FEDERAL COURT OF AUSTRALIA
Frank Dimasi (trading as F & M Dimasi) v Nangiloc Colignan Farms Pty Ltd (ACN 008 447 603) [2007] FCA 308
Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(2), 45(2), 46(2), 306
Partnership Act 1958 (Vic) s 13
Bankruptcy Regulations 1996, Reg 4.02
Sgro v Liberty Financial Funding Pty Ltd (2004) 207 ALR 625
Adams v Lambert (2006) 225 ALR 396
Malek v Macquarie Leasing Pty Limited [2007] FCAFC 14
Re McLeod Ex parte: Beneficial Finance Corporation Limited (unreported, 5 October 1995, [1995] FCA 789)
Re Sterling; Ex parte Esanda Ltd (1980) 30 ALR 77
Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310
Re Bouziotis; ex parte Nickanna Nominees Pty Ltd (unreported, 16 June 2000, VID 7299 of 2000)
Re Myers; Ex parte Mulholland (1932) 5 ABC 128
Re Meiklejohn; Ex parte Barnard [1961] Qd R 70
Hubner v Australia and New Zealand Banking Group Ltd (1999) 88 FCR 445
McKinnon v Commonwealth Bank of Australia [2006] FCAFC 182
In re Low. Ex parte Gibson [1895] 1 QB 734
In re a Debtor [1936] 1 Ch 293
House v The King (1936) 55 CLR 499
VID 1245 OF 2006
RYAN J
9 MARCH 2007
MELBOURNE
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
VID 1245 OF 2006 |
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ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA |
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BETWEEN: |
FRANK DIMASI (TRADING AS F & M DIMASI) First Appellant
MARIA DIMASI Second Appellant
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AND: |
NANGILOC COLIGNAN FARMS PTY LTD (ACN 008 447 603) Respondent
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RYAN J |
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DATE OF ORDER: |
9 MARCH 2007 |
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WHERE MADE: |
MELBOURNE |
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellants pay the respondent’s costs, to be taxed in default of agreement.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
VID 1245 OF 2006 |
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ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA |
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BETWEEN: |
FRANK DIMASI (TRADING AS F & M DIMASI) First Appellant
MARIA DIMASI Second Appellant
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AND: |
NANGILOC COLIGNAN FARMS PTY LTD (ACN 008 447 603) Respondent
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JUDGE: |
RYAN J |
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DATE: |
9 MARCH 2007 |
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PLACE: |
MELBOURNE |
REASONS FOR JUDGMENT
1 By way of notice of appeal filed in this Court on 9 November 2006, the first appellant sought to appeal from orders made by McInnis FM on 20 October 2006, Dimasi & Anor v Nanglioc Colignan Farms Pty Ltd (No 3) [2006] FMCA 1562. At the request of the first appellant, on 9 February 2007 I gave leave to amend the notice of appeal to add Maria Dimasi as the second appellant. An amended notice of appeal reflecting that grant of leave was filed on 21 February 2007.
Background to the Appeal
2 On 2 November 2005 the respondent caused a bankruptcy notice to be issued, naming Frank Dimasi trading as F and M Dimasi (A Firm) and Michelina Dimasi trading as F and M Dimasi (A Firm) as joint debtors in an amount of $4,422.05. The amount claimed in the bankruptcy notice was a judgment debt arising from orders made in civil proceedings in the Magistrates’ Court at Mildura on 9 July 2003. A certified extract dated 27 October 2005 of the judgment recited that an order for costs was made against F & M Dimasi (A Firm) in the amount of $7,217.68. A copy of the bankruptcy notice was served upon the first appellant on 22 November 2005 and on the second appellant on 24 or 28 March 2006.
3 On 18 April 2006 the appellants filed an application in the Federal Magistrates Court. The application sought orders that;
‘1. The bankruptcy notice dated 2 November 2005 served by the Respondent, Nangiloc Colignan Farms Pty Ltd (ACN 008 447 603) on the applicants be set aside.
2. The time in which to comply with the said bankruptcy notice be extended to a date after the hearing of this application.
3. The Respondent, Nangiloc Colignan Farms Pty Ltd (ACN 008 447 603) pay the costs of this application.’
In the supporting affidavit of Maria Dimasi, sworn 27 April 2006, which accompanied the application, the second appellant deposed to having been served with a bankruptcy notice on 28 March 2006, but disputed the validity of the notice, asserting at par 4 that;
‘I have never identified myself as Michelina Dimasi nor have I ever been known by that name.’
4 Relevantly to one of the grounds of the present appeal, the learned Federal Magistrate noted at [5] of his reasons for decision published on 20 October 2006;
‘At the outset it should be indicated that the bankruptcy notice, whether served or otherwise, appears to incorrectly identify the second applicant. It refers to the second applicant as Michelina Dimasi when her correct name is Maria Dimasi.’
And at [6];
‘That error in my view is fatal and is not a mere defect or irregularity of a kind which could be cured by a declaration by this Court. On that ground alone I am satisfied that the bankruptcy notice as against the second applicant should be set aside.’
5 His Honour did not believe that the misdescription of the amount of $3,726.95 in item 5 of the Schedule of the notice amounted to a defect which invalidated the bankruptcy notice. He also rejected the argument that service on the first appellant had been defective because the first appellant was referred to in the affidavit of service as “Frank Dimasi”, rather than “Frank Dimasi trading as F and M Dimasi (A Firm)”, as named in the extract of the order of the Magistrates’ Court at Mildura. His Honour found that the first appellant had been properly identified by the process server who served the bankruptcy notice.
6 His Honour dealt at length in his reasons with the substantive issue of whether the debt had been paid. It is not necessary for the purposes of the present appeal to canvass that issue in any detail. It suffices to say that his Honour found that the debt had not been paid, and rejected the evidence brought by the appellants to the effect that one K Davis on behalf of the respondent had, on 8 June 2004, accepted $3,500.00 in cash in full satisfaction of the judgment debt.
7 His Honour concluded at [83] that he was satisfied that the
‘… bankruptcy notice was properly served on Mr Dimasi the first applicant and I have already found that there is otherwise no other defect in the bankruptcy notice that would render it invalid. I do not accept there is any defect in the bankruptcy notice of a kind dealt with in the recent High Court decision of Adams v Lambert (2006) 225 ALR 396.’
8 Further, the learned Federal Magistrate distinguished the case before him from that which he had earlier considered in Sgro v Liberty Financial Funding Pty Ltd (2004) 207 ALR 625, finding that the reference to a deduction in respect of an order made in the appellants’ favour in the Magistrates Court at Mildura had been properly made “and could not lead to any misunderstanding on the part of the recipient of the bankruptcy notice.”
9 On 20 October 2006 McInnis FM made these orders:
1. The Bankruptcy Notice No. VN2484/05 against the Second Applicant is declared void and be set aside.
2. The Application filed 18 April 2006 be otherwise dismissed.
10 On 24 October 2006 his Honour heard submissions on the question of costs and consequential orders in relation to the creditor’s petition filed in the Federal Magistrates Court on 13 June 2006. In his reasons published on 24 October 2006 he expressed himself as satisfied that an order for indemnity costs was warranted against both appellants, as he had found that the written receipt of payment of the judgment debt relied upon by the appellants in evidence was fraudulent. His Honour made an order for indemnity costs against the second appellant as well as the first appellant, as she had sworn an affidavit supporting her husband’s claim to have made a cash payment of $3,500.00. His Honour was influenced to make the costs orders that he did by the amount of the time which had been devoted at trial to the factual dispute and the appellants’ reliance on the fraudulent receipt. He went on, also on 24 October 2006 to order, by consent;
‘3. The Respondent Creditor be granted leave in Application number MLG754 of 2006 to amend the Creditor’s Petition filed on 13 June 2006 by deleting the Second-named Respondent Debtor therein.
4. Liberty to apply within 14 days of the date of this order is granted to the Second-named Respondent in Application number MLG754 of 2006 in relation to the question of costs.
5. Reservice of the Creditor’s Petition as amended in Application number MLG754 of 2006 be dispensed with.’
And it was further ordered;
‘6. The Applicants shall pay the Respondent’s costs of and incidental to the Application filed 18 April 2006, including any reserved costs, on an indemnity basis pursuant to the Federal Court Rules.’
The appellants’ submissions
11 The first appellant appeals from the whole of the orders made by McInnis FM on 20 October 2006. The relevant grounds of appeal in the amended notice of appeal filed 21 February 2007 are;
‘1. The learned Federal Magistrate correctly found that the Bankruptcy Notice was defective because it refers to a “Michelina” Dimasi when the co-debtor named in the Bankruptcy Notice with Frank Dimasi was “Maria” Dimasi. However, the Federal Magistrate was wrong in law in proceeding to hear the application before him (to set aside the Bankruptcy Notice) on the basis that a bankruptcy notice can be bad against one debtor but remain valid as against another debtor named in the same bankruptcy notice.
2. His Honour ought to have found that the Bankruptcy Notice was capable of misleading a debtor because it failed to name one of the two joint judgment debtors and instead stated as the name of one of one of the two joint judgment debtors “Michelina Dimasi” which is not the name of either judgment debtor.’
The second appellant, Maria Dimasi, appeals against the costs order made against her on 24 October 2006, and the relevant grounds of appeal are;
‘3. As the learned Federal Magistrate correctly found that the Bankruptcy Notice was defective against Maria Dimasi he could not validly then find she was liable in costs to the Creditor.
4. His Honour should have found that the Second Appellant was entitled to her costs on a party party basis against the Respondent.
The orders sought by the appellants are as follows:
‘1. The appeal be allowed.
2. Bankruptcy Notice No VN2484/05 be set aside.
3 The Respondent pay both Appellants’ costs of the Application including all interlocutory hearings in which costs were reserved, and the costs of the Appeal.’
12 The appellants contended that this Court should accept the Federal Magistrate’s finding that the second appellant was incorrectly identified on the bankruptcy notice, and that it was a defect that was “fatal and is not a mere defect or irregularity of a kind which could be cured” pursuant to s 306 of the Bankruptcy Act 1966 (Cth) (“the Act”). Moreover, they submitted that it was not open to his Honour to set aside the bankruptcy notice only as against the second appellant. It was submitted that a bankruptcy notice identifying joint debtors cannot be valid as against one of the judgment debtors named in it, but invalid as against another. In the same way, it was contended that an irregular notice must be set aside in its entirety, rather than being void against only one of the debtors named in it.
13 The appellants also submitted that a bankruptcy notice naming a person who was not a party to the proceedings in which the foundational judgment was pronounced, can be capable of misleading, not only the misnamed debtor, but also the correctly named debtor. In this case, it was said, the first appellant would have been equally as confused by the indication in the notice that he was jointly liable on a debt with a person described in terms tending to suggest that she was not a joint debtor.
14 Although it was conceded by the appellants that a bankruptcy notice that does not quite “follow the judgement” may survive, they contended that a completely mistaken description in a bankruptcy notice which results in its failure to comply with a requirement made essential by the Act should result in the invalidation of the notice. The appellants also argued that it was open to his Honour to find that the present notice failed to comply with a requirement made essential by the Act, as neither debtor could have been confident as to what was required for him or her to comply with the notice. It was submitted that the notice was not only confusing, but failed to state unequivocally what was required of the persons upon whom it was served.
15 In the course of oral argument on the hearing of the appeal, Mr Bigmore QC for the appellants noted that the test of whether an error in a bankruptcy notice can reasonably mislead a debtor as to what is necessary to comply with the notice is an objective one. That proposition was said to be borne out by the observation of the Full Court of the High Court in Adams v Lambert (2006) 225 ALR 396, at 404;
‘If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity.’ (emphasis added)
16 The use of the indefinite article which I have emphasised in the passage just quoted was said to indicate that the test is objective, to be applied having regard to the state of mind to be imputed to any debtor who might receive the defective notice.
17 Mr Bigmore also sought to bring the present case within the second category of defective bankruptcy notices identified by the High Court in Adams 225 ALR 396 as recently applied by a Full Court of this Court in Malek v Macquarie Leasing Pty Limited [2007] FCAFC 14. That second category comprises those bankruptcy notices involving a failure to meet a requirement made essential by the Act.
18 The appellants relied heavily on the fact that the learned Federal Magistrate had set aside the bankruptcy notice as against Maria Dimasi which was said to entail a finding that it was objectively capable of misleading any debtor. That finding in respect of Maria Dimasi was not the subject of a cross-appeal or any other challenge by the respondent.
19 Also in the course of oral argument, Mr Bigmore disputed the contention advanced on behalf of the respondent that a separate bankruptcy notice could be issued to each of two or more joint debtors. He referred in this context to Re McLeod Ex parte: Beneficial Finance Corporation Limited (unreported, 5 October 1995, [1995] FCA 789) where Branson J observed, at 4-5;
‘As is mentioned above, a single judgment against the applicants was obtained by BFC in the Supreme Court proceedings. It is acknowledged by counsel for BFC that prior to such judgment the applicants were not jointly indebted to BFC: the causes of action against them respectively in the Supreme Court proceedings were not the same.
Is this finding fatal to the validity of the bankruptcy notice in this case?
Section 46(1) of the Act authorises a creditor's petition to be presented against two or more joint debtors, whether partners or not, but the Act does not authorise a creditor's petition to be presented against several debtors. Prior to s46(1) being enacted a petition against two or more joint debtors was required to be dismissed against all but one of them (Re Myers; Ex parte Mulholland (1932) 5 ABC 128 and Re Meiklejohn & Anor; Ex parte Barnard [1961] Qd R 70).
In my view the right to issue a bankruptcy notice cannot be wider than the right to present a creditor's petition - i.e. a single bankruptcy notice may not, in my view, issue against several debtors. The bankruptcy notice in this case asserts joint liability in the applicants based upon the single judgment obtained against them in the Supreme Court proceedings. As was pointed out by Fullagar J in Corney v Brien (1951) 84 CLR 343 at 353-354:-
"Generally speaking, a judgment at law for a sum of money creates an obligation of its own force. The pre-existing obligation, which the judgment is intended to enforce, merges in the new obligation so created and, for most purposes as between the parties, it is conclusive evidence of the existence of the obligation which it creates. It may in some circumstances be set aside by the court which entered it, but, unless and until it is set aside that is, generally speaking, its effect. It has, however, been well settled for very many years that in a court having jurisdiction in bankruptcy a judgment has no such conclusive effect. The court will in many cases, as it is commonly said, "go behind" the judgment and inquire into the existence of the debt upon which it is said to be founded."
Barwick CJ put the matter this way in Wren v Mahony (1972) 126 CLR 212 at 224:-
"The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment."
Apart from the decision of O'Loughlin J in Neate's Case, I am aware of no decision in which a Court has gone behind a judgment not for the purpose of satisfying itself of the existence of the debt upon which it is said to be founded, but rather to satisfy itself that the judgment is in proper form.
In Re Ferguson; Ex parte E.N. Thorne & Co Pty Ltd (In Liq) (1969) 14 FLR 311 at 320 Gibbs J stated:-
"The reason why a court having jurisdiction in bankruptcy will go behind a judgment has been discussed in a number of cases, of which Corney v. Brien is perhaps the most important. The court will go behind the judgment for the purpose of considering whether it was founded on a real debt. The fact that the judgment may be irregular or wrong in form is no sufficient reason for dismissing the petition ..... The object of going behind a judgment is not to inquire whether the proper procedure was followed to obtain it, but to determine whether the debtor in reality owed to the creditor the moneys which the judgment held that be owed. ..... I say nothing as to the case in which, although the existence of a real debt is established, it is shown that the court which gave the judgment had no jurisdiction to pronounce it. The Supreme Court of New South Wales had jurisdiction to give judgment for the company for the amount which it claimed, even if the form of the action and the form of the judgment should have been different. However, once the existence of the debt is found, it cannot be sufficient cause for refusing to make a sequestration order that a judgment for the correct amount, given by a court having jurisdiction, was obtained by the wrong procedure or given in the wrong form."
Gibbs J in the above case was not required to consider whether his attitude would have been different had the form of the judgment been such as to represent as a joint debt "real" debts which were in fact several.
The judgment of the Supreme Court of New South Wales, a superior court of record, is valid unless and until set aside. The liability of the applicants pursuant to such judgment is joint. It is accepted that the judgment is based upon real debts, and as to each of the applicants is in the correct amount and was given by a court having appropriate jurisdiction.
May BFC rely on the judgment to avoid the restriction that a single bankruptcy notice can not issue against several debtors? In my view the authorities show that this Court in its bankruptcy jurisdiction is concerned with the reality of the debtor/creditor relationship between the parties, as to which it may, but need not, accept a judgment as conclusive. In this case the reality as to the underlying debtor/creditor relationships between BFC and the applicants respectively is not in dispute. It is that the liabilities of the applicants respectively to BFC arose from different causes of action with the consequence that their respective underlying liabilities to BFC were several. In such circumstance I do not consider that I should accept the judgment of the Supreme Court of New South Wales as conclusive as to the debtor/creditor relationships between the parties. I conclude that BFC was not entitled to issue a single bankruptcy notice against the applicants.
With some hesitation I have reached the view that the appropriate course to follow here is not to set aside the bankruptcy notice but rather to adopt the course followed by Macrossan SPJ in Re Myers; Ex parte Mulholland and by Stable J in Re Meiklejohn & Anor; Ex parte Barnard. BFC must elect as to which of the applicants they propose to proceed against. The bankruptcy notice will be set aside against the other of the applicants.’
The respondent’s submissions
20 Counsel for the respondents submitted that there could be no suggestion that the first appellant had been confused in any relevant sense by the mistaken reference in the bankruptcy notice to “Michelina Dimasi”. That was said to be particularly so as the first appellant had vigorously asserted before the learned Federal Magistrate that he had paid the debt claimed in the bankruptcy notice. That fact was said to aid an objective conclusion that the first appellant had been under no misapprehension about what had to be done in response to the bankruptcy notice.
21 It was also argued on behalf of the respondent that the mistaken reference to “Michelina Dimasi” was incapable of invalidating the notice as far as it was addressed to Frank Dimasi. In respect of him it was, at worst, a mere formal defect or irregularity. Accordingly, it attracted the operation of s 306 of the Act because the Court could not form an opinion that substantial injustice had irremediably been caused to Frank Dimasi by the defect or irregularity. Like the error discussed by the High Court in Adams(2006) 225 ALR 396, the error in respect of the second debtor’s name did not consist in a failure to meet a requirement made essential by the Act.
22 The respondent also contended that no reason of principle or practice precluded a Court from setting aside a bankruptcy notice as against one only of two debtors named in it. It is open to a creditor to serve a separate bankruptcy notice on each of two or more joint debtors.
23 Finally, it was submitted on behalf of the respondent that it was open to McInnis FM to have made the order for costs which he did against the second appellant. That was a proper exercise of discretion because of her having sworn an affidavit, found to be false, in support of the assertion that the foundational debt had been paid by the first appellant.
Disposition of the Appeal
(a) Is a bankruptcy notice defective as against one joint debtor, invalid as against the other debtor or debtors?
24 The first substantive question raised by this appeal is whether it was open to McInnis FM, upon holding that the misdescription of the secondnamed appellant constituted a defect of a “kind which could not be cured”, to set aside the bankruptcy notice only as against the secondnamed appellant.
25 It is well established that the Court has the power to set aside a bankruptcy notice; see Re Sterling; Ex parte Esanda Ltd (1980) 30 ALR 77 per Lockhart J; Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310 per Toohey J. In Re Briggs 12 FCR where there was an application to set aside a bankruptcy notice founded on a judgment debt arising from income tax assessments, Toohey J stated, at 312, that the grounds upon which a bankruptcy notice may be set aside;
‘must relate to the form or content of the notice itself, service of the notice or the existence of the debt upon which the judgement and in turn the notice is founded.’
And further at 312;
‘In my view a court faced with an application to set aside a bankruptcy notice is constrained to look only at the regularity of the notice itself (including service) and otherwise at the circumstances surrounding the existence of the judgment debt and any demand which the debtor may have against the creditor for a comparable amount.’
26 In Re Bouziotis; ex parte Nickanna Nominees Pty Ltd (16 June 2000, VID 7299 of 2000) Registrar Fary noted at [7] that there were few examples of case law where a single bankruptcy notice which named more than one judgement debtor had been held valid as against one debtor, and invalid against another, and that this was not surprising as;
‘… matters concerning the validity of bankruptcy notices will generally have equal application to all debtors.’
27 Section 41(2) of the Act requires a bankruptcy notice to be in the form prescribed by the Regulations, relevantly, for present purposes, reg 4.02 of the Bankruptcy Regulations 1996 (“the Regulations”). Regulation 4.02 provides that, for the purposes of s 41(2) of the Act, a bankruptcy notice must be set out in Form 1 as prescribed. Form 1 appears in Schedule 1 of the Regulations, and paras 1–4 provide for the identification of the debtor, the creditor and the time and place for payment.
28 Section 40(1)(g) of the Act identifies the act of bankruptcy as depending upon the service of “a bankruptcy notice under this Act”. Given the serious consequences attached to service of a bankruptcy notice and non-compliance with it, judgment creditors are required to comply strictly with the requirements governing bankruptcy notices, which, as well as effective service, include that they be in the correct form and have the specified contents. In this context, s 306(1) of the Act provides;
‘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 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.’
29 In Adams225 ALR, in a joint judgement, the Full Court of the High Court observed at 401, that for s 306(1) to apply, there must have been;
‘some failure to comply with a statutory requirement; that is, some defect or irregularity.’
If there is such a failure, then;
‘ … it must be asked whether the defect or irregularity is a formal defect or irregularity within the purview of s 306. If it is, then it becomes necessary to consider whether substantial injustice has been caused by the defect or irregularity, and whether the injustice cannot be remedied by an order of the court. The questions whether the defect or irregularity is a formal defect or irregularity, and whether substantial injustice has been caused and cannot be remedied, are separate and distinct, the latter question arising only if the former is answered in the affirmative.’
30 In this case, there has been a failure to comply strictly with a statutory requirement, as the second appellant was not correctly identified in para 1 of the bankruptcy notice. It was open to McInnis FM to find that the misdescription of the second appellant was a defect that warranted the setting aside of the bankruptcy notice against that appellant, as the defect was capable of misleading the person so misdescribed on whom it was served so as to cause substantial injustice.
31 There was considerable discussion on the hearing of the appeal about the nature of a partnership debt. By force of s 13 of the Partnership Act 1958 (Vic) “every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner …” The debt in the present case was created by an order of the Magistrates’ Court at Mildura in respect of costs awarded against the partnership, F & M Dimasi (a firm). The liability of each of the partners was therefore joint but it does not follow that a bankruptcy notice issued in respect of it can only be effective if it is validly addressed to both partners as joint debtors.
32 The issue of a bankruptcy notice is a form of enforcement of a judgment debt and, like other modes of execution, may be directed against any partner; see eg, O 42 r 9(1) of the Rules of this Court which provides;
‘Where a judgment or order is against partners in the name of the partnership, the judgment or order may be executed:
(a) against any property of the partnership within Australia;
(b) against any partner who has entered an appearance;
(c) against any person who has admitted that he is or has been adjudged to be a partner; and
(d) against any partner who has been individually served with the originating process.’
33 The corresponding provision, more generally expressed, in the Magistrates’ Court Civil Procedure Rules 1999 (Vic) is O 27.07(1) is in these terms;
‘If in a complaint an order is made against two or more defendants jointly, the order may be enforced by warrant or otherwise against any of the defendants as if the order had been made against that defendant separately.’
34 Similarly, a creditor’s petition, the filing of which is the step taken after commission of an act of bankruptcy, which may be non-compliance with a bankruptcy notice, may be issued against one, some or all of the partners liable on the foundational partnership debt. Thus, it is observed in Lindley & Banks on Partnership (18th Edn p 785 [27]-[53]);
‘Where a partnership debt remains unpaid, the creditor retains the option of presenting a petition against some or all of the partners.’
35 That proposition finds expression in s 45(2) of the Act which provides;
‘A creditor who is entitled to present a petition against a partnership may present a petition against any of the members of the partnership without including the others.’
36 The power exercised by McInnis FM in the present case to set aside the bankruptcy notice as against one only of two joint debtors also finds an analogue in s 46(2) of the Act which stipulates;
‘Where there are 2 or more respondents to a creditor’s petition, the Court may make a sequestration order against one or more of them and dismiss the petition in so far as it relates to the other or others.’
37 This analysis is also consistent with the result arrived at by Branson J in Re McLeod; (unreported 5 October 1995; [1995] FCA 789). In that case her Honour held that a single bankruptcy notice cannot issue against two or more several debtors. However, that does not entail the corollary that, because a bankruptcy notice may permissibly issue against two or more joint debtors, if it is ineffective or invalid against one or more of them it must be set aside against all. Indeed, her Honour’s decision, in reliance on Re Myers; Ex parte Mulholland (1932) 5 ABC 128 and Re Meiklejohn; Ex parte Barnard [1961] Qd R 70, to allow the petitioning creditor to preserve the validity of a petition as against one only of more than two several debtors, points in the opposite direction. Nor does her Honour’s reasoning in Re McLeod contradict the proposition advanced by Mr Sifris SC for the respondent that separate bankruptcy notices may issue addressed to each of two or more joint debtors.
38 Similarly, neither of the two propositions which I have just identified is contradicted by Hubner v Australia and New Zealand Banking Group Ltd (1999) 88 FCR 445 to which I was referred by Mr Bigmore QC. In that case, a Full Court of this Court referred to Re McLeod in the course of concluding, at 448 [18]-[20];
‘18 As Dowsett J points out, specific authority on this question is somewhat sparse. He refers to three cases. In the first, Re Ward; Ex parte R W Brown & Co Pty Ltd (1991) 28 FCR 329, one of two joint debtors made an application to set aside a bankruptcy notice addressed to both of them. Hill J, on an appeal from the Registrar, did not express any doubt about the validity of the bankruptcy notice addressed to joint debtors in that case. In Emerson v Wreckair Pty Ltd (1992) 33 FCR 581, the Full Court heard an appeal in relation to a bankruptcy notice addressed to joint debtors. None of the three judges on appeal nor the primary judge raised any doubt as to the validity of the notice to joint debtors. In a more recent decision, McLeod v Beneficial Finance Corporation Ltd (unreported, Federal Court, Branson J, No 789 of 1995, 5 October 1995), her Honour considered whether a bankruptcy notice could be issued to several debtors. Her Honour observed (at p 13) that the right to issue a bankruptcy notice cannot be wider than the right to present a creditor's petition, and because s 46(1) of the Act expressly authorised the presentation of a creditor's petition against joint debtors, her Honour concluded that a bankruptcy notice could be addressed to joint debtors but not to several debtors.
19 Dowsett J saw no reason to doubt the correctness of the practice, indicated by these cases, of addressing a bankruptcy notice to joint debtors, because each debtor was obliged to pay the full debt and therefore was able to comply with such a notice.
20 In our view, the decision of his Honour was correct.’
See also McKinnon v Commonwealth Bank of Australia [2006] FCAFC 182, where a Full Court of this Court observed, at [34];
‘… There is no requirement that a bankruptcy notice in which two debtors are named must be served at the same time, nor is there any requirement where two debtors are named in the one bankruptcy notice that a creditor’s petition may not be presented against one even though the bankruptcy notice has not been served on the other (see Re Ward; Ex parte R W Brown and Company Pty Ltd (1991) 28 FCR 329).’
39 Further support for the view that a bankruptcy notice may be issued against one of a number of joint debtors is provided by the observations of the Court of Appeal in In re Low. Ex parte Gibson [1895] 1 QB 734. In that case an action had been brought against the debtor and five other persons but judgment was recovered only against the debtor and three of his co-defendants. A bankruptcy notice served on the debtor erroneously stated that judgment had been recovered against him and all five co-defendants. That defect, it was held, did not invalidate the notice as against the debtor. As well, it was held that a bankruptcy notice may be drawn up against, and served on, only one of a number of judgment debtors. On the latter point, Lord Esher MR observed, at 736;
‘The other point raised is not one on which the notice should be set aside. It is said that where the judgment is a joint one against several defendants, a bankruptcy notice cannot be effective except it is drawn up against all the defendants, although it need only be served on the one whom it is desired to make bankrupt. I fail to see what good it can do that one to have the names of the others put in the notice when there is absolutely no necessity for serving it on them. This is a technicality to which we ought not to listen.’
40 To similar effect, Rigby LJ concluded, at 737;
‘As to the other point raised, I cannot understand why it should be obligatory on a judgment creditor to add to the bankruptcy notice the names of all the persons against whom the judgment was recovered, when it is not his intention to follow it up against any of those persons except the one whom he proposes to serve.’
41 In re Low 1 QB 734 was applied in In re a Debtor [1936] 1 Ch 293 where, after a judgment for a debt had been recovered against a firm, a bankruptcy notice had been served on one of the partners only. In the Court of Appeal Lord Wright MR with whom Romer LJ and Greene LJ agreed, noted at 298;
‘It is said, however, that it is not in order because the judgment, being against joint debtors, that is against the firm, the bankruptcy notice ought to be served on each of those debtors individually. No authority has been produced for that proposition and, as I have already indicated, there does not seem to be any foundation for it in the terms of the Bankruptcy Act.’
His Lordship then went on to point out, at 299 that the Court of Appeal in In re Low 1 QB 734:
‘… are taking the view that all that is material is that the person against whom it is intended to proceed in bankruptcy should have the bankruptcy notice served upon him and that was done in this case.’
42 In the light of the authorities which I have just reviewed, I have come to the firm conclusion that a bankruptcy notice which complies with all of the statutory requirements in respect of one of two or more joint debtors is effective against that debtor notwithstanding that it is invalid or defective as against the other debtor or debtors or has not been served on the other debtor or debtors. Having regard to the facts of this case, it is unnecessary to express an opinion about the proposition advanced by Mr Sifris that a separate bankruptcy notice may be addressed to, and served upon, each of two or more joint debtors.
(b) Was the misnomer of one joint debtor capable of causing substantial injustice to the other debtor?
43 The second substantive question raised by the appeal is whether s 306(1) of the Act operates to validate the bankruptcy notice served upon the first appellant. The defect in the notice relied on by the first appellant is the misdescription or misnomer of the second appellant. In Malek [2007] FCAFC 14, a Full Court of this Court held that the omission of the note to para 7 in the prescribed form of the bankruptcy notice was a formal defect or irregularity, and did not have the consequence that the notice could reasonably have misled a debtor as to what was necessary to avoid the commission of an act of bankruptcy. Branson, Conti and Siopis JJ, at [18] observed;
‘Plainly the legislature intended that a creditor who seeks to place reliance on an act of bankruptcy under s 40(1)(g) should serve on the debtor a bankruptcy notice in the prescribed form. However, it is not contentious that s 306 has an operation in respect of bankruptcy notices. Some defect in a bankruptcy notice will therefore be compatible with the validity of the notice. Where, as in this case, it is not contended that any injustice has been caused by the defect, a defect compatible with validity is a defect which, having regard to the intention of the legislature and the significance of the defect seen in the context of the notice read as a whole, is appropriately characterised as “a formal defect or an irregularity”. A defect will not be characterised as “a formal defect or an irregularity” if it could reasonably mislead a debtor as to what is necessary to avoid the commission of an act of bankruptcy.’
44 The first appellant can be taken to have known, before the service of the bankruptcy notice, that he was jointly liable with the second appellant on a judgment debt owing to the respondent. I am not persuaded that the reference to the second appellant, in the bankruptcy notice, as “Michelina Dimasi” instead of “Maria Dimasi” would reasonably have misled the first appellant as to what was necessary to avoid the commission of an act of bankruptcy. I do not agree with the submission of Counsel for the appellants that the first appellant would have been as confused and misled as the second appellant by the indication in the notice that he was jointly liable on a debt with a person who was not the second appellant correctly named. My perception of the objective effect on the mind of the first appellant of the contents of the bankruptcy notice is reinforced by what he and his solicitor did in response to its service. On 30 November 2005 the appellants’ solicitor wrote in these terms to the solicitors for the judgment creditor:
‘re: F. & M. Dimasi ats Nangiloc Colignan Farms Pty. Ltd. VN 2484/05
I refer to the above matter and wish to advise that I act for F. & M. Dimasi.
Please be advised that my client has instructed me that the monies that your client states are due in pursuance to the Bankruptcy Notice are totally erroneous on the basis that the monies paid in pursuance to the Magistrates' Court Order attached to the said Notice has been paid in full.
Please be advised that my client has provided me a copy of a receipt signed by Mr. K. Davis on behalf of your client Company stating that the sum of $3,500.00 was paid in cash to Mr. Davis on behalf of your client on the 8th June, 2004 which document is evidence of the receipt of the said monies by Mr. Davis which acknowledges that the money has been paid in full and final settlement of the debt herein.
Please find enclosed a copy of the receipt and in view of the contents, I must now request that you contact me as a matter of extreme urgency to confirm that the Bankruptcy Notice is of no effect and that your client will no longer proceed with this matter.
Take notice that if your client does not confirm that the Notice is of no effect and ceases any action against my clients herein, then I have been instructed to make an Application to the Court that the said Notice is invalid and a further Application that your client pay all the costs involved in the said Application and in that regard, this letter will be used on the question of those costs.
I must therefore request your reply by return fax that your client will not proceed any further with the matter herein.’
45 The contention in that letter that the bankruptcy notice was “of no effect” seems to have been based entirely on the assertion that the judgment debt had been paid and that a receipt was held evidencing that payment. There is no indication in the letter that Mr Dimasi was confused by the mistaken reference in the bankruptcy notice to “Michelina” Dimasi or was under any misapprehension about what he had to do to comply with the notice.
46 It was submitted in reply by Mr Bigmore that the bankruptcy notice in the present case indicated that it was necessary for the first appellant to pay an amount jointly with a person wrongly named as “Michelina Dimasi.” That indication was said to be confusing and to create an inability to comply with the notice. That submission, in my view, misstates what was required in order to comply with the bankruptcy notice. What the bankruptcy notice required of each of the persons to whom it was addressed was that he or she pay to the judgment creditor the amount of the judgment debt particularised in the Schedule, or secure or compound for it to the satisfaction of the creditor, or seek, within 21 days of service, to have the bankruptcy notice set aside. The misnomer of the second of those persons as “Michelina Dimasi” was not capable of misleading the first appellant as to what he had to do under any of the three alternative modes of complying with the notice. Each of those modes was capable of being implemented by the first appellant without reference to the other judgment debtor by whatever name she might have been identified in the bankruptcy notice.
47 Section 306(1) clearly provides that bankruptcy proceedings are not invalidated by a formal defect, unless it be shown that “substantial injustice” has been caused by the defect or irregularity. In my view, no “substantial injustice” has been caused in the present case.
(c) The order for costs against the second appellant
48 Mr Bigmore contended that, if it were held that the learned Federal Magistrate should have set aside the bankruptcy notice as against both appellants, then costs in the court below should follow the event or, at worst for the appellants, there should be no order as to those costs. He did not press the contention that his Honour’s discretion miscarried in awarding costs on an indemnity basis against the second appellant even if the bankruptcy notice were not set aside as against the first appellant.
49 In view of my conclusion that the bankruptcy notice was effective as against the first appellant, it is unnecessary to consider the contention which was pressed as to costs. The second appellant was successful below in having the bankruptcy notice set aside as against her and so was in a position analogous to that of a non-party in relation to costs. However, Mr Bigmore candidly conceded that the validity of the bankruptcy notice in relation to the second appellant had not been argued or determined as a separate or preliminary point and most of the evidence and argument before the learned Federal Magistrate had been directed to the appellants’ assertion that the judgment debt had been paid and a receipt issued by the respondent. That assertion was supported by an affidavit sworn by the second appellant and was rejected by his Honour as fraudulent. In these circumstances, I can detect no error of principle, mistake of fact, reliance on an irrelevant matter or failure to take into account some material consideration which, in accordance with the well-known statement in House v The King (1936) 55 CLR 499 at 504-505, can warrant an appellate court in exercising for itself a discretion like that involved in the present order for costs. Accordingly, the appeal by the second appellant also fails.
Conclusion
50 For the reasons which I have endeavoured to explain, each of the attacks on the orders the subject of the appeal must be rejected. The appeal will therefore be dismissed with costs.
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I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. |
Associate:
Dated: 9 March 2007
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Counsel for the Appellants: |
Mr G Bigmore QC |
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Solicitor for the Appellants: |
Wisewoulds |
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Counsel for the Respondent: |
Mr M L Sifris SC |
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Solicitor for the Respondent: |
Leonard Legal |
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Date of Hearing: |
26 February 2007 |
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Date of Judgment: |
9 March 2007 |
