Seovic Civil Engineering Pty Ltd v Groeneveld

The Terms of Settlement 4 In order to understand the references in the bankruptcy notice to a judgment debt of $200,000 and payments of $71,500, it is necessary to consider terms of settlement signed by the debtor and creditor in October 1995. In 1993, the creditor commenced proceedings in this Court against the debtor and Formless Concreting Systems Pty Ltd ("the company"). On 12 October 1995 the parties signed terms of settlement resolving the proceedings. 5 The terms of settlement, insofar as presently relevant, are as follows: "1. Judgment for the applicant against the respondents in the sum of $200,000 inclusive of costs, with statutory interest to accrue thereon from today regardless of when judgment is entered. ... 4. Note that the applicant will accept the following payments in satisfaction of the said judgment sum subject to paragraph 5 below: (a) $10,000 today. (b) $10,000 on 30 November 1995. (c) $10,000 on 31 December 1995. (d) $10,000 on 31 January 1996. (e) $80,000 payable in seventeen equal quarterly instalments of $4,500 each and an eighteenth instalment of $2,500, such payments to be made on or before the twenty-eighth day of April, July, October and January thereafter commencing on 28 April 1996. 5. In the event of default in any of the said payments as aforesaid, the applicant is at liberty to enforce the said judgment sum together with interest thereon as aforesaid subject to the following:- (a) upon default in any of the said payments required by paragraph 4 above, other than subparagraph 4(a), the applicant will give written notice of the default to the second respondent. Service of such notice will be deemed to have been effected if sent to or left at 3 Walter Street, Ingleside or at Lot 8, Cicada Glen Road, Ingleside or at the present registered office of the first respondent. (b) the applicant will not enforce the said judgment on the basis of such default provided that such default is rectified within seven days after the said written notice is served on the second respondent. 6. The applicant hereby releases the respondents and the respondents hereby release the applicant from all actions, claims and demands whatsoever relating in any way to the subject matter of these proceedings which, respectively, the applicant may have against the respondents or the respondents may have against the applicant." 6 The terms of settlement were signed by counsel for the debtor and the company (both parties being represented by the same counsel). The document was also signed by the debtor "on his own behalf and on behalf of the [company]". In addition, of course, the terms of settlement were signed on behalf of the creditor.

The Default 7 All payments due under the agreement prior to 28 January 1998 were made, although it appears that not all instalments were paid on time. On at least two occasions, the creditor wrote to the debtor, at 3 Walter Street Ingleside, complaining about delays in paying instalments due under the terms of settlement. On one occasion (28 April 1996), the creditor sent a letter to the debtor at the same address advising of a default in payment and giving the notice contemplated by cl 5(a) of the terms of settlement. That default was apparently rectified. 8 The instalment of $4,500 due on 28 January 1998 was not paid on that date. It was not disputed that on 29 January 1998, the creditor caused a letter to be sent by post addressed to the debtor and the company at 3 Walter Street Ingleside. The letter was in these terms:

"Your payment due yesterday 28 January 1998, has not been made as you agreed under the terms. You now have 7 days to make this payment. If this payment is not made, I will exercise my rights." The primary Judge found that the letter was not received by the debtor. That finding is also not disputed by the creditor. 9 The instalment due on 28 January 1998 was not paid until 31 March 1998. Judgment for the creditor in the sum of $200,000 was entered against the debtor and the company on 11 March 1998. As noted earlier, the creditor caused the bankruptcy notice to be issued on 17 March 1998.

The Debtor's Notice 10 On 25 May 1998, the debtor's solicitors wrote to the creditor's solicitors. The letter stated that, as the debtor had not received the letter sent on 29 January 1998 (a copy of which had been provided by the creditor's solicitors), the creditor was not entitled to rely on cl 5(b) of the terms of settlement. 11 The letter also included the following paragraph: "Further, we dispute the amount claimed in the Bankruptcy Notice as it overstates the amount said to be due. Our client has made payments totalling $80,500."

It will be recalled that the bankruptcy notice allowed only the sum of $71,500 in respect of instalments paid by the debtor.

The Primary Judge's Reasons 12 The debtor applied for orders setting aside the bankruptcy notice. The learned primary Judge delivered a brief ex tempore judgment. His Honour held that the finding that the creditor's letter of 29 January 1998 had not been received by the debtor provided a conclusive answer to the contention that the debtor owed the creditor the sum of $200,000 at the date of the bankruptcy notice. 13 His Honour considered that cl 5(b) of the terms of settlement was entirely based upon the concept that a notice given by the creditor had to be received by the debtor. Receipt was necessary in order to give the debtor an opportunity to rectify any default within seven days of receipt of the creditor's notice. Since the creditor had not complied with the terms of cl 5(b), the debtor could not be said to have failed to rectify any default in payment of the instalment due on 28 January 1998. Consequently, the debt claimed in the bankruptcy notice did not exist at the date of the notice. In reaching this conclusion, his Honour plainly proceeded on the assumption that he was entitled to go behind the judgment which had been entered on 11 March 1998. 14 Although it was not necessary for the primary Judge to do so, given his construction of the terms of settlement, his Honour addressed a second argument put forward by the debtor. This argument was advanced for the first time in the debtor's written submissions, which were served shortly before the hearing. The debtor contended that the bankruptcy notice had overstated the amount of interest due, because the calculations producing the figure of $37,433.50 had overlooked the fact that 1996 had been a leap year. By reason of that error, the amount of interest due had been overstated by some $42.00. The debtor submitted that, in these circumstances, the bankruptcy notice was invalid. 15 The creditor conceded before the primary Judge, on the authority of Re Clubb; Ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123 (Burchett J), that there had been a small error in the calculation of interest by reason of the failure to take into account that 1996 had 366, rather than 365 days. However, the creditor submitted that it was not open to the debtor to raise the point, since it had not been referred to in the letter of 25 May 1998 from the debtor's solicitors, which identified quite a different alleged mis-statement. In the absence of a reference to the mis-statement of interest, it was said that the debtor had not given a valid notice under s 41(5) of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act") which reads as follows: "(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the mis-statement." The creditor submitted that since the debtor had failed to give a notice under s 41(5), the bankruptcy notice was not invalidated by the small overstatement of interest. 16 The primary Judge expressed the view that the absence of any reference to the calculation of interest in the letter of 25 May 1998 did not mean that the debtor had failed to comply with s 41(5) of the Bankruptcy Act. The creditor, if in doubt about the matter, could have sought details of the alleged over-statement. It did not do so. It followed, according to his Honour, that the small over-statement of interest afforded an independent ground for holding that the bankruptcy notice was liable to be set aside. 17 It should be noted that despite the terms of the letter of 25 May 1998, the debtor did not argue before the primary Judge that the bankruptcy notice had mis-stated the amount paid on account of the debt by way of instalments. The debtor accepted that the bankruptcy notice correctly recorded that, at the date the notice was issued, he had paid instalments of $71,500 in respect of the judgment debt and that the claim in the letter that $80,000 had been paid was wrong. In this regard, it should be noted that the date of the issue of a bankruptcy notice is the time at which the question of an alleged over-statement of the amount due is to be judged: Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337.

Issues on the Appeal 18 Three issues were argued on the appeal. First, the creditor contended that the primary Judge had erred in construing cl 5 of the terms of settlement. According to Mr Donohoe QC, who appeared with Mr Gray for the creditor, cl 5(a) of the terms of settlement deemed the posting of the letter of 29 January 1998 to constitute service for the purpose of cl 5(b) and proof of receipt of the letter was therefore unnecessary. The very point of cl 5(a) was to obviate the need for the creditor to prove that the debtor had received the written notice required by cl 5(b). For his part, Mr Aldridge, on behalf of the debtor, sought to uphold the primary Judge's conclusion on this issue. 19 It appeared to be common ground between the parties that if the creditor had failed to serve written notice in accordance with cl 5(b) of the terms of settlement, the primary Judge had been correct in setting aside the bankruptcy notice. 20 The second issue is whether the letter of 25 May 1998, from the debtor's solicitors to the creditor's solicitors, constituted a notice to the creditor that the debtor "disputes the validity of the notice on the ground of the mis-statement", within the meaning of s 41(5) of the Bankruptcy Act. The creditor contended that the letter could not constitute a notice of the kind contemplated by s 41(5), since it made no reference to the over-statement of interest and, indeed, was misleading because it referred to quite a different (non-existent) mis-statement. The debtor's contention was that it was enough for the debtor simply to assert in a letter that there had been a mis-statement in the bankruptcy notice, without identifying the mis-statement. It did not matter that the mis-statement in the letter was not well-founded. The letter was sufficient to encompass any mis-statement in fact incorporated in the bankruptcy notice. 21 Mr Aldridge conceded that, if the debtor had not complied with s 41(5) of the Bankruptcy Act, the bankruptcy notice was not liable to be set aside by reason of the over-statement of interest. On the other hand, Mr Donohoe argued that a holding that the debtor had served a notice in compliance with s 41(5) of the Bankruptcy Act did not conclude the matter. He submitted, without developing the submission, that the small over-statement of interest in the bankruptcy notice was a mere "formal defect or an irregularity" within s 306(1) of the Bankruptcy Act and that the effect of s 306(1) was to prevent the bankruptcy notice being invalidated by the over-statement. Thus, the third issue is whether, assuming the debtor gave a notice in conformity with s 41(5) of the Bankruptcy Act, the bankruptcy notice was saved from invalidity by the application of s 306(1) of the Bankruptcy Act. The third issue does not require resolution if the debtor's notice did not conform with s 41(5).

The Construction Issue 22 The second sentence of cl 5(a) provides that service of the written notice contemplated by the sub-clause "will be deemed to have been effected if sent to or left at 3 Walter Street, Ingleside or at Lot 8, Cicada Glen Road, Ingleside or at the present registered office of [the company]." The word "sent", in its ordinary meaning, does not import a requirement that the document be received. As Lord Uthwatt said in Tankexpress A/S v Compagnie Financiere Belge Des Petroles SA [1949] AC 76, at 101, in the context of construing what his Lordship regarded as a "commercial bargain" between shipowners and charterers, " 'Sending' means sending and does not involve receipt". Similarly, as Windeyer J said in Hunter Douglas Australia Pty Ltd v Perma Blinds (1970) 122 CLR 49, at 65, the word "deem" usually means "to judge or reach a conclusion about something", although of course the meaning may vary according to the context. 23 It follows that the ordinary meaning of the second sentence of cl 5(a) is that the written notice of default will be taken between the parties to have been served, if the procedure specified in the sub-clause is followed. Clause 5(b) is plainly linked to cl 5(a), since it provides for a period to run from the time "the said written notice is served on the [debtor]". This is a clear reference to the deemed service of the notice on the debtor, effected by the means specified in cl 5(a). 24 Mr Aldridge did not really dispute that this is the ordinary meaning of cl 5(a). He suggested, rather, that cl 5(b) was the critical provision. The object of cl 5(b) was to give the debtor an opportunity to remedy any default in paying a particular instalment. In order for that opportunity to be meaningful, it was necessary for the debtor actually to receive the notice. Moreover, if the time rectifying the default ran from the date the notice was sent (as the creditor submitted) the debtor, even if he received the notice, might have insufficient time to rectify the default. 25 This argument tends to overlook not only the language of cl 5(a), but the fact that cl 5(b) was clearly drafted with the provisions of cl 5(a) in mind. A further difficulty for the argument is that it renders the second sentence of cl 5(a) otiose. If that sentence does not have the operation suggested by its ordinary meaning, it has no practical effect. 26 Mr Aldridge attempted to overcome this difficulty by arguing that the deeming provision was merely designed to facilitate modes of service other than personal service. But, on this argument, if those modes of service do not result in the debtor actually receiving the notice, the creditor obtains no advantage from cl 5(a). If the debtor does receive a notice sent to or left for him, it is hard to see why the notice would not be "served on" him for the purposes of the terms of settlement, regardless of the language in cl 5(a). 27 In our view, it is clear enough what cl 5 was intended to achieve. The deeming provision in cl 5(a) was intended to relieve the creditor of the need to prove that the written notice of default had been received by the debtor. In the ordinary course, no difficulty would be occasioned, because the default notice would be received shortly after it had been posted to or left at the relevant address. In certain circumstances, however, the notice might not be received by the debtor, for example, because it went astray in the post or the debtor was interstate or overseas and returned only after the expiration of the seven day period contemplated by cl 5(b). In these circumstances, cl 5 was designed to ensure that the debtor, not the creditor, bore the risk and consequences of non-receipt. 28 The debtor's argument emphasised the apparent harshness of this result. There are, however, dangers in proceeding on the assumption that an apparently harsh result could not have been contemplated by the parties to the terms of settlement. Neither party adduced any evidence as to the course of negotiations leading to the terms of settlement. But it is clear from cll 1 and 4 of the terms of settlement that the debtor and the company were given the benefit of a very substantial discount on the agreed judgment sum, coupled with an extended period for payment, provided the agreed schedule of payments was strictly adhered to. Moreover, the parties would have appreciated and doubtless would have taken into account that the debtor would be aware whether or not he (or the company) had paid each instalment as it fell due. (We agree with Mr Donohoe that the fact that the debtor signed the terms of settlement on behalf of the company and that the company's registered address was one of the addresses identified in cl 5(a) supports the inference that the debtor's involvement in the company was such as to make him aware whether or not the company had paid any particular instalment as it fell due.) 29 In our opinion, cl 5(a) deemed the creditor's actions, in sending the letter of 29 January 1998 addressed as we have described, to have effected service of the default notice. Since cl 5(a) had this effect, the debtor failed to rectify his default within the period prescribed by cl 5(b) of the terms of settlement. The debtor's first argument therefore fails. Did the Debtor Give a Notice Under s 41(5) of the Bankruptcy Act?

What Form of Notice Must the Debtor Give? 30 The adequacy of the notice given by the debtor, in his solicitors' letter of 25 May 1998, raises a question of statutory construction in an area of the law notorious for its technicality. Can a debtor rely on s 41(5) of the Bankruptcy Act, where the notice given to the creditor not only does not identify correctly the over-statement in the bankruptcy notice, but purports to identify a non-existent over-statement? For convenience, we repeat the terms of s 41(5) here: "(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the mis-statement." The first part of s 41(5) appears to have been drafted on the assumption that a bankruptcy notice is liable to be "invalidated" if the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due to the creditor. Nothing is said in the sub-section about the significance, if any, of the amount of the over-statement being small or large. We shall return to this point later. 31 Section 41(5) then provides that a bankruptcy notice is not to be invalidated by reason only that the sum claimed in the notice exceeds the amount in fact due, unless the debtor gives the notice contemplated by the sub-section. As we have noted, Mr Aldridge conceded that, if a debtor does not give a notice to the creditor in accordance with s 41(5), the bankruptcy notice is not liable to be set aside by reason only of the over-statement. This concession is consistent with the authorities: Re Walsh, at 92, per Lockhart J; Olivieri v Stafford (1989) 24 FCR 413 (FC), at 428, per Gummow J; Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 279 (von Doussa J), at 284. 32 The notice the debtor is required to give, in order to challenge the validity of the bankruptcy notice by reason of an over-statement of the amount due, must do two things: · first, it must give notice to the creditor that the debtor disputes the validity of the notice; and · secondly, it must give notice to the creditor that the debtor does so on the ground of "the mis-statement". Clearly enough, the expression "the mis-statement", as used in s 41(5), is a reference to the amount claimed in the bankruptcy notice being incorrect by reason of it exceeding the amount in fact due by the debtor to the creditor. 33 It follows from the language of s 41(5) of the Bankruptcy Act that a debtor does not comply with s 41(5) simply by asserting in the notice to the creditors that the bankruptcy notice is invalid. The debtor's notice must at least give notice that the validity of the bankruptcy notice is disputed "on the ground of the mis-statement". What, then, is meant by the concluding words of s 41(5)? 34 There is some authority in Australia suggesting that a debtor's notice complies with s 41(5) if it merely asserts that the validity of the bankruptcy notice is disputed on the ground that the amount claimed is more than that which is actually due. In Re Charles Murray (1959) 18 ABC 152, Clyne J held that a letter substantially in these terms complied with proviso (ii) to s 53 of the Bankruptcy Act 1924 (Cth) (the "1924 Act") (the immediate predecessor to s 41(5)). His Honour's reasoning was briefly expressed (at 156): "It was contended by Mr Needham for the petitioning creditor that the notice given by the debtor was ineffective as it should have set out the amount of the excess. In my opinion, this contention is untenable. What the material proviso to s 53 requires is that when the sum specified in the notice as the amount due exceeds the amount actually due the debtor can dispute the validity of the notice on the ground of such misstatement, i.e. that the amount specified in the notice exceeds the amount actually due." 35 A similar view appears to have been taken by Pincus J in Re Wilhemsen; Ex parte Gould (1986) 11 FCR 107. There the bankruptcy notice claimed $340,603.24, the whole of the relevant judgment debt, but failed to give the debtor credit for some $160,000 realised from the sale of mortgaged property. The debtor, who was unrepresented, gave a notice to the Registrar beginning as follows: "I wish to advise that the amount of $340,603.24 is completely untrue". The notice made various complaints, including (so it appears) a claim that the creditors had sold mortgaged property at an undervalue. The debtor's notice did not expressly state that the judgment sum had been reduced by the net proceeds of the mortgagees' sales. Pincus J said this (at 108): "However, reading the notice as a whole, it conveyed the information that the sum of $340,603.24, described as 'completely untrue' was so because it was too high, for the reasons set out in it. Section 41(5) does not require that any reasons be set out or that, if reasons are given, they be correct. In my view, although by no means clear, the document delivered to the Registrar would, if delivered to the creditors, have complied with s 41(5)." 36 While it is not strictly necessary for us to decide, we think that the better view is that a notice by the debtor which simply asserts, without more, that the amount specified in the bankruptcy notice exceeds the amount actually due, does not comply with the requirements of s 41(5) of the Bankruptcy Act. The expression "the mis-statement" strongly suggests that the debtor must do more than merely assert that there is a mis-statement in the bankruptcy notice. The sub-section requires the debtor to provide sufficient information in the notice to enable the creditor to identify what is said to be the alleged mis-statement. Only then does the debtor's notice displace the general rule established by s 41(5), that the bankruptcy notice is not invalidated only by reason that the sum specified therein as the amount due to the creditor exceeds the amount in fact due. 37 This construction of s 41(5) of the Bankruptcy Act is supported by policy considerations. The object of a debtor's notice under s 41(5) is to inform the creditor that the debtor disputes the bankruptcy notice and does so on the ground of a mis-statement contained in that notice. The point of the notice is to draw to the creditor's attention the mis-statement, thereby giving the creditor the opportunity to consider, for example, whether the bankruptcy notice should be withdrawn and a fresh notice, correcting the mis-statement, issued. If the creditor is given no hint in the notice as to the nature of the mis-statement, there is a considerable risk that the debtor will be able to take unmeritorious advantage of minor errors (such as the small mistake in the present case) and that unnecessary and wasteful litigation will eventuate. It is no answer to say that the creditor can ask for particulars, since the debtor would not be obliged to give any until after litigation had been instituted. Indeed, a debtor wishing to take advantage of the technicalities of the law of bankruptcy might be well-advised to say as little as possible for as long as possible about the true nature of the alleged mis-statement in the bankruptcy notice. 38 This view of s 41(5) of the Bankruptcy Act does not mean that a debtor, who is quite likely to be unrepresented, must identify the mis-statement with complete precision or specify the exact amount of the alleged excess of the claim. To borrow the language of Lockhart J in Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135, at 142, the Court should adopt a "benevolent construction" of the debtor's notice. His Honour's comments related to the then s 41(7) of the Bankruptcy Act, which provided for an automatic extension of time for compliance with a bankruptcy notice where the debtor filed an affidavit to the effect that he or she had "such a counter-claim, set-off or cross demand as is referred to in [s 40(1)(g)]". Lockhart J held that the affidavit had to contain more than a mere assertion that the debtor had a counter-claim, set-off or cross-demand of the relevant kind. It was necessary to provide evidence in support of the debtor's claims. However, having regard to the time limit for the filing of the affidavit and the difficulties facing an unrepresented debtor, a "benevolent construction" of the affidavit was warranted. Lockhart J's approach was subsequently adopted by the Full Court: Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91. 39 A benevolent construction of the debtor's notice in Re Wilhemsen, for example, might well have led to the same result reached by Pincus J. Although the report does not disclose the full terms of the notice, it seems likely that it referred to the mortgagees' sales, the proceeds of which had been applied to the judgment debt. A fair reading of the notice, having regard to the surrounding circumstances, might well have been such as to alert the creditor to the nature of the mis-statement incorporated in the bankruptcy notice. Indeed, it seems from the passage cited that Pincus J may have been of that view. Similarly, in Re Serafino; Ex parte Classic Manufacturing Pty Ltd (1989) 86 ALR 283 (Burchett J), the debtor's notice stated that the interest claimed in the bankruptcy notice appeared "to be excessive of the amount due under the terms of the judgment relied [on]". While the debtor's notice did not quantify the excess, it is likely to have been sufficient to alert the creditor to "the mis-statement". 40 The present case is not one where the debtor's notice merely failed to identify the alleged mis-statement in the bankruptcy notice. The solicitors' letter of 25 May 1998 rested the debtor's claim that the notice was in dispute on a specific mis-statement, namely the alleged failure of the bankruptcy notice to give credit for the sum of $80,000 said to have been paid by the debtor. In truth, the bankruptcy notice contained no such mis-statement and correctly gave credit for the sum of $71,500. The creditor, faced with a debtor's notice in this form, was not merely left uninformed as to the alleged mis-statement in the bankruptcy notice, but would have been positively misled. In our view, a debtor's notice which wrongly identifies a mis-statement in the bankruptcy notice, and does not provide sufficient information to enable the true mis-statement (if any) to be identified by the creditor, does not comply with s 41(5) of the Bankruptcy Act.

Legislative History 41 So far we have addressed the construction issue independently of the legislative history of s 41(5) of the Bankruptcy Act. That history is, at the least, consistent with the views we have expressed and, on balance, supports the conclusion we have expressed. 42 The antecedents of s 41(5) of the Bankruptcy Act are to be found in s 16(2) of the Bankruptcy and Deeds of Arrangement Act 1913 (UK) (the "1913 Act"). This sub-section provided that a bankruptcy notice issued in respect of a judgment debt under s 4(1)(g) of the Bankruptcy Act 1883 (UK) (the predecessor of s 40(1)(g) of the Bankruptcy Act) was not to be invalidated in certain circumstances. Section 16(2) was in the following terms: "(2) Notwithstanding anything in the said paragraph (g):- (i) ... (ii) a bankruptcy notice shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due, unless the debtor within the time allowed for payment gives notice to the creditor that he disputes the validity of the notice on the ground of such misstatement, but, if the debtor does not give such notice, he shall be deemed to have complied with the bankruptcy notice if within the time allowed he takes such steps as would have constituted a compliance with the notice had the actual amount due been correctly specified therein." 43 It has been accepted that s 16(2) of the 1913 Act and its Australian counterparts were enacted to overcome the decision by the Court of Appeal in In re a Debtor [1908] 2 KB 604: Re Prossimo; Ex parte De Marco (1952) 16 ABC 86 (Clyne J), at 88; Olivieri v Stafford (1989) 24 FCR 413 (FC), at 415, per Sweeney ACJ, dissenting (but whose dissent does not affect this question). In In re a Debtor, the bankruptcy notice, which claimed payment of £984 7s 1d, overstated the interest component by £1 5s 4d. Cozens-Hardy MR rejected (at 687) the proposition that the overstatement was a mere "formal defect" that fell within s 143(1) of the Bankruptcy Act 1883 (the forerunner of s 306(1) of the Bankruptcy Act). In his view, to claim payment of a sum that was never due was a substantial defect, regardless of the precise amount of the mistake. Farwell LJ expressed a similar opinion, observing that the statute had to be "strictly followed". He said this (at 689-690): "I cannot think it is a mere formal defect to include in a bankruptcy notice not only the amount payable under the judgment, but also a sum which is not due and owing at all, and which the debtor has no means of seeing on the face of the notice is not due and owing". 44 As Sweeney ACJ observed in Olivieri v Stafford, at 416, the language employed in s 16(2) of the 1913 Act was not limited to the situation which arose in that case (and in the present case), where the bankruptcy notice required the debtor to pay a judgment debt which was due and a further statement of interest, a portion of which was not due. The expression used - "the sum specified in the notice as the amount due exceeds the amount actually due" - was apt to cover any factual situation which produced an overstatement of the amount due. 45 Section 16(2) of the 1913 Act was reproduced as proviso (ii) to s 2(1) of the Bankruptcy Act 1914 (UK). It was, in turn, adopted as proviso (ii) to s 53 of the 1924 Act referred to earlier. Section 53 of the 1924 Act stated that a bankruptcy notice was to be in the prescribed form and was to require the debtor to pay the judgment debt or the sum ordered to be paid in accordance with the terms of the judgment or order. In Re Prossimo, Clyne J described (at 89) proviso (ii) as in part creating an exception to the general rule that the bankruptcy notice should require the debtor to pay the judgment debt according to the terms of the judgment. The reference to the "amount actually due" in proviso (ii) was intended to qualify the general rule and to require the bankruptcy notice to state the actual amount due. The second part of the proviso was intended to prevent, under certain conditions, a bankruptcy notice being invalid by reason of an overstatement of the amount actually due. But where the bankruptcy notice overstated the amount actually due and the debtor gave a notice in accordance with the proviso, the bankruptcy notice was invalid. In other words, the law as stated in In re a Debtor did not apply unless the debtor gave the creditor a notice complying with proviso (ii) to s 53 of the 1924 Act. 46 Section 41(5) of the Bankruptcy Act follows the form recommended by the Report of the Committee Appointed by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth (1962), chaired by Clyne J and including among its members the Commonwealth Parliamentary Draftsman (Mr J Q Ewens). The Committee made the following observations on cl 41 of the draft Bill: "69. The provisions contained in section 53 dealing with the form, contents and service of a bankruptcy notice are considered by the Committee to be generally satisfactory, although the Committee believes that the precise requirements as to such a notice will appear more clearly from the redraft of that section contained in the Bill." Section 41(5) of the Bankruptcy Act reproduces the substance of the first part of proviso (ii) to s 53 of the 1924 Act; while s 41(6) reproduces the substance of the second part of proviso (ii). 47 Section 41(5) of the Bankruptcy Act incorporates the drafting changes suggested by the Clyne Committee and differs from the first part of proviso (ii) to s 53 in several respects. These are as follows: · Section 41(5) is not expressed as a proviso to any other section. However, s 41(2) of the Bankruptcy Act, as originally enacted, was similar to the first part of s 53 of the 1924 Act to which par (ii) was a proviso. (Section 41(2), in its original form, was repealed in 1996 and replaced with a provision which merely requires the bankruptcy notice to be in accordance with the prescribed form). · The sub-section uses the expression "the amount in fact due" to replace "the amount actually due" in proviso (ii). · The expression "the mis-statement" is substituted for the phrase "such misstatement", which was used in proviso (ii). 48 None of these changes is in our view significant for present purposes. There is nothing to indicate that the Clyne Committee intended that the substitution of the definite article for the word "such" in the concluding phrase should bring about any change in the scope and application of s 41(5) compared with its predecessor. We of course appreciate that Clyne J had expressed the view in Re Charles Murray that a debtor's notice under proviso (ii) to s 53 of the 1924 Act did not have to set out the amount of the excess. It may be that his Honour intended to say no more than that a debtor's notice may be capable of complying with the proviso even if it does not specify precisely the excess improperly claimed in the bankruptcy notice. If Clyne J meant to go further, in our respectful opinion, the language of the proviso and of s 41(5) does not warrant such a step being taken. The general comments in par 69 of the Clyne Committee report cannot be read as a specific endorsement of the decision in Re Charles Murray.

The Effect of a Debtor's Notice 49 We have observed that s 41(5) of the Bankruptcy Act appears to be drafted on the assumption that a bankruptcy notice is liable to be "invalidated" if the sum specified in the notice exceeds the amount in fact due to the creditor. In Re Walsh, Lockhart J challenged this assumption, by holding that under the Bankruptcy Act, an over-statement of the amount due by the debtor does not necessarily vitiate the bankruptcy notice. His Honour considered (at 91) that the bankruptcy notice would be avoided only if the over-statement could reasonably mislead the debtor. He said he would decline to follow In re a Debtor and Re Prossimo if they stood in the way of this conclusion. 50 In Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 5 FCR 84, Morling J declined to follow Re Walsh and held that an over-statement in a bankruptcy of the amount actually due renders the notice invalid, whether or not the over-statement could reasonably mislead the debtor. Morling J considered that observations by the High Court in Walsh v DCT (on appeal from the Full Court affirming Lockhart J's decision), at 86, were inconsistent with Lockhart J's analysis. A similar view was subsequently taken by Pincus J in Re Emerson; Ex parte Wreckair Pty Ltd (1991) 101 ALR 315, at 318-319 (affirmed on other grounds: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 (FC)). 51 We have acted on the assumption, not challenged by either party, that Re Greenhill and Re Emerson correctly state the law. However, our view would not be changed if Lockhart J's decision in Re Walsh were ultimately found to be correct (as to which we express no view).

Answer to the Question 52 For the reasons we have given, the letter of 25 May 1998 from the debtor's solicitors to the creditor's solicitors did not constitute a notice within the meaning of s 41(5) of the Bankruptcy Act. It follows that the challenge by the debtor to the validity of the bankruptcy notice, on the ground that it over-stated the amount actually due to the creditor, fails.

Conclusion 53 The appeal should be allowed and the orders made by the primary Judge set aside. In lieu thereof, the following orders should be made: 1. Application dismissed. 2. The debtor pay the creditor's costs. The debtor should also pay the costs of the appeal.

I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Hill, Sackville & North.

Associate: Date: 22 March 1999 Counsel for the Appellant: Mr P M Donohoe QC with Mr P W Gray

Solicitor for the Appellant: Toomey Pegg and Drevikovsky