Northam v Commonwealth Bank of Australia

(NB: Amounts, where applicable, are to be inserted in column 2)

For the Information of the Creditor ‑ Notes to the Schedule Note 1: Legal costs (item 2 of the Schedule) If legal costs are being claimed in this Bankruptcy Notice, a certificate of taxed or assessed costs in support of the amount claimed must be attached to this Bankruptcy Notice. Note 2: Interest accrued (item 3 of the Schedule) If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice. The document must state: (a) the provision under which the interest is being claimed; and (b) the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed. (NB: If different rates are claimed for different periods, full details must be shown) The person who applied for this notice to be issued is: I F Purbrick, Solicitor who confirms by the following signature that he or she is the creditor's authorised agent: (signed by IF Purbrick) and whose address for service is: 1 F Purbrick, Solicitor 16th Floor 385 Bourke Street MELBOURNE VIC 3000 Telephone and faxnumbers Telephone (03) 9675 7462 (including STD code): Facsimile (03) 9675 6464 DX number (if applicable): DX 407 MELBOURNE SCHEDULE OF INTEREST PAYABLE Judgment in the Supreme Court of Victoria dated 8 November 1996 in the sum of $374,708.89 together with interest thereon pursuant to section 101 of the Supreme Court Act 1986 (Vic) calculated at the rate prescribed by the Penalty Interest Rates Act 1983 (Vic.). Principal Interest From To No. Daily Interest $ rate of Accrual payable % per Days Amount $ annum $ 374,708.89 13.2 9 Nov 1996 14 Nov 1997 371 135.51 50,274.21 ‑191,752.85 182,956.04 13.2 15 Nov 1997 22 Feb 1998 100 66.16 6,616.00 12.3 23 Feb 1998 12 Oct 1998 233 61.65 14,364.45 TOTAL INTEREST PAYABLE 71,254.66" 5 Section 41 of the Act provides, in part, as follows: "(1) An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that: (a) is described in paragraph 40(1)(g); and (b) is for an amount of at least $2,000. (2) The notice must be in accordance with the form prescribed by the regulations. …" 6 Regulation 4.02 of the Bankruptcy Regulations provides: "(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed. (2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes). (3) Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901." 7 Section 25C of the Acts Interpretation Act 1901 (Cth) provides that 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. 8 Form 1, to which reg 4.02 refers, is contained in Sch 1 to the Bankruptcy Regulations. The bankruptcy notice which was served upon the applicant in the present proceedings follows closely Form 1. Nonetheless, the applicant contends that the bankruptcy notice should be set aside for any, or all, of the following reasons: · The respondent claimed in the body of the bankruptcy notice that the applicant owed a debt of $254,210.70, as shown in the Schedule. However, the fact that this sum represented the balance of a judgment only was not stated in the body of the notice. The only clue to that fact lay in the Schedule where, in item 5, reference was made to "payments made and/or credits allowed since date of judgment or order", and to an amount of $191,752.85. The respondent had not provided any particulars of that amount. Nor had the respondent given any explanation of its nature. · The interest calculations were set out in the "Schedule of Interest Payable". However, that Schedule had not been referred to in the body of the notice as such, but merely as "a document attached to this Bankruptcy Notice". Note 2 of the Schedule to the Notice required certain details as to interest to be set out. It also provided that if different rates were claimed for different periods, full details must be shown. There had been a failure to comply with those requirements. · The bankruptcy notice did not accord precisely with the form prescribed by reg 4.02 of the Bankruptcy Regulations. There were three separate instances where the notice allegedly departed significantly from that form: (a) The note which appears under paragraph 3 in the prescribed form, namely: "[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.]" had been omitted from the notice. (b) The note which appears under paragraph 4 in the prescribed form, namely: "[NOTE: the address must be within Australia.]" had been omitted from the notice. (c) The expression "for your State or Territory" which appears in paragraph 10 of the prescribed form between the word "Registry" and the word "is"; had been omitted from the notice.

Bankruptcy Notices - the general principles and s 306 of the Act 9 The form of bankruptcy notice set out in Form 1 is prescribed. A bankruptcy notice must follow Form 1 "in respect of its format" (for example, bold or italic typeface, underlining and notes). Plainly there must be the closest attention to detail in the preparation of a bankruptcy notice if it is to be relied upon as the basis for establishing the commission of an act of bankruptcy pursuant to s 40(1) of the Act. A bankruptcy notice will be a nullity, or liable to be set aside due to a defect or failure to comply with the prescribed form, if the defect or irregularity is substantive or, if formal only, it occasions substantial and irremediable justice. 10 In Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 77 it was stated by Mason CJ and Wilson, Brennan and Gaudron JJ that: "It may be accepted that a bankruptcy notice which mis-states the amount due to the creditor is defective or irregular." 11 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 [(1955) 93 CLR 631 at 644]… In such cases the notice is a nullity whether or not the debtor is in fact misled: In re A Judgment Debtor, 530 of 1908 [[1908] 2 KB 474 at 481]." 12 Their Honours' statements of principle must be understood in the context of s 306 of the Act. Section 306 is modelled closely upon similar provisions which have existed in bankruptcy legislation for well over a century. See for example Bankruptcy Act 1869 (UK) (32 and 33 Vic C 71) s 82. 13 Section 306 relevantly provides as follows: "(1) 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." 14 It has been held that s 306 should be given a wide interpretation - Yu v Farrow Mortgage Services Pty Ltd (1995) 60 FCR 300 at 306 per Lehane J. "Proceedings under [the] Act" include non-curial proceedings. They include the issuing of bankruptcy notices which are the product of administrative, rather than judicial, acts: Re Wheeler & Reynolds (A Firm); Ex parte Kerr & Crowe (1988) 20 FCR 185; Re Staples; Ex parte Baker v Staples (1996) 67 FCR 541 at 547. 15 The rules relating to the issue of a bankruptcy notice against a debtor require strict compliance. The commission of an act of bankruptcy involves consequences of a penal, or quasi-penal, nature. The court will not necessarily when dealing with a bankruptcy notice treat what, in other contexts, might be viewed as a mere informality as nothing more than a formal defect. A creditor who seeks to avail himself of a bankruptcy notice as the means of enforcing a debt must be prepared to adhere strictly to the requirements of the Act, and the Rules of Court; Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 558. Bankruptcy notices are, on occasion, set aside on grounds which may be regarded as highly technical - Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494 at 498. 16 A notice that could reasonably mislead a debtor even if he is not, in fact, misled may be invalid: James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644; Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135; Re Wimborne (supra) at 499 and Re Gray; Ex parte Person to Person Financial Services Pty Ltd (1980) 48 FLR 379. 17 In Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 23 ALR 270, for example, the bankruptcy notice there under consideration was held to be invalid because material words in the document were illegible. In Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 it was held that the failure to state the address of the creditor in a bankruptcy notice rendered the notice a nullity, and was not a mere formal defect or irregularity within the meaning of s 306 of the Act. In Scerri v Cahill (unreported, Federal Court of Australia, Beaumont J, 17 March 1998) a bankruptcy notice was held to be invalid because it wrongly specified compliance as required within fourteen days instead of twenty-one days, as prescribed, and was issued without any copy of the judgment attached. These defects were found to be fundamental, going "well beyond formal defects", and beyond remedy through s 306. 18 Where, however, there is a defect or irregularity in a bankruptcy notice which is merely one of form, and not of substance, and which could not mislead or embarrass the debtor, such defect or irregularity will not invalidate the bankruptcy notice. For example, where the creditor's Australian Company Number was omitted, or the address of the creditor was included in the middle of the notice rather than at its beginning, the defect was not a failure to meet an essential requirement of the Act unless the misplacement of the address was apt to mislead the debtor - Yu v Farrow Mortgage Services Pty Ltd (supra) at 307. An incorrect date of judgment specified in a bankruptcy notice does not necessarily invalidate that notice - Re Wong; Ex parte Kitson (1979) 38 FLR 207 per Lockhart J; and Re Hodgson; Ex Parte FCR Motion Technology Pty Ltd [1999] FCA 263. See also Ex parte Johnson; re Johnson (1883) 25 Ch 112; Re Low; Ex parte Gibson [1895] 1 QB 734 and Re Wenham; Ex parte Battams [1900] 2 QB 698 at 708, all decisions based upon the legislative precursors to s 306 of the Act. 19 There are many cases which illustrate the principles set out above. They tend, however, to involve nothing more than the application of settled principles to particular fact situations. It is sufficient for present purposes to note merely that while some defects have been held to invalidate bankruptcy notices, other bankruptcy notices, ostensibly tainted by defects or irregularities, have been treated as having been saved by the operation of s 306 of the Act, or by operation of one of its legislative precursors. Whether or not a particular defect results in invalidity must depend upon the nature of that particular defect, and its likely effect upon a debtor.

The absence of particulars regarding the sum of $191,752.85 20 I can see no reason why a failure to state in the body of a bankruptcy notice that the debt claimed represents the balance of an amount of a judgment or order, less a payment made, should invalidate that notice. The use of a schedule to a notice is expressly contemplated in Form 1. The Schedule to the bankruptcy notice under challenge makes clear that the original amount of the judgment or order was $374,708.89. This sum, together with interest accrued of $71,254.66 makes a total of $445,963.55. From that total, the sum of $191,752.85 has been deducted in order to arrive at the total debt owing of $254,210.70. The sum of $191,752.85 is described as "payments made and/or credits allowed since date of judgment or order". That is an entirely accurate description of the nature of that sum. It reflects the fact that there has either been a payment of that sum by the debtor, or that he has been credited with that sum by the creditor. It matters not in the slightest which of these two alternatives provides the basis for the figure in question. I do not believe that the failure to specify with any greater precision how the sum of $191,752.85 was arrived at constitutes a defect of any kind in the notice. If it did, it would be, at most, a formal defect of the type which would not, pursuant to s 306 of the Act, invalidate the notice.

The interest calculations 21 The fact that the interest calculations are set out in a document entitled "SCHEDULE OF INTEREST PAYABLE", which Schedule is not referred to in the body of the bankruptcy notice as such, but merely as a document attached to that notice, is, in my opinion, of no consequence. The format adopted by the respondent in this case accords precisely with that which is prescribed in Form 1. Note 2 to the Schedule to the notice expressly contemplates that details of the calculation of the amount of interest claimed are to be set out "in a document attached to this Bankruptcy Notice". That is precisely what has been done in this case. The document so attached sets out, in accordance with the requirements of Note 2, the provision under which the interest is being claimed - s 101 of the Supreme Court Act 1986 (Vic). It also sets out in accordance with the requirements of Note 2 the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed. As different rates have been claimed for different periods, full details have been shown. 22 A bankruptcy notice must, while being read strictly, also be read sensibly, and not perversely. It must also be read as a whole, and may be read in the light of facts extraneous to the notice itself - Re Wimborne (supra) at 499. 23 There is nothing misleading or inaccurate about the treatment accorded to the interest component in the notice. The debtor could not, on any view, have been misled as to that interest component. If there were a formal defect in relation to the interest component, s 306 of the Act would, in any event, operate to save the notice.

Failure to comply with the form prescribed 24 This ground is, in my view, devoid of any merit whatsoever. It is true that the note which appears under paragraph 3 in the prescribed form has been omitted from the bankruptcy notice. So it ought to have been. The purpose intended to be served by that note was to remind the party completing the notice to insert the requisite number of days within which the debtor was obliged to pay to the creditor the amount of his debt, or to make an arrangement to the creditor's satisfaction for settlement of the debt. The number twenty-one had been inserted in the first line of paragraph 3 of the present notice. It makes no sense at all to insist that a note appear in a notice advising the creditor that the number of days to be inserted is twenty-one, when that figure has itself already been inserted in the appropriate place. 25 Moreover, it is simply absurd to think that a bankruptcy notice could be invalidated by failing to include the expression "Note: The address must be within Australia" when the address for payment of the debt, which has been inserted in the notice, makes it plain that the address is within Australia. 26 Finally, the omission of the words "for your State or Territory" after the words "Federal Court Registry" in paragraph 10 of the bankruptcy notice, when the address inserted makes it plain that the relevant Court Registry is located at 450 Little Bourke Street, Melbourne, cannot constitute a defect of any kind in the notice, let alone a defect which could invalidate that notice. 27 If it were necessary to have resort to s 306 of the Act to save the notice by reason of any of these matters, I would not hesitate to invoke that section. However, in my opinion, none of these matters can properly be described as a defect or irregularity of any kind. Orders 28 The applicant has failed to make good any of his contentions regarding the supposed invalidity of the bankruptcy notice. The application to set aside the notice should be dismissed. The costs of and incidental to the application, including reserved costs, should be costs in the petition in the event that a petition is presented by the respondent based on non-compliance with the bankruptcy notice, and a sequestration order is made. Otherwise, the applicant should pay the respondent's costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg .

Associate: Dated: Counsel for the Applicant: Mr J Arthur