52(2)(b) of the Act. It may be that, in practice, if the judgment debtor claims not to have been served, the Registrar might choose to adjourn the petition to allow the question to be tested by an application to the court in which judgment was entered, but where the Federal Court has found that there was simply no service of originating process, that would appear to be a sufficient cause for declining to make a sequestration order.
Von Doussa J expressed a similar view in Willshire-Smith at p 374-5:
It is a fundamental precept of adjectival law that the process which initiates a claim be brought to the attention of the defendant thereby giving the opportunity to make answer to the claim. This principle is met by a requirement that the originating process be served. The fulfilment of this requirement is one of critical importance where it is sought to enforce a judgment obtained by default by the processes of the Bankruptcy Act 1966 (Cth); Re Marsh; Ex parte Marsh v Paramount Leisure Products Pty Ltd (1991) 32 FCR 482.
His Honour then quoted with approval the passage from Re Marsh set out above.
Although Re Marsh and Re Willshire-Smith were dealt with on the basis that originating process had not been served, the situation in the present case is analogous in that by an exercise of power which was conditional upon the debtors having received notice of the pre-hearing conference, they were deprived of the protection against a default judgment which they were entitled to enjoy by reason of having defended the proceeding.
In my opinion in the absence of any evidence to contradict the assertions of both debtors that they did not receive notice to attend the pre-hearing conference (which I accept to be fact) I am of the view that the order striking out their defence to the Magistrates' Court claim is a nullity and it must follow that the purported entry of judgment in default of defence on 26 May 1995 is also a nullity. Consistent with the views expressed in Re Marsh and Re Willshire-Smith I am of the opinion that as the judgment relied upon by the petitioning creditor is a nullity there is no basis upon which it can be found that the debtors committed an act of bankruptcy by reason of their failure to comply with the requirements of the bankruptcy notice. For the same reasons as were expressed by Pincus J in Re Marsh, if it be thought that the foregoing conclusion is not correct, the Court should nevertheless exercise its discretion not to make a sequestration order.
The petition will be dismissed.
COSTS
In anticipation that the debtors will seek an order for costs upon the dismissal of the petition I make the following observations.
First, in their notice of objection the debtors raised two grounds, one of which applied only to Mr Wettenhall. The trial of that issue occupied a substantial part of the hearing and was decided adversely to him. The petitioning creditor has been put to unnecessary costs in defending that issue. Second, the debtors sought to delay the hearing of the petition by an abortive attempt to rely on a Part X authority. They were unsuccessful and should not be rewarded by an order for costs in relation either to the preparation of the relevant affidavits or for the time taken to argue the question.
Third, the debtors first raised the issue of nullity in their notice of opposition on 29 November 1995. They took no steps to have the judgment set aside and did not respond to the petitioning creditor's evidence within the time specified in the order made on 11 December 1995. Indeed, their affidavits were not sworn until the day before the hearing and were filed in Court at the hearing.
In all the circumstances I am of the view that the justice of the case calls for there being no order for costs in the proceeding.
I certify that this and the preceding 16 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 14 February 1996
Place: Melbourne
Judgment: 21 February 1996
Appearances:
Mr J. Nolan (instructed by the Australian Government Solicitor) appeared for the petitioning creditor.
Mr T. Irlicht (instructed by Irlicht & Broberg) appeared for the debtors.
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