Toll v Poinciana Cooperative Housing Society Ltd
[2004] FMCA 992
•21 December 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TOLL v POINCIANA COOPERATIVE HOUSING SOCIETY LTD | [2004] FMCA 992 |
| BANKRUPTCY – Validity of notice – whether Bankruptcy Notice was defective in that it failed to attach a copy of the order “ordering costs”, not merely the order assesses the costs – whether the applicant has a counter-claim, set-off or counter demand against the respondent within the meaning of s.41(7). |
Bankruptcy Act 1966
Uniform Civil Procedure Rules 1999 (Qld)
Re Gibbs; Ex Parte Triscott (1995) 133 ALR 718
Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441
CDJ v VAJ (1999) HCA 67
Ebert v The Union Trustee Company of Australia (1960) 104 CLR 346
Guss v Johnston [2000] HCA 26
Shephard v Blueberry Farms of Australia Ltd [2001] FMCA 2
Re:Ludkins; Ex Parte Columbia Pictures Industries Inc & Another (1996) 67 FCR 549
Franks v Warringah Shire Council (2003) FCA 1047
| Applicant: | ANDREW THOROLD TOLL |
| Respondent: | POINCIANA COOPERATIVE HOUSING SOCIETY LTD |
| File No: | BRG 183 of 2003 |
| Delivered on: | 21 December 2004 |
| Delivered at: | Brisbane |
| Hearing date: | 16 December 2003 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Mr C.F. O’Meara |
| Counsel directly briefed |
| Counsel for the Respondent: | Mr P.W. Hackett |
| Solicitors for the Respondent: | Colwell Wright Solicitors |
ORDERS
That the Bankruptcy Notice QN 189 of 2003 be set aside.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 183 of 2004
| ANDREW TOLL |
Applicant
And
| POINCIANA COOPERATIVE HOUSING SOCIETY LTD |
Respondent
REASONS FOR JUDGMENT
The Application for Review of a Registrars decision in this matter was heard by me on 16 December 2003. I regret the delay in the delivery of my reasons for judgment.
An application for review is of course a hearing de novo. When I refer in this judgment to the reasons of Registrar Baldwin, I do so for simple practicality, not because I regard the matter before me as an appeal from the Registrar.
I adopt as accurate and unchallenged the History of this matter as recorded in the Reasons of the Registrar:-
“HISTORY
3.The applicant purchased a property (being Lots 102 and 103 Woongarra Street, West Bundaberg) in 1997 with funds provided by the respondent. The loan was secured by a mortgage in favour of the respondent. The evidence before the Court was that on 27 December 2001 the respondent served the applicant with a Notice of Default. The notice stated that the applicant was in breach of his obligations pursuant to the loan agreement and mortgage in four respects. The Notice was issued pursuant to s.84 of the Property Law Act 1974 (Qld) and s.80 of the Consumer Credit Code. The four grounds of default were:-
· That the applicant had failed to pay rates in the amount of $4,719.43;
· That the applicant failed to keep the property insured;
· That the amount of $6,769.39 paid by the respondent to the applicant for repairs and rates had not yet been repaid;
· That the applicant was in arrears in his loan repayments to the amount of $2,947.25
4.As the applicant failed to comply with the Notice, proceedings were commenced in the Supreme Court for the recovery of possession of the property. The proceeding before Justice Dutney in the Supreme Court was by way of application for summary judgment.
5.On 30 May 2002 Dutney J ordered the recovery of possession of the property to the plaintiff (the respondent in these proceedings) and ordered the defendant (the applicant in these proceedings) pay costs of the proceedings to be assessed. Costs were subsequently assessed in the sum of $5,835.30. The costs component of the order is what forms the basis for the issue of the bankruptcy notice. On 21 June 2002 the applicant was unsuccessful in obtaining a stay of that order. Subsequently on 17 July 2002 the property was sold.”
ISSUE
The applicant asserts that he has a counter-claim, set-off or cross demand which exceeds the judgment of $5,835.30 that founds the Bankruptcy Notice. He seeks that the Bankruptcy Notice be set aside under s.41(7) of the Bankruptcy Act 1966 (“the Act”).
APPLICABLE LAW
The Registrar correctly identified in her reasons the applicable statutory provisions, and again, for simplicity I adopt that statement as follows:-
“COUNTER-CLAIM, SET-OFF OR CROSS DEMAND
6.Sub-section 40(1) of the Act provides that a debtor commits an act of bankruptcy in each of the following cases, and, in particular, sub-paragraph (g) states:-
“(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i)where the notice was served in Australia—within the time specified in the notice; or
(ii)where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service; comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;…”
7. Sub-section 41(7) of the Act further provides:-
“Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.”
8.Cases decided under these provisions make it clear that the debtor must satisfy the Court that he has a genuine counter-claim, set-off or cross demand at that is has reasonable probability of success. In Ebert v The Union Trustee Company of Australia (1960) 104 CLR 346 at 350, the High Court stated:-
“Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a Court trying the issues that are involved in his counter-claim, set-off or cross demand.”
9.More recently, in Guss v Johnston [2000] HCA 26, the High Court observed at 40:-
“The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim”.”
GROUNDS
In addition to the four grounds relied upon in the applicant’s initial affidavit, the applicant in the hearing before me contends:-
a)The Bankruptcy Notice was defective in that it failed to attach a copy of the order “ordering costs”, not merely the order which in effect is the assessment of costs; and
b)
Sought to rely on a further affidavit by himself and, more importantly, an affidavit of ANTHONY FOLEY, a valuer, filed
9 September 2003.
As I indicated at the hearing, I am satisfied that, as proceedings before me are not an appeal, the Applicant is not limited to the arguments advanced unsuccessfully before the Registrar or the evidence before the Registrar. The evidence of Mr Foley was filed after the hearing before the Registrar and well before the hearing before me. The issues that arise on Appeals as dealt with by the High Court in CDJ v VAJ (1999) HCA 67 simply do not arise on a hearing de novo.
I permitted Mr Toll to rely on his further affidavit, although much of this further evidence is hearsay (and clearly inadmissible) a section of the affidavit refers to complaints made by the Applicant to the Valuers Registration Board. Such matters are irrelevant to the issues before me.
Is the Bankruptcy Notice Defective
The Bankruptcy Notice QN 189/2003 attaches a copy of an Order of a Registrar of the Supreme Court of Queensland dated 11 December 2002 which states that:-
“1. The costs if the order of The Honourable Justice P.R. Dutney of 13 May 2002, have been assessed at $5,835.30.
2. The costs of the assessment conducted by the Registrar on
11 December 2002 are calculated at $861.20.”
The Applicant submits that the failure to attach to the Bankruptcy Notice a copy of the order of Dutney J of 13 May 2002 is a failure to comply with an essential requirement of the Act such that the notice is invalid. This issue was not agitated before the Registrar.
As was succinctly and correctly stated by Driver FM in Shephard v Blueberry Farms of Australia Ltd [2001] FMCA 2 at paragraph 27:-
“27. It is accepted that s.41(2) of the Bankruptcy Act provides that a bankruptcy notice must be in accordance with the form prescribed by the Regulations. The relevant Regulation is Regulation 4.02. The relevant form is incorporated by Regulation 4.02 as Form 1. The requirements of a bankruptcy notice are subject to the provisions of s.25C of the Acts Interpretation Act 1901 and s.306 of the Bankruptcy Act. Section 25C of the Acts Interpretation Act applies to the format of the bankruptcy notice: Bankruptcy Regulations 4.02(2) and (3).
If that section has any application to the content of a notice, it seems that application is quite limited: Australian Steel Company v Lewis (op cit) at paragraph 43. Section 306 relevantly provides that proceedings under the Bankruptcy Act are not invalidated by “a formal defect or irregularity unless the Court… is of the opinion that substantial injustice has been caused by the defect…” It has long been held that s.306 is applicable to bankruptcy notices: Kleinwort Benson Australia v Crowl (1988) 165 CLR 71 at 77. Accordingly, the respondent has correctly submitted that a bankruptcy notice will not be invalidated by a defect or irregularity if that defect or irregularity is “formal” and it does not cause substantial and irremedial injustice. A defect or irregularity will be characterised as “substantive” rather than formal if it fails to meet a requirement made “essential” by the Act or it is one which “could reasonably mislead a debtor as to what is necessary to comply with the notice”: Kleinwort Benson, op citat 79.”In submissions, Counsel for the applicant debtor primarily relied upon the decision of Beaumont J in Re:Ludkins; Ex Parte Columbia Pictures Industries Inc & Another (1996) 67 FCR 549.
However what that decision identifies, is what Branson J in Franks v Warringah Shire Council (2003) FCA 1047 at 24 said about the importance of determining the status of the order or certificate of the person who assessed the amount of the costs payable which “is dependant upon the terms of the statutory instrument governing the relevant order or certificate”.
In the case before me, the order of Dutney J was that:-
“I order the defendant to pay the plaintiff’s costs of and incidental to the action and of this application to be assessed on the standard basis”
The debtor was the defendant and the creditor the plaintiff.
The order attached to the Bankruptcy Notice was an assessment of costs made by a Registrar pursuant to the power conferred by Rule 684 of the Uniform Civil Procedure Rules 1999 (Qld) (“the UCPR”). The order of the Registrar was not an order under r.688 of the UCPR, and it seems to me that as a result the assessment of itself could not “be enforced in the same way as an order for the payment of money”.
Branson J in Franks (supra), when considering Stec v Orfanos [1999] FCA 457 and distinguishing it from the facts in the case she was deciding said:-
“The order of the judge was the ultimate source of the obligation having become reflected in the allocatur, it was the allocatur itself which determined finally the debt due to the creditor. The allocatur itself was enforceable as a judgment of the Supreme Court.”
Her Honour also discussed the decision of Finklestein J in Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441, and distinguished that case because the Rules of the Supreme Court of Victoria contained no equivalent provision to that considered in STEC v Orfanos, such that Finklestein J held that the order of the taxing master could not alone be enforced as an order for the payment of money, and concluded that the Bankruptcy Notice was defective because it only attached an order of the taxing master.
One further single judge decision of relevance is that of Drummond J in Re Gibbs; Ex Parte Triscott (1995) 133 ALR 718 where His Honour concluded that:-
“The source of the Debtors liability to make the payment demanded in respect of a judgment or order for costs is the judgment or the order; but because nothing is payable in respect of that liability until the costs have been quantified by taxation, the notice must refer to both the judgment or order and to the taxing officer’s determination, if it is to be valid in form.” (emphasis added)
The Bankruptcy Notice in the case before me does not refer to the order of Dutney J made on 13 May 2002. The Registrar refers to the said order, however I have formed the view that this is insufficient.
In Stec v Orfanos the Full Court considered, amongst other issues, whether the orders attached to the Bankruptcy Notice were the orders appropriate. The facts of the case were more complex from those that exist in this case. In Stec, two orders of the Supreme Court of South Australia were attached, namely:-
a)The order of Olssen J, made on 12 December 1996 which provided “that any stay of the order for costs made on the 8th day of February 1995 by Judge Kelly Master of the Supreme Court be set aside and that the said order for costs and (sic) do stand against the defendants Tadeusz Stec…”; and
b)An order issued on 18 May 1995 by a Registrar of the Supreme Court. Rule 101A.02(4) of the Supreme Court Rules (SA) provides that if at the expiration of 21 days after delivery of a short form Bill of Costs there is no response by the person to whom the Bill is delivered, upon application to a Registrar an allocatur may issue.
The Full Court found, as did the primary Judge, that it was essential that the order relied upon by the creditor be attached to the Bankruptcy Notice, and that the operative order which imposed the liability to pay costs was that of Olssen J.
In the present case the Bankruptcy Notice required, at paragraph 2 that:-
“… A copy of the judgment or order relied upon by the Creditor is attached…”
In my view the order which identifies the judgment upon which the bankruptcy proceeding is based and which imposes the liability is the order of Dutney J of 13 May 2002, not the assessment of costs arising from that order. Both orders should, in this case, have been attached to the Bankruptcy Notice.
In my view, whilst it could not be said that the debtor could have been misled in any way by the bankruptcy notice, that is not the issue.
The obligation to attach the correct orders is a term made essential by the Act, which is not curable by s.306 of the Act, and as such, in my view, the Bankruptcy Notice is a nullity (see Commonwealth Bank of Australia v Horvath (Junior)).
Strictly this finding makes it unnecessary for any discussion of the other grounds relied upon by the applicant. I will simply say that nothing in the submissions or the “fresh” evidence would have persuaded me that the Debtor had a counter-claim, set-off or cross demand within the meaning of s.40(1)(g) of the Act.
For the reasons which I give, the order which I am compelled to make is that the Bankruptcy Notice be set aside.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date:
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