FEDERAL COURT OF AUSTRALIA Boutros v Santa Sabina College Ltd [2011] FCA 477 Citation: Boutros v Santa Sabina College Ltd [2011] FCA 477 Appeal from: Boutros v Santa Sabina College Ltd [2011] FMCA 164 Parties: CHALITA BOUTROS and ANTOINETTE BOUTROS v SANTA SABINA COLLEGE LTD File number: NSD 365 of 2011 Judge: NICHOLAS J Date of judgment: 3 May 2011 Catchwords: BANKRUPTCY – sequestration order made by Registrar – application for review of Registrar's sequestration order by Federal Magistrate – hearing de novo – refusal of application by Federal Magistrate – appeal from order refusing such application – consideration of requirements under Federal Magistrates Court (Bankruptcy) Rules 2006 – whether non-compliance with r 4.06 should have led Federal Magistrate to adjourn hearing of creditor's petition to enable such compliance PRACTICE AND PROCEDURE – application for extension of time to file a notice of appeal from judgment of Federal Magistrate – delay not lengthy – strong prospects of appeal Legislation: Federal Court Rules O 52 r 15(2) Federal Magistrates Act 1999 s 104(2) Federal Magistrates Court (Bankruptcy) Rules 2006 r 4.06 Cases cited: Ahern v DCT (Qld) (1987) 76 ALR 137 Jess v Scott (1986) 12 FCR 187 Martin v Commonwealth Bank of Australia (2001) 217 ALR 634 Totev v Sfar (2008) 167 FCR 193 Date of hearing: 3 May 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 31 Counsel for the Applicants Mr GD McDonald Solicitor for the Applicants: Russo & Partners Solicitor for the Respondent: Ms C Douglas of DLA Piper IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 365 of 2011 BETWEEN: CHALITA BOUTROS First Applicant ANTOINETTE BOUTROS Second Applicant AND: SANTA SABINA COLLEGE LTD Respondent JUDGE: NICHOLAS J DATE OF ORDER: 3 May 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The time in which the applicants may file and serve a notice of appeal from the orders made by Lindsay FM on 28 February 2011 be extended to 3 May 2011. 2. Leave be granted to the applicants to file in Court a notice of appeal. 3. The appeal be allowed. 4. The orders of Lindsay FM made on 28 February 2011 be set aside. 5. The orders of Registrar Christie made on 12 January 2011 be set aside. 6. The matter be remitted to Lindsay FM for re-hearing of the creditor's petition. 7. There be no order as to costs of the hearing before Lindsay FM. 8. There be no order as to costs of the proceeding in this Court. 9. All other questions of costs be reserved for consideration by Lindsay FM. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 365 of 2011 BETWEEN: CHALITA BOUTROS First Applicant ANTOINETTE BOUTROS Second Applicant AND: SANTA SABINA COLLEGE LTD Respondent JUDGE: NICHOLAS J DATE: 3 May 2011 PLACE: SYDNEY REASONS FOR JUDGMENT (Revised from Transcript) 1 This is an application by the applicants to extend the time within which they may file a notice of appeal from the judgment of a Federal Magistrate (Lindsay FM) given on 28 February 2011. The application is made under O 52 r 15(2) of the Federal Court Rules. A notice of appeal against his Honour's decision should have been filed by 21 March 2011. The application seeking leave to file and serve the notice of appeal out of time was not filed until 30 March 2011. On 13 April 2011 an order was made that the application for an extension of time to file and serve a notice of appeal, and any appeal in the event that such application was granted, be heard today. 2 During the course of the hearing of the application I stood the matter down for a short while to enable the solicitor for the respondent to confirm whether or not the respondent wished to have me proceed to determine the appeal if I was minded to grant the extension of time. I was informed by the respondent's solicitor that the respondent did not oppose me proceeding to determine the appeal if an extension of time was granted. Further, I was informed that the respondent's position in relation to any appeal, in the event that such an extension was granted, was that the respondent would neither consent to nor oppose the appeal. I was also informed by the respondent's solicitor that the trustees had been notified of today's hearing. 3 In accordance with directions previously made, an appeal book was prepared and filed. It includes copies of the affidavits which were before the learned Federal Magistrate at the hearing which took place before his Honour. There has been argument in relation to both the question whether an extension of time should be granted and, if so, whether the appeal should be allowed. 4 On 12 January 2011 Registrar Christie of the Federal Magistrates Court of Australia made a sequestration order against the applicants. The applicants applied to have the Registrar's decision reviewed by a Federal Magistrate pursuant to s 104(2) of the Federal Magistrates Act 1999. On 28 February 2011 the hearing of that review took place before the learned Federal Magistrate. 5 The learned Federal Magistrate who undertook the review recognised that the proceeding before him was in the nature of a hearing de novo and, as is clear from his Honour's reasons for judgment, the hearing was conducted on that basis. Both the respondent and the applicants tendered further evidence in addition to that which was before the Registrar. In particular, the respondent tendered further evidence of the debt upon which the creditor's petition was founded. The learned Federal Magistrate referred to this evidence in terms which make it clear that his Honour fully appreciated that the review of the Registrar's decision was by way of a hearing de novo. 6 The learned Federal Magistrate dismissed the application for review of the Registrar's decision and made costs orders in favour of the respondent and the respondent's bankruptcy trustees, the latter having applied for and been given leave to appear. 7 The applicants' proposed notice of appeal is styled "further amended notice of appeal". This is because a number of drafts of the applicants' proposed notice of appeal were put before the Court on previous occasions. I will simply refer to the document entitled "further amended notice of appeal" as the notice of appeal. It raises nine proposed grounds of appeal. The first six of them seek to challenge aspects of the learned Federal Magistrate's treatment and assessment of the evidence relied upon by the applicants before his Honour concerning the matter of solvency. The remaining three grounds of appeal are concerned with what is said to have been an error on the part of the learned Federal Magistrate in failing to either dismiss or adjourn the creditor's petition on account of the petitioning creditor's failure to comply with Rule 4.06 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (the Bankruptcy Regulations). These three grounds are in the following terms: 7. His Honour erred, after having determined that he needed to be satisfied on the day, of the matters the Registrar needed to be satisfied of (par. 8) and after having required an Affidavit of Debt under Rule 4.06(4) (par. 9), in not requiring an Affidavit of Final Search in accordance with Rule 4.06(3). 8. His Honour erred, after failing to have before him the above Affidavit, by failing to determine that he would not have been entitled, on the day, to make a sequestration order on the creditors [sic] petition. 9. His Honour erred, after failing to make the above determination and having refused the application for review of the Registrar's decision, by not either adjourning the review application or upholding the review application on the grounds that the creditor had not provided the Affidavit of Final Search in accordance with Rule 4.06(3). 8 The application for an extension of time is to be determined in accordance with the approach described by the Full Court in Jess v Scott (1986) 12 FCR 187. In that case the Full Court (Lockhart, Sheppard and Burchett JJ) said at 195: What is needed to justify an extension of time is indicated in r 15(2) by the words "for special reasons". It is that there be shown a special reason why the appeal should be permitted to proceed, though filed after the expiry of twenty-one days. In that context, the expression "special reasons" is intended to distinguish the case from the usual course according to which the time is twenty-one days. But it may be so distinguished (not necessarily will, for the rule gives a discretion) wherever the Court sees a ground which does justify departure from the general rule in the particular case. Such a ground is a special reason because it takes the case out of the ordinary. We do not think the use of the expression "for special reasons" implies something narrower than this. … It should not be overlooked that r 15(2) enables leave to be given "at any time"; the "special reasons" relevant to such a power cannot but describe an elastic test, suitable for application across a range of situations, from an oversight of a day to a neglect persisted in during a prolonged period. It would require something very persuasive indeed to justify a grant of leave after, for example, a year; equally, it may be said, something much less significant might justify leave where a party is a few days late. "Special reasons" must be understood in a sense capable of accommodating both types of situation. It is an expression describing a flexible discretionary power, but one requiring a case to be made upon grounds sufficient to justify a departure, in the particular circumstances, from the ordinary rule prescribing a period within which an appeal must be filed and served. 9 The respondent's submissions focused on the question of delay and the absence of what it argues is any sufficient explanation for the delay in filing a notice of appeal. 10 However, while the delay in bringing the application for an extension of time involved more than a few days, it was not lengthy. There is evidence to suggest that the applicants were self-represented at least in the three week or thereabouts period immediately following the learned Federal Magistrate's decision. The first applicant states in his affidavit in support of his application for an extension of time that he did not know that he was entitled to appeal the decision of the Federal Magistrate to the Federal Court until on or about 28 March 2011 when he spoke to staff in the Court's registry. That is not a very satisfactory explanation for the delay, but it is a matter which I take into account. It appears that the applicants moved to lodge their application for an extension of time as soon as they became aware that there was a right of appeal from a decision of the Federal Magistrate to the Federal Court in a matter of this kind. 11 The respondent did not identify any particular prejudice which it says it will suffer as a consequence of any extension. Of course, the absence of such prejudice is not decisive and is itself insufficient to justify the granting of an extension. On the other hand, the making of a sequestration order against a person is a serious matter involving a change of status and having quasi penal consequences: see Ahern v DCT (Qld) (1987) 76 ALR 137 at 148 per Davies, Lockhart and Neaves JJ. This is a factor that weighs in favour of granting an extension. 12 Of considerable importance in the present circumstances is the strength of the applicants' proposed appeal. This is something which I shall refer to in more detail later in these reasons. For present purposes it is sufficient for me to say that this is another consideration which weighs in favour of granting an extension of time. 13 In all the circumstances, I am satisfied that it is appropriate to extend the time for the filing of the notice of appeal. 14 As I have mentioned, it was the respondent's position that in the event an extension of time was to be granted it did not oppose me proceeding to also determine the appeal. Given that I propose to grant the applicants the necessary extension of time, I now turn to the reasons why, in my view, the appeal should be allowed. 15 Rule 4.06 of the Bankruptcy Regulations relevantly provides: 4.06 Additional affidavits to be filed before hearing (1) Before the hearing of a creditor's petition, the applicant creditor must file the affidavits required by this rule. (2) The applicant creditor must file an affidavit that: (a) states that the documents required to be served under rule 4.05 have been served and when and how they were served; and (b) has attached to it a copy of the documents that were served and proof of service in relation to the documents. (3) The applicant creditor must file an affidavit of a person who has searched, or caused a search to be made, in the National Personal Insolvency Index no earlier than the day before the hearing date for the petition that: (a) sets out the details of any references in the Index to the debtor; and (b) states that there were no details of a debt agreement, about the debt on which the applicant creditor relies, in the Index: (i) on the day when the petition was presented; and (ii) on the day when the search was made; and (c) has attached to it a copy of the relevant extract of the Index. (4) The applicant creditor must file an affidavit of a person who knows the relevant facts that: (a) was sworn as soon as practicable before the hearing date for the petition; and (b) states that each debt on which the applicant creditor relies is still owing. (5) The applicant creditor must file a search affidavit if the debt stated in the petition is an amount payable to the applicant creditor under a judgment of a court that ordered the amount to be paid into the court. … 16 The material before me includes the Federal Magistrates Court file which includes a record of affidavits filed in support of the creditor's petition. It indicates that no affidavit was filed prior to the hearing of the creditor's petition which was capable of satisfying the requirements of r 4.06(3). The respondent, while not conceding that no such affidavit had been filed, did not suggest that any such affidavit was filed and, on the material before me, I am satisfied that none was filed. Accordingly, I find that r 4.06(3) was not complied with. 17 Neither the learned Federal Magistrate's reasons for decision nor the transcript of proceedings before his Honour indicate that the requirements of r 4.06(3) were dispensed with or waived by his Honour under any rule that might have been available for that purpose. 18 There are a number of decisions of the Full Court which support the applicants' argument that the failure on the part of the petitioning creditor to comply with the requirements of r 4.06(3) should have led the learned Federal Magistrate to adjourn the hearing of the creditor's petition to enable the petitioning creditor to remedy the position. 19 Counsel for the applicants referred me to the decision of the Full Court in Martin v Commonwealth Bank of Australia (2001) 217 ALR 634 and in particular the passage at paras [8]-[9] of that decision in which North, Mansfield and Katz JJ said: [8] At the date of the primary judge's judgment, the Act and the rules together imposed, on a creditor petitioning for the making of a sequestration order based on a debtor's failure either to comply with or have set aside a bankruptcy notice served on the debtor, an obligation to put before the court at least five different types of affidavit. (The rules have since been amended, but those amendments are irrelevant for present purposes.) Those five different types of affidavit were: • an affidavit verifying the petition: s 47(1) of the Act and O 77 r 18(1) of the rules; • an affidavit of service of the relevant bankruptcy notice: O 77 r 18(2) of the rules; • an affidavit stating that the creditor's petition, the verifying affidavit and any consent to act as trustee lodged under s 156A of the Act had been served and how they had been served: O 77 r 19(2) of the rules; • an affidavit setting out the details of any references in the National Personal Insolvency Index to the debtor, stating that there were no details of a debt agreement, in relation to the debt on which the creditor relied, in the index on the day the petition was presented and having attached to it a copy of the relevant extract from the index: O 77 r 19(3) of the rules; and • an affidavit stating that the debt on which the creditor relied was still owing: O 77 r 19(4) of the rules. [9] The fourth of those types of affidavit was impliedly required to be sworn "no earlier than the day before the hearing date for the petition", while the fifth of those types of affidavit was expressly required to be sworn "as soon as practicable before the hearing date for the petition": see, respectively, the chapeau of O 77 r 19(3) and O 77 r 19(4)(a) of the rules. At para [16] their Honours said: …the bank had filed no affidavits on the Martins' application for review. That meant that, if the primary judge were to hear de novo the bank's creditor's petition, it would be necessary for him to have regard to those affidavits earlier filed by the bank and used before the registrar. That could presumably be done…However, two of those affidavits, if they were to be had regard to by the primary judge, did not comply with the timing requirements imposed for their swearing by O 77 r 19(3) and (4) respectively of the rules, which requirements we take to be applicable to a review by a judge of the making of a sequestration order by a registrar. Presumably, the primary judge could have waived non-compliance by the bank with those timing requirements: see O 1 r 8 and O 77 r 4(2) of the rules. However, that would have been a significant step for the primary judge to take, given the evident purpose of those timing requirements, and one would have expected to find in his reasons for judgment a reference to that matter (and to the matter of his use generally of the earlier affidavits) if the primary judge considered that he was hearing de novo the bank's creditor's petition. No such reference appears. 20 At the time of the decision in Martin, O 77 r 19(3) was in substantially the same form as what is now r 4.06(3) of the Bankruptcy Regulations. 21 I was also referred to the decision of the Full Court in Totev v Sfar (2008) 167 FCR 193. At para [5] of the reasons of Emmett J, his Honour identified the requirements of r 4.06(1): [5] … Rule 4.06(1) specifies the affidavits that must be filed by a creditor before the hearing of a creditor's petition. The affidavits include the following: • an affidavit of a person who has searched in the National Personal Insolvency Index no earlier than the day before the hearing date for the petition; • an affidavit of a person who knows the relevant facts, which was sworn as soon as practicable before the hearing date for the petition and states that each debt on which the applicant creditor relies is still owing; • where the debt stated in the petition is an amount payable under a judgment of a court that ordered the amount to be paid into the court, an affidavit of a person who has searched in the proper office of the court, not earlier than the day before the hearing date for the petition, stating whether the amount of the debt or part of that amount has been made as ordered. [emphasis in original] 22 Emmett J then discussed the nature of the review of the Registrar's decision. His Honour said: [12] A hearing de novo is different from an appeal stricto sensu and is different from an appeal by way of rehearing. In the case of an appeal stricto sensu, the question would be whether, upon the material before the registrar, the conclusion reached by the registrar was correct. In an appeal by way of rehearing, the appellate court would rehear the matter as at the date of the appeal, but on the evidence called before the registrar, subject to a power to receive further evidence where appropriate: the rights of the parties would be determined by reference to the circumstances, including the law, as they existed at the time of rehearing (Harris v Caladine 172 CLR at 125). In each case any question concerning the exercise of discretion would be subject to the restrictions imposed on an appellate court in reviewing the exercise of a discretion (see House v The King (1936) 55 CLR 499). [13] In the case of a hearing de novo, however, the judge reviewing the order begins afresh and exercises for himself or herself any discretion exercised by the registrar. The parties commence the proceeding again, subject to any rules concerning the use of evidence adduced before the registrar. The hearing de novo involves the exercise of the original jurisdiction and the petitioner, in the case of a bankruptcy petition, must start again, call witnesses and make out the petitioner's case (Harris v Caladine 172 CLR at 124). [14] Because the hearing of an application for review of a sequestration order is a hearing de novo, it would not be sufficient for the reviewing judge to be satisfied that the registrar made no error and simply to dismiss the application for review. The judge who hears the review application must hear the petition afresh and must be satisfied as to the matters referred to in s 52 of the Bankruptcy Act. Thus, the reviewing judge must herself or himself be satisfied with the proof of: • the matters stated in the petition; • the service of the petition; and • the fact that the debt or debts on which the petitioning creditor relies is or are still owing. The reviewing judge must also exercise afresh the discretions conferred by s 52(2). [15] In particular, unless the Bankruptcy Rules are waived, the judge must have the affidavits referred to in r 4.06 of the Bankruptcy Rules, which must be sworn shortly before the hearing. Except in the case of a review on the same day as the sequestration order was made, affidavits relied upon before the registrar would not satisfy r 4.06. In the absence of fresh affidavits, it would be necessary that compliance with the Bankruptcy Rules be waived. See also the reasons of Cowdroy J (with whom Bennett J agreed) in Totev v Sfar 167 FCR 193 at paras [97] and [100]. 23 While the respondent's solicitor informed me that the respondent did not wish to put any submissions to me on the appeal except to say that it would neither consent to nor oppose the appeal, it was at one point submitted that neither of the applicants was prejudiced by any failure to satisfy the requirements of r 4.06(3). However, accepting that there was no such prejudice, I do not think it is an answer. The validity of the point based upon non-compliance with r 4.06(3) does not depend on proof of prejudice. 24 It was for the respondent to comply with the requirements of r 4.06(1) if it wished to proceed with the re-hearing of the creditor's petition on 28 February 2011. Since I am satisfied that it failed to do so, I have come to the conclusion that the appeal should be allowed and that the learned Federal Magistrate's orders of 28 February 2011 should be set aside. In the result, the orders made by the learned Federal Magistrate will be set aside. I think the matter should be remitted to the learned Federal Magistrate for re-hearing of the creditor's petition. 25 I should add that I am not persuaded by the submissions that were put to me by the applicants that the learned Federal Magistrate erred in any of the respects identified in grounds 1 to 6 of the notice of appeal which, as I have said, relate to his Honour's treatment and assessment of the evidence relied upon by the applicants in relation to solvency. In any event, if I was satisfied that the learned Federal Magistrate had erred in relation to that matter then I would not have been disposed to dismiss the creditor's petition; I would instead have done what I propose to do in any event, namely, to remit the creditor's petition to the learned Federal Magistrate for re-hearing. 26 The status of the Registrar's orders may be open to doubt given that there has now been a review before the Federal Magistrate who has, on the view I have reached, refused the application for review in circumstances where it was not open to him to do so: see Totev v Sfar 167 FCR 193 at paras [16]-[18] where Emmett J discusses the status of a sequestration order made by a Registrar which was the subject of an application for review. Having embarked upon the re-hearing, it was for the respondent to establish its right to obtain the sequestration order as at the time of the re-hearing. This was not possible given the failure of the respondent to comply with r 4.06(3). 27 Accordingly, I think it is appropriate to make an order setting aside the sequestration order made by the Registrar even though I am not satisfied that the creditor's petition should be dismissed. I decline to make any order dismissing the creditor's petition. 28 That brings me to the question of costs. The respondent's non-compliance with r 4.06(3) has had the consequence that the hearing before the learned Federal Magistrate resulted in costs being thrown away by both sides. I think both parties were to some extent responsible for what occurred in that respect given that neither of them referred the learned Federal Magistrate to r 4.06(3) or the authorities to which I was referred. 29 One might reasonably have expected the applicants to have drawn the attention of the learned Federal Magistrate to the requirements of r 4.06(3), given their opposition to the application for a sequestration order. On the other hand, it was the respondent's failure to comply with r 4.06(3) that has led to a situation in which it has been confronted with a challenge to the learned Federal Magistrate's decision to which it has raised no answer other than delay in filing the notice of appeal. In the circumstances, I think the appropriate costs order to make is that there be no order as to the costs of the hearing before the learned Federal Magistrate. All other questions of costs of the proceeding in the Federal Magistrate's Court will be reserved for determination by the learned Federal Magistrate. 30 So far as the costs of the proceeding in this Court are concerned, I am minded to make the same order, that is to say, there should be no order as to such costs. 31 I will make orders accordingly. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate: Dated: 11 May 2011