Webb, L.M. v Hunter, L
[1995] FCA 609
•10 AUGUST 1995
CATCHWORDS
BANKRUPTCY - affidavit filed in reliance on s.41(7) but plainly not complying with the subsection - effect - operation of subsection
Bankruptcy Act 1966, ss.40(1)(g), 41(7)
Bankruptcy Rules, r.10
LUCI MARY WEBB v. LINDSAY HUNTER
No. WAG 66 of 1995
BURCHETT, CARR and TAMBERLIN JJ
PERTH
10 AUGUST 1995
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY ) No. WAG 66 of 1995
GENERAL DIVISION )
On appeal from a Judge of the Federal Court of Australia
B E T W E E N: LUCI MARY WEBB
Appellant
and
LINDSAY HUNTER
Respondent
CORAM: BURCHETT, CARR and TAMBERLIN JJ.
PLACE: PERTH
DATE: 10 AUGUST 1995
MINUTE OF ORDERS
THE COURT ORDERS THAT:
1. The appeal be allowed with costs, to include the costs of the application for leave to file and serve the notice of appeal and the costs of the motions brought by the respondent which have been dismissed.
2. The second of the two orders made by the judge at first instance on 26 May 1995 be set aside.
3. In lieu of the order set aside, it be declared that the time for compliance with the bankruptcy notice the subject of this proceeding expired in accordance with its terms and was not extended by any affidavit filed under s.41(7) of the Bankruptcy Act 1966.
4. The appellant be granted a costs certificate under s.7(1) of the Federal Proceedings (Costs) Act 1981 in respect of the whole of the costs referred to in paragraph 1 above.
NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY ) No. WAG 66 of 1995
GENERAL DIVISION )
On appeal from a Judge of the Federal Court of Australia
B E T W E E N: LUCI MARY WEBB
Appellant
and
LINDSAY HUNTER
Respondent
CORAM: BURCHETT, CARR and TAMBERLIN JJ.
PLACE: PERTH
DATE: 10 AUGUST 1995
REASONS FOR JUDGMENT
THE COURT:
Introduction
This is an appeal brought out of time by leave against an order made in respect of an affidavit that a debtor had filed, in answer to a bankruptcy notice, pursuant to s.41(7) of the Bankruptcy Act 1966. The principal underlying issue is whether, at the time the order was made, the time for compliance with the bankruptcy notice had already expired.
Factual Background
On 21 April 1994 the appellant, Ms Luci Mary Webb obtained the issue of a bankruptcy notice directed to the respondent Mr Lindsay Hunter. The bankruptcy
notice was served on Mr Hunter on 18 October 1994, and unless it was extended, the time for compliance with it expired on 1 November 1994. On that date Mr Hunter filed two documents which, on their face, were described in the following terms:
. Notice of Intention of Debtor to Oppose Bankruptcy Notice and Notice of Counter-claim, Set-off and Cross demand; and
. Affidavit of [respondent] in Opposition to Notice of Bankruptcy, Setting out Grounds of Counter-claim, Set-off and Cross demand.
On 16 December 1994 Mr Hunter filed at the District Registry in Perth a document which, although headed "Counter claim, set-off and cross-demand", was in the form of an application to the Court seeking various orders including an order that "the Bankruptcy Notice be declared no application" (sic). This was in similar terms to the affidavit which Mr Hunter had filed on 1 November 1994. The Deputy Registrar considered the affidavit and the "application", and advised Mr Hunter, by letter dated 20 January 1995, that the application had been "rejected" under sub-rule 10(5) of the Bankruptcy Rules ("the Rules"). The letter included a statement of the Deputy Registrar's reasons for her decision. On 10 February 1995 Mr Hunter applied to have the Deputy Registrar's direction reviewed under s.14(5) of the Act. Other relevant sections of the Act, namely s.40(1)(g) and s.41(7), and rule 10 read as follows:
"40.(1) A debtor commits an act of bankruptcy in each of the following cases:-
...
(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 fixed by the Registrar by whom the notice was issued;...
(ii) ...
comply with the requirements of the notice or satisfy the Court that he 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 could not have set-up in the action or proceeding in which the judgment or order was obtained.
...
Sub-section 41(7):
"41.(7) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has filed with the Registrar an affidavit to the effect that he 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."
Rule 10:
"10.(1) A debtor on whom a bankruptcy notice has been served may file an application to the effect that he or she has a counter-claim, set-off or cross demand of a kind referred to in paragraph 40(1)(g) of the Act.
(2) An application must contain details of the counter-claim, set-off or cross demand, as the case requires, and the reasons why the debtor was unable to set up the counter-claim, set-off or cross demand.
(3) If a debtor files an application, the Registrar must consider whether, on the face of it, the application:
(a) raises a counter-claim, set-off or cross demand; and
(b) gives sufficient particulars of the counter-claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim set-off or cross demand.
(4) If the Registrar is satisfied that an application:
(a) raises a counter-claim, set-off or cross demand; and
(b) gives sufficient particulars of the counter-claim, set-off or cross demand and of the reasons why the debtor was unable to set up that counter-claim, set-off or cross demand;
he or she oust:
(c) fix a date, time and place at which the debtor may appear before the Court to satisfy the Court that he or she has the counter-claim, set-off or cross demand referred to in the application; and
(d) endorse a copy of the application with that date, time and place and return it to the debtor.
(5) If the Registrar is not satisfied that an application:
(a) raises a counter-claim, set-off or cross demand; and
(b) gives sufficient particulars of the counter-claim, set-off or cross-demand and of the reasons why the debtor was unable to set up that counter-claim set-off or cross demand;
he or she must endorse a copy of the application with the words `Application insufficient - no case raised' and return it to the debtor.
(6) When a debtor receives a copy of his or her application that has been endorsed under subrule (4), the debtor must, as soon as practicable and not less than 14 days before the date fixed by the Registrar, give a copy of the endorsed application:
(a) to the judgment creditor specified in the bankruptcy notice; or
(b) to the solicitor for that judgment creditor;
and to the debtor's solicitor."
It will be recalled that 1 November 1994 was the last day for compliance with the bankruptcy notice, unless the time for compliance was extended. If the time for compliance had not been extended then 1 May 1995 (being six months later) was the last date upon which Ms Webb could file a petition based on an act of bankruptcy founded upon non-compliance with the bankruptcy notice. Ms Webb filed such a
petition on that date.
On 26 May 1995 Mr Hunter appeared in person before a Judge of the Court to pursue his motion under s.14(5) of the Act for review of the Registrar's refusal to accept the affidavit he had filed under s.41(7). The Judge made the following orders:
"THE COURT ORDERS THAT:
1. The Application be dismissed.
2. The time for compliance with the Bankruptcy Notice expires on 26 May 1995."
These orders, which were made ex parte and without the benefit of citation of any of the authorities, Mr Hunter not being legally qualified, are not expressed in the language of orders including an order for an extension of a bankruptcy notice. The application was dismissed, and the second order should be read as a declaration that time for compliance with the bankruptcy notice expired on the day of the dismissal by virtue of the concluding words of s.41(7) itself.
Ms Webb's solicitors were not given notice of the hearing of Mr Hunter's motion, which explains why she was not represented at that hearing. On 29 May 1995 the solicitors made enquiries at the District Registry which revealed only that Mr Hunter's application had been refused. On 2 June 1995 Ms Webb's petition in bankruptcy was served on Mr Hunter. On or about 7 June 1995 Ms Webb's solicitors became aware of the second order made by Lee J. on 26 May 1995, which they interpreted as an order extending the time for compliance with the bankruptcy notice to 4.00 pm on that date.
On 12 June 1995 Ms Webb's solicitor and Mr Hunter appeared before the District Registrar for mention of her petition in bankruptcy. On that day, prior to the orders made on 26 May 1995 being entered, Ms Webb's solicitors filed an application to vary the orders by deleting the second order referred to above and substituting the words "the time for compliance with the bankruptcy notice expired on 1 November 1994". On 13 June 1995 Ms Webb's solicitors wrote to the Judge's associate requesting a hearing date for their application to vary his Honour's orders. By letter dated 14 June 1995 the associate wrote to Ms Webb's solicitors. That letter, omitting formal parts, read as follows:
"Thank you for your letter of 13 June 1995. I sympathise with your client's position and agree that there is a need to limit her further expenditure in this matter.
I must apologise to you if I am in any way responsible for the incomplete information conveyed to you by Mr Matthew Roberts with respect to the orders made by Justice Lee on the 26 May. Those orders were for the application to be dismissed and for the time for compliance for the bankruptcy notice to expire on that day. I draw your attention to the operation of s.41(7) of the Act.
I confirm my earlier advice that it is inappropriate to list your application to vary the orders made until His Honour's reasons for decision have been made available. I appreciate the urgency with which you view this matter and assure you that those reasons will be released very soon."
On 16 June 1995 the appellant filed a notice of motion seeking leave to appeal, or in the alternative an extension of time in which to appeal, and a minute of the grounds of appeal. On or about 27 June 1995 his Honour's reasons were published in respect of the judgment given on 26 May 1995.
The Decision at First Instance
His Honour noted that the act which was the subject of review pursuant to s.14(5) of the Act was the act of the Deputy Registrar in recording that she was not satisfied that the "application" met the requirements of rule 10, by endorsing a copy of the "application" with the words set out in rule 10(5). Accordingly, his Honour held that the form of review to be conducted by the Court under s.14(5) should involve examination of the material considered by the Deputy Registrar and determination by the Court of the relevant question of fact, i.e. whether the material met the requirements of rule 10(2), and therefore s.41(7) of the Act. His Honour then read the affidavit filed by Mr Hunter and observed:
"It is obvious on the face of that document that the debtor has failed to provide particulars of a counter-claim, set-off or cross-demand.
...
The material contained in the affidavit consists of scattered assertions for which no logical foundation is proffered and the affidavit does not constitute a bona fide reliance upon sub-s.41(7) of the Act".
His Honour held that it is the determination of the Court under s.41(7) which brings to an end the deemed extension of time for compliance with the bankruptcy notice provided by the sub-section. His Honour held further that, in the present case, s.41(7) operated to extend the time for compliance with the bankruptcy notice from 1 November 1994 until such time as the claim to a cross-claim was determined by the Court. His Honour's reasoning was, in summary, that s.41(7) does not contemplate that an endorsement on the affidavit by a Deputy Registrar is either a determination by the Court under that sub-section or a deeming that the affidavit was not filed for the purposes of the sub-section. His Honour observed that the powers of the Court
which may be delegated to a Registrar are set out in s.31A and do not include a determination under s.41(7). Accordingly, his Honour held that a Registrar acting under rule 10 is not exercising a delegated power of the Court and it could not be said that the endorsement by a Registrar under that rule could take effect as a determination under s.41(7). If rule 10(5) purported to confer a determinative power on the Registrar, his Honour observed that it would be arguable that it would be ultra vires the rule-making power contained in s.315 of the Act.
The application for leave to appeal or, in the alternative, the application for extension of time in which to appeal
In our view the appellant should have had the opportunity to be heard before declaratory relief affecting the operation of the bankruptcy notice was given at the hearing of Mr Hunter's application for review under s.14(5) of the Deputy Registrar's conduct in discharging her duties under rule 10(5). That sub-section contemplates a summary application to the Court and, of course, it will not be every such application which will require an opportunity being extended to persons other than the appellant to be heard on the return date of the application. There is no right conferred on a creditor to be heard before a debtor files in the registry an affidavit under s.41(7) and the Registrar exercises the duties laid down by rule 10(5). Why, therefore, should there be a right when the only question is the review of the very decision made upon the proffer of the document for filing? But if the document is once filed, a final determination of its effect is not a matter for ex parte hearing. Here, the Judge held the affidavit was not such an affidavit as s.41(7) contemplates, but nevertheless treated it as having been filed under the subsection and then considered its effect ex parte. However, the order had a final effect upon the bankruptcy notice, so that there was a right of appeal (cf Chesson v. Smith (1992) 35 FCR 594). As an extension of time in which to appeal was required, we granted that extension of time: see Jess v. Scott (1986) 12 FCR 187. The appellant had not been served with the order, and when she learned of it she was still not made aware of its terms with accuracy, nor did she receive the Judge's reasons until after the lapse of some time.
The Appeal
In our view, the appeal should be allowed for the reasons put forward on behalf of the appellant. In essence, the appellant's basic submission was that where an affidavit has been filed which is not for the purposes of s.41(7) "an affidavit to the effect that [the debtor] has such a counter-claim, set-off or cross-demand as is referred to in sub-section 40(1)(g)", the time for compliance with the bankruptcy notice is not extended by the provisions of s.41(7). In James v. Abrahams (1981) 34 ALR 657 Deane and Lockhart JJ came to that conclusion. Having held that the affidavit in that case was not one which fell within the description contained in s.41(7) their Honours expressed their conclusion in the following terms:
"It follows that the time for compliance with the bankruptcy notice was not extended by the provisions of s.41(7) and that the Court could not, on the evidence, be satisfied that the debtor had a counter-claim, set-off or cross-demand of the kind mentioned in s.40(1)(g)."
Fisher J. delivered separate reasons for judgment in which his Honour stated that apart from the fact that he preferred not to base his ultimate conclusion on a finding that the debtor's claim in that matter did not sound in money (a matter
presently irrelevant), he was in general agreement with the reasons for judgment of Deane and Lockhart JJ. In Re Vicini; Ex parte E.A. Sealey & Co (1982) 64 FLR 323 at p.327 Fisher J. observed at the conclusion of his reasons for judgment:
"In the circumstances therefore the affidavit of the debtor does not answer the description of an affidavit required by s.41(7). The consequence is that there has been no deemed extension of time within which to comply with the requirements of the bankruptcy notice."
See also Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433 at p.441 (Lockhart J.); Re Laybutt; Ex parte Robinson (Beaumont J. 26 June 1985, Judgment No. 268/1985; Burchett J. 17 July 1985,Judgment No. 355/1985); Pollnow v. Queensboro Pty Ltd (Burchett J, 19 October 1988, Judgment No. 625/1988); Re Powell; Ex parte Dorsett (French J, 10 August 1990, Judgment No. 417/1990); Re Doherty; Ex parte Doherty v. Murphy (Northrop J. unreported, 8 October 1993, Judgment No. 739 of 1993 at pp.8 and 16); Re Kleiss; Ex parte Commonwealth Bank of Australia (Moore J. unreported 23 June 1995, Judgment No. 408 of 1995); Re McKechnie; Ex parte Weir (1991) 99 ALR 99 at 101, per Foster J; Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 at 188-189, per Hill J.
Of course, if the affidavit does comply with s.41(7), an automatic extension of the bankruptcy notice is obtained, notwithstanding that ultimately the Court does not accept the sufficiency of the case shown by the affidavit, i.e. the Court is not "satisfied" upon the question raised by it. That follows from the terms of the subsection.
We have examined Mr Hunter's affidavit and we respectfully agree with Lee J's conclusion that it is not an affidavit which complies with the requirements of s.41(7). We acknowledge that the Court should adopt a benevolent construction of the initial affidavit: see Re Brink at p.440, a decision which has been frequently approved. However, even adopting such a benevolent approach to construction of the affidavit of 1 November 1994, we consider that it merely contains a series of wide- ranging assertions and allegations concluding with an assertion that Mr Hunter is owed in excess of $100,000 by the appellant in losses, injury and damages. It contains no evidence which goes to establish that there is any real or effective cross-claim. Nor does it "show" on its face any relevant counter-claim set-off or cross demand.
Conclusion
As Mr Hunter's affidavit did not fall within the description of s.41(7), it follows that the time for compliance with Ms Webb's bankruptcy notice expired on 1 November 1994, and that the declaration to the effect that it expired on 26 May 1995 should be set aside. Accordingly, the appeal must be allowed with costs to include the reserved costs of the application for extension of time to appeal and of the motions brought by the respondent which have been dismissed. In those circumstances it is not necessary to consider the other arguments advanced on the appellant's behalf.
The appellant seeks a costs certificate under s.7(1) of the Federal Proceedings (Costs) Act 1981 in respect of the costs incurred by her in relation to the appeal. We are satisfied that, in terms of s.7(1)(b) the respondent is a person entitled to apply for a costs certificate under s.6(1). We are further satisfied (and the respondent
acknowledged his indigence) that the respondent is, by reason of his lack of means, unable to pay any of the appellant's costs in relation to the appeal. Accordingly, the Court grants to the appellant a costs certificate in the terms referred to in s.7(2) in respect of all of the costs which it orders the respondent to pay to her.
I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment of the Court.
Associate:
Date: 10 August, 1995
Counsel for the Appellant: Mr R.A.S. Rowick
Solicitors for the Appellant: Bennett & Co.
The Respondent appeared in person
Date of Hearing: 21 July 1995 and 10 August 1995
Date of Judgment: 10 August 1995
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