FEDERAL COURT OF AUSTRALIA

Atkinson v Oakleigh Holdings Pty Ltd [2000] FCA 1547

BANKRUPTCY – bankruptcy notice – application to set aside notice or  extend time for compliance – application for special leave to appeal to High Court against Court of Appeal decision affirming judgment on which notice based – non compliance with form as amended by Bankruptcy Amendment Regulations 2000 (No 2) in that no reference made to Federal Magistrates Court

Bankruptcy Act 1966 (Cth) s 306

Acts Interpretation Act 1901 (Cth) s 48(1)(a), (b)

Bankruptcy Amendment Regulations 2000 (No 2), SR 2000 No 220

Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 mentioned

Adamopoulos v Olympic Airways (1990) 95 ALR 525 at 531 mentioned

Guss v Johnstone [2000] FCA 1455 mentioned

Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 followed

Re Geard (Sheppard J, 11 February 1994) followed

Re Smith (Whitlam J, 9 May 1994) followed

Agrillo v Codispoto (Sackville J, 10 December 1994) followed

Arthur JS Hall & Co v Simons [2000] 2 WLR 543 mentioned

Giannarelli v Wraith (1988) 165 CLR 543 mentioned

Vozza v Tooth & Co Ltd [1963] NSWR 1675 at 1684 and 1689 mentioned

Lee v McNulty [2000] FCA 1519 followed

Trustees of the Franciscian Missionaries of Mary v Weir (2000) 98 FCR 447 mentioned

Bendigo Bank v Williams (2000) 98 FCR 377 at 389 followed

Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79 applied

Toowomba Foundry Pty Ltd v Commonwealth (1945) 71 CLR 545 at 568-9, 575 and 587-8 applied

Tefonu Pty Ltd v Insurance & Superannuation Commissioner (1993) 44 FCR 361 at 368 mentioned

Arthur JS Hall & Co v Simons [2000] 2 WLR 543 mentioned

JAMES ATKINSON v OAKLEIGH HOLDINGS PTY LIMITED

NO. V 7400 OF 2000

HEEREY J

3 NOVEMBER 2000

MELBOURNE

THE COURT ORDERS THAT:

1.         The application is dismissed.

2.         The applicant pay the respondent’s costs, including reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The applicant applies to set aside a bankruptcy notice which was issued by an Official Receiver on 31 July 2000 and served pursuant to an order for substituted service with effect on 10 August 2000.  After I reserved judgment an order was made by consent extending time for compliance with the notice (if valid) until 30 November 2000.  The application also seeks, under the heading “Claim for Interlocutory Relief”, an order that the time for compliance be extended “until the hearing and determination of the appeal [sic] against the judgment relied on as the foundation of the Bankruptcy Notice”. 

2                     After a four day trial before his Honour Judge Mitchelmore in the District Court of New South Wales judgment was given for the respondent against the applicant on 13 November 1998 for $132,954.65 and costs.  The learned judge delivered a substantial judgment of thirty-five pages. 

3                     On 28 June 2000 the New South Wales Court of Appeal (Mason P, Meagher and Haydon JJA) dismissed an appeal by the applicant.  Their Honours were of the unanimous opinion that the appeal did not raise any question of general principle and delivered a judgment in short form pursuant to s 45(4) of the Supreme Court Act 1970 (NSW) which amongst other things said that the Court “agrees substantially with the reasons of the trial judge”. 

4                     On 25 August 2000 the applicant filed in the Sydney office of the Registry of the High Court an application for special leave to appeal.  The application has not yet been heard and no hearing date has been fixed.  The proposed grounds of appeal are as follows:

“(a)     Counsel appearing at the trial before the learned trial judge made an egregious error and was flagrantly incompetent in failing to adduce evidence from Raymond John Bennell. 

(b)       That egregious error and flagrant incompetence of counsel led to a miscarriage of justice in the hearing before the learned trial judge and before the Court of Appeal as the court was led wrongly to the conclusion that it was entitled to accept the evidence of Mr Stone insofar as it related to his reliance on the letter of 8 March 1995.”

5                     On the hearing of a bankruptcy petition the general rule is that the court should not proceed to sequestrate the estate of the debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceeding, provided that the appeal is based on genuine and arguable grounds:  Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148, Adamopoulos v Olympic Airways (1990) 95 ALR 525 at 531.

6                     In Guss v Johnstone [2000] FCA 1455 at pars 13-17 the Full Court appeared to be of the view that the same approach should be adopted where the debtor is pursuing an application for special leave to appeal to the High Court.  However by the time the case came before the Full Court special leave had been granted and the appeal heard and dismissed so the refusal of the adjournment did not occasion the debtor any injustice:  at par 17.

7                     But in Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Lehane J held that different considerations apply when what the debtor seeks is not an adjournment of the hearing of the petition but an extension of time for compliance with the bankruptcy notice.  In so holding his Honour followed a line of unreported decisions:  Re Geard (Sheppard J, 11 February 1994), Re Smith (Whitlam J, 9 May 1994) and Agrillo v Codispoto (Sackville J, 10 December 1994).

8                     In Byron, as in the present case, the debtor was seeking to extend the time for compliance with a bankruptcy notice pending an application to the High Court for special leave to appeal. In refusing the application Lehane J noted

·                          no stay had been granted, or sought, of the judgment founding the notice (at 270)

·                          an appeal had already been dismissed and the proceeding was for special leave to make a further appeal (at 271).

9                     Both those factors exist in the present case.  Moreover although the court may be reluctant to enter into the merits of an appeal, they may be relevant where the court is able to regard the prospects of success as slight:  Byron at 270.  On that score it is to be noted

·                     The point as to the alleged negligence of counsel was not taken in the Court of Appeal.

·                     It is no doubt quite conceivable that the High Court, in the light of the recent House of Lords decision in Arthur JS Hall & Co v Simons [2000] 2 WLR 543, may wish before long to reconsider the issue of a barrister’s immunity from suit confirmed in Australia by Giannarelli v Wraith (1988) 165 CLR 543.  But it seems unlikely that this reconsideration would occur in a case where the point was not taken in the intermediate appellate court and  where, even if the applicant’s barrister could be sued for negligence, that would not provide a ground for upsetting the respondent’s judgment. (Contrast Vozza v Tooth & Co Ltd [1963] NSWR 1675 at 1684 and 1689 where misconduct of opposing counsel in a jury trial was held to provide a ground of appeal.)

10                  In my opinion, time for compliance should not be extended beyond the agreed date of 30 November 2000.  It therefore becomes necessary to consider the argument as to validity of the notice.

11                  The invalidity point turns on the amendment to the form of bankruptcy notice which was made by the Bankruptcy Amendment Regulations 2000 (No 2), SR 2000 No 220 (“the amending regulations”).

12                  Since the 1996 amendments to the Bankruptcy Act 1966 (Cth) the scheme in relation to bankruptcy notices is that an Official Receiver may issue a bankruptcy notice on the application of a creditor (s 41(1)) and the notice must be in accordance with the form prescribed by the regulations (s 41(2)).  Regulation 4.02 provides that the form of notice set out in form 1 is prescribed.  The amending regulations amend Sch 1 by deleting from par 5(b) of the form the words “Federal Court”and inserting “Court (that is, the Federal Court of Australia or the Federal Magistrates Court)”.  In pars 6, 7 and 8 amendments are made which in effect replace references to the Federal Court with references to “the Court”, which in the context of the notice as a whole indicates the appropriate court could be either the Federal Court or the Federal Magistrates Court.  The amending regulations are dated 10 August 2000 and were notified in the Commonwealth Gazette on 17 August 2000.  Regulation 2 provides “These regulations are taken to have commenced on 1 July 2000”.  The significance of 1 July 2000 is that it is the date on which the Federal Magistrates Court came into existence with a jurisdiction in, inter alia, bankruptcy.  So the form of bankruptcy notice has been amended to inform debtors that they now have the option of going to either the Federal Magistrates Court or the Federal Court if they wish to set aside the notice or otherwise exercise their rights. 

13                  The notice in the present case made no reference to the Federal Magistrates Court and thus did not comply with the amending regulations.  It was issued and served after 1 July 2000 and before 17 August 2000.  (The date of the amending regulations, 10 August 2000, although coincidentally also the date of service, does not appear to be relevant for present purposes.)

14                  Since argument was concluded in the present case the same problem has been considered by Moore J in Lee v McNulty [2000] FCA 1519, a decision delivered on 30 October 2000.  The bankruptcy notice in that case was issued on 20 July 2000.  It is not apparent from the judgment when it was served.  His Honour, who was then hearing a creditor’s petition based on non-compliance with the notice, held that the notice was valid. His Honour did so on two bases.  First, the failure to refer to the Federal Magistrates Court was a formal defect or irregularity which by virtue of s 306 did not invalidate the proceeding:  Trustees of the Franciscian Missionaries of Mary v Weir (2000) 98 FCR 447.  Secondly, s 48(2) of the Acts Interpretation Act 1901 (Cth) applied because retrospective operation of the regulation would affect the rights of a person so as to disadvantage that person.  His Honour referred to the decision of the High Court in Toowoomba Foundry Pty Ltd v Commonwealth (1945) 71 CLR 545 at 568-9, 575 and 587-8 and also Tefonu Pty Ltd v Insurance & Superannuation Commissioner (1993) 44 FCR 361 at 368.  Section 48 provides:

“(1)  Where an Act confers power to make regulations, then, unless the contrary intention appears, all regulations made accordingly:

(a)     shall be notified in the Gazette:

(b)     shall, subject to this section, take effect from:

(i)      a specified date;

(ii)     a specified time on a specified date;

(iii)    the date, or date and time, of commencement of a specified at or a specified provision of an Act; or

(iv)    in any other case – the date of notification; and

(c)     shall be laid before each House of the Parliament within 15 sitting days of that House after the making of the regulations.

(2)       A regulation, or a provision of regulations, has no effect if, apart from this subsection, it would take effect before the date of notification and as a result:

(a)     the rights of a person (other than the Commonwealth or an authority of the Commonwealth) as at the date of notification would be affected so as to disadvantage that person; or

(b)     liabilities would be imposed on a person (other than the Commonwealth or an authority of the Commonwealth) in respect of any thing done or omitted to be done before the date of notification.”

15                  As Moore J noted, conflicting Full Court authorities in relation to the new bankruptcy notice scheme are subject to a reserved decision of a five member Full Court in The Australian Steel Company Pty Ltd v Lewis (judgment reserved 28 June 2000). 

16                  I have come to the same conclusion as Moore J but  prefer to do so on the basis of s 48(2).  As to the first basis, since the sole criterion of a bankruptcy notice now is that it “must be in accordance with the form prescribed by the regulations” (s 41(2)), and the sole raison d’être of the amending regulations was to require a notice to refer to the Federal Magistrates Court as well as the Federal Court, it is not easy to see why this is not a requirement “made essential by the Act”:  Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79.  A court is not at liberty to hold that some matters expressly required to be stated are essential but others, also the subject of express requirement, are not:  Bendigo Bank v Williams (2000) 98 FCR 377 at 389.

17                  It seems clear that when the bankruptcy notice was effectively served on 10 August 2000 the respondent acquired a right, albeit inchoate, in that subsequent non-compliance would constitute an act of bankruptcy which would give the respondent the right to petition the court for a sequestration order against the applicant.  Were the amending regulations to take effect on 1 July 2000 that right of the respondent would be affected so as to disadvantage it.  The respondent would lose the potential ground for a petition and costs expended would be wasted.

18                  Accordingly the application will be dismissed.  I order that the applicant pay the respondent’s costs to be taxed, including reserved costs.

Associate:

Dated:              3 November 2000