reasoning
11 The first question to consider is whether the first respondents, by taking the steps which they took at the hearing on 21 July 2000, purported to do something which s 238(2) of the Act provided it was not competent for them to do i.e. "to proceed with" the creditors' petition. It is unnecessary for this purpose to consider whether an order made under s 222(2) of the Act would have had the effect of rendering the composition to be of no effect as at 21 July 2000. This is because the primary Judge in the present case did not make an order declaring the composition to be void. Rather, he made an order under s 239(2) setting aside the composition. The composition was therefore valid on 21 July 2000.
12 The transcript of the proceedings before the learned primary Judge shows that in his opening remarks, counsel for the first respondents said this:
"Now, the reason we seek, in the event that your Honour is persuaded to set aside or declare void the composition to then move on the petition as opposed to those provisions [a reference to ss 222(7) and 239(2)] is that that would give the applicants the benefit of an act of bankruptcy of 13 July 1999 whereas if your Honour made a sequestration order on the application to set aside, that act of bankruptcy would be more than six months in the past and therefore could not be relied upon in any subsequent bankruptcy."
13 Shortly thereafter counsel sought a direction that "… the evidence in one case be evidence in the other …". The appellant, who appeared in person, said that he had no objection to such an order and it was duly made.
14 Counsel then read an affidavit and tendered other documents in support of the application to set aside the composition.
15 Counsel then said this:
"Your Honour, can I then just deal with the formalities that would be required by the rules to obtain a sequestration order in the petition matter and simply ask your Honour to note a series of affidavits. I don't think there is any need to go to them at this stage."
16 Thereupon counsel took his Honour to the following affidavits:
· an affidavit sworn on 10 May 1999, proving service of a bankruptcy notice on the appellant on 7 May 1999;
· an affidavit sworn on 28 September 1999, verifying the matters alleged in the creditors' petition;
· an affidavit sworn 12 October 1999, proving service of the petition and supporting affidavits;
· an affidavit of continuing debt, sworn on 21 July 2000; and
· an affidavit of search of the index kept by the Insolvency Trustee Service of Australia, also sworn on 21 July 2000.
17 In our view, a fair assessment of what took place in Court on 21 July 2000 was that the first respondents were seeking conditionally to proceed with the creditors' petition, (including adducing the evidence upon which they relied in support of that petition), not at that time but later. This was subject to the satisfaction of a very important condition, namely that the petition not be dealt with unless the Court decided to set aside the composition.
18 The first respondents' position can be seen as one where, if his Honour were not persuaded to set aside the composition, the evidence led in support of the creditors' petition would simply be disregarded and no order would be made in relation to the creditors' petition. However, if his Honour were to decide that the composition be set aside, the first respondents were to be taken as having then moved in terms of the petition. The evidence adduced on 21 July 2000 would only then be taken into account in hearing and determining the creditors' petition.
19 Section 238(2) was enacted in its present form as part of the substantial revision of bankruptcy legislation in 1966. Apart from s 161 of the Bankruptcy Act 1924 (Cth), which made provision for compositions to be binding on all creditors, there was no comparable earlier provision.
20 The relevant recommendation of the Clyne Committee (Report of the Committee to Review the Bankruptcy Law of the Commonwealth, 1962) was simply that:
"336. So long as a composition remains valid, it will not be competent for a creditor to petition for the debtor's bankruptcy in respect of a debt provable under the composition or to enforce any remedy, or commence or continue any legal proceedings, in respect of such a debt."
21 We do not think that any assistance in the construction of s 238(2)(a) can be derived from the statutory history.
22 In our view, there is much to be said for the proposition that, in the peculiar circumstances of this case, the steps which the first respondents took on 21 July 2000, conditional as they were, did not amount to "proceed[ing]" with their petition.
23 Such a construction of s 238(2)(a) would be consistent with the policy which can be discerned in its neighbouring section, s 239. Section 239(1) permits a creditor to include an application for a sequestration order in its application to set aside a composition. Section 239(2) confers power on a Court which sets aside a composition forthwith to make a sequestration order thus sought. Furthermore, s 239(4) reflects Parliament's intention that certain key statutory conditions, which normally apply before a sequestration order is made, are not to apply to an application for a sequestration order which is sought as part of an application to set aside a composition. Once an application has been made in accordance with s 239(1) to set aside a composition, the fact that the application for a sequestration order is contained in a separate document, lodged and filed earlier with the Court, should not, in our view, impel this Court to adopt a construction which would be inconsistent with the policy manifest in s 239 that the summary making of a sequestration order (if applied for by the creditor) is an issue properly before the Court hearing an application to set aside a composition. Furthermore, there are good practical reasons which justified the course adopted by the parties and the primary Judge in this matter. Subject to the debtor's rights being protected, it would have been wasteful for a further, separate hearing of the creditors' petition to be convened after his Honour's decision to set aside the composition.
24 We acknowledge that such a construction runs counter to a more literal interpretation of the relevant portion of s 238(2)(a).
25 However, we do not think that it is necessary to decide the point because even if the first respondents are to be characterised as having, to some extent, "proceeded" with the creditors' petition on 21 July 2000, that did not invalidate the course taken by the primary Judge on 30 August 2000.
26 On that date, once the primary Judge had said, (at [28]):
"I am satisfied that the applicants have established the matters required under s 239 of the Act and I therefore set the Composition aside. The costs of the application to set aside the Composition should be paid by the second respondent"
it was, in our view, open to his Honour to proceed to hear and determine the petition. He can be seen to have done that in the passage set out at [5] above. His Honour, at that point, had regard to the affidavits in support of the creditors' petition which we have described in summary [16] above.
27 When the Court reconvened on 30 August 2000 and had indicated that the composition would be set aside, we think that it can be said to have been hearing the creditors' petition. It would have been open at that time for the appellant to have informed his Honour of any changed factual circumstances which might have a bearing on whether the sequestration order should or should not have been made. The appellant did not do so.
28 In our opinion, it was open to his Honour, on the evidence then before him on 30 August 2000, to make a sequestration order. His Honour had read the affidavits referred to above and expressly stated that he was satisfied that the appellant had committed the act of bankruptcy alleged in the creditors' petition. He also said that he was satisfied as to the other matters on which s 52(1) of the Act required proof. We return to that subject below.
29 The appellant [see ground 1(ii)] complained that his Honour did not make a determination on his Notice of Opposition to the Petition (dated 18 November 1999). There were only two grounds in that notice. The first was that the appellant had applied to the High Court of Australia for special leave to appeal against the judgment on which the bankruptcy notice was based. On 18 April 2000, the High Court of Australia had dismissed that application.
30 The second ground in the notice of intention to oppose petition was an assertion that the affidavit of search required by Order 77, rule 19(3) of the Federal Court Rules ("the Bankruptcy Rules") "was not made of the deponent's own knowledge". At the hearing of the appeal Mr Knaggs drew our attention to the fact that the relevant affidavit of search stated that the deponent had "… caused a search to be made by computer …".
31 Order 77 rule 19(3) provides that the affidavit may be of a person who has searched "… or caused a search to be made …" in the relevant index. There was no substance in the ground and in any event a copy of the search was annexed to the affidavit.
32 The next two grounds of appeal were that, to the extent that the Court "purported to conduct a hearing on 30 August 2000", the first respondents had not filed an affidavit of search as to bankruptcy proceedings as required by rule 19(3) of the Bankruptcy Rules, nor an affidavit of continuing debt as required by rule 19(4) of those Rules.
33 Sub-rules 19(3) and (4) provide as follows:
"19(3) The applicant must file an affidavit of a person who has searched or caused a search to be made, in the National Personal Insolvency Index no earlier than the day before the hearing date for the petition:
(a) setting out the details of any references in the Index to the debtor; and
(b) stating that there were no details of a debt agreement, in relation to the debt on which the applicant relies, in the Index on the day when the petition was presented; and
(c) that has attached to it a copy of the relevant extract of the Index.
19(4) The applicant must file an affidavit of a person who knows the relevant facts:
(a) sworn as soon as practicable before the hearing date for the petition; and
(b) stating that each debt on which the applicant relies is still owing."
34 The purpose of rule 19(3) would seem to be to provide the Court with evidence that there is no debt agreement in force which, by the operation of s 185K, would preclude a creditor from proceeding further with a creditor's petition. It would also provide the Court with evidence of any other proceedings in bankruptcy which might have a bearing on the making of a sequestration order.
35 The evident purpose of rule 19(4) is to provide a means of proving what is required by s 52(1)(c) of the Act, i.e. the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
36 His Honour had evidence before him that the debt on which the first respondents relied was still owing as at 21 July 2000. In the absence of any suggestion being made by the appellant, when the matter was before his Honour on 30 August 2000, that the debt had been paid, it was open to him to infer that the debt was still owing.
37 In our view, his Honour did not err in law in making the findings which we have set out in [5] above. Likewise, his Honour had an index search sworn on 21 July 2000. In the absence of any suggestion from the appellant that any proceedings in bankruptcy had taken place between 21 July 2000 and 30 August 2000, he was, in our opinion, entitled to assume that no such proceedings (including the making of any debt agreement) had taken place.
38 We think that his Honour may be taken impliedly to have dispensed with compliance with the requirements of Order 77, rules 19(3) and (4) - see Federal Court Rules Order 1, rule 8. The appellant was unable to demonstrate that his Honour's discretion had miscarried or that there had been any miscarriage of justice. The appellant acknowledged at the appeal that he had not made any payment in reduction of the debt owing to the first respondents and there was no suggestion of any relevant bankruptcy proceedings between 21 July 2000 and 30 August 2000 which might have appeared from an index search.
39 The next ground of appeal [ground 1(vi)] was that the Court did not conduct a hearing upon the petition at all. We do not think that this ground has been made out. As we have mentioned above, the hearing of the petition occurred on 30 August 2000.
40 We think that this sub-ground includes a complaint by the appellant that he was denied procedural fairness. We do not think that there is any substance in that complaint. The appellant was made aware at all stages that, subject to the composition being set aside, the first respondents would at that stage seek the making of a sequestration order in accordance with the creditors' petition. He had every opportunity to put before the Court any evidence in support of his Notice of Opposition. There was, in reality, no substance to the grounds stated in that notice.
41 Ground 2 of the notice of appeal raises a contention that the appellant has not committed an act of bankruptcy and that the sequestration order should not have been made. This was not one of the grounds upon which the appellant opposed the making of a sequestration order. He should not be allowed to raise these issues for the first time in the appeal.
42 For the foregoing reasons, we would dismiss the appeal with costs.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lee & Carr.