Ground 2
40 Ground 2 alleges non-compliance with ss 12(2)(a)(ii) and (b) of the Bankruptcy Regulations 2021 (Cth) (the Regulations). Section 12 is as follows:
12 Judgment or order in foreign currency
(1) This section applies in relation to a bankruptcy notice issued by the Official Receiver in relation to a debtor if the notice includes a final judgment, or final order, that is expressed in an amount of foreign currency (whether or not the judgment or order is also expressed in an amount of Australian currency).
(2) The bankruptcy notice must include the following:
(a) a statement to the effect that the debtor must pay:
(i) the amount of foreign currency; or
(ii) the equivalent amount of Australian currency;
(b) the conversion calculation for the equivalent amount of Australian currency;
(c) a statement to the effect that the conversion of the amount of foreign currency into the equivalent amount of Australian currency has been made in accordance with this section.
(3) For the purposes of subparagraph (2)(a)(ii), the equivalent amount of Australian currency is the amount worked out using the rate of exchange for the foreign currency published by the Reserve Bank of Australia in relation to the day that is 2 business days before the day on which the application for the notice is made.
Note: The Reserve Bank of Australia exchange rates could in 2021 be viewed on the Reserve Bank of Australia's website (http://www.rba.gov.au).
41 The requirements set out in s 12 are aspects of the "form" with which a bankruptcy notice must comply, by force of s 41(2) of the Act. Section 12 applies to the notice in the present case, because the NSW judgment (upon which the notice relied) was expressed in US dollars.
42 Note A to the notice in the present case includes a statement of the kind required by s 12(2)(a). Note A is framed as a footnote to the first line in the calculation set out above at [6]. It says:
43 The text of Note A quoted above is that of the standard form for bankruptcy notices. I was informed (and this does not appear controversial) that it is the form in which a notice issues after relevant details have been submitted through the website of the Australian Financial Security Authority (AFSA). The information contained in the boxes in the image above is the information inserted by the respondent in the process of applying for issue of the notice.
44 The applicant argues that the notice:
(a) fails to comply with s 12(2)(a)(ii), because it does not contain a statement to the effect that the debtor must pay "the equivalent amount of Australian currency" as that term is defined by s 12(3); and
(b) fails to comply with s 12(2)(b), because the "conversion calculation" that it sets out is not a calculation for "the equivalent amount of Australian currency" as defined.
45 As to the first argument, what is required by s 12(2)(a) is a statement to the effect that the debtor must pay either the amount of the judgment as expressed in foreign currency or the equivalent amount of Australian currency. A statement in those terms (without further elaboration of what "the equivalent amount of Australian currency" is) would meet the requirement. However, the text of Note A does not take that approach. It says that the debtor must pay either the foreign currency amount or "an equivalent amount in Australian dollars that has been calculated" in the manner that the Note sets out. If the product of that calculation is not "the equivalent amount of Australian currency" as defined by s 12(3), it will follow that the Note fails to set out the alternatives identified by s 12(2)(a).
46 As to the second argument, what is required by s 12(2)(b) is a setting out of the conversion calculation "for the equivalent amount of Australian currency". The calculation that is set out must be one that leads to "the equivalent amount of Australian currency" as defined.
47 The important point for both arguments, therefore, is whether the calculation set out in Note A of the notice aligns with s 12(3).
48 The first problem with the calculation set out in the notice is that it refers to an exchange rate published by the RBA "as at 19 March 2023". That day was a Sunday and was two calendar days, rather than business days, before the application for the notice was made. The exchange rate that Mr Bennett, the respondent's solicitor, actually used to make the calculation was that published by the RBA on Friday 17 March 2023, which was the correct rate for the purposes of s 12(3). However, because the incorrect date was inserted into the form, the notice failed to set out a calculation of "the equivalent amount of Australian currency" as defined by s 12(3).
49 The second problem with the calculation arises in connection with the fact that the relevant exchange rate was expressed to two decimal places. Because the RBA does not actually publish rates for converting foreign currency into Australian dollars, it was necessary to use the inverse of the published rate. The published RBA rates are expressed to four decimal places. In materially similar circumstances in Coleman v Gannaway [2023] FCA 224 (Gannaway) at [39], Jackman J said:
It has not been necessary for me to deal with the question of how many decimal places should be used when adopting a foreign currency exchange rate which is not in fact published expressly by the RBA, but which is the inverse of the rates published by the RBA. Regulation 12(3) does not stipulate in those circumstances how many decimal places should be used. Given that the RBA publishes rates to four decimal places, in my view a sensible reading of reg 12(3) is that, when calculating the inverse of those published rates, one should use at least four decimal places.
50 This observation was not necessary to his Honour's decision. Similarly, I do not think it is necessary for me to express a concluded view as to how many decimal places should be used. The true problem lies elsewhere.
51 In converting an amount expressed in US dollars into Australian dollars, it was necessary for Mr Bennett to find the relevant exchange rate published by the RBA and then multiply the relevant US dollar amount by the inverse of that rate. The published rate was 0.6714. Unimpeded by the demands of a prescribed form, a sensible person would simply divide the US dollar amount (186,471.25) by 0.6714, using their mobile phone or a pocket calculator, and obtain an answer of $277,734.96. However, the form used in the present case (which is the online form on the AFSA website) requires the foreign currency amount to be multiplied by the relevant exchange rate and therefore demands that the inverse of the RBA rate be set out in decimal form. That immediately introduces inaccuracy or confusion (or both), because expressing the inverse of the RBA rate in decimal form is highly likely to require rounding. The problem is exacerbated because the form only allows a figure with two decimal places to be inserted in the relevant space.
52 In Gannaway, the creditor's solicitor derived a multiplier of 1.11495 from the published RBA rate, which he applied to the relevant foreign currency amount. His calculation was not criticised, and he had inserted the product of that calculation in the space provided for the "AUD" amount in Note A. However, being limited to two decimal places in expressing the relevant rate, he inserted "1.11" in that space. Jackman J said (at [30]):
In my opinion, the error in Note A in the Bankruptcy Notice constitutes a non-compliance with reg 12(2)(b), which requires that the bankruptcy notice "must" include "the conversion calculation for the equivalent amount of Australian currency". The bankruptcy notice referred to the multiplier as being 1.11, rather than the calculation which was actually performed using 1.11495. Accordingly, the stated product AUD923,614.07 was wrong as a matter of arithmetic, based on the figures that were adopted in Note A, even though it was in fact the product which was produced by the calculation that was in fact performed. Accordingly, Note A did not set out the conversion calculation which was actually performed, and nor did it set out, as a result of the calculation expressed in Note A, the "equivalent" amount of Australian currency.
53 Mr Bennett, the respondent's solicitor in the present case, was aware of what had been said in Gannaway and attempted to accommodate it. He calculated the inverse of 0.6714, to four decimal places, as 1.4894. With Gannaway in mind, he sought to avoid setting out a calculation that was wrong on its face, and therefore rounded the inverse figure to two decimal places before performing the calculation. If rounded in a conventional manner, the multiplier would be 1.49, which would overstate the amount due. He therefore rounded the multiplier down to 1.48, which produced an Australian dollar amount of $275,977.45. The calculation thus expressed is correct, but the answer understates "the equivalent in Australian currency" by (by my calculation) $1,757.51.
54 In Gannaway at [38] Jackman J expressed sympathy for the respondent, whose solicitor had diligently sought to comply with the statutory requirements. The same can be said here. Mr Bennett did the best that could be done, in the light of the reasoning in Gannaway, to comply with the requirements of s 12(2) while using the AFSA website. The evidence in Gannaway did not show whether AFSA's online portal was the only means available to apply for a bankruptcy notice. Here, it is possible to infer from Mr Bennett's affidavit that that is the case, and if necessary I would do so. However, the dictates of the website cannot override the requirements of s 12 or avoid the consequences of their breach.
55 Section 12(3) defines "the equivalent amount of Australian currency" in a way that means that, for any foreign currency amount on any given day, there is a single correct answer (at least if the RBA publishes an exchange rate for that currency). The "rate of exchange for the foreign currency published by the Reserve Bank of Australia" means the rate published on the relevant day, expressed to however many decimal places the RBA expresses it. Dividing the relevant amount by that number (or multiplying by its inverse, which is the same thing) can as a matter of arithmetic produce only one answer, which is then to be rounded to the nearest cent. There is no scope for discretion or judgment in the process. Rounding the inverse of the published rate to two (or any particular number of) decimal places before doing the calculation produces, except in the exceedingly rare cases where the rounding makes no difference, an answer that is not "the equivalent amount of Australian currency". The consequence, for reasons set out above, is that the notice in the present case did not comply with ss 12(2)(a) or (b).
56 The next issue that arises is whether that non-compliance is fatal to the notice. Section 306(1) of the Act provides that a "formal defect or irregularity" does not invalidate things done under the Act unless the Court considers that the irregularity causes "substantial injustice". However, Mason CJ, Wilson, Brennan and Gaudron JJ observed in Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 (Crowl) at 79-80 that, according to the authorities, "a Bankruptcy Notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice … In such cases the notice is a nullity whether or not the debtor in fact is misled".
57 The actual decision in Crowl was that an understatement of the interest due on the judgment debt (by some $23,000) was a formal defect which attracted s 306(1). Because the notice was clear as to what had to be done to comply with it, it was not capable of misleading and therefore not a nullity (at 80-81). However it appears to have been a necessary step in this reasoning that interest on a judgment debt need not be included in a bankruptcy notice (see at 77), so that an accurate statement of the interest was not "a requirement made essential by the Act".
58 The formulation in Crowl at 79-80 was extended in Parianos v Lymlind Pty Ltd [1999] FCA 684; 93 FCR 191 (Parianos) at [15] (Sackville J) to a requirement "rendered essential by a valid regulation made pursuant to [the Act]". The regulation in question in that case, held to have erected "essential" requirements (at [16]-[19]), was a predecessor of s 12. Jackman J accordingly regarded Parianos as indistinguishable in Gannaway, a conclusion with which I agree.
59 For my own part, I have some reservations concerning the reasoning in Parianos. Arguably, the regulation making power that sustains s 12 and sustained its predecessors is s 315(1)(a) (matters "required or permitted by this Act to be prescribed"), in combination with s 41(2) (which requires a notice to be "in accordance with the form prescribed by the regulations"). There is something to be said for the view that non-compliance with a requirement as to the "form" of a bankruptcy notice constitutes a defect or irregularity that is "formal" (the term used in s 306(1)) and, consequently, should be regarded as invalidating a bankruptcy notice only if it leads to substantial injustice. That would have the potential to avoid the obvious injustice of invalidation of a bankruptcy notice in a case such as the present, where the Australian dollar amount sought by the notice is understated to the advantage of the debtor and what must be done in order to comply with the notice is tolerably clear. However, Parianos has stood as authority for more than 20 years and I do not think it can be said to be plainly wrong (cf, eg, N & M Martin Holdings Pty Ltd v Commissioner of Taxation [2020] FCA 1186 at [43]-[46] (Steward J)).
60 On this basis, I am driven to conclude that the defects in compliance with s 12(2) in the present case lead to the invalidity of the notice.