Slater v Conley [2019] FCA 909

FEDERAL COURT OF AUSTRALIA

Slater v Conley [2019] FCA 909 File number(s): NSD 147 of 2019

Judge(s): JAGOT J

Date of judgment: 5 June 2019

Catchwords: BANKRUPTCY – whether bankruptcy notice should be set aside – whether there has been an overstatement in terms of s 41(5) of the Bankruptcy Act 1966 (Cth) – application dismissed

Legislation: Bankruptcy Act 1966 (Cth) s 41(5)

Cases cited: Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131 Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255 Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337

Date of hearing: 5 June 2019

Date of last submissions: 5 June 2019

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: General and Personal Insolvency

Category: Catchwords

Number of paragraphs: 17

Counsel for the Applicant: Mr T Johnson

Solicitor for the Applicant: Beazley Lawyers

Counsel for the Respondent: Mr M Wells

Solicitor for the Respondent: Colin Daley Quinn Solicitors

ORDERS NSD 147 of 2019

BETWEEN: LISA CATHERINE SLATER Applicant

AND: MICHAEL LEADER CONLEY Respondent

JUDGE: JAGOT J DATE OF ORDER: 5 JUNE 2019

THE COURT ORDERS THAT:

1. The application dated 5 February 2019 be dismissed. 2. The applicant pay the respondent's costs of the application as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

JAGOT J: 1 This is an application to set aside bankruptcy notice BN231741 issued on 30 November 2018. 2 The background to the matter is set out in some detail in the written submissions for the respondent. In summary, the applicant commenced proceedings in the Family Court of Australia in January 2013. In so doing, the applicant instructed Michael Conley Lawyers to act for her. In May 2016 the Family Court proceedings settled on a final basis and orders were entered into by consent. Those orders included a mechanism by which the husband was to pay a monthly payment to the firm of Michael Conley Lawyers by way of payment of its fees. 3 The firm, Michael Conley Lawyers, continued to act for the applicant and performed work on her behalf relating to the implementation of the Family Court orders until August 2017. The husband ceased making payments required under the Family Court orders in September 2017. The applicant took no steps to enforce those orders and, on the evidence, the firm, Michael Conley Lawyers, then commenced proceedings to recover outstanding legal costs following a costs assessment. 4 On 13 August 2018 the New South Wales District Court issued a judgment ordering the applicant to pay the firm the sum of $462,266.27. There is evidence from Mr Conley that the applicant has made no payments in satisfaction of this judgment debt. The bankruptcy notice was then issued on 30 November 2018 and served on the applicant on 16 January 2019. 5 The sole ground upon which the bankruptcy notice is sought to be set aside is s 41(5) of the Bankruptcy Act 1966 (Cth) (the Act). That section states: A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement. 6 The argument for the applicant is that the applicant's written submissions dated 4 June 2019 constitute the notice required by s 41(5) in that [8] of those written submissions as amended by the applicant in its oral submissions today states that: In the circumstances of the statements of Ms Slater in her affidavit in paragraphs 4, 5, 8 and 9 and failure to provide an account, it is submitted that the court can infer that there has been an overstatement in terms of s 41(5) of the Bankruptcy Act 1966 in respect of which the statements of fact set out in the Slater affidavit set out the foundation which would justify the court setting aside the bankruptcy notice: Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120; [1999] FCA 255 at [30] to [34]. 7 The affidavit of Ms Slater contains the following relevant statements in [4], [5], [8] and [9]: (1) In [4] that her ex-husband paid $400,000 to the respondent pursuant to order 1 of exhibit B to the Family Court orders. (2) In [5] that the respondent, Mr Conley, drafted the orders and advised her in respect of settlement. (3) In [8] that the respondent had done nothing to assist her to obtain money from a property sale held in a liquidator's trust account. (4) In [9] that she had paid over $900,000 to the respondent and that he was still seeking the further amount nominated in the bankruptcy notice and that that money was not payable by her but by her ex-husband pursuant to the Court orders. 8 The respondent makes three primary arguments in relation to the contentions of the applicant. First, the respondent submitted that in Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 339 Gibbs CJ said: There is no doubt that a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s 41(5) of the Bankruptcy Act 1966 (Cth), as amended, that he disputes the validity of the notice on that ground. 9 It seems reasonably clear that in referring to timely notice, Gibbs CJ had in mind the requirement in s 41(5) itself that the notice be given "within the time allowed for payment." In the present case the difficulty for the applicant is that on 16 May 2019 the Court made orders which did not include an order extending the time for compliance by the applicant with the requirements of the bankruptcy notice. It seems this is likely to have been an oversight on the part of the applicant because on 31 May 2019 an order extending the time for compliance was made. 10 The respondent relied upon the fact that by reason of the omission of the order extending the time for compliance with the bankruptcy notice on 16 May 2019, the time for compliance had fallen due on that date at which time no notice had been given. The applicant's answer to that issue was that the orders of 16 May 2019 could be amended by the slip rule, relying in that regard on the capacity to retrospectively amend an order as referred to in Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131 at [27]. 11 The problem for the applicant, however, is that no application has been made to vary the orders of 16 May 2019 before this hearing and, accordingly, as matters currently stand, there has been non-compliance with the requirement of s 41(5) that notice be given within the time allowed for payment. That would be sufficient reason of its own to reject the applicant's contention that the bankruptcy notice should be set aside. Even if that be incorrect, the notice given in the applicant's submissions read with the statements in the affidavit of Ms Slater, in my view, are clearly inadequate to constitute notice in accordance with s 41(5). 12 In this regard, both parties relied upon Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255 at [32] to [38]. Relevantly, those passages from Seovic make clear that notice must be given to the creditor that the debtor disputes the validity of the notice and that the debtor does so on the ground of "the misstatement". Neither requirement as specified by the Full Court at [32] of Seovic has been satisfied in the present case. 13 Indeed, the insufficiency of the alleged notice is apparent from the fact that the highest the submission goes for the applicant is that from a combination of the statements in the affidavit and at [8] of the written submissions the Court can infer that there has been an overstatement, but in the words of Seovic at [33]what is required is that the debtor's notice must at least give notice that the validity of the bankruptcy notice is disputed "on the ground of the misstatement". 14 It is also clear that a mere assertion without more that the amounts specified in the bankruptcy notice exceeds the amount actually due does not comply with the requirements of s 41(5): Seovic at [36]. It was said there that s 41(5): …requires the debtor to provide sufficient information in the notice to enable the creditor to identify what is said to be the alleged mis-statement. Only then does the debtor's notice displace the general rule established by section 41(5), that the bankruptcy notice is not invalidated only by reason that the sum specified therein as the amount due to the creditor exceeds the amount in fact due. 15 While the Full Court also noted at [38] of Seovic that a benevolent construction should be taken of the debtor's notice, in my view, there is no benevolent construction that could extend as far as would be necessary to transform [8] of the applicant's written submissions into a notice within the meaning of s 41(5). 16 It is also apparent that the only evidence about the amount due and owing under the judgment of the District Court is that of Mr Conley at [18] of his affidavit that no such payments have been made. In those circumstances, it is difficult to understand the allegation of overstatement at [8] of the applicant's submissions. 17 For these reasons the application dated 5 February 2019 seeking an order that the bankruptcy notice should be set aside should be dismissed. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.