Nash v Thomas

The bankruptcy notice: the factual setting 7 The Thomases having applied for the issue to them of a bankruptcy notice in respect of the $10,000 costs debt, the Official Receiver issued such a notice on 15 February 2011. The notice, which was in the form prescribed by the Regulations Reg 4.02, contained at its foot or end the following endorsement: 8 Because of its present significance, I note here that the version of the bankruptcy notice sent to Mr Nash by way of service on him by the Thomas' solicitors was not stamped, numbered or signed. It appeared thus: 9 No explanation has been provided by the solicitors as to how this draft notice came to be sent in the form it was. Indeed the solicitor's affidavit of service of the bankruptcy notice is cast in terms which could be taken as suggesting that the notice was numbered and signed. Additionally, while purporting to exhibit the email transmission to Mr Nash, the exhibit itself does not contain the copy of the bankruptcy notice transmitted. In the hearing before me counsel for the Thomases has accepted, properly, that the notice served was not endorsed. 10 The respondents nonetheless contend that this omission is a formal defect or irregularity which, in the circumstances, saves the bankruptcy notice from invalidity by reason of the provisions of s 306(1) of the Act.

The applicable law 11 Where a debtor has committed an act of bankruptcy and was at that time relevantly connected to Australia (see s 43(1)(b) of the Act), the Court may, on a petition presented by a creditor, make a sequestration order against the debtor's estate: s 43(1). 12 Section 40(1)(g) provides insofar as presently relevant: If a creditor who has obtained against the debtor a final judgment or final order … has served on the debtor in Australia … 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. (Emphasis added.) 13 Though Mr Nash has alleged that subparagraph (g) has not been satisfied in some number of respects, the only issue of real substance he has raised is whether the document with which he was served was "a bankruptcy notice under the Act". 14 There is no definition of "bankruptcy notice" in the Act. Yet the function of such a notice in the scheme of the Act is made apparent from its form and by its tie both to s 40 and s 43 (each noted above) and to s 41(1) and (2). Section 41(1) and (2) provide, for present purposes, that: (1) An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor: (a) a final judgment or final order that: (i) is of the kind described in paragraph 40(1)(g); and (ii) is for an amount of at least $5,000; or … (2) The notice must be in accordance with the form prescribed by the regulations. (Emphasis added) The emphasised word "issue" is of some moment in this matter. 15 Before referring to the Regulations in their now operative form, it should be noted that some number of changes have been made to them across the last 20 years in relation to matters such as signing, stamping and copying of bankruptcy notices. In consequence some at least of the earlier decisions dealing with invalidly issued or served bankruptcy notices need to be treated with some caution. 16 Division 1 of Part 4 of the Regulations deals with bankruptcy notices. Regulation 4.01(1) provides: 4.01 Application for bankruptcy notice (1) Subject to subregulation (2), to apply for the issue of a bankruptcy notice, a person must lodge with the Official Receiver: (a) an application in the approved form; and (b) 1 of the following documents in relation to the final judgment or final order specified by the person on the approved form: (i) a copy of the sealed or certified judgment or order; (ii) a certificate of the judgment or order sealed by the court or signed by an officer of the court; (iii) a copy of the entry of the judgment or order certified as a true copy of that entry and sealed by the court or signed by an officer of the court. Regulation 4.02(1) and (2) in turn provide: 4.02 Form of bankruptcy notices (1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed. (2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes). (Emphasis added.) I would emphasise that the concluding part of the Form 1 format - where provision is made for the Official Receiver's endorsement - begins with the statement: Issued by the Official Receiver when endorsed below. (Emphasis added.) 17 The service of bankruptcy notices is provided for by Reg 16.01. It was promulgated in its present form in 1996 and provides: (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 documents should, in the ordinary course of events, be received by the person. 18 Because of its significance to what is said below, it manifestly is the case that this regulation permits service in a manner which does not require the debtor to receive a document that was itself actually stamped and signed by the Official Receiver. Nor does it require service of a duplicate original: see Mineo v Etna (2009) 176 FCR 74. A photocopy, a facsimile or a scanned copy of the bankruptcy notice that actually was issued by the Official Receiver (or a delegate) will suffice. Such has not always been the case. The combined effect of now repealed provisions both of the Act and of the Bankruptcy Rules/Regulations required both the signing and stamping of the bankruptcy notice as a requirement of its issue and that a duplicate original of the notice so signed and stamped be served on the debtor: see eg Re De Ieso (1978) 45 FLR 396 at 398; Re Hatchett; Ex parte Shell Co of Australia Ltd (1985) 11 FCR 118; Re O'Sullivan; Ex parte Bank of New Zealand (1991) 30 FCR 112. Put shortly, the issue of a bankruptcy notice required authentication and "authentication requires both signing and stamping": Re O'Sullivan, at 118. Likewise the notice served on the debtor had to be so signed and stamped. A photocopy of it would not suffice: Re Stec; Ex parte Scragg (1997) 75 FCR 377 at 382. Today the Act and its subordinate legislation is more accommodating of modern technologies and of communication by electronic means. 19 The express requirement in the Act, Rules or Regulation that the bankruptcy notice issued by the Official Receiver be stamped and/or signed was removed when a new Reg 4.01 was made by the Bankruptcy Amendment Regulations 2010 (No 1). The same amendment, though, introduced a new Form 1 (Bankruptcy Notice) which now became the prescribed form by virtue of s 41(2) of the Act and Reg 4.02 of the Regulations. Among the formatting changes made was the insertion of the endorsement requirement at the foot of the Form in terms which I again note: 20 The form the endorsement is to take is not prescribed. Nonetheless an act of endorsement is required. Unsurprisingly, as the notice issued in this matter suggests, a practice which requires signing and stamping has been continued. This, in my view, is unsurprising given the official provenance the Act requires a bankruptcy notice to have: see eg Prudential-Bache Securities (Australia) Ltd v Warner [1999] FCA 1143. I return to this below. 21 With the periodic occurrence of error or irregularity in the issuing of bankruptcy notices, in the insertion of information in them by creditors, and in the service of what purported to be an issued notice, the question of validity of issue or else of effective service has been a recurrent one. 22 The backdrop to the case law is provided by s 306(1) of the Act. It 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. A bankruptcy notice is a "[p]roceedings under [the] Act" for the purposes of this sub-section: Adams v Lambert (2006) 228 CLR 409 at [17]. 23 Adams is now the leading authority on what constitutes a s 306(1) "formal defect or irregularity". In Mineo Gordon J helpfully crystallised what was said in this regard in Adams. I gratefully adopt what her Honour said (at [20]-[22]): In Adams 228 CLR 409 at [18], the Court suggested that three questions needed to be posed: (1) is the defect or irregularity a formal defect or irregularity within s 306 of the Act; (2) if yes to (1), has substantial injustice been caused by that defect or irregularity; and (3) if yes to (1) and (2), can that injustice be remedied by an order of the Court. As the High Court stated, "[i]t may be accepted that, if a defect could cause substantial injustice, it may not easily be classified as a formal defect or irregularity". It was therefore necessary for the Court to consider what is and what is not a "formal defect or irregularity". A number of propositions in Adams should be restated: 1. "A failure to comply with a requirement to be found in the Act, imposed by reference to the regulations as to information to be furnished by the notice is a defect or irregularity": at [24]; 2. what is not a formal defect or irregularity is "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": at [26]; 3. "misleading a debtor about what is necessary to comply with [a bankruptcy] notice … takes an error outside the concept of a formal defect or irregularity", rendering it a nullity: at [27]; 4. if a requirement is made "essential" by the Act, then a failure to comply with that requirement is not a "formal defect or irregularity" within the meaning of s 306: at [28]. Whether a requirement is made essential is a question of statutory construction; 5. "The practical significance of an error or deficiency could vary according to the circumstance of each particular case" and "may involve questions of degree as well as of kind": at [31]. As was acknowledged by the High Court in Adams at [32], before turning to answer the three questions posed by the statutory regime (see [20] above), a prior question must be asked and answered - what is the defect or irregularity complained of? 24 That prior question in this matter is whether the Act and the Regulations properly construed make it an essential requirement of the effective service of "a bankruptcy notice under [the] Act", that the notice itself be an original or a copy of that actually issued by the Official Receiver (or by an authorised delegate)? 25 The answer to this, I consider, must be yes. The bankruptcy notice issued by the Official Receiver was endorsed (as envisaged by the form itself) and was issued regularly. It suffered from no "defect or irregularity". The "notice" served on Mr Nash was not a duplicate original or copy of the bankruptcy notice which was issued. It bore no endorsement at all. It was merely a draft notice. It was neither a document officially issued nor a copy of such a document. What was served was not "a bankruptcy notice under [the] Act" for s 40(1)(g) purposes. Given the consequences the Act attaches to a bankruptcy notice, it is, in my view, an essential requirement of the Act that what is served can, within the contemplation of the Act, properly be said to have this character. 26 There are four matters I wish to emphasise. First, the Act itself refers in s 41(1) to the Official Receiver's "issue" of a bankruptcy notice. What this term means in this context is a question of construction. The term "issue" itself is a protean one having widely different meaning in differing contexts. I merely instance "issue" as meaning, variously, "offspring", "matter of controversy", "put into circulation" or "a conclusion". Having regard to its present setting, the dictionary definition which best encapsulates its burden is that of the Oxford English Dictionary, vol 8, 137 (2nd ed, 1989): To give or send out authoritatively or officially; to send forth or deal out in a formal or public manner. The matter of importance is the official provenance of the document issued. This obviously accounts for the until recently required stamping and signing of notices that are issued. Those requirements were testaments to the official character of a document issued. I hesitate to say they "authenticated" the document as this conjures up old controversies in cases on earlier versions of the Rules and the Regulations: contrast Re Sullivan and Prudential-Bache Securities (Australia). However, I would say that the endorsement requirement of the Form 1 now in use is both consistent with, and is intended to bespeak the official character of what has been issued. That the document which is issued has that character is, in my view, integral to the integrity of the bankruptcy notice regime of the Act. 27 It is unnecessary here that I enter on the controversy whether a document which bears no official endorsement but which actually has been provided by the Official Receiver (or an authorised delegate) to a creditor as a bankruptcy notice, is a valid notice, at least if it can be proved satisfactorily that the document was so provided to the creditor: see Prudential-Bache Securities (Australia). The document provided in this matter to the creditors was regularly issued. The document served on Mr Nash in contrast was not a copy of what actually was provided by the Official Receiver. 28 Secondly, because I do not have to resolve the above controversy - it has in any event not been explored in argument before me - it is likewise unnecessary for me to consider the circumstances in which s 306(1) might save a defect or irregularity in a bankruptcy notice actually issued by the Official Receiver and served on the debtor. What was served here was not "a bankruptcy notice under the Act". 29 Thirdly, to reiterate, Reg 16.01(1) authorises the service of a copy of a validly issued bankruptcy notice for the purposes of s 40(1)(g)'s requirement that "a bankruptcy notice under the Act" be served on the debtor. No such copy was served on Mr Nash. 30 Fourthly, the defect or irregularity which occurred in this matter has not caused substantial injustice. However, it does not follow from that that the defect or irregularity is a formal one: see Adams at [18]. Here an essential requirement in the scheme of the Act has not been followed. That is fatal to the purported service. No act of bankruptcy has been committed under s 40(1)(g). 31 For that reason, the appeal must be allowed, the orders of the Federal Magistrate be set aside and the creditors' petition be dismissed. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.