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[2005] FCA 1652
Federal Court of Australia
2005-11-16
Jacobson J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1. This is an application to set aside a bankruptcy notice issued on 19 August 2005. The bankruptcy notice was issued at the request of the respondents upon the basis of a consent judgment for $200,000 obtained in the District Court at Coffs Harbour on 5 May 2005. 2. The application stated three grounds for the exercise of the jurisdiction to set aside the bankruptcy notice. The first was that proceedings to set aside or stay the original judgment had been instituted; this ground was not pursued. 3. The second ground was that the bankruptcy notice was not duly served as required by Regulation 16.01 of the Bankruptcy Regulations 1996 (Cth). This ground was pursued and I will refer below to the evidence on this question. 4. The third ground was that the applicant had a counter‑claim, set-off, or cross-demand as referred to in section 40(1)(g) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"); this ground was not pursued. 5. The fourth ground, which was not referred to in the application as filed, was that the issue of the bankruptcy notice constituted an abuse of process because the consent orders pursuant to which the judgment was obtained provided for the respondents to execute a deed of release and to issue a tax invoice, neither of which events had taken place at the time when the bankruptcy notice was issued. That question seems to me to turn upon the proper construction of the consent orders which I will refer to later. I should pause to add that it was conceded by counsel for the applicant that the claim to enforce the terms of the consent orders was not a counter-claim, set-off, or cross-demand which met the requirements of section 40(1)(g) of the Bankruptcy Act. 6. The consent orders in the District Court were as follows:- " 1. Verdict for the plaintiffs in the sum of $200,000.00 inclusive of costs and interest. 2. No interest to run of verdict until 45 days from today and no execution until after that date. 3. The parties agree to release each other and their associated entities from any claims to which they are or may be entitled on circumstances which have occurred between them until the date of this deed, excepting the enforcement of these terms. 4. The verdict sum is to be paid to the plaintiff's solicitors whose receipt shall discharge the defendant's obligation excepting as to any unpaid interest. 5. The verdict sum is noted to include a judgment on this action and consideration for forebearance to sue or matters the subject of the mutual release together with legal costs. 6. These terms to be in full settlement of all claims, actions and rights of the Plaintiffs and Ian David Lazar and all associated entities and each of them shall as soon as practicable execute such Deed of Release as shall be reasonably agreed between their respective solicitors. 7. Note the plaintiffs to raise a tax invoice for rent claimed on the amount of $85,000." 7. I am satisfied on the evidence before me that the deeds of release referred to in [6] of the consent orders have not been delivered. Indeed this was common ground but I was told, and I accept, that the terms of the releases have been agreed although the executed deeds themselves have not been exchanged. 8. I am also satisfied that the tax invoice referred to in [7] of the consent orders was not delivered to the applicant before the bankruptcy notice was issued. I am, however, satisfied that the invoice was raised, although whether it was done before or after the issue of the bankruptcy notice is not clear, and that it was delivered to the applicant after the issue of the bankruptcy notice. 9. Prior to the filing of the present application, the respondent's process server, Mr Michael Hill, swore an affidavit of service of the bankruptcy notice. The affidavit was sworn on 5 October 2005. It was read by the respondents in opposition to the orders sought in the application. Paragraphs one and two of Mr Hill's affidavit as admitted into evidence were as follows: "1. On Thursday the twenty-second day of September 2005, at 4.22 o'clock in the afternoon, I served IAN DAVID LAZAR with the Bankruptcy Notice herein by delivering a true copy thereof signed by the Official Receiver for the Bankruptcy District of New South Wales to a female occupant, a person apparently over the age of sixteen years, at Suite 2, 11 Rangers Road, Neutral Bay, in the said State. 2. Before such service I asked the person so served, 'Is this the place of business of IAN DAVID LAZAR?' She replied, 'Yes, but he's not here'. At the time of such service the person so served said, 'He will be back on Thursday the 28th…Okay then'. " 10. The applicant swore an affidavit on 12 October 2005 in support of his application to set aside the bankruptcy notice. He gave his address as 11 Rangers Road, Neutral Bay which was the street address at which Mr Hill said he delivered the bankruptcy notice. The only evidence in the affidavit to support the ground that the bankruptcy notice was not duly served was a statement in inadmissible form that: "The Bankruptcy Notice has not been properly served on me as required by Regulation 16.01 of the Bankruptcy Regulations 1996." 11. I admitted that paragraph but only as evidence of the applicant's contention. 12. The effect of the applicant's evidence in his further affidavit, sworn on 11 November 2005, was that 11 Rangers Road was not his residential address. 13. The applicant admitted in cross‑examination that the bankruptcy notice had been received by him. He said it was handed to him by a Ms Neels who apparently worked for him. He said that Ms Neels gave him the document about two and a half weeks before 12 October 2005, and he appreciated that it was an important document. He said it was handed to him at premises at Yeo Street and that the document was not then in an envelope. He said he passed on the document to his solicitor. He was not sure whether he sent the original or a faxed copy. 14. Section 40(1)(g) of the Bankruptcy Act provides: "A debtor commits an act of bankruptcy in each of the following cases: … (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia - within the time specified in the notice; or
(ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service; comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;" 15. Regulation 16.01 dispenses with the need for personal services of a bankruptcy notice. The history of the regulation and its effect was explained by Emmett J in Sogelease Australia v Griffin (2003) 128 FCR 399 at [14] to [16]. 16. Regulation 16.01 is as follows: "(1) Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be: (a) sent by post, or by a courier service, to the person at his or her last-known address; or (b) left, in an envelope or similar packaging marked with the person's name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility; or (c) left, in an envelope or similar packaging marked with the person's name, at the last-known address of the person; or (d) personally delivered to the person; or (e) sent by facsimile transmission or another mode of electronic transmission: (i) to a facility maintained by the person for receipt of electronically transmitted documents; or (ii) in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person. (2) A document given or sent to, or served on, a person in accordance with subregulation (1) is taken, in the absence of proof to the contrary, to have been received by, or served on, the person: (a) in the case of service in accordance with paragraph (1) (a) or (b) - when the document would, in the due course of post or business practice, as the case requires, be delivered to the person's address or document exchange facility; and (b) in the case of service in accordance with paragraph (1) (c), (d) or (e) - when the document is left, delivered or transmitted, as the case requires." 17. The source of the court's power to set aside a bankruptcy notice and the grounds upon which the jurisdiction is exercised were explained by Toohey J in Re Briggs; Ex Parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310 at 311 - 312; see also Amos v Brisbane TV Limited (2000) 100 FCR 82 ("Amos") at [15] to [16] per Drummond J. The grounds may include non-service of the bankruptcy notice. However, it is clear that the court has a discretion in wide terms where there is a real question of whether service has been effected. 18. Drummond J referred to the width of the discretion on an application to set aside a bankruptcy notice in Amos at [19]; see also Farrugia v Farrugia (2000) 99 FCR 16 at [45] per Katz J. 19. In Sunderland v G & J Drivas Pty Limited [2000] FCA 1029 ("Sunderland"), Hely J declined to exercise the discretion where the issue of whether or not a bankruptcy notice had been properly served was raised by evidence on an application to set aside the notice. His Honour said in [3] that "[i]t is an issue which [the debtor] could raise on the hearing of a petition". 20. It seems to me that here, where the only real issue on the present application is whether or not the bankruptcy notice was properly served, I ought not to exercise my discretion in favour of the debtor unless I am plainly satisfied on the evidence that the bankruptcy notice has not been served in accordance with the regulations. 21. The effect of the decision of a Full Court in Skalkos v T & S Recoveries Pty Limited [2004] FCAFC 321 at [35] - [37] is that the last known address of the person referred to in Regulation 16.01(c) need not be the debtor's residential address. It is sufficient if the debtor had "such a degree of connection with the premises" so that a business address could satisfy the regulation. 22. It is true that Regulation 16.01(c) requires proof that the bankruptcy notice was left in an envelope or similar packaging and that Mr Hill's affidavit did not state that this was done. 23. However, the matter was dealt with urgently in the Duty Judge list on 15 November 2005 with the respondents seeking to supplement Mr Hill's evidence, only to be met with an application for an adjournment. Mr Gray of counsel for the respondents indicated that if an adjournment was granted he would prefer to have the matter heard immediately without supplementing his evidence. 24. Whilst it might be thought that this constituted an election on Mr Gray's part, I am satisfied on the evidence before me that I ought not to exercise my discretion to set aside the bankruptcy notice. I think the preferable course is the one adopted by Hely J in Sunderland. I have come to this view because I am satisfied that the bankruptcy notice was left at a place which the applicant gave as his address in sworn evidence. Moreover, he received the bankruptcy notice and he gave it to a solicitor. 25. The only question for the purposes of Regulation 16.01(c) is whether it was left in an envelope. The evidence on that topic was incomplete. If, as the applicant asserted in cross-examination, it was not in an envelope when it was handed to him by his employee, that would not satisfy me that it was not delivered to Ms Neels in an envelope. 26. Ms Neels was not called to give evidence, notwithstanding that the applicant undertook what seemed to me to be its burden on this application of demonstrating that the bankruptcy notice was not served in accordance with the regulations. I should add that Mr Gray submitted that the admission made by the applicant in cross-examination that he had received the bankruptcy notice from Ms Neels satisfied Regulation 16.01(d). He cited no authority in support of the submission. 27. In the short time available I have not been able to find any authority which supports Mr Gray's contention. In my opinion, uninstructed by authority, the proper construction of Regulation 16.01(d) is that the creditor must personally deliver the bankruptcy notice. This would accord with what seems to me to be the proper construction of section 40(1)(g) of the Act which refers to a creditor who has served on the debtor a bankruptcy notice. 28. The other ground pursued on this application is, as I have said, that the issue of the bankruptcy notice was an abuse of process. It is well established that the court has power to set aside a bankruptcy notice on this ground; see Re Sterling; Ex Parte Esanda Ltd (1980) 30 ALR 77; see also Re Athans; Ex Parte Athans (1991) 29 FCR 302 at 310. 29. However, in my opinion the proper construction of the consent orders is that the obligation to pay the judgment debt as contained in [1] and [4] is unconditional and the obligation is not conditioned upon satisfaction of the obligations arising from [6] and [7] of the consent orders. 30. In those circumstances I do not see how it can be an abuse of process to issue the bankruptcy notice. The obligation to pay the amount of the verdict not being conditioned upon the execution and delivery of the deed of release or the tax invoice, there can be no suggestion that the creditor's purpose was to put pressure on the debtor to pay the debt rather than to invoke the court's jurisdiction in relation to insolvency; see Brunninghausen v Glavanics [1998] FCA 230 at 5 per Emmett J. 31. I should add that there was nothing in the evidence of the applicant which could otherwise have supported a submission that the creditor's purpose was to use the bankruptcy notice for the collateral purpose of putting pressure on the applicant to pay the debt rather than the legitimate purpose of invoking the court's insolvency jurisdiction. For those reasons the order that I will make is that the application be dismissed. 32. The order I will make on costs is that in accordance with the notes in Darvall and Fernon Bankruptcy Law and Practice, 5th Ed,Vol 1, at [40.1.365], in the event of a sequestration order being made on the application of the respondent to the present proceedings as petitioner in the bankruptcy petition, or by a substituted petitioning creditor, the applicant is to pay the respondent's costs of this application with the respondent being accorded the priority prescribed by r 40. 33. In the event that no sequestration order is made by 16 February 2006 then the applicant is to pay the respondent's costs of this application.
I certify that the preceding thirty three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.
Solicitor for the Applicant: Sanford Legal Solicitors
Solicitor for the Respondent: John Gardner Solicitor
Lazar
Seccombe
(2003) 128 FCR 399
(1986) 12 FCR 310
(2000) 100 FCR 82
(2000) 99 FCR 16
(1980) 30 ALR 77
(1991) 29 FCR 302