Re Hodgson Ex Parte FCR Motion Technology Pty Ltd [1999] FCA 263

REASONS FOR JUDGMENT 1 The Application On 4 December 1998 the solicitors acting for FCR Motion Technology Pty Ltd ("FCR") filed a petition for a sequestration order against the estate of Brian Hodgson. The act of bankruptcy on which the petition is based is the failure of the debtor to comply with the requirements of the bankruptcy notice dated 20 July 1998 and served on the debtor on 26 July 1998. 2 A solicitor then acting for the respondent debtor filed a Notice of Opposition on 5 March 1999 wherein the debtor opposed the petition on the following grounds: 1. "Material defects ... in the bankruptcy notice and petition ... in that a judgment was not obtained against the respondent on the date claimed in Bankruptcy Notice VN1126/98 and the Petition and further in that any debt that may exist between the petitioning creditor and the respondent ... is not payable immediately." 2. "The bankruptcy notice upon which the petition is based is an abuse of process in that the Certificate of Judgment appended to the bankruptcy notice ... is misleading and purports to certify that judgment was obtained against the respondent on 2 May 1997." 3. "The judgment debt ... is void and bad at law." 4. "The debt ... is not immediately payable." 5. "For sufficient other cause a sequestration order should not be made." 3 At trial Counsel for the debtor concentrated on the first and second grounds of opposition. 4 The Judgment Debt The kernel of the opposition is that judgment was not obtained against the respondent debtor on the date claimed in the bankruptcy notice and the petition and that the Certificate of Judgment appended to the bankruptcy notice was misleading in that it contains an erroneous reference to a judgment allegedly obtained against the respondent on 2 May 1997. 5 The applicant concedes that the certificate of judgment attached to the bankruptcy notice is incorrect in that the date of judgment is certified as 2 May 1997. That is the only concession made by the applicant creditor. The creditor asserts that in all other particulars the certificate correctly describes a judgment against the debtor on 23 October 1997. 6 In Re Wong; Ex parte Kitson (1979) 38 FLR 207 Lockhart J considered an incorrect date of judgment specified in a bankruptcy notice. Re Wong was also a case in which the certificate of judgment bore an incorrect date of judgment. His Honour held that since there had been no other proceedings between the parties, the incorrect date of judgment in the bankruptcy notice was not such as could reasonably mislead the particular debtor upon whom it had been served. The error was accordingly a formal defect or irregularity, so that the bankruptcy notice could be validated by s306 of the Bankruptcy Act 1966. 7 In Re Wong the debtor submitted that the date of judgment erroneously described in the bankruptcy notice as 10 May 1997 instead of 16 May 1997 resulted in the notice being a nullity. The creditor did not dispute the evidence that the correct date of judgment was 16 May 1997. At 210, Lockhart J said: It is unfortunate that the certificate of judgment bears an erroneous date. However, the evidence establishes clearly that it is erroneous and that the correct date is 16th May. Hence, the bankruptcy notice is inaccurate notwithstanding compliance by the petitioning creditor with the relevant rules relating to the issue of bankruptcy notices. ...... The test to be applied in determining whether an error in a bankruptcy notice constitutes a formal defect or an irregularity within the meaning of s.306, has been stated in a number of cases. In Pillai v. Comptroller of Income Tax [1970] A.C. 1124. ...Lord Diplock, ... said: "... there is relevant authority upon the construction of the identical words in section 147 (1) of the English Bankruptcy Act, 1914. It is implicit ... that proceedings in bankruptcy may be so defective as to render them a nullity notwithstanding that no substantial and irremedial injustice has in fact been caused by the defect. The section draws a distinction between such a defect and a 'formal defect or irregularity'. It is only the latter which are validated by the section, provided that no substantial and irremedial injustice has been caused. ".....The test ... laid down (in Re a Debtor; Ex parte The Debtor v. Bowmaker Ltd [1951] Ch. 313) was whether the defect in the notice was of such a kind as could reasonably mislead a debtor upon whom it was served. If it was, the notice was not validated by the section notwithstanding that the particular debtor upon whom it was served was not in fact misled. If, on the other hand, it could not reasonably mislead the debtor it was a formal defect and validated by the section. .... ... any failure to comply with the statutory provisions as to the form of a bankruptcy notice of a kind which could not reasonably mislead a debtor upon who it is served is a 'formal defect' and validated by the section" (Pillai at 1135 Section 147(1) of the English Bankruptcy Act, 1914 is equivalent to s.306 of the Act. .... In Re Wimbourne; Ex parte The Debtor (1979) 24 ALR 494, I said that the test is not whether the debtor was in fact misled, it is sufficient that he could be misled; but that to determine whether the debtor could be misled, the court may look at facts extraneous to the notice itself and that the debtor whose liability to confusion is relevant is not some hypothetical debtor but the very debtor in question. .... There is no suggestion that there were any proceedings between the parties other than the District Court action which led to the judgment ..... I am satisfied that the error in the bankruptcy notice as to the date of judgment is not such as could reasonably mislead the debtor. It is an irregularity within the meaning of s.306. ..... In my opinion this is an appropriate case for the application of s.306. 8 The Caselog and Order Details for case number K00524192 (Exhibit "BH1" to the debtor's sworn 5th March 1999) indicate: · a default order against Bridar Sheetmetal Metal Pty Ltd on 2 May 1997 for $7,297.14 interest $158.34, costs $390.70 (total $7,846.18); · a default order against the debtor on 23 October 1997 for $7,297.14, interest $617.52, costs $381.60 (total $8,296.26). 9 The order against the debtor on 23 October 1997 is confirmed in a Notice of Order dated 4 March 1999 (also part of Exhibit "BH1"). 10 The Caselog and Order Details indicate that only one order was made against the debtor and that was the order of 23 October 1997. It is interesting to note that the Certificate of Judgment attached to the bankruptcy notice contains: · the correct principal sum of $7,297.14 (but then that is also the principal sum against Bridar in the order of 2 May 1997). · deletion of the correct interest of $617.52 ordered against the debtor on 23 October 1997 and substitution by hand bearing the initials of the issuing officer of interest in the sum of $158.34 which is the correct interest ordered against Bridar on 2 May 1997. · deletion of costs of $181.10 which were neither the cost orders against Bridar on 2 May or against the debtor on 23 October and substitution of costs of $390.70 which were the costs ordered against Bridar on 2 May (again, the amendment was initialled by the issuing officer). 11 If the debtor ever turned his mind to the precise date of the judgment against him and to the interest and costs as at the date of order (23 October), then it could be said that he could have been misled as to the date and the interest and costs due at the date of judgment and due as at the date of the petition. But for reasons that follow, I do not consider he was misled as to the principal sum ordered against him and I do not believe the defects constituted a substantial and irremedial injustice. 12 Maria Green is a Collector in the employ of Dun & Bradstreet (Australia) Pty Ltd and she dealt with the debtor in this action. Her uncontested evidence in her affidavit sworn 11 March 1999 and attached correspondence from the debtor to Kathy Gillard of Dun & Bradstreet on 22 February, 30 April and 5 May 1998 (Exhibits "MG1", "MG3" and "MG4") and from the debtor to Ms Green of Dun & Bradstreet on 27 March and 25 August 1998 (Exhibits "MG2" and "MG5") lead to the inevitable conclusion that the debtor was not misled by the incorrect reference to a judgment of 2 May 1997 in the bankruptcy notice, the certificate of judgment and the petition. The circumstances are remarkably similar in Re Wong. The conclusion reached is identical to the conclusion reached in Re Wong. 13 Counsel for the debtor cited Scerri -v- Cahill (unreported, Federal Court of Australia, Beaumont J, 17 March 1998) in support of the contentions in the Notice of Opposition. In Scerri, Beaumont J found a bankruptcy notice bad and invalid because the notice: · wrongly specified compliance as required within fourteen days instead of twenty-one days as prescribed; · misled the debtor in terms of notice of compliance; · was issued without any copy of judgment attached. 14 All three defects were found to be fundamental and as going "well beyond formal defects", beyond remedy through s306 and the first two defects were held to be "capable of misleading a debtor". 15 None of those defects were present in this case. A Certificate of Judgment was attached to the bankruptcy notice but it bore the incorrect date. Nevertheless, the Certificate of Judgment referred to the debtor as defendant and the principal sum ordered against him was correct. 16 Having found that the reference to an incorrect date of judgment in the bankruptcy notice, the attached Certificate of Judgment and the petition did not mislead the debtor, I propose to follow Re Wong. 17 I will utilise s306 to remedy the defects. I have taken account of what was said in Re Wong at 213, namely: If a judgment creditor chooses to claim interest on a judgment debt, it is necessary for the calculation of the claim to be accurate, and for the period during which the claim is made to be specified: Re Mullavey; Ex parte Australia and New Zealand Banking Group Ltd (1977) 32 FLR 1; Re Davis; Ex parte Deputy Commissioner of Taxation (1963) 19 ABC 100 and Re McDonald; Ex parte Elder Smith Goldsbrough Mort Ltd (1978) 32 FLR 11. "Understatement of the amount of statutory interest accrued from the date of judgment to the date of issue of a bankruptcy notice or other date specified in the notice does not necessarily vitiate the bankruptcy notice. Section 306 of the Act may be capable of operating to validate a bankruptcy notice that otherwise would be invalid. See the decision of Riley J. in Re Munson and my own decision in Re Manion." 18 Being satisfied that the debtor committed the act of bankruptcy alleged in the petition and being satisfied with proof of the other matters of which s52(1) of the Act requires proof and being unsatisfied as to any valid grounds of opposition in the terms set out in the Notice of Opposition, I order that :