Romano v Peldan
[2003] FMCA 152
•15 May 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ROMANO v PELDAN & ANOR | [2003] FMCA 152 |
| BANKRUPTCY – Application to set aside bankruptcy notice – two separate bankruptcy notices issued at different times on same judgment – whether s.41(1) of Bankruptcy Act 1966 permits more than one notice to issue – Act does not prevent issue of subsequent notice – application to set aside dismissed. Bankruptcy Act 1966, ss.40(1)(g); 41(1) Abignano v Wenkart (unreported FCA – 13.11.98) applied |
| Applicant: | BAPTIST JERRY ROMANO |
| Respondent: | MICHAEL PELDAN |
| Respondent: | RAJ KHATRI |
| File No: | BZ 286 of 2002 |
| Delivered on: | 15 May 2003 |
| Delivered at: | Brisbane |
| Hearing Date: | 27 August 2002 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Mr P. McQuade |
| Solicitors for the Applicant: | Burns Jamieson |
| Counsel for the Respondent: | Mr R. Bain QC |
| Solicitors for the Respondent: | Abbott Trout |
ORDERS
That the Application to set aside Bankruptcy Notice numbered QN487/01 issued and dated 16 May 2002 be dismissed.
That the Applicant pay the Respondent’s costs of and incidental to this application as agreed or taxed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BZ 286 of 2002
| BAPTIST JERRY ROMANO |
Applicant
And
| MICHAEL PELDAN |
Respondent
And
| RAJ KHATRI |
Respondent
REASONS FOR JUDGMENT
Introduction
The Applicant BABTIST JERRY ROMANO seeks an order that Bankruptcy Notice QN 487 of 2001 be set aside pursuant to the provisions of the Bankruptcy Act 1966 (“the Act”). The Application is opposed by the Respondents MICHAEL PELDAN and RAJ KHATRI who are the liquidators of a Solicitors Private Mortgage Lending Scheme.
Chronology
To understand the seminal issue in this matter, a brief (and essentially undisputed) chronology of events is required as follows:
·16 January 2002 – Muir J in the Queensland Supreme Court ordered by consent a judgment against the Applicant in favour of the Respondent for $3.6 million (“the judgment”)
·5 February 2002 – Bankruptcy Notice QN 97/02 (“the first Bankruptcy Notice”) was issued. This Notice claimed the sum of $3,618,739.73 being the judgment debt and interest.
·22 April 2002 – The first Bankruptcy Notice was served on the Applicant.
·9 May 2002 – The applicant filed an application to set aside the first Bankruptcy Notice on the basis that the Notice failed to meet a requirement made essential by the Act, namely an accurate statement as to the source of the Respondent’s entitlement to interest. The Application was returnable in the Court on 22 May 2002.
·14 May 2002 – By letter to the Applicant’s solicitors, the Respondent’s solicitor indicated they would be opposing the Application, but as Counsel was unavailable, sought an adjournment. By consent the matter was adjourned and an order extending the time for compliance was made.
·
16 May 2002 – Bankruptcy Notice QN 487/02 (the second Bankruptcy Notice”) was issued. This Notice claimed only the judgment debt of $3.6 million and did not claim interest. The second Bankruptcy Notice was served on the Applicant on
23 May 2002.
·
11 June 2002 – The Applicant filed an application in this Court seeking to set aside the second Bankruptcy Notice, returnable
26 June 2002.
·18 June 2002 – The parties reached a consent order essentially consolidating the 2 separate applications to be heard at the same time and extending further the time for compliance with both Notices to the hearing and determination of the Application. The Applications were adjourned to 17 July 2002.
·28 June 2002 – By letter the solicitors for the Respondent gave notice to the Applicant that:-
“We do not intend, at the hearing of the application scheduled for 17 July 2002 to rely upon the first Bankruptcy Notice served upon your client. We shall formally withdraw the same at this time.
For the sake of clarity (sic) is the Bankruptcy Notice in which interest has been claimed.
We shall, however, be relying upon the second Bankruptcy Notice, which claims only the principle amounts under the judgment of the Supreme Court as the basis for the Bankruptcy Notice.
Please note that we shall be requesting the Court to make a sequestration order against your client in the event that he is unsuccessful in setting aside the Bankruptcy Notice.”
·1 July 2002 – The Respondents filed a Creditors Petition relying upon non-compliance with the second Bankruptcy Notice.
·The applications proceeded before me on 27 August 2002 and at the commencement of the hearing Mr Bain QC for the Respondents indicated that as the Respondent was not relying on the first notice, they did not oppose the Application. I ordered that the first Bankruptcy Notice issued and dated 5 February 2002 be set aside and that the Respondent should pay the Applicant’s costs of that application to 28 June 2002.
Evidence
The evidence relied upon in respect of the second Bankruptcy Notice is essentially the chain of correspondence passing between the solicitors for the parties.
The Applicant deposed in his Affidavit filed 11 June 2002 to the following:-
a)At paragraph 2(a)(vi) that:-
“as at the date of issuance of the Bankruptcy Notice issued
16 May 2002, the Respondents knew that an Application had been filed to set aside the Bankruptcy Notice dated 5 February 2002 and further knew that the hearing of that Application had been adjourned to 26 June 2002.”
b)At paragraph 2(c) that:-
“the issuance of the Bankruptcy Notices founded on the same judgment claiming two different sums of money is uncertain or ambiguous and is capable of objectively misleading the Applicant. The Applicant is uncertain as to which Bankruptcy Notice is to be complied with given that compliance with the Bankruptcy Notice issued 16 May 2002 will not be a compliance with the Bankruptcy Notice issued 5 February 2002.”
The Affidavit in reply by Paul Evans, the Solicitor for the Respondent filed 16 August 2002 asserts that:-
“I am informed by Michael Peldan and verily believe that the amount of the Supreme Court debt that is the basis of the Bankruptcy Notice still remains unpaid.”
and further in the Affidavit filed by leave on 27 August 2002 that:-
“The difference between the first and second Bankruptcy Notices that were served on the judgment debtor is that the second Bankruptcy Notice does not seek any amount for interest on the judgment debt. As is revealed in the correspondence which is exhibit “A” to my Affidavit filed 16 August 2002, the second notice was served after the judgment debtor challenged the interest component contained in the first Bankruptcy Notice – the first notice being expressly abandoned after the second notice was issued. The second Bankruptcy Notice was issued in order to avoid any argument over interest by the judgment debtor.”
Submissions
I was greatly assisted by the thoughtful and considered written and oral submissions from Mr McQuade for the Applicant and Mr Bain QC for the Respondent.
Both Counsel referred to a decision of the Full Court in Abignano v Wenkart (unreported, FCA, Ryan, Heerey and Tambellin JJ, 13 November 1998). The Applicant says the facts of this case are distinguishable from the facts of Abignano and further that a “construction” point relied upon by the Applicant in this case does not appear to have been raised and therefore considered by the Full Court.
The Respondent simply says that the decision binds me and is on point.
The Full Court said that:-
“We also consider that, where the same creditor issues two bankruptcy notices, one after the other, the creditor is required to make an election as to which bankruptcy notice it is with which the debtor is required to comply. The possibility of successive bankruptcy notices has been adverted to in several authorities including a judgment of the Court of Appeal in the United Kingdom in Re: Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253. In that case, Sargant LJ, in agreeing with the judgment of Lord Hanworth MR, said at p261:
“If, while an earlier bankruptcy notice were still available for a petition, a second notice were given in bad faith or to embarrass the debtor, the Court could prevent oppression by declining to act. But in my view there has been nothing of this sort here. The first bankruptcy notice had been withdrawn, objections had been taken to the second notice which had not been conclusively satisfied, and I think that the third notice was served to escape from those objections, and to place the petitioning creditors in a stronger and less challengeable position than they had previously occupied. The failure to comply with this third notice was attributable not to the existence of the second notice, but to the entire inability of the debtors to pay the remainder of their debt. The petitioning creditors have complied with the statutory formalities necessary to establish the insolvency of the debtors; and I see no sufficient reason for refusing the statutory consequences of the insolvency so established.”
In our view, his Lordship in that passage recognised that it is open to a creditor to issue a fresh bankruptcy notice for the purpose of circumventing or overcoming a challenge or a possible challenge to an earlier notice. We consider that to have happened here. The deficiency in the earlier notice was exposed by the reasons of Branson J which, incidentally, were adopted by Hill J when he came to consider the subsequent bankruptcy notice and steps were taken to overcome that difficulty as they could be since the undertaking had been given between the time of the issue of the first bankruptcy notice and the publication of her Honour’s reasons.”
I propose to deal with the submission made by Mr McQuade on the construction of s.40 (1)(g) shortly, however I regard the decision in Abignano as confirming a long line of authority which has not prevented issuing of subsequent Bankruptcy Notices. The issue of a bankruptcy notice is a procedural step taken at the election of a Judgment Creditor with a view to establishing an Act of Bankruptcy sufficient to found a Creditors Petition. It is but one of a number of options available to seek to demonstrate a debtor has committed an Act of Bankruptcy (see section 40(1))
Bankruptcy Notices are issued by the Official Receiver. Whilst, like most originating processes, they may be amended prior to service, the issuing authority is not required to ensure compliance with the Bankruptcy Act, other than as to Form, which is prescribed and essential.
If a debtor, served with a Bankruptcy Notice asserts he should not be required to comply with its demand, then a procedure under the Act is available to seek to set aside the Notice. Pending such determination, the Debtor may seek to extend the Date for Compliance so as to avoid an Act of Bankruptcy being committed.
This is what the Debtor did in this matter after service of the first Bankruptcy Notice. The Debtor identified a defect in the Notice which led to the Notice being set aside by me. The Respondent was at least aware of the allegations of defect in the first Bankruptcy Notice when the Application to set aside was filed and served. Rather than to concede the correctness of the Debtors position, the Respondent chose to formally oppose the Application (at least until 28 June 2002) and elected to file and have issued a second Bankruptcy Notice.
The reason for so doing is identified in the Evidence of Paul Evans – namely to avoid similar challenge to the second Notice.
Although no formal concession or election was made until 28 June 2002 by the Respondent to not rely on the first Bankruptcy Notice, at the time of the issue of the second Bankruptcy Notice.
·the Respondent was aware of the Applicant’s challenge to the first notice
·the time for compliance with the first notice had not expired, as a result of the application having been filed by the Applicant.
Save for the construction issue raised by the Applicant about whether a second Notice should have been issued at all, the actions of the Respondent seem to be unexceptional. The fact that in this case the second Bankruptcy Notice was issued when the first challenged Notice was still pending does distinguish it from the facts in Abignano, where the second notice was issued subsequent to a decision of a Court to set aside the first notice. However, the facts here are not dissimilar to those set out in Re: Fredericke, save that by the time of issue of the third notice, time for compliance with the second notice had expired and an Act of Bankruptcy had been committed. The Master of the Rolls, Lord Hanworth, said at 257:-
“It is argued on behalf of the Debtors that when the third Bankruptcy Notice was issued and served during the currency of the second notice, there was an available Act of Bankruptcy which prevented them from complying with the third Notice. It is said that non-compliance with the third Bankruptcy Notice was necessary on their part. It appears to be a by no means uncommon practice to have more than one bankruptcy notice, leading to more than one Act of Bankruptcy, but it is said that there is a principle which gives the debtors the right to refuse to comply with a second bankruptcy notice while an earlier one is pending. There is no report of such a case.”
Despite the fertile ground for litigation in the Bankruptcy Jurisdiction, no direct authority was identified by either Counsel to support the alleged principle mentioned by the Master of the Rolls over 75 years ago.
I am satisfied the decision of Abignano is binding and determinative of the issue and supports the still seemingly not uncommon practice of issuing at times more than one Bankruptcy Notice between the same parties, on the same judgment.
The Court regulates and oversees whether such practice in a particular case amounts to conduct, which should be prevented as oppressive and an abuse of the process.
Whilst it may have been appropriate for the Respondent, upon service of the Application to set aside the first Bankruptcy Notice, to concede the defects they chose not to do so. The Respondent was penalised for such conduct with the costs order made by me to the 28 June 2002.
I regarded the evidence as indicating that the Respondent on 28 June 2002 elected to proceed only on the second Bankruptcy Notice.
At that time, the time for compliance with the first Bankruptcy Notice had been extended. The issue of the second notice did not amount to an abuse of the process in my view – the issue of the second notice was permitted and compliance with the first notice waived by the letter of 28 June 2002.
Because of the view I have taken on the binding authorities, I am not strictly required to deal with the issue of construction identified by Mr McQuade in his written submissions as follows:-
“Section 40(1)(g) refers to the issuing of “a” bankruptcy notice where the creditor has obtained a judgment, which has not been stayed. That section does not refer to more than one bankruptcy notice being issued and served on the debtor at a time Section 41(1) provides in part that “An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained a final judgment”. (Own emphasis added), That section does not refer to more than one bankruptcy notice being issued by the Official Receiver in respect of a judgment. Both provisions refer to “a” bankruptcy notice in respect of “a” judgment.
It is not competent to have issued by the Official Receiver more than one bankruptcy notice respect of a judgment. The application for s23(b) of the Acts Interpretation Act 1901 (Cth) does not apply as the Bankruptcy Act 1966 (Cth) evidences a contrary intention:
1. Div 1 of Pt IV sets out the acts of bankruptcy and the procedure for issuing a bankruptcy notice.
2. One of the specific acts of bankruptcy is the non-compliance with a bankruptcy notice in respect of a final judgment: s 40(1)(g).
3. A bankruptcy notice may be issued by a creditor who has obtained a final judgment: s41(1)
4. Section 41(3) provides that a bankruptcy notice may not be issued in relation to a debtor except in the circumstances so prescribed.
5. The form of the notice is that prescribed by the regulations. That bankruptcy notice refers in paragraph 2 to the claim of the creditor, which is referable to the judgment attached to the bankruptcy notice.
6. The courts have recognised the penal consequences which attach to non-compliance with a bankruptcy notice and that strict compliance with the Bankruptcy Act 1966 (Cth) is required: Re A Judgment Debtor [1908] 2 KB 474; James v Federal Commissioner of Taxation (1955) 93 CLR 631; Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71; The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 at [22].
7. If the concept of plurality was allowed then there would be no limit to the number of bankruptcy notices, which may be issued in respect of a judgment. Those bankruptcy notices may claim different amounts, but rely on the same judgment. That would create uncertainty or ambiguity, which is not consistent with the object or purpose of Div 1 of Pt IV. The authorities are clear that the bankruptcy notice process must be unequivocal.
This conclusion is supported by the parity of reasoning of:
1. The authorities which provide that a bankruptcy may not be issued in respect of more than one judgment: GPW Aussie Exports v Latin (1999) 85 FCR 324; Owners of Strata Plan No 5459 v Mason (1999) 91 FCR 92.
2. The authority which in respect of the issuing of a creditor’s petition relying on a combination of more than one bankruptcy in Australia & New Zealand Banking Group Ltd v Hubner [1999] FCA 1346 at [8]-[19].
The “concept of plurality” as described by Mr McQuade, does exist and is regulated by the Courts through assessment of whether a parties conduct is oppressive and improper.
Mr McQuade on behalf of the Applicant says the “concept of plurality” should not exist. In this case, the Bankruptcy Notices were different – the first including an interest claim, the second not doing so. They were not issued at the same time and were the subject of separate applications by the Creditor (as contemplated by s.41(1))
The Official Receiver exercised his discretion in issuing the Notices. If the Parliament had intended the discretion to be tempered in the way suggested by the Applicant, namely under any circumstance not to permit a Creditor to apply to issue a Notice when an earlier Notice had been issued, then the Act would clearly specify it.
Mr McQuade relies upon the reasoning adopted by Emmett J in Owners of Strata Plan No.5459 v Mason (1999) 91 FCR 92 @ 93 where he says:-
“The solicitor for the petitioning creditor contended that, notwithstanding the language of s 40(1)(g), which refers to a “final judgment or final order”, reliance may be placed on s 23 of the Acts Interpretation Act 1901 (Cth) which provides that in any Act, unless the contrary intention appears:
“words in the singular number include the plural and words in the plural number include the singular.”
Thus, it was suggested that it is possible to read s 40(1)(g) by substituting plurals for the expressions “a final judgment” and “final order” and the words “judgment” and “order” where those terms appear in the provision.
However, I consider that a contrary intention appears in the Act. Section 41(1) does not easily submit itself to the substitution of plurals pursuant to s 23 of the Acts Interpretation Act. It would be necessary to read s 41 as saying than an Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor, final judgments or final orders that are described in s 40(1)(g), and that are for the amounts of at least $2,000. It would then be necessary to include various permutations and combinations of “final order” and “judgment” and “final orders” and “judgments” throughout par (g). I do not consider this an appropriate technique of construction.”
In my view, whilst Mr McQuade has, with some ingenuity, sought to paraphrase the words of Emmett J at 94 – “Once one allows the concept of plurality, there would be no limit on the number of judgment debts that might be the subject of a Bankruptcy Notice”– he misses a vital distinction.
The authorities against permitting a Bankruptcy Notice to rely upon more than one final judgment debt (GPW Aussie Exports v Latin) or permitting a Creditors Petition to rely on more than one Act of Bankruptcy (ANZ v Hubner) relate to the content of the Notice as prescribed, not the issue of the Notice itself.
It is consistent both with s23 of the Acts Interpretation Act 1901 (Cth), the legislative framework and established practice to give the Official Receiver a discretion to issue more than one Bankruptcy Notice. One could well envisage, for example, if a creditor applied to issue two absolutely identical notices at the one time, the Official Receiver may refuse to exercise his discretion to do so.
It seems to me, in some ways, the role performed by the Official Receiver under s.41(1) is analogous to a Registrar of a Court issuing an originating process. Provided the Notice on its face complies; and there is evidence from the Creditor as to satisfaction with s.41(3) and the appropriate fee is tendered, the Official Receiver may exercise his discretion to issue the Bankruptcy Notice.
Thereafter its validity; whether it is complied with and whether it can found a petition is a matter for the Courts exercising jurisdiction.
To find in favour of the Applicants contention on this issue would revolutionise the general practice of bankruptcy. If that was required it is a matter for the Parliament.
Conclusion
For the reasons set out above, I would dismiss the Application to set aside the Bankruptcy Notice and order that the Applicant pay the Respondent’s costs.
that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date:
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