FEDERAL COURT OF AUSTRALIA

Adams v Lambert [2006] FCA 623

BANKRUPTCY – whether creditor’s petition lapsed by virtue of s 52(4) of the Bankruptcy Act 1966 (Cth) – where petition dismissed within 12 months but dismissal set aside on appeal after 12 months

BANKRUPTCY – practice – whether late amendment of petition should be permitted

Bankruptcy Act 1966 (Cth),s 33, s 52(4)

Federal Court of Australia Act 1976 (Cth), s 28

Adams v Lambert [2004] FCA 928related

Adams v Lambert [2006] HCA 10related

Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 156followed

Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385distinguished

MacDonald v Official Trustee in Bankruptcy (2001) 107 FCR 72 applied

Rangott v Marshall (2004) 139 FCR 14 referred to

Re Howell; Ex parte Deputy Commissioner of Taxation (1996) 70 FCR 261distinguished

Re Young; Ex parte Smith (1985) 5 FCR 204distinguished

Re Pinkerton; Ex parte BG Textiles Pty Ltd (in liq) (1984) 4 FCR 64 applied

Yilmaz v Minister for Immigration and Multicultural Affairs (2000) 100 FCR 495 cited

COLIN ADAMS v MATTHEW LAMBERT

ACD 14 OF 2004

GYLES J

25 MAY 2006

SYDNEY (VIA VIDEO LINK TO CANBERRA AND BRISBANE; HEARD IN CANBERRA VIA VIDEO LINK TO BRISBANE)

THE COURT ORDERS THAT:

1          Leave be granted to amend the petition in accordance with the notice of application for leave to amend petition filed on 12 May 2006, with the exception of paragraph (d) therein and further service be dispensed with.

2          A sequestration order be made against the estate of Matthew Lambert.

3          Matthew Lambert pay the costs of the applicant creditor of the proceeding, including costs up to 1 July 2004.

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

REASONS FOR JUDGMENT

1                     This case raises another problem arising from the poor fit between the provisions of the Bankruptcy Act 1966 (Cth) (the Act) and the applicable appeal provisions. 

2                     On 1 July 2004 I made the following orders in this proceeding (Adams v Lambert [2004] FCA 928):

‘(1)      The petition be dismissed.

(2)       The applicant petitioner is to pay the respondent debtor’s costs (including any reserved costs).’

3                     On 4 April 2006 the High Court, inter alia, made the following orders (Adams v Lambert [2006] HCA 10):

‘2. …

(b)               the orders of Gyles J made on 1 July 2004 be set aside.

3.         Remit the matter to a Judge of the Federal Court of Australia for further hearing in accordance with the reasons of this Court.’

4                     I am thus hearing a petition for sequestration of the estate of the respondent debtor, Matthew Lambert.  The original hearing went off on the basis that I was obliged to hold that the bankruptcy notice was invalid because of the decision in Australian Steel Co (Operations) Pty Ltd v Lewis (2000) 109 FCR 33.  Two issues arise. 

5                     The first is whether the petition has lapsed by virtue of s 52(4) of the Act which is in the following terms:

‘(4)      A creditor's petition lapses at the expiration of:

(a)        subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or

(b)        if the Court makes an order under subsection (5) in relation to the petition—the period fixed by the order;

unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.’

6                     It is submitted on behalf of the debtor that, as no order has been made pursuant to subsection (5), the petition lapsed at the expiration of the period of 12 months commencing on the date of the presentation of the petition.  It is submitted that there is now no power to extend the period relying upon the decision of the Full Court in Re Young; Ex parte Smith (1985) 5 FCR 204.  It is submitted that there could be no use of the slip rule to cure the problem such as occurred in Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385, applied in circumstances such as these in Re Howell; Ex parte Deputy Commissioner of Taxation (1996) 70 FCR 261.

7                     It is submitted by counsel for the applicant creditor that the case falls squarely within the proviso to s 52(4) as the petition was dismissed.  It is submitted that the reasoning of the Full Court in Deputy Commissioner of Taxation v Clyne (1984) 4 FCR 156, particularly per Toohey and Wilcox JJ at 158, confirms that conclusion.

8                     The orders of the High Court and the passage of the judgment which relates to them contemplate that the matter will proceed to a hearing of the case, although there is no indication that the present issue was present to the minds of the Court.  As pointed out in the passage from the judgment of Toohey and Wilcox JJ in Deputy Commissioner of Taxation v Clyne (above) somewhat anomalous results occur whichever view is taken where a petition comes on for hearing nearly two years from its date.  In Rangott v Marshall (2004) 139 FCR 14 at [24] I said:

‘It seems that the Act does not expressly address the imposition of an appellate regime upon the provisions in relation to sequestration and bankruptcy.  That may be an accident of history.’

However, as I held in that case, there is an appellate regime which applies to sequestration orders, the critical provision of which is s 28 of the Federal Court of Australia Act 1976 (Cth).

9                     I have no difficulty in agreeing with the submission of counsel for the applicant creditor that the decision of the Full Court in Re Young; Ex parte Smith (above) is not in point.  It did not deal with the problem occasioned by the dismissal of a petition, when that dismissal is subsequently set aside on appeal.  Nonetheless, the question remains as to the effect of the order of the High Court setting aside the dismissal.  On one view, it is as if the dismissal had never occurred (cf Rangott v Marshall (above) at [29]).  Thus, there is an argument that, as the dismissal never occurred, the proviso to s 52(4) was not met and the petition has lapsed.

10                  In my opinion, the section should not be read in that fashion as it would, in many cases, frustrate the appeal provisions.  As this case illustrates, it takes time to dispose of appeals.  An order extending a petition which has been dismissed could hardly be made in the meantime.  It is, no doubt, for this reason that that point was not taken up either by the Full Court of this Court or by the High Court, notwithstanding invitations to do so by counsel for the applicant creditor.  That conclusion is consistent with the reasoning of the Full Court in Deputy Commissioner of Taxation v Clyne.  In other words, in my opinion, ‘dismissal’ in s 52(4) means dismissal in fact, whether or not subsequently set aside (cf Yilmaz v Minister for Immigration and Multicultural Affairs (2000) 100 FCR 495).

11                  The second issue arises out of an application by the creditor to amend the petition by amending the date of the alleged date of bankruptcy.  Amendment is sought pursuant to s 33 of the Act.  The petition alleged a failure to comply on or before 24 April 2004 with the requirements of a bankruptcy notice served on the respondent debtor on or about 1 April 2004.  Counsel for the applicant creditor submits that close examination of the relevant Regulations and authorities in relation to service and compliance with a bankruptcy notice indicates that the better view is that service would be deemed to have occurred on 5 April 2004 requiring compliance on or before 27 April 2004.  The solicitor for the respondent debtor does not challenge that conclusion.  He rather submits that, given the seriousness of the consequences of bankruptcy, no amendment can or should be made at this late stage in such an important respect.

12                  In my opinion, an amendment should be allowed having in mind authorities such as MacDonald v Official Trustee in Bankruptcy (2001) 107 FCR 72 and Re Pinkerton; Ex parte BG Textiles Pty Ltd (in liq) (1984) 4 FCR 64.  The amendments are to deal with the debateable result of the effect of the Regulations upon undisputed primary facts as to service.  The amended petition would plainly refer to precisely the same set of events as did the original petition.  There is no room for misunderstanding or misleading the respondent debtor.  There is no evidence led on behalf of the respondent debtor or any suggestion made on his behalf that any prejudice flows from the amendment.  The amendment, however, should not include the words in parenthesis starting with ‘or on’ down to ‘in this paragraph’.  There being no prejudice, I would order that the amended petition need not be served again.

13                  I am satisfied that the requirements of s 43 and s 44 of the Act have been established on the evidence.  I therefore:

(1)        give leave to amend the petition as indicated above and dispense with further service.

(2)        make a sequestration order against the estate of Matthew Lambert.

(3)        order that Matthew Lambert pay the costs of the applicant creditor of the proceeding, including costs up to 1 July 2004.

If any application can be made pursuant to the Federal Proceedings (Costs) Act 1981 (Cth) it can be made ex parte in chambers.

Associate:

Dated:              25 May 2006