Wasilenia v DCT
[2003] FMCA 8
•15 January 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WASILENIA v DCT | [2003] FMCA 8 |
| BANKRUPTCY – Application to set aside bankruptcy notice – where service was deemed inadequate by creditor–– extension of bankruptcy notice – order for substituted service – where payments towards debt made after issue but before service of that Notice – overstatement of amount owed in Notice at time of service – whether the validity of the notice should be tested as at the date of issue – whether there is a duty of full and frank disclosure when making an ex parte application for extension of a bankruptcy notice or making an application for substituted service – duty of candour – abuse of process. |
Bankruptcy Act1966 (Cth) s.41(5)
Re Sterling; ex parte Esanda Pty Ltd (1980) 30 ALR 77
Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337
Re Lentini; ex parte Lentini v CSR Ltd (1991) 29 FCR
Coyne v Sun Securities Ltd and Commercial Equity Corporation Ltd and Others (1992) 8 WAR 218
Hayden and Others v Teplitzky and Others (1997) FCA 230, BC9701150
TQM Cargo Logistics Pty Ltd & Ors v Drake (Unreported SCNSW 2 September 1998)
Alexander v Pargiter (1998) 86 FCR 108
Lindholdt v Meritt Madden Printing Pty Ltd [2002] FCA 260
| Applicant: | EUGENE WASILENIA |
| Respondent: | DEPUTY COMMISSIONER OF TAXATION |
| File No: | SZ 1148 of 2002 |
| Delivered on: | 15 January 2003 |
| Delivered at: | Sydney |
| Hearing date: | 19 December 2002 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr M Churchill |
| Solicitors for the Applicant: | Mr S Smith |
| Counsel for the Respondent: | Mr A Melrose |
| Solicitors for the Respondent: | Australian Government Solicitor |
ORDERS
Bankruptcy Notice NN 828 of 2001 be set aside.
The respondent to pay the applicant’s costs pursuant to the Federal Court Rules, to be taxed if not agreed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 1148 of 2003
| EUGENE WASILENIA |
Applicant
And
| DEPUTY COMMISSIONER OF TAXATION |
Respondent
REASONS FOR JUDGMENT
The applicant in this case is a barrister who practices in the courts of New South Wales. On the 23 April 1999 the Deputy Commissioner of Taxation recovered judgment against him in the District Court of NSW, by default, in the sum of $61,580.17 including costs.
On 26 June 2000 the Commissioner applied to the Official Receiver of the Bankruptcy District of NSW for the issue of a bankruptcy notice. Notice NN 5216 of 2000 was issued advising Mr Wasilenia (the debtor) that he owed a debt of $68,496.24 which consisted of the original judgment debt together with interest and costs.
Notice NN 5216 of 2000 was not served personally upon the debtor.
In October 2000 the Commissioner received a report from a process server indicating that attempts to serve the debtor were unsuccessful. On 22 January 2001 the notice was extended under sub-regulation 4.02A(2)(b) of the Bankruptcy Regulations until 26 June 2001. On
19 February 2001 a process server left a copy of Notice NN 5216 of 2000 under the door of the debtor’s business address. The notice was not contained within an envelope.
Someone in the Commissioner’s office formed the view that the lack of an envelope invalidated service of the Notice NN 5216 of 2000. Although the notice still had sometime to run to the end of its extension it was decided to issue another notice. On the 12 April 2001 Notice NN 828 of 2001 was issued by the Official Receiver. This was not served at that time.
On 10 August 2001 the debtor wrote to the Commissioner acknowledging receipt of Notice NN 5216 of 2000 and conceding that there were outstanding amounts of tax liability under assessment notices which he had received. He made reference to the difficulty he had in paying his tax and made a payment of $1096.00 as the first of a series of instalments which he requested the Commissioner to allow him to make.
The Commissioner responded to the debtor on 27 August 2001 by a letter which relevantly stated:
“PAYMENT DEMAND
We refer to your letter of 10 August 2001 and payment towards outstanding income tax of $1096.00. An amount of $184,577.30 remains outstanding on your income tax account. A statement of account is enclosed for your records.
The bankruptcy notice NN 5216 of 2000 was not served correctly and is therefore invalid. A new bankruptcy notice has been prepared and will be served if payment is not received or suitable arrangement entered into within the next 14 days. An application to pay by instalments is enclosed for this purpose.”
There is no evidence of any attempt to effect service of Notice NN 828 of 2001 immediately after contact was made with the debtor. But on
3 October 2001 the notice was extended until 12 April 2002. The notice was still not served. On 7 May 2002 a further extension under sub-regulation 4.02A(2)(b) was authorised until the 12 October 2002.
On 28 May 2002 the debtor again contacted the Commissioner and made payment of $5,277.00. On 20 June 2002 a further small payment of $603.00 was made. Service was still not effected.
On 3 October 2002 the Official Receiver authorised a further extension of the bankruptcy Notice NN 828 of 2001 until the 12 April 2003. On the same day the Federal Court made orders for substituted service by sending the notice by pre-paid ordinary post to a PO box number in Kiama and by personal service on any person apparently over the age of 16 years at an address at 13 Tharakinna Avenue, Kiama. If the orders were complied with the notice was deemed to have been served on 24 October 2002. This occurred.
The debtor served a notice pursuant to s.41(5) Bankruptcy Act1966 (Cth) (“the Bankruptcy Act”) upon the Commissioner by letter from his solicitor dated 13 November 2002 in which he stated, inter alia:
“Mr Wasilenia submits that the notice should have but does not, note a reduction of the amount payable at least in the sum of the payments made amounting to $6,976.24 of which I have previously given details.
In addition the interest calculation is correspondently erroneous.”
On 14 November 2002 the debtor filed an application in this court seeking an order that the bankruptcy notice be set aside.
The question as to the date upon which a bankruptcy notice speaks was authoritatively settled by the High Court of Australia in a judgment of Gibbs CJ in Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337. At [340] His Honour said:
“A bankruptcy notice is a document issued by the registrar, under statutory authority: see s 41(1) of the Bankruptcy Act. Normally, therefore it would be accepted that the validity of the notice should be tested as at the date of its issue. The prescribed form of notice bears a date and the notice itself states that the judgment creditor “has claimed that [the specified sum] is due by you to him.” In form the notice speaks as at the date which it bears, that is the date of its issue, and although service is essential to make non-compliance an act of bankruptcy, and although the time fixed for compliance runs from the date of service, the notice must be understood as speaking as at the date of its issue and the requirements of the notice, for the purposes of s 40(1)(g) of the Bankruptcy Act, must be ascertained in that context. This reinforces the view that the amount that must be correctly stated is the amount of the judgment debt owing at the date of issue. This conclusion is satisfactory from a practical point of view since it is ordinarily within the knowledge of the debtor whether or not any payments have been made since the issue of the notice and the ability to invalidate a notice on the ground that payments were subsequently made opens the way to evasion.”
The respondent argues that this is the end of the matter. The case of Walsh and the present case are indistinguishable. The fact of subsequent payments prior to service must be ignored and the notice itself held valid. The notice does not express an over payment, the notice under s.41(5) was unnecessary but account must be taken of the payments previously made. The debtor argues that this case is distinguishable from Walsh. He says that the Commissioner was obliged, at the time he applied for the re-issue of the notice, to seek to amend it so that the amount which was claimed accurately reflected the amount then due. It is to be recalled that there were two relevant extensions, one on 4 October 2001 after the payment of $1096.00 and one on 3 October 2002 after payment of two sums of $5,277.00 and $603. The debtor goes further. He argues that when the application for substituted service was made to the court the applicant Commissioner should have presented all the facts including the fact of payments having been made. The debtor claims that at this time the Commissioner was in the same position as any other applicant for an ex parte and that his failure to comply with his obligation of openness meant that the order for substituted service was obtained in abuse of process.
The provision for the extension of time for service of a bankruptcy notice is contained in regulation 4.02A(1) of the Bankruptcy Regulations and is in the following form:
“4.02A
(1)This regulation applies to the following forms of bankruptcy notices:
(a)…
(b)…
(2)Subject to subreg (3), a bankruptcy notice must be served within:
(a)The period of six months commencing on the date of issue of the bankruptcy notice; or
(b)Any further period that the Official Receiver allows (whether within or outside that period of six months).”
This regulation substantially amended the old Rule 9 of the Bankruptcy Rules under which extension of bankruptcy notices were previously dealt with. There is no longer any necessity for the application to be made during the currency of the notice and it is not a prerequisite of the validity of an extension that the Official Receiver set out the grounds upon which he acted or the material which was before him. (Alexander v Pargiter (1998) 86 FCR 108). Lindgren J there noted that:
“The policy behind reg 4.02A seems to be to save the creditor the inconvenience and expense of procuring the issue of a fresh bankruptcy notice. This view is consistent with the distinction between reg 4.02A and the former Bankruptcy r 9.”
Although an extension of the time for service of a bankruptcy notice is an administrative act carried out by the Official Receiver, the regulation does not require him to grant the extension. The Official Receiver therefore has a discretion and that discretion is informed by the material before him. As the application is ex parte, is there then an obligation to be frank in the provision of that information? I believe there is. In Coyne v Sun Securities Ltd and Commercial Equity Corporation Ltd and Others (1992) 8 WAR 218 Master Adams of the Supreme Court of Western Australia considered an application to extend the time for service of a writ. The learned Master commented on the failure to put before the court some relevant information concerning the expiry of a limitation period and stated:
“Counsel who appear before the court in ex parte matters should make full and frank disclosure of all relevant matters affecting the exercise of the Court’s discretion.”
The duty of candour has been expressed by Santow J in TQM Cargo Logistics Pty Ltd & Ors v Drake (unreported SCNSW 2 September 1998) and by Lindgren J in Hayden and Others v Teplitzky and Others (1997) FCA 230 where at page seven of the Lexis version (BC9701150) His Honour lists the authorities which clearly establish the position that an applicant for ex parte injunctive relief must make full and frank disclosure of material facts. But such disclosure is not limited to injunctive relief. In Lindholdt v Meritt Madden Printing Pty Ltd [2002] FCA 260, in an appeal from a decision of a Federal Magistrate, Weinberg J said at [45]:
“A party who applies ex parte for an order in the exercise of a judicial, or quasi judicial, power is required to meet a high standard of candour and responsibility in bringing to the attention of the decision-maker all facts material to the determination of the application. This obligation extends to facts which the absent party (if present) would presumably rely upon in defence to the application. The existence of such a duty of candour is not limited to applications to the Court for injunctive or other equitable relief. An order obtained in breach of an ex parte applicant's duty of candour will almost invariably be set aside even if, on a fresh application following full disclosure, the applicant would be entitled to an order in similar terms.”
If the creditor had informed the Official Trustee that after the issue of the bankruptcy notice a payment had been received, it would have been open to the Official Receiver to advise the creditor that he believed that it would be more appropriate for a new bankruptcy notice to be issued so that, for example, the debtor might accurately know what amount of money was now due to be paid and what interest was now owing. It is possible that on the first occasion an extension was required he might have been persuaded, on the authority of Walsh, that this was not necessary. But so far as this court is aware he was not given that opportunity because no submission was made to the court or evidence produced indicating that such information was provided. There was then a second application for extension by which time two further payments had been made. The Official Receiver was entitled to consider these matters before deciding on whether the second extension should have been granted. In addition there is the confusing matter of the 27 August 2001 letter. The reference in that letter to a new bankruptcy notice having been prepared does not clearly indicate that a new bankruptcy notice had been “issued”. The debtor might well assume that any bankruptcy notice that did issue consequent upon his failure to comply with the requirements set out in the balance of that paragraph would take into account the payment which he had made and which is referred to in the letter. More importantly perhaps, the notice would recalculate the amount of interest due by him and required to be paid in order to comply with the bankruptcy notice.
The extended bankruptcy notice was not served and an application was required to be made to the court for substituted service. At this stage the creditor had a further opportunity to inform a decision maker of the real situation regarding the indebtedness of the debtor. The court has a discretion whether or not to make an order for substituted service. It was open to the court, if it had all the facts before it, to have come to a conclusion to refuse the application on the basis that because of considerable time since the issue of the notice and the payments made, it would be more appropriate for a new notice to be issued.
It seems to me that a consideration of Walsh’s case is not an answer to the failure of the creditor to bring these matters to the attention of the Official Receiver or the Registrar. Walsh’s case would provide the basis of an argument as to why, first the extensions and then the application for substituted service, be granted notwithstanding the payments. The debtor raised the question of interest. However, I do not think this is relevant. Interest is only claimed in the bankruptcy notice up to the date of issue of that notice. The payments were made after the issue of the notice. Therefore, in order to comply with the notice, it would be a simple matter for the debtor merely to deduct the amount of the payments which he had made. As Weinberg J makes clear in Lindholdt it is the failure to provide the information which is the vice. The existence of an argument to overcome the problems raised by the information does not affect the obligation to put it before the court.
I would accept the debtor’s submissions. It is within the power of this court to set aside a bankruptcy notice as an abuse of process (Re Sterling; ex parte Esanda Pty Ltd (1980) 30 ALR 77 and Re Lentini; ex parte Lentini v CSR Ltd (1991) 29 FCR 363). I would set aside this notice. I would hope that in respect of any subsequent notice the Commissioner will move more speedily to apply to the court for substituted service in the event that, having surfaced for the purposes of these proceedings, the debtor again makes himself unavailable.
I order that the respondent to these proceedings pay the costs of the applicant debtor pursuant to the Federal Court Rules to be taxed if not agreed.
I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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