the appellant's submissions
7 Mr Arthur, for the appellant, submitted that the reason the bankruptcy notice was invalid was because it did not comply with the requirements of s 41(2) of the Bankruptcy Act 1966(Cth) ("the Act") and of reg 4.02 of the Bankruptcy Regulations ("the Regulations"). Section 41(2) provides:
"The notice must be in accordance with the form prescribed by the regulations."
The form prescribed by the Regulations is set in Form 1 of Schedule 1 of the Bankruptcy Forms.
8 The differences between the form prescribed by the Regulations, and the actual bankruptcy notice served in this case, were as follows:
· the prescribed form contains a note in square brackets that appears immediately above the name of the debtor. That note reads:
"[NOTE: Words appearing below in italics are for guidance in the completion of this Notice, and are not to be reproduced in this Notice.]"
The bankruptcy notice served in this case did not contain this note.
· the prescribed form contains the words "the creditor", in round brackets, immediately below the name of the party claiming that the debtor owes the creditor a debt of a particular amount as shown in the Schedule. These words were not reproduced in the bankruptcy notice.
· the prescribed form contains a note in square brackets that appears immediately after par 3(b). That note reads:
"[NOTE: The number of days to be inserted is 21 or, if an order has been made under subparagraph 40(1)(g)(ii) of the Act, the number of days constituting the time fixed by the order.]"
The bankruptcy notice served in this case did not contain this note.
· the prescribed form contains a note in square brackets that appears immediately after par 4. That paragraph sets out the address at which payment of the debt can be made. The note reads:
"[NOTE: The address must be in Australia.]"
The bankruptcy notice served in this case did not contain this note.
9 The Federal Magistrate found that these departures from the prescribed form were of no legal significance. He concluded that the words within the brackets in the prescribed form, as set out above, were "merely aids for the assistance of persons" completing that form. This appeal raises for consideration the correctness of that conclusion.
10 Mr Arthur submitted that there had to be strict compliance with the legislative requirements for a bankruptcy notice. He relied, in particular, upon The Australian Steel Company (Operations) Pty Ltd v Lewis (2001) 109 FCR 33 ("Australian Steel"), a decision of specially constituted Full Court of five. In that case, the majority, Black CJ, Heerey and Sundberg JJ, held that a bankruptcy notice that did not correctly state the statutory provision under which interest was being claimed, notwithstanding that it correctly stated the amount of interest claimed, was a nullity. The reasoning of the majority was that the notice failed to meet a requirement made essential by the Act, and therefore contained a substantive defect. The fact that the particular omission could not reasonably have misled the debtor as to what was necessary in order to ensure compliance was held to be of no consequence.
11 In a joint judgment,the majority said at [22]:
"Non-compliance with a bankruptcy notice is, by far, the act of bankruptcy most commonly relied on by creditors. Non-compliance does not merely provide means of proof of insolvency (cf the statutory demand in company winding-up proceedings). It is an act of bankruptcy in itself. Non-compliance with a bankruptcy notice not only has profound consequences for the debtor but also affects the rights and obligations of others. These are but some of the reasons why courts have required strict compliance with the legislative requirements for a bankruptcy notice."
12 Their Honours then referred with approval to the observations of Lockhart J in Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494 where his Honour said at 498:
"The courts have said time and time again that bankruptcy notices must conform strictly to the requirements of the bankruptcy legislation and rules of court …"
13 Their Honours also referred to the well-known statement by Deane J in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 where his Honour said at 81-2:
"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 of 1908; see also James v. Federal Commissioner of Taxation. A defect in a bankruptcy notice will invalidate it 'except in the case of a merely formal defect': per Vaughan Williams L.J., In re O.C.S. (A Debtor); Ex parte The Debtor, see also In Re a Debtor, No 21 of 1950; Ex parte the Debtor v. Bowmaker Ltd. If a defect in a bankruptcy notice is other than a formal one, the notice itself is defective and failure to comply with it does not constitute an act of bankruptcy.
It is true that the strictness of the above rules leaves open the possibility of abuse by unscrupulous debtors. That is, however, an unavoidable concomitant of the protection of ordinary people faced with the threat of being made bankrupt. Many, and possibly most, of the petitions in the bankruptcy lists of this country seek the bankruptcy of honest, albeit unbusinesslike or naive, people whose indebtedness springs from causes which evoke sympathy rather than indignation. For such people, bankruptcy does not represent a game to be played to the frustration of their creditors. It represents a pronouncement of failure and humiliation attended by the fear of unknown consequences and the susceptibility to criminal punishment for what would otherwise be innocent conduct: see, e.g., per Griffith C.J., Hamilton v. Warne. As Riley J., a noted Australian authority on bankruptcy law, sometimes pointed out to those appearing before him, the least that the courts can do is to insist that a person who seeks to subject another to the law of bankruptcy himself strictly observes the requirements of that law." (footnotes omitted)
14 The majority in Australian Steel noted that Deane J had been in the minority in Kleinwort Benson, but concluded that nothing said by the majority in that case was in any way inconsistent with his Honour's broad statement of principle. The majority in Australian Steel said at [25]:
"… Not infrequently in the daily business of this Court sequestration orders are sought against debtors who are plainly insolvent and who have probably not been misled by defects in the bankruptcy notice served on them, yet the petition is dismissed. While it may be true in general terms to say that bankruptcy administration emphasises substance over form … such a statement needs to be substantially qualified when applied to bankruptcy notices." (emphasis added)
15 In Kleinwort Benson, the bankruptcy notice that led to the making of the sequestration order understated the amount of interest due. A Full Court of this Court had held that this defect should result in the sequestration order being set aside. By majority, the High Court reversed that decision. The joint judgment of the majority (Mason CJ, Wilson, Brennan and Gaudron JJ) said at 77:
"Three questions arise as to the validity of the bankruptcy notices in this case: are they defective or irregular; if so, is the defect or irregularity substantive or formal; and if it is formal only, has it occasioned substantial and irremediable injustice?"
16 Their Honours continued at 79-80:
"The authorities show that 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: James v Federal Commissioner of Taxation; Pillai. In such cases the notice is a nullity whether or not the debtor in fact is misled: In re a Judgment Debtor, 530 of 1908." (emphasis added, footnotes omitted)
17 In Australian Steel, the majority interpreted this passage at [32] in the following terms:
"Thus essentiality of the requirement which the notice fails to meet and capacity of the notice to reasonably mislead a debtor are alternative ways in which a defect or irregularity may be found to be "substantive". It must logically follow that a notice which fails to meet a requirement made essential by the Act will contain a substantive defect even if the notice could not reasonably mislead a debtor as to what was necessary for compliance."
18 Finally, it should be noted that in Australian Steel, the majority made the following comments at [39]-[43] regarding the test for determining whether a requirement is made "essential" by the Act:
"[39] Kleinwort Benson decides that a bankruptcy notice that does not contain a requirement made essential by the Act is not a valid notice. In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391 McHugh, Gummow, Kirby and Hayne JJ, after discarding the elusive distinction between directory and mandatory requirements as a test of validity, said:
"A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid ... In determining the question of purpose, regard must be had to 'the language of the relevant provision and the scope and purpose of the whole statute'."
In the light of this passage, it can be seen that a requirement is "made essential" within the Kleinwort Benson principle when the enquiry as to purpose discloses the intention that an act done in breach should be invalid. See also Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 at 383-385; 169 ALR 503 at 512-513.
[40] In 1996 Parliament chose to make a form to be prescribed by regulation the sole criterion of whether a bankruptcy notice complied with the Act, with the consequence that an act of bankruptcy would be committed in the case of non-compliance with such a notice. This being the will of Parliament, it is not for a court to treat the terms of the prescribed form as inherently less important than a requirement specified in the Act itself, so as to attract a more lenient view in the case of non-compliance. Valid delegated legislation (and there is no suggestion that the present regulations are otherwise) is binding law because that is what Parliament has willed. As Lindgren J said in Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 at 378 (obviously in relation to a pre-1996 notice): "... the statutory requirement that a bankruptcy notice be in accordance with the prescribed form is itself a requirement made essential by the Act."
[41] This proposition is a fortiori since the 1996 amendments as the majority in Bendigo Bank, correctly in our view, pointed out (at par 19). Moreover, this is a case where the 1996 amendments resulted in "a framework built on by contemporaneously prepared regulations", in which case the latter may be a reliable guide to the meaning of the former: Hanlon v The Law Society [1981] AC 124 at 194. The law now is that a bankruptcy notice has to contain substantially more information than it did prior to the 1996 amendments. The law now is not just that a notice shall have certain characteristics stipulated in the Act. The notice "must be in accordance with the form prescribed by the regulations".
[42] 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.
[43] Our conclusion is unaffected by reg 4.02(3). If that provision is to be taken as a statement that s 25C of the Acts Interpretation Act applies to the content of the form as well as its format (see Franciscan at 457 [16]), the 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 on the ground that there has been substantial compliance. Essentiality for the purpose of the Kleinwort Benson principle being determined by purpose, a provision as to substantial compliance, assuming it applies at all, cannot make unessential that which purpose reveals as essential. It can hardly be said that there has been substantial compliance with a prescribed form where the form fails to include information made essential by an enactment."
19 Mr Arthur submitted that the bankruptcy notice served upon the appellant in the present case did not accord with the form prescribed by the Regulations. He submitted that each omission from the prescribed form involved a matter made essential by s 41(2) of the Act. The absence of the words contained in brackets, as set out at [8] above, thereby invalidated the notice, even if the failure to include those words could not reasonably have misled the debtor as to what was necessary to ensure compliance.
20 Mr Arthur also relied upon Re St Leon; Ex parte National Australia Bank Limited (1994) 54 FCR 371 in which the bankruptcy notice failed to provide an address for the creditor. Lindgren J held that the failure to set out the creditor's address meant that the bankruptcy notice did not comply with the requirements of the Act because the notice was not in accordance with the prescribed form. His Honour concluded that the omission of the address could not be regarded as a "formal defect or irregularity" within the meaning of s 306(1) of the Act. That subsection provides that proceedings under the Act are not invalidated by a formal defect or irregularity unless the Court 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 the Court.
21 Lindgren J said at 378:
"I think that it is consistent with the terms of the joint judgment [in Kleinwort Benson] that the statutory requirement that a bankruptcy notice be in accordance with the prescribed form is itself a requirement made essential by the Act."
22 It is interesting to note that Lindgren J also said at 378 that it was difficult, in the face of the plain language of s 41(1)(a), to assume that anything that was in fact in the prescribed form, though not required to be in it by s 41(2), was not made "essential" by the Act. For example, his Honour observed, it was difficult to accept that the note at the foot of the prescribed form could be omitted without rendering the notice invalid.
23 Mr Arthur noted that the majority in Australian Steel had referred with approval to the observation by Lindgren J that is set out at [21]above.
24 In short, Mr Arthur submitted that the reasoning of the majority in Australian Steel led inexorably to the conclusion that the bankruptcy notice served upon the appellant was a nullity, and could not therefore form the basis for the sequestration order that had been made.