FEDERAL COURT OF AUSTRALIA Croker v Commissioner of Taxation [2003] FCAFC 23 BANKRUPTCY – bankruptcy notice based on non-existent judgment – statutory provision for interest on registered judgment incorrectly stated – bankruptcy notice set aside. Re Bayliss (1971) 19 FLR 14 followed The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 applied CLAYTON ROBERT CROKER v COMMISSIONER OF TAXATION N 1014 of 2002 LEE, WHITLAM and JACOBSON JJ 25 FEBRUARY 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1014 of 2002 On appeal from a Judge of the Federal Court of Australia BETWEEN: CLAYTON ROBERT CROKER APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: LEE, WHITLAM and JACOBSON JJ DATE OF ORDER: 25 FEBRUARY 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal is allowed. 2. The orders made by Moore J on 18 September 2002 are set aside and in lieu thereof it is ordered that the bankruptcy notice issued on 18 June 2002 is set aside. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1014 of 2002 On appeal from A Judge of the Federal Court of Australia BETWEEN: CLAYTON ROBERT CROKER APPELLANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGES: LEE, WHITLAM and JACOBSON JJ DATE: 25 FEBRUARY 2003 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT 1 This is an appeal from a judgment of Moore J ([2002] FCA 1157) dismissing with costs the appellant's application to set aside a bankruptcy notice. The essential background to the issue of that bankruptcy notice may be shortly stated. 2 On 17 March 2000 the High Court of Australia (Gummow and Kirby JJ), sitting in Sydney, refused with costs an application by the appellant for special leave to appeal from a judgment of the Supreme Court of New South Wales in favour of the respondent. The respondent's costs of the special leave application were subsequently allowed at $5,781.98 by the High Court's taxing officer in a certificate of taxation issued on 24 April 2001. 3 On 18 May 2001 judgment was entered for the respondent in the sum of $5,837.98 against the appellant in the Local Court at the Downing Centre in Sydney. The respondent lodged with the Official Receiver a certified copy of the entry of the Local Court judgment in order to apply for the subject bankruptcy notice, which was issued, almost one year later, on 18 June 2002. 4 The bankruptcy notice stated in paragraph 1 the respondent's claim to be owed by the appellant "a debt of $6,467.37 as shown in the Schedule". Paragraph 2 of the bankruptcy notice stated that a copy of the judgment relied upon by the respondent was attached. The attached document was a copy of the Certificate of Judgment of the Local Court judgment referred to above. The Schedule to the bankruptcy notice was in the following terms: "Schedule Column 1 Column 2 1. Amount of judgment or order $5,837.98 plus 2. Legal costs if ordered to be paid and a specific amount was not included in the $0-00 judgment or order (see Note 1, below) plus 3. If claimed in this Bankruptcy Notice, $629.39 interest accrued since the date of judgment or order(see Note 2, below) 4. Subtotal $6,467.37 less 5. Payments made and/or credits allowed since date of judgment or order $0-00 6. Total debt owing $6,467.37 (NB: Amounts, where applicable, are to be inserted in column 2) _____________________________________________________________ For the Information of the Creditor- Notes to the Schedule Note 1: Legal costs (item 2 of the Schedule) If legal costs are being claimed in this Bankruptcy Notice, a certificate of taxed or assessed costs in support of the amount claimed must be attached to this Bankruptcy Notice. Note 2: Interest accrued (item 3 of the Schedule) If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice. The document must state: (a) the provision under which the interest is being claimed; and (b) the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed. (NB: If different rates are claimed for different periods, full details must be shown)" A document attached to the bankruptcy notice stated: "CALCULATIONS OF INTEREST PURSUANT TO: Section 39 of the Local Courts (Civil Claims) Act 1970 (NSW) Principal Sum Date From Date To Rate of Interest Interest Claimed $5,837.98 19.05.2001 31.08.2001 11% $182.98 $5,837.98 01.09.2001 28.02.2002 10% $289.50 $5,837.98 01.03.2002 17.06.2002 9% $156.91 TOTAL $629.39" 5 The appellant was served with the bankruptcy notice on 25 June 2002. He applied to set it aside on the grounds that it contained substantive defects and that he had a counter-claim, set-off or cross demand such as is referred to in s 40(1)(g) of the Bankruptcy Act 1966 (Cth). 6 According to the evidence before Moore J, the respondent entered judgment in the Local Court by registering the certificate of taxation obtained from the High Court. The solicitor appearing for the respondent told his Honour that such registration was effected under s 105(1) of the Service and Execution of Process Act 1992 (Cth). This solicitor further claimed that the amount of the Local Court judgment was $56 greater than the taxed costs in the certificate of taxation because it included "a registration fee" paid to the Local Court. 7 In his reasons for judgment Moore J pointed out that s 105 of the Service and Execution of Process Act does not provide a mechanism for the enforcement of judgments of the High Court. However, his Honour said: "17. Nothing in the material in this matter would suggest that the debtor is not liable to pay $5781.98 in compliance with the costs order made by the High Court and interest on that sum: see O 43A r2 [of the High Court Rules]. There is a genuine debt in relation to that sum. The debtor is obliged to pay it, apart from any obligation under the Local Court (Civil Claims) Act 1970 (NSW), because it is an enforceable order made by the High Court. 18. However the amount claimed in the bankruptcy notice exceeded the costs by $56, being the amount payable for the registration of the certificate of taxation in the Local Court and interest on that sum. While it is a very small proportion of the total amount and even, in a sense, a trifling amount, it represents an amount the debtor would only be liable to pay the Commissioner because of the procedure adopted of registering the High Court costs order. That is because, by operation of s 107 of the Service and Execution of Process Act, reasonable costs of lodging the judgment for registration are recoverable by way of enforcement of the judgment as registered. 19. Ultimately, however, the fact that the demand in the bankruptcy notice reflected an amount that the debtor may well not have to pay if the judgment as registered with the Local Court was set aside (but only as a judgment of that Court) does not, in my opinion, warrant an order setting aside the bankruptcy notice. As a Full Court said in Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 588: 'There is … no requirement for the issue of a bankruptcy notice that the creditor have a judgment for any minimum amount. Nor is there a requirement that a creditor who petitions for a sequestration order based upon an act of bankruptcy of the kind for which s 40(1)(g) of the Bankruptcy Act provides rely, wholly or at all, upon the debt upon which the bankruptcy notice was founded. It would, therefore, seem appropriate that upon an application to a court exercising jurisdiction in bankruptcy to set aside a bankruptcy notice, the court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced and will not support a finding that there was in truth no debt at all.' See also Re Seghabi; ex parte GIO General Ltd (1994) 52 FCR 296 and Biritz v National Australia Bank Ltd (2001) 187 ALR 757 and on appeal in (2002) 189 ALR 707. 20. What the debtor is seeking to do is, to use the words of the Full Court in Emerson v Wreckair Pty Ltd, prevent the judgment creditor, the Commissioner, from having recourse to the provisions of the Act. In my opinion, the bankruptcy notice should not be set aside because the demand included the $56 registration fee and interest on that amount, nor, as earlier discussed, should it be set aside because judgment in the Local Court was obtained by an inappropriate procedure." 8 His Honour was also not satisfied that the appellant had a counter-claim, set-off or cross demand such as was alleged. Accordingly, his Honour made the order the subject of the present appeal. 9 The appellant accepts his indebtedness for the High Court costs order, but disputes indebtedness in respect of any Local Court judgment. The respondent grudgingly accepts that his lodgment of the certificate of taxation in the Local Court was "inappropriate", but submits that he may rely on "the judgment" entered in that court. 10 The respondent's submissions rest on the false premise that the certificate of taxation issued by the High Court's taxing officer was registered in the Local Court. The respondent's lodgment of a certified copy of that certificate with the registrar of the Local Court was not authorized by s 105(1) of the Service and Execution of Process Act. The High Court is not a court of rendition for the purposes of s 105. The purported "registration" of such a certificate as a judgment by the registrar of the Local Court is a mere clerical entry in the records of that court. It is not an order pronounced or a judgment given by a superior court of record. Such an entry is invalid and of no effect. In other words, the registration is a nullity. Moore J erred in regarding such registration as effective until such time as it was set aside "as a judgment" of the Local Court. 11 In Re Bayliss (1971) 19 FLR 14 the Federal Court of Bankruptcy set aside a bankruptcy notice based upon a judgment said to have been registered under the predecessor of s 105 when it was not in fact so registered. In that case the clerical entry had not been made in the registry. In this case the clerical entry is completely ineffective in law. The consequence is that the bankruptcy notice relies upon a non-existent judgment of the Local Court with the result, as Sweeney J said in Bayliss (at 16), that the bankruptcy notice "fails because a fact essential to its validity which it alleges to have existed did not in fact exist." The question whether to go behind any judgment simply does not arise in the present case. Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (In Liq) (1969) 14 FLR 311 does not stand for a contrary proposition. In that case Gibbs J said (at 320): "I say nothing as to the case in which, although the existence of a real debt is established, it is shown that the court which gave the judgment had no jurisdiction to pronounce it." 12 In any event, if we are wrong and there is a validly registered judgment in the Local Court, the bankruptcy notice must still be set aside. In The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 a majority of the Full Court held that it is an essential requirement of a bankruptcy notice, in which interest is being claimed, that it state the provision under which such interest could be validly claimed. Interest on the amount of a judgment registered under s 105(1) of the Service and Execution of Process Act (which was not the case here) is payable pursuant to s 108 of that Act. Yet in this case, as appears from the terms of the attachment to the bankruptcy notice reproduced in [4] above, the respondent has wrongly claimed that interest is payable pursuant to s 39 of the Local Courts (Civil Claims) Act 1970 (NSW). 13 The appeal will be allowed, the orders made in the court below set aside and in lieu thereof an order made setting aside the bankruptcy notice. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Court. Associate: Dated: 25 February 2003 The appellant appeared in person. Counsel for the respondent: T Reilly Solicitor for the respondent: Australian Government Solicitor Date of hearing: 12 February 2003 Date of judgment: 25 February 2003