FEDERAL COURT OF AUSTRALIA

Duarte v Coshott, in the matter of Duarte [2017] FCA 1238

File number:

NSD 569 of 2017

Judge:

BROMWICH J

Date of judgment:

20 October 2017

Catchwords:

BANKRUPTCY AND INSOLVENCY – application to set aside a bankruptcy notice – whether valid debt at time of issue – whether amount in bankruptcy notice overstated by reason of payments made by debtor – held: application granted

Legislation:

Acts Interpretation Act 1901 (Cth), s 36(2)(b)

Bankruptcy Act 1966 (Cth), ss 30, 41, 306

Evidence Act 1995 (Cth), s 160(1)

Civil Procedure Act 2005 (NSW), s 101(6)

Uniform Civil Procedure Rules 2005 (NSW), r 36.7

Cases cited:

Adams v Lambert [2006] HCA 10; 228 CLR 409

Kyriackou v Shield Mercantile Pty Ltd [2004] FCA 490; 138 FCR 324

Nugawela v Deputy Commissioner of Taxation [2016] FCAFC 164

Re Walsh (1982) 65 FLR 87

Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255; 87 FCR 120

The Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915; 109 FCR 33

Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337

Young v Hughes Trueman Pty Ltd (No 4) [2014] FCA 456

Date of hearing:

28 July 2017

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

General and Personal Insolvency

Category:

Catchwords

Number of paragraphs:

47

Counsel for the Applicant:

Mr A Combe

Solicitor for the Applicant:

O’Neill Partners Commercial Lawyers

Counsel for the Respondent:

Mr O Jones

Solicitor for the Respondent:

Comino Prassas

ORDERS

NSD 569 of 2017

IN THE MATTER OF CHARMAINE DUARTE

BETWEEN:

CHARMAINE DUARTE

Applicant

AND:

MICHAEL COSHOTT

Respondent

JUDGE:

BROMWICH J

DATE OF ORDER:

20 October 2017

THE COURT ORDERS THAT:

1.    Bankruptcy notice number BN 212408 addressed to Ms Charmaine Duarte and issued on 6 March 2017 be set aside.

2.    The respondent pay the applicant’s costs of and incidental to the originating application dated and filed 18 April 2017:

(a)    upon a party/party basis up until and including 11 April 2017; and

(b)    upon an indemnity basis thereafter,

to be fixed by way of a lump sum.

3.    The quantum of the lump sum costs order be determined by a Registrar.

4.    The applicant be given leave to apply for a special costs order.

5.    Any special costs application be determined on the papers unless an oral hearing is ordered.

THE COURT DIRECTS THAT:

6.    By or before 4.00 pm on 3 November 2017, the applicant file and serve:

(a)    any application for a special costs order;

(b)    any affidavit in support of a special costs order being made;

(c)    any submissions in support of a special costs order being made, no longer than five pages in length (including any submission seeking an oral hearing of the special costs order application); and

(d)    an affidavit constituting a Costs Summary in accordance with paragraphs 4.10 to 4.12 of the Court’s Costs Practice Note (GPN-COSTS).

7.    By or before 4.00 pm on 17 November 2017:

(a)    any person affected by any application filed for a special costs order file and serve:

(i)    any affidavit opposing a special costs order being made; and

(ii)    any submissions opposing a special costs order being made, no longer than five pages in length (including any submission seeking an oral hearing of the special costs order application);

(b)    the respondent file and serve any Costs Response in accordance with paragraphs 4.13 and 4.14 of the Costs Practice Note (GPN-COSTS).

8.    In the absence of any agreement having been reached on the quantum of the costs order to be made and such agreement being notified by email to the associate to Justice Bromwich by or before 4.00 pm on 1 December 2017, the appropriate lump sum figure for the applicant’s costs be referred to a Registrar for determination.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BROMWICH J:

1    This is an application by Ms Charmaine Duarte to have a bankruptcy notice issued on 6 March 2017 set aside. Ms Duarte’s primary ground is that the debt claimed by the respondent, Mr Michael Coshott, is misstated in the bankruptcy notice by reason that it has been paid in full.

Overview and outline of the competing cases

2    Many of the primary facts in this case are not in dispute. Those which are in dispute will be specifically noted.

3    On 31 March 2015, the Local Court of New South Wales gave judgment against the applicant, Ms Duarte, in favour of the respondent, Mr Michael Coshott, in the sum of $25,401.70 plus pre-judgment interest of $3,706.92, giving rise to a total judgment debt of $29,108.62.

4    On 6 March 2017, Mr Michael Coshott procured the issue of bankruptcy notice number BN 212408, which, in terms, required payment by Ms Duarte of the Local Court judgment debt in the specified sum of $29,108.62. No further interest was sought in the notice and it made no reference to any payments made or credit allowed since judgment.

5    The bankruptcy notice and the annexed copy of the judgment entered by the Local Court were posted to Ms Duarte under cover of a letter dated 23 March 2017. The envelope was postmarked 24 March 2017, which was a Friday. Under the postal rule in s 160(1) of the Evidence Act 1995 (Cth), a postal article is presumed to have been received on the fourth working day after it was posted, being, in this case, Thursday, 30 March 2017. Ms Duarte deposed to having received the letter and the enclosed bankruptcy notice on Tuesday, 28 March 2017, two days prior to the date upon which receipt would be presumed under the postal rule.

6    A solicitor acting for Mr Michael Coshott sought to displace the presumption raised by the postal rule in favour of earlier service having been effected on Monday, 27 March 2017. He did this by deposing to subsequent ad hoc experiments he had undertaken of posting letters to himself from the same mail box to show that postal items in that part of the Eastern Suburbs of Sydney only require a single working day for delivery. That evidence is rejected. The posting of a different item on a different day, even from the same location but to a different address, is an insufficient basis to displace the presumption raised by s 160 of the Evidence Act that the bankruptcy notice was received on the fourth working day after having been posted. Even if that evidence were sufficient to raise doubt as to the presumption, it cannot prevail against Ms Duarte’s unchallenged evidence as to when she in fact received the bankruptcy notice. I find that the bankruptcy notice was served on Ms Duarte on Tuesday, 28 March 2017.

7    On 11 April 2017, two weeks after she had received the bankruptcy notice, Ms Duarte wrote to Mr Michael Coshott’s solicitors, referring to payments that she said had already been made and certain offsetting sums, as a result of which she asserted that the claimed debt had been paid in full. Her letter enclosed a spreadsheet setting out the payments and offsetting sums. That letter clearly constituted notice for the purposes of s 41(5) of the Bankruptcy Act 1966 (Cth) that the validity of the bankruptcy notice was disputed on the ground of misstatement. The bankruptcy notice was therefore not protected from invalidity on the ground of misstatement.

8    On 18 April 2017, on the final day for compliance with the bankruptcy notice (taking into account the Easter public holidays on 14 and 17 April 2017 by reason of s 36(2)(b) of the Acts Interpretation Act 1901 (Cth)), Ms Duarte filed the present application and obtained an order from a Registrar of the Court that the time for compliance with the bankruptcy notice be extended until the first return of the matter in Court on 3 May 2017. That order was conditional upon the bankruptcy notice having been served on 28 March 2017. That condition has been met and, accordingly, the time for compliance was extended. It was further extended by subsequent orders made by the District Registrar and by me up to and including the date of judgment. It follows that there has not been any act of bankruptcy to date.

9    The grounds stated in Ms Duarte’s affidavit accompanying her application are that:

(1)    the amount claimed in the bankruptcy notice is overstated because the underlying judgment debt has been paid in full; and

(2)    the amount claimed in the bankruptcy notice incorrectly states the amount in fact due by failing to have regard to payments made and garnisheed payments.

10    Ms Duarte’s supporting affidavit described the procuring of the bankruptcy notice as an abuse of process on the basis that the solicitors for Mr Michael Coshott were notified of the overstatement. In this regard, she annexed and referred to the correspondence of 11 April 2017 that was sent soon after she had received the bankruptcy notice, in which she raised the issue of overstatement and sought to have Mr Michael Coshott, via his solicitors, withdraw the bankruptcy notice.

11    Ms Duarte also seeks an indemnity costs order against Mr Michael Coshott.

12    By a notice stating grounds of opposition, Mr Michael Coshott contends that:

(1)    the originating application is incompetent because it fails to comply with the Federal Court Rules 2011 (Cth);

(2)    the originating application was filed out of time, such that an act of bankruptcy had already been committed before 18 April 2017;

(3)    the only ground relied upon to set aside the bankruptcy notice, being a claim of payment in full of the judgment debt, was not a ground provided for by the Bankruptcy Act;

(4)    the debt has not been paid in full, the payments relied on having been made towards other liabilities owing to Mr Michael Coshott; and

(5)    the time for compliance with the bankruptcy notice has not been validly extended.

13    Mr Michael Coshott’s notice stating grounds of opposition, which was in the standard form, asserted that it was filed with a supporting affidavit. However, there was no such affidavit either filed or relied upon. Nor was any other evidence of note relied upon in support of Mr Michael Coshott’s opposition to Ms Duarte’s application. Apart from the affidavit seeking to rebut the postal rule presumption referred to above, the solicitor for Mr Michael Coshott swore an affidavit annexing a schedule of calculations said to reflect the amount unpaid in relation to the Local Court judgment debt. The affidavit asserted, by way of inadmissible hearsay, that the calculations had been “personally checked” by a named person asserted to be a chartered accountant, who was said to have “found them to be correct”.

14    Even if the calculations annexed to the solicitor’s affidavit are either assumed to be correct, or were independently verified, that does no more than suggest what the post-judgment interest on the Local Court debt of $29,108.62 would have been. There are two problems with those interest calculations. First, compound interest has been calculated, yet post-judgment interest is required to be calculated by way of simple interest by reason of s 101(6) of the Civil Procedure Act 2005 (NSW). Secondly, no claim for interest was made in the bankruptcy notice. Accordingly, the calculations are irrelevant because they do not and cannot relate to the debt claimed in the bankruptcy notice. The question of misstatement raised by Ms Duarte is to be answered by reference to the debt as claimed in the bankruptcy notice.

Payments made or offsetting amounts

15    Most of what follows is taken from the largely undisputed, or at least unchallenged, evidence of Ms Duarte, comprising affidavit evidence and documents tendered on her behalf and admitted without objection.

16    After judgment was ordered in the Local Court on 31 March 2015, and prior to the issue of the bankruptcy notice, Ms Duarte made a number of payments in reduction of the judgment debt. There was no evidence that the payments were made for any other purpose. Only some of those payments are in dispute.

17    It is not in dispute that six payments totalling $22,361.90 were made to Mr Michael Coshott by cheques drawn and presented between 1 May 2015 and 14 October 2015, and therefore prior to the issue of the bankruptcy notice. It follows that, by reason of those payments alone, the bankruptcy notice should not have referred to a principal sum of more than $6,746.72 (being $29,108.62 minus $22,361.90). That sum should have been further reduced to no more than $4,776.72, by reason of two garnishee payments totalling $1,970 made in 2013, which I am satisfied, for the reasons set out below at [31], were made prior to the issue of the bankruptcy notice and were not taken into account in arriving at the judgment sum.

18    It follows that, whatever else was argued and determined, the judgment debt, in the absence of any claim in the bankruptcy notice for post-judgment interest, was below the $5,000 threshold in s 41(1)(a)(ii) of the Bankruptcy Act for the valid issue of a bankruptcy notice. In one sense, that is sufficient to set aside the bankruptcy notice, with no precise amount being required to be calculated. However, in light of the dispute between the parties, it is necessary to go further.

19    Of the five cheque payments made in 2015, two cheques made in favour of Mr Michael Coshott were endorsed by him in favour of his father, Mr Robert Coshott, namely:

(1)    a cheque for $6,000 dated 24 August 2015, endorsed on 28 August 2015; and

(2)    a cheque for $8,441.90 dated 14 October 2015, endorsed on 6 November 2015.

20    On 10 January 2017, Mr Robert Coshott swore an affidavit in support of a notice of motion for a garnishee order filed on the same day in the Local Court proceedings between his son, Mr Michael Coshott, and Ms Duarte. The notice of motion sought a garnishee order against Ms Duarte’s employer in the sum of $33,553.97. Mr Robert Coshott’s affidavit deposed to the judgment debt being $29,385.62 (an additional $277 compared to the actual debt of $29,108.62), plus post-judgment interest asserted to be $4,168.35, apparently on the entire judgment debt.

21    If Mr Robert Coshott did not know that the cheques endorsed to him, as listed above and totalling $14,441.90, were in relation to the same judgment debt, his affidavit was inaccurate to that extent. If he did know, his affidavit was false to that extent. Given that the interest amount claimed was for the full sum, Mr Robert Coshott’s affidavit in the Local Court was therefore either inaccurate or false. The precise extent of the overstatement is a matter for calculation if required. However, it does not seem to be required for present purposes. In any event, on 31 January 2017, a garnishee order was made in favour of Mr Michael Coshott in response to the application made on his behalf by his father, Mr Robert Coshott, supported by an affidavit that was either inaccurate or false, and which did not validly support the garnishee order thereby obtained.

22    Upon the basis of the garnishee order apparently invalidly obtained, five fortnightly payments, each in the sum of $909.73 and together totalling $4,548.65, were made on 1, 15 and 29 March 2017, and on 12 and 26 April 2017. No further payments have been made due to Ms Duarte having succeeded in obtaining an order in the Local Court setting the garnishee order aside. It should be noted that the first of those garnishee payments was made before the bankruptcy notice was issued on 6 March 2017.

23    Even assuming that it was appropriate to require interest to be paid via a garnishee order when a bankruptcy notice has been obtained a short time later in respect of the same debt (which may be doubted, at least if the former was obtained when the latter was in contemplation) it can only be the case that the greater share of those garnishee payments, if properly procured, would have been for principal sums, not interest, due to the relatively low amount outstanding on the judgment debt.

24    All five garnishee payments were made before the first case management hearing scheduled for this application on 3 May 2017. Thus, by the time this matter first came before this Court after proceedings were commenced by Ms Duarte, the judgment debt had been further reduced by the principal component of the garnisheed total of $4,548.65. The outstanding debt after the five garnishee payments was something approaching $228.07, being $4,776.72 minus most of $4,548.65, reduced to the extent that any post-judgment interest was payable, as claimed as part of the 2017 garnishee order application. This application has been determined on a basis that is likely to be unduly favourable to Mr Michael Coshott, namely that he was entitled to post-judgment interest despite not claiming such interest in the bankruptcy notice.

25    Two offsetting amounts asserted by Ms Duarte remained in dispute at the time of hearing this application, being:

(1)    an amount of $4,776.72 arising out of costs orders made in 2014 and 2015 in separate litigation between Ms Duarte and a person named Ms Annabelle Moloney in the Federal Circuit Court of Australia; and

(2)    two earlier garnishee payments made in 2013, each for $985, totalling $1,970.

26    The above two disputed amounts were raised in proceedings heard in the Local Court of New South Wales before Magistrate Freund on 30 May 2017, with judgment delivered on 7 June 2017. Those proceedings concerned an application by Ms Duarte:

(1)    to stay (permanently) the judgment of Magistrate Pierce of 31 March 2015 by which the judgment debt of $29,108.62 arose, upon which the bankruptcy notice was based; and

(2)    to stay and set aside the 2017 garnishee order.

27    As to the first of the claimed offsetting sums of $4,776.72, in evidence before me was an email from Mr Michael Coshott dated 29 July 2015 in which he agreed to accept the net sum owed by Ms Moloney to Ms Duarte as an offset against the debts owed to him by Ms Duarte. However, that offsetting amount was not accepted by Magistrate Freund as an effective assignment of the net debt owed by Ms Moloney and was not pressed further in these proceedings by Ms Duarte. That amount is therefore not to be deducted from the judgment debt for the purposes of this application.

28    As to the second of the claimed offsetting sums of $1,970, it was accepted by Magistrate Freund, by reference to the judgment of Magistrate Pierce, that the prior garnishee amounts totalling $1,970 had not been taken into account in arriving at the judgment debt entered against Ms Duarte. Accordingly, Magistrate Freund held that the amount should be allowed as an offset to the judgment debt.

29    Before me, Ms Duarte did not rely upon the judgment of Magistrate Freund per se, but rather relied upon proof of the payments that were accepted by her Honour in order to produce a parallel outcome. She did, however, rely upon the concessions as to payments that were made before Magistrate Freund, the same counsel having appeared before her Honour as appeared before me for both parties. Those concessions, quite properly, were not sought to be departed from. Accordingly, as indicated above, there was no dispute as to the cheque payments of $22,361.90 in 2015, nor the garnishee payments of $4,548.65 in 2017 (albeit that some part of the 2017 garnishee payments might be attributable to a small portion of interest). As already noted, the offsetting payment in relation to Ms Moloney was not accepted and not pressed.

30    The only factual matter requiring determination was whether the two garnishee payments in 2013 totalling $1,970 were:

(1)    proven in these proceedings to have been made to Mr Michael Coshott; and

(2)    proven not to have been deducted from the judgment sum upon which the bankruptcy notice was based.

31    As to the first aspect, there were two emails before me from Ms Duarte’s then employer and from Mr Michael Coshott which clearly establish that the payments were made to Mr Michael Coshott. As to the second aspect of whether those amounts were taken into account in arriving at the judgment debt, the uncontradicted evidence of Ms Duarte is that they were not. While the possibility that this did not happen was not conclusively excluded, such a degree of certainty goes beyond what is required. I am satisfied on the balance of probabilities that the 2013 garnishee payments totalling $1,970 were not brought to account in the calculation of the judgment debt upon which the bankruptcy notice was based, it being properly conceded on behalf of Mr Michael Coshott that Magistrate Pierce’s reasons made no reference to any such amount being deducted, that amount having clearly been received by Mr Michael Coshott. Accordingly, that amount must be deducted from the judgment debt for the purposes of determining whether the amount claimed in the bankruptcy notice is overstated. This reasoning explains the further deduction of $1,970 from the judgment debt, as referred to at [17] above.

32    Magistrate Freund took the sum of $4,776.72, arrived at by deducting the 2015 cheque payments and the 2013 garnishee payments from the judgment debt, in order to calculate the correct amount of post-judgment interest payable, applying the interest rates in r 36.7 of the Uniform Civil Procedure Rules 2005 (NSW) applicable at different times from 15 October 2015 (shortly after the last cheque payment was made on 14 October 2015) until the day after the 2017 garnishee order was applied for on 10 January 2017, arriving at an interest sum of $464.16. It is not altogether clear why that particular starting date was selected as interest was presumably payable from the date of judgment on 31 March 2015. However, what matters is that the interest amount was modest. This sum was then compared adversely to the interest sought to be paid by Mr Robert Coshott’s affidavit of $4,168.35.

33    Magistrate Freund arrived at a net outstanding debt of $692.23, which is the sum of the $228.07 remaining principal debt referred to at [24] above and her Honour’s interest calculation of $464.16. It was not in dispute that following Magistrate Freund’s judgment, Ms Duarte, via her solicitors, tendered to Mr Michael Coshott’s solicitors a bank cheque for that sum of $692.23. In evidence before me was the letter and cheque that were hand-delivered and signed for at the offices of Mr Michael Coshott’s solicitors. The tender of the bank cheque for $692.23 eliminated altogether the judgment debt upon which the bankruptcy notice was based. In that regard, Magistrate Freund’s calculations are adopted for convenience, rather than as constituting a relevant judicial determination, with all the evidentiary complications that may entail: see Young v Hughes Trueman Pty Ltd (No 4) [2014] FCA 456 at [12]-[23]. That approach is the one most beneficial to Mr Michael Coshott because it assumes an entitlement to at least some post-judgment interest, which is doubtful, when in fact none was claimed in the bankruptcy notice.

34    For completeness, at the time of hearing this application, the Court was advised that Mr Michael Coshott had filed an application for judicial review of Magistrate Freund’s 7 June 2017 decision. As no reliance has been placed on her Honour’s decision beyond it being used for convenience as to calculations, the outcome of that review has no bearing on the determination of this application. This Court has reached an independent determination as to the status of the judgment debt upon which the bankruptcy notice was based.

35    The case ultimately advanced on behalf of Ms Duarte was that there was either no outstanding amount owing towards the debt claimed in the bankruptcy notice, or sufficiently little outstanding such that there was a material misstatement in the notice. The need for a finding that a misstatement was material is fundamental. Reliance was placed by counsel for Ms Duarte on certain statements of principle by Weinberg J, as his Honour then was, in Kyriackou v Shield Mercantile Pty Ltd [2004] FCA 490; 138 FCR 324 at [36]-[37] to the effect that misstatements (not protected by notice under s 41(5) of the Bankruptcy Act) will generally lead to a bankruptcy notice being set aside unless they are merely formal and do not result in substantial injustice. However, that reasoning was expressed in the context of, and in at least contextual reliance upon, The Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915; 109 FCR 33, a majority decision of a Full Court of five judges.

36    The soundness of arguments based on authority culminating in the Full Court decision in Lewis must be approached with caution. Lewis was overruled by the High Court in Adams v Lambert [2006] HCA 10; 228 CLR 409 at [5]. Bankruptcy notice cases now need to be considered with Adams v Lambert in mind. Pre-2006 authority may need to be checked to ensure it is compatible with the High Court’s modern focus on substance rather than form in the application of s 306 of the Bankruptcy Act: see Adams v Lambert at [34].

37    Section 306(1) of the Bankruptcy Act provides:

306    Formal defect not to invalidate proceedings

(1)    Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

38    Following Adams v Lambert, when an error in a bankruptcy notice is proven, the issue is whether, objectively determined, a debtor could be misled as to what it is necessary to do in order to comply with the requirements of the bankruptcy notice. If that is the case, such an error is a defect that s 306 cannot cure. In Adams v Lambert, there was no doubt that the debtor had to pay a sum which included post-judgment interest. The fact that a mistake had been made in referring to the wrong provision of the District Court Act 1973 (NSW) was held to be covered by s 306 of the Bankruptcy Act. The bankruptcy notice in Adams v Lambert was misleading in form but not in substance, as it was clear what the debtor was required to do, namely, to pay the judgment debt, which included pre-judgment interest and post-judgment interest.

39    Each of the arguments advanced on behalf of Mr Michael Coshott must be rejected. As already indicated, the evidence and argument seeking to establish earlier service on 27 March 2017 did not succeed. The bankruptcy notice was served on 28 March 2017: see [6] above. Accordingly, the argument that there had been no effective extension of time for compliance with the bankruptcy notice must also be rejected. That argument was based on an assertion that there had been no compliance with the condition in the Court’s extension orders that the bankruptcy notice was served on 28 March 2017.

40    The second argument for Mr Michael Coshott was to the effect that a notice under s 41(5) of the Bankruptcy Act does not of itself lead to invalidity. It was submitted that the invalidity of a bankruptcy notice by reason of misstatement is to be tested at the time of issue of the bankruptcy notice, and not with regard to payments that may later have been made: see Re Walsh (1982) 65 FLR 87 at 91-2 and Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 340, quoted by the Full Court in Nugawela v Deputy Commissioner of Taxation [2016] FCAFC 164 at [24]-[25]. It was submitted that notwithstanding post-issue payments may have been made, provided some amount remains outstanding, the bankruptcy notice should not be set aside. While the authority is not in doubt, the argument advanced in reliance upon it should be rejected.

41    It is true that a valid s 41(5) notice does not automatically lead to invalidity. That provision is not the source of any power to set aside a bankruptcy notice, as opposed to s 30, which bestows a broad discretion. Further, it falls for consideration whether the relevant misstatement was material, such that it is beyond the purview of s 306(1) of the Bankruptcy Act. In this case, that threshold is met in several different ways:

(1)    First and foremost, at the time of the issue of the bankruptcy notice, the amount due was below the threshold for a valid bankruptcy notice to issue at all. This is an error that goes to the fundamental conditions on the issue of a bankruptcy notice. On any view, it is a material misstatement as to any obligation to pay by reason of the bankruptcy notice existing at all, as well as being a separate ground for the bankruptcy notice to be set aside.

(2)    Secondly, even if the amount due was not below the threshold for the issue of a valid bankruptcy notice by reason, for example, that the disputed 2013 garnishee payments should not have been deducted that would still leave a bankruptcy notice seeking payment of $29,108.62, whereas the correct figure was, at most, only $5,836.99 ($29,108.62 minus the sum of $22,361.90 and $909.73). An overstatement of five times the amount due is of the kind that leaves it open to the Court to find that there was a material misstatement within the terms of s 306(1) of the Bankruptcy Act.

(3)    Thirdly, on the evidence and findings of the Court, by the time that matter was properly before this Court, and certainly by the time of hearing of the application, there was little or no debt left at all. While this does not go to the validity of the bankruptcy notice at the time it was issued, it is relevant to the exercise of the discretion to set the bankruptcy notice aside.

42    None of the remaining grounds in the notice of objection were developed in oral or written submissions and do not have any apparent merit on their face. Each remaining ground in the notice of objection must therefore be rejected.

43    In this case, unlike the situation in Adams v Lambert, there was a substantial misstatement in the bankruptcy notice served on Ms Duarte. It would, if left uncorrected, have left Ms Duarte objectively (not subjectively) in the position of being misled by either:

(1)    requiring payment where there was no valid requirement imposed by the bankruptcy notice to pay anything, due to being under the $5,000 threshold for the valid issue of the bankruptcy notice; or

(2)    requiring payment of an amount that was more than five times the debt in fact owing, notice having been given for the purposes of s 41(5) of the Bankruptcy Act to rely on a misstatement of the amount due.

44    A relevant consideration in the exercise of the discretion to set aside the present bankruptcy notice is the persistence of Mr Michael Coshott with a bankruptcy notice that he must, or at least should, have known was highly misleading. As the Full Court pointed out in Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255; 87 FCR 120 at [37], the object of a notice of misstatement under s 41(5) is to give the creditor the opportunity to consider whether the bankruptcy notice should be withdrawn and a fresh notice, correcting the misstatement, issued. That opportunity was ignored by Mr Michael Coshott, or at least by his solicitors acting on his behalf. Moreover, if the correct position is, as established by the evidence, that there was and is nothing outstanding of the amount demanded to be paid, that is an additional reason to set the bankruptcy notice aside.

45    In all the circumstances, the primary relief sought in Ms Duarte’s application should be granted and the bankruptcy notice set aside. There is no need to go so far as finding that the proceedings constituted by the bankruptcy notice were an abuse of process.

46    Once Ms Duarte had put Mr Michael Coshott on notice of the inherent defects in his bankruptcy notice by her letter of 11 April 2017, he should have withdrawn that bankruptcy notice, applying Seovic reasoning. Ms Duarte should not be out of pocket for legal expenses from that time onwards. Accordingly Ms Duarte should be awarded her costs of and incidental to her application upon the usual party/party basis until her letter was hand delivered and received by Mr Michael Coshott’s solicitors on 11 April 2017, and upon an indemnity basis thereafter.

47    The written submissions for Ms Duarte asked the Court to consider a third party costs order. There is insufficient material before the Court to make such an order. Moreover, whoever might be affected by such an application must be given an opportunity to be heard. It is therefore appropriate to give Ms Duarte leave to make such application, with sufficient time being allowed for her to consider properly whether than is a course that she wishes to embark upon.

I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich.

Associate:

Dated:    20 October 2017