Adams v Lambert [2004] FCAFC 322 | Case summary

Federal Court of Australia (Full Court)|2004-12-09|Before: Gyles J, Conti JJ

REASONS FOR JUDGMENT THE COURT 1 The grounds of appeal in these two matters which have been heard together are scarcely arguable in this Court, though not so in another place. They invite us contrivedly to distinguish, or else to disapprove, the decision of the three judge majority of a five member bench of this Court in Australian Steel Co (Operations) Pty Ltd v Lewis (2000) 109 FCR 33. The Court in that case was constituted to provide an authoritative determination on a question upon which divergent opinions had been expressed in earlier Full Court decisions. That question related to when an error in, or an omission from, a bankruptcy notice could be said to relate to a matter that was an essential requirement of a bankruptcy notice such that the error or omission would invalidate the notice. 2 In these appeals, as in Australian Steel, the bankruptcy notices upon which the appellant founds his respective creditor's petitions suffer from the identical vice of misdescribing the provision under which the specified amount of post-judgment interest was claimed. Here the error lay in ascribing the interest claim to s 83A of the District Court Act 1974 (NSW) (which dealt with pre-judgment interest), rather than to s 85 of that Act (which dealt with post-judgment interest). In Australian Steel the error was that the claim was made under the wrong Act. Both in that case and in the present, there was no error in the actual amount claimed. 3 The majority in Australian Steel held that the error so made invalidated the bankruptcy notice with the consequence that the creditor's petition founded on the debtor's non-compliance with that notice had to be dismissed. In the present matter Gyles J considered himself obliged to follow Australian Steel, notwithstanding his distaste for the effect of the majority decision. His Honour held invalid the two bankruptcy notices. 4 The two issues this appeal raises, as already noted, are (i) is Australian Steel properly distinguishable? And (ii) was it incorrectly decided?

(i) The decision in Australian Steel 5 The majority judgment's reasons can be encapsulated in the following propositions. 6 (a) The principles enunciated by the majority of the High Court in Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 applied to bankruptcy notices issued under s 41 of the Bankruptcy Act 1966 (Cth) in its current form. They established (Kleinwort Benson at 79) that: "… a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, orif it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v Commissioner of Taxation (Cth) (1955) 93 CLR 631 at 644, Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135. In such cases the notice is a nullity whether or not the debtor in fact is misled: Re a Judgment Debtor [1908] 2 KB 474 at 481." 7 (b) In 1996 Parliament, in amending s 41 of the Bankruptcy Act, chose to make a form (that was to be prescribed by regulation) the sole criterion of whether a bankruptcy notice complied with the Act. The form actually prescribed contained a schedule for itemising the component items of the total debt claimed to be owing. Note 2 to the schedule stated: "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; …" The issue this requirement was said to raise was whether its "purpose disclose[d] an intention that an act done in breach should be invalid": Australian Steel at 45. 8 (c) The majority's conclusion on that question was in the following terms (at 45): "In our view the purpose of the requirement that the source of the creditor's entitlement to interest be stated can only be to enable the debtor to verify that the amount claimed is in fact due. The same purpose lies behind the requirement that a copy of the judgment relied on be attached to the notice. Bankruptcy notices can be served anywhere in Australia, a country with 10 separate court jurisdictions, containing some 22 levels of courts, each with its own statutory foundation, quite apart from tribunals and other bodies with power to make enforceable orders for the payment of money. The applicable interest rate can often be a matter of dispute: see, for example, EMCL Pty Ltd v Esanda Finance Corp Ltd [1999] FCA 978 at [58] et seq. That case dealt with the different issue of an award of interest by a court at the time of judgment, but it illustrates the potential for confusion and uncertainty as to applicable rates of interest in litigation in a multi-jurisdictional country. The form prescribed by the regulations provides the answer. Having regard to the purpose behind the requirement that the provision under which interest is being claimed, and correctly claimed, be included in the notice, that requirement is made essential by the Act, and a notice issued in breach of the requirement will be invalid." 9 (d) The majority went on to indicate (at 45) that a failure to comply with a requirement in such a way that the purpose behind the requirement is thereby thwarted, cannot be excused under s 25C of the Acts Interpretation Act 1901 (Cth) on the ground that there has been substantial compliance: "Substantial compliance … cannot make unessential that which purpose reveals as essential": at 46. 10 (e) It was held that the actual notices in question were invalid as the "evident purpose behind the requirement that the source of the entitlement to interest be disclosed [had] been thwarted by the omission of the source": at 46.

(ii) The primary judge's decision 11 In Marshall v General Motors Acceptance Corporation (2003) 127 FCR 453 a later Full Court, by majority, applied Australian Steel to invalidate a bankruptcy notice that inaccurately described the source of the interest obligation. A like conclusion was reached by Hely J in Cosco v Tsatsoulis (2002) 189 ALR 559 in circumstances indistinguishable from the present. 12 In light of authority binding on him, Gyles J considered it was not open to him to treat the error in the two bankruptcy notices as involving a mere misdescription rather than a failure to state a source provision. Australian Steel was to be and was applied strictly. The correct source of the interest claimed was not stated in the notices. Hence they were invalid.

(iii) The present appeal 13 The appellant has contended that, properly understood, Australian Steel was distinguishable and that Gyles J erred in declining to distinguish it. The alleged basis for distinction is that in this matter the notice referred to the correct statute but misdescribed the section whereas in Australian Steel the notice did not contain any reference at all to the relevant legislation under which interest was actually being claimed. 14 Given the majority's characterisation of the purpose of the requirement in Note 2 that the provision must be stated under which interest is being claimed, the alleged distinction is illusory. In either case, the information provided would not enable the debtor to verify that the amount claimed was in fact due. 15 The appellant sought to evade the inevitability of the above conclusion by contending that the section actually referred to in the notice (i.e. s 83A) was so sufficiently proximate to the correct section (i.e. s 85) as to alert the debtor to the possibility that there was a misdescription of the relevant section. There is a number of responses that can be made to this. Suffice to say that it suffers the same vice as led the majority to reject the sufficiency of substantial compliance with the prescribed form (at 46): it seeks to make inessential what purpose reveals as essential to validity. 16 The primary judge committed no error in reaching the conclusion he did.

The Second Issue 17 To the extent that the grounds of appeal call into question the correctness of the decisions both in Australian Steel and in Marshall, they serve the purpose of preserving the appellant's position should this matter go further. However, given both the purpose for which the court was specially constituted in Australian Steel and the course subsequently taken in Marshall in relation to the majority decision, it would be quite inappropriate for this court now to entertain any questioning of Australian Steel. If such is to occur, it ought be before the High Court. 18 As is apparent from the reasons of the judgment below and from our reasons, the respondent's case is without substantive merit. There is no dispute that the respondent is indebted to the appellant for the judgment debt of $54,000 and for the accrued interest thereon stated in the bankruptcy notice at that stage merely of $66.58. Interest has in reality been accruing in favour of the appellant since the judgment at the daily rate of $13.32, and is by now relatively sizable in quantification. Had the appellant omitted any reference at all to the interest component, there would have been no answer to the appellant's petition for bankruptcy, since doubtless there would have been no reference to s 83A of the District Court Act. The respondent does not of course suggest that he was actually misled by anything appearing in the bankruptcy notice, including that mistaken reference. The matter requires legislative attention.

Conclusion 19 The appeal in each matter must be dismissed with costs. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Court.

Associate: Dated: 9 December 2004 Counsel for the appellant: D A Hassall

Solicitor for the respondent: Mr J A Duncan of Marler & Darvall

District Court Act 1974(NSW)

Adams v Lambert

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