FEDERAL COURT OF AUSTRALIA Matthews v Collett [2000] FCA 224 BANKRUPTCY – application retrospectively extend time after which creditor's petition will lapse –appropriate circumstances for applying "the slip rule" BANKRUPTCY - application to amend creditor's petition to cure defective description of act of bankruptcy – whether defect in petition one of substance or form – whether amendment seeks to allege a different act of bankruptcy Bankruptcy Act 1966 s 33(1)(b), 40(1)(d), s 52(5), s 306 Federal Court Rules s O 35 r 7 Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 133 ALR 206 Appl Re Young; Ex parte Smith (1985) 5 FCR 204 Not foll Re Agushi; Ex parte Farrow Mortgage Service Pty Ltd (in liq) (1994) 126 ALR 704 Foll Re Howell; Ex parte Deputy Commissioner of Taxation (1996) 70 FCR 261 Appr Komesaroff v Law Institute of Victoria [1997] FCA 965 Appr Re Langridge; Ex parte Bennett Carroll & Gibbons [1998] FCA 879 Appr Re James Louis Florance; Ex parte Turimetta Properties Pty Ltd [1980] FCA 13 Cited Re Frank Ballato; Ex parte Rocco Pezzano [1988] FCA 768 Appr Ex parte Coats; Re Skelton (1877) 5 Ch D 979 Cons Re Fiddian Squire & Co; Ex parte Fiddian, Squire & Co (1892) 9 Mor 95 Cons In Re Hastings (A Bankrupt) (1985) 1 WLR 969 Appl Bryant v Commonwealth Bank of Australia [1995] FCA 971 Cited Re Paul Read; Ex parte Plumbers Supplies Co-operative Ltd [1995] FCA 335 Cited Re A Debtor [1970] 1 All ER 920 Appr Love v Pattison [1998] FCA 967 Cited Ling v Enrobook Pty Ltd (1997) 74 FCR 19 Appr BRYCE HADDY MATTHEWS AND BERNICE JEAN MATTHEWS v STANLEY WILLIAM COLLETT QG 7524 OF 1998 SPENDER J 17 FEBRUARY 2000 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG7524 OF 1998 BETWEEN: BRYCE HADDY MATTHEWS First Applicant BERNICE JEAN MATTHEWS Second Applicant AND: STANLEY WILLIAM COLLETT Respondent JUDGE: SPENDER DATE OF ORDER: 17 FEBRUARY 2000 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application for leave to amend the creditor's petition be refused. 2. The application to extend the time after which the creditor's petition will lapse be declined. 3. The applicants pay the respondent's costs of and incidental to his defence to the petition, including reserved costs, but not including any costs subsequent to the filing of the respondent's written submissions in relation to the amendment of the petition. 4. There otherwise be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG7524 OF 1998 BETWEEN: BRYCE HADDY MATTHEWS First Applicant BERNICE JEAN MATTHEWS Second Applicant AND: STANLEY WILLIAM COLLETT Respondent JUDGE: SPENDER DATE: 17 FEBRUARY 2000 PLACE: BRISBANE REASONS FOR JUDGMENT 1 In this case a creditor's petition was presented on 21 December 1998. Section 52(5) of the Bankruptcy Act 1966 ("the Act") provides: "That the Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor's petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period of the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the Order." 2 The petition was listed for hearing before me on 6 August 1999. After evidence was given, including oral evidence, and in particular evidence and cross-examination of a bailiff who had dealings with a Warrant of execution that is central to this matter, counsel for the petitioning creditor sought in his closing address to amend the petition. Such amendment was opposed by Mr W.A. Morgan, the solicitor for the respondent. I then directed that the respondent file further submissions within seven days, and that the applicant do so within a further seven days, addressing the question of whether leave should be granted to amend the creditor's petition, and if so, why a successful sequestration order should not then be made despite the amendment. 3 The respondent's submissions were received on 13 August 1999, and those of the applicant on 20 August 1999. On 21 December 1999, while the matter was awaiting determination by this Court, the petition lapsed by operation of s.52(4)(a) of the Act, 12 months having expired since its presentation. The matter was listed for mention today, at the request of the petitioning creditors, for the hearing of an application under s 52(5) of the Act for an extension of time after which the petition will lapse beyond the prescribed 12 month period. 4 The application raises the questions of whether the Court has power to extend the life of a petition which has lapsed, and then whether, if there is such a power, the Court should exercise it here. It is clear that the lapsing of the petition pursuant to the Act was inadvertent, in that neither the petitioning creditor or his legal advisers, nor the Court, adverted to the lapsing on 21 December 1999. Had any attention been directed to that question there is no doubt that the issues which had been reserved for judgment would have been decided prior to the lapsing of the petition. 5 The application for the exercise of discretion that the applicants seek is based on what is known as the "slip rule" - Order 35 rule 7(3) of the Federal Court Rules ("the Rules"), applicable due to the "accidental slip or omission" constituted by the petitioning creditors not applying for an order extending the life of the petition before it lapsed. There is evidence that the slip or omission resulted only from a failure to advert to the matter while the application to amend the petition was reserved by me for consideration. 6 In Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 133 ALR 206, the Full Court was of the view that it was open to use the slip rule to correct an error retrospectively. The Court pointed out that there were two questions involved: whether the rule applies and whether, if it does, there should be a favourable exercise of discretion. On the latter question the Court indicated there that delay in bringing an application and prejudice to others would be among the factors militating against the exercise of discretion in favour of applying the rule. 7 In two earlier cases, it had been held that s 33(1)(c) of the Act did not allow an order extending the life of a petition to be made after the petition had lapsed, and that a petition does not survive beyond the end of 12 months without a prior order of the Court : Re Young; Ex parte Smith (1985) 5 FCR 204, which was followed in Re Agushi; Ex parte Farrow Mortgage Service Pty Ltd (in liq) (1994) 126 ALR 704. In light, however, of the Full Court's decision in Elyard, where the slip rule was specifically addressed, I am of the opinion that the Court has power, pursuant to Order 35 rule 7 of the Rules, to make an order having the effect of retrospectively extending the life of a petition, notwithstanding its lapse. 8 Such a conclusion was reached by Burchett J in Re Howell; Ex parte Deputy Commissioner of Taxation (1996) 70 FCR 261 and, in a case which seems directly on all fours with the present, by Heerey J in Komesaroff v Law Institute of Victoria [1997] FCA 965. Kiefel J adopted the same course in Re Langridge; Ex parte Bennett Carroll & Gibbons [1998] FCA 879. It seems to me that in this case the slip rule applies not only because of what the evidence suggests was a slip or omission on behalf of the solicitor for the petitioning creditor, but also because of the Court's own unintended error. 9 Subject to the consideration to which I now turn, I would extend the life of the petition in light of the above. However, having regard to the merits of the matters reserved for judgment prior to the lapse of the petition, in my opinion it would be futile to make an order under the slip rule and, solely for that reason, I decline to do so. 10 On 6 August 1999, I embarked on the hearing of a contested creditor's petition for a sequestration order against Stanley William Collett. The petition relied on an alleged act of bankruptcy in paragraph 4: "The following act of bankruptcy was committed by the Respondent Debtor within six (6) months before the presentation of this petition:- (a) On 5 February 1998 in the Supreme Court of Queensland, in Writ No. 2338 of 1997, Judgment was granted in favour of the Applicant Creditors against the Respondent Debtor in the sum of $28,677.69, together with interest of 10 per cent from 1 December, 1997. (b) On 20 August 1998 a Warrant of execution against the lands and goods of the Respondent Debtor was issued out of the District Court of Queensland, held at Maroochydore, in District Court Plaint No. 239 of 1998, formerly Supreme Court Writ No. 2338 of 1997. (c) Execution of the warrant was partially made by the Deputy Bailiff of the District Court of Queensland at Maroochydore whereby the Judgment debt as of 18 November 1998 stood at $25,398.44, including the balance judgment of $20,427.69, costs of $2,205.13 and interest of $2,765.62, with interest accruing at the rate of 10 per cent. The warrant was returned by the Deputy Bailiff to the Registry unsatisfied as per report dated 5 October 1998". 11 It is clear that the act of bankruptcy relied on in that petition was the act of bankruptcy which is to be found in s 40(1)(d)(ii) of the Act, which provides that a debtor commits an act of bankruptcy if: "execution has been issued against him or her under process of a court and has been returned unsatisfied". 12 Mr Collett opposed the petition, contending that he had a counterclaim against the applicants which exceeded the amount referred to in the creditor's petition, that he had sufficient assets to satisfy the amount referred to in the creditor's petition and that he had not committed an act of bankruptcy under s 40(1)(d)(ii) of the Act. It appeared in evidence on 6 August 1999 that the "report dated 5 October 1998", which was exhibit C to the affidavit of District Court Deputy Bailiff, Ronald Ian Braby, filed on 21 December 1998 said in its body: "I certify, that this Warrant is returned unexecuted as after 5 attempts I have been unable to locate the subject motor vehicle at either of the addresses supplied. The premises at Sippy Downs have had gates fitted to the property which have at all times been locked. Returned for further instructions. Attempt fees claimed." (emphasis added) 13 In an affidavit filed on 12 April 1999, Mr Braby refers to that annexure. In paragraph 2 of that affidavit he says: "…In my report dated 5 October 1998 (Annexure "C" to my said Affidavit filed herein on 21 December 1998), I state inter alia on the first page:- 'Warrant returned unexecuted for further instructions.' On the second page I state:- 'I certify, that this Warrant is returned unexecuted after five attempts.' What I should have said, and what I meant to say is as deposed to in paragraph 3 of my said Affidavit of 21 December 1998, inter alia 'that the Warrant was returned unsatisfied.'" 14 He then purported to amend the report accordingly, by substituting the word "unsatisfied" for "unexecuted" in the original version. 15 It is clear that Mr Braby's report, while it is dated 5 October 1998, was made some time prior to 3 March 1999 and after 24 February 1999. Having regard to the authorities, in my opinion the return in fact made by the Deputy Bailiff does not amount to an act of bankruptcy in terms of s 40(1)(d)(ii) of the Act. In an attempt to avoid that result, during the course of closing submissions on 6 August 1999, Mr Macklin, counsel for the petitioner, sought leave to amend the petition by inserting a paragraph 4(d) to be expressed: "That execution was issued against the respondent under process of a court and in consequence property of the respondent, namely an Isuzu truck, was sold by a person charged with the execution of the Warrant of execution, namely Ronald Ian Braby on 16 September 1998." 16 That application to amend was opposed by the solicitor for the respondent, and I directed that submissions concerning the application be filed subsequent to the hearing. Submissions filed on behalf of the respondent argued that an application to amend a creditor's petition should be made by Notice of Motion, and referred to Order 19 rule 2 and Order 77 rule 4(2) of the Rules. They conceded that the Court undoubtedly has power to amend a creditor's petition: s 33(1)(b) of the Act; Re James Louis Florance; Ex parte Turimetta Properties Pty Ltd [1980] FCA 13. 17 If the amendment to the petition is to cure a formal defect or irregularity, the petitioner can rely on the provisions of s 306 of the Act. However, a defect of substance requires leave of the Court pursuant to s 33(1)(b) of the Act: see Re Frank Ballato; Ex parte Rocco Pezzano [1988] FCA 768, where his Honour said in relation to the failure of the petitioning creditor to describe the correct date for compliance with a bankruptcy notice: "Such a defect in the petition would appear to be a defect of substance rather than form and clearly misleading. The form of petition requires the act of bankruptcy which founds the entire bankruptcy proceedings to be stated with precision (see Re Hastings (1985) 1 All ER 885 at p 888). The stipulation of the precise date on which it is contended that the act of bankruptcy occurred is one of the most vital parts of the petition and the use of the provisions of Section 306 of the Act available to cure a formal defect or irregularity would be inappropriate." 18 Notwithstanding the respondent's protestations that an application for leave requires a Notice of Motion, there is power pursuant to Order, 19 rule 2(2)(d) to dispense with those requirements, and it is clear that I did so when I permitted the petitioner to make his application for amendment orally. The petitioners submit that the amendment sought in this case should be treated as one of form rather than substance. This submission is based on the assertion that paragraph 4(c) of the creditor's petition refers, albeit obliquely, to the sale by the Bailiff on 16 September 1998 of an Isuzu truck belonging to Mr Collett seized pursuant to the writ of execution. "Execution of the Warrant was partially made by the Deputy Bailiff of the District Court of Queensland at Maroochydore…". (emphasis added) 19 The affidavit of Mr Braby filed 21 December 1998 verifying paragraph 4 of the petition, provides evidence of the sale on 16 September 1998, but the reference is again at best oblique. Paragraph 3 of that affidavit states: "On 16 September 1998 I first returned the said Warrant partially satisfied." 20 There is a handwritten annotation on exhibit A of that affidavit (a copy of the warrant of execution) signed by Mr Braby and dated 16 September 1998, which reads as follows: "I CERTIFY THAT AS A RESULT OF MY SEIZING THE DEFENDANT'S TRUCK, ADVERTISING AND SELLING SAME AT AUCTION THIS WARRANT IS RETURNED PART EXECUTED FOR FURTHER INSTRUCTIONS. ATTEMPT FEE CLAIMED." 21 The submission that the defect in question is simply a misdescription of the alleged act of bankruptcy or the date of the alleged act of bankruptcy is one that I do not accept. The amendment seeks to allege an act of bankruptcy based on section 40(1)(d)(i) of the Act. Not only is that act of bankruptcy in fact different from that alleged in the petition, but the date of its commission is also different. 22 In the old case of Ex parte Coats; Re Skelton (1877) 5 Ch D 979, it was held by James Baggallay and Cotton LJJ, affirming a decision of Bacon CJ, that a bankruptcy petition against a trader which alleged an act of bankruptcy that he had departed from his dwelling house or otherwise absented himself must also allege that he did so with intent to delay or defeat his creditors, or the petition will be demurrable and must be dismissed. 23 It was further held that such a defect is a matter of substance, not merely a formal defect, and that it cannot be cured by amendment. James LJ said at 982: "To allow this appeal would be an encouragement to slovenly procedure. The forms ought to be adhered to. This is really not a mere matter of form. The Act says you must tell the debtor what the act of bankruptcy is which you allege against him, so that he may have an opportunity of contesting it in the first instance." 24 On the other hand, in Re Fiddian Squire & Co; Ex parte Fiddian, Squire & Co (1892) 9 Mor 95, Williams and Collins JJ held that a bankruptcy petition which alleged a debtor's departure from his dwelling house as an act of bankruptcy, but again failed to allege that the departure was with intent to delay or defeat creditors, could nevertheless be amended provided that such amendment is made before adjudication and no injustice is thereby caused to the debtor by reason of the amended petition being directed to be re-served. Ex Parte Coates was distinguished on the basis that it referred only to amendments made after adjudication. 25 It is relevant to the question of whether a different act of bankruptcy is in truth being alleged here that Mr Macklin for the petitioning creditor first made the submission which appeared at page 42 of the transcript of the hearing of 6 August: "Your Honour, I submit that the act of bankruptcy has been established in respect of Section 40 subsection (1) paragraph d(ii), namely, that execution has been issued against Mr Collett under process of the court, and has been returned unsatisfied." 26 Later on the same day, Mr Macklin made the submission that: "…in the light of the submissions that have been made, if your Honour was of the view that there has been a failure to return the warrant unsatisfied, the petition, as it stands, I would submit, is wide enough to cover an act of bankruptcy constituted by section [40(1)(d)(i)], in that 4(c) of the petition refers to execution of the warrant, partially made by the Deputy Bailiff." 27 Shortly afterwards Mr Macklin made the oral application to amend the petition in the terms that I have described. For that reason alone, in my opinion, the application for leave to amend the petition should be refused, although there is an even more compelling reason why that should be done. 28 In Re Hastings (A Bankrupt) (1985) 1 WLR 969 involved another application for leave to amend a petition, and it was held that there that an application for leave to amend a petition should be made within the prescribed period for presentation of a petition after the act of bankruptcy, if the amendment sought is one of substance rather than form. 29 In Bryant v Commonwealth Bank of Australia [1995] FCA 971 the Court interpreted Hastings as treating the application for leave to amend the petition as equivalent to the presentation of the petition, so that the available act of bankruptcy had to occur within the prescribed period. The Full Court in Bryant distinguished Hastings from the facts with which they were concerned on the basis that the amendment sought in Bryant was purely formal, whereas in Hastings the amendment to the petition was refused because it would have alleged an entirely different act of bankruptcy. The application to amend the petition in Bryant was made outside the three month period prescribed by s 41(c) of the Bankruptcy Act 1914 (UK), which is materially similar to s 44(1)(c) of the Act, except that the prescribed period there is three months rather than six months: See Re Paul Read; Ex parte Plumbers Supplies Co-operative Ltd [1995] FCA 335. 30 Similarly in Re A Debtor [1970] 1 All ER 920, the Court held that amendment of a petition should not be allowed if it would introduce an act of bankruptcy which occurred outside the expiration of the prescribed period. In that case Ungoed-Thomas J, as he then was, effectively noted at 922 that if the Court allowed an amendment to enable a petition to be founded on an act of bankruptcy that occurred more than three months before the application to amend, there would be no time that could limit the exercise of the Court's discretion to allow such an amendment under the relevant provision of the United Kingdom Bankruptcy Act. 31 Ungoed-Thomas J said: "It would be left wide open to the discretion of the Court in all of the circumstances of the case. But discretion with regard to acts of bankruptcy has not been left wide open to the Court without time limit at all. It is clearly the intention of the legislature as expounded in the authorities that any act of bankruptcy should be relied on within the three months' period which it prescribes, and it seems to me to be as contrary to this to allow an amendment which would introduce an act of bankruptcy out of time…" 32 Here an amendment to the petition alleging a different act of bankruptcy from that originally pleaded is being sought more than six months after the occurrence of that different act of bankruptcy. In light of the authorities to which I have referred, the Court should not permit such an amendment. 33 Further, there are powerful discretionary reasons against the grant of the amendment. In this particular case, the opportunity for the respondent to meet that new act of bankruptcy has been heavily confined. The application to amend was, as has been noted, only made in closing submissions. It seems plain that the debtor has not been given a reasonable opportunity of meeting the new allegation, and that to prevent him that opportunity would result in serious injustice. It seems to me that this is particularly so in this case concerning what might be said to be a complaint that the act of bankruptcy described in s 40(1)(d)(i) of the Act has not been committed at all. 34 The power to sell a debtor's goods is not found in the Act itself, but in the relevant rules of the court . For the purpose of s 40(1)(d)(i) of the Act, the sheriff or bailiff conducted the sale here pursuant to the power to sell goods under a warrant of execution, found in the old Rules 292(1) and 303 of the District Court Rules. 35 Under rule 303(3) of the District Court Rules, as they were, the assistant bailiff was required to affix a notice of the sale of the relevant goods upon or near the door of the place where the sale was to be held, at least six days after the goods were levied and at least four days before the date of the sale, which suggests that the sale could not properly occur until at least ten days after the goods were seized. 36 Given that the bailiff had seized the truck on 8 September 1998, and it was sold at auction on 16 September 1998, it seems that there are grounds for believing that there has been non-compliance with the Rules of the District Court in relation to the sale of the debtor's truck. Whether that breach means that there has, in fact, been a non-commission of the proposed amended act of bankruptcy is a matter which cannot be resolved on the present state of the evidence. 37 It is sufficient, however, to point to the fact that to permit the amendment in the circumstances in which it was sought, might very well deprive the respondent of an opportunity of effectively meeting that allegation. Regardless, as the petition presently stands (i.e. without the amendment sought), the act of bankruptcy relied on is not made out. 38 As to the other grounds on which the petition was opposed, it is enough to note that the existence of a counterclaim would often be a sufficient cause for the Court to exercise its discretion under s 52(2)(b) of the Act to dismiss the petition: See Love v Pattison [1998] FCA 967. Similarly, the existence of a legitimate claim of the debtor against the judgment creditor is likely to be a significant circumstance for that purpose: see Ling v Enrobook Pty Ltd (1997) 74 FCR 19. 39 Of course, the mere assertion of a claim is not sufficient, but in this particular case there is a fully particularised claim in the District Court at Maroochydore that has been sworn to be true and correct by the respondent, and which, on the evidence, is not disputed by the petitioning creditors. There is the further circumstance that, had the applicant served a bankruptcy notice on the respondent, the latter would of course have been able to apply under s 41(7) of the Act to set aside the notice on the basis of his claim in the District Court. 40 It seems to me that the petitioning creditors have attempted to avoid this possibility by having a Warrant of execution issued under s 40(1)(d) of the Act, initially under the second limb, and then by amendment under the first limb. The effect of that process would be that if the respondent had committed an act of bankruptcy under that subsection his claim - constituted by his claim in the District Court - would be effectively defeated without a trial in the District Court, unless the Court were to exercise its discretion to dismiss the petition pursuant to subsection 52(3)(b) of the Act. However, I would have found against the petition on the basis that the act of bankruptcy relied on therein was not made out on the evidence, in that on 5 October 1998 the warrant was not returned unsatisfied. 41 For all of these reasons then, I would decline to permit amendment to the petition. I would have dismissed the petition, and in the light of that circumstance it would be futile to extend the life of the petition pursuant to the slip rule. But for that consideration of futility, I emphasise again that I would have extended the life of the petition. For these reasons, the application under s 52(5) of the Act is refused. The consequence is that the petition presented on 21 December 1998 lapsed by effluxion of time on 21 December 1999. 42 As to costs, it seems to me that the respondent debtor should have its costs of and incidental to his defence to the petition, including reserve costs, but that those costs should not include any costs subsequent to the filing of the respondent's written submissions in relation to the amendment of the petition, and that otherwise there be no order as to costs. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice SPENDER. Associate: Dated: 17 February 2000 Counsel for the Applicant: Mr T Macklin Solicitor for the Applicant: Warren Gardiner & Co Solicitor for the Respondent: Mr W.A. Morgan, of Lynch & Co Date of Hearing: 17 February 2000 Date of Judgment: 17 February 2000