Re Michael Alan Francis Ex Parte: Harold Borrodell Gartrell [1983] FCA 129; (1983) 77 FLR 80 (1 July 1983)

FEDERAL COURT OF AUSTRALIA

Re: MICHAEL ALAN FRANCIS
Ex parte: HAROLD BORRODELL GARTRELL [1983] FCA 129; (1983) 77 FLR 80
No. B1925 of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Lockhart J.(1)

CATCHWORDS

Bankruptcy - Bankruptcy Notice - Application to set aside - Whether execution of District Court judgment stayed by District Court Registrar not considering "forthwith" debtor's application for instalment order - Whether notice which incorrectly states "place" for payment of the debt fundamentally defective.

Bankruptcy Act 1924 s. 52.

Bankruptcy Act 1966 ss. 40, 41.

District Court Act 1973 (N.S.W.) ss. 4, 87, 88, 195.

Bankruptcy - Bankruptcy notice - Application to set aside notice - Whether execution of District Court judgment stayed by District Court - Registrar not considering "forthwith" debtor's application for instalment order - Whether bankruptcy notice which incorrectly states "place" for payment of debt fundamentally defective - Whether the debtor has committed an act of bankruptcy by not complying with the notice - Bankruptcy Act 1924 (Cth), s 52 - Bankruptcy Act 1966 (Cth), ss 40, 41 - District Court Act 1973 (NSW), ss 4, 87, 88, 195. On 19 March 1982 the creditor obtained judgment against the debtor for $3,000 in the District Court at Dubbo. On 17 December 1982 the debtor lodged an application with the Registrar of the District Court at Dubbo for leave to pay the judgment debt by instalments. The Registrar did not deal with the application for some months until 21 June 1983 when the Registrar made an order that the unpaid amount of the judgment debt be paid by instalments. On 21 April 1983 the creditor procured the issue of a bankruptcy notice requiring the debtor within fourteen days after service of the notice on him to pay the sum claimed to the "Registrar, District Court, Court House, Orange", which notice was served on the debtor on 13 May 1983. The debtor sought to set aside the bankruptcy notice as being invalid. The debtor argued that the Registrar was required pursuant to "s 88(4) of the District Court Act 1973 (NSW)" to "forthwith" consider and determine the application and that in the circumstances his failure to forthwith determine the application must be treated as a refusal to make an instalment order. Pursuant to s 88 of the District Court Act 1973 where the Registrar refuses to make an instalment order he is required to set down the application for hearing in the District Court and until the application is determined by the court the application operates as a stay of enforcement. Accordingly, the debtor argued that the enforcement of the judgment was stayed before the time of the issue of the bankruptcy notice and accordingly, pursuant to ss 40(1) and 40(3)(d) of the Bankruptcy Act 1966 the notice was bad. It was further argued that the bankruptcy notice was bad in that it required the debtor to pay the judgment to the "Registrar, District Court, Court House, Orange" which was not in accordance with the judgment as required by ss 41(1)(a) and 41(2)(a)(i) of the Act.

Held: (1) A stay of enforcement of a District Court judgment commences once an instalment order is made by the Registrar or the District Court, or when the Registrar refuses to make such an order, but no stay operates where the Registrar fails to "forthwith" determine an application for an instalment order pursuant to s 88(4) of the District Court Act 1973.

(2) The bankruptcy notice required the debtor to pay the judgment debt to the District Court Registrar at Orange whereas the command of the District Court judgment required the debtor to pay the amount of the judgment debt to the Registrar of the District Court at Dubbo. Accordingly, the bankruptcy notice does not comply with s 41(2)(a)(i) of the Act or with the prescribed form and the defect was of a kind which could reasonably mislead the debtor and could not be regarded as merely formal under s 306 of the Act.

Re Mellick (1971) 19 FLR 1; Pillai v Comptroller of Income Tax (1970) AC 1124; Re a Debtor (1951) Ch 313; Re Abrahamson; Ex parte Crisp & Gunn Ltd (1978) 37 FLR 217; Re Martin (1971) 18 FLR 372, referred to.

(3) The debtor had not committed an act of bankruptcy by not complying with the requirements of the notice because it was a fundamentally defective notice.

Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378; Re Vella; Ex parte Seymour [1983] FCA 115; (1983) 48 ALR 420, distinguished.

(4) The bankruptcy notice should be set aside.

HEARING

Sydney, 1983, June 28; July 1. 1:7:1983
APPLICATION

Application to set aside bankruptcy notice.

C J Stevens, for the petitioning creditor.

P Brereton (solicitor), for the debtor.

Solicitors for the petitioning creditor: Turner, Whelan & Wells.

Solicitors for the debtor: Booth, Brown, Samuels & Olney.
JJI

ORDER

That the Bankruptcy Notice 1925 of 1983 be set aside.

That the creditor pay one half of the debtor's costs including res erved costs and the costs of 28 June 1983 when this hearing commenced.

Orders accordingly

DECISION

I propose to give judgment now as I have reached a firm view as to the result of the case. The helpful arguments of counsel for the creditor and of the solicitor for the debtor have facilitated that course.

This is an application to set aside a bankruptcy notice as invalid. The applicant debtor was the defendant in an action brought in the District Court of New South Wales at Dubbo by the respondent creditor as plaintiff.

On 19 March 1982 the creditor recovered judgment against the debtor for $3,000 following a contested hearing. An appeal was lodged to the Supreme Court of New South Wales from that judgment, but was later dismissed by consent. On 17 December 1982 the debtor lodged an application with the registrar of the District Court at Dubbo for leave to pay the judgment debt by instalments. The registrar did not deal with the application for some months because the District Court file in the matter was sent to the Supreme Court at Sydney on 29 April 1982 for the purpose of the appeal and was not returned to him until about 21 June 1983 when the registrar made an order that the unpaid amount of the judgment debt be paid by instalments.

In the meantime, on 21 April 1983, the creditor procured the issue of a bankruptcy notice directed to the debtor which recited that the creditor claimed the sum of $3000 together with interest at the rate of 10 per centum per annum from 19 March 1982 to 21 April 1983 namely, $272.88, making a total of $3272.88. The notice then required the debtor, within 14 days after service of the notice on him, excluding the day of service, "(A) to pay the sum of $3272.88 so claimed by the judgment creditor to (C) Registrar, District Court, Court House, Orange" or to secure payment of that sum or compound it. The bankruptcy notice was served on the debtor on 13 May 1983. He did not comply with its requirements or seek any extension of time to comply with those requirements or file an affidavit under sub-s. 41(7) of the Bankruptcy Act 1966. If the notice is valid, then the debtor committed an act of bankruptcy on 27 May 1983.

The first ground on which the notice is attacked is that it is erroneous in stating that execution on the judgment has not been stayed. It was argued on behalf of the debtor that at the dates of both the issue and service of the notice, execution had been stayed on the judgment.

The argument was based on Division 4 of Part 1V of the District Court Act 1973 (N.S.W.) relating to the enforcement of judgments. The District Court may, when giving judgment in an action, order that the judgment debt be paid by instalments: sub-s. 87(1). Where the court makes such an order it shall, while it remains in force, operate as a stay of enforcement of the judgment: sub-s. 87(5). Whether or not an order has been made under sub-s. 87(1) the judgment debtor may apply in writing, supported by an affidavit, as to his property and means to the registrar for leave to pay the judgment debt by instalments: para. 88(1)(a).

Where such application is made by a judgment debtor the registrar:

". . . shall forthwith consider and determine the application and may -

(i) order that the judgment debt be paid by such instalments payable at such times as are specified in the application; or

(ii) refuse to make such an order . . . ": sub-s. 88(4).

Where the registrar refuses to make an instalment order he shall set down the judgment debtor's application for hearing by the District Court, and that court may deal with the application and make an order for payment of the judgment debt by instalments or refuse to make such an order: sub-s. 88(6). Where the registrar or the District Court makes an instalment order, it shall, while it remains in force, operate as a stay of enforcement of the judgment: sub-s. 88(8).

Where an application is made by the judgment debtor under sub-s. 88(1) and no application in respect of the judgment debt has previously been made under that sub-section or under sub-s. 87(1) and the registrar refuses under sub-s. 88(4) to make an instalment order, the application shall, until it is dealt with by the court under sub-s. 88(6) and unless the court otherwise orders, operate as a stay of enforcement of the judgment: sub-s. 88(7).

If the enforcement of a judgment is stayed before the time of the issue or the service of a bankruptcy notice, the notice is bad; paras. 40(1) (a) and 41(3)(d) of the Bankruptcy Act: Re Moss; Ex parte Tour Finance Limited (1968) 13 F.L.R. 101 at pp. 103 - 104; Re Padagas; Ex parte Carrier Air Conditioning Pty. Limited (1977) 16 A.L.R. 475 at p. 476.

The argument advanced on behalf of the debtor was that the registrar failed to "forthwith" consider and determine the debtor's application for an instalment order, notwithstanding the command of sub-s. 88(4); and that in the circumstances he must be treated as having refused to make the instalment order.

It is true there was a substantial delay in dealing with the debtor's application for an instalment order - from 17 December 1982 (when the application was lodged) to 21 June 1983 (when the instalment order was made); but the delay was apparently due to the fact that the relevant District Court file was with the Supreme Court in Sydney pending the hearing of the appeal. Notwithstanding the statutory requirement that the registrar shall "forthwith" consider and determine an application for an instalment order, I do not think that a combination of that requirement and the passage of some six months before the registrar actually considered and determined the application constitutes a refusal by the registrar to make an instalment order.

A stay of enforcement of a District Court judgment commences once an instalment order is made by the registrar or the District Court, or when the registrar refuses to make such an order. The purpose of the latter stay is plainly to protect the judgment debtor from enforcement of the judgment against him until the District Court has heard and determined the application. It is impermissible to regard the requirement that the registrar consider and determine the application "forthwith" as reflecting a legislative purpose that the failure of the registrar to observe that requirement leads to a deemed refusal by him to make an instalment order.

If the debtor's argument were correct the date of the deemed refusal, and therefore of the commencement of the stay, would necessarily be uncertain. Acceptance of the argument would produce the incongruous result that the registrar would be required to set down the judgment debtor's application for hearing by the District Court as soon as practicable after the date of his deemed refusal to make the instalment order. In other words, the failure of the registrar to consider and determine the application, which is elevated to the status of a deemed refusal to make the instalment order, is the very event which would give rise to a positive obligation of the registrar to set down the application before the Court. I cannot accept that this argument is correct.

Doubtless the legislature required the registrar to "forthwith" consider and determine an application for an instalment order for the purpose of ensuring that such an application would be dealt with expeditiously. If it is not dealt with in this manner then the judgment debtor has remedies available to him. For example, he may apply to the Supreme Court for an order requiring the registrar to perform his statutory duty: s.195 of the District Court Act.

I reject this attack on the bankruptcy notice.

The second ground on which the notice is attacked is based on the fact that it requires the debtor to pay the judgment debt to the "Registrar, District Court, Court House, Orange", whereas para. 41(1)(a) and sub-para. 41(2)(a)(i) of the Bankruptcy Act provide that a bankruptcy notice shall be in accordance with the prescribed form which shall be such that the notice requires the debtor named in it to pay the judgment debt in accordance with the judgment. The relevant portion of the prescribed form is in these terms:

". . . you are required - (a) to pay the sum of $ so claimed by the judgment creditor to (here insert "the judgment creditor", or, if the judgment or order requires payment to be made to a court or a person other than the judgment creditor, the name and address of the Court or the other person to whom payment is required to be made);-OR-. . . "

The certificate of the judgment in the District Court in this case simply records, so far as material, that the creditor recovered judgment against the debtor on 19 March 1982 for $3000.

Sub-section 87(3) of the District Court Act provides that the amount of every judgment debt whether payable in one sum or by instalments shall be payable to the registrar.

Sub-section 4(1) defines "the registrar" in relation to any proceedings as meaning "the registrar for the proper place in relation to the proceedings." "Proceedings" is defined as meaning "proceedings in the Court. "Proper place" in relation to any proceedings in the Court in its civil jurisdiction is defined as follows:-

"(a) where there has been no change of venue in respect of the proceedings - means the proclaimed place at which the proceedings were commenced;
(b) where there has been only one change of venue in respect of the proceedings - means the proclaimed place to which the venue was changed; or
(c) where there have been two or more changes of venue in respect of the proceedings - means the proclaimed place to which the venue was last changed."

Although there is no evidence before me that Dubbo is a "proclaimed place" within para. (a), (b) or (c) of the definition of that expression, it was the place in which the action was heard and judgment entered, and where the application for an instalment order was lodged and where such an order was later made.

Whether the District Court action was commenced in Dubbo or whether it was commenced elsewhere and the venue was changed to Dubbo, plainly the venue, when judgment was entered, was Dubbo which was then the proper place. It is common ground that this is so.

The bankruptcy notice in the present case requires the debtor to pay the judgment debt to the registrar, District Court House, Orange, whereas the command of the District Court judgment was, by virtue of sub-s. 87(3) and the relevant definitions in sub-s. 4(1) of the District Court Act, that he pay the amount of the judgment debt to the registrar of the District Court, Dubbo.

The notice does not comply with sub-para. 41 (ii)(a)(i) or with the prescribed form. In my opinion the defect in the notice is of a kind which could reasonably mislead the debtor and cannot be regarded as merely formal under s.306: see Re Mellick (1971) 19 F.L.R. 1; Pillai v. Comptroller of Income Tax (1970) A.C. 1124 at p. 1135; In Re A Debtor (1951) 1 Ch. 313; Re Abrahamson; Ex Parte Crisp & Gunn Limited (1978) 22 A.L.R. 749; and Re Martin (1971) 18 F.L.R. 372.

It was submitted on behalf of the creditor that the debtor could not have been misled by the defect in the notice because the District Court proceedings were contested by him and he must have known that they were heard in Dubbo and that judgment was entered there. Indeed, it was in Dubbo that he lodged his own application for an instalment order. I am prepared to assume this state of knowledge in the mind of the debtor for the purposes of the argument, but it does not in my view avail the creditor. The fact is that the notice required payment to be made to the registrar, District Court, Court House, Orange. There is, I think, force in the view that a notice in that form, in circumstances where the debtor is assumed to have the knowledge to which I have referred, would create even greater confusion in the mind of the debtor.

As to the question whether the bankruptcy notice can be set aside by the Court, the debtor has not committed an act of bankruptcy by not complying with the requirements of the notice because it is a fundamentally defective notice. This case is to be distinguished from cases such as Re Hanby; Ex parte Flemington Central Spares Pty. Limited, (1967) 10 F.L.R. 378, and Re Vella; Ex parte Michael Thomas Seymour a judgment of Morling J., unreported, 10 June 1983.

In Hanby's Case the petitioning creditor obtained a judgment against the debtor, a fourteen day bankruptcy notice was issued and served on the debtor on 16 May 1966, the debtor did not either comply with the requirements of the notice or seek an extension of time to comply with them. The petition seeking the sequestration of his estate was presented, but the hearing on the return day (10 February 1967) was adjourned because the debtor had taken proceedings in the District Court to set aside the default judgment. The judgment was in fact set aside on 29 March 1967, and the debtor was let in to defend the action. The proceedings in the District Court were subsequently settled upon terms that there be a verdict for the plaintiff in a sum somewhat smaller than the amount for which the default judgment had been entered.

When the petition subsequently came on for hearing it was contended on behalf of the debtor that, as the judgment had been set aside, it could no longer be treated as a final judgment for the purposes of para. 52(j) of the Bankruptcy Act 1924, a provision which finds its counterpart in para. 40(1)(g) of the present Act. No application was made to the Court to set aside the notice, but Gibbs J. (as he then was) had this to say at p. 381:

"It was, however, said on behalf of the debtor that once the judgment was in fact set aside it could no longer be treated as a final judgment. However, the critical time for determining whether an act of bankruptcy has been committed is the date on which the period limited by the bankruptcy notice expired - see Re Grace; Ex parte Castlina (1931) 3 A.B.C. 131; Re McDonald (1934) 8 A.B.C. 184, at p. 193; Re Edmunds (1936) 9 A.B.C. 1, at p. 5. At the time when the bankruptcy notice expired in the present case, namely 30 May, 1966, the judgment had not been set aside and remained a final judgment. Since the debtor had not by that date complied with the requirements of the notice, the act of bankruptcy was then completed. It is not possible to say that by reason of subsequent circumstances an act of bankruptcy once committed ceases to have been committed or must be treated as though it had never been committed. Of course this does not mean that a sequestration order may be made if a judgment has been set aside in circumstances that show that the debtor was under no liability to the petitioning creditor, for the court must inquire whether there is a debt due by the debtor to the petitioning creditor, and if not, will refuse an order notwithstanding the commission of an act of bankruptcy. If, however, a judgment is set aside after an act of bankruptcy has been completed, and subsequently the existence of the debt is established by a further judgment after a new trial, or by a compromise of the proceedings, the conditions which entitle the petitioning creditor to a sequestration order will have been established."

The facts in Vella's Case were in all material respects the same as they were in Hanby's Case. Mr Justice Morling said at pages 6 and 7 of his reasons for judgment:

"Applying Gibbs J's reasoning, with which I respectfully agree, it follows that in the present case it would not be correct to treat the act of bankruptcy committed by the debtor as if it had never been committed. If the existence of the judgment creditor's debt is established by a further judgment in the District Court after a new trial (as in Hanby's Case) the conditions which will entitle him to a sequestration order will have been established. It will not be necessary for him to serve a fresh bankruptcy notice on the debtor. It will be sufficient for him to rely upon the act of bankruptcy committed on or about 12 April 1983. In these circumstances, it cannot be said, in terms of paragraph 30(1)(b) of the Act, that the court should consider it necessary to set aside the bankruptcy notice for the purpose of carrying out or giving effect to the Act."

Both Hanby's Case and Vella's Case are essentially different from the present case. The bankruptcy notice here is fundamentally defective. It can never be the vehicle for the commission of an act of bankruptcy. The Court therefore, has jurisdiction to set aside the bankruptcy notice: see Re Sterling; Ex parte Esanda Limited [1980] FCA 61; (1980) 30 A.L.R. 77, and Vella's Case.

The Court orders that bankruptcy notice 1925 of 1983 be set aside. As to costs, the debtor has succeeded on one of the two principal arguments advanced on his behalf. I think the proper order for costs is that the creditor pay one half of the debtor's costs, including reserved costs, and the costs of 28 June 1983 when this hearing commenced.