Bendigo Bank Ltd v Gard

EX TEMPORE REASONS FOR JUDGMENT 1 Before the Court is a creditor's petition filed by Bendigo Bank Ltd, the applicant, against Scott Andrew Gard, the respondent. The petition is founded on an act of bankruptcy, namely failure to comply with the requirements of a bankruptcy notice. The bankruptcy notice relied upon a judgment obtained in the Melbourne Magistrates' Court on 30 January 1995. The respondent has not appeared to oppose the making of a sequestration order. However, a matter was raised by the registrar before whom the petition originally came, as to the validity of the bankruptcy notice and consequently the ability of the court to make the sequestration order sought. The form of bankruptcy notice prescribed under s 41(2) of the Bankruptcy Act 1966 (Cth) (the Act) is contained in Form 1 of Schedule 1 to the Bankruptcy Regulations, as follows: Column 1 Column 2 1. Amount of judgment or order plus 2. Legal costs if ordered to be paid and a specific amount was not included in the judgment or order (see Note 1, below) plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgment or order (see Note 2, below) 4. Subtotal less 5. Payments made and/or credits allowed since date of judgment or order 6. Total debt owing

… 4 In paragraph 3, an amount of $2753.38 was claimed by way of interest. 5 No document as is referred to in note 2 was, however, attached to the bankruptcy notice. The narrow point for determination is whether the failure to attach such a document invalidates the bankruptcy notice. The particular form of bankruptcy notice is relatively new, and several recent decisions have addressed the question whether the failure to attach a copy of the judgment or order also referred to in paragraph 2 of the bankruptcy notice invalidates the bankruptcy notice. 6 A number of the decisions have concluded that such failure does invalidate the bankruptcy notice (see Commonwealth Bank of Australia v Horvath [1999] FCA 143; Scerri v Karl, unreported, Beaumont J, 17 March 1998; and American Express International Inc v Alex Held [1999] FCA 321). 7 In American Express case Kenny J said at paragraph 9 and following: "Plainly enough, the bankruptcy notice served upon the debtor in this case was defective or irregular. As s 306(1) of the Bankruptcy Act shows, it does not necessarily follow that the notice was invalid. Section 306(1) provides: Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court. The issue of a bankruptcy notice is a proceeding under the Bankruptcy Act: see Pillai v Comptroller of Income Tax [1970] AC 1124 at 1131 and Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 77. A bankruptcy notice, being "the foundation of a bankruptcy", is to be construed strictly: see, e.g., In re A Judgment Debtor [1908] 2 KB 474 at 476-7 per Cozens-Hardy MR and James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644. If a defect in a bankruptcy notice is other than formal, then the notice is invalid, with the consequence that it does not found an act of bankruptcy for the purposes of s 40(1)(g) of the Bankruptcy Act. Were any of the defects or irregularities in the bankruptcy notice served on the debtor substantive, and not merely formal? (If all were formal, a further question would arise, namely, whether any of those defects occasioned substantial or irremediable injustice. As will be seen, it is unnecessary to answer that further question.) What, then, is a "formal defect or an irregularity" in a bankruptcy notice for the purpose of s 306(1) of the Bankruptcy Act? A defect is substantive and not formal if it means that the notice fails to meet a requirement made essential by the Act: see James v FCT 93 CLR 631 at 644 and Kleinwort Benson 165 CLR 71 at 79. Moreover, if the defect in the notice is of such a kind as could reasonably mislead a debtor as to a pertinent matter, it is not a formal defect and the notice cannot be validated by s 306(1): see Pillai [1970] AC 1124 at 1135; James v FCT 93 CLR 631 at 644; and Kleinwort Benson 165 CLR 71 at 79-80. Is the failure to attach a copy of the judgment or order relied upon by a creditor a failure to comply with an essential requirement of the Bankruptcy Act? I think that it is. The purpose of the requirement to be implied from clause 2 of Form 1 is to identify for the debtor the judgment or order upon which the notice is founded: cf Commonwealth Bank of Australia v Horvath (Junior) (unreported, Finkelstein J, 24 February 1999). In a case such as this, the identification of the relevant judgment or order is an essential element in establishing an adequate foundation for the bankruptcy notice which, in turn, is an essential element in establishing a sufficient foundation for the debtor's bankruptcy." 8 The reasoning upon which her Honour's judgment was based was that the Act required that a copy of the judgment or order be served so that the debtor would be advised of the authority upon which the debt was based. It is in that sense that her Honour referred to the identification of the judgment as "an essential element in establishing an adequate foundation for the bankruptcy notice". 9 It is of course true, as Mr Dunne who appeared for the applicant contended, that under the present scheme the only way by which a debtor will be advised of the details of the judgment, being the date, the court, the case number of the judgment, will be by the annexing of the actual judgment or order to the notice. This is so because those details need not be stated in the bankruptcy notice independently of the attached document. The form of the notice only requires that the amount of such judgment be recorded. There are, therefore, essential elements missing from the form of bankruptcy notice without the annexed document, which elements are necessary to fully inform a debtor of the basis of the debt upon which the bankruptcy notice is issued. 10 In my view the requirement for the document setting out details of the interest calculated is analogous. Whilst the schedule to the bankruptcy notice informs the debtor of the amount of interest claimed, nothing in the bankruptcy notice itself points to the authority by which the interest is claimed, namely the statutory provision upon which it is based, and the process by which the interest calculation was made. 11 Even if there is no precise analogy between the purpose for which the copy order or judgment is required by the form, and the purpose for which the interest calculation document is required, the latter is nonetheless an essential requirement of the Act for the purposes of determining this issue. The form of bankruptcy notice has been refined, streamlined and simplified. It is designed to inform debtors clearly and simply of the basis of the debt said to be owed. There are only three elements required to be specified by the form. One is the copy judgment or order. The second is the authority by which legal costs are claimed. The third is the authority by which interest is claimed, and the method by which such interest is calculated. 12 Consequently, the failure to annex the required interest calculation document is not merely a formal defect but a substantive defect. It therefore cannot be cured by operation of s 306(1), and I am bound, as a result, to dismiss the petition of the applicant. In so doing I should express my appreciation to Mr Dunne for his vigorous argument in support of the petition. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North.

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