CATCHWORDS
BANKRUPTCY - creditor's petition - whether formal defect or irregularity
Bankruptcy Act 1966 (Cth), s 306(1)
Re Williams; Ex parte Alberton Electrical Service Pty Ltd
(1982) 43 ALR 552
Ex parte Coates; In re Skelton (1877) 5 ChD 979
Re Fiddian, Squire & Co (1892) 66 LT 203
Polain v Sargood Bros (No 2) (1908) 10 WAR 160
Re Hastings (1985) 1 All ER 885
Re Leppard; Ex parte Fortune (Aust) Pty Ltd (1974) 5 ALR 556
Re Pinkerton; Ex parte B.G. Textiles Pty Ltd (1984) 4 FCR 64
Re Dunhill; Ex parte Dunhill (1894) 2 QB 234
Kleinwort Benson Australia Ltd v Crowc (1988) 165 CLR 71
No. NP 3640 of 1994
RE: PAUL READ; EX PARTE PLUMBERS SUPPLIES CO-OPERATIVE
LIMITED
MOORE J
SYDNEY
26 MAY 1995
IN THE FEDERAL COURT OF AUSTRALIA)
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF THE ) No. NP 3640 of 1994
STATE OF NEW SOUTH WALES )
RE: PAUL READ
Applicant/Debtor
EX PARTE: PLUMBERS SUPPLIES
CO-OPERATIVE LIMITED
Respondent/Creditor
JUDGE: Moore J
PLACE: Sydney
DATE: 26 May 1995
ORDER OF THE COURT
THE COURT ORDERS THAT:
1. The Petition is dismissed.
2. The Debtor to pay the Petitioning Creditor's costs as agreed or taxed.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF THE ) No. NP 3640 of 1994
STATE OF NEW SOUTH WALES )
RE: PAUL READ
Applicant/Debtor
EX PARTE: PLUMBERS SUPPLIES
CO-OPERATIVE LIMITED
Respondent/Creditor
JUDGE: Moore J
PLACE: Sydney
DATE: 26 May 1995
REASONS FOR JUDGMENT
This matter raises the question of who should bear the costs of proceedings resulting from the presentation of a creditor's petition by Plumbers Supplies Co-operative Limited ("the petitioner").
On 21 October 1993, judgment was obtained by the petitioner in the sum of $1,502.02 against Paul Read ("the judgment debtor") in the Local Court. On 9 October 1994 a bankruptcy notice was served on the judgment debtor requiring payment of the judgment debt. The notice was not complied with. The petitioner then filed on 6 December 1994 a creditor's petition based on an act of bankruptcy said to have arisen from the failure of the judgment debtor to comply with the notice. The petition particularised the basis upon which a sequestration order should be made by reciting in numbered paragraphs the grounds for the order in the following terms:
"1. The debtor was at the date of the commission of the act of bankruptcy specified in paragraph 4 of this petition personally present in Australia.
2. The debtor is justly and truly indebted to the creditor in the sum of $1,502.02 for goods sold to him for which sum judgment was obtained in the Local Court at The Downing Centre, 143-147 Liverpool Street, Sydney on 21 October 1993.
3. The creditor does not, nor does any person on his behalf hold any security over the property of the debtor or any part of it for the payment of the amount specified in the last preceding paragraph.
4. The debtor, within six months before the presentation of this petition, committed the following act of bankruptcy namely that he failed either to comply on or before 24 October 1994 with the requirements of the bankruptcy notice to be served on him on Sunday 9 October 1994 or to satisfy the court that he had a counterclaim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a) of the bankruptcy notice."
It is to be noted that the act of bankruptcy particularised in par4 speaks of "the bankruptcy notice to be served on him on Sunday 9 October 1994". Plainly the act of bankruptcy should have been identified as the failure to comply with the bankruptcy notice "served on him" and not "to be served on him".
The petitioner submitted that the misdescription of the act of bankruptcy was a matter that could and should have been remedied by operation of s306 and an amendment to the petition which the Court would have granted had the petition been pursued. It was not because the judgment debt was paid shortly before the hearing. The petitioner submitted it is entitled to its costs of the sequestration proceeding. The judgment debtor submitted that the misdescription of the act of bankruptcy could not have been remedied in this way and, as a consequence, no sequestration order would have been made on the petition. It follows, it was submitted, that the judgment debtor is entitled to the costs of the sequestration proceedings. Both parties accepted that the resolution of this issue would determine either in whole or in part the costs order that should be made in the matter.
I turn to consider whether the misdescription of the act of bankruptcy was remediable in the way submitted by the petitioner.
Courts exercising jurisdiction in bankruptcy have drawn a distinction between errors in bankruptcy notices and errors in creditors petitions. The position was summarised by Fisher J in Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 558:
"However, the practice of the courts exercising jurisdiction in bankruptcy is, for good reason, to construe bankruptcy notices strictly and to require strict compliance with the provisions of the relevant Acts and Rules of Court. A more strict compliance is required in the case of a bankruptcy notice than of a petition for a sequestration order, the consequences of non-compliance with a bankruptcy notice are penal or quasi-penal in nature (Re a Debtor [1951] Ch 313 at 318 and Re a Judgment Debtor [1908] 2 KB 474 at 478 and 481) and creditors who avail themselves of proceedings of this nature to enforce payment of debts must be prepared to adhere to the requirements of the Acts and Rules, however technical they may appear to be (Re Wimborne (1979) 24 ALR 494 at 498)."
The judgment debtor referred to several authorities where the petition contained a defect that was not viewed as remediable by amendment. In Ex parte Coates; In re Skelton (1877) 5 ChD 979 the petition was dismissed in circumstances where it identified the act of bankruptcy as the departure of the debtor from his dwelling house but did not add that that was done with intent to defeat or delay his creditors: see s40(1)(c)(ii) of the Bankruptcy Act 1966 ("the Act"). A similar defect in a petition was remedied by amendment in Re Fiddian, Squire & Co (1892) 66 LT 203 but on the basis that the amended petition had to be re-served.
In Polain v Sargood Bros (No 2) (1908) 10 WAR 160 the Court refused to allow the amendment of a petition that alleged facts that did not, and did not attempt to, allege an act of bankruptcy. In Re Hastings (1985) 1 All ER 885 a petition referred to the service of a bankruptcy notice on 29 June 1983 and failure to comply with it by 12 July 1983. The notice was in fact served on 29 July 1983. An amendment was refused because it would have alleged an entirely different act of bankruptcy. The judgment debtor also referred to Re Leppard; Ex parte Fortune (Aust) Pty Ltd (1974) 5 ALR 556. While Leppard, supra concerned a discrepancy between the debt alleged in the petition filed and the debt alleged in the copy that was served, the following was said by Dunn J:
"In bankruptcy proceedings, the court acts not merely inter partes but in the public interest, and in my view it is in the public interest that clear provisions with respect to the form of bankruptcy petitions should be exactly and not carelessly complied with. Whilst a defective statement of an immaterial fact may be excused, material facts should be stated in a clear and unambiguous way."
However notwithstanding these various authorities it
is
ultimately a question of whether the error in the petition is one upon which
s306 of the Act operates. Section 306(1)
provides:
"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."
In Re Pinkerton; Ex parte B.G. Textiles Pty Ltd (1984) 4 FCR 64, Wilcox J had to consider a creditor's petition which identified the act of bankruptcy as the failure of the judgment debtor to comply with a bankruptcy notice by a specified date. In fact, the time for compliance was the following day but Wilcox J saw that as a matter that should be treated as a formal defect or irregularity for the purposes of s306. A similar approach had been adopted in an earlier English case in Re Dunhill; Ex parte Dunhill (1894) 2 QB 234 when an amendment was allowed to a petition which had failed to state the date upon which the act of bankruptcy had occurred arising from non-compliance with a bankruptcy notice.
Section 306(1) operates of its own force unless the Court thinks that substantial injustice will be caused: see Kleinwort Benson Australia Ltd v Crowc (1988) 165 CLR 71 at 81.
In the present case the petition was served on the judgment debtor at a time, as one would expect, when the bankruptcy notice had earlier been served. The notice was served on 9 October 1994. There is no evidence on the file as to when the petition was served, but it was dated 30 November 1994, was filed on 6 December 1994 and must have been served after that date. At the time the petition was served it should have been apparent to the judgment debtor that the reference to "to be served on him on Sunday 9 October 1994" was a reference to the service of the bankruptcy notice that had earlier been effected. Not only would this have been apparent from the service that had earlier occurred but also from the plainly inappropriate use of the future tense in relation to an event occurring on a day identified in a document predating the date of the document. On any reasonable reading of the petition it would not have misled the judgment debtor and it made apparent, with sufficient clarity though imperfectly, what was the act of bankruptcy upon which the petition was based. I am satisfied that the use of the words "to be served" constitutes an irregularity upon which s306(1) operates and no substantial injustice would have been caused by it.
The judgment debtor would have failed in his objection to the petition based on the use of the words "to be served" and the petitioner is entitled to the costs of the petition. I dismiss the petition and order the judgment debtor to pay the petitioner's costs.
I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Moore.
Associate:
Date: 26 May 1995
Solicitor for the
Applicant/Debtor: Mr D. Knaggs
Solicitor for the
Respondent/Creditor: Mr M. Shehadie
Date of hearing: 16 May 1995
Date of judgment: 26 May 1995
