FEDERAL COURT OF AUSTRALIA

Romano v Peldan [2003] FCA 767

BAPTIST JERRY ROMANO v MICHAEL PELDAN AND RAJ KHATRI

Q 70 OF 2003

DOWSETT J

16 JULY 2003

BRISBANE

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal be dismissed.

2.         The appellant pay the respondents’ costs of the appeal.

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

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

REASONS FOR JUDGMENT

1                     As it seems to me that there is nothing in this matter, and as the judgment creditor has been denied relief in bankruptcy for a considerable period of time already, I propose to give extempore reasons for dismissing the appeal.  I should say also, out of deference to the learned Magistrate who decided the matter at first instance, that I see no basis for differing from any aspect of his reasons.  I am in substantial agreement with them and wish only to add a few comments of my own so as to identify the matters which have been in issue before me.  The facts appear sufficiently from par 2 of the Magistrate’s reasons.  They are as follows. 

2                     On 16 January 2002, judgment was pronounced in the Supreme Court of Queensland against the present appellant and in favour of the respondents in the amount of $3,600,000. 

3                     On 5 February 2002, a bankruptcy notice was issued claiming the sum of $3,618,739.73 being the judgment debt and interest.  This bankruptcy notice was served on 22 April 2002.

4                     On 9 May 2002, the present appellant filed an application to set aside that bankruptcy notice on the basis that it failed to meet a requirement allegedly made essential by the Bankruptcy Act 1966 (Cth) (the “Act”), namely that there be an accurate statement as to the source of the respondents’ entitlement to interest.  This application was returnable on 22 May 2002.

5                     On 14 May 2002, by letter to the appellant’s solicitors, the respondents’ solicitors indicated that they would be opposing the application.  As counsel was unavailable they sought an adjournment.  The matter was adjourned and an order made extending time for compliance with the bankruptcy notice.

6                     On 16 May 2002, a second bankruptcy notice was issued claiming only the amount of the judgment, namely, $3,600,000.  This notice was served on 23 May 2002. 

7                     On 11 June 2002, the appellant filed an application in the Magistrates Court, seeking to set aside the second bankruptcy notice.  The application was returnable on 26 June 2002.

8                     On 18 June 2002, the parties consented to an order consolidating the two applications and extending time for compliance with both notices to the hearing and determination of the application.  The applications were adjourned to 17 July 2002.

9                     On 28 June 2002, the solicitors for the respondents notified the solicitors for the appellant as follows:

We do not intend, at the hearing of the application scheduled for 17 July 2002, to rely upon the first bankruptcy notice served upon your client.  We shall formally withdraw the same at this time.

For the sake of clarity (it) is the bankruptcy notice in which interest has been claimed.

We shall, however, be relying upon the second bankruptcy notice which claims only the principle (sic) amount under the judgment of the Supreme Court as the basis for the bankruptcy notice.

Please note that we shall be requesting the court to make a sequestration order against your client in the event that he is unsuccessful in setting aside the bankruptcy notice.

10                  On 1 July 2002, the respondents filed a creditors’ petition relying upon non-compliance with the second bankruptcy notice.  The applications concerning the bankruptcy notices were heard on 27 August 2002.  At that time, counsel indicated that the respondents would not be relying upon the first notice, and it was set aside.  The learned Magistrate then determined that the application to set aside the second bankruptcy notice should be dismissed.   That decision is the subject of the present appeal.

11                  The appellant makes three points concerning the second bankruptcy notice.  The first is that as a matter of construction the Act did not permit its issue or alternatively, did not permit its issue in the circumstances of this case.  Secondly, it is said that the existence of the two bankruptcy notices was misleading and that this should lead to the second bankruptcy notice being set aside.  Thirdly, it is said that the issue of the second bankruptcy notice was an abuse of process, and that it should be set aside. 

12                  As to the first point, argument focused upon the decision of the Full Court (Ryan, Heerey and Tamberlin JJ) in Abignano & Anor v Wenkart [1998] FCA 1468.  At pp 3 and 4 of the copy of the judgment with which I have been supplied, the Court observed:

We also consider that, where the same creditor issues two bankruptcy notices, one after the other and founded on the same judgment debt, the creditor is required to make an election as to which bankruptcy notice it is with which the debtor is required to comply.  The possibility of successive bankruptcy notices has been adverted to in several authorities including a judgment of the Court of Appeal in the United Kingdom in Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253.  In that case, Sargant LJ, in agreeing with the judgment of Lord Hanworth MR, said at p261:

If, while an earlier bankruptcy notice were still available for a petition, a second notice were given in bad faith or to embarrass the debtor, the Court could prevent oppression by declining to act.  But in my view there has been nothing of this sort here.  The first bankruptcy notice had been withdrawn, objections had been taken to the second notice which had not been conclusively satisfied, and I think that the third notice was served to escape from those objections, and to place the petitioning creditors in a stronger and less challengeable position than they had previously occupied.  The failure to comply with this third notice was attributable not to the existence of the second notice, but to the entire inability of the debtors to pay the remainder of the their debt.  The petitioning creditors have complied with the statutory formalities necessary to establish the insolvency of the debtors; and I see no sufficient reason for refusing the statutory consequences of the insolvency so established.

In our view, his Lordship in that passage recognised that it is open to a creditor to issue a fresh bankruptcy notice for the purpose of circumventing or overcoming a challenge or a possible challenge to an earlier notice.  We consider that to have happened here.  The deficiency in the earlier notice was exposed by the reasons of Branson J which, incidentally, were adopted by Hill J when he came to consider the subsequent bankruptcy notice and steps were taken to overcome that difficulty as they could be since the undertaking had been given between the time of the issue of the first bankruptcy notice and the publication of her Honour’s reasons.

In those circumstances, the course taken by the creditors as assignees of Mr Pitman was entirely open to them but it was a course which could not be pursued in parallel with the prosecution of the present appeal.

13                  For what it is worth, in Hahnheuser v WorkCover Corporation of South Australia [2001] FCA 1730, an appeal from a sequestration order made by a magistrate, I declined to allow the bankrupt to argue a new ground challenging the validity of the bankruptcy notice because, had the point been taken at an earlier stage, it would have been open to the creditor to issue a new bankruptcy notice.  Gummow J, in delivering the reasons of the High Court for dismissing an application for special leave (Hahnheuser v WorkCover Corporation of South Australia, B98/2001, application heard on 15 November 2002) suggested that the point was of some relevance.  There is no reason to believe that the High Court gave detailed consideration to the matter, nor had I done so.  Nonetheless, my decision and the views expressed by Gummow J suggest that the argument advanced by the appellant, that there cannot be a second bankruptcy notice, is somewhat novel.

14                  The appellant puts the point in a number of different ways.  Firstly, he submits that the power conferred upon the official receiver by subs 41(1) of the Act to issue a bankruptcy notice is to issue one notice only.  Support for this view is said to be found in the decision of Emmett J in Owners of Strata Plan No 5459 v Mason & Anor (1999) 91 FCR 92.  In that case, his Honour was concerned with a bankruptcy notice which required payment of the total amount owing  under two judgments.  It was argued that although subs 41(1) refers to a final judgment or final order, the Acts Interpretation Act 1901 (Cth) requires that such reference be construed as including a reference to more than one judgment.  His Honour rejected that view, concluding that it would create considerable difficulty in the administration of ss 40 and 41.  His Honour did not suggest that the power to issue a bankruptcy notice permitted the issue of only one such notice in respect of any one debt.  Such a conclusion would have been inconsistent with the decision in Abignano.

15                  This point of construction is also put in a different way.  It is said that when one reads ss 40 and 41 together, it cannot have been intended that there be, at any one time, two bankruptcy notices with which the judgment debtor must comply.  Thus it is said that a creditor may issue a second bankruptcy notice only if the first notice has expired, been set aside or otherwise withdrawn.  There is, as far as I am aware, no statutory basis for  withdrawal of a bankruptcy notice by a creditor.  However I assume for present purposes that such a course is open.  If one accepts the proposition established in Abignano that the Act permits two bankruptcy notices, there is nothing in the Act which limits the circumstances in which a second notice can be issued.  No doubt, as was pointed out in In re Fredericke and Whitworth. Ex parte Hibbard [1927] 1 Ch 253, the Court may decline to make a sequestration order where a creditor relies upon a bankruptcy notice which has been issued in bad faith or to embarrass the debtor.  In Abignano the Full Court considered that the creditor had to elect between the two bankruptcy notices.  In the present case the letter of 28 June 2002 constituted such an election.  In my view, it was open to the respondents to serve a second bankruptcy notice.

16                  Secondly, it is submitted that the existence of two bankruptcy notices was misleading.  The appellant comes close to swearing to confusion on his part, but in my view, that is an empty complaint.  Quite clearly, after 14 May 2002 the requirement to comply with the first bankruptcy notice was deferred until such time as the proceedings to set it aside had been resolved.  In those circumstances, there was no immediate obligation on the appellant to pay the amount of that notice.  When the second notice was issued on 16 May 2002, that position remained unchanged.  The appellant was obliged to address the question of compliance with the second notice.  In the absence of any ground for not doing so, he was obliged to comply by the stipulated date.  There could have been no embarrassment or confusion about such obligation.  He knew that he did not have to comply with the first notice, and he knew that he had to comply with the second. 

17                  Thirdly, it is submitted that the issue of a second bankruptcy notice was an abuse of process.  Counsel conceded in the course of argument that this may simply be another way of ventilating the broader construction point to which I have referred.  In any event, it is not a complaint which can be made out.  It is quite clear from Fredericke and Abignano that the issue of a second bankruptcy notice is not an abuse of process per se although, in appropriate circumstances, it may be necessary for the judgment creditor to make an election.  The second notice was not issued in bad faith or to embarrass the debtor.  It was issued for the proper purpose of advancing the bankruptcy process, given that the appellant was complaining about the inclusion of a relatively small amount of interest in the first bankruptcy notice.  The appellant has not at any stage, as far as I am aware, asserted that he is not obliged to pay the amount of the principal debt.  Yet he seeks to avoid doing so by complaining about the interest and then about the respondents’ attempts to avoid that problem.  This case highlights the artificial and unfair obstacles which are frequently created for judgment creditors who seek to enforce their judgments by recourse to bankruptcy proceedings.  They are entitled to do so, and the Courts exist to facilitate that course.  Whilst bankruptcy proceedings are not merely enforcement proceedings, a creditor who has not been paid is entitled to pursue them in order to obtain payment to the extent of the debtor’s available resources.   The appeal should be dismissed.

18                  I order that the appellant pay the respondents’ costs of the appeal.

Associate:

Dated:              19 August 2003