Metledge v Hopkins

1. The creditor's petition be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

LEE J: 1 At the hearing of a creditor's petition I made an order that a separate issue be determined. The issue might be thought to be one of arid technicality, but to characterise it in this way is to reflect a misunderstanding of the principled approach to the law of bankruptcy. For the reasons set out below, the relevant bankruptcy notice (the non-compliance with which is relied upon as the act of bankruptcy in the creditor's petition) was invalid. The applicant accepts that in this eventuality, the appropriate order to be made is that the creditor's petition be dismissed. 2 The bankruptcy notice referred to the applicant's address twice: first, on page one, where the address of the applicant was notified as being "P. O. Box 226, Strathfield, Sydney (sic), NSW, Australia"; and secondly, on page two, in numbered section 2 (being that part of the approved form of notice dealing with how payment is to be made), the bankruptcy notice provided: Payment of the debt can be made to: Ms Mary METLEDGE P.O. Box 226, Strathfield, Sydney (sic), NSW 2135 3 The bankruptcy notice then went on to provide the applicant's mobile telephone number and email address. 4 In Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 81, Deane J (who was in dissent in the result, but whose comments as to principle were relevantly uncontroversial) observed: 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 [[1908] 2 KB 474 at 476-7] … 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 [[1904] 2 KB 161 at 163 … 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. 5 There is no question that the necessity to identify an address at which payment of the debt could be made (or an offer can be made to secure or compound the debt) is an essential matter. The test of essentiality was the subject of consideration by the Full Court of this Court in The Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915; (2000) 109 FCR 33. In that case at 41 [22], the majority, Black CJ, Heerey and Sundberg JJ, made the following general observations: 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. 6 The question of whether a requirement is essential was the subject of specific discussion at 44-5 [39], where their Honours observed: … 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 inquiry as to purpose discloses the intention that an act done in breach should be invalid. See also Deputy Commissioner of Taxation v Woodhams (2000) 169 CLR 370 at 383-385; 169 ALR 503 at 512-513. 7 An essential aspect of a bankruptcy notice is to make it clear what a debtor must do in order to comply, and to explain what is necessary to be done to ensure an act of bankruptcy is not committed by reason of non-compliance (including where payment can be made). In Re St Leon; Ex parte National Australia Bank Limited (1994) 54 FCR 371, Lindgren J held that the statement of address in a bankruptcy notice is a matter that is made essential under the Bankruptcy Act 1966 (Cth) (Act) and noted at 378: … Kleinwort Benson distinguish[es] between that which the Act requires on the one hand, and the way in which a particular bankruptcy notice is "filled in" on the other hand. The distinction may not always be clear, but I regard a total failure to state an address for the judgment creditor as a non-compliance with s 41(1)(a), as distinct, for example, from an ambiguous or unclear statement of an address. The latter would be an instance of a notice in accordance with the prescribed form which could nonetheless reasonably mislead the debtor. (emphasis added). 8 The reference of Lindgren J to an instance which could "reasonably mislead the debtor", was a reference to the judgment of Lockhart J in Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494 at 498-9, where it was explained that a "formal defect or any irregularity" is one that could not "reasonably mislead the debtor". And it was further explained by Lockhart J that "if the defect is of such a kind as could reasonably mislead the debtor upon whom it was served" then the defect "is fatal to the notice". Accordingly, the test to be applied in the present circumstances is not whether or not the respondent was subjectively misled; it is sufficient to establish invalidity that the defect could mislead the recipient of the notice. 9 Focussing more directly on the issue of an address in a notice, Lockhart J (with whom Northrop and Beaumont JJ agreed) explained in Nugent v Brialkim Pty Ltd (1985) 61 ALR 725 at 726-7: Judgments of long standing have held in relation to comparable provisions in the bankruptcy legislation of England and the Australian Bankruptcy Act 1924 that a judgment creditor must give an address or addresses where he, or, if more than one, they, or one of them, or some agent authorized on his or their behalf, may be found: see Re Beauchamp; Ex parte Beauchamp [1904] 1 KB 572 and James v FC of T (1955) 93 CLR 631 at 639. The question before this court must be considered in the light of the following passage from James' case (at p 639): "It is the duty of a debtor to seek out the judgment creditor and pay the judgment debt to the creditor if he is in Australia. The debtor has the correlative right to pay the creditor wherever he can find him so that a debtor could be seriously prejudiced if he was led to believe that he was bound to pay the creditor at one particular place." … It is not sufficient that a creditor merely give an address where he is known. It must be an address at which he can be paid or where an agreement may be made with him or on his behalf to secure or compound it. If the creditor gives his home as his address he is not bound to remain there all day and night during the currency of the notice. Obviously that would be absurd. Similarly, if he gives his business address he is not bound to remain there always, or even throughout the whole of normal business hours (whatever that expression may mean these days) during the currency of the notice. … In my opinion, the address stated must be one at which the debtor may, during the currency of the notice, make payment of the amount claimed in the notice, or one where he may make arrangements to secure or compound the debt. It may be that in certain circumstances, although he may make arrangements to secure or compound by calling at the address stated in the notice, he will do so by speaking to persons who are themselves not physically at that address, but are, for example, available on the telephone. The examples of the possibilities are manifold and need no elaboration. The test must satisfy the demands of common sense in the highly ordered and busy world in which we live, tempered by a consideration of the implications of a bankruptcy notice and the serious consequences that can flow from non-compliance with its requirements. I respectfully agree with the primary judge that the basic principle is that the address given should be one at which during the relevant period it is reasonably practicable for the debtor to make payment or to offer to secure or compound. 10 To similar effect, and quoting from the judgment of Lockhart J in Nugent v Brialkim, in Bonds Industries Ltd v Sing [1999] FCA 1055, Emmett J observed at [13]: The position may be different in relation to the address at which a debtor may make the payment demanded under the bankruptcy notice. A judgment creditor in a bankruptcy notice must give an address or addresses where he may be found. The address stated must be one at which the debtor may, during the currency of the notice, make payment of the amount claimed in the notice or, one where he may make arrangements to secure or compound the debt. The test for adequacy of such an address must satisfy the demands of common sense in the highly ordered and busy world in which we live, tempered by a consideration of the implications of a bankruptcy notice and the serious consequences that can flow from non-compliance with its requirements. The address given should be one at which, during the relevant period, it is reasonably practicable for the debtor to make payment or to offer to secure or compound … 11 Thus putting the issue more particularly, it becomes whether the address identified in the present bankruptcy notice (that is, the Post Office (PO) Box) was one at which, during the relevant period, it was reasonably practicable for the debtor to make payment or to offer to secure or compound the debt. 12 It is worth initially focussing on what a PO Box actually constitutes. In the context of considering whether a PO Box constituted an address for service for service of court process, Black CJ in Sarikaya v Victorian WorkCover Authority (1997) 80 FCR 262 explained at 263 that the "ordinary notion of a 'post office box' is of a container at a post office into which mail that has been duly posted is placed by the postal authorities for retrieval by or on behalf of the holder of the box". 13 This conceptualisation of what a PO Box constitutes seems to me to be correct, and when this is appreciated, whatever the perceived demands of common sense, it is difficult to see how it could be said that such a container amounts to a place where the debtor could make payment or offer to secure or compound the debt. Make the payment or offer to whom? The postmaster? A postal clerk? The present circumstance is quite different from the not uncommon situation where an address is given for payment at the address of a creditor's solicitor. In the context of considering whether notification of a solicitor's address sufficed, Heerey J in Re Pugliese; Ex parte v The Chase Manhattan Bank of Australia Limited (1993) 44 FCR 536 observed at 538: In my opinion, the bankruptcy notice did comply with the Act. The term "address" means, amongst other things, "a place where a person lives or may be reached" (Macquarie Dictionary). The purpose of a bankruptcy notice is to convey to the debtor the amount which the judgment creditor claims and to give the debtor the opportunity of paying or securing that amount. For that purpose the judgment debtor must be told what the amount is and where the creditor can be reached to accept payment or security. The requirement of providing the address of the creditor was satisfied in this case by giving the address of the creditor's solicitors, since that was a place where payment of the debt would be accepted, even though it was not a place where the creditor carried on business. (emphasis added). 14 The contrast to a PO Box is clear. When one bears in mind the necessity to have regard to the implications of a bankruptcy notice and the serious, quasi-penal consequences that can flow from non-compliance, I cannot see how a PO Box is an address at which during the relevant period it is reasonably practicable for the debtor to make payment or to offer to secure or compound the debt. 15 In submissions the applicant placed considerable emphasis on the disjunctive within the expression "reasonably practicable to make payment or offer to secure or compound", submitting, in effect, that a PO Box is an appropriate means to take delivery of or facilitate payment of a cheque, for example, by leaving a cheque at the PO Box. 16 This clever argument does not withstand analysis. The bankruptcy notice must tell the debtor what the debtor needs to do in order to achieve compliance. This involves the debtor being able to either pay or offer to secure or compound the debt. Each course must, as a matter of common sense, be reasonably practicable. This is not the case here. 17 After the exchange of written submissions, the applicant drew my attention to a decision of Foster J in this Court and a decision of the Full Court on appeal from that decision: Croker v Commonwealth of Australia [2010] FCA 1031; 8 ABC(NS) 424; Croker v Commonwealth of Australia [2011] FCAFC 25; (2011) 9 ABC(NS) 44. Relevantly for present purposes, at first instance, the applicant applied to set aside a bankruptcy notice served upon him on the basis, inter alia, that the address shown for the creditor, the Commonwealth, was a PO Box. The notice had expressly stipulated that payment of the debt could be made to the creditor at the offices of its lawyers. Consistent with the analysis of Heerey J in Re Pugliese set out at [13] above, Foster J held at 432 [25] that for that reason (and for the reason that the applicant never intended to pay the amount claimed in any event) the notice was not apt to mislead, nor did it mislead the applicant as to the method and place for payment. That conclusion was upheld on appeal: at 48 [27] (Siopis, Tracey and Gilmour JJ). Apart from the matter that I would, for the reason explained at [8] above, question the relevance of the subjective finding that the applicant in Croker never intended to pay the amount claimed, the present case is readily distinguishable: here no such alternative place for payment was provided for in the notice. Although it may be accepted that in this case the address for service was recorded to be that of the creditor's solicitors, there was no stipulation in the notice in the present case that payment could be effected at that address, as it was in Croker. 18 The bankruptcy notice is invalid and it necessarily follows that in that eventuality, the petition must be dismissed. There is no reason why costs should not follow the event. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.