Walsh, Henry Frederick Heaton Deputy Commissioner of Taxation [1983] FCA 124

BETWEEN: HENRY FREDERICK HEATON WALSH Appellant AND: DEPUTY COMMISSIONER OF TAXATION | Respondent ORDER JUDGES MAKING ORDER: Evatt, Fisher and Beaumont, JJ. DATE OF ORDER: 1 July, 1983 WHERE MADE: Sydney

2. The appellant pay the respondent's costs of the appeal

Australia BETWEEN: HENRY FREDERICK HEATON WALSH Appellant AND: DEPUTY COMMISSIONER OF TAXATION Respondent

This 1s an appeal from an order of Lockhart, Jd. dismissing an application by the appellant seeking to set aside a bankruptcy notice on the ground that it required him to pay more than was due by him to the respondent creditor,

the Deputy Commissionex of Taxation. The facts, as found by

Lockhart, J., are not in dispute and are as follows.

On 19 August, 1981 the respondent signed judgment against the appellant in the Supreme Court of New South Wales un the sum of $25,914.75. On 23 November, 1981 a bankruptcy

notice was issued at the request of the respondent requiring

the appellant to pay the sum of $26,596.34, being the amount

of the said judgment plus interest. The appellant applied to set aside that notice on the ground that it required payment of a sum which exceeded the amount in fact due. Lockhart, Jd. set aside this notice on 28 May, 1982 (see Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 42 A.L.R. 727). The respondent issued a second notice which was set aside by

A third bankruptcy notice, the subject of these proceedings, was issued on 23 June, 1982 at the respondent's request requiring the appellant to pay $23,258.41 which, according to the notice, represented the judgment debt of $25,914.75 less the sum of $2,656.34, being the amount by which the judgment was reduced after it was signed. The bankruptcy notice was served on the appellant on 30 June, 1982. On 13 July, 1982, within the time allowed by the notice for compliance, the appellant gave notice to the respondent that he disputed the validity of the notice on the ground that the sum specified in it as the amount due exceeded the amount

in fact due (s.41(5) cf the Bankruptcy Act 1966 ("the Act")).

The judgment debt represents income tax liabilities of the appellant for the years ended 30 June, 1975 to 1978 inclusive and additional tax for late payment. Between the signing of judgment and the issue of the first bankruptcy notice correspondence passed between the respondent and the appellant or persons apparently acting on his behalf, in which proposals to pay the judgment debt were made and rejected. The early history of the matter 1s more fully set out inthe reasons for judgment of Lockhart, J. 1n setting aside the

The appellant concedes, for present purposes, that the bankruptcy notice in question correctly states the amount due by the appellant to the respondent at the time the notice was issued. However, he submits that the relevant time to consider the correct amount due by a debtor to a creditor, for the purpose of determining the validity of a bankruptcy notice, is the time of its service, not issue. It is common ground that payments were made on behalf of the appellant to the respondent between 24 June, 1982 and 8.45 a.m. Sydney time on 30 June, 1982 totalling $98.33. The appellant contends that these payments, made between the issue of the notice and

Reference should be made to some further facts found by Lockhart, J. The respondent has many offices throughout

Australia. Between 19 August, 1981 when judgment was entered

and 23 June, 19&2 when the bankruptcy notice was issued, about 110 payments were made on behalf of the appellant on various days and at various times to about 24 different offices of the respondent in Australia. The payments varied in amount from $2.20 to $242.80, but most were in small denominations under $10.00 each. Each payment made after 8 June, 1983 and on or before 23 June, 1982 was of an amount less than $10.00. The offices of the respondent where payments were made were located at Cairns, Darwin, Perth, Alice Springs, Adelaide, Hobart, Sydney and Melbourne. Some payments were made in

capital cities and others in places including Mt. Gambier,

Section 41 of the Act provides that a bankruptcy notice under the Act shall be in the prescribed form and shall require the debtor to pay the judgment debt, or sum oxdered to be paid, in accordance with the terms of the judgment or order, or to secure or compound it to the satisfaction of the creditor or the Court, and shall state the consequence of non-compliance therewith and shall be served in the prescribed

"(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 disputes the validity of the notice on the ground of the mis-statement.

(6) Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with sub-section (5), he shall be deemed to have complied with the notice if, within the time allowed for payment, he takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it."

In support of his submission that the crucial date for assessing the validity of a bankruptcy notice is the date of service, the appellant relies, in particular, upon the language of s.40(1)(g) of the Act. It provides, to the extent relevant, that an act of bankruptcy is committed only if a creditor has "served" on the debtor (rather than merely has "assued"), a bankruptcy notice. In this connection, the

appellant calls in aid the decision of a Divisional Court in

In that case, the facts, as reported in (1892) 9 Morrell Bankruptcy Reports 103, were that the debtor Child, had acted as agent for an insurance company, but, in December 1888, he was dismissed from this employment. On 20 December, 1888, judgment was obtained by the insurance company against the debtor for the sum of one hundred and

fifty-four pounds and seventeen shillings. An axyrangement

was thereupon come to between the manager of the insurance company and the debtor, by which the latter assigned to the company certain book debts, together with the lease of a

house. Under the arrangement, 1t was agreed that Child

should be credited in the books of the company, as against the judgment debt, with the sum of one hundred and eighteen

pounds being the amount due to him on renewals of policies

of insurance effected with the company through his agency.

Nothing further was done until 13 November, 1891, on which date a bankruptcy notice was served on Child by the company requiring him to pay to the company the sum of one hundred and fifty-four pounds and seventeen shillings being the balance due on the final judgment obtained against him. On the same day on which the bankruptcy notice was served, a letter was written by Child to the company denying any indebtedness and pointing out that there was a balance due to him under the arrangement previously entered into. On 2C November, 1891 he filed a general affidavit claiming this set-off. On 7 December 1891, application was made to the Registrar by Child in person to have the bankruptcy notice set aside, when the Registrar directed him to file, by 11 December, 1891, a further affidavit setting out the particulars of his set-off and adjourned the hearing until

This further affidavit was not filed by 11 December, but was subsequently filed. At the hearing objection was taken that the affidavit had not been filed in time. The Registrar upheld the objection, refused to read

the affidavit and also refused to set aside the bankruptcy

notice. It was from that decision that the appeal was

"I wish to state my view of this part of the sub-section '(namely, sub-s.4(1)(g) of the Bankruptcy Act 1882 (English))' I think that under it a creditor who has obtained final judgment is not entitled to serve a bankruptcy notice in respect of any amount greater than that for which he could have issued execution, and that, thereafter, if the circumstances of the case are such that he has ceased to be entitled to issue execution for the whole amount of the judgment debt, he has ceased to be entitled to serve a bankruptcy notice for the whole amount of the judgment debt."

There are further references to serving a bankruptcy notice in his Lordship's judgment and in the

For reasons which we give later, the case is, in our opinion, distinguishable for present purposes, assvwming for the moment that the report in the Law Reports is an accurate one. However, as Lockhart, J. indicated, the researches of counsel brought to light the following reports of Re Child in addition to the report in the Law Reports: (1892) 9 Morrell Bankruptcy Reports 109; 61 L.J. Q.B. 25; 66 L.T. 204; 8 T.L.R. 319; 40 W.R. 56. Each of these reports of Re Child varies from the report in the Law

Reports and from each other in some respects but, in all the

reports except the Law Reports, the references by the members of the Divisional Court are to the issue of a bankruptcy notice and not to its service. For example, in Moxrell's Reports, Vaughan Williams, J., after referring to

s.4(1)(g) of the Bankruptcy Act 1883, (c.f. s.40{1)(g) of

"I do not think myself that that section entitles a creditor who has obtained a final judgment to issue a bankruptcy notice for any larger amount than that for which he could lawfully issue execution; and in my judgment if the circumstances of the case are such that the execution creditor has ceased to be entitled to issue execution for the whole of the debt then he has ceased to be entitled to issue a bankruptcy notice for the whole amount."

It is clear from the facts in Child's case that nothing there turned on the distinction between the time of issue and the time of service of the notice. At the date of its issue, the judgment debt had been paid or satisfied in part and the position remained the same up to the date of its service. It follows, in our view, that the case does not support the argument sought to be advanced, namely, that the time of service, rather than the time of issue, of a notice is the relevant date for the purpose of determining whether a creditor has, in fact, claimed more in his notice than is actually due to him. In Child's case, the claim in

the notice was excessive when looked at as at the date of

The general question of the consequences of a creditor claiming in his notice an excessive amount has been considered in a number of cases, both before and after the enactment of s.41(5) and (6) and their precursors here and in England (see In Re a Debtor [1908] 2 K.B. 664; Re

Prossimo; Ex parte de Marco (1952) 16 A.B.C. 86; Hamilton

v. Warne (1907) 4 C.L.R. 1293; Re Scott; Ex parte Scott

(1921) 38 W.N. 72; Re Williams; Ex parte Alberton Electrical Service Pty. Limited, unreported, 19 August, 1982

(Fisher, J.)). However, these cases do not touch upon the present point, in that they are cases where the debtor either never owed the excess or, at the least, did not owe it as at the date of issue of the notice. The point seems

The question is, of course, one of construction of the statute. In this connection, full weight must be given to the strict approach to the construction of a bankruptcy notice required by the cixcumstance that the consequences of non-compliance with a notice are penal or at least

quasi-penal in nature (In Re a Debtor [1951] Ch. 313 at 318;

In Re a Judgment Debtor [1908] 2 K.B. 474 at 478, 461).

In our opinion, the requirement, in s.40(1)(g), that an act of bankruptcy 1s committed only if and when, inter alia, the bankruptcy notice is served upon the debtor,

throws no light upon the resolution of the present problem.

Such a provision is directed to an entirely different

question, namely, the stipulation of service as a condition

precedent to the commission of an act of bankruptcy. In that context, service is an obvious and fundamental requirement.

Nor, in our view, does the decision in Child's case assist the appellant. Even if one were to accept the report of the case in the Law Reports as accurate, the decision itself does not, in our opinion, bear upon the point in issue, for the reasons we have given. There was simply no need, on the facts of that case, to distinguish between the issue and the service of the notice. At the same time, one can readily appreciate why their Lordships may well have spoken of a notice being served, in the sense that it is presumed that a creditor will intend to serve his notice, since his notice will be of no effect until served. The issue of the notice is only the first of a number of steps to be taken before an act of bankruptcy is committed. To this extent, the notice may lack efficacy until served. Nonetheless, this circumstance does not, in our view, touch upon the present problem which is concerned with the validity of the notice as distinct from its efficacy. We think that Child's case can be distinguished accordingly,

even if we were to accept the report in the Law Reports in

preference to the other reports (c.f. Holdsworth, History of English Law Vol. 15 Ch. 5, esp. at pp. 249, 256; Halsbury, Laws_of England 4th Ed. Vol. 26 at p. 308 para. 587; Duke of Buccleuch v. IRC [1967] 1 Ac 506 at 526, 527; Leather Cloth

In the present case, the bankruptcy notice was valid when issued. The question is whether, by some process, such a notice can be invalidated ex post facto by reason of a payment or payments in reduction of the judgment debt made by the appellant after the issue but before the service of the notice. No such process of invalidation is provided for, in terms, in the words of the statute. The ,question is whether the subsequent vitiation of the notice

occurs in such a case as a matter of construction of the Act

by implication (see Craies on Statute Law, 7th Ed., 1971, p.

109; Cooper __ Brookes (Wollongong) Pty. Limited v. Commissioner of Taxation (Cth.) (1981) 55 A.L.J.R. 434).

It may be accepted that it is possible for some supervening events to invalidate a bankruptcy notice. The making of an order staying execution of the judgment referred to in the notice after its issue but before its

service is an example (see Re Moss; Ex parte Tour Finance

Ltd. (1968) 13 F.L.R. 103 at pp.103-104; Re Padagas; Ex

parte Carrier Air Conditioning Pty. Ltd. (1977) 30 F.L.R. 170 at p.173; Re Di Giacomo; Ex parte Boral Steel Limited,

unrepoxted, 18 March, 1983, Evatt, J.). In our opinion,

such an example (which, in any event, is specifically dealt with by the terms of s.40(1)(g)), provides no true analogy fox present purposes. The effect of a stay of execution on a judgment is, we think, quite different to the making of a payment ox payments in reduction of the judgment debt. The stay 18 fundamental to the right to issue and to maintain

the notice, whereas payment is something done in or towards compliance with the notice. The former impugns the judgment on which the notice is based; the latter assumes the validity of the notice by giving effect to it. One can readily appreciate why the grant of a stay has fundamental consequences for the maintenance of the notice. It is not so easy to understand why a payment made in purported obedience to the notice could have the extraordinary consequence of striking it down. The debtor making such a payment could hardly assert any prejudice in such a case in the sense that he could not be misled as to the actual position: in truth, as here, the debtor would often be better informed than the creditor as to the balance of the Judgment debt actually owing as at the date of service of the notice. These circwmstances are hardly a_= solid foundation for making an implication of invalidity 1n such

It follows, in our view, that there is nothing in the language or the context of the Act which makes it

necessary to imply the invalidation of the notice contended

for by the appellant. In our opinion, the case is one where a notice, valid upon its issue, was complied with in part prior to its service and there 1s no reason why such partial compliance should operate so as to vitiate the notice in any way. The Act, on its true construction, requixes only that the notice correctly state the amount actually due by the debtor as at the date of its issue. We therefore reject the argument put by the appellant on this

In the circumstances, it is not necessary for us to deal with certain alternative submissions put on behalf of the respondent, namely, that even if an excessive amount was claimed, the notice was not thereby invalidated and further,

even if the notice was invalid, the excessive claim was

merely a "formal defect or an irregularity" within the

The appellant advanced certain further arguments to which only brief reference need be made. It was submitted that the addition of the words and figures "at 4.21 o'clock in the afternoon" after the date of the notice and before the signature of the Deputy Registrar in Bankruptcy who

(1) because it constituted a substantial deviation from

(2) because it could cause the debtor on whose behalf payments were being made all over Australia to conjecture ox wonder whether 1t was claimed that the balance of the judgment debt was said to be owing at 4.21 Perth time, Adelaide time or Sydney

(3) because, by stressing the precise time of issue of the notice, it would cause the debtor on whose behalf payments were being made all over Australia to conjecture or wonder whether the time required by the notice for compliance with its requirements "within 14 days after service of this notice on you excluding the date on which this notice is served on you" would be calculated from the

Counsel for the appellant did not seek to develop these arguments before us. Indeed, we have taken the- summary of the submissions made from the treasons' for judgment of Lockhart, Jd. The points were only faintly pressed. In our opinion, they are without substance. We would adopt the reasoning of Lockhart, J. in this

We Justice) ° plalisg. Guat, hig Hone Me Juskiee, Fide and bis Honour Me Jusbice