Federal Court Declares Notice of Objection Invalid in Bankruptcy Case

OUTCOME: Allowed

FEDERAL COURT OF AUSTRALIA

[NAME] v [NAME] [2001] FCA 1050 BANKRUPTCY – notice of objection to discharge from bankruptcy – whether a notice of objection complied with Bankruptcy Act 1966 (Cth) s 149 – objection to form and substance of notice – requirement to refer to evidence or other material establishing objection – requirement that copy of notice of objection given to [NAME] together with a notice setting out [NAME]'s options for review – formal defect or irregularity – requirement to state reasons for objecting to discharge

Bankruptcy Act 1966 (Cth)ss 149, 149C, 149F, 306 [NAME] v Official Receiver in Bankruptcy (1983) 50 ALR 253 considered Re [NAME] (1994) 14 ASCR 488 distinguished Re [NAME] [1997] FCA 627 considered Minister for Immigration and Multicultural Affairs v Gutierrez [1999] FCA 990 cited [NAME] v Minister for Immigration and Multicultural Affairs [1999] FCA 1823 cited [NAME] v Minister for Immigration and Multicultural Affairs [2001] FCA 551 cited Re Ansett; Ex parte Ansett v Pattison (1995) 56 FCR 526 distinguished IN THE MATTER OF [NAME] [NAME] RE: [NAME] [NAME] EX PARTE: [NAME] [NAME] v [NAME] N 7180 OF 2001 TAMBERLIN J SYDNEY 3 AUGUST 2001

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY 7180 OF 2001

IN THE MATTER OF [NAME]

RE: [NAME]

[NAME]

EX PARTE: [NAME]

APPLICANT

[NAME]

RESPONDENT

JUDGE: TAMBERLIN J

DATE: 3 AUGUST 2001

PLACE: SYDNEY

REASONS FOR

JUDGMENT 1 By application filed on 9 April 2001, Mr [NAME] seeks a declaration that the notice of objection to his discharge from bankruptcy dated 31 August 1999, filed with the Official Receiver is invalid and is of no force and effect and an order that it be set aside. 2 Mr [COUNSEL] is a barrister practising in New South Wales. He was admitted as a Barrister of the Supreme Court in 1963. He was made [NAME] on 20 August 1996 and he filed a statement of affairs dated 31 August 1996. The statement of affairs shows assets of $7,875.89 and liabilities of $505,607.33. But for the notice of objection he would have been discharged from bankruptcy on 31 August 1999. 3 Mr [NAME] gave evidence that on or about 31 August 1999 he received a letter from [NAME] ("[NAME]") enclosing a notice of objection to discharge from bankruptcy by the trustee, Mr [NAME]. The letter stated that there was also enclosed a notice setting out Mr [NAME] options relating to the objection notice in accordance with s 149F(1)(a) of the Bankruptcy Act 1966 (Cth)("the Act"). Mr [NAME] says that, although he received the options notice at that time, he does not recollect receiving the notice of objection to discharge with the letter. He says that on 2 September 1999, he telephoned Mr [NAME] of [NAME] and informed him of this. He then received a facsimile dated 2 September 1999, which is a copy of the notice of objection. That document, which is the subject of this application, states: "NOTICE OF OBJECTION TO DISCHARGE I, [NAME] of Level 15, [ADDRESS], Sydney, the Trustee, hereby object to the discharge of [NAME] of Manorbrier, Cootamundra in the State of New South Wales from bankruptcy by force of Section 149B of the Bankruptcy Act 1966 on the following grounds:

1. Section 149D(1)(f) '[NAME] failed to pay to the Trustee an amount that [NAME] was liable to pay under Section 139ZG'. [NAME] has been assessed to pay income contributions that were due and payable on the following dates: Date Due CAP Year Amount $ 17 May, 1997 1996/97 47,751.86 17 May, 1998 1997/98 40,588.52 On 20 August 1999, I received Mr [NAME] that discloses his income and expenditure for the 1998/99 CAP Year. As the two previous assessments remain outstanding, no income assessment has yet been forwarded to Mr [NAME] for the CAP Year for 1998/99. However, I estimate that Mr [NAME] income assessment for the CAP Year for 1998/99 will be comparable to his two previous years. In summary, I have not yet received any of the assessed outstanding income contributions totaling [sic] $88,340.38, nor have I received any income from him for the 1998/99 CAP Year In my opinion, [NAME] will directly benefit from my Notice of Objection to Discharge since, if Mr [NAME] continues to practice as he has done in the past, [NAME] will be entitled to enjoy a further five (5) assessment periods of Mr [NAME] income. Further evidence on all matters is available from my office if required. This objection has the effect of extending the bankruptcy to the 31st day of August 2004. DATED this 31 day of August 1999. [NAME] Trustee" 4 Mr [NAME] says that he did not receive a copy of the notice of objection until 2 September 1999, when he received the facsimile. He says that he never received a letter enclosing both the notice of objection and a document setting out his options relating to the trustee's objection to discharge. I accept this evidence. It is not in dispute that he received both documents. However, Mr [NAME] case on this aspect is that he did not receive the two documents together as required by s 149F of the Act. 5 The notice of objection to the discharge dated 31 August 1999 was filed with the Official Receiver in Bankruptcy on 2 September 1999. 6 Section 149 of the Act provides for automatic discharge of a [NAME] from bankruptcy at the end of a three year period from the date on which [NAME] files his or her statement of affairs. Under s 149B the trustee is empowered, before a [NAME] is discharged from bankruptcy, to file with the Official Receiver a written notice of objection to the discharge. Section 149C imposes requirements in relation to this notice. It provides: "149C Form of notice of objection (1) A notice of objection must: (a) set out the ground or each of the grounds of objection, being a ground or grounds set out in subsection 149D(1) but not being a ground or grounds of a previous objection to the discharge that was cancelled; and (b) refer to the evidence or other material that, in the opinion of the trustee or Official Receiver, establishes that ground or each of those grounds; and (c) state the reasons of the trustee or Official Receiver for objecting to the discharge on that ground or those grounds." 7 Section 149D sets out the grounds of objection. The relevant ground is as follows: "149D Grounds of objection (1) The grounds of objection that may be set out in a notice of objection are as follows: …. (f) [NAME] failed to pay to the trustee an amount that [NAME] was liable to pay under section 139ZG; …" 8 Section 149F(1) provides: "149F Copy of notice of objection to be given to [NAME] (1) As soon as practicable after a notice of objection is filed by the trustee or Official Receiver: (a) the trustee or Official Receiver must give a copy of the notice to [NAME] together with a notice to the effect that [NAME] may do either or both of the following: (i) request the Inspector-General to review the decision of the trustee or Official Receiver to file the notice of objection; (ii) subject to the Administrative Appeals Tribunal Act 1975, make an application to the Administrative Appeals Tribunal for a review of the decision of the trustee or Official Receiver to file the notice of objection; and … (3) A contravention of this section does not affect the validity of the objection. (Emphasis added) 149G Date of effect of objection An objection takes effect at the beginning of the day on which details of the notice of objection are entered in the National Personal Insolvency Index. 9 Section 139P(1) of the Act provides that if the income that a [NAME] is likely to derive during a contribution assessment period, as assessed by the trustee under an original assessment, exceeds the actual income threshold amount applicable in relation to [NAME] at the time the assessment is made, [NAME] is liable to pay the trustee a contribution in respect of that period. Section 139ZG provides that the contribution that a person is liable to pay under section 139P(1) is payable at such time as the trustee determines. 10 The case for Mr [NAME] is essentially that the notice does not comply with the requirements of s 149C(1)(b) and (c). It is also submitted that the requirements of s 149F(1)(a) have not been satisfied because Mr [NAME] was not given a copy of the notice of objection together with a notice setting out [NAME]'s options as required by that provision and that, as a consequence, the notice in invalid.

Reference to evIdence – s 149C(1)(b) 11 It is contended that the reference to the evidence or other material in the notice of objection ought to be sufficient to enable [NAME] to identify, for the purpose of review, what was relied on, in the opinion of the trustee, to make out the ground. It is said that the notice did not do this and is therefore invalid. 12 It should be taken into account, when considering the question of what is meant by a requirement that there should be a reference to evidence or other material, that the section allowing for automatic discharge confers a substantial advantage on a [NAME] and that, therefore, some care should be taken in making an objection. In [NAME] v Official Receiver in Bankruptcy (1983) 50 ALR 253 at 264, [NAME] J said that there was cast on: " … the trustee … an obligation to apply his mind carefully to the question of whether there is sufficient reason or basis for the entry of an objection upon one or more of the available grounds. By that I do not mean that [NAME] must be satisfied that the ground exists upon the basis of any absolute standard. But, in my opinion, he must turn his mind to the problem and ought not to enter the objection unless reasonably satisfied of the correctness of what the ground implies. … This means that from the point of view of bankrupts the section [providing for automatic discharge] confers a substantial advantage. A [NAME] knows that at the end of a period of three years after his bankruptcy he will be discharged and thus freed from a number of obligations and disabilities which arise upon bankruptcy." 13 In that case, [NAME] found that the ground stated in the notice to objection was not a ground provided for in the Act and that, therefore, the defect was not a mere irregularity. He considered (at 268) that the defect went to "the very substance of the matter".

Accordingly, he held that there was no valid objection. 14 The second case referred to by Counsel for Mr [COUNSEL] is the decision of [COUNSEL] J in [COUNSEL] (1994) 14 ACSR 488. In that case, [NAME] applied for a declaration that the notice of objection by the trustee was invalid for failure to comply with s 149C(1)(b) and (c). The ground relied on by the trustee under s 149D(1) was that: "(b) after the date of the bankruptcy [NAME] continued to manage a corporation as mentioned in section 91A of the Corporations Law without having been given leave to do so under section 229 of that Law;" 15 The relevant part of the notice in that case stated: "[NAME] has, since the date of bankruptcy continued to manage [COMPANY], a company of which he was a director and of which his spouse is a director and which is his employer. From information provided by [NAME] and his accountant it appears that the financial affairs of [NAME] and the company are intermingled." 16 Her [NAME] said, at 492: "The notice of objection should put [NAME] in a position where he or she can identify, and if necessary search out, the evidence or other material relied upon for the purpose of the objection. Only if [NAME] is in a position to do this can he or she sensibly determine [what course of action to adopt, namely; whether to make representations, seek a review, question the weight accorded to such evidence, or provide answering material] …" 17 Her [NAME] went on to say (at 493) that she did not intend to suggest that the above alternatives, which I have summarised in brackets, are exhaustive of the purposes served by the reference in the notice of objection to the evidence or other material that, in the opinion of the trustee, establishes the grounds of objection. Her [NAME] considered that the notice of objection in that case did not refer to the evidence or other material because it did not provide [NAME] with sufficient information to enable him to make a sensible and informed decision as to whether the objection could or should be challenged and what course of action to adopt in doing so. 18 When considering the operation of s 149C(1)(b), it must be borne in mind that the evidence in question need only "be referred to" and that there is no requirement that it be set out. The words "refer to" do not require any listing of all the evidence relied on, nor do they require any discussion or consideration of that material in the notice. 19 The approach taken by her [NAME] was applied by [NAME] in Re [NAME] [NAME] [NAME] [1997] FCA 627. More recently, a number of refugee decisions have taken a similar approach. These decisions considered the wording of s 430(1)(d) of the Migration Act 1958 (Cth) which requires the Refugee Review Tribunal to prepare a written statement that "refers to the evidence or any other material on which the findings of fact were based". Although relating to a different subject matter, the observations in those cases are apposite to this case: see, for example, Minister for Immigration and Multicultural Affairs v Gutierrez [1999] FCA 990 at [12]-[13]; [NAME] v Minister for Immigration and Multicultural Affairs [1999] FCA 1823 at [23]–[24]; and [NAME] v Minister for Immigration and Multicultural Affairs [2001] FCA 551 at [40]-[41]. 20 In the present case, the notice refers to two assessments of income contributions payable on 17 May 1997 and 17 May 1998. There is a reference to two amounts and it is common ground that both these amounts are erroneous. Although they are less than the amounts actually assessed, they bear no relationship to any relevant calculation which can be made from the material in the evidence. There is reference to a "Cash Flow Report" received by the trustee on 20 August 1999 that discloses Mr [NAME] income and expenditure for the 1998/99 CAP Year. There is reference to the fact that two previous assessments remain outstanding. There is an estimate that Mr [NAME] income assessment for the CAP Year for 1998/99 would be comparable to the two previous years. There is then a summary statement that none of the assessed outstanding income contributions totalling $88,340.38 (the total of the two erroneous amounts) had been received nor had any income been received from Mr [NAME] for the 1998/99 CAP Year. 21 The notice does not specify the amount that [NAME] was liable to pay but instead provides some other figures which the trustee appears to have relied on. The provenance of these figures is unknown. They are agreed to be erroneous but no explanation is proffered as to how these figures were determined. 22 In my view, the notice is deficient in not referring to the amount of the assessments which had been made. On its face, the notice is misleading in that there are substantial differences between the amounts specified in the actual assessments and the amounts referred to in the notice of objection. It is incorrect to say that the assessed outstanding income contributions totalled $88,340.38 and the figure is confusing. In my view, the notice is deficient both in form and substance. This is not a mere defect or irregularity in the notice. It is no answer to suggest that Mr [COUNSEL] as an experienced barrister must have been aware of the correct amounts and therefore that it does not matter if the notice was erroneous. 23 In my opinion, the notice fails to satisfy the requirement that there must be a reference in the notice to the evidence or other material that, in the opinion of the trustee, established the ground relied on. The notice therefore is invalid.

Notice of available Options 24 A further submission is that the notice of objection is invalid because Mr [NAME] did not receive a copy of the notice of objection together with a notice of available options for review. The evidence shows that Mr [NAME] received the notice of [NAME]'s options relating to the trustee's objections on about 31 August 1999. There is no reason to doubt that he was then aware of his options to dispute the grounds on which the objection was lodged. It is also clear that the objection in the present case, by reason of s 149G, took effect on 2 September 1999 and that Mr [NAME] on 2 September 1999 had received a copy of the notice of objection. It is also important to note that a contravention of s 149F does not affect the validity of the objection: s 149(3). The introductory words of s 149F(1) show that the notice of objection need not itself contain a notice of [NAME]'s options to dispute the notice. The words "together with" contemplate that there may be two distinct notices, although, in principle, there is no reason why the notice of objection could not also contain the notice of [NAME]'s options. 25 The intent of the section is clearly that, when [NAME] receives the notice of objection, he or she is aware of the options to review the objection and can exercise them, if so decided, in a timely way. In the present case, I am satisfied that, at the time when the facsimile was received by Mr [NAME] of the notice of objection on 2 September 1999, he had been made aware in writing of his options for review. It is sufficient to satisfy s 149F(1), in my view, if there has been substantial compliance. I am satisfied in the present case that there was such compliance. I consider that support for this conclusion as to substantial compliance being sufficient is provided by s 149(3) which provides that failure to satisfy the requirements of the section does not affect the validity of the objection. 26 Independently of the above conclusions, I consider that this is a situation where s 306 of the Act applies. That section provides: "306 Formal defect not to invalidate proceedings (1) 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." 27 I am also satisfied that the fact that the two notices were received at different times was a formal defect or irregularity and that this section applies. I am not satisfied that any substantial injustice has been caused to Mr [NAME] by reason of this defect or irregularity. His evidence was that he had not taken any steps to seek review of the grounds in the notice of objection.

failure to give Reasons 28 The final submission for Mr [NAME] is that the reasons of the trustee for objecting to the discharge on the ground raised have not been stated. Reference is made to the decisions in Re [NAME]; Re Ansett; Ex parte Ansett v Pattison (1995) 56 FCR 526 and Re [NAME] [NAME] [NAME]. In Re [NAME], Branson J decided that the notice of objection complained of did not state the reasons for objecting to the discharge on the grounds identified: at 493. Mere recitation of a ground of objection was not sufficient. The provision requires an exercise of some discretionary judgment by the trustee: ibid. 29 In the Ansett case, the only reason set out in the notice of objection was a statement that an amount of money had not been paid. [NAME] J considered that this was not a statement of "reasons" but was properly regarded as part of the evidence which established the ground on which the respondent relied. Therefore, the notice of objection did no more than repeat the ground of objection and refer to evidence that established that ground, without giving reasons as required. 30 Both these cases are distinguishable on their facts from the present. 31 Reliance was also placed on the judgment of [NAME] J in [NAME]. After referring to the decision of [NAME] in [NAME] said, at 11-12: "The distinction being made is between a mere restatement of the grounds of objection (a statement that the amount of money was not paid) and the disclosure of the reason for the lodging of the objection (a statement that the money was not paid and that the notice has been lodged in order to ensure its repayment). I am of the opinion that taking the extra step to specify the trustee's purpose would have constituted an adequate reason for the purposes of section 149C(1) (c). A statement of reasons in that form would allay the concerns of Justice Branson that a [NAME] should be 'fully informed by a notice of objection … as to the bases on which such a notice has been filed'." 32 In the present case the reason relied on in the notice of objection is that: "[C]reditors will directly benefit from my Notice of Objection to Discharge since, if Mr [NAME] continues to practice as he has done in the past, [NAME] will be entitled to enjoy a further five (5) assessment periods of Mr [NAME] income." 33 This statement, in my opinion, satisfies the requirement to state reasons set out in s 149C(1)(c). It is apparent that the trustee formed the view that there will be a benefit to the [NAME] in the event that Mr [NAME] continues to practice for a further five assessment periods and that this was the basis for the objection to discharge. In my view, this is a sufficient statement of his reasons for making the objection. It is submitted for [NAME] that, in order to satisfy the subsection, it is necessary that the reasons should support the discharge on the ground relied on. It is said that the reasons in the present case relate to future possibilities whereas the ground relied upon concerns past conduct in failing to pay an amount in respect of which [NAME] was liable. I do not accept this. The substance of the reason disclosed does relate to the failure to pay the amount because the trustee anticipates that if there is no discharge then further income will become available to satisfy the outstanding liabilities of [NAME], which include those assessed for the two CAP Years relied on.

CONCLUSION 34 Having regard to the foregoing, I am satisfied that the notice of objection is invalid and I am prepared to make appropriate declarations. I will make no order at this stage but direct [NAME] to provide Short Minutes to give effect to these reasons at a time to be arranged with my Associate. I will hear the parties on costs and on any question as to the appropriate date of discharge. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate: Dated: 3 August 2001

Counsel for the Applicant: [redacted]

Solicitor for the Applicant: [redacted]

Counsel for the Respondent: [redacted]

Solicitor for the Respondent: [redacted]

Date of Judgment: 3 August 2001