FEDERAL COURT OF AUSTRALIA Genovese v BGC Construction Pty Ltd [2006] FCA 105 BANKRUPTCY – bankruptcy notice – application for notice to be set aside – failure by creditor to attach to notice a copy of judgment or order – notice set aside. COSTS - costs to follow the event. Bankruptcy Act 1966 (Cth), ss 40(1), 40(1)(g), 41(2) Bankruptcy Regulations 1966 (Cth), Reg 4.02(1), (2) Local Court Rules 1961 (WA), O 23 r 6(2) Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441 Genovese v BGC Construction Pty Ltd (2005) 215 ALR 440 Genovese v Homestyle Pty Ltd [2004] FMCA 673 Stec v Orfanos [1999] FCA 457 The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 HERCOLE PIETRO GENOVESE v BGC CONSTRUCTION PTY LTD (ACN 008 783 248) WAD 292 of 2005 LEE J 16 FEBRUARY 2006 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 292 OF 2005 BETWEEN: HERCOLE PIETRO GENOVESE APPLICANT AND: BGC CONSTRUCTION PTY LTD (ACN 008 783 248) RESPONDENT JUDGE: LEE J DATE OF ORDER: 16 FEBRUARY 2006 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The Bankruptcy Notice 190 of 2005 be set aside. 2. The respondent pay the applicant's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 292 OF 2005 BETWEEN: HERCOLE PIETRO GENOVESE APPLICANT AND: BGC CONSTRUCTION PTY LTD (ACN 008 783 248) RESPONDENT JUDGE: LEE J DATE: 16 FEBRUARY 2006 PLACE: PERTH REASONS FOR JUDGMENT 1 This is an application to set aside Bankruptcy Notice 190 of 2005 ("the Notice") issued to the applicant ("Genovese") under the Bankruptcy Act 1966 (Cth) ("the Act") by the Official Receiver for the Bankruptcy District of Western Australia on 13 June 2005 at the request of the respondent ("BGC"). 2 The Notice is the fourth such notice to be issued to Genovese at BGC's request based on a judgment obtained by BGC against Genovese in the Local Court of Western Australia on 17 October 2003. Judgment was entered by consent for a sum of $10,000 and costs to be taxed. Those costs were taxed and certified on 23 December 2003 in a sum of $11,432.94. 3 Prior to 17 October 2003 other orders for costs had been made in the proceeding in BGC's favour namely, on 28 February 2003, 15 April 2003 and 9 June 2003. On 22 May 2003 costs were taxed pursuant to the orders made on 28 February and 15 April 2003 and certified by the Taxing Officer in a sum of $2,010.42. That sum was duly paid by Genovese. In respect of the order for costs made on 9 June 2003 taxed costs were certified on 29 October 2003 in a sum of $4,979.33. 4 The first bankruptcy notice, issued on 12 March 2004, was set aside by consent. The second and third bankruptcy notices were issued on 21 April 2004 and 8 September 2004 respectively. BGC elected not to proceed on the second notice and the third notice was set aside by an order made by a judge of this Court (Lander J) on 11 March 2005 on appeal from a judgment of the Federal Magistrates Court. The reasons for decision of his Honour set out the history of the matter in detail. (See: Genovese v BGC Construction Pty Ltd (2005) 215 ALR 440). 5 An unresolved issue that arose out of the hearing in the Federal Magistrates Court and not dealt with in the appeal is whether a further sum of $3,000 was paid to BGC by Genovese on 30 April 2004 in reduction of the judgment entered on 17 October 2003 being a sum not accounted for in the Notice. (See: Genovese v Homestyle Pty Ltd [2004] FMCA 673 at [33]). 6 On 25 July 2005 Genovese filed an application in the Federal Magistrates Court seeking an order that the Notice be set aside. On 21 September 2005 the Federal Magistrates Court ordered that the application be transferred to this Court by reason of the complexity of the issues raised. 7 Upon transfer of the matter the Court determined pursuant to Order 80 of the Rules of the Federal Court that it was appropriate that the Registrar be directed to obtain pro bono legal representation for Genovese in order that the Court may be assisted by submissions from counsel for each party. Up to that point Genovese had been unrepresented. 8 As far as the instant matter is concerned s 40(1)(g) of the Act provides that a debtor commits an act of bankruptcy if a creditor who has obtained against the debtor a final judgment or final order, the execution of which has not been stayed, has served on the debtor a bankruptcy notice under the Act requiring the debtor to pay the judgment debt and the debtor does not, within the time specified in the notice, comply with the requirements of the notice. 9 Section 41(1) states that an Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order (or two or more final judgments or final orders) in an amount of at least $2,000. 10 Section 41(2) stipulates that the notice must be in the form prescribed by the Bankruptcy Regulations 1966(Cth) ("the Regulations"). Regulation 4.02(1) provides that Form 1 in Schedule 1 of the Regulations is the prescribed form. Regulation 4.02(2) also states that a bankruptcy notice must follow Form 1 in respect of its format – "for example, bold or italic typeface, underlining and notes". 11 Item 1 of Form 1 gives notice to a debtor that the creditor claims that the debtor owes the creditor a debt in a specified amount arising under a judgment and states that details of the amount of the debt are shown in the Schedule to the Form. The Schedule provides for details of the amount owing to the creditor by the debtor under judgments or orders to be inserted. Item 2 of Form 1 states that "a copy" of the judgments or orders "relied upon" by the creditor is attached to the notice. Failure to attach a copy of a judgment or order relied upon is a failure to comply with s 41(2) and represents a fundamental defect in the notice and invalidates it. (See: The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33; Commonwealth Bank v Horvath (Junior) (1999) 161 ALR 441). 12 In relevant respects the Schedule to Form 1 reads as follows: " Column 1 Column 2 1 Amount of judgments or orders plus 2 Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders (see Note 1, below) plus 3 If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2, below) 4 Subtotal less 5 Payments made and/or credits allowed since date of judgments or orders 6 Total debt owing (NB: Amounts, where applicable, are to be inserted in column 2) ________________________________________________________________ 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. . . . ." 13 The particulars inserted in the Schedule to the Notice were as follows: " Column 1 Column 2 1 Amount of judgments or orders $28,422.69 plus 2 Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders (see Note 1, below) plus 3 If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2, below) NIL 4 Subtotal $28,422.69 less 5 Payments made and/or credits allowed since date of judgments or orders $ 2,010.40 6 Total debt owing $26,412.29 " 14 When the matter came on for hearing on 15 December 2005 counsel for Genovese submitted that the Notice failed to comply with the requirements of the Act and the Regulations. 15 Plainly the amount set out in Item 1 of the Notice and in Item 1 of the Schedule to the Notice was a composite sum based on several judgments or orders. Whether pursuant to Item 2 of the Notice BGC had to attach a copy of the costs orders made on 28 February, 15 April and 9 June 2003 is unnecessary to decide. At least pursuant to Item 2 and Note 1 of the Schedule to the Notice the certificates of the taxed costs made pursuant to those orders had to be attached. 16 Although unnecessary to decide in the instant case it may be thought that the words of Item 2 and of Note 1 of the Schedule to the Notice make it clear that costs not fixed but ordered to be paid as part of a judgment or order must be set out in Item 2 of the Schedule and a certificate of those taxed costs attached. I note that in Stec v Orfanos [1999] FCA 457 at [17] it is suggested that it is not necessary to attach a certificate of taxed costs where a judgment recited in Item 1 of the Schedule provides for costs to be taxed. But such a conclusion would not be consistent with the words used in Item 2 of the Schedule or Note 1 and, furthermore, would fail to meet the evident purpose of a bankruptcy notice prescribed by the Act and Regulations, namely, to give a debtor notice of how the amount set out in the Notice has been calculated as the amount owing. 17 Item 2 of the Schedule is not restricted to legal costs not included in the judgments or orders referred to in Item 1. It expressly applies to legal costs ordered to be paid where a specific amount has not been included in a judgment or order referred to in Item 1. The words of Note 1 confirm that construction. Therefore, if costs are ordered but not fixed in a judgment or order set out in Item 1 the amount of those costs as subsequently taxed or assessed must be set out in Item 2 and a certificate of the taxed or assessed costs must be attached. 18 On the reasoning applied in Stec there would be no function for Note 1 to the Schedule to perform. The amounts due under more than one final judgment or order, including a costs order, would be aggregated in Item 1 of the Schedule and pursuant to the reasoning in Stec no amount or certificate of costs taxed pursuant to a costs order could be said to be relevant to Item 2 and Note 1 of the Schedule. 19 In any event to comply with the requirements of the Act it was necessary for BGC to deliver to the Official Receiver for attachment to the Notice a copy of the judgment entered in the Local Court on 17 October 2003 and a copy of any other order for the payment of costs that BGC sought to have included in the Notice as the debt claimed to be due. (See: Commonwealth Bank v Horvath). 20 The document dated 6 April 2005 attached to the Notice purported to be a certified copy of the judgment entered on 17 October 2003. It misstated the amount of that judgment debt by aggregating with that sum amounts of taxed costs that became payable under other orders. 21 No copies of those other orders, or certificates of the costs taxed pursuant thereto, were attached to the Notice. 22 It may be assumed that pursuant to O 23 r 6(2) of the Local Court Rules 1961 (WA), BGC prepared a praecipe of the certified judgment sought to be attached to the Notice and was responsible for the misstatement in the Notice of the amount of the judgment debt entered on 17 October 2003. 23 In light of the foregoing BGC conceded that the Notice must be set aside. It contended, however, that no costs order should be made. Counsel for Genovese submitted that costs should follow the event. 24 The grounds of BGC's argument on costs were that BGC had incurred unnecessary expense in preparing a response to arguments foreshadowed by Genovese as an unrepresented applicant but abandoned by counsel for Genovese. Further it was submitted that the ground raised by counsel for Genovese only materialised "at the eleventh hour". 25 Counsel for Genovese submitted that the Bankruptcy Notice was defective on its face and that the usual order for costs should be made. 26 I am satisfied that the discretion available to the Court under s 43 of the Federal Court Act 1976 (Cth) should be exercised by an order that BGC pay the costs of Genovese. BGC had four opportunities to present a bankruptcy notice for issue that complied with requirements of the Act and Regulations and failed to do so. 27 The defect in the Notice should have been apparent to BGC at the time the Notice was presented to the Official Receiver for endorsement and issue. Whilst it was not until Genovese was represented by counsel that the ground on which the challenge to the validity of the Notice was able to be articulated on behalf of Genovese, BGC had been on notice since the filing of the application that the validity of the Notice was in issue and it could have ascertained by appropriate examination of the primary documents that the Notice was defective. 28 By reason of the amendments made to the Act and Regulations in respect of bankruptcy notices considered and explained in Australian Steel, responsibility for the accuracy of a bankruptcy notice issued by the Official Receiver now lies with the creditor seeking the issue of the notice and not with a Registrar in Bankruptcy or an Official Receiver. It follows that a creditor requesting the issue of such a notice must exercise due care to ensure that there has been compliance with the Act and Regulations. (See: Australian Steel at [53], [63]). 29 The Notice will be set aside and BGC ordered to pay the costs of the application. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: 16 February 2006 Counsel for the Applicant: M J Hawkins ('pro bono publico') Counsel for the Respondent: A W Buchan Solicitor for the Respondent: Hotchkin Hanly Date of Hearing: 15 December 2005 Date of Judgment: 16 February 2006