Cary v The Owners of Strata Plan No. 7241 [2002] FMCA 18 (19 February 2002)

Last Updated: 30 April 2002

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CARY & ANOR v THE OWNERS OF STRATA PLAN NO. 7241

[2002] FMCA 18

BANKRUPTCY - Review of sequestration order made by Registrar - defective bankruptcy notice - failure to correctly identify provision under which interest claimed. PRACTICE AND PROCEDURE - Bankruptcy proceedings instituted in Tasmania when both creditor and debtors located in New South Wales.

Bankruptcy Act 1966 (Cth), s.306

Federal Magistrates Act 1999 (Cth), ss.102(2), 103(1), 104(2)

Federal Magistrates Court Rules 2001

Local Courts (Civil Claims) Act 1970 (NSW), s.39

Supreme Court Act 1970 (NSW), ss.94, 95(1)

Australian Steel Company (Operations) Pty Limited v Lewis [2000] FCA 1915

Bendigo Bank v Williams [2000] FCA 482; (2000) 98 FCR 377

Boorowa Shire Council v Booth [2001] FMCA 31

Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403

Jiminez v Welcome Homes Real Estate Pty Ltd [2001] FMCA 122

Kirk v Ashdown [1998] FCA 1664

Shephard v Blueberry Farms of Australia (Corindi) Limited [2001] FMCA 2

Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574

First Applicant:	GEORGE CARY
Second Applicant:	ANNE CARY

Respondent:

THE OWNERS OF STRATA PLAN NUMBER 7241

File No:

HZ33 of 2001

Delivered on:

19 February 2002

Delivered at:

Sydney

Hearing Date:

19 February 2002

Judgment of:

Driver FM

REPRESENTATION

Mr G Cary appeared in person

No appearance by the respondent

ORDERS

(1) That the sequestration order made on 13 December 2001 is set aside.

(2) That the creditor's petition is dismissed.

(3) That the respondent creditor is to pay the applicants' costs of this application, which are fixed at $300 pursuant to rule 21.02(2)(a) of the Federal Magistrates Court Rules 2001.

(4) A copy of these orders is to be provided to the Official Trustee in Hobart within two days of entry of these orders.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

HZ33 of 2001

GEORGE CARY

First Applicant

ANNE CARY

Second Applicant

And

THE OWNERS OF STRATA PLAN NUMBER 7241

Respondent

REASONS FOR JUDGMENT

Introduction and background

1. This ex tempore judgment concerns what is in substance an application under s.104(2) of the Federal Magistrates Act 1999 (Cth), which provides that a party to proceedings in which a Registrar has exercised any of the powers of the Federal Magistrates Court under s. 102(2) or under a delegation under s. 103(1), may within the time prescribed by the rules of court or within such further time as is prescribed make application for a review of the exercise of power. The Federal Magistrates Court Rules relevantly require such an application to be made within 21 days of the decision of the Registrar.

2. The applicants in this case are Mr George Cary and Ms Anne Cary who I understand is his wife. The applicants applied by notice of motion filed in this Court on 11 February 2002, together with a short supporting affidavit filed the same day. The application was made within the time permitted by Federal Magistrate Roberts in orders made in Hobart on 30 January 2002. Federal Magistrate Roberts also ordered that proceedings in this matter be transferred for further hearing to the Sydney registry of this Court and directed that the applicants serve a copy of their review application upon the solicitors for the respondent in Hobart. That last direction has not been complied with but, for reasons which will become apparent, I have decided not to further delay these proceedings.

3. There was no appearance for the respondent when this matter was called this morning. The solicitors for the respondent faxed a letter to the Court registry, stating that they had not been served but indicating that they were aware of the proceedings. The solicitors followed this facsimile up with at least one telephone call to the registry. The solicitors objected to this matter being heard in circumstances where the respondent was not represented. I was able to establish from Mr Cary that although the solicitors had not been served, the respondent creditor had been served by hand on 11 February 2002 at the registered office of the creditor, 323 Castlereagh Street, Sydney.

4. The sequestration order in issue was made on 13 December 2001 in Hobart by Registrar Parrott on the application of the present respondent. The applicants were served with the creditor's petition on 2 December 2001, having previously been served with bankruptcy notice number 59/2001 on 17 October 2001, which was not complied with in the time allowed.

5. The judgment debt supporting the bankruptcy notice is evidenced by a certificate of judgment from the New South Wales Local Court at Burwood. That certificate discloses that the respondent creditor obtained judgment against the applicants on 30 April 1999 in the sum of $2,776.55. The sum of $4,178.78 was claimed on the bankruptcy notice which comprised the judgment debt, legal costs of $610 and interest of $812.23, less a payment of $50. An affidavit of debt filed on 13 December 2001 stated that the applicant debtors still owed the amount of $4,148.78 at that time.

6. In support of their application the applicants say that they have paid the amount due under the bankruptcy notice and that a proper statement of account of various amounts claimed by the respondent creditor was not received until 29 January 2002. Mr Cary tendered correspondence dated 29 January 2002 from Paul Cook & Associates, Chartered Accountants of Hobart verifying that the amount of $4,148.78 had been paid by the applicants on or about 17 January 2002. Mr Cary conceded that the payment was made after the sequestration order was made but submitted that the payment was proof of the applicants' solvency. Mr Cary further submitted that the sequestration order should not have been made because the judgment of the Local Court supporting the bankruptcy notice had been made by default in his absence, the amount claimed in those proceedings (or possibly in earlier proceedings which had been set aside) had been paid but not acknowledged by the creditor and that the sequestration order had been made in the absence of the applicants in circumstances where it was very difficult for the applicants to deal properly with the creditor's petition. Mr Cary drew attention to the fact that the bankruptcy notice and creditor's petition had been issued in Tasmania while the applicants and the respondent creditor were both located in Sydney. Mr Cary submitted that the creditor was acting through a debt collection agency which was pursuing a tactic to cause maximum inconvenience and expense to the debtors.

7. I do have some concern about the fact that bankruptcy proceedings have been instituted in this matter in Tasmania in circumstances where both the creditor and the debtors are located in New South Wales. This is not the first time this has occurred. In each case the creditor has been the owners of a strata plan, possibly acting through the same debt collection agency. Reasons for this approach being taken are not apparent to me but there is potential for mischief in that approach. It could amount to forum shopping. It certainly has the effect of substantially increasing the difficulty faced by the debtors in responding to the bankruptcy proceedings. This approach also carries with it the potential that a registrar in Tasmania who is unfamiliar with New South Wales law may overlook something significant to the bankruptcy notice or the creditor's petition or both. That is precisely what has occurred in this case.

8. As I have already noted the bankruptcy notice in this matter is based upon a judgment of the Local Court in Burwood in its civil claims jurisdiction. Attached to the bankruptcy notice is a certificate of judgment in relation to the Local Courts (Civil Claims) Act 1970 ("the Local Courts (Civil Claims) Act"), which specified at point 3 that:

Interest is payable on the judgment debt at the rate prescribed for the purposes of section 95(1) of the Supreme Court Act 1970.

9. Also attached to the bankruptcy notice is a schedule in purported compliance with the requirement in the prescribed bankruptcy form that, if interest is being claimed in the bankruptcy notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to the bankruptcy notice. The prescribed form stipulates that the document must state, relevantly, the provision under which the interest is being claimed. In this instance the document simply states that interest is payable at the rates prescribed for the purposes of s.95(1) of the Supreme Court Act 1970 (NSW) ("the Supreme Court Act").

10. This Court has now in a series of cases found that a bankruptcy notice will be held invalid if it fails to identify the correct provision under which interest is claimed in respect of the civil claims jurisdiction of the New South Wales Local Court. The correct provision is s.39(1) of the Local Courts (Civil Claims) Act, not s.95(1) of the Supreme Court Act. The latter provision is the provision under which interest is calculated, not the provision providing the legal authority for the claim of interest. The distinction is made clear by the learned authors of Butterworths Bankruptcy Law and Practice Service, at pages 10,151 - 10,1552.

11. In two published decisions this Court has set aside sequestration orders for the same reason. The first of those decisions was Boorowa Shire Council v Booth [2001] FMCA 31. Federal Magistrate Raphael dealt with a similar situation to this case. Raphael FM was, like me, dealing with an application to review a sequestration order made by a Registrar. A number of matters were raised in opposition to that order and a number of alleged defects with the bankruptcy notice there in issue, were raised. Relevantly, it was alleged that the bankruptcy notice failed to identify the correct statutory provision under which interest was claimed. As in this case, the certificate of judgment referred to s. 95(1) of the Supreme Court Act. In that case no other provision was referred to as the provision under which interest was claimed.

12. Federal Magistrate Raphael found that the provision under which interest was claimable was s.39 of the Local Courts (Civil Claims) Act, rather than s.95(1) of the Supreme Court Act, which was the provision under which interest was calculated for the purposes of s. 39 of the Local Courts (Civil Claims) Act. Federal Magistrate Raphael considered the judgments of the Federal Court in Kirk v Ashdown [1999] FCA 1664, Bendigo Bank v Williams [2000] FCA 482; (2000) 98 FCR 377 and Australian Steel Company (Operations) Pty Limited v Lewis [2000] FCA 1915, and my own decision in Shephard v Blueberry Farms of Australia (Corindi) Limited [2001] FMCA 2.

13. Federal Magistrate Raphael concluded that the failure to identify s. 39 of the Local Courts (Civil Claims) Act in the bankruptcy notice or in the certificate of judgment attached to it, as the provision under which interest was claimed, was a breach of a requirement made essential by the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") and on that basis decided to set aside the sequestration order and dismissed the creditor's petition. In so finding, Federal Magistrate Raphael referred to remarks I made in the Shephard v Blueberry Farms of Australia, wherein I had suggested that it would be sufficient for a bankruptcy notice based upon a Local Court judgment to be valid if the bankruptcy notice identified s. 95(1) of the Supreme Court Act as the provision under which interest was claimed without also referring to s. 39(1) of the Local Courts (Civil Claims) Act.

14. Raphael FM expressed the view that I was wrong in those comments as it was clear that it is s. 39 of the Local Courts (Civil Claims) Act which provides the legal authority for the claim of interest rather than s. 95(1) of the Supreme Court Act, which simply provided the basis for calculation of the rate of interest. It wasn't necessary in Shephard v Blueberry Farms for me to finally decide that point because the bankruptcy notice was defective in that in its body it relied upon s. 94 of the Supreme Court Act, which was clearly the wrong provision. Accordingly, the remarks I made were in the context of that case an obiter dictum.

15. In Jiminez v Welcome Homes Real Estate Pty Ltd [2001] FMCA 122 I reviewed the authorities, including Boorowa Shire Council v Booth and concluded that Federal Magistrate Raphael was correct in that s. 39(1) of the Local Courts (Civil Claims) Act is clearly the provision supporting a claim of interest on a judgment arising out of a proceeding in that court in a civil claim. In that case I decided to follow the decision of Federal Magistrate Raphael in Boorowa Shire Council v Booth. Jiminez v Welcome Homes Real Estate Pty Ltd was a case indistinguishable from the one I now have before me. There is no reason for me to reach a different conclusion in this case. It follows that I find that the bankruptcy notice in these proceedings suffers from an irremediable defect: Australian Steel Company v Lewis [2000] FCA 1915. In the absence of a valid bankruptcy notice there is no act of bankruptcy to support the creditor's petition. Accordingly, the sequestration order will be set aside and the creditor's petition will be dismissed. It follows that the costs order made by Registrar Parrott on 13 December 2001 has no effect.

16. The issues in this case were sufficiently clear that I saw no reason to prolong the proceedings, notwithstanding that the solicitors for the respondent creditor had not been served in accordance with the direction made by Federal Magistrate Roberts. Prolonging the proceedings would have put the creditor to further unnecessary expense. If bankruptcy proceedings had been instituted in New South Wales (as I think they should have been) it is likely that the defect in the bankruptcy notice would have been discovered earlier and substantial time and cost would have been saved. Solicitors and trustees should be cautious before accepting instructions to act in bankruptcy proceedings with no apparent connection to the jurisdiction in which they are located. With these considerations in mind I have decided to make no order in relation to costs incurred by the trustee to date.

17. The applicants have been successful in these proceedings and in the ordinary course they would be entitled to an order for costs. The applicants are, however, not legally represented. The basic principle on which costs are ordinarily awarded is as an indemnity for legal costs and expenses actually incurred: Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403. The applicants have not incurred any legal costs. They have paid a filing fee and have incurred incidental expenses such as photocopying in connection with the application. In the circumstances I have decided to fix an amount of costs in a modest amount to compensate the applicants for their disbursements.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 19 February 2002