Saunders v Hammond
[2010] FMCA 866
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SAUNDERS v HAMMOND | [2010] FMCA 866 |
| BANKRUPTCY – Bankruptcy notice – application to set aside bankruptcy notice – notice based on several orders made in family law proceedings – where it relied on costs order for which no costs assessment had been made – where obligation to pay money out of proceeds of sale of matrimonial home impossible to comply with at the time the notice was issued – other orders for unspecified and ongoing costs not capable of execution – whether flaws amounted to overstatement or invalidity. |
| Bankruptcy Act 1966 (Cth), ss.33(1)(b), 40(1)(g), 41(5), 44(1)(a) Family Law Rules2004 (Cth) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) |
| Kleinwort BensonAustralia Ltd v Crowl (1998) 165 CLR 71 Skouloudis v St George Bank Ltd [2008] FCA 1765 Seovic Civil Engineering Pty Ltd v Groenveld (1999) 161 ALR 453 Re Ousley; Ex parte Commissioner of Taxation (1994) 48 FCR 131 Re Michael Colin Stevens [1990] FCA 454 |
| Applicant: | JACQUELINE SAUNDERS |
| Respondent: | MICHAEL HAMMOND |
| File Number: | SYG 1746 of 2010 |
| Judgment of: | Raphael FM |
| Hearing date: | 22 September 2010 |
| Date of Last Submission: | 21 October 2010 |
| Delivered at: | Sydney |
| Delivered on: | 9 November 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr R de Robillard |
| Solicitors for the Applicant: | Kent Attorneys |
| For the Respondent: | In person |
ORDERS
Bankruptcy notice NN3072/10 set aside.
Respondent to pay the Applicant’s costs to be taxed, if not agreed, in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1746 of 2010
| JACQUELINE SAUNDERS |
Applicant
And
| MICHAEL HAMMOND |
Respondent
REASONS FOR JUDGMENT
On 22 July 2010 Mr Hammond obtained the issue of a bankruptcy notice from the Official Receiver for the bankruptcy district of NSW numbered NN3072/10 addressed to his former wife, Jacqueline Ronelle Saunders. The notice was served on 23 July 2010. In it Mr Hammond claims that Ms Saunders owed him a debt of $105,418.29 as shown in the schedule found on page 5 of the notice. The form of the schedule is set out below:
Column 1
Column 2
1. Amount of judgments or orders
$100,405.00
plus 2. Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders (see Note 1, below)
$795.00
plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2, below)
$4,218.29
4. Subtotal
$105,418.29
less 5. Payments made and/or credits allowed since date of judgments or orders
$NIL
6. Total debt owing
$105,418.29
Annexed to the bankruptcy notice are a number of documents. The first is the calculation of interest. It refers to a principal sum of $101,200.00 made up of the undermentioned orders.
“(a) 21 March 2007 Order $71,000
(b) 12 October 2007 Order $5,000
(c) 22 November 2007 Order $7,500
(d) 17 December 2007 Order $11,107
(e) 18 December 2007 Order $5,126
(f) 30 January 2008 Order $795.00
(g) 13 February 2009 Order $672.00”
On page 13 of the notice there is a cover sheet and orders from the Family Court of Australia which continue until page 19. On page 22 there is a copy of a minute of proposed consent order filed in the Family Court on 12 October 2007. On page 23 there is an order of the Family Court dated 22 November 2007 made on an appeal per Bryant CJ, Kay & Warnick JJ. On page 25 there is another cover sheet for orders made on 17 December 2007 found at pages 26 to 28. On page 29 there is a cover sheet for an order of 18 December 2008 found on pages 30 and 31 per Fowler J. There is then some correspondence and at page 34 an itemised costs account claiming a sum of $795.00. On page 36 there is a cover sheet for orders dated 13 February 2009 per Watts J which is set out at page 37. On pages 39 to 41 there is some correspondence and invoices relating to expenses incurred by Mr Hammond. It will immediately be seen that this is not the usual type of bankruptcy notice being one consisting of a demand based upon a judgment or order of a court of competent jurisdiction, a copy of which is annexed to the notice.
On 11 August 2010 Ms Saunders filed an application in this Court seeking to set aside the bankruptcy notice. At first Ms Saunders was not represented but, by the time the matter came on for hearing on 22 September 2010, she was represented and her counsel made a number of submissions which he helpfully reduced to writing. At the end of the hearing the Court made orders that further written submissions be filed and served. The respondent who was to file the first submissions did so within time. The applicant was out of time with the filing of her submissions in reply. The respondent then filed some additional submissions responding to those of the applicant which, whilst not being part of the original orders, have been accepted and considered.
The first ground upon which the applicant asked the Court to set aside the bankruptcy notice relates to the sixth component in the sum of $101,200.00 referred to as item 2(f) on page 9 of the bankruptcy notice. This sum is said to be constituted in an order of the Family Court dated 30 January 2008. The evidence supporting the claim is contained at pages 33 to 35 of the bankruptcy notice. It consists of a letter from Mr Hammond’s then lawyers to the applicant in the following form:
“Dear Madam,
RE: MATRIMONIAL MATTERS
We note you are now self-represented in these proceedings.
The matter was listed before Her Honour Justice Moore on 30th January, 2008. Mr Paul Solicitor appeared on your behalf and noted his appearance accordingly. At the conclusion of the matter an Application for costs was sought on behalf of Mr Hammond. An Order was made that costs be agreed or certified. There has been no appeal of that decision.
Accordingly, we now attach an itemised cost account for your immediate attention and consideration. You will note if you do not agree with all or part of the itemised cost account, you must within 28 days of the account served upon you, serve the person in Part B with a Notice Disputing Itemised Costs Account.
Yours Faithfully,
KARRAS PARTNERS”
There is then an itemised costs account pursuant to rule 19.22 of the Family Law Rules 2004 indicating that Mr Hammond is claiming a total of $795.00. There are three notes to the document which state:
“1. The person in Part B claim(s) payment of the total of the costs account set out in Part C from you.
2. If you do not agree with all or part of this itemised costs account, you must, within 28 days of the account being served on you serve the person in Part B with a Notice Disputing Itemised Costs Account.
3. If you have not already received a costs notice, you should receive with this costs account.”
I do not know what a costs notice is and there is no evidence that the applicant received one. But, more seriously, I am satisfied that the documents do not constitute a certificate of taxed or assessed costs in support of the amount claimed as required by note 1 to the schedule of the bankruptcy notice. This is because the provisions of rule 19.37 of the Family Law Rules detail what is required in order to obtain a costs assessment order. The rule states:
“(1) This rule applies to a person entitled to costs who:
(a) has served an itemised costs account under rule 19.21; and
(b)has not received a Notice Disputing Itemised Costs Account under rule 19.23.
(2) A Registrar may make a costs assessment order if the person has filed:
(a) a copy of the itemised costs account; and
(b) an affidavit stating:
(i) when the itemised costs account was served on the person liable to pay the costs;
(ii) the amount (if any) that has been received or credited for the costs;
(iii) that the person liable to pay the costs has not served a Notice Disputing Itemised Costs Account under rule 19.23; and
(iv) that the time for serving a Notice Disputing Itemised Costs Account has passed.
(3)If a costs assessment order is made under subrule (2), the person entitled to costs must serve a copy of the order on the person liable to pay costs.”
It would appear from this rule that it is the costs assessment order that is required to be annexed in accordance with note 1. There is no evidence before me that the Family Court have ordered Ms Saunders to pay the $795.00. I am, therefore, unable to be satisfied that I have sufficient evidence of a final judgment or final order for the benefit of Mr Hammond as required by ss.40(1)(g) and 41 of the Bankruptcy Act. I am supported in that view by the concession made on page 3 of Mr Hammond’s submissions to the following effect:
“It is, however, duly acknowledged that the amount identified in the Notice on page 5 of number 2 of the schedule (and located at pages 33-35) in the amount of $795.00 is not “a final judgment” or “final order” in accordance with s.41(g) of the Bankruptcy Act 1966 (Cth) (the Act). The material is in fact a copy of a costs order of the Family Court in favour of the Respondent that has not been finalised by way of a costs assessment process in accordance with rule 19.37 of the Family Law Rules 2004. This is an error of the Respondent and is acknowledged as such.”
There is a significant dispute between the parties as to the effect of this defect. Mr Hammond would have it that the effect constitutes an overstatement of the amount due in both principal and interest, which was not the subject of a notice under s.41(5) of the Bankruptcy Act from the debtor. Therefore, it can be disregarded. Ms Saunders says that this is not a mere overstatement; it is the basing of a bankruptcy notice, at least in part, upon a non-existent obligation which has the effect of invalidating the notice. She further argues that the notice is invalidated because of the non-compliance with the Act and schedules and because the error renders the notice confusing in the manner considered by the High Court in Kleinwort BensonAustralia Ltd v Crowl (1998) 165 CLR 71. Mr Hammond seeks the Court’s indulgence to amend the notice so as to delete this claim. He argues this can be done provided notice under s.41(5) has not been issued because the effect of a notice under that section is to render the notice invalid as from the date of issue; Skouloudis v St George Bank Ltd [2008] FCA 1765 at [25]. In this case, following receipt of Mr Hammond’s submissions, Ms Saunders filed a notice under s.41(5). Mr Hammond asks that the Court allow his amendment as if it was made upon receipt of his submissions and, therefore, prior to the issue of the s.41(5) notice.
It is Ms Saunder’s submission that she was entitled to serve the notice because the time for compliance with the bankruptcy notice had not yet expired, having been extended by order of the Court until judgment. She says the notice is otherwise valid. I accept that it is and as it operates to negate the bankruptcy notice ad initio she argues that the Court does not have the power to amend it under s.33(1)(b) which, if it was done, would have been done after the notice had been invalidated. The argument is attractive, particularly in the light of the views of the Full Bench in Seovic Civil Engineering Pty Ltd v Groenveld (1999) 161 ALR 453. But the Court noted at [36] and [37]:
“While it is not strictly necessary for us to decide, we think that the better view is that a notice by the debtor which simply asserts, without more, that the amount specified in the bankruptcy notice exceeds the amount actually due, does not comply with the requirements of s 41(5) of the Bankruptcy Act. The expression "the misstatement" strongly suggests that the debtor must do more than merely assert that there is a misstatement in the bankruptcy notice. The subsection requires the debtor to provide sufficient information in the notice to enable the creditor to identify what is said to be the alleged misstatement. Only then does the debtor's notice displace the general rule established by s 41(5), that the bankruptcy notice is not invalidated only by reason that the sum specified therein as the amount due to the creditor exceeds the amount in fact due.
This construction of s 41(5) of the Bankruptcy Act is supported by policy considerations. The object of a debtor's notice under s 41(5) is to inform the creditor that the debtor disputes the bankruptcy notice and does so on the ground of a misstatement contained in that notice. The point of the notice is to draw to the creditor's attention the misstatement, thereby giving the creditor the opportunity to consider, for example, whether the bankruptcy notice should be withdrawn and a fresh notice, correcting the misstatement, issued. If the creditor is given no hint in the notice as to the nature of the misstatement, there is a considerable risk that the debtor will be able to take unmeritorious advantage of minor errors (such as the small mistake in the present case) and that unnecessary and wasteful litigation will eventuate.”
This dicta seems to indicate that it is not open to a creditor to seek amendment of the notice once an overstatement has been pointed out but rather he is given an opportunity to withdraw the notice and reissue. I think it best, however, to leave further consideration of this issue until I have considered the other judgments upon which the notice is based.
The first figure is the sum of $71,000.00. This is part of the proceeds of sale of the former matrimonial home at 77 Hopetoun Avenue, Vaucluse. At the time the orders were made on 21 March 2007, the property had not been sold. The orders are in the following form:
“1.Each party is to forthwith do all things and sign all documents necessary to sell the property at 77 Hopetoun Avenue, Vaucluse in the State of New South Wales as soon as practicable in a manner agreed and failing agreement at public auction at market price.
2.Until completion of the sale the husband has the right to occupy the property subject to the husband paying the following as they fall due and permitting inspection by agents and prospective purchasers at all reasonable times;
(i) council and water rates
(ii) house insurance
(iii) mortgage instalments.
3.The parties are to cause the proceeds of sale to be disbursed as follows:
(i)to pay the reasonable expenses of the sale including agent’s commission and legal costs and disbursements;
(ii) to discharge the mortgage secured on the property
(iii) to pay Mr Mohommed Khoory the sum of $670,000
(iv)to pay the balance remaining as to 65% to the husband and the wife 35% and from the wife’s 35% entitlement she is to simultaneously pay to the husband the sum of $71,000.”
After sale the funds were unable to be released because of some proceedings in the Equity Division of the Supreme Court of NSW. Orders in that matter were not made until 18 August 2010 by Ward J. Thus at the date upon which the bankruptcy notice was issued, 22 July 2010, the proceeds of sale were not able to be disbursed. It was disbursement of the proceeds of sale to which the order refers so I do not believe that the Supreme Court proceedings, which appear to have had the agreed effect of freezing the disbursement, should be regarded in the same light as a Mareva injunction which does not prevent the issue of a bankruptcy notice; Re Ousley; Ex parte Commissioner of Taxation (1994) 48 FCR 131. The authorities are confined to occasions when there is a judgment for a sum certain which a debtor cannot meet because of the existence of the Mareva injunction. In the instant case, there is no obligation to make payment until the monies from the sale of the property come into the debtor’s possession. They did not do so until after completion of the Supreme Court proceedings. Thus, in my view, the orders of 21 March 2007 could not support the issue of a bankruptcy notice as the obligation to make the payment had not yet crystallised.
The second order on which the applicant bases the notice is an order concerning access to the couple’s children. The document annexed to the notice at page 22 is entitled “Minute of Proposed Consent Order” and it relevantly states:
“c. For the purpose of implementing the preceding orders, Order 3(iv) made 21 March be varied adding thereto after the words $71,000 the following words:
“together with the cost of the flights on Jetstar for the Husband and the children from after 12 October 2007 until the determination of the Appeal up to a total of $5,000”.
It is on this basis that Mr Hammond claims $5,000.00. Although in his supplementary submissions he provides hearsay evidence that a Registrar of the Family Court has told him that this is a final order, I am not satisfied that it is one upon which execution might issue. Surely Mr Hammond would be obliged to prove to a court that was issuing the judgment or empowering its sheriff to execute that he had spent $5,000.00? There is, therefore, a further step to be taken before the order becomes one upon which a bankruptcy notice could issue; s.40(1)(g); Re Michael Colin Stevens [1990] FCA 454.
The third sum sought is $7,500.00 pursuant to an order of 23 August 2007 which states relevantly:
“The appellant Mother pay to the respondent Father the sum of $7,500.00 towards the respondent Father’s costs in relation to the property aspect of the appeal, such sum to be deducted from her share of the sale proceeds of the former matrimonial home.”
The form of this order puts the amount payable into the same category as the $71,000.00. It was not payable by Ms Saunders to Mr Hammond at the time the bankruptcy notice was issued because the proceeds of sale were not available.
The fourth constituent of the notice is the sum of $11,107.00 said to be a constituent of an order dated 17 December 2007. The relevant order states:
“In respect of the children’s travel pursuant to order 5, the Father shall obtain further loan monies to pay the costs of such transport which shall be added to the monies payable by the wife to the husband under order 3(iv) of the orders of this Court dated 21 March 2007.”
Mr Hammond says that the amount involved was $11,700.00. But, once again, it seems to me that before he could execute to recover that sum he would have to prove to the Court that that was what he expended. There was, therefore, a further step to be taken before an executable order came into existence. In addition, the money was not due to be paid until the proceeds of sale were available.
The fifth sum was $5,126.00 said to be payable pursuant to an order of 18 December 2007. In fact the date is 18 December 2008 and to this extent it could be said that the notice is misleading. The form of the order is as follows:
“The Court noted the undertaking of the Father to pay the outstanding fees of the Mother owing to Dr Quadrio and the cost of the preparation of the updating report on the basis that there is a return of the fees paid on behalf of the fees owing by the Mother and an equal contribution for cost of the updated report charged against the entitlement to the mother to proceeds of sale from the former matrimonial home and payable from them.”
Mr Hammond alleges that the sum of $5,126.00 is constituted by the outstanding fees of Ms Saunders and half of the updating fees. He has provided a letter at page 32 of the bankruptcy notice which makes a demand upon him from the Child and Family Advocacy Service for $9,516.00 but it neither proves that he made that payment nor that the amount to be debited to Ms Saunders was $5,126.00. In addition, the same concerns that I have about all the other matters apply, namely, there would be an additional process to go through before he obtained an executable judgment and the monies were not payable except out of the proceeds of sale.
The final matter is the sum of $672.00 payable under an order of 13 February 2009. This order states:
“The Mother shall pay to the Father any amount the Father has lost as a result of complying with order 2 within 14 days from the receipt of the details referred to in the order.”
These orders referred to payment for air tickets pursuant to which the children were to fly from Avalon to Sydney. Mr Hammond has produced evidence that the cost of the tickets was $672.000 and this is the type of evidence which I would expect he would be required to provide to the Family Court before that Court arranged for the issue of a writ of execution. In other words, there was still an additional process to be gone through before the order became one which was capable of founding a bankruptcy notice. But even if I am wrong in this regard, it does not seem to assist Mr Hammond because I am satisfied that none of the other orders could found a bankruptcy notice and, therefore, the balance of $672.00 is under the amount of $2,000.00 which was the minimum sum in respect of which a bankruptcy notice could issue under s.44(1)(a) in July 2010.
I am of the view that this bankruptcy notice is comprehensively flawed and, as such, is invalid. This is not a question of overstatement which might be cured by amendment, nor an issue as to the serving of a notice under s.41(5). These matters became peripheral once the other difficulties with the judgments arose. The bankruptcy notice should be set aside and the respondent should pay the applicant’s costs to be taxed, if not agreed, in accordance with the Federal Magistrates Court (Bankruptcy) Rules.
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Raphael FM
Date: 9 November 2010
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