Second Proceedings in the Federal Magistrates Court - Bankruptcy Notice 247 of 2004
41 On 1 October 2004 the parties were advised by McInnis FM's associate that judgment would be handed down on 5 October 2004.
42 On that day, the respondent's solicitor arranged for a colleague within the firm to attend for the handing down of judgment. The respondent's solicitor was unavailable.
43 On the same day, the appellant brought proceedings to set aside the third bankruptcy notice.
44 The application sought the setting aside of the bankruptcy notice on the following grounds:
'1. The bankruptcy notice 247/04 is an abuse of process and be struck out.
2. The bankruptcy notice does not follow the terms of the judgment and be struck out.
3. The bankruptcy notice is invalid Section 41 sub-law (5) and be set aside.'
45 The grounds take up the matters raised by the appellant in his letters of 15 September and 30 September 2004 to the respondent.
46 The respondent had informed the appellant, prior to 1 October 2004, that it did not intend to proceed on the second bankruptcy notice and that it elected to proceed on the third notice. It was aware that the appellant had brought proceedings to set aside that third bankruptcy notice and that one of the grounds of the appellant's challenge was that the third bankruptcy notice was an abuse of process.
47 Nothing could be plainer, in my opinion, than that the respondent was under an obligation to bring to the attention of the Court, prior to the Court delivering judgment on the appellant's challenge to the second bankruptcy notice, that the respondent did not intend to proceed upon that notice; that a further notice had issued; and that that third notice was subject to challenge on the grounds stated in the proceedings issued on 1 October 2004.
48 If the respondent had brought those matters to the attention of the Court, the Court, in my opinion, would not have ruled upon the appellant's challenge to the second notice but would have set aside the second notice on the ground that the respondent did not intend to proceed with it and had elected to proceed on the third notice.
49 In those circumstances, the respondent, in my opinion, would not have been entitled to costs against the appellant in relation to the appellant's application to set aside the second bankruptcy notice because the notice was to be set aside on the motion of the respondent.
50 Indeed, the respondent may have had to meet whatever expenses the appellant had been put to in relation to the proceedings to set aside the second notice.
51 The respondent, however, took no steps whatsoever to notify the Court of those matters.
52 Judgment on the first application (WZ57 of 2004) was not handed down until 5 October 2004, which was also the date upon which the second application was listed for hearing before McInnis FM.
53 The Magistrate made the following orders in that first application:
1. The application to set aside the bankruptcy notice be dismissed.
2. The applicant shall pay the respondent's costs to be taxed in default of agreement pursuant to O 62 of the Federal Court Rules.
54 The appellant contends that during the hearing he advised the Federal Magistrate and the solicitor attending at the hearing that the respondent had withdrawn the notice the subject of decision which was about to be given and issued a new bankruptcy notice.
55 He said that the Federal Magistrate inquired of the solicitor present and she told him that she knew nothing about it.
56 In an affidavit sworn by that solicitor, she said that at the time she attended the hearing she had a very limited knowledge of the file and the matter. She said that the appellant did raise the matter of another application after the Federal Magistrate had given his decision. She agrees that she told the Federal Magistrate that she knew nothing about any further application and that, to her knowledge, the respondent had not been served with any application.
57 McInnis FM adjourned the hearing of the second application to 9 November 2004.
58 The appellant was given leave to file and serve an amended application, which he did on 12 October 2004. The amended application sought the following further relief in respect of the third bankruptcy notice:
'AND the applicant claims by way of interlocutory relief:
1. That the orders made 5 October 2004 in the matter of WZ 57 by FM McInnis be amended.
2. That orders be made the respondent bears all the costs for electing to discontinue bankruptcy notice 91 and application WZ 57 [F.M.C.R] Rule 13.02(1)'
59 The appellant's amended application claiming interlocutory relief is misconceived.
60 In my opinion, the appellant should have appealed from the decision of McInnis FM in which he dismissed the appellant's application to set aside the second notice and ordered the appellant to pay the respondent's costs.
61 In any event, the amended application was supported by two affidavits sworn by the appellant.
62 In his affidavit of 1 October 2004, which, of course, was sworn before McInnis FM made his orders in relation to the second notice, the appellant deposed:
'2. This bankruptcy notice was served on me on the 13 September 2004.
The Bankruptcy Notice is an Abuse of process
3. On the 13 September 2004 I was served with a bankruptcy notice and a cover letter from the respondent informing me that his client had ceased to proceed with b/n 91 of 2004 but elects to proceed with b/n 247 of 2004…
4. On the 15 September I wrote to the respondents solicitor objecting, and informing him that it was oppressive and in bad faith to issue a new notice without lodging a notice of discontinuance or obtaining leave from the Court to do so…
5. I made enquiries to the Court as to whether a notice of discontinuance had been filed by the respondent. I was informed by the Registry that it wasn't. I was later informed that the file was no longer in Perth, that it was with Magistrate McInnis in Melbourne.
6. I thereafter wrote a letter to the Court asking for directions in respect to compliance with this notice given the uncertainty as described in the preceding paragraph. The respondent may have indeed filed a notice of discontinuance, unknown to me because the file was in Melbourne…
The Bankruptcy Notice does not follow the terms of the judgment
7. The bankruptcy notice must follow the terms of the judgment. The applicant contends that the copy of the judgment, orders, and other proceedings attached to this notice is not a copy of a final judgment or order within the meaning of section 40 (1) (g) of the Bankruptcy Act 1966…
8. The applicant affirms that in the Local Court action he represented himself and Mr Buchan represented his client who claimed at all material times that he was known as Homestyle pty ltd. I was there on the 17 October 2003 when the consent judgment was entered. BGC Constructions pty ltd was not a party to the judgment that was merged. I contend that the copy of the CCJ submitted by the respondent in this application is not a true copy of the relevant judgment, but a document purporting to contain particulars of the judgment which are not clear.
9. The applicant has instituted proceedings for an appeal to set aside and quash the judgment in respect of which the bankruptcy notice was issued.
…
10. Bankruptcy notice invalid Section 41 sub law (5)
The bankruptcy notice does not accord with the terms of the judgment and the amounts claimed are erroneous. There is an interlocutory order that is not a final order that did not form part of the compromise of the consent judgment…
11. Cross demand
The applicant has full details of the cross demand which have been submitted in application WZ 57 and refers to his interlocutory order in this application for that file to be transferred onto the record of this application. The application WZ 57 is still under consideration by Federal Magistrate McInnis.
63 The last paragraphs of the appellant's affidavit must be a reference to the proceedings before McInnis FM which were decided on 5 October 2004.
64 In that affidavit the appellant appears to have taken three issues with the validity of the third notice.
65 First, he claimed that it was an abuse of the Court's processes because it issued while the first notice was still on foot and under consideration by McInnis FM. No election was made by the respondent until 13 September 2004 and no discontinuance was ever entered.
66 Secondly, the appellant claimed that the second notice was not fairly based on the Certified Copy of Judgment of the Local Court and that the Certified Copy of Judgment was not, in any event, an accurate record of the judgment entered on 17 October 2003.
67 Thirdly, the appellant argued that the creditor issuing the bankruptcy notice was not the entity in whose favour the judgment in the Local Court was awarded.
68 His second affidavit was sworn on 11 October 2004. In that affidavit the appellant has descended into argument. He has reiterated his claim that the second notice was an abuse of process. He argued that the decision of the Full Court of the Federal Court in Abignano v Wenkart supported this proposition. He further argued that the decision of the English Court of Appeal in Re a Debtor; Ex parte the Debtor v National Westminster Bank Plc [1983] 3 All ER 545 was authority for the proposition that it was improper to issue two bankruptcy notices with respect to the same debt without first electing not to prosecute the first issued notice.
69 He reasserted his argument that the second notice did not follow the terms of the judgment and '…relies on the merger of the first judgment first recovered of the right to the remedy thereby given', citing Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. This argument seemed to be a subset of his third argument identified above.
70 On 19 October 2004 the respondent's solicitors wrote to the appellant in the following terms:
'We refer to your application to set aside the bankruptcy notice which was heard by McInnis FM on 28 July 2004.
Federal Magistrate McInnis delivered his judgment and published his reasons on 5 October 2004. We confirm that your application was dismissed and you were ordered to pay the respondent's costs of the application.
Our client has incurred costs of $6,160.00 in relation [sic] this application, however it is prepared to accept $5,500.00 to avoid the need to submit the questions of costs to taxation.
Please make payment of the sum of $5,500.00 in settlement of our client's costs within 7 days. If we do not hear from you within 7 days of the date of this letter we will assume that you are not prepared to agree costs and will file our client's Bill of Costs with the Federal Magistrates Court for taxation. The taxation will incur our client additional costs which it will seek to cover [sic] from you in the event that costs cannot be agreed.'
71 The appellant's evidence was that he responded to that letter on 20 October 2004 in the following terms:
'I refer to your letter dated 10 October 2004 asking for your clients costs.
I am not prepared to pay anything because you told me your client abandoned the above matter and did not wish to proceed with it.
On the 5 October 2004 I told FM McInnis you withdrew in the above matter and issued me a new bankruptcy notice. He said he didn't know anything about it at all. He asked your Ms Gogoulis for an explanation and she told him she new [sic] nothing either. It would appear you were the only person who knew, and you weren't telling anybody else.
I advise that by letter dated 10 September 2004 prior to judgment, you wrote to me and asserted that your client did not wish to proceed in the above matter, had changed its name and elected to proceed in a new matter under that name.
By further letter to me dated 22 October 2004 you reiterated that your client clearly did not wish to proceed in the above matter but wished to proceed in its new name BGC Constructions pty ltd under a new bankruptcy notice which was served on me 13 September 2004.
Your client has exercised his choice of not proceeding in the former matter B/N 91 WZ 57 prior to its determination, and proceeded with a new matter B/N 247 of 2004. He is bound by election estoppel and thus barred from any of the fruits of the judgment of that action.'
72 The letter serves to confirm that McInnis FM was unaware of the contents of the previous letter written by the appellant.
73 If what the letter says is right, it would seem that the respondent's solicitor was unaware of the election which had been made.
74 The appellant's reference to the letter of 22 October 2004 is a mistake. Clearly enough, he was referring there to the respondent's solicitor's letter of 22 September 2004.
75 At some stage, on 5 October 2004, McInnis FM was aware that the further bankruptcy notice had issued but he would not have been aware, unless he had received the appellant's letter of 27 September, that the respondent had elected to proceed on the third notice and not to proceed on the second.
76 On 26 October 2004 the respondent filed its Bill of Costs in the matter WZ57 of 2004 in relation to the second notice for taxation.
77 The second application was heard by McInnis FM on 9 November 2004 and was dismissed. The Federal Magistrate delivered ex tempore reasons.
78 McInnis FM identified the claims made by the appellant and addressed his argument that the issue of the second notice was an abuse of process. He said:
'6. In one sense the arguments raised in the amended application to set aside filed 12 October 2004 have a superficial attractiveness in the sense that what the applicant claims is that the second notice is an abuse of process. He otherwise argues that it doesn't follow the terms of the judgment and should be struck out. It is clear to me that on a proper analysis of the two bankruptcy notices that they are in fact almost identical, save and except that what appears to have occurred is that the certified judgment now relied upon has been corrected or regularised so that the name of the plaintiff relied upon in the certified copy of the judgment in support of the second bankruptcy notice is now the changed name, that is, "BGC Constructions Pty Ltd".
7. Likewise the second notice itself reflects that change of name and refers to the creditor as "BGC Constructions Pty Ltd" ACN 008 783 248, formerly known as "Homestyle Pty Ltd" ACN 008 783 248. What is perfectly clear to me on a proper reading of the documentation is that there has simply been a change of name. It is important to understand a change of name of creditor is not the same as an entirely different entity with an entirely different ACN number.'
79 Although McInnis FM was somewhat critical of the respondent's conduct in issuing the third notice without informing the Court of its election not to proceed with the second notice, he was satisfied that the procedure was adopted to address the appellant's argument that the second notice was bad because the creditor was described by its former name of Homestyle Pty Ltd. He said:
'12. In this case I accept that the second notice has been issued in an attempt to regularise the issues which were then of concern to the creditor notwithstanding that this court had reserved its judgment. It is not a practice to be encouraged and whilst I am not prepared to find it is an abuse of process it seems to me that where a court has reserved its decision in a pending application seeking to set aside one bankruptcy notice it is not desirable for a creditor to then issue, without advice to the court, a second bankruptcy notice and by correspondence indicate that it elects to rely upon the second bankruptcy notice and to no longer rely upon the first bankruptcy notice.
13. Whilst that may not be an abuse of process in one sense, given that the application which was the subject of a reserved decision was an application by the debtor to set aside the first bankruptcy notice it nevertheless in my view is desirable that creditors who make an election of that kind permissible by law should at the very least advise the court accordingly and perhaps the matter could then have been resolved without the need for a formal decision being delivered.
14. Nevertheless, the chronology of events that has occurred does not of itself preclude the creditor from issuing the second bankruptcy notice issued out of an abundance of caution and perhaps what might be described as a 'fallback position' should the first decision of the court be in favour of the applicant debtor to set aside the first notice.
15. However, the correspondence indicating that an election has been made goes beyond creating a fallback position but rather indicates that a second bankruptcy notice having been issued the creditor then elected to rely upon that notice and not the first notice which was the subject of the reserved decision. As I have made clear I am not prepared to find that that is an abuse of process or that other steps necessarily as a matter of law should have been taken by the creditor in relation to that first notice and the proceedings then the subject of a reserved decision.
16. Nevertheless it is my view undesirable for the creditor to conduct itself in that manner. This is a particularly difficult process for unrepresented parties and whilst I have made a decision unfavourable to the applicant debtor it is clear to me that there is at least a potential for a degree of confusion in his mind as to what may or may not be permissible by a creditor under the Bankruptcy Act in relation to issuing more than one bankruptcy notice.
17. I should add that in fairness to the respondent creditor once having issued a second notice it would not be proper for it to then leave in abeyance the issue of which of those bankruptcy notices it elected to proceed with in order to ultimately take further action by way of a creditor's petition if that was thought appropriate and if necessary, having regard to the period of time allowed for in the second notice. It would in fact be an abuse of process to have two bankruptcy notices current and not elect to pursue one or other of those bankruptcy notices.
18. Hence as I have indicated I am not prepared to find that the process is an abuse of process and indeed the opposite would be true had an election not been made. My only concern is that where there is a pending application subject to a reserved decision it would be desirable for creditors to advise the court accordingly. In any event that did not occur. The current amended application in my view does not therefore have any basis on which this court can act in terms of setting aside the second notice as I have found there is no abuse of process.'
80 There is no doubt that the respondent informed the appellant that it did not intend to proceed on the second notice and that it elected to proceed on the third notice.
81 The real question in this case is whether its subsequent conduct in failing to advise the Court and obtaining an order for costs in relation to that second notice was consistent with the election which it said it had made.
82 The respondent also sought the costs of the appellant's application to set aside the third notice.
83 The Federal Magistrate said:
'21. …It is not appropriate that I should revoke an earlier order for costs in my view. However, the existence of those proceedings and the fact that they were pending at the time when the second notice was issued and an election made in relation to that second notice in my view is a relevant matter to take into account.
22. In my view there is some force in the submission made by the applicant debtor as to the undesirability of two sets of costs in all the circumstances. The issue of costs is a matter of discretion. I am mindful of the fact that they normally follow the event. In an application to set aside the second notice which has been unsuccessful it would normally be the case that those costs would follow the event with the applicant being required to pay the respondent's costs of and incidental to the application to set aside.
23. However, having regard to the undesirability of the lack of notice to the court of the issuing of a second notice and an election to rely upon that notice it seems to me that as a matter of fairness between the parties the court should make no order as to costs…'
84 The Federal Magistrate's reasons, in my opinion, highlight the difficulty which the respondent's conduct caused by purporting to elect to proceed on the third notice but, at the same time, seeking orders in respect of the second notice.
85 The respondent did not file any affidavits in the proceedings before the Federal Magistrate. In those circumstances, the respondent did not further explain the reasons why the third bankruptcy notice was issued.
86 Initially, when this appeal was called on, the only information before me was contained in the two affidavits relied upon by the appellant in the Federal Magistrates Court.
87 During the hearing of this appeal I raised with Mr Buchan the status of the order for costs made in relation to the appellant's proceedings to set aside the second notice.
88 I was advised not only that the order for costs made in relation to those proceedings not been discharged but that in fact the respondent had taxed its costs and had taken steps to recover those costs from the appellant.
89 I adjourned the hearing of the appeal so that the appellant could establish the facts necessary to prove what steps the respondent had taken subsequent to the order of McInnis FM on 5 October 2004.
90 The respondent did not object to the Court receiving a further affidavit of the appellant in which he exhibited a number of documents to which I have referred in these reasons, which establish some of the events on 5 October 2004 and the events subsequent to that date.
91 In fact, the respondent also filed and read two affidavits, one of Mr Buchan and the other of the solicitor who attended the hearing on 5 October when McInnis FM made the orders to which I have already referred.
92 Mr Buchan says in his affidavit:
'8. The Respondent's decision to pursue its costs on application WZ 57/2004 was based solely on the fact that a costs order had been made in the Respondent's favour and the Respondent considered it was entitled to recover those costs. I did not consider that pursuing the costs order made in respect of WZ 57/2004, after the Respondent had elected to proceed with Bankruptcy Notice 247 of 2004 by its letter of 10 September 2004 (annexed to the affidavit of the Appellant sworn 1 October 2004 and marked HPG1) in any way affected its election to proceed with Bankruptcy Notice 247 of 2004.'
93 Mr Buchan does not depose to why his client did not advise or cause the Federal Magistrate to be advised that the respondent was not proceeding with the second notice and had elected to proceed on the third notice.
94 The appellant, of course, requested me to have regard to the further matters contained in his third affidavit filed on this appeal. He did not object to me having regard to the matters contained in the respondent's affidavits.
95 The respondent conceded that I should have regard to the facts contained in the appellant's affidavit leading up to the Federal Magistrate's decision on 9 November 2004.
96 This appeal is an appeal by way of rehearing and the Court can receive further evidence: Farrington v Deputy Commissioner of Taxation [2002] FCA 1013.
97 I do not intend to accept evidence of events which occurred after the Federal Magistrate's decision because those facts could not have impacted upon that decision.