McWilliam v Jackson

The applicant's points 15 Against this background, Mr Graham advances two separate grounds for his submission that the bankruptcy notice is a nullity: first, its failure to identify the creditor to whom the addressee of the notice is to pay the money claimed in the notice, or alternatively with whom the addressee is to make an arrangement for settlement of the debt; and, second, its omission of the confirmation of authorisation required by the regulations. Mr Graham also contends that his client has demonstrated he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt. Mr Graham seeks a declaration to that effect. I will deal separately with each of these points.

Failure to identify the creditor 16 Section 40(1)(g) of the Bankruptcy Act provides: "(1) A debtor commits an act of bankruptcy in each of the following cases: … (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not: (i) where the notice was served in Australia - within the time specified in the notice; or (ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service; comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;" 17 The prescribed form requires the insertion at the commencement of a bankruptcy notice of the name and address of the addressee of the notice (therein identified as "the debtor"). Paragraph 1 provides for the name and address of a person called "the creditor" who, the notice says "claims you owe the creditor a debt of $[amount] as shown in the Schedule". In other words, the claim is that the debt is owed to the person whose name and address is stated and who is called "the creditor". 18 The prescribed form of paras 2 and 3 is as follows: "2. The creditor claims that the debt is due and payable by you. A copy of the judgment or order relied upon by the creditor is attached. At the time of applying for this Notice, execution of the judgment or order had not been stayed. 3. You are required, within [insert number in accordance with the note to this paragraph] days after service on you of this Bankruptcy Notice: (a) to pay to the creditor the amount of the debt; or (b) to make an arrangement to the creditor's satisfaction for settlement of the debt." 19 It will be apparent that identification of the relevant creditor is of central importance to a proper understanding of a bankruptcy notice and the obligations of the addressee in respect of the notice. 20 In the present case the creditor was identified as "Anthony Jackson & Ors". Presumably, "Anthony Jackson" is identical to "Anthony Charles Badham Jackson", the second defendant in the Supreme Court proceeding. But who are the others? The bankruptcy notice does not say. 21 Ms J Oakley of counsel appeared to resist Mr McWilliam's application. She did so on the instructions of Sally Nash & Co. I gather from Ms Oakley that this firm currently acts for Mr Jackson and those members of Norton Smith & Co who were named as third defendants in the Supreme Court action. Ms Oakley asserted Mr McWilliam would have realised these were the people referred to in the bankruptcy notice as "others". But there is no evidence of this; Mr McWilliam was not cross-examined. In any event, the test is not whether the addressee of the bankruptcy notice was in fact misled, but whether he or she could have been misled: see James v Commissioner of Taxation (1955) 93 CLR 631 at 644. 22 In Re Hansen (4 March 1985, unreported) Beaumont J dealt with a case where a bankruptcy notice was issued in the name of "Mortgage Guaranty Insurance Corporation of Australia Limited", although that company had by then changed its name to "MGICA Limited". Following the issue of the bankruptcy notice, the debtor's solicitor had sought out the judgment creditor. However, he failed to make contact because only the name "MGICA Limited" was displayed at the address stated in the bankruptcy notice; the solicitor did not connect the two names. Beaumont J said: "In my opinion, it is essential to the validity of a bankruptcy notice that the judgment debtor be in no reasonable doubt as to the identity of the judgment creditor. In the present case, the judgment creditor was identified by a name which it had abandoned some considerable time previously. That name was quite different from the name of the judgment creditor at the time of issue of the bankruptcy notice and the judgment debtor could hardly be expected to connect the two corporate names. The judgment debtor could thus have been misled as to the identity of the party with whom he had to deal in order to comply with the requirements of the bankruptcy notice. The notice was accordingly defective." 23 Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 was a case of understatement of the interest calculation in three bankruptcy notices. The High Court (Mason CJ, Wilson J, Brennan J and Gaudron J; Deane J dissenting) held the mis-statement of amount was not fatal to the validity of the notices. In a joint judgment at 77, the majority referred to s306(1) of the Bankruptcy Act which provided (as it still does): "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." At 79 their Honours affirmed "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". However, they held it would have been clear to each of the debtors in the case before them that he or she could comply with the notice by paying the sum demanded, notwithstanding it was less than the full amount of the debt, when interest was taken into account. 24 In the present case the problem is compounded by the fact that, apart from Ms Nash's clients, there were four other defendants to the Supreme Court action, all of whom were beneficiaries of the costs order made against Mr McWilliam and his fellow-plaintiffs. It is by no means fanciful to suggest Mr McWilliam might have been misled into thinking these other persons were amongst the "others" referred to in the bankruptcy notice. Putting the matter at its lowest, the identification of the persons who constituted the creditor was left a matter of doubt. 25 Ms Oakley defended the identification of the creditor on the bankruptcy notice by pointing out it followed the identification of the plaintiff in the District Court judgment. So it did. It is a matter of surprise to me that the District Court was prepared to enter judgment in favour of unidentified parties. But that cannot be a justification for the form of the bankruptcy notice; any more than it could be a justification for the judgment that Mr Lancken had also used the short form in his costs certificate. The certificate could and should have been amended in such a way as precisely to identify the parties. Whatever the form of earlier documents, it was essential the bankruptcy notice properly identify the person or persons who constituted "the creditor". This notice did not do that. For that reason, alone, it is a nullity.

Omission of certification 26 Ms Oakley put two submissions in relation to the failure of Ms Nash to sign the bankruptcy notice by way of confirmation of her authorisation. First, she pointed out that the Federal Court Rules now apply to proceedings under the Bankruptcy Act (see Order 77 Rule 4(2)) and referred to Order 45 Rule 9. That rule provides that "(w)here any signature by a solicitor is required or permitted for the purpose of any proceeding", the signature for the solicitor by (amongst others) a solicitor employed by that solicitor shall be sufficient. However, a bankruptcy notice is not a "proceeding", within the meaning of that rule. A "proceeding" is an action commenced by filing process in the Court (see Order 77 Rule 6), not an extra-curial notice; even an extra-curial notice that might later give rise to a proceeding in the Court. Furthermore, Order 45 Rule 9 is concerned with a signature required or permitted by a solicitor, acting as such. Form 1 does not envisage that the authorised person will necessarily be a solicitor. The authorized person often will not be a solicitor; typically, perhaps, the person will be a company officer who signs on behalf of a creditor company. Order 45 Rule 9 has no application to this case. 27 Ms Oakley's other contention is that the case is covered by s25C of the Acts Interpretation Act. That section reads: "Where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient." 28 I do not think it can properly be said that certification other than by the authorized person constitutes a substantial compliance with the requirement of Form 1 for execution of the notice by the creditor or a person who, by his or her signature, "confirms … that he or she is the creditor's authorized agent". Nor do I think the omission of proper certification is a "formal defect" or "irregularity" within the meaning of s306 of the Act. The receipt by a debtor of a bankruptcy notice is a serious matter; non-compliance with the requirements of the notice constitutes an act of bankruptcy and exposes the person to the possibility of being made a bankrupt. Certification is required in order to give an assurance to the addressee of the notice that it comes with the authority of the creditor and its demand is the demand of the creditor himself or herself. For that reason, the notice is required to be signed personally by either the creditor or the person who is disclosed as the creditor's agent. To use the words of the Crowl majority, this is a "requirement made essential by the Act". 29 In this case, it may be surmised that the person who signed the notice did so with the knowledge and approval of Ms Nash. But surmise is not sufficient; the addressee of the notice is entitled to be assured of the position. Execution of the notice by someone other than the authorized agent is not a substantial compliance with the requirements of the form. 30 I think the bankruptcy notice should be regarded as a nullity on this ground, also.

Counter-claim, set-off or cross demand 31 Having regard to my conclusion that the bankruptcy notice is a nullity, it is strictly unnecessary for me to deal with Mr Graham's alternative argument that, in any event, his client has demonstrated a counter-claim, set-off or cross demand within the meaning of s40(1)(g). However, as the argument has been fully ventilated before me, I think I should deal with it. The issue would immediately arise if the creditor issued a fresh bankruptcy notice free of the identified defects. 32 Mr Graham points out it was not possible for his client to set up the claim made in his appeal in answer to the proceeding in which the District Court judgment was obtained. That judgment was obtained by filing in the District Court the costs certificate made by Mr Lancken. 33 The Legal Profession Act contains no requirement for the giving of notice to an affected person of an application to file a certificate under s208J(3) and, thereby, obtain a judgment. Nor does it provide any opportunity for the affected person to oppose these steps or make a counter-claim, set off or cross demand. That being so, Ms Oakley does not dispute that Mr McWilliam was unable to set up the claim advanced by him in the appeal in answer to the District Court proceeding. Her response to this aspect of the applicant's argument is to deny that an appeal against a decision rejecting a claim can be regarded as a counter-claim, set-off or cross demand within the meaning of s40(1)(g) of the Act. 34 Mr Graham says the case is akin to that considered by Burchett J in Re Pollnow; Ex parte Queensboro Pty Limited (19 October 1988, not reported). The judgment debt upon which the bankruptcy notice was there founded arose out of an order for costs in respect of an unsuccessful interlocutory application. The case later went to final hearing, but with separate trials of the two issues that it involved. Pollnow succeeded on the first issue before Kearney J but Queensboro appealed to the Court of Appeal of the Supreme Court of New South Wales which, by majority, reversed the trial judge. Pollnow applied for special leave to appeal to the High Court. The High Court indicated special leave might be granted, but the second issue should first be tried. When that issue went to trial before Hodgson J, Pollnow failed. He filed an appeal against that decision in the Court of Appeal. While the appeal was still pending, he was served with a bankruptcy notice. Burchett J said: "It seems to me that a case where the debtor's claim is the subject of current litigation, which is incomplete in the sense that appeals remain to be determined, raises somewhat different questions from those which are raised in the normal case of a claim yet to come before a court. In the normal case, it is appropriate to ask whether the debtor has shown 'that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand'. … But in a case such as the present, a court has already pronounced upon the prima facie case the debtor would seek to propound. The pronouncement, however, has not been finally affirmed, and has been put in question by appellate proceedings. It would clearly be invidious for this Court to attempt to assess the prospect that the Court of Appeal may overrule the decision of Hodgson J., or that the High Court may ultimately grant special leave and allow an appeal on the question on which a majority of the Court of Appeal, with Priestley J. dissenting, has overruled the decision of Kearney J. The issue should rather be whether there is a real possibility that the debtor's claim will ultimately be established. The stage of considering whether there is a prima facie case has already been passed. It is necessary to bear in mind that s.40(1)(g) does not require the debtor to satisfy the Court that he will succeed in his claim; the ordinary-test of whether he has merely shown a prima facie case makes that plain." 35 I agree with Mr Graham that Burchett J's approach applies to the present case. I have not attempted any evaluation of the merit of the pending appeal to the Court of Appeal. I was not invited to undertake that onerous and invidious task, both parties being content to argue the matter upon the basis of Registrar Jupp's assessment of the appeal prospects. Upon the basis of that assessment, it seems to me Mr McWilliam has demonstrated the existence of a counter-claim, set-off or cross demand that he could not set up in the District Court proceeding in which the judgment for costs was obtained against him. Whether the counter-claim, set-off or cross demand is likely to prove successful, I do not know. But, as Burchett J pointed out, a debtor does not have the burden of going that far. 36 Ms Oakley pointed out that the value of the claim made by Mr McWilliam and his fellow plaintiffs is undetermined. She said it is not established that a successful appeal would generate a judgment against the petitioners equalling or exceeding the judgment for costs. It is true that the value of the claim is undetermined. Because of the view he took about liability, Maconachie AJ did not assess damages. However, I think it is apparent from the nature of the claim made by Mr McWilliam and his co-plaintiffs that, if it is successful, it is likely to result in a judgment in their favour in an amount exceeding $220,067.67. 37 In my opinion Mr McWilliam has discharged the onus placed upon him by s40(1)(g) of the Act.

Disposition 38 Having regard to my conclusion about the first two points raised by Mr Graham, it is appropriate for me to dispose of the matter by declaring that the bankruptcy notice is a nullity. I will do that. The identified creditor, Anthony Jackson, must pay the applicant's costs. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Associate: Dated: 25 February 2000 Counsel for the Applicant: P Graham QC

Solicitor for the Applicant: B M Salmon Layton & Co