Re McDonald, B. v Ex Parte Elder Smith Goldsbrough Mort Ltd [1978] FCA 12

Bankruptcy - Creditor's petition - Bankruptcy notice - Judgment debt carrying statutory interest - Notice claiming unpaid balance of judgment debt and statutory interest thereon - Amount of balance, rate of interest and amount of interest all understated

This petition for a sequestration order is based on the debtor's failure to comply with a bankruptcy notice. It is opposed by, the debtor on the ground that the bankruptcy notice is invalid.

Though there is some ambiguity in the wording of the certificate of judgment filed with the application for the issue of the bankruptcy notice, 1t is not disputed that the petitioning creditor on 17 February 1975 obtained against the debtor in the Supreme Court of New South Wales a judgment for $10,648.75 for debt and $98 for costs - a total of $10,746.75. By reason of s. 95(1) of the Supreme Court Act 1970 (N.S.W.) and Part 40,

Rule 7(2)(b) of the Supreme Court Rules, interest at the yearly rate of 10% was payable on so much of that sum of $10,746.75 as was from time to time unpaid.

(8 November 1977 - so far unreported), that where by statute a judgment dept carries interest the judgment creditor may include in his bankruptcy notice a claim for interest (see In re Lehmann (1890), 7 Morr. 181, 183 per Cave J.) but that he need not, and in practice often does not, do so: see Re O'Keefe (1936), 19 A.B.C. 101, 104, where Clyne J. remarked that to amend the bankruptcy notice by striking out an impermissible claim for interest "would be to turn what is a basically invalid notice into a valid notice".

In the present case the bankruptcy notice did include a claim for interest. It recited that the judgment creditor "has Claimed that the sum of $8,213.50 together with interest thereon at the rate of $5 per centum per annum from 17th Tebruary

1975 ... which at the date of issue of this Notice amounts to

$1,016.24 making a total of $9,229.74 is due by you to it under

a final judgment obtained by it against you in the Supreme Court of New South Wales on the 17th day of February 1975, being a judgment the execution of which has not been stayed", and then notified the debtor that he was required within a specified time "to pay the sum of $9,229.74 so claimed by the judgment creditor" to the judgment creditor or to adopt one of the usual alternatives.

In fact the debtor on 12 January 1976 had paid $2,435.25, so that the unpaid balance of the judgment debt as at 3 May 1977 was $8,311.50 (and not $8,213.50); interest ran at the yearly rate of 10% (not 5%) on $10,746.75 from 17 February 1975 to 12 January 1976 and on $8,311.50 thereafter until 3 May 1977, amounting (accurately enough for present purposes) to $2,049.44 (and not $1,016.24), and the total as at 3 May 1977 of unpaid debt plus interest was $10,360.94 (and not $9,229.74).

Leaving aside for the moment the claim for interest, this case may be described as one in which, part of the judgment debt having been paid, the bankruptcy notice claimed, as being due under the judgment, an amount less than the balance which, after the part payment, in fact remained due and unpaid; and was silent as to the difference between that amount and that balance.

That description precisely fits the case of In re H.B., (1904) 1 K.B. 94, in which the bankruptcy notice was held to be invalid, and in which Romer L.J. said (at 103):

"Now I think it is clear that, when you have a judgment in the form that we have here, a bankruptcy notice

under the Act must require payment of a sum alleged

to be duc according to the terms of the judgment - that is to say, it must state the amount that 1s claimed as remaining unpaid on the judgment debt. Clearly, ina bankruptcy notice the debtor is entitled to see from the notice exactly what is claimed to be due on the judgment debt. No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment

beyond the amount specified in the notice. But a notice

-3- to pay part of a judgment debt, leaving any balance

that 'may be due to be subsequently claimed, is, to my mind, clearly bad".

It is not necessary to consider whether the understatement by $98.00 of the judgment debt should attract the operation of s. 306(1), because the bankruptcy notice must be looked at as a whole, and it includes a claim for interest. Where a judgment creditor chooses to include such a claim in the bankruptcy notice, he must accurately calculate the amount of the interest and specify it in the notice: Re Davis (1963), 19 A.B.C. 100;

Here, the rate of interest was wrongly stated and the amount of interest due was wrongly calculated, with the result that both it and thetotal of the claims for unpaid debt and for interest were understated by amounts amply sufficient to prevent any application of s. 306({1).

It may be as well to remark before leaving the case that the principles enunciated by Romer L.J. in the passage set out above have been regarded as applicable in cases where no part of the judgment debt has been paid and the bankruptcy notice simply understates the amount remaining unpaid: Re Jack (1958 -

1959), 19 A.B.C. 268; Nirens v. Fowler Asphalt Pty. Limited (1966),

9 F.L.R. 255, 256; but that his Lordship's statement was not directed to the case where, part of the judgment debt having been paid, the bankruptcy notice simply claims, and accurately states, the unpaid balance and does not also identify it as such, or specifically state that nothing more is claimed, or refer to the part payment. If such a case arises for decision, attention

will have to be paid to, inter alia, the remarks of Vaughan

In the present case, having come to the conclusion that the bankruptcy notice is invalid, I dismiss" the petition and

order the petitioning creditor to pay the debtor's costs, including

i la NEW SOUTH WALES DISTRICT REGISTRY ) No. P. 863 of 1977 a " . BP,

ORDER JUDGE MAKING ORDER: Riley J. DATE OF ORDER i March 1978 WHERE MADE: Sydney THE COURT ORDERS THAT:

1. The petition be dismissed.
2. The petitioning creditor pay the debtor's costs

• ROE ET IL CE EAT ET ET ET SE re IEEE POT mt SLE LT SHEE PARENTER NTT NT OTE

Bankruptcy - Creditor's petition - Bankruptcy notice - Judgment debt carrying statutory 1nterest - Notice claiming unpaid balance of judgment debt and statutory interest thereon - Amount of balance, rate of interest and amount of interest all understated

This petition for a sequestration order is based on the debtor's failure to comply with a bankruptcy notice. It is opposed by. the debtor on the ground that the bankruptcy notice is invalid.

Though there is some ambiguity in the wording of the certificate of judgment filed with the application for the issue of the bankruptcy notice, it is not disputed that the petitioning creditor on 17 February 1975 obtained against the debtor in the Supreme Court of New South Wales a judgment for $10,648.75 for debt and $98 for costs - a total of $10,746.75. By reason of s. 95(1) of the Supreme Court Act 1970 (N.S.W.) and Part 40, Rule 7(2) (b) of the Supreme Court Rules, interest at the yearly rate of 10% was payable on so much of that sum of $10,746.75 as was from time to time unpaid.

C. A. Sweeney J. has pointed out in Re Mullavey (8 November 1977 - so far unreported), that where by statute a judgment debt carries interest the judgment creditor may include

in his bankruptcy notice a claim for interest (see In re Lehmann

(1890), 7 Morr. 181, 183 per Cave J.) but that he need not, and in practice often does not, do so: see Re O'Keefe (1936), 19 A.B.cC. 101, 104, where Clyne J. remarked that to amend the bankruptcy notice by striking out an impermissible claim for interest "would be to turn what is a basically invalid notice into a valid notice".

In the present case the bankruptcy notice did include a claim for interest. It recited that the judgment creditor "has claimed that the sum of $8,213.50 together with interest thereon at the rate of $5 per centum per annum from 17th February

1975 ... which at the date of issue of this Notice amounts to

$1,016.24 making a total of $9,229.74 is due by you to it under

a final judgment obtained by 1t against you in the Supreme Court of New South Wales on the 17th day of February 1975, being a judgment the execution of which has not been stayed", and then notified the debtor that he was required within a specified time "to pay the sum of $9,229.74 so claimed by the judgment creditor" to the judgment creditor or to adopt one of the usual alternatives.

In fact the debtor on 12 January 1976 had paid $2,435.25, so that the unpaid balance of the judgment debt as at 3 May 1977 was $8,311.50 (and not $8,213.50); interest ran at the yearly rate of 10% (not 5%) on $10,746.75 from 17 February 1975 to 12 January 1976 and on $8,311.50 thereafter until 3 May 1977, amounting (accurately enough for present purposes) to $2,049.44 (and not $1,016.24), and the total as at 3 May 1977 of unpaid debt plus interest was $10,360.94 (and not $9,229.74).

Leaving aside for the moment the claim for interest, this case may be described as one in which, part of the judgment debt having been paid, the bankruptcy notice claimed, as being due under the judgment, an amount less than the balance which, after the part payment, in fact remained due and unpaid; and was silent as to the difference between that amount and that balance.

That description precisely fits the case of In re H.B., (1904) 1 K.B. 94, in which the bankruptcy notice was held to be invalid, and in which Romer L.J. said (at 103):

"Now I think it is clear that, when you have a judgment in the form that we have here, a bankruptcy notice

under the Act must require payment of a sum alleged

to be due according to the terms of the judgment - that is to say, it must state the amount that is claimed as remaining unpaid on the judgment debt. Clearly, ina bankruptcy notice the debtor 1s entitled to see from the notice exactly what is claimed to be due on the judgment debt. No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment

beyond the amount specified in the notice. But a notice

to pay part of a judgment debt, leaving any balance that may be due to be subsequently claimed, 1s, to my mind, clearly bad".

It is not necessary to consider whether the understatement by $98.00 of the judgment debt should attract the operation of s. 306(1), because the bankruptcy notice must be looked at as a whole, and it includes a claim for interest. Where a judgment creditor chooses to include such a claim in the bankruptcy notice, he must accurately calculate the amount of the interest and specify it in the notice: Re Davis (1963), 19 A.B.Cc. 100;

Here, the rate of interest was wrongly stated and the amount of interest due was wrongly calculated, with the result that both it and thetotal of the claims for unpaid debt and for interest were understated by amounts amply sufficient to prevent any application of s. 306(1).

It may be as well to remark before leaving the case that the principles enunciated by Romer L.J. in the passage set out above have been regarded as applicable in cases where no part of the judgment debt has been paid and the bankruptcy notice simply understates the amount remaining unpaid: Re Jack (1958 - 1959), 19 A.B.C. 268; Nirens v. Fowler Asphalt Pty. Limited (1966), 9 F.L.R. 255, 256; but that his Lordship's statement was not directed to the case where, part of the judgment debt having been paid, the bankruptcy notice simply claims, and accurately states, the unpaid balance and does not also identify it as such, or specifically state that nothing more is claimed, or refer to the

part payment. If such a case arises For decision, attention

will have to be paid to, inter alia, the remarks of Vaughan

In the present case, having come to the conclusion that

• the bankruptcy notice is invalid, I dismiss the petition and order the petitioning creditor to pay the debtor's costs, including