Is the defect or irregularity in the Bankruptcy Notice formal?
123 As was the case in Kleinwort Benson, the questions that arise for determination are: is there a defect or irregularity in the Bankruptcy Notice; if so, is the defect or irregularity substantive or formal; and, if formal only, has it occasioned substantial injustice that could not be remedied by an order of the Court.
124 The answer to the first question is "yes". As the High Court in Adams v Lambert observed, in its application, s 306(1) of the Bankruptcy Act assumes some failure to comply with a requirement. The defect here is the failure to comply with reg 12(2)(a)(ii) and (3) of the Regulations in relation to the date issue.
125 As to the second question, as the majority of the High Court held in Kleinwort Benson a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Bankruptcy Act or if it could reasonably mislead a debtor as to what is required to comply with it. In Parianos Sackville J held that reg 4.04(3) of the 1996 Regulations created an essential requirement for a bankruptcy notice. The primary judge was not able to conclude that Parianos was plainly wrong.
126 Mr Veale contends in support of ground 7 of his notice of appeal that the primary judge erred in concluding that this case is indistinguishable from Parianos and in failing to find that Parianos is plainly wrong.
127 As to whether this case is distinguishable from Parianos, Mr Veale submits that Parianos involved an overstatement of the amount due and a calculation carried out by reference to the wrong date (and hence used the wrong rate) while in this case there was an understatement of the amount due and the calculation was carried out by reference to the correct date (and hence used the correct rate).
128 The central issue in Parianos was whether reg 4.04(3) of the 1996 Regulations set out a requirement made essential by a valid regulation made pursuant to the Bankruptcy Act. Justice Sackville found that it did. The factual differences between Parianos, on the one hand, and this case, on the other, are not a basis upon which it is possible to draw any distinction, given his Honour's analysis which focussed on the text of reg 4.04 and related regulations, its objects and its legislative history. Ground 7 is not made out.
129 By ground 8 expressly, and by grounds 9 and 10 implicitly, Mr Veale contends that Parianos is wrong. Mr Veale submits that Parianos relied on an analysis that placed primacy on the mandatory language of reg 4.04 without proper regard to the distinction between a defect or irregularity, on the one hand, and a formal defect or irregularity, on the other, as explained in Adams v Lambert.
130 Mr Coleman submits that this distinction had already been made in Kleinwort Benson and that Sackville J expressly referred to Kleinwort Benson in Parianos. He submits that Parianos as applied to reg 12 of the Regulations is correct, relying on Parianos at [16], and that there are discretionary reasons against overruling Parianos. Mr Coleman submits that even if Parianos is wrong it would be improvident to overrule it because, after it was handed down, the executive made no attempt to amend the Bankruptcy Act or the 1996 Regulations to make it clear that reg 12 or its predecessors were not fundamental requirements and that Parianos has stood unchallenged for more than two decades and has been followed on three occasions which he has identified. Mr Coleman said that to overrule Parianos would be to remove a "precedent that is deeply enmeshed in Australia [sic] law, in circumstances where it appears to have been working fine for many years".
131 In Parianos the defect in the bankruptcy notice was the use of the wrong exchange rate. There was no dispute that the calculation undertaken for the purpose of, and disclosed in, the bankruptcy notice did not use the rate prescribed by reg 4.04(3) of the 1996 Regulations. It was in the context of that defect that Sackville J considered whether the bankruptcy notice failed to meet a requirement made essential by the 1996 Regulations. His Honour posed the question to be resolved as "whether reg 4.04(3) states an essential requirement for a bankruptcy notice and, if so, whether the notice in this case failed to comply with that requirement": Parianos at [15].
132 In concluding that reg 4.04(3) did state an essential requirement for a bankruptcy notice, Sackville J reasoned that:
(1) the use of emphatic language such as "must" and "specified" strongly suggested that reg 4.04 was intended to create requirements essential to the validity of a bankruptcy notice: at [16]-[17];
(2) it would be inconsistent with the scheme established by reg 4.04, having regard to its objects, to hold that a bankruptcy notice which incorporates a calculation by reference to a rate of exchange prevailing on a day other than that nominated by reg 4.04(3) is nonetheless valid. Regulation 4.04 was designed to afford a debtor a choice as to whether to pay the judgment debt in the foreign currency or the Australian currency equivalent amount and "to ensure that if payment is to be made in Australian currency, the debtor understands precisely how much is to be paid": Parianos at [18]-[19];
(3) the structure of Pt 4 of the 1996 Regulations supported the conclusion set out above: Parianos at [20];
(4) the wording of reg 4.02 confirmed that reg 4.04 is to be interpreted as creating an essential requirement for a bankruptcy notice. In particular, the inclusion of the reference to s 25C of the Acts Interpretation Act in reg 4.02 and not in reg 4.04 was a strong indication that strict compliance is required, at least in relation to the date by which the conversion calculation is to be made: Parianos at [22]; and
(5) the legislative history of reg 4.04 further strengthened the conclusion reached: Parianos at [23]-[31].
133 Like the primary judge, we have reservations about the reasoning in Parianos.
134 It is apparent from an analysis of the reasons in Parianos that one of the more, if not the most, persuasive factors leading to the conclusion that reg 4.04(3) of the 1996 Regulations states an essential requirement for a bankruptcy notice was the emphatic language used in reg 4.04. Parianos was decided before Adams v Lambert. In Adams v Lambert the High Court said that the question of whether a requirement is made essential is to be decided by a process of statutory construction undertaken in the manner described and that the fact that a requirement in the Bankruptcy Act is expressed by the term "must" is not conclusive: at [28]-[29]; see also Miller v Minister for Immigration, Citizenship and Multicultural Affairs [2024] HCA 13 at [28]. The question to be considered in Parianos was whether it was a purpose of the Bankruptcy Act that a failure to comply with reg 4.04(3) should invalidate a bankruptcy notice.
135 Justice Sackville drew comfort for his interpretation from reg 4.02 of the 1996 Regulations which was in substantially the same terms as reg 9 of the Regulations. His Honour observed that by reference to s 25C of the Acts Interpretation Act, reg 4.02 permitted substantial compliance with the form of bankruptcy notice and the fact that the legislature had not included reference to s 25C of the Acts Interpretation Act in reg 4.04 meant that strict compliance was required. But reg 4.02, like s 9 of the Regulations, dealt specifically with the prescribed form of bankruptcy notice and the general approach to its completion, while reg 4.04, like reg 12, was concerned with a subset of bankruptcy notices, those where a creditor has obtained a judgment in a foreign currency, and the additional matters to be included in those notices. It is hardly surprising that the legislature did not include a reference to s 25C of the Acts Interpretation Act in reg 4.04 or reg 12. That is because reg 4.02 (now reg 9) provided the form requirements for all bankruptcy notices and therefore any questions of substantial compliance with the form, whether in the context of matters required by reg 12 of the Regulations or otherwise, fell to be determined pursuant to that regulation and now reg 9 of the Regulations.
136 We turn to reg 12 of the Regulations. Like reg 4.04, it sets out those matters which are to be included in a bankruptcy notice where the judgment or order relied on is obtained in foreign currency. It is expressed to apply to a bankruptcy notice issued by the Official Receiver in those circumstances. The requirement in reg 12 of the Regulations is that the bankruptcy notice must include the matters prescribed therein. That includes the "equivalent amount of Australian currency" which is to be worked out according to the formula in reg 12(3) of the Regulations.
137 We are not persuaded that reg 12(3) of the Regulations sets out an essential requirement. That is because:
(1) regulation 12 was made under s 315(1) of the Bankruptcy Act, presumably for the purposes of s 41(2) which requires that a bankruptcy notice must be in accordance with the prescribed form. Like reg 9 of the Regulations, it concerns the form of a bankruptcy notice and prescribes the information to be included in a bankruptcy notice in certain circumstances;
(2) the use of emphatic language in reg 12 is not sufficient to lead to a conclusion that reg 12(3) is a requirement made essential by a valid regulation made pursuant to the Bankruptcy Act;
(3) we do not consider that it is a purpose of the Bankruptcy Act that a failure to comply with reg 12(3) should in all cases invalidate a bankruptcy notice. The effect of any non-compliance with reg 12(3) should be judged by the type or nature of the non-compliance in each case;
(4) the purpose of reg 12 of the Regulations was identified in Parianos. It is twofold. First, to ensure that a debtor in receipt of a bankruptcy notice based on a judgment in a foreign currency is informed that to comply with the bankruptcy notice he or she has an option either to pay the judgment debt in the foreign currency or in the equivalent amount of Australian currency. That is a requirement set out in reg 12(2)(a) of the Regulations. Related to that purpose must be an intention to prevent creditors from "rate shopping" or waiting to issue a bankruptcy notice until such time as there is a more favourable exchange rate because of currency movements. That the debtor is given the choice means that there can be no advantage gained by a creditor from rate movements. Secondly, to permit a debtor to identify how the equivalent amount of Australian currency has been calculated, in the event that he or she chooses to pay the debt claimed in Australian currency. This, in turn, permits the debtor to select the most favourable payment option, particularly if there has been a movement in the exchange rate between the issue of a bankruptcy notice and the eventual payment date; and
(5) the purpose or purposes identified support a conclusion that reg 12(3) is not an essential requirement. It is the method of calculation to be used to inform a debtor of the equivalent amount of Australian currency and, in turn, to inform the choice of whether to pay the debt in the foreign currency or in Australian dollars. While the requirement in reg 12 of the Regulations to provide the debtor with that latter choice may be a matter that is made essential, the method of calculation of the Australian currency equivalent is not.
138 Mr Coleman raised a further matter in support of his contention that the reasoning in Parianos is correct. He says that reg 12 is essential not only because of its emphatic language but because it prescribes the method by which the amount of Australian currency demanded by a bankruptcy notice is calculated which, in turn, plays a central role in the administration of the Bankruptcy Act. Mr Coleman refers to s 40(1)(g) and s 41 of the Bankruptcy Act.
139 As to the former Mr Coleman submits that if a debtor does not pay the amount required by a bankruptcy notice, then the debtor will commit an act of bankruptcy which enlivens a precondition under s 43(1)(a) to making a sequestration order. There is no dispute about that. Mr Coleman then says that it follows that the amount of Australian currency demanded by a bankruptcy notice relying on a foreign judgment, calculated in accordance with reg 12, determines the amount that the debtor must pay to avoid being subject to a quasi-penal process that results in seizure of the debtor's property and, consistent with the principle of construction to the effect that a quasi-penal provision should be interpreted narrowly if that construction is equally available to another, reg 12 should be interpreted as being a fundamental requirement, relying on Murphy v Farmer (1988) 165 CLR 19 at 29. But the question to be addressed is whether the requirements in reg 12 and, in particular, reg 12(3), are made essential for a bankruptcy notice by that regulation.
140 As to the latter, Mr Coleman submits that s 41 of the Bankruptcy Act only permits AFSA to issue a bankruptcy notice if it demands the amount of at least the statutory minimum, currently $10,000. He says that therefore a statutory precondition to the issue of a bankruptcy notice turns on the amount of Australian currency required by a bankruptcy notice and that amount is calculated in accordance with reg 12 which is another statutory indication that reg 12 is a requirement made fundamental by the Bankruptcy Act.
141 True it is that a calculation in accordance with reg 12(3) of the Regulations is necessary to evaluate whether a bankruptcy notice meets the statutory minimum. However, reg 12(2) of the Regulations requires both the foreign currency amount and the equivalent Australian currency amount to be stated. Mr Coleman does not advance any reason why in threshold cases AFSA or the Official Receiver cannot undertake calculations to be satisfied that the statutory minimum has been met. Arguably, what is made essential by the Bankruptcy Act is compliance with s 41 of the Bankruptcy Act. Regulation 12 is a machinery provision which enables or assists an assessment under s 41 but it does not necessarily follow that the requirements of reg 12(3) of the Regulations are also made essential.
142 It follows from the above that in our view reg 12(3) of the Regulations is not a requirement made essential by the Bankruptcy Act and therefore a failure to comply with it does not render a bankruptcy notice a nullity. To the extent a different view was reached in Parianos in relation to reg 4.04(3) we would decline to follow it. In this regard we share the concern expressed by Gyles J in Lewis at [122]:
Even if it is concluded that there is a choice as to what breaches lead to invalidity on a purposive basis, in my opinion, the decision in Kleinwort Benson gives authoritative guidance for cases such as the present - the purpose is to inform the judgment debtor as to what is required to comply with the notice. This test has stood for many years, and should not be displaced. I also have difficulty with the notion that a purposive test, such as that applied in Kleinwort Benson, Project Blue Sky and Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370; 169 ALR 503, involves discerning separate purposes for each particular part of a prescribed form, rather than discerning the purpose of the form itself, and then considering the effect of the irregularity. I cannot agree that some parts of a prescribed form are made essential by the Act and others are not made essential by the Act (as that concept is used in Kleinwort Benson) when all that the Act says is that a notice shall be in accordance with the prescribed form.
143 Although Gyles J was in dissent in Lewis, Lewis was overruled by the High Court in Adams v Lambert, the Court preferring the approach taken by Lee J and Gyles J in dissent, albeit the Court did not refer specifically to the observation made by Gyles J at [122].
144 That then leaves for consideration whether the Bankruptcy Notice was capable of reasonably misleading Mr Coleman as to what was necessary to comply with it. Given the primary judge's conclusion about Parianos his Honour did not consider that question. In his notice of contention Mr Coleman says that this Court should uphold the primary judge's order setting aside the Bankruptcy Notice because it was capable of having reasonably misled the applicant as to what was necessary to comply with it.
145 Mr Coleman relies on his submissions before the primary judge. In relation to the date issue, which is the subsisting error, he contends that in purporting to apply an exchange rate prevailing on a Sunday he could reasonably be misled as to whether the Bankruptcy Notice relied on the conversion rate on the Friday before (17 March 2023) or the Monday after (20 March 2023). Mr Coleman observes that the Bankruptcy Notice said the exchange rate was 1.48 but neither the exchange rate on the Friday or the Monday when rounded to two decimal places was 1.48, the rate set out in the Bankruptcy Notice. He submits that, as a consequence, the reasonable debtor could, and likely would, be utterly clueless as what the correct multiplier was for making the conversion and thus not know what total amount to pay in satisfaction of the Bankruptcy Notice.
146 Mr Coleman's submissions do not address the central question, namely whether the Bankruptcy Notice could reasonably mislead him as to what was required to comply with it. In our view it could not. What is required to comply with the notice is clear: the debtor must pay either USD$186,471.25 or AUD$275,977.45. The choice as to which amount to pay is for the debtor. The manner in which the equivalent amount of Australian currency has been calculated is apparent on the face of Bankruptcy Notice, that is, by multiplying USD$186,471.25 by 1.48 and rounding to the nearest cent. Objectively, the date issue did not have the effect of misleading Mr Coleman as to what was reasonably required to comply with the Bankruptcy Notice. To the extent it is necessary to consider it, we would reach the same conclusion in relation to the rounding down (rather than up) of the conversion rate used by Mr Veale.
147 In our view the defect in the Bankruptcy Notice arising from the date issue is a formal defect or irregularity which attracts the operation of s 306(1) of the Bankruptcy Act unless the Court is of the opinion that substantial injustice has been caused by it which cannot be remedied by an order of the Court. Mr Coleman did not lead any evidence that he had suffered any injustice, let alone any substantial injustice, arising from the defect either before the primary judge or on appeal. It follows that s 306(1) operates in respect of the Bankruptcy Notice and it is not invalidated.
148 Grounds 5 and 8 to 10 of the notice of appeal are made out.