The issue here is not free from difficulty. The Full Court of this Court has held in Re George, Ex parte Tricontinental Corporation Ltd (1994) 126 ALR 541 at 542 that if interest is included in a claim under a bankruptcy notice - and there is no requirement that it be included: see Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co of Sydney Ltd (1979) 23 ALR 522 at 526 - it must be calculated and stated accurately or else it will be invalid unless the misstatement can be (i) cured by s306(1); or (ii) saved by the provisions of s41(5) and (6).
However, when one comes to apply s41(5), the proposition endorsed in Re George - it derives from the dissenting judgment of Deane J in the Kleinwort Benson case - would seem to be inverted by the terms of the sub-section in circumstances where no notice of overstatement is served on the creditor. As the subsection says, absent the specified notice, the bankruptcy notice is not invalidated 'by reason only' that the sum specified in the notice as the amount due exceeds the amount in fact due.
In the present case the bankruptcy notice is not invalidated by reason only that an excessive amount has been claimed by way of interest. To this extent the subsection would appear to give some licence for error in the
calculation and statement of the interest claimed. What, though, is problematic is the nature of that licence given.
If one begins with the premise that, s41(5) apart, a claim for payment of money not in fact due would constitute a substantial and not formal defect in a bankruptcy notice - and there is considerable authority to this effect: see eg In re A Debtor, 478 of 1908 [1908] 2 KB 684 - then the burden of the 'by reason only' formula of s41(5) could properly be said to be to admit the possibility that an excessive claim could give rise to no more than a formal defect and hence be capable of cure under s306(1).
As Lockhart J indicated in Re Walsh (1982) 65 FLR 87 at 91-92 such was the apparent purpose of the English precursors of s41(5) and (6).
"These subsections [ie s41(5) and (6)] are taken from s.53 of the Bankruptcy Act 1924 which in turn was reproduced from the English Bankruptcy Act, 1914 and its predecessor the Bankruptcy and Deeds of Arrangement Act, 1913. It has been said that these provisions were enacted to overcome the judgment in Re A Debtor, 478 of 1908. Plainly enough, as long ago as 1913 the predecessors of s41 (5) and (6) were intended to ensure that, when courts would otherwise hold bankruptcy notices invalid on the ground of overstatement of the amount due, the consequence of invalidity was not to follow unless the debtor gave the requisite notice under s.41(5) or its then equivalent.
They are ameliorating provisions. They do not either in terms or in substance themselves invalidate anything. They save some bankruptcy notices from what otherwise would be invalidity, but the subsections are not based on an assumption that overstatement necessarily leads in every case to invalidity of the bankruptcy notice. It does where, but only where, the debtor could be reasonably misled by the overstatement."
See also Gummow J's endorsement of this discussion of the subsections in Olivieri v Stafford (1989) 24 FCR 413 at 428. I should add that the reference to the debtor being "reasonably misled by the overstatement" in the last sentence of the quotation is, as Lockhart J earlier indicated in Re Walsh (at 90), a reference to the type of defect that would invalidate a bankruptcy notice, s306(1) notwithstanding.
This particular analysis of the effect of s41(5) is one with which I respectfully agree. It needs, though, to be recognised that it probably provides only narrow scope for the validation of bankruptcy notices where the excess amount claimed is referable to interest on the judgment and not the judgment debt itself. The reason for this is that, absent a knowledge of the basis on which interest is payable on a judgment debt, a debtor is more likely reasonably to assume the accuracy of the interest claim and to be misled by it if it is erroneous in a significant respect.
Turning to the nature of the overstatement in the present case, it can, in my view, only be characterised as a substantial defect incapable of cure by s306(1). Almost the entirety of the interest claimed lacked any lawful justification under the Federal Court of Australia Act 1976, s52(1) given the period for which it was claimed. Furthermore the interest rate charged was not that authorised by the then O35 r8 of the Federal Court Rules. The claim made is clear, unequivocal and wrong. But, in my view, far from excusing the defect, the form of the claim compounds the defect. It asserts a right in the creditor to, and an obligation in the debtor to pay, interest for a period and at a rate which a debtor could reasonably assume to be accurate given the accuracy of the statement of the judgment debt itself and that the bankruptcy notice was apparently prepared by a solicitor.
The test whether a bankruptcy notice could reasonably mislead is an objective one: see eg Re Wimborne; Ex parte the Debtor (1979) 24 ALR 494. It being unreasonable to expect a lay debtor such as Mrs Aeckerle to have such knowledge of the Federal Court of Australia Act and the Federal Court Rules as would suggest or reveal the falsity of the claim made, I am prepared to find that the bankruptcy notice here, in its interest claim, could mislead the debtor. I do not have to inquire whether she was in fact misled: see James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644. The bankruptcy notice in consequence, suffers a substantial defect and is incapable of cure by s306(1).
This conclusion is sufficient to dispose of this matter. It necessitates dismissal of the creditor's petition. Nonetheless I will consider briefly the other grounds of objection raised by the debtor.
Ground of Objection (ii): Lack of Personal Service
I should preface my observations on this by noting that the amended petition before me was the subject of an abortive two day hearing in this Court earlier this year.
I have been presented with two contradictory versions of how service of the bankruptcy notice was effected on the debtor. It is the creditor's case that the notice was served personally on the debtor (as required by the Bankruptcy Rules, r15) at her residence on the late afternoon of Tuesday 31 January 1995, the service being effected by a Mr Beecham, a licensed commercial sub-agent engaged for the purpose.
Mr Beecham's evidence was that he went to the debtor's house on Tuesday 31 January. On the first occasion she did not appear to be present although Mr Beecham said he only sought entrance at the front door of the house. On the second, Mrs Aeckerle is said to have identified herself to Mr Beecham and to have said words to the effect that:
"I have a defence in this matter which is in the Federal Court in Sydney on the 22nd February."
I would interpolate that an appeal had been lodged against the judgment of Whitlam J and, apparently, had been listed for hearing on the day mentioned above.
Mr Beecham prepared a document on what he says was and I find to have been - the day of service which recorded what the debtor is claimed to have said to him. On the evening of 31 January an affidavit of service was prepared for, and signed by Mr Beecham which recorded her self-identification when service was effected, but not the comment as to the appeal from the judgment. The same night Mr Beecham's employer wrote to the solicitors for the petitioning creditor in terms (omitting formal parts):
"REPORT: As advised to your office we called as a matter of urgency to the above address on the 22nd December 1994, only to find no one here and apparently they may have been away for the Christmas break.
We continued our calls and on each occasion were only able to speak with male stating that Irene Aeckerle was away.
Finally on the 31st January 1995, service of the Bankruptcy Notice was effected personally on Irene Aeckerle.
At the time of service she stated, 'Yes that is me'.
She then indicated that she had a defence in this matter which was in the Federal Sydney Court on the 22nd February 1995.
We enclose herein Affidavit of Service and thank you for your instructions."
In cross-examination Mr Beecham's answers to questioning directed to the number of times he attended at the debtor's house, his usual practice when attending for service, and as to the time spent effecting service of documents on the day in question were in some respects inconsistent with answers given at the earlier abortive hearing to which I have referred. It was also put in submission, though not put directly to the witness, that the handwritten record of service was a later fabrication. But when confronted with the report set out above which was made on the same day as the handwritten record of service, counsel for the debtor accepted there was in fact corroboration of the date on which Mr Beecham said he prepared the record.
The debtor's account of how the bankruptcy notice came to her attention was vastly different. It was that during January of 1995 she was looking after a friend's mother's house for several days each week during renovations. On probably a Wednesday in late January she received a telephone call at that house from a tenant (a Mr Farrell) who lived at her own home who allegedly told her that he found documents on the floor in the hallway. These are said to have been the bankruptcy notice.
No-one was called to give evidence that the debtor was residing at the friend's mother's house on the day when Mr Beecham said service was effected. While Mr Farrell prepared an affidavit for these proceedings I refused to allow it to be read as he was unavailable for cross-examination. I ruled on this matter at the time and need not repeat my reasons here other than to say that with credibility being a vital issue, to have allowed this evidence in would have been quite unfair to the creditor.
Documentary evidence from the files of the debtor's solicitors was tendered by the debtor. A file note of an interview with the debtor of 8 March 1995 records that:
"Bankruptcy notice served approximately not later than end January."
Of the contending versions of the service I find Mr Beecham's to be the more credible. It has not, for example, been suggested that he learned of the Federal Court appeal otherwise than from the debtor. I find him to be a truthful witness notwithstanding that there are some inconsistencies between his evidence before me and in the earlier proceedings. In contrast, I am unable to accept Mrs Aeckerle's account of how the bankruptcy notice came to her attention. I am not satisfied that she is a reliable witness. While I do not make a finding of deliberate untruthfulness, I do consider that her evidence in this, as in other matters, reflected an unpreparedness to acknowledge the happening of events which were adverse to her interests. Those other matters to which I refer are, first, her apparent denial that any judgment had been given against her and, secondly, that an appeal had been instituted against Whitlam J's judgment and had been discontinued.
I find that the bankruptcy notice was served personally on the debtor on 31 January 1995. I reject this ground of objection to the petition.
Ground of Objection (iii): The Date of Judgment
The objection here is that the bankruptcy notice refers to the date of judgment as being 6 October 1994 (which was the date Whitlam J published his reasons for judgment and apparently made the orders of the Court) and not 12 December 1994 (which was when the judgment was entered).
There is no evidence before me that there were any proceedings between the parties other than those which gave rise to the judgment in this case. Despite Mrs Aeckerle's denial that any judgment was given against her - a denial which is in the face of what occurred - I am satisfied that the alleged defect in the bankruptcy notice is not such as could reasonably mislead the debtor. It is an irregularity within the meaning of s306(1) and there is no ground for suggesting that substantial injustice has been occasioned by the irregularity: cf Re Wong; Ex parte Kitson, above, at 410.
Ground of Objection (iv): Going Behind the Judgment
There being no doubt as to the jurisdiction of this Court to go behind the judgment relied upon by the petitioning creditor, the sole question here is whether the present circumstances are such as to warrant or oblige the exercise of that jurisdiction. The short answer to that question is that they are not.
The judgment giving rise to the judgment debt was given on a cross-claim made by the creditor to a claim brought by the debtor against it. After a five day hearing at which the parties were legally represented, the debtor's claim was dismissed and, as I have noted, the cross-claim upheld.