FEDERAL COURT OF AUSTRALIA

Cosenza v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] FCA 85

THE COURT ORDERS THAT:

1.    The application be dismissed.

2.    The applicant pay to the respondent costs of the application.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    This is an application to set aside a bankruptcy notice.

Background

2    In order to put the application in context it is useful to examine the history of the litigation between the parties. Essentially the matter concerns a series of decisions made by Centrelink about the applicant’s receipt of a Carer’s Payment under the Social Security Act 1991 (Cth) (the SS Act) for the care the applicant provides to his elderly mother.

3    On 20 May 2008, Centrelink cancelled its payment of the applicant’s Carer’s Payment and raised a debt of $91,396.50 in relation to the previously paid Carer Payment, Austudy and Newstart Allowance payments (the first decision) under the SS Act. The decision was based on the applicant’s failure, without reasonable excuse, to provide documents and information to the respondent as required by various Notices given to him, in particular on 30 April 2008.

4    The applicant sought review by the Social Security Appeals Tribunal (SSAT). On 8 August 2008, the SSAT set aside the first decision and ordered that the Carer Payment be suspended rather than cancelled, and requiring the respondent to further consider raising the debt.

5    The applicant then applied for review of the SSAT decision to the Administrative Appeals Tribunal (the AAT). On 18 March 2009, the AAT affirmed the SSAT decision suspending the Carer Payment, and directed the respondent to further consider the raising of the debt in the light of further information then provided by the applicant.

6    On 10 August 2009, an officer of the respondent, as required by the AAT decision, made a fresh decision about the applicant’s entitlement to the Carer’s Payment. It was in the same terms as the first decision of 20 May 2008. The decision to raise the debt was also made again. This decision was subject to review and subsequently under s 126 of the SS Act it was set aside by the respondent on 26 November 2009, and instead the applicant’s entitlement was again suspended, but the debt itself was no longer to exist.

7    In the meantime, the applicant applied for judicial review of the AAT decision on 23  April 2009 (SAD 57/2009). That application was amended to challenge the decision of 10 August 2009. The challenge persisted, despite the further decision of 26 November 2009.

8    On 18 December 2009 that application was dismissed: Cosenza v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] FCA 1525 (the first decision). Costs were ordered against the applicant. A Certificate of Taxation was issued on 19 July 2010 pursuant to a taxation of the respondent’s costs. On 19 November 2010 the Certificate of Taxation was entered as an Order of the Court.

9    On 9 February 2011, the applicant, in the judicial review proceeding, applied amongst other things, to set aside the Order of 19 November 2010 about the taxed costs and for review of the taxation. On 9 February 2011, another judge of the Court dismissed that application with costs. On 7 July 2011, by consent, the respondent’s costs of that further application were fixed in the sum of $595.

10    On or around 2 February 2011, the respondent issued a further notice replacing that of 30 April 2008 seeking more information about to the applicant’s entitlement to the Carer’s Payment. On the basis of the information then provided by the applicant, the respondent reinstated the applicant’s Carer’s Payment with retrospective effect.

11    On 22 August 2011 the respondent served the applicant with a bankruptcy notice issued under the Bankruptcy Act 1996 (Cth) (the Act), based on the costs Orders of 18 December 2009 and 7 July 2011 and the interest said to be accrued on them, notwithstanding that the applicant by then had been paid the Carer’s Payment for the whole period previously in dispute, and continued to receive it.

The issues

12    The applicant now applies for the Bankruptcy Notice to be set aside.

13    In support of his application, the applicant referred in a general way to a number of affidavits, in particular his affidavit of 13 January 2011 filed in earlier proceedings, and to his Statement of Facts Issues and Contentions and his Written Submissions both filed on 7 November 2011. The contents of all those documents have been considered. The respondent’s Statement of Facts Issues and Contentions identified eight particular issues to be addressed. In his oral submissions, the applicant accepted that those issues each separately required to be addressed arising out of his material. It is convenient to consider the application by reference to those eight issues.

14    Fundamentally, the applicant’s point is that the respondent at all times was in receipt of all the necessary information required to make a “new decision” as to his entitlement to the Carer’s Pension at 7 December 2009. He says that he provided information to the respondent on 2 February 2010 following the AAT decision, as required by that decision, and pursuant to a subsequent notice, and that that was the further information which enabled, or led to, the respondent deciding to restore the Carer’s Payment. He also says that the information provided was different from that required by the notice of 30 April 2008. He also says that the decision of the respondent to restore the Carer’s Payment could have, and should have, been made prior to 2 December 2009. His practical complaint is that the respondent, through its officers, was simply not attempting to make a proper decision on the material but was (to use his words) playing “pass the parcel” on the decision about his entitlement.

15    It is not necessary to address in detail those assertions. The Bankruptcy Notice is based upon the two costs orders referred to. The particular points attacking its status or the status of the two costs orders as they are said not to be capable of providing the basis for the Bankruptcy Notice must be addressed. To attack, in a general way, the overall decision-making process of the respondent does not make the Bankruptcy Notice invalid or capable of being set aside.

16    The following eight issues arise on the application:

(a)    whether the Court ought to go behind the Order of 18 December 2009;

(b)    whether interest accrues on the costs Order dated 7 July 2011;

(c)    whether the Orders dated 19 November 2010 and 7 July 2011, relied upon in the Bankruptcy Notice, are ‘final orders’ within the meaning of ss 40(1) and 41(3) of the Act;

(d)    whether the misnomer on the face of the order dated 19 November 2010, and also referred to on page 3 of the Bankruptcy Notice can be cured by s 306(1);

(e)    whether or not two final orders can be relied upon in a Bankruptcy Notice within the meaning of section 41(1) of the Act;

(f)    whether the applicant can satisfy the Court that he has a claim for defamation which gives rise to a counterclaim, set-off or cross demand equal to or not exceeding the judgment debts relied upon for the Bankruptcy Notice (s 41(1)(g);

(g)    whether the applicant can satisfy the Court that he has a claim for trespass which gives rise to a counterclaim, set-off or cross demand equal to or not exceeding the judgment debts relied upon for the Bankruptcy Notice (s 41(1)(g); and

(h)    whether service of the Bankruptcy Notice constituted an abuse of process.

Going behind the Judgment

17    The applicant submits that it is appropriate for the Court to go behind the orders of 18 December 2009 made in the first decision. He submits that no order as to costs should have been made on 18 December 2009.

18    It is a settled principle that the Court will be reluctant to go behind a judgment once it has been the subject of adjudication by the Court, even if there were problems with the debtor’s representations at, or unusual features about, the hearing at which it was obtained: Re Huston; Ex parte Kendall, McAdam & O’Dwyer (1985) 8 FCR 355. That is not to accept that there were any problems with, or unusual features of, the first decision. It has not been shown that the judgment in the first decision was in error. The fact that, upon reconsideration, the respondent subsequently reversed an earlier decision and reinstated the suspension of the Carer’s Payment does not have that effect. The first decision was prompted firstly by the AAT decision, then by amendment by the respondent’s decision of 10 August 2009, and then by foreshadowed amendment by the respondent’s decision of 26 November 2009. However, the end result was that none of those decisions were set aside. Ultimately, it was not successfully shown that a proper foundation for the decision of 16 November 2009 did not exist. Consequently, no reason has been shown why the costs order as part of the first decision should not have been made. The award of costs in that circumstance does not amount to a miscarriage of justice. It reflects not just an available, but a proper, exercise of the Court’s discretion under s 43(2) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act).

19    The costs order was therefore made in the applicant’s unsuccessful proceedings in this Court. As the primary judge said in the first decision given at [27], the remedy was in the hands of the applicant by providing further information and seeking a fresh decision about his entitlement to the Carer’s Payment in the light of it. He need not have brought those proceedings. Initially, the application to this Court sought to set aside the AAT decision of 18 March 2009. The AAT reasons exposed the information which “necessitated the provision of further information to the respondent in response to the notices that had been issued on 30 April 2008. The AAT concluded that the applicant had failed without reasonable excuse to comply with the notices issued to him on 30 April 2008 under s 63 of the SS Act. The first decision concerned whether it had been shown that the challenged decisions were legally invalid. The applicant does not succeed on this application by asserting that, by reason of subsequent events (the reinstatement of his Carer’s Payment) or by reason of the course of events before then there was doubt about whether the entitlement should have been cancelled or suspended. Moreover, there was no appeal from that decision.

20    The applicant submitted that the conduct of the respondent in relation to the first decision unnecessarily inflated the costs. However, if that were correct, it was a matter to have been put to the Court at the time, and if it was put then it is not shown that it was not considered or that the costs discretion miscarried. His contention that the respondent should have been ordered to pay the costs to 26 November 2009 misconceives the nature of that proceeding. That submission shows that the applicant is really seeking to re-argue the costs order of 18 December 2009. His approach must fail. First, he has done no more than present an argument, but the argument does not recognise accurately the nature of the proceeding. As noted, costs were ordered against the applicant because he had not persuaded the Court that the AAT decision – which was that he had not complied with the Notice of 30 April 2008 – should be set aside. The subsequent decisions of the respondent of 10 August 2009 and 26 November 2009 were not shown to have been invalid. Indeed, that decision stands as no appeal was brought. Secondly, he has not shown that the order for costs which was made was not properly within the costs discretion.

Interest on costs

21    As to the Orders of 7 July 2011, the applicant submits that interest has erroneously been applied. That Order was made by consent. The Court has power to go behind a consent order where there is evidence that it has been obtained by fraud or collusion, but there is no such evidence.

22    Section 52 of the FCA Act provides that:

52 Interest on judgment

(1)    A judgment debt under a judgment of the Court carries interest from the date as of which the judgment is entered.

(2)    Interest is payable:

(a)    at such rate as is fixed by the Rules of Court; or

(b)    if the Court, in a particular case, thinks that justice so requires—at such lower rate as the Court determines.

23    “Judgment” is defined I the FCA Act to include a judgment, decree or order, whether final or interlocutory. Interest was payable on those costs orders in accordance with s 52 of the FCA Act.

Final Orders

24    The applicant argues that the costs orders upon which the Notice relies are in fact interlocutory in nature and therefore cannot be relied upon for the purposes of a Bankruptcy Notice.

25    The relevant sections of the Act are ss 40(1) and 41(3):

40 (1)    A debtor commits an act of bankruptcy in each of the following cases:

…

(g)    if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i)    where the notice was served in Australia—within the time specified in the notice; or

(ii)    where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service;

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

41    Bankruptcy Notices

…

(3)    A bankruptcy notice shall not be issued in relation to a debtor:

(a)    except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;

(b)    if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed; or

(c)     in respect of a judgment or order for the payment of money if:

(i)    a period of more than 6 years has elapsed since the judgment was given or the order was made; or

(ii)    the operation of the judgment or order is suspended under section 37.

26    The words “or final order” were added to section 40(1)(g) by the Bankruptcy Legislation Amendment Act 2002 (effective from 5 May 2003) to remove the distinction between final judgments and final orders.

27    The costs order made on 18 December 2009, together with the subsequent taxation and the Certificate of Taxation entered as an order of the Court in accordance with O 62 r 45(6) of the Federal Court Rules as then in force, and the costs order made on 7 July 2011, were both final orders as they gave rise to an obligation on the part of the applicant to pay those sums, and they finally disposed of those matters: Abigroup Ltd v Abignano (1992) 39 FCR 74 at 80-81; Re Gibbs, Ex parte Triscott (1996) 65 FCR 80 at 92. They are each orders which constitute judgments under the Federal Court Rules.

Misnomer in the Notice

28    The Bankruptcy Notice is apparently in proper form. It specifies the total of the judgment debts (the two costs orders) and the interest accrued on them, to reach a total debt. The Schedule of post-judgment interest calculation then separately specifies the amounts of the two costs orders, and the interest calculation. However, that Schedule says that the costs order made as part of the final orders in the first decision was in SAD 59 of 2009, rather than in SAD 57 of 2009 (as was in fact the case). The attached Certificate of Taxation refers to the costs ordered, the first decision having been taxed in SAD 57 of 2009, but the attached sealed order of 19 November 2009, obviously in error, for payment of those costs has the number SAD 59 of 2009. Each of those documents has the correct party names and the same sum for the taxed costs.

29    It therefore appears that the order of 19 November 2009 has the incorrect action number in its heading, and that incorrect number has been carried into the Schedule for the interest calculation.

30    The error having now been pointed out, the “slip rule” is clearly available to correct the action number in that Order: Rule 39.05 of the Federal Court Rules 2011.

31    The applicant argues that this amounts a ‘substantive and fundamental defect’ rendering the Notice invalid.

32    Section 306 of the Act provides:

306    Formal defect not to invalidate proceedings

(1)    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.

(2)    A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.

33    The key is whether the notice could reasonably have mislead the applicant: Kleinwort Benson Australia Ltd v Crown (1998) 165 CLR 71 at 77-80. In Northam v Commonwealth Bank of Australia [1999] FCA 544 at [22] citing Re Wimborne; ex parte Debtor (1974) 24 ALR 494 at 498-499, Weinberg J said that “a bankruptcy notice must, while being read strictly, also be read sensibly, and not perversely. It must also be read as a whole, and be read in light of facts extraneous to the notice itself.”

34    I find that the Bankruptcy Notice did not mislead, and could not reasonably have mislead, the applicant about the basis of that costs liability. He did not suggest that he was in fact mislead. Correspondence between him and the respondent leading up to the Bankruptcy Notice clearly indicates that the respondent was relying upon the costs order made in the first decision, and that the applicant understood that. No-one in his position could have been mislead or confused about the foundation, or the asserted foundation, for that part of the total debt. The attached Certificate of Taxation bears the correct action number and the same sum for the costs, and there was a clear inter-relationship between the Certificate of Taxation and the Order of 19 November 2011 (by their respective contents). The two documents read together would resolve any uncertainty, but in any event, I find that the applicant clearly understood the source of that asserted debt.

35    In addition, I find that no substantial injustice has been caused by the defect. The amount due listed on the Notice was correct. The Certificate of Taxation was annexed to the Notice with the correct action number and listing the same amount due. The applicant was self-represented and was therefore personally aware of the relevant orders. There had been earlier correspondence from the respondent to the applicant which, if it were relevant, also indicates that the applicant clearly understood in any event the source of the costs liability referred to in the Bankruptcy Notice.

36    In those circumstances, I find that s 306 operates to sustain the validity of the Bankruptcy Notice.

“Two or more judgments”

37    The applicant further argues that the Bankruptcy Notice is a nullity because it is based on two separate costs judgments to make the sum of $5,000 under s 41(1)(b) of the Act. The applicant submits that the creditor cannot rely upon two orders to make up the debt, where one order is greater than the statutory minimum and the other is below the statutory minimum.

38    Section 41 of the Act provides:

41    Bankruptcy notices

(1)    An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:

(a)    a final judgment or final order that:

(i)    is of the kind described in paragraph 40(1)(g); and

(ii)    is for an amount of at least $5,000; or

(b)    2 or more final judgments or final orders that:

(i)    are of the kind described in paragraph 40(1)(g); and

(ii)    taken together are for an amount of at least $5,000.

…

39    Section 41(1)(b) was inserted, to accommodate the accumulation of two or more judgments by the Bankruptcy Legislation Amendment Act 2002 (Cth). There is no defect in the Bankruptcy Notice by its reliance on the two costs orders: Autron Pty Ltd v Benk [2011] FCAFC 93 at [36].

The counter-claims

40    The applicant makes two submissions about potential counter-claims. He says that he has a counter-claim equal to or exceeding the total amount of the judgment debts.

41    Sections 40(1)(g) and 41(7) require the court to weigh up ‘the legal and factual merit of the claim advanced by the applicant, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim’: Guss v Johnstone (2000) 74 ALJR 884 at 890.

42    The mere production of a statement of claim in an action alleging facts which, if true, might give rise to such a claim will be insufficient to satisfy the court as required: Re Cox (1934) 7 ABC 98. The debtor must “show” the existence of a prima facie case in support of the counterclaim, set-off or cross-demand, by producing evidence of it: Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 at 140, even though the evidence that would make out its prima facie case would not need to be admissible as on a final hearing: Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 at 350. There must be some reasonable prospect of success on the claim.

43    I am not satisfied that the applicant has established a prima facie counter-claim, set-off or cross demand, in defamation or in trespass. The applicant has not provided any evidence to show that the foreshadowed claims have any merit. The defamatory imputations have not been identified. No publication beyond those who apparently have a proper interest in receiving it has been alleged. There is no explanation as to how the figure for $70,000 in damages has been quantified, nor any evidence as to what loss has been suffered and on what grounds any findings for damages might be made in his favour. No factual basis for the claim of trespass to land has been asserted. The applicant in submissions also said he did not intend to proceed with that claim, although he maintained that it somehow added to the allegation that the respondent has been acting in bad faith. There is in short only the assertion of the claims.

Abuse of process

44    The applicant’s final submission is that the Court ought to exercise its discretion to set aside the Bankruptcy Notice as an abuse of process. The applicant submits the filing of the Bankruptcy Notice should be taken as part of the “acrimonious and tortured history” with the respondent, and submits that the respondent filed the notice to “put pressure on, frustrate and embarrass the applicant”, particularly in response to the applicant’s defamation action filed against the respondent, and also to jeopardise the applicant’s possible future admission as a legal practitioner in South Australia. The applicant also points to the fact that the respondent was able to garnishee its payments in order to meet the debt due.

45    I do not consider that there is any evidence that the respondent is pursuing the bankruptcy of the applicant for any collateral purpose: see Williams v Spautz (1992) 174 CLR 509. That allegation is not made out.

Conclusion

46    The applicant’s case has not been made out.

47    The application is dismissed. The applicant is to pay the respondent’s costs of the application. The consequence is also that the applicant has failed to comply with the Bankruptcy Notice.

48    The applicant has committed an act of bankruptcy. On petition by a creditor, the Court may make a sequestration order against the estate of the applicant; upon the making of which the applicant will become a bankrupt.

Associate:

Dated:    13 February 2012