Bennell v American Express International Incorporated

THE COURT 1 American Express International Inc. (American Express International) is the judgment creditor of Ian Robert Bennell and Susan Jane Bennell for $1,979,754.00 and $8,239.00 respectively. The judgments are accruing interest. 2 On 2 March 2004 bankruptcy notices based upon the above judgments were issued against Mr and Mrs Bennell on the application of American Express International. 3 On 12 November 2004 orders were made in the Federal Magistrates Court extending the lives of the bankruptcy notices and for substituted service. The bankruptcy notices were served. The judgment debts were not paid or otherwise satisfied in accordance with the requirements of the bankruptcy notices. In the ordinary course both Mr and Mrs Bennell would have committed acts of bankruptcy. 4 Mr and Mrs Bennell argue that the bankruptcy notices should be set aside. They applied for orders to this effect. Their claim relies on the fact that the application for substituted service and the order for substituted service describe the applicant in these words: "American Express Australia Limited (formerly known as American Express International Inc)." It appears that American Express International did not change its name to American Express Australia Limited although at least its solicitor who drafted the application thought it had. It is worth noting that the affidavit of attempted service on which the application was based is entitled in the name American Express International. 5 On 7 April 2005 American Express International applied to the Federal Magistrates Court to amend the name of the Applicant in the application and in the order for substituted service. On 12 April 2005 the application was transferred to this Court where the applications to set aside the bankruptcy notices were pending. 6 The transferred application fell for consideration under Order 13 Rule 2(4) of the Federal Court Rules. That rule relevantly permits "an amendment to correct the name of [a] party … notwithstanding that the effect of the amendment is to substitute another person as a party … where there has been a mistake in the name or identity of the party." The following subrule provides that "the proceeding shall be taken to have commenced with respect to [the party whose name has been corrected] … on the day the proceeding commenced." 7 On 24 October 2005 Emmett J amended the name of the applicant in the substituted service proceedings to "American Express International Inc." He held that Mr and Mrs Bennell had suffered no relevant prejudice. In part he came to this conclusion because it was accepted, and he so found, that the order for substituted service was effective until set aside. 8 The conclusion arrived at by Emmett J enabled him to deal with the other matters before the Court. The applications to set aside the bankruptcy notices were dismissed and two subsequent bankruptcy notices issued by American Express International to protect their position were set aside with costs. Mr and Mrs Bennell were ordered to pay the costs of the application to amend the name of the applicant. 9 Mr and Mrs Bennell have appealed from the order for amendment of the name of the applicant and the dismissal of their applications to set aside the bankruptcy notices. American Express International has appealed against the order setting aside the subsequent bankruptcy notices. 10 In their notice of appeal and in their submissions Mr and Mrs Bennell have characterised the order made by Emmett J as an order granting American Express International "leave to substitute itself as the creditor" in the application. It does not seem to us that this correctly describes the nature of the application in the present case. The Court was not substituting an applicant but correcting a misdescription of the applicant. It is true that Emmett J referred to substitution in at least one passage of his reasons for decision but the order he made refers to amendment of the name. 11 On the facts found by Emmett J and the material before the Court on this appeal it seems very clear to us that this was a case of misdescription rather than misjoinder. From the face of the application it is clear that the applicant is American Express International. The reader is simply informed, wrongly as it turns out, that the applicant has changed its name. The affidavit in support correctly describes the applicant. These facts seem to us to make out a very persuasive case for amendment and to answer the claim by the applicants that they suffered prejudice. It is to be noticed that the prejudice Mr and Mrs Bennell rely on is the prejudice that they were, on their argument, put at risk of acts of bankruptcy by service of bankruptcy notices wrongly extended pursuant to orders for substituted service wrongly made. They have not given evidence of any prejudice such as being misled by the bankruptcy notices when they were served. Indeed, in fairness, such a claim is expressly disavowed. 12 Mr and Mrs Bennell's case, as put to us by counsel, depends upon two propositions: (i) Bankruptcy proceedings are penal in nature. Decisions relating to amendment and prejudice in ordinary civil proceedings are unhelpful; and (ii) Absent the orders for extension and substituted service of the bankruptcy notices the acts of bankruptcy would not have occurred. Since the orders were wrongly obtained they should be set aside. In proceedings which are penal in nature the Court should not, by an order for amendment made after the event, validate the orders because to do so would unfairly prejudice the appellants. 13 A question which arises is whether the original orders were wrongly made. The Bankruptcy notices as served named American Express International as the judgment creditor. The order served with them named American Express International. It was simply preceded by some wrong information. We are inclined to think that the orders were properly made. We note that American Express International Inc argued before Emmett J that "…it was in fact the Applicant for the Substituted Service Order…" However, since the matter has been dealt with to date on the basis that the application under Order 13 Rule 2 was necessary we will continue so to deal with it. The circumstances we have described are, however, potentially relevant to the claim of prejudice. 14 The foundation of Mr and Mrs Bennell's case is that issues of prejudice associated with amendment should be treated differently in bankruptcy cases from ordinary civil cases because bankruptcy cases are penal in nature. They cite the following passage from the judgment of Deane J in Kleinwort Benson Australia Ltd v Crowl & Ors (1988) 165 CLR 71 at 81: 'It has long been a fundamental precept of the law of bankruptcy that "a bankruptcy notice, which is the foundation of a bankruptcy, attended as a bankruptcy is with penal consequences, is a matter in which great strictness is required": per Cozens-Hardy M.R., In re A Judgment Debtor, 530 of1908 ([1908] 2 K.B. 474, at pp. 476-477); see also James vFederal Commissioner of Taxation (1955) 93 C.L.R. 631, at p. 644.' 15 We take it that the appellants do not rely on this statement because of its authority, as Deane J was in dissent, but because it is an accepted general proposition. We note, however, that the proposition itself says nothing about amendment and nothing about prejudice. 16 Kleinwort Benson related to a bankruptcy notice which contained an understatement of the debt. The question was whether the notice was nevertheless valid because of the operation of s 306 of the Bankruptcy Act 1966 (Cth) which protects against invalidity for certain formal defects or irregularities. The majority held that the notice was valid. 17 In his judgment Deane J referred to two qualifications to the proposition that a bankruptcy notice must correctly state the amount of the debt. One related to an express provision of the Act. The other was as follows (at 82): '…[I]f the misstatement is "a mere clerical error … which could not mislead or embarrass the debtor, because he could see on the face of the document … what was the amount which was really claimed from him" (per Kennedy L.J., In re A Debtor, 478 of 1908, ([1908] 2 K.B. 684. at p. 691) explaining Ex parte Johnson. In re Johnson ((1883) 25 Ch.D. 112.)), the defect will be merely a formal one which may be cured pursuant to s. 306 of the Bankruptcy Act 1966 (Cth) which deals with formal defects and mere irregularities.' 18 Kleinwort Benson has very recently been considered in Adams v Lambert [2006] HCA 10. That case concerned the effect of s 306 on a misdescription of the statutory provision under which interest was claimed. The whole Court said this (at para [32]): 'Bearing in mind that, in the present case, the error could not have misled the respondent as to what it was necessary to do in order to comply with the requirements of the notice, it is difficult to understand how, consistently with Kleinwort Benson Australia Ltd v Crowl, the respondent could succeed without an affirmative answer to that question.' 19 After rejecting the view expressed by the majority in The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 the Court said (at para [34]): 'The effect of the majority view in Lewis is to attribute to the legislature an overwhelming preference for form over substance.' 20 We are conscious that the actual decision in Kleinwort Benson is not relevant to this matter but we have referred to it and Adams because of the emphasis placed on the passage from the judgment of Deane J. The problem is that Deane J said nothing about the relevance of circumstances like those before us, to the broad proposition relating to the penal nature of bankruptcy proceedings. He did show, however, that the proposition can yield to circumstances where a debtor could not be misled. That view is reinforced by the view of the majority in Kleinwort Benson and of the whole Court in Adams. 21 The order for substituted service was effective when served. Both the notice and the order served with it identified the judgment creditor. They did not mislead the recipients. A challenge to the validity of the notices predictably prompted applications to preserve their validity. In these circumstances and, notwithstanding the penal nature of bankruptcy proceedings, we have no doubt that the correct response to the application for amendment was to grant it. To our minds the two propositions contended for on behalf of Mr and Mrs Bennell do not lead to any relevant prejudice sufficient to justify refusal of the application for amendment or to justify the making of orders setting aside the bankruptcy notices. 22 The appeal should be dismissed with costs. The appeal by American Express International should also be dismissed but only because the validity of the prior bankruptcy notices has been upheld. We will dismiss that appeal with an order for costs but we note that virtually the whole of the costs of the two appeals were incurred with respect to the appeals by Mr and Mrs Bennell. The costs should be taxed accordingly. The American Express Appeal was originally brought as a cross appeal. However, technically a fresh appeal was required and such an appeal was instituted. It will be necessary to dismiss the cross appeal. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court