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Federal Court of Australia |
Last Updated: 19 February 2007
FEDERAL COURT OF AUSTRALIA
Snelgrove v Roskell [2007] FCA 122
BANKRUPTCY – appeal by
Appellant against decision of Federal Magistrate dismissing creditor’s
petition – whether errors identified
in bankruptcy notice fall within
purview of s 306 of Bankruptcy Act 1966 (Cth) – application of
principles stated by the High Court in Adams v Lambert – whether
errors amount to a ‘formal defect or irregularity’ – proper
construction of bankruptcy notice –
extraneous material may be referred to
in determination of whether bankruptcy notice could reasonably mislead debtor
– Federal
Magistrate failed to correctly apply principles in Adams v
Lambert – appeal allowed
BANKRUPTCY – whether
creditor’s petition has lapsed – proceedings adjourned pending
delivery of High Court decision in Adams v Lambert – no application
for extension made by Appellant – application of s 52 of Bankruptcy Act
1966 (Cth) – order made by Federal Magistrate more than 12 months
after creditor’s petition presented – matter remitted
for
consideration by Federal Magistrates Court
Bankruptcy Act 1966 (Cth) –
ss 52, 306
Bankruptcy Regulations 1996 (Cth) – Reg
4.02
Legal Profession Act 1987 (NSW) – s 208J(3)
Adams v Lambert [2006] HCA 10; (2006) 225 ALR 396
followed
Clyne v Deputy Commissioner of Taxation (1982) 42 ALR
703 cited
Franks v Warringah Council [2003] FCA 1047; (2003) 131 FCR 287
cited
Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71
followed
Makhoul v Barnes (1995) 60 FCR 572 cited
Project Blue
Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 referred
to
Re Howell; Ex parte Commissioner of Taxation (1996) 70 FCR 261
cited
Re Wimborne; Ex parte the Debtor (1979) 24 ALR 494
cited
Re Young; Ex parte Smith (1985) 5 FCR 204 cited
Roufos v
Andrea (1981) 57 FLR 10 cited
Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212
cited
McDonald, Henry and Meek, Australian Bankruptcy Law and
Practice, 5th ed, Lawbook
Co
JOHN ANTHONY SNELGROVE v DAVID
ROSKELL
NSD 1239 OF 2006
JACOBSON J
15
FEBRUARY 2007
SYDNEY
THE COURT ORDERS THAT:
1. Appeal be allowed.
2. Orders made by Driver FM on 6 June 2006 be set aside.
3. Matter be remitted to the Federal Magistrates Court to be determined in accordance with these reasons for judgment.
Note: Settlement
and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
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BETWEEN:
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JOHN ANTHONY SNELGROVE
Appellant |
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AND:
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DAVID ROSKELL
Respondent |
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JUDGE:
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JACOBSON J
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DATE:
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15 FEBRUARY 2007
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
Introduction
1 In Adams v Lambert (‘Adams’) [2006] HCA 10; (2006) 225 ALR 396 the High Court held that a misdescription of the statutory source of an entitlement to claim interest on a judgment debt was a formal defect or irregularity within the purview of s 306 of the Bankruptcy Act 1966 (Cth) (‘the Act’). However, in the present proceedings, Federal Magistrate Driver found that a misdescription of the statute under which post-judgment interest was claimed was a substantial defect in the bankruptcy notice which could not be cured by reference to that provision.
2 Thus, the learned Federal Magistrate’s decision appears, at first sight, to be at odds with the unanimous judgment of the High Court in Adams. The principal question which arises on this appeal, therefore, is whether his Honour correctly applied the principles stated by the High Court.
3 In deciding that the defect was substantive, Driver FM had regard to the certificate supporting the bankruptcy notice which stated that interest was not payable on the amount claimed whereas the bankruptcy notice claimed interest in the sum of $16,509.96.
4 His Honour accepted that this was a claim for post-judgment interest but he took into account the terms of an earlier bankruptcy notice served on the debtor which made no claim for interest. His Honour concluded that this, coupled with the misdescription of the statute under which post-judgment interest was claimed (and an incorrect reference in the costs certificate to a provision in the Legal Profession Act 1987 (NSW) dealing with pre-judgment interest) would have left the debtor "hopelessly confused" as to what was necessary to comply with the notice.
5 The creditor appeals against his Honour’s order dismissing the petition. He seeks an order under s 52(1) of the Act. However, if the appeal is allowed a difficulty arises because the creditor’s petition appears to have lapsed under s 52(4) of the Act, in the circumstances referred to below.
Factual Background
6 The appellant, Mr Snelgrove, is a solicitor. In legal proceedings which appear to have a long history dating back to the 1990’s, he represented a company of which Mr Roskell was a shareholder and director. The proceedings were unsuccessful, the company went in to liquidation, and Mr Snelgrove claimed his costs from Mr Roskell personally.
7 Driver FM found at [4] that in the course of the proceedings Mr Roskell agreed to become personally liable for the costs, although he later sought to dispute his liability. As a result, Mr Snelgrove brought proceedings against Mr Roskell in the Supreme Court of New South Wales.
8 On 15 May 2000, a costs assessor of that Court issued a certificate as to determination of costs in the amount of $33,967.62. This was the certificate upon which bankruptcy notice NN3366/04 was founded.
The Bankruptcy Notice
9 The bankruptcy notice was issued on 20 December 2004. It claimed that Mr Roskell owed Mr Snelgrove a debt of $50,477.58 as shown in the schedule.
10 The schedule stated the amount of the judgment as $33,967.62 and went on to claim "interest accrued since the date of Judgments or Orders" of $16,509.96.
11 Attached to the bankruptcy notice was an interest calculation. It stated that judgment was entered against Mr Roskell in the Local Court on 22 June 2000 and that interest was claimed from the date of judgment to 15 December 2004.
12 The attachment went on to say that interest was claimed under s 39 of the District Court (Civil Claims) Act 1970 (NSW). That was an error and was struck out by a handwritten amendment, apparently by an officer of the Official Receiver prior to the issue of the bankruptcy notice. It was replaced by a reference to s 85 of the District Court Act 1973 (NSW). However, that too was an error because in fact interest should have been claimed under s 39 of the Local Court (Civil Claims) Act 1970 (NSW).
13 The attachment then set out the applicable interest rates payable for the period from 22 June 2000 to 15 December 2004 and a calculation of the total amount of interest payable.
14 The certificate as to determination of costs was also attached to the bankruptcy notice. It stated that interest was not payable on the amount of costs assessed, ie $33,967.62. This was followed by an incorrect reference to s 203E of the Legal Profession Act.
15 The certificate was accompanied, as the last page of the attachments to the bankruptcy notice, by a backsheet from the Local Court with a handwritten plaint number and an illegible stamp. The stamp may be from the Local Court indicating that the costs certificate was filed in that Court.
The Federal Magistrate’s Decision
16 His Honour heard Mr Snelgrove’s creditor’s petition against
Mr Roskell on 12 August 2005 prior to the decision of
the High Court in
Adams. The petition was filed on
26 April 2005.
17 The only ground on which Mr Roskell opposed the petition was that he was not personally liable for the debt. His Honour satisfied himself that this objection had no substance but during the hearing he raised two issues concerning the validity of the bankruptcy notice. Mr Roskell was not legally represented and was happy to adopt those points as grounds of opposition to the petition; see at [5].
18 The first ground was that the certificate stated that interest was not payable on the amount of costs assessed but the bankruptcy notice claimed interest of $16,509.96.
19 The second ground was the incorrect statement of the statutory source of liability for post-judgment interest.
20 Having raised both of these issues, his Honour adjourned the matter pending delivery of the judgment by the High Court in Adams. After the decision in Adams was handed down, Driver FM called for written submissions to be delivered by the parties by 26 April 2006. He then determined the matter, delivering judgment on 6 June 2006.
21 When his Honour handed down judgment he noted, at footnote 11, that there may be a third error in the bankruptcy notice because of the illegible certificate of judgment attached to the notice. He noted that judgment was entered in the Local Court on 22 June 2000 but queried whether the annexure satisfied the description of a certificate of judgment. However, this issue was not raised before Driver FM and his Honour did not deal with it.
22 His Honour described the bankruptcy notice and the certificate of judgment attached to it as "scrappy".
23 It was in this context that he went on to deal with the two errors that he had identified.
24 His Honour seems to have proceeded on the basis that the statement in the costs certificate that interest was not payable was an error. He described it as an error in [16] although he accepted the appellant’s submission that it was a reference to pre-judgment interest. It would have followed from this that the statement was perfectly correct, the only error being the incorrect reference to s 203E of the Legal Profession Act.
25 Indeed, his Honour went on to say that if the correct provision of the Legal Profession Act had been identified, Mr Roskell could probably have worked out that the statement in the costs certificate referred only to pre-judgment interest.
26 His Honour then referred to the second error, namely the statement in the interest calculation attached to the bankruptcy notice, that interest was claimed under s 85 of the District Court Act. He referred in this regard to the fact that the reference to the District Court (Civil Claims) Act had been struck out.
27 The learned Federal Magistrate then went on to deal with these errors upon the footing that they were compounded by the fact that this was the second bankruptcy notice served on Mr Roskell; see at [18].
28 The substance of his Honour’s reasons appears in the following two paragraphs as follows:
[19] Mr Roskell was then confronted with a second bankruptcy notice which claimed a smaller principal sum than the first bankruptcy notice but which included a claim of interest in the sum of $16,509.96 making a total of $50,477.58. In my opinion, a debtor in the position of Mr Roskell would have been left hopelessly confused. Interest was initially not claimed and then claimed. The certificate of judgment annexed to both bankruptcy notices appeared to indicate that no interest was payable.. It would have been next to impossible for him to check his liability because both the certificate of judgment and the bankruptcy notice referred to incorrect statutory provisions.
[20] It is true that Mr Roskell could have disputed the claim of interest on the second bankruptcy notice by giving notice pursuant to s.41(5). He did not do so. However, in my view, the bankruptcy notice, coupled with the costs certificate and the earlier bankruptcy notice was so confusing as to have left Mr Roskell in no position to determine whether he was entitled to make such a claim. Notice pursuant to s.41(5) must be given before the time for compliance with the bankruptcy notice expires. It is now too late for such a notice to be given. In my view, the confusion created by the errors in the second bankruptcy notice and its attached certificate gave rise to confusion resulting in injustice which is now irremediable. It follows that the defects are substantive and not formal and cannot be corrected pursuant to s.306 of the Bankruptcy Act.
Whether the Federal Magistrate correctly applied the principles stated in Adams
29 The High Court said in Adams at [18] that if there is a failure to comply with a provision of the Bankruptcy Act or the Regulations, the first question which must be asked is whether the defect or irregularity is a formal one within the purview of s 306. If it is, it is then necessary to ask whether substantial injustice has been caused by the defect or irregularity and whether the injustice cannot be remedied by an order of the Court. It must be borne in mind that these are separate and distinct questions.
30 The first question, that is, whether the defect or irregularity is formal, involves two levels of enquiry. These were stated by an earlier decision of the High Court in Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71, and applied in Adams at [25]ff.
31 The relevant enquiry is: does the bankruptcy notice fail to meet a requirement made essential by the Act or the Regulations; or could it reasonably mislead a debtor as to what is necessary to comply with the notice; see Kleinwort Benson at 79; Adams at [25].
32 In the present case the first defect identified by the learned magistrate was that the costs certificate stated that interest was not payable on the amount of costs assessed. But in my respectful opinion this was not an error at all. His Honour correctly accepted at [16] that this was a statement that no interest was payable up until judgment. That should have been sufficient to dispose of the issue.
33 I do not see how the incorrect reference to s 203E of the Legal Profession Act converted the correct statement about pre-judgment interest into an error in the bankruptcy notice.
34 Even if the incorrect reference to the section of the Legal Profession Act is to be treated as a defect, in my opinion it was a formal one. My reasons for this view are stated in the following paragraphs.
35 Regulation 4.02 and Form 1 of the Bankruptcy Regulations 1996 (Cth) requires the bankruptcy notice to state the provision under which interest is being claimed. Here, interest was not being claimed on pre-judgment costs. Accordingly, I do not see how the Regulations contained any requirement with respect to this statement, let alone one which would strike down as invalid an act done in breach of it within the principles stated in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [93].
36 Moreover, consistently with the observation of the Court in Adams, it cannot be said that a mistaken reference to the section of the Legal Profession Act could be said to have been an essential requirement for validity of the notice or to have misled the debtor as to what was necessary to comply with it.
37 Upon the proper construction of the bankruptcy notice as a whole, it was plain that interest was being claimed only post-judgment. The notice stated in express terms that judgment was entered in the Local Court on 22 June 2000 and that interest was claimed for the period from 22 June 2000 to 15 December 2004. This appeared in (b) and (c) of the interest calculation attached to the notice. The summary of interest calculation in (c) set out precisely how the amount of $16,509.96 was calculated for that period.
38 The bankruptcy notice in the present case is therefore indistinguishable from the notice in Adams. That is to say the only defect was the second error identified by Driver FM, namely an incorrect citation of the source of entitlement to post-judgment interest. That was a formal defect within the purview of s 306 of the Act, not a substantive one as found by the Federal Magistrate; see Adams at [32] – [34].
39 There was no suggestion in the present case that post-judgment interest was incorrectly calculated. Indeed the figure seems to have been correct, the rate prescribed under the District Court Act being exactly the same as that prescribed from time to time under the Local Courts (Civil Claims) Act.
40 The learned Federal Magistrate’s view that a debtor in Mr Roskell’s position would have been hopelessly confused cannot, with respect, be sustained. As I have already said, the bankruptcy notice, considered as a whole, made it plain that interest was only claimed for the period after judgment.
41 In determining whether a bankruptcy notice could reasonably mislead a debtor the court is not confined to an examination of the notice; it may look at facts extraneous to the notice, including the terms of an earlier bankruptcy notice served on the debtor; see Re Wimborne; Ex parte the Debtor (1979) 24 ALR 494 (Lockhart J); Clyne v Deputy Commissioner of Taxation (1982) 42 ALR 703 (Lockhart J); Roufos v Andrea (1981) 57 FLR 10 at 15-16 (Deane, Fisher & Fitzgerald JJ).
42 It was therefore open to Driver FM to determine whether Mr Roskell could have been misled by considering the bankruptcy notice in light of the amount stated in the earlier notice. However, rather than demonstrating that Mr Roskell could have been misled, the earlier notice would have re-enforced the obvious conclusion that interest was claimed for the period that had elapsed after judgment. No other conclusion could have followed from the fact that interest was not claimed on the earlier notice whereas it was claimed for the period after judgment in the current notice.
43 The Federal Magistrate’s view that Mr Roskell could have disputed the claim for interest on the second notice pursuant to s 41(5) of the Act is not correct because, as I have said, the amount was correctly stated. It follows that his Honour’s conclusion that Mr Roskell suffered irremediable injustice, must also be incorrect.
44 Mr Roskell asserted that the errors in the bankruptcy notice, when viewed together, were sufficient to render it invalid. He referred in his written submissions to the citation of the wrong statutory provisions and the fact that interest was claimed notwithstanding the note in the costs certificate that interest was not claimed. These submissions are contrary to the plain construction of the notice and to the observations of the High Court in Adams.
45 Mr Roskell also contended that a certificate of judgment was not annexed to the bankruptcy notice. I will deal with that issue below.
46 Mr Roskell appeared in person on the appeal. He argued, strenuously and with apparent conviction, that he was not personally liable for the costs, or at very least that the amount was overstated.
47 However, the learned Federal Magistrate declined to exercise his discretion to go behind the judgment, satisfying himself that there was no substance in Mr Roskell’s objection. It is true that in an appropriate case, where substantial reasons are shown, the Court may exercise a discretion to go behind the judgment debt; see Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 at 224-225; Makhoul v Barnes (1995) 60 FCR 572 at 580-582. But in the present case, no error has been demonstrated in the Federal Magistrate’s determination of this question.
48 Mr Roskell also argued that he suffered substantial injustice, in particular because he was not liable for the debt. However, this argument must also fail because of the Federal Magistrate’s determination that Mr Roskell was personally liable.
49 In summary therefore, in my opinion the learned Federal Magistrate failed to correctly apply the principles stated in Adams. The only defect in the bankruptcy notice was a formal one which fell within the purview of s 306. There was no substantial injustice caused by the defect.
Final judgment or order
50 Mr Roskell did not file a notice of contention in accordance with O 52 r 22(3) of the Federal Court Rules. However, he submitted that "a copy of the record of judgement [sic]" was not attached to the bankruptcy notice. Since he was not legally represented, I took this to be a submission to the effect that the notice was affected by a defect, analogous to the further issue mentioned by the Federal Magistrate and which I set out above at [20]. This was whether the costs certificate satisfied the description of a certificate of judgment. Accordingly, I propose to grant leave to Mr Roskell, nunc pro nunc, to raise this submission without the need to file a notice of contention.
51 The form prescribed by the Bankruptcy Regulations requires the notice to attach a copy of the judgment or order relied upon; see Reg 4.02 and Form 1; see also Franks v Warringah Council [2003] FCA 1047; (2003) 131 FCR 287 at [12].
52 The schedule to Form 1 provides, in note 1, that if legal costs are claimed in the notice, a certificate of the assessed costs must be attached to the notice. The certificate is, upon filing in the office or registry of a court of competent jurisdiction, taken to be a judgment of that Court for the amount of the unpaid costs; Legal Profession Act, s 208J(3).
53 However, a certificate that sets out a determination of the costs assessor, without being filed in a court of competent jurisdiction, is not sufficient to found a bankruptcy notice; Franks at [27].
54 Here, there was evidence in the affidavit of Mr Snelgrove filed on 5 July 2005 that judgment was entered in the Local Court on 22 June 2000. Also Ms Rachel Menassa’s affidavit of 17 December 2004 deposes to the fact that a certificate of judgment was obtained from the Local Court on 22 June 2000 and she annexes that document to her affidavit. This was the backsheet from the Local Court with the attached costs certificate in the same form as was annexed to the bankruptcy notice.
55 It follows in my view that there was evidence before the Federal
Magistrate that the costs certificate was filed in a court of
competent
jurisdiction. It is therefore taken to be a judgment of the Local Court and it
was annexed to the bankruptcy notice.
This was sufficient to found the
notice.
Whether the petition is stale
56 Section 52(4) of the Act provides that a creditor’s petition lapses twelve months after the date of presentation, unless before that time a sequestration order is made or the petition is dismissed or withdrawn.
57 Provision is made for an extension of the twelve month period but s 52(5) provides, expressly, for the extension to be obtained before the expiration of the initial twelve month period.
58 Here the petition was presented on 26 April 2005 but, at the creditor’s request, the Federal Magistrate adjourned it pending the delivery of judgment in Adams. At the time when the adjournment was granted, no consideration seems to have been given to the question of the lapsing date of the petition.
59 The Federal Magistrate’s order dismissing the petition was made on 6 June 2006, more than twelve months after the petition was presented.
60 Nor was any application apparently made before the lapsing date for an extension of time under s 52(5).
61 It follows that, subject to the application of certain principles which I will refer to briefly below, the petition was stale when the Federal Magistrate made his orders and a sequestration order cannot be made.
62 A Full Court has stated in explicit terms that the life of a bankruptcy petition cannot be extended after the petition has lapsed; see Re Young; Ex parte Smith (1985) 5 FCR 204 (Bowen CJ, Sweeney and Lockhart JJ). Notwithstanding this, orders have been made extending a petition after the expiry date pursuant to the ‘slip rule’; see for example Re Howell; Ex parte Commissioner of Taxation (1996) 70 FCR 261 (Burchett J). The authorities are summarised in the 5th Edition of McDonald, Henry & Meek Australian Bankruptcy Law & Practice at [52.5.05].
63 This issue was not argued before me. In the circumstances, it is appropriate for me to remit the matter to the Federal Magistrates Court to determine whether the Court has power to make a sequestration order and, if so, whether an order ought to be made.
Orders
64 I will order that the appeal be allowed and that the orders made by
Driver FM on 6 June 2006 be set aside. The matter is to be
remitted to the
Federal Magistrates Court to be determined in accordance with my reasons for
judgment.
Associate:
Dated: 15 February 2007
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Solicitor for the Appellant:
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Date of Hearing:
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Date of Judgment:
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