FEDERAL COURT OF AUSTRALIA

Pukim Investments Pty Ltd v Johnson [2000] FCA 615

PUKIM INVESTMENTS PTY LTD v GREGORY CHARLES JOHNSON and MATTHEW MARINKO PAVLINOVICH

W 714 of 1999

CARR J

15 MARCH 2000

PERTH

REASONS FOR JUDGMENT

Introduction

1                     The Court has before it a motion on notice whereby the second respondent, Mr Matthew Marinko Pavlinovich, seeks an order setting aside certain interlocutory orders in this bankruptcy matter which were made by the District Registrar on 21 December 1999.  Those orders included orders that:

1.         The applicant (petitioning creditor) have leave to amend its petition by 14 January 2000.

2.         The applicant file and serve any further affidavits in support of the petition (including any further affidavit of service) by 21 January 2000.

3.         The second respondent have leave to amend his notice of opposition by 25 January 2000.

4.         The second respondent to file and serve any further affidavits by 31 January 2000.

2                     Before I turn to the facts, I shall first make brief reference to some relevant procedural law.  Rule 8 of the Bankruptcy Rules provides for review of decisions by Registrars.  Rule 8(1) defines “decision” as meaning a decision, direction or act of a Registrar.  I am satisfied that the orders made, which are in the nature of directions, fall within the definition of “decision”.  Order 77 rule 8 of the Federal Court Rules mirrors Rule 8 of the Bankruptcy Rules.  Order 77 rule 6 requires an application for a review of a Registrar’s decision to be made by filing an application in accordance with Form 5, being the standard form for originating an application in this Court.  However, the parties have treated the second respondent’s notice of motion as if it were such an application and I think that it is in the interests of justice to proceed in that manner.  I now turn to the factual and procedural background of the matter.

3                     On 16 February 1998 the applicant creditor recovered judgment against both respondents for the sum of $98,642.76 in the District Court of Western Australia.  The respondents had entered an appearance in those proceedings, but the applicant creditor obtained summary judgment under Order 14.

4                     On 30 March 1999 the applicant creditor obtained the issue of a bankruptcy notice addressed to each of the respondents based on the District Court judgment.  On 22 July 1999 a process server, Mr Neil Robert Urquhart served the first respondent, Mr Gregory Charles Johnson with the bankruptcy notice. 

5                     For present purposes, there is nothing contentious about service of the bankruptcy notice on Mr Johnson. 

6                     The applicant creditor’s case is that it served the bankruptcy notice on the second respondent, Mr Matthew Marinko Pavlinovich on two occasions.  Initially, in its creditor’s petition to which I refer below, the applicant creditor relied upon service of the bankruptcy notice on Mr Pavlinovich on 23 August 1999. 

7                     The petition, filed on 26 November 1999, so far as Mr Pavlinovich was concerned, relied upon non-compliance with the bankruptcy notice said to have been served on that date i.e. 23 August 1999.

8                     In an affidavit of service of the bankruptcy notices, sworn on 10 November 1999, Mr Urquhart described such service in the following terms:

“5.       On 23 August 1999 early in the morning before sunrise, I attended a property situated at Edwards Street, West Swan which I knew to be the residence of Matthew Marinko Pavlinovich to serve Matthew Marinko Pavlinovich with a Bankruptcy Notice dated 30 March 1999 and issued by the Official receiver for the Bankruptcy District of Western Australia on the application of Pukim Investments Pty Ltd.

6.         After knocking on the front door to the house situated at the property I observed Matthew Marinko Pavlinovich emerge from a room inside the house.  I observed Mr Pavlinovich through a glass widow (sic) pane situated next to the front door.  I identified the person I observed inside the house as Matthew Marinko Pavlinovich as I had served him with documents on previous occasions.

7.         The front door was subsequently answered by a woman who had previously identified herself to me as Mr Pavlinovich’s wife.

8.         I informed the woman that I wanted to speak to Mr Pavlinovich so that I could serve him with the Bankruptcy Notice.  The woman then informed me that Mr Pavlinovich was not home.

9.         When I told the woman that I had just observed Mr Pavlinovich inside the house immediately prior to her answering the door the woman closed the door in my face.

10.       I subsequently pushed the Bankruptcy Notice under the door and stated that it was for Mr Pavlinovich.

11.       Annexed to this affidavit and marked with the letters “NRU1” is an official copy of the Bankruptcy Notice which was served upon Matthew Marinko Pavlinovich on 23 August 1999.

12.       Prior to attending Mr Pavlinovich’s residence on 23 August 1999, I attended at the residence on several other occasions in an attempt to serve the Bankruptcy Notice on him.  On 12 July 1999 at approximately 6 am I personally delivered an official copy of the said Bankruptcy Notice to Matthew Marinko Pavlinovich while at his residence.”

9                     The petition was served on Mr Pavlinovich on 1 December 1999.  On 21 December 1999 his solicitors filed a notice of intention to oppose the petition.  The sole ground stated in that notice was that Mr Pavlinovich had not been served with a bankruptcy notice as required by the Bankruptcy Act.  The petition came on for hearing before the District Registrar on 21 December 1999. 

10                  On that date Mr Pavlinovich’s solicitors filed affidavits sworn by Mr and Mrs Pavlinovich.

11                  In essence, those affidavits put in issue the facts deposed to in Mr Urquhart’s affidavit of service of the bankruptcy notice on 23 August 1999.  In their respective affidavits Mr and Mrs Pavlinovich swore that on 23 August 1999 at the time when Mr Urquhart attended at their home, Mr Pavlinovich was not home.  He had, according to their affidavits, left home by taxi at about 5.40 am on his way to the Perth Domestic Airport to catch a flight to Melbourne.  Exhibited to Mr Pavlinovich’s affidavit were documents from Black and White Taxis and Qantas Airways Ltd confirming those journeys.

12                  It would appear that when the matter came before the District Registrar on 21 December 1999, the applicant creditor told the District Registrar that there had been an earlier service of the Bankruptcy Notice on Mr Pavlinovich. 

13                  The Registrar made orders that the applicant have leave to amend its petition so as to rely upon that earlier service.  He also made the orders described earlier in these reasons.

14                  The District Registrar dismissed the application as against Mr Johnson.

15                  The applicant creditor has amended its petition by substituting reference to the earlier date of service (12 July 1999) for the date formerly relied upon (23 August 1999) and changing the date by which Mr Pavlinovich was said to have failed to comply with the Bankruptcy Notice from 13 September 1999 to 2 August 1999.

16                  Mr Urquhart has sworn a further affidavit of service deposing to personal service of the Bankruptcy Notice on Mr Pavlinovich on 12 July 1999.  The jurat states that the affidavit was sworn on 18 September 1999 but that is obviously a mistake.  I infer that it was sworn on 18 December 1999.  It was filed on 20 January 2000.

17                  In response, Mr Pavlinovich has filed four affidavits, two of which were sworn by him and two sworn by Mr Johnson.  In the first such affidavit Mr Johnson deposed to the fact that on 22 July 1999 he attended Mr Urquhart’s office, at his request, and was served with two bankruptcy notices.  On that occasion, so Mr Johnson deposed, Mr Urquhart informed him that he had to serve fresh papers on Mr Pavlinovich as he had served Mr Pavlinovich with the incorrect papers. 

18                  Mr Johnson swore that on or about 23 July 1999 he informed Mr Pavlinovich that Mr Urquhart wished to serve him with fresh papers as he had served him (Mr Pavlinovich) with the wrong documents.

19                  Mr Pavlinovich, (who in his earlier affidavit swore that he has severely impaired vision of less than 3/60 in each eye and can only read documents with very large print for limited periods of time and then only with special mechanical assistance) in his first further affidavit, swore that on Monday 12 July 1999 at approximately 8.20 am he was handed some documents by Mr Urquhart which all bore a red stamp stating “COPY” in capital letters.  He said that on or about 23 July 1999 Mr Johnson informed him that Mr Urquhart wished to re-serve him with the same documents as served on Mr Johnson because he (Mr Urquhart) had served him (Mr Pavlinovich) with the wrong copies.

20                  Mr Pavlinovich swore that after 12 July 1999 Mr Urquhart telephoned him on more than one occasion to tell him that he had given him the wrong copies and that he wished to re-serve him with the correct papers.  This was both before and after 2 August 1999 (being 21 days after 12 July 1999).

21                  Mr Pavlinovich swore that on 4 August 1999 he spoke to Mr Urquhart by telephone regarding arrangements to serve further papers on him.  As a result of the foregoing, he swore that he took no steps in relation to the documents handed to him on 12 July 1999 as he understood that they were defective.  He swore that he will suffer prejudice if the District Registrar’s orders, made on 21 December 1999, are allowed to stand.

22                  On 17 February 2000 the applicant filed another affidavit (sworn by Mr Urquhart on the previous day).  In that affidavit Mr Urquhart referred to Mr Pavlinovich’s first further affidavit (sworn on 28 January 2000) and identified the document which he served on Mr Pavlinovich on 12 July 1999 (he swore that the time was 6.00 am) as being a bankruptcy notice dated 30 March 1999 and issued by the Official Receiver on the application of the applicant.  Mr Urquhart confirmed that the bankruptcy notice which he served was identical to the bankruptcy notice annexed to his affidavit of service sworn on 10 November 1999 and was not a photocopy.  He swore that the bankruptcy notice served on 12 July 1999 bore a red stamp stating “COPY” in capital letters on each page and that at the time of service of the bankruptcy notice on Mr Pavlinovich, he showed him an original copy of the bankruptcy notice which did not bear a copy stamp on each page.  Mr Urquhart denied that he telephoned Mr Pavlinovich on the dates alleged in Mr Pavlinovich’s affidavit and said that Mr Pavlinovich telephoned him after he had left his business card at his home on a previous occasion when he (Mr Pavlinovich) was not there.  Mr Urquhart confirmed that he spoke with Mr Pavlinovich at about 10.00 am on 4 August 1999 and said that Mr Pavlinovich told him that he was in Sydney for ten days but would make himself available for service of the original copy of the bankruptcy notice on his return to Perth.  Mr Urquhart further swore that Mr Pavlinovich did not make himself available for service and that he (Mr Urquhart) was required to attend at Mr Pavlinovich’s home on 16 August 1999 and again on 23 August 1999 in an attempt to serve the original bankruptcy notice on him.  He confirmed that he served the original bankruptcy notice on Mr Pavlinovich on 23 August 1999 in the manner outlined in his affidavit of service sworn 10 November 1999.

23                  Mr Pavlinovich swore a further affidavit on 13 March 2000 (filed on 14 March 2000) in which he took issue with some of the matters deposed to in Mr Urquhart’s affidavit filed on 17 February 2000.  Finally, Mr Johnson has sworn an affidavit on 13 March 2000 (also filed on 14 March 2000) in which he swore that on 22 July 1999 Mr Urquhart did not show him any other documents when he handed him two bankruptcy notices.

24                  When the motion was called on this morning, Mr Odorisio, counsel for the applicant creditor, sought to tender an affidavit sworn by him this morning.  Annexed to that affidavit was a circular to creditors including a notice of meeting and a report by a controlling trustee which, in turn, included a summary of Mr Pavlinovich’s statement of affairs.  It is apparent from those documents that on 3 March 2000 Mr Pavlinovich signed an authority under s 188(1) of the Bankruptcy Act, that on 7 March 2000, Mr C M Williamson consented to act as Controlling Trustee and that a meeting of creditors will be held on 20 March 2000 to consider a proposal being put forward by Mr Pavlinovich.  In summary, the proposal is that Mr Pavlinovich will borrow $35,000 from a long-standing friend (and make that sum available to his creditors), that his real and personal property be assigned to his trustee and realised and that there be a composition on that basis.  The statement of affairs indicates that as at 8 March 2000 Mr Pavlinovich had assets of $2178 and liabilities of $9.5 million.

25                  Mr B P Wheatley, counsel for Mr Pavlinovich, opposed the admission of that affidavit into evidence on the grounds that it was not relevant to the matter before the Court.  In summary, counsel contended that the events referred to in the tendered affidavit occurred long after the events on which the petition is sought to be based.

26                  I decided, for short reasons which I delivered at the time, to admit the further affidavit into evidence.  I considered that it was at least potentially relevant to the exercise of the discretion to allow the amendment to the petition.  In particular I considered that the information to which I have just referred was potentially relevant to the question of prejudice to Mr Pavlinovich.

27                  The parties have filed written outlines of their respective submissions and counsel for each party have addressed me this morning.  I shall refer to some of their contentions, where appropriate, in the course of giving my reasons for decision.

My Reasoning

28                  I think that it is important to bear in mind the precise subject matter of the motion for review.  That subject matter is neither more nor less than a series of orders granting leave to amend the petition and serve further affidavits.  The petition itself remains adjourned until 21 March 2000.

29                  The question is, approaching the matter de novo, whether the making of such orders is an appropriate exercise of judicial discretion.

30                  Section 33(1)(b) of the Bankruptcy Act provides that the Court may at any time allow the amendment of any written process, proceeding or notice under this Act. 

31                  Order 13 rules 2(1) and (2) of the Federal Court Rules provide as follows:

“2(1)  Subject to the following provisions of this rule, the Court may, at any stage of any proceeding, on application by any party or of its own motion, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit.

  2(2)  All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.”

32                  I do not propose to recite the authorities on the principles or guidelines applied by courts when exercising judicial discretion on applications to amend documents in a proceeding.  They are collected conveniently, for example, in “Australian High Court and Federal Court Practice” (Vol 2), CCH Australia Ltd at pp 60,756 to 60,769.

33                  I appreciate that a bankruptcy petition may not, technically, be a pleading.  However, Order 13 rule 2 is not confined in its application only to pleadings but refers to “any document in the proceeding”.  In any event, a bankruptcy petition can be regarded as analogous to an originating application.  In my view, the principles and guidelines relating to the amendment of originating applications and pleadings generally are broadly applicable to amendment of a bankruptcy petition.  An important factor, of course, is whether the debtor may be prejudiced – see, for example, Re Oskar; Ex parte Commonwealth of Australia (1984) 55 ALR 717 at 721.

34                  It is sufficient for me to refer to the fairly recent decision of the High Court of Australia in Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146.  That case was concerned with amendment to a defence, but the principle is equally applicable to any other document.  In that case the High Court held, in summary, that a party should be permitted to raise an arguable matter provided that any prejudice to other parties could be compensated by costs. 

35                  Mr Wheatley referred to what he said were discrepancies in Mr Urquhart’s affidavits which, so he submitted, should result in my accepting the truth of the matters deposed to in the affidavits filed on behalf of his client over the contents of Mr Urquhart’s various affidavits.  Mr Odorisio submitted that there were no such discrepancies.  He explained that the series of affidavits sworn to by Mr Urquhart simply reflected the evolving factual circumstances.  In my view, whether there are any discrepancies in Mr Urquhart’s affidavit or not is a matter for consideration at the eventual hearing of the petition.  For the purposes of dealing with this motion, I take into account everything deposed to in the affidavits from both sides.  I should add that the parties agreed that all of the affidavit evidence filed in Court should be treated as evidence in the motion.

36                  Counsel for Mr Pavlinovich complained that there was no notice of the proposed amendments until 21 December 1999.  That is true, but it was at the Registrar’s suggestion that the amendment was made.  Furthermore, in so far as notice goes to matters of prejudice, Mr Pavlinovich now has had more than adequate notice of the proposed amendment. 

37                  Mr Wheatley submitted that another reason for not allowing the proposed amendment was that this was a case in which the applicant creditor was at fault and should not be allowed to rely on what he called “the second purported service”.  Counsel cited Londish v Gulf Pacific Pty Ltd (1993) 45 FCR 128 at 141-142.  In my view, Londish is quite clearly distinguishable on the facts and, in fairness to Mr Wheatley, he simply took me to the case for what it was said in that case about the relevance of fault.  I do not think that fault is an appropriate word to apply in the circumstances of this case.  As I have mentioned, it was at the Registrar’s suggestion that the applicant creditor applied to amend.  As the petition was opposed, it was clearly going to a hearing at a later date.  The proceedings can be seen to be at a fairly early stage.  In any event, it is a matter of discretion and if there be fault on the applicant’s part (which I doubt) I do not think it weighs too heavily in the balance. 

38                  Then Mr Wheatley said that there was no explanation for what he described as “the departure” on the applicant’s part.  That is true in one sense.  However, the change was suggested by the Registrar when it became apparent that there had been an earlier service of the bankruptcy notice.  I do not regard any failure to explain this change as significant in the whole context of the matter. 

39                  Mr Wheatley relied upon the fact that his client had been misled by the applicant’s conduct as being a matter which was of significance in the exercise of any discretion to amend the petition.  This was not put on the basis that the amendment would disclose a case which was so hopeless that the amendment should not be allowed.  In my view, the merits or otherwise of what is said to be misleading conduct on the petitioning creditor’s part are matters appropriate for the trial if an arguable case is sought to be raised by amendment.

40                  In the present matter, the applicant creditor wishes to rely on a further act of bankruptcy said to have occurred earlier than the one originally relied upon by it in its petition.  Mr Pavlinovich says, in essence, that it would be unfair, in the factual circumstances deposed to in his and Mr Johnson’s affidavits, to allow the applicant petitioner to rely upon non-compliance with the bankruptcy notice served on 12 July 1999 within the period of 21 days from that date.  He says that he was misled into taking no action in respect of that bankruptcy notice.  Mr Pavlinovich does not elaborate upon what constitutes the unfairness to him other than to contend that he was not given a reasonable opportunity to take action within the period prescribed by the Bankruptcy Act.  He does not swear that he would have taken any such action had he not been misled (on his evidence) by Mr Urquhart.  In particular he does not furnish any evidence of any basis upon which he might have succeeded in setting aside the bankruptcy notice.  Furthermore, Mr Pavlinovich has chosen not to put before the Court any evidence about whether he is solvent or insolvent.

41                  Mr Wheatley relied on the fact that the amendment was sought some 5½ months from the alleged first act of bankruptcy as being a delay which militated against amendment.  Mr Odorisio pointed out that it would have been open for the applicant petitioner to have filed a fresh petition instead of amending.  While delay can play a part, sometimes a major part, in the exercise of the discretion whether to grant leave to amend, I do not think it is significant in this case.  The fact is that the time limited by s 44(1)(c) of the Bankruptcy Act had not expired when the orders under challenge were made. 

42                  It may be that, at the eventual hearing of the petition, findings of fact may be made which have the result, after fuller argument, that in law it would be unjust or otherwise contrary to law for the petitioning applicant to be allowed to rely upon the act of bankruptcy which it seeks to plead.  However, in my opinion, it is far from obvious that that will be the eventual outcome.  I think that it is arguable that the petition as amended would be a proper foundation in law for a sequestration order to be made against Mr Pavlinovich.

43                  In my opinion, it is (and was) in the interests of justice that the applicant petitioner be allowed to plead the alternative, earlier, act of bankruptcy.  If there has been an act of bankruptcy and Mr Pavlinovich is insolvent then it is also in the public interest that his affairs be administered in bankruptcy, unless there is good reason to the contrary.

44                  I do not think that it is in the interests of justice that the applicant petitioner should be denied the opportunity to amend its petition and thereby forced to start the whole process anew, including the service of another Bankruptcy Notice and the presentation of another petition [see s 44(1)(c) of the Bankruptcy Act].  Furthermore such an outcome is not consistent with the intent of the Federal Court Rules to which I have referred earlier in these reasons.

45                  Although I have admitted Mr Odorisio’s affidavit of today’s date into evidence, I have decided that it is not necessary to rely on its contents for the purposes of exercising the discretion in relation to the question whether the amendments to the petition should be allowed to stand.

46                  In my view, the appropriate course is for the amendments to be allowed to stand, for the matter to proceed to a hearing, for findings of fact to be made as to exactly what happened and for the law to be applied to the facts which have been found, after trial, to have occurred.

47                  For those reasons, the notice of motion will be dismissed.

Associate:

Dated:                 May 2000