Rules 4.04, 4.05 and 4.06 of the Bankruptcy Rules
107 The second category of error contended by Ms Bechara concerns Mr Bates' non-compliance with aspects of the Bankruptcy Rules and the primary judge's findings about the effect of that non-compliance.
108 The first basis upon which Ms Bechara contends the primary judge erred is in his Honour's analysis of the evidence against the Bankruptcy Rules. Ms Bechara submits that: it was incumbent upon the registrar to approach the creditor's petition by considering rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules; the registrar should have commenced his enquiry with r 4.04 because the creditor's petition was founded upon a failure to comply with a bankruptcy notice; no search of the type mandated by r 4.04(2) was in evidence; and at this point the Federal Circuit Court would have been justified to "stop the appellant's review application and dismiss the [c]reditor's [p]etition".
109 That submission can be disposed of immediately. The primary judge found (at PJ1 [316]), based on the facts before him, that r 4.04(1)(a)(i) of the Bankruptcy Rules did not apply because Ms Bechara had made an application to set aside the bankruptcy notice. His Honour then correctly found that it followed that r 4.04(2) of the Bankruptcy Rules was not engaged because that rule (see [59] above) only applies where an affidavit required by r 4.04(1)(a) states the matters referred to in r 4.04(1)(a)(i). There was no error in the primary judge's finding. Accordingly, insofar as Ms Bechara relies on non-compliance with r 4.04(2) as an aspect of her grounds of appeal (at NOA [42]), she cannot succeed.
110 Next, Ms Bechara submits that there were two other errors in the creditor's petition which she contends the registrar missed. She says that had those matters been brought to the registrar's attention, "undoubtedly" no sequestration order would have been made on 5 July 2016 and that, more fundamentally, these errors were not corrected in the evidence relied on by Mr Bates on 11 June 2021. The two errors identified by Ms Bechara were that: no search of the type mandated by r 4.04(1)(a) of the Bankruptcy Rules was served; and there is no evidence that a copy of 5 April 2016 Order was attached to the documents served with the creditor's petition, as mandated by r 4.04(3), and served. Ms Bechara submits that these omissions cannot be cured by the adducing of any further evidence by the creditor at the hearing de novo. She does not explain why that is so.
111 Ms Bechara submits that the non-compliance with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules is a procedural error which causes her substantial injustice and that s 306(1) of the Bankruptcy Act was misapplied by the primary judge. She submits that s 306 is mainly directed at bankruptcy notices referring to Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71. Ms Bechara contends that the main document that misled her is that when the creditor's petition was adjourned on 17 May 2016 no copy of the order giving notice to the debtor was attached to the notification that Mr Bates was obliged to give to her.
112 Ms Bechara submits that at the time of the hearing of the creditor's petition on 5 July 2016 Mr Bates' affidavits did not attach a copy of the 5 April 2016 Order which finally decided each of the applications referred to in r 4.04(1)(a)(ii) and r 4.04(1)(a)(iii) and was required by r 4.04(3) of the Bankruptcy Rules. Ms Bechara contends that the substantial injustice worked upon her by the omission in 2016 cannot be cured by patching up the evidence at the de novo hearing because the injustice has already occurred by the making of the sequestration order in 2016 and the only remedy for that injustice is to quash the sequestration order.
113 As to r 4.05 of the Bankruptcy Rules, Ms Bechara submits that the primary judge was in error to affirm the sequestration order based upon apparent compliance with the requirement of that rule over five years after the sequestration order was made. She contends that it is obviously a substantial injustice to her to have been made bankrupt and to have remained in that position for over five years, which condition persists today. She submits that it is an error to hold that the doing of an act in 2021, that would have invalidated the making of a sequestration order in 2016, somehow cures that problem. She submits that if it were the case that r 4.04(3) of the Bankruptcy Rules had been complied with, non-compliance with rr 4.04, 4.05 and 4.06 might be excused under s 306(1) of the Bankruptcy Act. However, she says that non-compliance at the time of the making of the sequestration order in 2016 is so prejudicial to her that the affirmation of a sequestration order in 2021 by "patching up" this evidence more than five years late is too significant a matter for this Court to overlook.
114 The primary judge's findings in relation to non-compliance by Mr Bates with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules on 8 June 2016, at the time of the hearing before the registrar, are set out at [35]-[37] above. In summary his Honour found that Mr Bates had failed to comply with rr 4.04(1)(a)(ii) or (iii), 4.04(3), 4.05(c) and 4.06(2) of the Bankruptcy Rules. His Honour also observed that there was a material overlap between the rules with which there had been non-compliance in that they each concerned the failure to depose to matters related to the 5 April 2016 Order concerning the dismissal of Ms Bechara's application to set aside the bankruptcy notice.
115 There is no challenge to those findings of the primary judge. Ms Bechara withdrew her grounds of appeal challenging the primary judge's finding that the date of the adjourned hearing of the creditor's petition had been inserted into the amended creditor's petition and the amended creditor's petition bearing the date and time of the adjourned hearing was served on Ms Bechara.
116 The primary judge also found (at PJ1 [321]) that before the completion of the de novo hearing, Mr Bates had put into evidence and served on Ms Bechara, by his affidavit made on 13 May 2021, a copy of the 5 April 2016 Order.
117 Ms Bechara's grounds of appeal concern the way in which the primary judge treated the non-compliance by Mr Bates with those rules. The primary judge found (at PJ2 [43]) that the failures to comply with the identified rules were "irregularities arising in the proceeding" i.e., procedural irregularities. His Honour found (at PJ2 [48]), having regard to the purpose of the rules under consideration, that compliance with them was not made essential in all cases such that a failure to comply with them would necessarily invalidate the proceeding. At PJ2 [51] the primary judge said:
To adapt the reasoning in Kleinwort Benson, a formal defect or irregularity automatically attracts the operation of s 306(1) unless the court is of the opinion that substantial injustice has been caused by the defect or irregularity and that injustice cannot be remedied by an order of the court. Absent evidence or any submission identifying any actual injustice, there is no basis upon which an opinion could be formed to deny the operation of s 306(1). Despite the several opportunities afforded to her to do so, Ms Bechara made a forensic choice not to file any evidence. A consequence of that decision is that she has denied herself an opportunity to provide evidence of injustice. Viewed objectively, the procedural history, including the stated entitlement to keep her 'powder dry' supports an available inference that from at least March 2021, Ms Bechara intended to advance as a ground for opposing the petition that there had been non-compliance with the rules. I am fortified in that conclusion by Mr Martin's opening statement that he had nothing further to say in relation to the rules "at that time". In those circumstances, not having filed a notice of intended grounds of opposition, or affidavit in support, or any opening submission identifying the third and 'principal' ground of opposition (or to have addressed the issue in any way, including during cross examination, until closing address), I was not satisfied by the debtor of any substantial injustice in this case flowing from the failure to comply with the subject rules. For that reason, there is no foundation for an opinion that the failure to comply with those rules has caused any, or any substantial, injustice to Ms Bechara. Accordingly, it is unnecessary to identify whether any order would be necessary to remedy such injustice. Upon that reasoning, s 306(1) takes effect and saves the petition from invalidity which could otherwise arise from those procedural irregularities.
118 Further, as set out at [46] above, the primary judge did not accept that there had been any injustice occasioned by non-compliance with the rules because of the failure to inform Ms Bechara by affidavit that her application to dismiss the bankruptcy notice had been dismissed on 5 April 2016 or to exhibit a copy of the 5 April 2016 Order. The primary judge went on to observe that in any event a copy of the order was exhibited to an affidavit during the de novo hearing.
119 Before turning to s 306(1) of the Bankruptcy Act it is necessary to address Ms Bechara's submission that the irregularities cannot be cured by the adducing of any further evidence by the creditor at the de novo hearing. The nature of delegated judicial power and a de novo review was considered in Robson v Body Corporate for Sanderling at Kings Beach CTS 2942 (2021) 286 FCR 494. At [63] Colvin J (with whom Allsop CJ, Markovic, Derrington and Anastasiou JJ agreed on this issue) said:
Further, the de novo review is not to be seen as directed to a consideration of the correctness of the delegate's decision or redressing error by the delegate. On review, the Court hears the case again unaffected by what has gone before. However, the Court does not act as if there is a new appellate proceeding. The review task it undertakes is a determination again of an application that has already been listed for hearing and proceeds in the same manner that would be the case if the power had not been delegated. In consequence, on review, the Court can entertain new arguments, receive new evidence or adjourn the proceeding but only to the extent, and in the circumstances where, it would do so in a matter that had already been set down for determination. Further, the applicant on review is the applicant on the application irrespective of whether the applicant was successful before the delegate. The same onus arises as if the application was being heard for the first time. This has particular significance for the review of a sequestration order. The review is initiated by the debtor (now bankrupt by the order to be reviewed), but proceeds as an application by the creditor on its petition.
(Emphasis added.)
120 There is no basis on which to suggest that on a hearing de novo, consequent on a review of delegated power, a judge cannot receive further evidence including evidence that may be tendered in order to meet an argument that there has been a failure to comply with prescribed rules of court or a formal defect or irregularity.
121 Section 306(1) of the Bankruptcy Act provides:
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.
122 In Kleinwort Benson a majority of the High Court (Mason CJ, Wilson, Brennan and Gaudron JJ) held at 80, in the context of considering a bankruptcy notice, that a defect will be substantive rather than formal if it "is objectively capable of misleading the debtor as to what is necessary for compliance with the notice". At 81 their Honours said:
Section 306(1) operates automatically unless "the court ... 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". In the present case no evidence was presented and no claim was made of actual injustice. There was thus no basis upon which an opinion could be formed to deny the operation of s. 306(1).
123 In Adams v Lambert (2006) 228 CLR 409, again in the context of a bankruptcy notice, the High Court (Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ) considered the construction of s 306(1) of the Bankruptcy Act. At [26]-[29] the Court relevantly said:
26 The question of construction raised by the words "a formal defect or an irregularity" is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authority it was said: "A better test ... is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid ... In determining the question of purpose, regard must be had to 'the language of the relevant provision and the scope and object of the whole statute'".
27 If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity. Any error is capable of misleading somebody about something. ... What this Court regarded as relevant to s 306, however, was misleading a debtor about what is necessary to comply with the notice. That kind of misleading, the Court said, takes an error outside the concept of a formal defect or irregularity. However, that is not the full extent of the exclusion.
28 The other exclusionary aspect of the expression "a formal defect or an irregularity" in s 306 was said to consist in a failure to meet a requirement made essential by the Act. Here again, the word "essential", in its application in a particular case, involves a conclusion. If a requirement is made essential by the Act, then a failure to meet that requirement is not a formal defect or an irregularity within the meaning of s 306. Whether a requirement is made essential is to be decided by a process of statutory construction undertaken in the manner described above. The majority in Lewis regarded the error in that case as involving a failure to meet a requirement made essential by the Act.
29 To describe an error or a deficiency in a bankruptcy notice as involving a failure to meet a requirement made essential by the Act is to state a conclusion reached after a consideration of the legislative purpose and an evaluation of the significance or importance of the error or deficiency in the circumstances of the case. That question is not answered by observing that there has been a failure to meet a requirement. In this respect, the majority in Lewis placed undue emphasis on the imperative terms of the Act and Regulations. If there were no failure to meet a requirement, there would be no defect or irregularity. Furthermore, as noted earlier, the fact that the requirement is expressed by the use of the term "must" is not conclusive. How otherwise might a requirement as to form be expressed?
(Footnotes omitted.)
124 In her written submissions the only challenge made to the primary judge's finding that the defects he identified were procedural irregularities were, as recorded at [111] above, that the main document that misled her was the omission of a copy of the order giving notice to the debtor when the creditor's petition was adjourned on 17 May 2016 from the notification that Mr Bates was obliged to give to her. That submission is confused. The primary judge found (at PJ1 [303]-[317]) that:
(1) the creditor's petition was listed before a registrar in the Federal Circuit Court on 13 May 2016 at which time orders were made including an order relisting the creditor's petition at 2.00 pm on 8 June 2016, a direction that Mr Bates lodge an amended petition with the "Registry to amend the hearing date required by order 1" and orders for substituted service on Ms Bechara by four different methods;
(2) the amended petition was lodged electronically with the Federal Circuit Court on 17 May 2016;
(3) by an affidavit made on 7 June 2016, a clerk in the employ of Mr Bates' solicitors deposed to effecting substituted service on Ms Bechara on 18 May 2016. The copy of the amended creditor's petition annexed to the clerk's affidavit had been completed with the time, date and place of the hearing of the petition; and
(4) the amended creditor's petition, completed by the Federal Circuit Court's Registry with the time and date of the hearing, was served on Ms Bechara.
125 Two matters are evident from the above summary of the primary judge's findings: first, the creditor's petition was not adjourned on 17 May 2016. It was before the court on 13 May 2016 at which time it was adjourned to 8 June 2016; and secondly, the copy of the amended creditor's petition served on Ms Bechara bore the date and time of the adjourned hearing. There was no omission of a copy of any order giving notice to Ms Bechara that Mr Bates was allegedly obliged to give her. In any event, the submission was overtaken by events given that Ms Bechara withdrew her grounds of appeal challenging the primary judge's findings that the date of the adjourned hearing of the creditor's petition had been inserted into the amended creditor's petition and the amended creditor's petition bearing the date and time of the adjourned hearing was served on Ms Bechara (see [115] above).
126 There are two remaining challenges to the primary judge's findings in relation to the application of s 306(1) of the Bankruptcy Act. First, in her oral submissions Ms Bechara contends, contrary to the findings at PJ2 [47] and [49], that the non-compliance with the rules identified by the primary judge was substantive. Secondly, Ms Bechara challenges the primary judge's finding that there was no substantial injustice caused by the procedural irregularities as found.
127 At PJ2 [47] the primary judge observed that having regard to the "restraints imposed by s 52(1) of the [Bankruptcy] Act" on the discretionary power to make a sequestration order and the approach to be taken to the construction of a provision that confers power on a court, he could not see why "a purpose of the [Bankruptcy] Act or Bankruptcy Rules is that the act of proceeding upon the hearing of a creditor's petition where rr 4.04, 4.05 and 4.06 have not been complied with should necessarily invalidate a petition in all cases". His Honour explained why that was so at PJ2 [48].
128 At PJ2 [49] the primary judge held that the procedural omissions upon which Ms Bechara relies are not substantive. His Honour went on to explain (at PJ2 [50]) that the non-compliance with the Bankruptcy Rules did not go to jurisdiction and did not provide any basis for a conclusion that Ms Bechara had satisfied the court of any, or any substantial, injustice that might invalidate the proceeding or be capable of being ameliorated by making an order under s 306(1) of the Bankruptcy Act.
129 His Honour reached those conclusions applying the analysis in de Robillard. In that case, among other things, the appellant, Mr de Robillard, challenged the sequestration order made against his estate on the basis of non-compliance with rr 4.02(3), 4.04(1) and 4.05 of the Bankruptcy Rules because, as described by Buchanan J at [90] (with whom Moore and Conti JJ agreed), there was no affidavit of service of the bankruptcy notice accompanying the creditor's petition when presented, and there was no affidavit of service of the bankruptcy notice served five days before the day fixed for hearing. At [92] Buchanan J, after noting that the appellant's contentions appeared to be factually correct, held that they did not go to the Court's jurisdiction and did not provide any basis upon which to decide the appeal in the appellant's favour. At [93]-[94] his Honour explained:
93 As the primary judge pointed out, the jurisdiction of the Court to make the sequestration order is granted by s 43 of the Bankruptcy Act. The Court must be satisfied that an act of bankruptcy has been committed in order to make an order of sequestration. Furthermore, s 52 of the Bankruptcy Act requires proof of certain matters "at the hearing of a creditor's petition", including that 'the debt or debts on which the petitioning creditor relies is or are still owing'.
94 When the matter came before the primary judge proof of the matters required by s 52 of the Act was an evidentiary issue. The jurisdiction of the Court is not fixed in time in the way suggested, nor is it to be measured simply by the adequacy of one party's initial documents (see Daly v Watson (1994) 50 FCR 544 at 552-3; Bryant v Commonwealth Bank of Australia (unreported, Federal Court of Australia, Beaumont, Whitlam, Moore JJ, NG223/1995, 24 November 1995) at 12-13. As was said in MacDonald 107 FCR 72 at [31] in relation to a similar argument:
A sequestration order can still be made, at the discretion of the Court, if the necessary evidence is before the Court at that stage even though no affidavit verifying the petition was filed with it.
130 Ms Bechara did not develop any argument as to why the non-compliances with the Bankruptcy Rules as found by the primary judge were "substantive" and would invalidate a creditor's petition. Putting that failure to one side, there is no error in the primary judge's approach or his Honour's conclusion. As Buchanan J explained in de Robillard the Court's jurisdiction to make a sequestration order is found in s 43 of the Bankruptcy Act and, if it is satisfied of its jurisdiction, the Court must then concern itself with proof of the matters in s 52(1) of the Bankruptcy Act before proceeding. Rules 4.04, 4.05 and 4.06 of the Bankruptcy Rules are not concerned with matters of which the Court must be satisfied under s 52(1) of the Bankruptcy Act. The rules with which there was non-compliance as found by the primary judge (and not disputed by Ms Bechara) concerned a failure on the part of Mr Bates to depose to matters related to the 5 April 2016 Order.
131 The primary judge considered the matters prescribed by s 52(1) of the Bankruptcy Act and was satisfied of proof of each of those matters, noting that there was no reference in s 52(1) to the Bankruptcy Rules: at PJ1 [272]-[276]. The primary judge then had a discretion to make a sequestration order and could do so notwithstanding non-compliance with those aspects of the Bankruptcy Rules which his Honour had identified.
132 The final question to address in relation to this aspect of Ms Bechara's appeal is whether the primary judge erred in finding that there was no substantial injustice caused by the procedural irregularities as found. This challenge concerns the primary judge's application of s 306(1) of the Bankruptcy Act. That is, having found that the non-compliances with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules were procedural irregularities not of a substantive kind, the primary judge held that s 306(1) of the Bankruptcy Act operated automatically to save the creditor's petition from invalidity: at PJ2 [16]. At PJ2 [51]-[54] the primary judge found that he was not satisfied of any injustice flowing from the failure to comply with the Bankruptcy Rules as found and thus it would be unnecessary to remedy any such injustice. In making that finding the primary judge noted that Ms Bechara had made a forensic decision not to file any evidence for the purposes of the de novo hearing which meant that she had "denied herself an opportunity to provide evidence of injustice".
133 The primary judge found that the non-compliances had no potential to mislead and that there could be no possible prejudice to Ms Bechara who had been represented at and knew of the dismissal of her application to set aside the bankruptcy notice. There is no error alleged in those findings.
134 Before me Ms Bechara pointed to no evidence of any injustice suffered by reason of the non-compliance with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules. Rather, Ms Bechara submits that the substantial injustice she suffered was that the sequestration order has been in place since 2016. Ms Bechara seems to contend that the non-compliance at the time of making the sequestration order in 2016 is so prejudicial to her that the affirmation of a sequestration order in "in 2021, by 'patching up' this evidence more than 5 years late, is too significant to have overlooked and leave remedied". I have addressed the nature of a de novo hearing and the primary judge's ability to receive further evidence at [119]-[120] above.
135 Insofar as Ms Bechara's submissions seem to suggest that the sequestration order would never have been made by the registrar in 2016 had the non-compliances with the Bankruptcy Rules been identified at that time, I note the following matters.
136 First, it is impossible to speculate what might have occurred had either the court or Ms Bechara raised the non-compliances at the time. The registrar may have adjourned the proceeding to allow Mr Bates to file further evidence and to comply with the relevant rules or may have excused compliance with some or all of the rules in question pursuant to r 1.06 of the Federal Circuit Court Rules 2001 (Cth).
137 Secondly, in any event, given the nature of a review of a registrar's decision and the role of a de novo hearing, it matters not what occurred before the registrar. Despite an order having been made by a registrar pursuant to a delegated power, the review proceeds as a hearing de novo in which the matter is considered afresh "on the evidence and law at the time of the review, that is at the time of the hearing de novo": see Bechara (FCAFC) at [17]. Thus, while the registrar's order subsists subject to the review, the Court hearing the review hears the matter afresh. It is for that reason that there is an imperative to carry out the review in a timely fashion.
138 The facts of this case are regrettable given that some significant time passed for the reasons explained in Bechara (FCAFC) until Ms Bechara in fact had her de novo hearing before the primary judge. But that does not make the existence of the sequestration order pending the review a matter which has caused Ms Bechara "substantial injustice".
139 Thirdly, the substantial injustice must be caused by the defect or irregularity. In circumstances where the irregularities centred around notification of dismissal of Ms Bechara's application to set aside the Bankruptcy Notice, a matter of which she was aware, it is, as the primary judge found to be the case, not possible to conclude that the irregularities in question could cause Ms Bechara "substantial injustice".
140 Finally, as to the question of substantial injustice, Ms Bechara submits that at the time of the de novo hearing the Federal Circuit Court was prohibited from confirming or making a sequestration order in relation to the first two judgments on which the bankruptcy notice was based because of the operation of s 41(3)(c)(i) of the Bankruptcy Act. This is because those judgments are dated 20 March 2015 and 2 April 2015 and are therefore more than six years old. This submission is misconceived and misunderstands the operation of s 41(3)(c)(i), the nature of a hearing de novo and its effect on the orders made by a registrar.
141 Section 41 concerns the issue of a bankruptcy notice and relevantly provides that a bankruptcy notice shall not be issued in relation to a debtor in respect of a judgment or order for payment of money if a period of more than six years has elapsed since the judgment was given or the order was made. There was no dispute that at the time the bankruptcy notice was issued, the judgments upon which it was based were less than six years old.
142 In Bechara (FCAFC) at [7] the Full Court said:
If an order is made by a registrar in the exercise of delegated judicial power and there is a review that results in a different conclusion by a judge to that reached by the registrar then an order is required to bring the operation of the existing order to an end. The Court, on review, does not determine that the earlier order was made without authority. Rather, by way of oversight, it makes a new order to replace the registrar's order and does so in the exercise of the power of review which is a condition of the delegation. The fact that the nature of the review conducted by the Court is a de novo review does not mean that the review proceeds as if no order had been made by the registrar or that the Court, if persuaded to make a different decision, makes orders as if there had been no order by the registrar.
(Emphasis added.)
143 That is, at the time of the de novo hearing the order of the registrar remains in effect subject to a review and, if there is a review, until such time as an order is made to bring the existing order to an end. There can be no suggestion that, upon the sequestration order being affirmed, Ms Bechara should "only have gone bankrupt regarding" the third judgment the subject of the bankruptcy notice.
144 The grounds of appeal concerning rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules, at [42]-[58] of the NOA, are not made out.