Workcover Authority of New South Wales v Varga

[2008] FMCA 1329

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WORKCOVER AUTHORITY OF NEW SOUTH WALES v VARGA [2008] FMCA 1329

BANKRUPTCY – Creditor’s petition – validity of Bankruptcy Notice – order for substituted service – alteration to date for compliance – notice not amended in accordance with orders of this Court.

Bankruptcy Act 1966 (Cth), ss.40, 41, 43, 44, 52, 306

Adams v Lambert (2006) 228 CLR 409
James v Federal Commissioner of Taxation (1955) 93 CLR 631
Clyne v Deputy Commissioner of Taxation (1982) 42 ALR 703
Kleinwort Benson Australia Limited v James Albert Crowl (1988) 165 CLR 71
National Australia Bank Ltd v Westbrook, in the matter of Westbrook [2000] FCA 246
Re Keith John Mcalpine Ex Parte: Amev Finance Limited [1987] FCA 460
Re Leigh Mccormac Ex Parte: Herbert Albert Frederick Charles Taylor [1985] FCA 334
Re Danielle Pender Ex Parte: Warwick Ross Sullivan and Ross Francis Sullivan [1988] FCA 130
Re Wong; Ex parte Kitson (1979) 38 FLR 207
Clifton George Vincent (Applicant/Debtor) v State Bank of New South Wales (Respondent/Creditor) [1995] FCA 1634

Applicant: WORKCOVER AUTHORITY OF NEW SOUTH WALES

Respondent: ALEX VARGA

File Number: SYG 3869 of 2007

Judgment of: Barnes FM

Hearing date: 23 September 2008

Delivered at: Sydney

Delivered on: 1 October 2008

REPRESENTATION

Solicitors for the Applicant: TurksLegal

Respondent: No appearance

ORDERS

1. That the creditor’s petition be dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3869 of 2007

WORKCOVER AUTHORITY OF NEW SOUTH WALES

Applicant

And

ALEX VARGA

Respondent

REASONS FOR JUDGMENT

1. On 19 December 2007 the applicant creditor filed and presented a creditor’s petition seeking that a sequestration order be made against the estate of the respondent debtor, Alex Varga.  The petition is founded on the failure by the respondent debtor to comply with bankruptcy notice NN1915 of 2007 issued on 14 May 2007. 

2. There has been no appearance by or on behalf of the respondent debtor on any of the occasions when the matter was before the Court.  The matter was listed for hearing of the creditor’s petition today.

3. Notwithstanding the absence of the debtor, the solicitor for the petitioning creditor raised and addressed in written submissions the possibility that there was a defect in the bankruptcy notice, submitting however that any such defect was capable of being cured under s.306 of the Bankruptcy Act 1966 (Cth).

4. The solicitor for the creditor acknowledged that if there was a defect in the bankruptcy notice that was not capable of being cured under s.306 of the Act then the creditor’s petition could not succeed. If the bankruptcy notice is a nullity an allegation of an act of bankruptcy based on non-compliance with such bankruptcy notice cannot found a petition (see ss.41, 43, 44 and 52 of the Bankruptcy Act and National Australia Bank Ltd v Westbrook, in the matter of Westbrook [2000] FCA 246 at [15] per Gray J).

5. On 14 May 2007 the bankruptcy notice in question was issued by the Official Receiver based on a judgment obtained by the petitioning creditor against the debtor in the District Court of New South Wales on 30 March 2007 and interest thereon.  On 27 September 2007 a Registrar of this Court made orders for substituted service of the bankruptcy notice on the application of the petitioning creditor.  The orders provided for service of the bankruptcy notice on the debtor to be effected by posting a copy of the bankruptcy notice together with a sealed copy of the orders to a residential and post office address, addressed to the debtor and to a firm of solicitors on or before 11 October 2007.  Order three made on 27 September 2007 was that the bankruptcy notice should be deemed to be served on the debtor on 25 October 2007.  Order five was as follows:  “The copies of the bankruptcy notice for service and proof of service all be amened (sic) by deleting the words in paragraph 3 of the notice ‘after service on you of this bankruptcy notice’ and substituting ‘after 25 October 2007’”. 

6. According to an affidavit of service of the bankruptcy notice sworn on 5 October 2007 by Ninevah Shlemon and filed on 19 December 2007 on 3 October 2007 the following documents were served by posting them to the three addresses specified in the orders of 27 September 2007: bankruptcy notice NN1915 of 2007, a copy of the “judgment” obtained by the applicant against the respondent debtor in the District Court of New South Wales (although the affidavit refers to a judgment of 16 August 2007 this is the date of the certificate of judgment to which this is apparently a reference) and a copy of the order of the Federal Magistrates Court made on 27 September 2007, as provided for in the orders for substituted service. 

7. However the bankruptcy notice served on the debtor states (in uncorrected form) at paragraph three that: 

   You are required, within 21 days after service on you of this bankruptcy notice:

   (a)     to pay the creditor the amount of the debt; or

   (b)     to make an arrangement to the creditor’s satisfaction for settlement of the debt.

   [Note: The number of days to be inserted is 21, or if an order has been made under sub-paragraph 40(1)(g)(ii) of the Act, the number of days constituting the time fixed by the order.] 

8. In other words the bankruptcy notice was not amended as required by Order five of the orders made by Registrar Segal on 27 September 2007.  The bankruptcy notice served on the respondent debtor had however been amended in other respects: by handwritten alterations changing the name of the creditor as it appeared in paragraphs one and four of the bankruptcy notice from Workcover Australia of New South Wales to Workcover Authority of New South Wales and the form bore stamps beside these two amendments indicating that each amendment had been authorised by the Official Receiver for the Bankruptcy District of New South Wales dated 28 August 2007 and signed on behalf of the Official Receiver New South Wales. 

9. The applicant contends that on 15 November 2007 (that is, within 21 days after deemed service on 25 October 2007) by failing to comply with the bankruptcy notice the respondent debtor committed an act of bankruptcy.  On 19 December 2007 the applicant filed and presented a creditor’s petition seeking that a sequestration order be made against the respondent’s estate. 

10. On 3 July 2008 the Court made an order for substituted service of the creditor’s petition. An affidavit attesting to service of the creditor’s petition and other documents including a consent to act as trustee is before the Court. An affidavit of Davorka Arbanas sworn on 11 September 2008 and filed on 15 September 2008 attests to service of a letter on the respondent by post advising him that the matter had been stood over from 9 September 2008 (the last occasion it was before the Court) to 16 September 2008. The necessary affidavits required under the Bankruptcy Rules (and see s.52) have been filed by the applicant.

11. The initial issue to be determined by the Court is whether the bankruptcy notice is defective and if so whether it is a defect capable of being cured under s.306 of the Act.

12. Section 306 of the Bankruptcy Act 1966 provides relevantly as follows:

    (1)     Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of the 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.

13. Section 306 can be applied to rectify a defective bankruptcy notice (see Adams v Lambert (2006) 228 CLR 409 at [17] and Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71). Otherwise, a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Bankruptcy Act or if it could reasonably mislead a debtor as to what is necessary to comply with the notice (see Kleinwort Benson at [15] per Mason CJ, Wilson, Brennan, Deane and Gaudron JJ and James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644). As their Honours pointed out in Kleinwort Benson “In such cases the notice is a nullity whether or not the debtor in fact is misled” (at [15]).

14. The applicant creditor conceded that a notice which was likely to mislead or even perplex a person in the circumstances of the debtor would generally, perhaps even invariably, be set aside and that it would be immaterial that the particular debtor may not have been misled (Kleinwort Benson), but contended that in this case there was no defect in the notice with regard to the essential requirements under the Act and Regulations and the only purported defect related to the effect of the substituted service order of the bankruptcy notice as to the date from which the time for compliance ran. It was submitted that such defect could be corrected under s.306 and would not invalidate the bankruptcy notice.

15. As contended, where there is a defect or an irregularity in a bankruptcy notice which is merely one of form and not of substance and which could not mislead or embarrass the debtor, then on the authority of Adams v Lambert such defect or irregularity will not invalidate the bankruptcy notice. It was also submitted that generally speaking s.306(1) was available to cure defects or irregularity in the form of bankruptcy notices which would otherwise be invalid for offending s.40(1)(ii) of the Act or the Regulations, such as Regulation 4.02 in relation to the form of bankruptcy notices (Adams v Lambert). 

16. It was pointed out that since Adams v Lambert the view has been taken that a formal defect or error that could not have misled the debtor about what was required to comply with the notice and a departure from the prescribed form which was not substantive and did not render the notice confusing or otherwise cause injustice (such as a misstatement of the statutory provision pursuant to which interest was claimed where the amount of the interest claimed was calculated correctly and it was clear from other parts of the notice what interest was being claimed and for what period, as had occurred in Adams v Lambert) could be cured under s.306.

17. In relation to the particular matter in issue in this case reliance was placed on the authority of Clyne v Deputy Commissioner of Taxation (1982) 42 ALR 703 in which a bankruptcy notice was served by the petitioning creditor in accordance with orders for substituted service. The orders for substituted service obtained by the creditor included an order that allowed amendment of the bankruptcy notice by substituting therein 28 days for 14 days as the time required for compliance with the bankruptcy notice.

18. However the bankruptcy notice served on the debtor in Clyne’s case, while bearing a handwritten addition in red ink of the word “twenty-eight” immediately above the word “fourteen”, (together with an asterisk referring the reader’s attention to another asterisk where reference was made to the amendment pursuant to the court order and the Registrar’s initials), did not show the word “fourteen” struck out in the paragraph that was the equivalent of paragraph three of the bankruptcy notice in this case.  The respondent debtor applied to set aside the bankruptcy notice on the basis that it was a nullity as it did not clearly specify a time within which compliance was required. 

19. As Foster J pointed out in Clifton George Vincent (Applicant/Debtor) v State Bank of New South Wales (Respondent/Creditor) [1995] FCA 1634 at [15], the basis of any relevant confusion in Clyne was the failure by the petitioning creditor to comply with the Court’s order to delete or strike out the word “fourteen”.  However in Clyne a copy of the order for substituted service had been served with the bankruptcy notice. Lockhart J held that while, if the bankruptcy notice had been served without the order for substituted service it would be misleading and fundamentally defective (at 706), it was permissible to consider the notice in light of matters extraneous to the notice itself, in particular the copy of the court’s order. Thus the order could be examined to determine whether the debtor could have been reasonably misled. On that basis it was said to be clear that “twenty-eight” must be treated as having been substituted for “fourteen” and the applicant could not reasonably have been misled (at 707). 

20. In fact the bankruptcy notice in Clyne was set aside by the court on the alternative basis put forward by the respondent debtor (that he did not know and was unable to know when the notice, which was served by post, was served on him).  

21. Thus, as stated in Clyne, it is permissible to consider the bankruptcy notice in light of matters extraneous to it, including the orders of the court, which in this case were also served on the debtor.  However in Clyne what was in issue was an alteration to the bankruptcy notice which appeared on the face of the bankruptcy notice, as did a reference to amendment pursuant to order of the court, albeit the original word “fourteen” had not been struck out.  Hence what was in issue was whether an incomplete amendment was confusing.  In this case there was no amendment to paragraph three of the Bankruptcy Notice. 

22. In Vincent the bankruptcy notice considered by Foster J contained a handwritten amendment as to the date on which compliance with the bankruptcy notice was required.  The words “service of this notice on you excluding the day on which this notice is served on you” were struck out and the words “3 August 1995, excluding that date” handwritten above the crossed out words, accompanied by a completed amendment stamp and court seals in compliance with the Bankruptcy Rules. 

23. Foster J referred to the circumstances in Clyne, in rejecting a contention that a debtor receiving the notice could not reasonably be confident that the amendment was duly authorised (because of placement of seals and signatures) and hence could not be satisfied as to the period allowed to him for compliance with it. In reaching this conclusion his Honour had regard to the face of the bankruptcy notice. Foster J stated at [20] that his conclusion was not dependent upon any service with the bankruptcy notice of a copy of the Registrar’s order relating to substituted service of the notice and its amendment, although his Honour also rejected an argument that an order could not be looked at for the purpose of determining whether its service together with the notice could operate to remove any confusion to which the notice might otherwise give rise (at [22]).

24. However in this case, while the Registrar’s order accompanied the bankruptcy notice, the order was not complied with.  There was no attempt to make any amendment at all to paragraph three of the bankruptcy notice.  The solicitor for the creditor was not able to point to any authority dealing with circumstances akin to those in issue in this case.  Re Keith John Mcalpine Ex Parte: Amev Finance Limited [1987] FCA 460 and Re Danielle Pender Ex Parte: Warwick Ross Sullivan and Ross Francis Sullivan [1988] FCA 130 like Clyne’s case, involved handwritten amendments.  In McAlpine a bankruptcy notice had the typewritten word “fourteen” in the paragraph dealing with the time for compliance “whited out” and the figures “28” written over the top in biro.  There was no initialling or stamping to indicate whether the change had been made prior to the issue of the bankruptcy notice.  Spender J found (at [19]) that such a change rendered the bankruptcy notice bad.  In Pender a number of alterations had been made to a bankruptcy notice.  Some were overstamped with a registry stamp.  Some were neither initialled nor stamped.  The bankruptcy notice was found to be invalidated by these corrections.  As Einfeld J pointed out at [17] the question of perplexity and confusion must be tested “not on the basis of whether the particular debtor was in fact misled but whether the defects were of a kind that could have misled”.  His Honour suggested that a debtor “is not required to manipulate a track through a bankruptcy notice to resolve questions of doubt or ambiguity”.  Einfeld J also stated in Pender at [18] that he would not in any event have held such “corrections” to be formal and therefore curable by s.306(1) of the Act.

25. In this case there is nothing on the face of the bankruptcy notice such as to perplex or confuse a person.  Rather the bankruptcy notice on its face provides for compliance within 21 days of the date of service.  What is perplexing is that if one also read the accompanying court order it would seem that the bankruptcy notice was to have been amended in the manner provided for in Rule 5 so that the time for compliance would run from 25 October 2007, whenever the notice was in fact served.  Notwithstanding this order, there was no such amendment to the bankruptcy notice.  Hence there was a defect “in the information conveyed by the bankruptcy notice, which may mislead the debtor as to what must be done to comply with the notice” in particular as to the time for compliance with the notice (see Re Leigh Mccormac Ex Parte: Herbert Albert Frederick Charles Taylor [1985] FCA 334 at [10] per Burchett J and cf Re Wong; Ex parte Kitson (1979) 38 FLR 207). Had there been no amendment at all to the bankruptcy notice the service of the accompanying court order might have been such as to clarify the debtor’s obligations. However other parts of the bankruptcy notice were amended. Such amendments are accompanied by signed amendment stamps. In these circumstances the existence of the order and the fact of service of a copy of that order on the debtor is not such as to remove confusion or prevent the defect being misleading.

26. I am not persuaded that the “defect” resulting from the failure to amend the bankruptcy notice in accordance with the orders made on 27 September 2008 is a mere formal defect or irregularity that can be rectified under s.306 of the Act, notwithstanding the approach to be taken to that section in light of Adams v Lambert. While the applicant contended that it would suffer significant prejudice if the Court did not make the sequestration order sought and notwithstanding that the respondent debtor did not apply to set aside the bankruptcy notice and has not appeared in these proceedings I am of the view that the nature of the defect in this case is such that it could reasonably mislead a debtor upon whom the bankruptcy notice was served, even taking into account the accompanying court order. Hence it is such as to invalidate the bankruptcy notice. Therefore the creditor’s petition must be dismissed.

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  1 October 2008