The Drink Nightclub v Worchild
[2005] FMCA 1454
•12 October 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| THE DRINK NIGHTCLUB & ANOR v WORCHILD | [2005] FMCA 1454 |
| BANKRUPTCY – Contested creditor’s petition – application for sequestration order founded upon creditor’s petition – where respondent debtor failed to comply with the bankruptcy notice – where the debtor failed to satisfy the court that he had a counter–claim, set–off or cross–demand equal to or exceeding the sum of the bankruptcy notice – whether the debtor has raised “other sufficient cause” why a sequestration ought not to be made as provided by s.52(2)(b) of the Act. |
| Bankruptcy Act 1966, ss.40, 43, 44, 47, 52 Part IV Federal Court of Australia Act1976 (Cth) Trade Practices Act 1974 (Cth) |
| Worchild v The Drink Nightclub (Qld) Pty Ltd [2004] FCA 642 Koztezky ex parte Milder Elfman Szmerling Kryxer Pty Ltd (1996) 67 FCR 101 Re Agrillo; Ex parte The Bankrupt (1977) 13 ALR 635 Re Padagas; Ex parte Carrier Air Conditioning Pty Ltd (1977) 16 ALR 475 CSR Ltd trading as CSR Building Materials v Muscat [2002] FMCA 257 Cain v Whyte (1933) 48 CLR 639 Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 Ling v Commonwealth (1996) 139 ALR 159 Re LHF Wools Ltd [1970] Ch 27) Re Capel; Ex parte Caram Finance Australia Ltd (unreported, Fed Ct of Aust, Finn J, 9 April 1998 Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (No 2) (1994) 51 FCR 14 Re Coci; Ex parte Barwick Management Pty Ltd (Unreported Fed Ct of Aust, RD Nicholson J, 19 September 1997 Commonwealth Bank of Australia v Gargan [2004] FCA 707 Re Maddestra; Ex parte Penfolds Wines Pty Ltd (1993) 44 FCR 303 Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 Marshall v General Motors Acceptance Corporation Australia (2003) 199 ALR 109 Adams v Lambert (2004) FCAFC 322 Shannon & Middleton v King [2005] FMCA 1264 |
| First Applicant: | THE DRINK NIGHTCLUB (QLD) PTY LTD (ACN 090 830 854) |
| Second Applicant | BILL CROSS |
| Respondent: | ANDREW WORCHILD |
| File Number: | BRG297 of 2005 |
| Judgment of: | Rimmer FM |
| Hearing date: | 26 August 2005 |
| Date of Last Submission: | 26 August 2005 |
| Delivered at: | Brisbane |
| Delivered on: | 12 October 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr Bisson |
| Solicitors for the Applicant: | Haynes Lawyers |
| The Respondent in person: | Mr A Worchild |
ORDERS
That a sequestration order be made against the estate of the respondent, Andrew Worchild.
That the applicant's costs of and incidental to the petition, including reserve costs, be taxed and paid from the estates of the respondent in accordance with the Bankruptcy Act 1966.
That such costs be taxed on the Federal Court scale and that order 62 of the Federal Court Rules apply.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG297/2005
| THE DRINK NIGHTCLUB (QLD) PTY LTD (ACN 090 830 854) |
First Applicant
And
BILL CROSS
Second Applicant
And
| ANDREW WORCHILD |
Respondent
REASONS FOR JUDGMENT
Proceedings
This is a creditors petition by the applicant creditor The Drink Nightclub (Qld) Pty Ltd and Mr Bill Cross for the making of a sequestration order against the respondent debtor, Mr Andrew Worchild.
Mr Worchild has filed a notice of intention to oppose and supporting affidavit material. Mr Worchild is a solicitor acting on his own behalf in these proceedings.
Background
In about 13 November 2003, Mr Worchild (‘debtor’) commenced proceedings in the Federal Court of Australia under Part IVA of The Federal Court of Australia Act1976 (Cth) (‘the FCA’). He then contended that the first applicant contravened ss.52,53(e) and 56 of the Trade Practices Act (‘the TPA’) by engaging in conduct which was misleading and deceptive and that the second applicant had knowingly been concerned in and aided and abetted the contraventions of ss.52, 53 and 56 of the TPA.
The debtor also alleged that the first and second applicants (‘the creditors’) were negligent and in breach of a duty of care which they allowed to the debtor and other group members. The debtor sought damages pursuant to s.82(1) of the TPA including determinations of aggregate amounts of damages for group members pursuant to ss.33Z(1)(e) and (f) of the FCA, for damages for breach of duty including exemplary damages and other relief.
The debtor in those proceedings alleged that he purchases a discount card known as the ‘L Card’ from the Queensland University of Technology Association of Law Students (‘QUTALS’) on 27 February 2003 at the Gardens Point Brisbane campus of the Queensland University of Technology. He paid the sum of $10 to QUTALS for such card. He says that the group members to whom those proceedings related were approximately 5000 persons who also purchased the
L Cards in the period 1 January 2003 to 30 March 2003.
He alleged that the terms of the L card were contained in pamphlets provided to prospective purchasers and ‘were identical to the terms and conditions published on the L Card website’. The debtor had not exhibited to the affidavit in which he made such claim the pamphlet or copy of the pamphlet or produced them for inspections. Nor was any printout of the ‘Terms and Conditions of the L Card’ published on the
L Card website exhibited or produced for inspection. The only thing produced were print-outs from the website said to be the terms and conditions as amended and published between February 2003 and March 2004.
The creditors are the company which conducts a nightclub on the Gold Coast and a director of that company. The nightclub was one of the participants in the discount scheme offered to purchasers of an L Card as a result of an agreement the creditors had entered into with the Griffith University Law Society (‘GULS’). Mr Cross on behalf of Drink Nightclub maintained that he had dealt with GULS in connections with the involvement of Drink Nightclub in the L Card program for 2003. He said that as a director of the Drink Nightclub he had made an agreement with GULS and the Student Law Association at Griffith University, Gold Coast Campus (‘SLA’) that the Drink Nightclub could be included as a nightclub venue for the L Card 2003 program. He maintained that the benefits that were agreed with GULS and SLA to be provided to holders of the L Card were:
a)Entry to the nightclub on each night excluding Saturday nights and special events without payment of an entry fee; and
b)a reduction of fifty per cent in the regular drink prices for all bee, wine, spirits and soft drinks sold on nights other than Saturday nights and special events.
The creditors denied that they had ever agreed with anyone that the Drink Nightclub would provide to the holders of the L card the benefits as pleaded by the debtor in his statement of claim.
The above proceedings were determined in favour of the creditors by judgment of Justice Cooper who summarily dismissed the application.
On 15 December 2004, the creditor filed a bankruptcy notice and this was personally served on the debtor on 25 January 2005. The debtor failed to comply with the bankruptcy notice. The bankruptcy notice claims the sum of $24,000 pursuant to an order from the federal Court dated 24 May 2005. The order is a costs order made against the debtor in proceedings in which he was unsuccessful in bringing under the Trade Practices Act 1974 (Cth).
The debtor brought an application on 11 February, 2005 and prior to the date on which the notice was due to expire on 15 February 2005, seeking to set aside the bankruptcy Notice. This application was heard by Registrar Baldwin on 13 May 2005 and was dismissed.
The debtor then sought to review the Registrar’s decision and this Review was dismissed by Justice Dowsett in the Federal Court on
15 June 2005.
As a result of the act of bankruptcy the creditor filed a creditor’s petition on 3 June 2005.
On 20 June 2005, the debtor filed and served his Notice of Intention to Oppose and affidavit in support. He filed a further affidavit in support of his application on 8 July 2005
This is the matter now before the court for determination.
It is quite unclear what is the precise basis of the debtors opposition to the creditor’s petition and this is a matter which I spent a considerable amount of time endeavouring to cover with the debtor in his submissions at the hearing, as I wished to ensure that given he was not represented ( even though he himself is a solicitor), he had the fullest opportunity to put before the court all matters relevant to his case.
The statutory framework
The relevant legislative provisions are set out in Part IV of the Act. Section 43 provides:
(1) Subject to this Act, where:
(a)a debtor has committed an act of bankruptcy; and
(b)at the time when the act of bankruptcy was committed, the debtor:
i)was personally present or ordinarily resident in Australia;
ii)had a dwelling-house or place of business in Australia;
…
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
Section 52 provides:
(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.
…
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
If the debtor has committed an act of bankruptcy under section 40(1)(g) when he failed to comply with the requirements of the bankruptcy notice before 15 February 2005 (and this is disputed by the debtor) then such a failure would satisfy section 43(1)(a).
I accept that at that time the debtor was personally present and ordinarily resident in Australia and had a dwelling place in Australia. He remains in Australia today. This satisfies section 43(1)(b).
The Court has received affidavit evidence in proof of the matters stated in the creditors petition, that is in respect of the debt, that the creditor does not hold security over the debtor’s property (the creditor does not hold security over the residence in Australia of the debtor) and details of the act of bankruptcy. If this is accepted as proper and regular then this will satisfy section 52(1)(a). This is also disputed by the debtor.
The debt is still outstanding. There is no dispute about the fact that the debtor has not paid the creditor the amount which is allegedly outstanding. This satisfies section 52(1)(c).
Similarly section 47(1), requiring a creditors petition to be verified by an affidavit of a person who knows the relevant facts, is satisfied.
Section 44 conditions
Section 44(1) relevantly provides:
(1) A creditor's petition shall not be presented against a debtor unless:
…
(b) that debt, or each of those debts, as the case may be:
…
(ii) is payable either immediately or at a certain future time….
A debt must answer this description not only at the date of presentation of the petition but also at the date of hearing (Re Agrillo; Ex parte The Bankrupt (1977) 13 ALR 635; Re Padagas; Ex parte Carrier Air Conditioning Pty Ltd (1977) 16 ALR 475; and CSR Ltd trading as CSR Building Materials v Muscat [2002] FMCA 257).
Issue
There are the questions raised by the debtor as to the regularity of the Creditors Petition which I need to determine. If I am not satisfied on the matters set out in s.52 of the Bankruptcy Act 1966, the Petition must be dismissed.
If I am so satisfied, then it is the debtor, who bears the onus of establishing there is some other sufficient cause why the sequestration order ought not be made.
Other sufficient cause
Section 52(2) relevantly provides:
If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
i)that he or she is able to pay his or her debts; or
ii)that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
The debtor has not in his evidence or submissions to the court put a case that he was solvent (section 52(2)(a)).
Reasoning
This matter then turns on the question of whether there is other sufficient cause and whether I should exercise my discretion to dismiss the petition.
The High Court has stated in Cain v Whyte (1933) 48 CLR 639 at 646:
it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.
Further the debtor, must in accordance with long standing authority, establish that he not only has a probable claim against the petitioning creditor which is likely to succeed but that it will exceed the debt (see Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111; Ling v Commonwealth (1996) 139 ALR 159).
Whilst I accept that the Court exercising bankruptcy jurisdiction, is not the appropriate forum to decide a claim as asserted by the debtor (see Koztezky ex parte Milder Elfman Szmerling Krycer Pty Ltd (1996) 67 FCR 101), the failure by the debtor to seek that relief (especially in view of the prolonged history of litigation) is a factor which also must be taken into account in the exercise of my discretion.
The authorities have made it clear that before the court can exercise its discretion not to proceed with the petition on that basis, the alleged cross-claim must have certain qualities:
·The debtor must show that the claim is a genuine and serious one which he or she has not reasonably be able to litigate: Re LHF Wools Ltd [1970] Ch 27);
·The claim must be a “real claim” that is “likely to succeed:, having “sufficient validity…. To justify a dismissal or adjournment of the petition”: Re Schmidt Ex parte Anglewood Pty Ltd (1968) FLR at 111 at 116; Re Kosetzky; Ex parte Milder Elfman Szmerling Kryxer Pty Ltd (1966) 67 FCR 101 at 106; Re Capel; Ex parte Caram Finance Australia Ltd (unreported, Fed Ct of Aust, Finn J, 9 April 1998);
·If the claim is less than the petitioning creditor’s claim, the proper course is to required the debtor to pat the difference if the debtor desires to avoid a sequestration order: Re James; Ex parte Carter Holt Harvey Roofing (Aust) Pty Ltd (No 2) (1994) 51 FCR 14; Re Coci; Ex parte Barwick Management Pty Ltd (Unreported Fed Ct of Aust, RD Nicholson J, 19 September 1997);
·“It is not in the public interest to allow insolvent debtors to prosecute litigation generally”: Ling v Enrobook at [26-27]; Australia & New Zealand Banking Group Ltd v Prestia [2001] FCA 792 at [32] per Hely J;
·The fact that the debtor’s claims have been dismissed by another court as abuses of process “are a barrier in the way of the [debtor’s] contention that he has a genuine and serious claim against the [creditor] which is likely to succeed if he is permitted to litigate the claim”, particularly where the claim is “highly speculative”: Commonwealth Bank of Australia v Gargan [2004] FCA 707 at [24] per Hely J.
The court will also be reluctant to grant the debtor the relief he seeks if the litigation in which the cross-claim is asserted is long running and unlikely to be resolved soon: Re Maddestra; Ex parte Penfolds Wines Pty Ltd (1993) 44 FCR 303.
Counter-claim, set off or cross-demand
Mr Worchild has not sought to stay the judgment of Justice Cooper and he has not sought to Appeal the decision. He has he says, now obtained a copy of the alleged agreement entered into between the creditors and ‘SLA’. All that he has further produced in this regard however is two documents in Annexure ‘D’ of his affidavit filed 20 June 2005. The first of those documents is a request indicating that an unnamed party would like to he on the L Card 2003.
While the document talks in part about being an agreement, it also is described as being a ‘Membership Card Proposal 2003’. It is not signed by both parties and states clearly that ‘SAL’ cannot guarantee a place on their card but will endeavour to do their best to ensure you a place on the L Card for 2003. It does not refer to any proper terms and conditions of any alleged agreement. The second document is entitled ‘Sponsorship Proposal prepared for the University of Queensland Law Society’. That document cannot in any way be construed as a concluded agreement. It says in the opening words “The Drink Nightclub has pleasure in submitting the following sponsorship proposal….Please note that its contents are open to discussion and we look forward to reaching a mutually beneficial agreement”.
It is therefore quite clear on the face of that proposal that it is no more than that, an initial proposal, and expressly states that its contents are open to discussion and that they hope to reach a mutually beneficial agreement at some later stage. It is therefore only the first offer made by Drink Nightclub and not a final concluded agreement. There is no evidence put by the debtor to establish that the matter went further than that proposal, whether the terms of the proposal changed in any way before a concluded agreement was reached and in fact whether a concluded agreement ever eventuated.
His claim still therefore suffers from all the deficits identified by Justice Cooper in his judgment of 24 May 2004 as the basis for dismissal of the debtors claims against the creditors. The debtor does not in any way address how he can now overcome the matters which Justice Cooper found were fatal to his claim, in particular, he does not address the matters raised by Justice Cooper in paragraph 24 & 25 of his reasons for judgment.
The debtor has not established that he has anything different to now put in relation to the common law action in negligence, than that which he claimed in the Federal Court proceedings. His Honour found at 28 of his judgment that
“the claim as pleaded was meaningless and internally inconsistent
... and..
It was impossible to see how the allegations pleaded in pars 7,8,9 and 10 of the statement of claim amounted to a breach of a duty of care to protect from loss by reason of public misinformation with respect to the matters pleaded in sub-pars 15(a) – (e) inclusive of the statement of claim, when it includes misinformation with respect to a failure to properly train and supervise servants and agents, or a failure to reply and deal with complaints made by the applicant”.
Further, Justice Cooper went on importantly, in my view, to find that the problems confronting the debtor with respect to his proceedings and his statement of claim were not limited to a lack of evidence. His Honour, correctly, found that the cause of action alleged under s82 of the TPA relied upon contraventions of particular provisions of the Act by the creditors and stated at paras 31 & 32 of his judgment that
“to succeed the applicant must prove that he suffered loss or damage ‘by’ conduct in breach of the TPA…The conduct alleged by the applicant involves representations said to be misleading or likely to mislead and deceive (s52), false and misleading representation with respect to the price of goods or services (s53(e)), or bait advertising (s56). There is no pleading that, in reliance on the representations allegedly made, the applicant purchased an L Card. The damage claimed is having to pay a higher price for entry into the nightclub and the purchase of drinks than he would have had to pay had the first respondent extended to him the benefits advertised by the promoters as attaching to the card. That is, the loss suffered was by a failure by the first respondent to extend the benefits, being the represented entitlements of the card holder. The loss does not flow from the alleged contravention.”
His Honour determined at para 29 of his judgment that there was nothing in the material which would go to the claim for exemplary damages and that there were difficulties in such a claim in that
“If it is sought to obtain exemplary damages for such conduct, then the claim must fail, exemplary damages not being available in respect of conduct said to constitute a contravention of the TPA”
Ultimately, it was found that the debtors pleading, as found in his statement of claim was embarrassing and discloses not cause of action and the action was dismissed on the basis that no cause of action was disclosed on the pleadings, they were embarrassing in a pleading sense and there exists no demonstrable basis upon which the applicant (the debtor) could make out on his own behalf, or on behalf of others, or on behalf of the group members, a cause of action which had prospects of succeeding at trial.
As I say, in this matter, the debtor has not overcome any of the difficulties which lead to the early dismissal of his claims in the Federal Court before Justice Cooper. He has not established an proper cause of action to satisfy this bankruptcy court to exercise my discretion in favour of the respondent debtor under s.52(2)(b) of the Bankruptcy Act.
Contempt of court
The debtor further contends that he has a claim against the creditors in that they have committed some contempt of court. I must say that I had some difficulty in understanding how the debtor could establish that even if this were so, that it gave rise to some “sufficient cause” under s52 of the Act. When questioned during his submissions as to how this would give rise to some claim that would be equal to or in excess of the amount that is claimed in the bankruptcy notice, given that if a party is found guilty of contempt of court, the outcome is the imposition of a penalty and the contemnor is responsible to the court and not the debtor for ensuring the penalty imposed is complied with, the debtor submitted that he would be then be entitled to an order for costs against the creditors and that order for costs would be a benefit to him that would then offset the amount he owed them. This does not make any sense.
Firstly, on the face of his claim that the creditors have committed a contempt, it is not credible, given the history of the litigation in the Federal Court and the law relating to contempt that any such application has any prospects of success. I accept the submission made by the creditors that the lack of evidence the debtor had in those proceedings did not arise out of any failure on the part of the creditors to properly comply with orders of the Court but from a failure by the debtor to establish his case. As Justice Cooper found, the debtor had embarked on a ‘fishing expedition’ in the evidentiary sense.
Secondly, any costs order will only be made if the court exercises it’s discretion to so order costs and thirdly, if the debtor is unsuccessful in the contempt application, a further order for costs could be made against him in favour of the creditor. There are difficulties in an applicant in person obtaining an order for costs when he is representing himself. Whilst it is not impossible to obtain such a costs order, it is not a simple consideration as the usual principal of “costs following the event”. For all of these reasons I find that this is not a proper matter to be taken into account when considering whether to exercise my discretion under s.52(2) of the Act.
The judgment was obtained by fraud and or collusion and or mistake.
Given my reasons in relation to the set off or counter claim alleged by the debtor, I am satisfied that this claim does not give rise to any appropriate claim as contended by the debtor. His claims are simply not supported by the evidence that he has now produced nor by the decision of Justice Cooper. I find that this is not a proper matter to be taken into account when considering whether to exercise my discretion under s.52(2) of the Act.
Abuse of process
This claim totally lacks any merit and it would seem to be based on a misconception held by the debtor as to what is his responsibility in establishing that he has a proper and valid cause of action to pursue based on proper evidence and legal principles and what is the responsibility of the creditors, the parties defending his alleged claims.
Whilst, the debtor has a firmly held view that the creditors have not disclosed the true state of affairs in regards to the agreement they did in fact reach with QUALS and GULS. The creditors say they did not reach any agreement as alleged by the debtor. The debtor has the responsibility of proving his claim against the debtors in both a legal and evidentiary sense. He failed to do this on both basis before Justice Cooper and this was outlined clearly in his Honours reasons. There is no basis upon which the debtor has satisfied me that the creditors have abused the process in some way as the debtor contends they have done.
I find that this is not a proper matter to be taken into account when considering whether to exercise my discretion under s.52(2) of the Act.
The act of bankruptcy has not been committed
The debtor has not addressed this matter in his two affidavits in any particular way. He appears to be saying that as he should have been successful before Justice Cooper for all of the other ground he relies upon, that the order for costs should not have been made and he should not be indebted to pay those costs to the creditors so that in not paying the debt he has not committed an act of bankruptcy.
He also raises that the bill of costs produced for taxation included items which did not relate to the Part 4(a) proceedings. These matters should have been addressed by him in the taxation process in the Federal Court of Australia. There is no evidence before me to establish that they were raised nor what the outcome was of it being raised at the taxation.
The debtor applied to have the Bankruptcy Notice set aside. This application was heard on 18 February 2005 by Registrar Baldwin. His application was heard and dismissed. The debtor was then served with the creditors petition. To this date the debtor has not paid the debt owing to the creditors.
Clearly he has committed an act of bankruptcy. I find that this is not a proper matter to be taken into account when considering whether to exercise my discretion under s.52(2) of the Act.
Defects in the petition and or bankruptcy notice
Leading cases
In dealing with the consequences of non-compliance with Form 1, the appropriate principles are contained within the two leading cases in this area, namely Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 (“Kleinwort Benson”) and The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 (“Australian Steel”).
Kleinwort Benson is a decision of the High Court, and is described in Australian Steel (a decision of the majority of a specially constituted Full Court of the Federal Court) as “the leading authority on defective bankruptcy notices”. Although it deals with a bankruptcy notice issued under s.41 prior to significant amendments being made to that section in 1996, there can be no doubt that the principles enunciated in the case remain applicable to bankruptcy notices issued since the 1996 amendments (and, relevantly, to the Notice in the present case).[1]
[1] See Australian Steel at [27].
The alleged defect in the bankruptcy notice in Kleinwort Benson was an understatement of the amount of interest accrued. In broad terms, the majority (Mason CJ, Wilson, Brennan and Gaudron JJ), concluded that the understatement of the interest due was no more than a formal defect or irregularity within s.306(1) of the Act and that, as a result, the bankruptcy notice was valid. Deane J did not agree.
After referring to s.306(1) and observing that the issue of a bankruptcy notice is indeed “a proceeding” under the Act, the majority in Kleinwort Benson said:[2]
Three questions arise as to the validity of the bankruptcy notices in this case: are they defective or irregular; if so, is the defect or irregularity substantive or formal; and if it is formal only, has it occasioned substantial and irremediable injustice?
[2] At page 77.
The Full Court in Australian Steel accepted that the above questions could be restructured as follows:
a)Is the bankruptcy notice defective or irregular?
b)If so, is the defect or irregularity substantive or formal?
c)If it is formal only, has it occasioned substantial and irremediable injustice?
The majority in Kleinwort Benson also said:[3]
The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice … In such cases, the notice is a nullity whether or not the debtor is in fact misled.
[3] At page 79 – 80.
After further discussion, the majority (in Kleinwort Benson) held that the understatement of the amount of interest due comprised no more than a formal defect or irregularity – which attracts the operation of s.306(1).[4] Their Honours then continued:
Section 306(1) operates automatically unless “the court … is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court”. In the present case, no evidence was presented and no claim was made of actual injustice. There was thus no basis upon which an opinion could be formed to deny the operation of s.306(1).
[4] See page 81.
Kleinwort Benson was analysed in detail by the majority of a specially constituted (five member) Full Court of the Federal Court in Australian Steel:[5]
In the extensive amendments to the Act and the Regulations in 1996, the form of bankruptcy notice has been made substantially more complex. There have been conflicting Full Court decisions as to the consequence of non-compliance with the new form of notice.
[5] See paragraph [2].
In Australian Steel, the notices all had the same defect they claimed interest on a judgment debt pursuant to s.101 of the Supreme Court Act 1986 (Victoria), when it should have been expressed that the interest was claimed pursuant to s.100(7) of the Magistrates Court Act 1989 (Victoria).
The majority in Australian Steel said:[6]
Thus essentiality of the requirement which the notice fails to meet and capacity of the notice to reasonably mislead a debtor are alternative ways in which a defect or irregularity may be found to be “substantive”. It must logically follow that a notice which fails to meet a requirement made essential by the Act will contain a substantive defect even if the notice could not reasonably mislead a debtor as to what was necessary for compliance.
[6] See paragraph [32].
The majority continued:[7]
It is clear from the majority’s judgment (in Kleinwort Benson) read as a whole that their Honours were not saying that capacity to mislead is the only test as to whether a defect is substantive, as distinct from formal. There is another and separate test, namely whether an essential requirement of the Act has not been met. Each is a subset of issue [ii][8]. On the facts of Kleinwort Benson both tests were held not to have been satisfied. Finally, the majority noted that, there being a formal defect or irregularity, s.306(1) operated automatically. There had been no evidence presented and no claim made of actual injustice. Therefore, their Honours held that there was no basis upon which an opinion could be formed to deny the operation of s.306(1).
[7] See paragraph [38].
[8] See paragraph 24(b)above.
The majority in Australian Steel then discussed the manner in which it might be determined whether a particular requirement has been made essential by the Act (bearing in mind that “essentiality of the requirement which the notice fails to meet and the capacity of the notice to reasonably mislead a debtor are alternative ways in which a defect or irregularity may be found to be ‘substantive’”). Their Honours said:
39.Kleinwort Benson decides that a bankruptcy notice that does not contain a requirement made essential by the Act is not a valid notice. In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391, McHugh, Gummow, Kirby and Hayne JJ, after discarding the elusive distinction between directory and mandatory requirements as a test of validity, said:
“A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid … In determining the question of purpose, regard must be had to ‘the language of the relevant provision and the scope and purpose of the whole statute’.
In the light of this passage, it can be seen that a requirement is “made essential” within the Kleinwort Benson principle when the inquiry as to purpose discloses the intention that an act done in breach should be invalid. See also Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 at 383-385; 169 ALR 503 at 512-513.
40.In 1996 Parliament chose to make a form to be prescribed by regulation the sole criterion of whether a bankruptcy notice complied with the Act, with the consequence that an act of bankruptcy would be committed in the case of non-compliance with such a notice. This being the will of Parliament, it is not for a court to treat the terms of the prescribed form as inherently less important than a requirement specified in the Act itself, so as to attract a more lenient view in the case of non-compliance. Valid delegated legislation (and there is no suggestion that the present regulations are otherwise) is binding law because that is what Parliament has willed. As Lindgren J said in Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 at 378 (obviously in relation to a pre-1996 notice): “ … the statutory requirement that a bankruptcy notice be in accordance with the prescribed form is itself a requirement made essential by the Act.”
41.This proposition is a fortiori since the 1996 amendments …. Moreover, this is a case where the 1996 amendments resulted in “a framework built on by contemporaneously prepared regulations”, in which case the latter may be a reliable guide to the meaning of the former: Hanlon v Law Society [1981] AC 124 at 194. The law now is that a bankruptcy notice has to contain substantially more information than it did prior to the 1996 amendments. The law now is not just that a notice shall have certain characteristics stipulated in the Act. The notice “must be in accordance with the form prescribed by the regulations”.
Finally, the majority in Australian Steel said:[9]
“If (regulation 4.02(3) is to be taken as a statement that s.25C of the Acts Interpretation Act applies to the content of the form as well as its format … , the failure to comply with a requirement in such a way that the purpose behind the requirement is thereby thwarted, cannot be excused under s25C on the ground that there has been substantial compliance. Essentiality for the purpose of the Kleinwort Benson principle being determined by purpose, a provision as to substantial compliance, assuming it applies at all, cannot make unessential that which purpose reveals as essential. It can hardly be said that there has been substantial compliance with a prescribed form where the form fails to include information made essential by an enactment.”
[9] See paragraph (43).
13 See, for example, the decisions of the Full Court of the Federal Court in Marshall v General Motors Acceptance Corporation Australia (2003) 199 ALR 109 and Adams v Lambert (2004) FCAFC 322
Debtor’s claims and findings
In this matter the debtor contends that Paragraph 1 of the petition states that the creditors are owed an amount due under the order of the Federal Court and that the bankruptcy notice fails to contain the judgment or certificate of taxation. He says that where in paragraph 2 it says that the creditor does not hold security over the property of the debtor, that this leaves doubt as to whether the one or the other holds security over the property of the debtor. Further he contends that the petition refers to the words ‘creditor’ and ‘creditors’ including reference to the agent for the Petitioner which creates a doubt as to who the Petitioner is and whether or not there are two joint petitioners and whether or not the agent holds instructions to act on behalf of both petitioners. He says that paragraph 4 of the Petition fails to sate the date of the act of bankruptcy.
I am satisfied that this creditors petition is overall compliant. It is in all respects clear and unequivocal. In relation to paragraph 1 the petition is compliant and the Bankruptcy Notice contains the order made on
25 November 2004. Similar arguments were put by the debtor in his application to have the Bankruptcy Notice set aside and that application has been determined and dismissed with an order being made against the debtor for costs. No application for review of the Registrar’s decision was made by the debtor. To agitate the same issues now is an abuse of process by the debtor. No new substantive issues have been raised by the debtor. Whilst I accept that at any time prior to the making of the sequestration order the debtor can raise issues of formal defects in the Bankruptcy Notice, he cannot continue to raise the same or similar issues when that issue has been heard and determined both at first instance by a Registrar and then on review to the Federal Court.
Paragraph 2 of the petition to also clear and unequivocal. It is a requirement of the standard form for such a statement to be made in those terns as to the holding of any security over any property of the debtor by the creditors. There is no uncertainty raised to a reasonable person with the knowledge of the debtor. There is no defect in the making of this statement.
Paragraph 3 is also clear and unequivocal in its terms. This matter was recently determined by this court in Shannon & Middleton v King [2005] FMCA 1264. A similar argument was put by the debtor in relation to an alleged substantive defect in a Bankruptcy Notice and such argument was rejected by Walters FM when he found at paras [67] & [68] that
“67. ..that neither the Notice itself, nor the defect or irregularity within it, could reasonably mislead any debtor as to what is necessary to comply with the Notice. It follows that the defect or irregularity cannot be “substantive” in that sense.
68. It also follows from the discussion set out above that if the defect or irregularity does not fall within either of the alternative ways in which it might be found to be “substantive”, then it must be formal only.”
Following his Honours reasoning with which I agree the fact that an ‘s is left off the word creditor on one occasion does not create any confusion and is not a matter which would properly give rise to a substantive defect in the notice as required to set the Petition aside. I am satisfied that the debtor is fully aware that there are two creditors, one a company and one the director of that company. He is also well aware that the solicitors Hynes Lawyers act for both of the creditors. This is a spurious argument without merit.
As to paragraph 4 of the petition, I am satisfied that it is compliant with the formal requirements of the prescribed Form.
The grounds of opposition in this regard raised by the debtor have no merit.
Conclusion
I can find nothing in the submissions which have been made to me or the evidence produced to support those submissions by the debtor, Mr Worchild which would lead me to find that there are defects in the Bankruptcy Notice or the creditors Petition sufficient to dismiss the Petition. Further I find can find nothing in the submissions or on the evidence produced which would lead me to exercise my discretion in favour of the debtor under s.52(2)(b) of the Bankruptcy Act. This matter has been greatly protracted. Given all the requirements of the Act have been properly complied with by the creditors in support of their petition, the creditor is now entitled to the sequestration order.
Accordingly I make the orders as set out at the commencement to these reasons.
I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of Rimmer FM
Associate:
Date: 12 October 2005
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