Prentice v Wood [2002] FCAFC 48; [2002] FCA 214 (8 March 2002)

Last Updated: 8 May 2002

Prentice v Wood [2002] FCAFC 48

Prentice v Wood [2002] FCA 214

NOTE: CHANGES TO THE MEDIUM NEUTRAL CITATION (MNC)

The Federal Court adopted a new medium neutral citation (FCAFC) for Full Court judgments effective from 1 January 2002. Single Judge judgments will not be affected and will retain the FCA medium neutral citation.

The transitional arrangements are as follows:

* All Full Court judgments delivered prior to 1 January 2002 will retain the FCA medium neutral citation.

* All Full Court judgments delivered between 1 January 2002 to 30 April 2002 have been assigned parallel medium neutral citations in both the FCA and FCAFC series.

* All Full Court judgments delivered from 1 May 2002 will contain the FCAFC medium neutral citation only.

FEDERAL COURT OF AUSTRALIA

Prentice v Wood [2002] FCA 214

BANKRUPTCY - appeal from decision of primary judge declaring that a Notice of Objection to Discharge was invalid and of no force and effect - whether Notice of Objection complied with s 149C(1)(b) and (c) of the Bankruptcy Act 1966 (Cth) - whether Trustee provided reasons for objecting to the discharge from bankruptcy in accordance with s 149C(1)(c) - date upon which bankrupt was discharged under s 149

Bankruptcy Act 1966 (Cth) s 139P, 139S, 139ZG, 149(4), 149A, 149A(3), 149C, 149C(1), 149C(1)(b), 149C(1)(c), 149D, 149D(1), 149D(1)(f), 149F, 149F(1)(a), 149J, 149N, 149N(1)(b), 149N(1)(c), 306

Van Reesema v Official Receiver (1983) 50 ALR 253 cited

Re Ansett; ex parte Ansett v Pattison (1995) 56 FCR 526 cited

Re Hall [1994] 14 ACSR 488 cited

Inspector-General v Nelson (1998) 86 FCR 67 cited

Re Harris, ex parte Harris [1997] FCA 627 distinguished

MAXWELL WILLIAM PRENTICE v RICHARD HERBERT BOYNE WOOD

N 1307 OF 2001

SPENDER, HELY & CONTI JJ

8 MARCH 2001

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 1307 OF 2001

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	MAXWELL WILLIAM PRENTICE APPELLANT
AND:	RICHARD HERBERT BOYNE WOOD RESPONDENT
JUDGE:	SPENDER, HELY & CONTI JJ
DATE OF ORDER:	8 MARCH 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 1307 OF 2001

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	MAXWELL WILLIAM PRENTICE APPELLANT
AND:	RICHARD HERBERT BOYNE WOOD RESPONDENT

JUDGE:	SPENDER, HELY & CONTI JJ
DATE:	8 MARCH 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

1 The respondent ("Mr Wood") was made bankrupt on 20 August 1996. On 6 September 1996 Mr Wood filed a Statement of Affairs dated 31 August 1996 which recorded a deficiency of almost $500,000.

2 Subject to s 149A of the Bankruptcy Act 1966 (Cth) ("the Act"), Mr Wood would have been discharged from bankruptcy at the end of three years from the date on which he filed his Statement of Affairs, viz 6 September 1999.

3 The appellant ("The Trustee") made the following assessments of contributions which the respondent was liable to make to his bankrupt estate pursuant to ss 139P and 139S of the Act:

Date CAP Year Amount Date payable

31.1.97 1996/97 $ 59,751.86 16.5.1997

10.2.98 1997/98 $ 59,688.52 16.5.1998

$119,440.38

4 A letter of 7 December 2000 from the Trustee to Mr Wood's solicitor records the following receipts in the period up to 15 August 1997:

Recovery of debtors: $22,424.75

Contributions from Mr Wood: $31,100.00

5 On 31 August 1999 the Trustee wrote to Mr Wood stating that a Notice of Objection to Discharge in relation to his bankruptcy was enclosed with the letter, as well as a notice setting forth the options open to Mr Wood in accordance with s 149F(1)(a) of the Act. The primary judge accepted Mr Wood's evidence that the Notice of Objection was not enclosed.

6 On 2 September 1999 a Notice of Objection to the discharge of the respondent from bankruptcy was filed by the Trustee with the Official Receiver. The Notice was in the following form:

"NOTICE OF OBJECTION TO DISCHARGE

I, Maxwell William Prentice of Level 15, 25 Bligh Street, Sydney, the Trustee, hereby object to the discharge of Richard H Wood of Manorbrier, Cootamundra in the State of New South Wales from bankruptcy by force of Section 149B of the Bankruptcy Act 1966 on the following grounds:

1. Section 149D(1)(f) `the Bankrupt failed to pay to the Trustee an amount that the Bankrupt was liable to pay under Section 139ZG'.

The Bankrupt has been assessed to pay income contributions that were due and payable on the following dates:

Date Due CAP Year Amount

$

17 May, 1997 1996/97 47,751.86

17 May, 1998 1997/98 40,588.52

On 20 August 1999, I received Mr Wood's Cash Flow Report that discloses his income and expenditure for the 1998/99 CAP year.

As the two previous assessments remain outstanding, no income assessment has yet been forwarded to Mr Wood for the CAP Year for 1998/99.

However, I estimate that Mr Wood's income assessment for the CAP Year for 1998/99 will be comparable to his two previous years.

In summary, I have not yet received any of the assessed outstanding income contributions totaling [sic] $88,340.38, nor have I received any income from him for the 1998/99 CAP Year.

In my opinion, creditors will directly benefit from my Notice of Objection to Discharge since, if Mr Wood continues to practice as he has done in the past, creditors will be entitled to enjoy a further five (5) assessment periods of Mr Wood's income.

Further evidence on all matters is available from my office if required.

This objection has the effect of extending the bankruptcy to the 31^st day of August 2004.

DATED this 31 day of August 1999.

M.W. Prentice

Trustee"

7 A copy of this notice was faxed to Mr Wood on 2 September 1999 in response to his telephone request. The total of the amounts claimed in the notice is $88,340.88. The Notice of Objection, if valid, had the effect of extending the bankruptcy to 6 September 2004, but nothing turns upon the misstatement in the notice in this respect.

8 On 9 April 2001 Mr Wood sought a declaration that the Notice of Objection to his discharge from bankruptcy was invalid and of no effect. On 3 August 2001 the primary judge gave his reasons for concluding that the Notice of Objection was invalid, and on 24 August 2001 made a declaration that the Notice of Objection to discharge Mr Wood from bankruptcy dated 31 August 1999 filed with the Official Receiver was invalid and of no force and effect. On 28 August 2001 the primary judge declared that Mr Wood was discharged from bankruptcy on 6 September 1999 pursuant to s 149(4) of the Act.

9 Section 149C(1) relevantly provides that a Notice of Objection to the discharge from bankruptcy must:

(a) set out the ground of objection, being a ground set out in s 149D(1);

(b) refer to the evidence or other material that, in the opinion of the Trustee, establishes the ground;

(c) state the reasons of the Trustee for objecting to the discharge on that ground.

10 The grounds of objection set out in s 149D(1) include the following:

"(f) The bankrupt failed to pay to the trustee an amount that the bankrupt was liable to pay under section 139ZG."

The amounts which Mr Wood was liable to pay under s 139ZG in the present case, are the assessed contributions referred to in par 3 above.

11 Section 149C(2) of the Act provides as follows:

"A notice of objection is not invalid merely because it does not state the ground or grounds of objection precisely as set out in subsection 149D(1) provided that the ground or grounds can reasonably be identified from the terms of the notice."

That suggests that a Notice of Objection which otherwise fails to comply with s 149C may be "invalid". So much was accepted by counsel for the Trustee, subject to the possible operation of s 306.

12 The Act provides for review of a decision of the Trustee to file a Notice of Objection by the Inspector-General in Bankruptcy [s 149K], and by the Administrative Appeals Tribunal [s 149Q].

13 There was a discrepancy between the income contributions in fact assessed by the Trustee, and those described in the notice, as illustrated by the following table:

Date due CAP Year Amount Amount in

Assessed Notice

17.5.97 1996/97 $ 59,751.86 $47,751.86

17.5.98 1997/98 $ 59,688.52 $40,588.52

$119,440.38 $88,340.38

If credit were given for the sum of $31,100 received from the bankrupt (but not for amounts collected from debtors) then the amount due at the date of issue of the notice was $88,340.38, which equals the total of the sums claimed in the notice.

14 The case for Mr Wood at first instance was that the notice did not comply with the requirements of s 149C(1)(b) and (c). It was also submitted that the requirements of s 149F(1)(a) had not been satisfied, because Mr Wood was not given a copy of the Notice of Objection together with a notice setting out the bankrupt's options as required by that provision and that, as a consequence, the notice was invalid. The primary judge found against Mr Wood on the s 149F point, and that issue was not pursued on appeal.

Reference to the evidence - s 149C(1)(b)

15 The primary judge found that the notice was invalid for non-compliance with s 149C(1)(b). His Honour said:

"22 In my view, the notice is deficient in not referring to the amount of the assessments which had been made. On its face, the notice is misleading in that there are substantial differences between the amounts specified in the actual assessments and the amounts referred to in the notice of objection. It is incorrect to say that the assessed outstanding income contributions totalled $88,340.38 and the figure is confusing. In my view, the notice is deficient both in form and substance. This is not a mere defect or irregularity in the notice. It is no answer to suggest that Mr Wood as an experienced barrister must have been aware of the correct amounts and therefore that it does not matter if the notice was erroneous.

23 In my opinion, the notice fails to satisfy the requirement that there must be a reference in the notice to the evidence or other material that, in the opinion of the trustee, established the ground relied on. The notice therefore is invalid."

16 Section 149C(1)(b) requires the notice to "refer to" the evidence or other material that, in the opinion of the Trustee, establishes the ground on which the notice is based. If the notice refers to that material, then par (b) will have been complied with, even though it may subsequently emerge that the evidence or other material particularised did not exist, or for some other reason was insufficient or ineffective to establish the ground relied upon.

17 The notice refers to the material on which the Trustee relies in establishing the s 149D(1)(f) ground. The notice asserts that assessments of $47,751.86 for the 1996/97 CAP Year due on 17 May 1997, and $40,588.52 for the 1997/98 CAP Year due on 17 May 1998 remain outstanding. If those were the facts, then the ground on which the notice is based would be made out. Whether a notice complies with s 149C should be apparent on the face of the notice. There is no occasion prior to any review of the Notice of Objection to examine the correctness or sufficiency of the material which the Trustee has identified as being the material which establishes the ground relied upon as that does not bear upon the validity of the notice.

18 It was open to Mr Wood to seek a review of the Trustee's decision to issue the notice on the basis that no assessments had been issued by the Trustee as described in the notice. If the reviewing authority was satisfied that there was insufficient evidence to support the existence of the s 149D(1)(f) ground, the objection must be cancelled: s 149N(1)(b). However, the fact that the Trustee referred to assessments which were never made as establishing the ground on which the notice was based is not a factor which goes to the validity of the notice. Whether the reviewing authority would be satisfied that there was insufficient evidence to support the ground of objection if the true facts were established is a different question.

Section 149C(1)(c)

19 The power to prevent a discharge from bankruptcy by operation of law by filing a Notice of Objection is "a great power": Van Reesema v Official Receiver (1983) 50 ALR 253 at 260.

20 Section 149C(1)(c) requires the notice to state the reasons for objecting to the discharge on the ground relied upon: Re Ansett; ex parte Ansett v Pattison (1995) 56 FCR 526 at 530 per Olney J. There must be more than a recitation of the s 149D ground: Re Hall [1994] 14 ACSR 488 at 493. Section 149C makes it clear that a Trustee filing a Notice of Objection to Discharge must have reasons for doing so, in addition to being satisfied that the evidentiary material establishes one or more permissible grounds. One of the grounds on which the Inspector-General may cancel the objection is if the reasons given for objecting on that ground do not justify the making of the objection (s 149N(1)(c)).

21 In Inspector-General v Nelson (1998) 86 FCR 67 at 78 a Full Federal Court said that in order to "keep a person bankrupt" beyond the ordinary period, a trustee would need to have reasons directed to achievement of a purpose of the law of bankruptcy. The existence of a permissible ground supported by sufficient evidence is a threshold; there must also be reasons justifying the making of the objection in the particular case.

22 Thus, a Trustee would not be bound to lodge a Notice of Objection on the s 149D(1)(f) ground if the failure to pay was due to some circumstances outside the control of the bankrupt, or was trivial in amount. Equally, if the failure to pay was contumelious or unexplained, then a statement by the Trustee that he was objecting to the discharge on the s 149D(1)(f) ground for that reason would satisfy s 149C(1)(c), inasmuch as the reason (good or bad) for objecting on that ground has been given. That would enable a review to take place of whether the reasons given for objecting on that ground justify the making of the objection.

23 The Trustee relies upon the following statement in the Notice of Objection as constituting his reasons for objecting to the discharge on the s 149D(1)(f) ground:

"In my opinion, creditors will directly benefit from my Notice of Objection to Discharge since, if Mr Wood continues to practice as he has done in the past, creditors will be entitled to enjoy a further five (5) assessment periods of Mr Wood's income."

The primary judge made the following findings in relation to that statement:

"This statement, in my opinion, satisfies the requirement to state reasons set out in s 149C(1)(c). It is apparent that the trustee formed the view that there will be a benefit to the creditors in the event that Mr Wood continues to practice for a further five assessment periods and that this was the basis for the objection to discharge. In my view, this is a sufficient statement of his reasons for making the objection. It is submitted for the bankrupt that, in order to satisfy the subsection, it is necessary that the reasons should support the discharge on the ground relied on. It is said that the reasons in the present case relate to future possibilities whereas the ground relied upon concerns past conduct in failing to pay an amount in respect of which the bankrupt was liable. I do not accept this. The substance of the reason disclosed does relate to the failure to pay the amount because the trustee anticipates that if there is no discharge then further income will become available to satisfy the outstanding liabilities of the bankrupt, which include those assessed for the two CAP Years relied on."

24 A notice is liable to cancellation if the reasons given for objecting on the ground specified in the notice do not justify the making of the objection, but a notice is not invalidated on that account. However, the passage relied upon in the notice does not state reasons for objecting to the discharge on the ground assigned. Rather, it simply records the consequence of an objection having been made, it being a consequence which is of equal application to all the grounds specified in s 149D. Section 149C(1)(c) is not a requirement that the Trustee state the reason or reasons for objecting to a bankrupt's discharge; rather it specifies the more particular requirement that the Trustee give the reason or reasons for objecting to the discharge of the bankrupt on the ground or grounds set out in the notice. The mandatory requirement of s 149C(1)(c) is to enable the bankrupt to know the answer to the question "why are you objecting on this ground to my discharge?" The so-called "reason" does not relate to the ground relied upon, hence it is not a reason for objecting to the discharge on that ground.

25 Counsel for the Trustee called in aid the decision of Einfeld J in Re Harris, ex parte Harris [1997] FCA 627 (6 June 1997) as establishing that it is sufficient to comply with s 149C(1)(c) for the Trustee to disclose the "purpose or goal designed to be achieved by the objection". That was, however, in the context of a statement in the notice:

"... and it is considered that more accurate information concerning the application of these funds may be provided by the bankrupt ..."

as being the reason for objecting to the discharge, and his Honour's observation is readily understandable in that context. However, a purpose or goal of extending the term of the bankruptcy would not of itself be a statement of a reason for objecting to the discharge on the s 149D(1)(f) ground.

26 Accordingly, we would uphold the Notice of Contention lodged on behalf of Mr Wood in relation to this ground.

The date of discharge

27 Section 149A(3) of the Act provides that if an objection is withdrawn [see s 149J], or cancelled [s 149N] then (subject to presently immaterial qualifications) the objection is taken never to have been made, and the bankrupt is taken to be discharged under s 149 immediately the objection is withdrawn or cancelled. The Trustee contends that the effect of this provision is that the bankrupt is taken to have remained in bankruptcy until the withdrawal or cancellation of the relevant notice. By analogy, the Trustee submits that the appropriate date at which the bankruptcy should be found to have come to an end in the present case is 24 August 2001, that being the date on which the primary judge declared the Notice of Objection to be invalid.

28 There is no substance in this submission. Section 149A(3) assumes a valid notice which is cancelled by administrative action. The primary judge did not withdraw or cancel the notice; he found that it was of no force and effect at all. As there was no valid Notice of Objection to Discharge, Mr Wood was discharged from bankruptcy by force of the Act on 6 September 1999. The primary judge correctly made a declaration to that effect.

Conclusion

29 The appeal is from the declarations and orders made by the primary judge. As the Notice of Contention is upheld, those declarations and orders were correctly made, although not for the reasons given by the primary judge. The appeal is therefore dismissed with costs.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated: 8 March 2002

Counsel for the Applicant:	J T Johnson
Solicitor for the Applicant:	Sally Nash & Co
Counsel for the Respondent:	M Aldridge SC, M J Stevens
Solicitor for the Respondent:	Abbott Tout
Date of Hearing:	22 February 2002
Date of Judgment:	8 March 2002