FEDERAL COURT OF AUSTRALIA

Northam v Commonwealth Bank of Australia [1999] FCA 544

BANKRUPTCY – bankruptcy notice – application to set aside on grounds of defects or irregularities – failure to accord precisely with form prescribed by reg 4.02 of Bankruptcy Regulations – nature of particular defect – likely effect upon debtor.

Bankruptcy Act 1966 (Cth) ss 30(1), 40(1)(g)(ii), 41, 306

Acts Interpretation Act 1901 (Cth) s 25C

Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71, 77, 79-80 applied

Re Wheeler & Reynolds (A Firm); Ex parte Kerr & Crowe (1988) 20 FCR 185 referred to

Yu v Farrow Mortgage Services Pty Ltd (1995) 60 FCR 300 at 306 and 307 referred to

Re Staples; Ex parte Baker v Staples (1996) 67 FCR 541 at 547 referred to

Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 558 referred to

Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494 at 498 and 499 referred to

James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644 referred to

Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135 referred to

Re Gray; Ex parte Person to Person Financial Services Pty Ltd (1980) 48 FLR 379 referred to

Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 23 ALR 270 referred to

Scerri v Cahill (unreported, Federal Court of Australia, Beaumont J, 17 March 1998) referred to

Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 referred to

Re Wong; Ex parte Kitson (1979) 38 FLR 207 referred to

Re Hodgson; Ex Parte FCR Motion Technology Pty Ltd [1999] FCA 263 referred to

Ex parte Johnson; re Johnson (1883) 25 Ch 112 referred to

Re Low; Ex parte Gibson [1895] 1 QB 734 referred to

Re Wenham; Ex parte Battams [1900] 2 QB 698 at 708 referred to

CHARLES VICTOR NORTHAM v COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)

VG 7907 of 1998

WEINBERG J

5 MAY 1999

MELBOURNE

THE COURT ORDERS THAT:

1.         The application to set aside the bankruptcy notice be dismissed. 

2.         The costs of and incidental to this application, including reserved costs, be costs in the petition in the event that a petition is presented by the respondent based on non-compliance with the bankruptcy notice, and a sequestration order made.  Otherwise, the applicant pay the respondent’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This is an application by the applicant to set aside a bankruptcy notice issued on 13 October 1998, and served upon him on 9 November 1998.   The application is brought pursuant to s 30(1) of the Bankruptcy Act 1966 (Cth) (“the Act”).  It is supported by an affidavit sworn by the applicant in which are set out the grounds of the application.

2                     Originally these grounds included a complaint that the judgment or order relied upon by the respondent, and annexed to the bankruptcy notice, had not been authenticated pursuant to R 60.02 of the Supreme Court Rules (General Rules of Procedure in Civil Proceedings 1996).  The complaint was that the judgment or order did not appear to have been sealed by the Prothonotary with the seal of the Court.  It was not, therefore, authenticated.  Until authenticated, it could not be enforced.

3                     However, in the face of an affidavit sworn by a solicitor in the employ of the respondent deposing to the fact that the original order was sealed, though the affixing of the seal had not come up on the photocopy of the order served on the applicant, and upon production to this Court of the original lodged bankruptcy notice to which was attached an authenticated (sealed) order of the Supreme Court of Victoria, the applicant abandoned that ground of appeal.

4                     The remaining grounds of appeal were argued.  They all turn upon various defects or irregularities which are said to invalidate the bankruptcy notice.  It is necessary, therefore, to set out that notice in its entirety.

“FORM 1        Regulation 4.02

Bankruptcy Act 1966

BANKRUPTCY NOTICE

This Bankruptcy Notice is prescribed, under subs.41(2) of the Bankruptcy Act 1966 (“the Act”), by r. 4.02 of the Bankruptcy Regulations.

TO:      CHARLES VICTOR NORTHAM ("the debtor")

OF:     59 NEPEAN HIGHWAY, ELSTERNWICK VIC 3185

This Bankruptcy Notice is an important document. You should get legal advice if you are unsure of what to do after you have read it

1.                  COMMONWEALTH BANK OF AUSTRALIA

                     ACN 123 123 124

                     ("the creditor")

            of      385 Bourke Street

                     MELBOURNE VIC 3000

claims you owe the creditor a debt of $254,210.70, as shown in the Schedule.

2.  The creditor claims that the debt is due and payable by you. A copy of the judgment or order relied upon by the creditor is attached. At the time of applying for this Notice, execution of the judgment or order had not been stayed.

3.  You are required, within twenty one (21) days after service on you of this Bankruptcy Notice:

(a) to pay to the creditor the amount of the debt; or

(b) to make an arrangement to the creditor's satisfaction for settlement of the debt.

4.  Payment of the debt can be made to:

                     Credit Management Unit, Commonwealth Bank of Australia

            of      Level 18, 385 Bourke Street, Melbourne

                     Refer: Mr Jim Twaddle

            Tel:   9675 7130

5.  Bankruptcy proceedings may be taken against you if, within the time stated in paragraph 3, above:

(a)       you do not comply with the requirements of either paragraph 3(a) or paragraph 3(b) above; and

(b)       the Federal Court does not extend, or is not deemed to have extended, the time for compliance with this Bankruptcy Notice (see paragraph 6 below).

6.  The Federal Court of Australia may extend the time for compliance with this Bankruptcy Notice if, within the time stated in paragraph 3 above, you apply to that Court on one or both of the following grounds:

(a)       that you have instituted proceedings to set aside the judgment or order in respect of which this Bankruptcy Notice has been issued;

(b)       that you have filed with the Federal Court of Australia an application (on one or more grounds, apart from the grounds mentioned in paragraph 7 below) to set aside this Bankruptcy Notice.

7.  In addition, within the time specified in paragraph 3 above, you may file an application to the Federal Court of Australia for an order to set aside this Bankruptcy Notice on the specific grounds that:

(a)       you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in this Bankruptcy Notice as owing to the creditor; and

(b)       in the action or proceeding in which the judgment or order mentioned in paragraph 2 of this Bankruptcy Notice was obtained, you could not have set up that counter- claim, set-off or cross demand*.

*    This means that, because of a legal obstacle, you could not have raised that counter-claim, set-off or cross demand in defence of the creditor's court action against you. It is not enough if, for example, you simply neglected or overlooked the matter.

8.  You should note the following points carefully:

(a)       If you file, at the Federal Court Registry, an application mentioned in paragraph 6(a) or (b), you must still comply with this Bankruptcy Notice within the time stated in paragraph 3 above unless the Court extends the time for you to comply.

(b)       If you file, at the Federal Court Registry, an application mentioned in paragraph 7(a), you need not comply with this Bankruptcy Notice until the Court decides whether you have grounds for a counter-claim, set-off or cross demand. Whether you will have to comply at that stage will depend on the Court's decision.

WARNING

9.   The information in paragraphs 6, 7 and 8 is based on provisions of section 41 of the Act. The information is a summary only, and not a complete statement of the relevant law. It might be unwise to rely solely on this summary. If you need a more detailed explanation, you should seek legal advice.

10.  The Federal Court Registry is located at:

450 Little Bourke Street

MELBOURNE VIC 3000

Tel: (03) 9289 9333

Schedule

(NB: Amounts, where applicable, are to be inserted in column 2)

___________________________________________________________

For the Information of the Creditor ‑

Notes to the Schedule

Note 1:            Legal costs (item 2 of the Schedule)

If legal costs are being claimed in this Bankruptcy Notice, a certificate of taxed or assessed costs in support of the amount claimed must be attached to this Bankruptcy Notice.

Note 2:            Interest accrued (item 3 of the Schedule)

If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice. The document must state:

(a)               the provision under which the interest is being claimed; and

(b)               the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.

(NB: If different rates are claimed for different periods, full details must be shown)

The person who applied for this notice to be issued is:

I F Purbrick, Solicitor

who confirms by the following signature that he or she is the creditor's authorised agent:

(signed by IF Purbrick)

and whose address for service is:

                                                                                       1 F Purbrick, Solicitor

                                                                                       16th Floor

                                                                                       385 Bourke Street

                                                                                       MELBOURNE VIC 3000

Telephone and faxnumbers                                           Telephone (03) 9675 7462

(including STD code):                                                    Facsimile (03) 9675 6464

DX number (if applicable):                                             DX 407 MELBOURNE

SCHEDULE OF INTEREST PAYABLE

Judgment in the Supreme Court of Victoria dated 8 November 1996 in the sum of $374,708.89 together with interest thereon pursuant to section 101 of the Supreme Court Act 1986 (Vic) calculated at the rate prescribed by the Penalty Interest Rates Act 1983 (Vic.).

Principal         Interest       From        To               No.         Daily        Interest

                   $               rate                                                of           Accrual    payable

                       % per                                             Days      Amount         $

                        annum                                                             $

374,708.89

                                  13.2               9 Nov 1996    14 Nov 1997    371             135.51           50,274.21

‑191,752.85

  182,956.04

                                  13.2               15 Nov 1997  22 Feb 1998     100             66.16            6,616.00

                                  12.3               23 Feb 1998  12 Oct 1998     233             61.65            14,364.45

TOTAL INTEREST PAYABLE                             71,254.66”

5                     Section 41 of the Act provides, in part, as follows:

“(1)     An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that:

(a)               is described in paragraph 40(1)(g); and

(b)               is for an amount of at least $2,000.

(2)               The notice must be in accordance with the form prescribed by the regulations.

…”

6                     Regulation 4.02 of the Bankruptcy Regulations provides:

“(1)     For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed. 

(2)       A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes). 

(3)       Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901.”

7                     Section 25C of the Acts Interpretation Act 1901 (Cth) provides that where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required, and substantial compliance is sufficient.

8                     Form 1, to which reg 4.02 refers, is contained in Sch 1 to the Bankruptcy Regulations.  The bankruptcy notice which was served upon the applicant in the present proceedings follows closely Form 1.  Nonetheless, the applicant contends that the bankruptcy notice should be set aside for any, or all, of the following reasons:

·           The respondent claimed in the body of the bankruptcy notice that the applicant owed a debt of $254,210.70, as shown in the Schedule.  However, the fact that this sum represented the balance of a judgment only was not stated in the body of the notice.  The only clue to that fact lay in the Schedule where, in item 5, reference was made to “payments made and/or credits allowed since date of judgment or order”, and to an amount of $191,752.85.  The respondent had not provided any particulars of that amount.  Nor had the respondent given any explanation of its nature.

·           The interest calculations were set out in the “Schedule of Interest Payable”.  However, that Schedule had not been referred to in the body of the notice as such, but merely as “a document attached to this Bankruptcy Notice”.  Note 2 of the Schedule  to the Notice required certain details as to interest to be set out.  It also provided that if different rates were claimed for different periods, full details must be shown.  There had been a failure to comply with those requirements. 

·           The bankruptcy notice did not accord precisely with the form prescribed by reg 4.02 of the Bankruptcy Regulations.  There were three separate instances where the notice allegedly departed significantly from that form:

(a)                    The note which appears under paragraph 3 in the prescribed form, namely: “[NOTE:  the number of days to be inserted is 21 or, if an order has been made under subparagraph 40(1)(g)(ii) of the Act, the number of days constituting the time fixed by the order.]”

had been omitted from the notice.

(b)                   The note which appears under paragraph 4 in the prescribed form, namely: “[NOTE:  the address must be within Australia.]”

had been omitted from the notice.

(c)                    The expression “for your State or Territory” which appears in paragraph 10 of the prescribed form between the word “Registry” and the word “is”; had been omitted from the notice.

Bankruptcy Notices – the general principles and s 306 of the Act

9                     The form of bankruptcy notice set out in Form 1 is prescribed.  A bankruptcy notice must follow Form 1 “in respect of its format” (for example, bold or italic typeface, underlining and notes).  Plainly there must be the closest attention to detail in the preparation of a bankruptcy notice if it is to be relied upon as the basis for establishing the commission of an act of bankruptcy pursuant to s 40(1) of the Act.  A bankruptcy notice will be a nullity, or liable to be set aside due to a defect or failure to comply with the prescribed form, if the defect or irregularity is substantive or, if formal only, it occasions substantial and irremediable justice.

10                  In Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 77 it was stated by Mason CJ and Wilson, Brennan and Gaudron JJ that:

“It may be accepted that a bankruptcy notice which mis-states the amount due to the creditor is defective or irregular.” 

11                  Their Honours continued at 79-80:

“The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v Federal Commissioner of Taxation [(1955) 93 CLR 631 at 644]…  In such cases the notice is a nullity whether or not the debtor is in fact misled:  In re A Judgment Debtor, 530 of 1908 [[1908] 2 KB 474 at 481].”

12                  Their Honours’ statements of principle must be understood in the context of s 306 of the Act.  Section 306 is modelled closely upon similar provisions which have existed in bankruptcy legislation for well over a century.  See for example Bankruptcy Act 1869 (UK) (32 and 33 Vic C 71) s 82.

13                  Section 306 relevantly provides as follows:

“(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.”

14                  It has been held that s 306 should be given a wide interpretation – Yu v Farrow Mortgage Services Pty Ltd (1995) 60 FCR 300 at 306 per Lehane J.  “Proceedings under [the] Act” include non-curial proceedings.  They include the issuing of bankruptcy notices which are the product of administrative, rather than judicial, acts:  Re Wheeler & Reynolds (A Firm); Ex parte Kerr & Crowe (1988) 20 FCR 185; Re Staples; Ex parte Baker v Staples (1996) 67 FCR 541 at 547.

15                  The rules relating to the issue of a bankruptcy notice against a debtor require strict compliance.  The commission of an act of bankruptcy involves consequences of a penal, or quasi-penal, nature.  The court will not necessarily when dealing with a bankruptcy notice treat what, in other contexts, might be viewed as a mere informality as nothing more than a formal defect.  A creditor who seeks to avail himself of a bankruptcy notice as the means of enforcing a debt must be prepared to adhere strictly to the requirements of the Act, and the Rules of Court; Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 558. Bankruptcy notices are, on occasion, set aside on grounds which may be regarded as highly technical – Re Wimborne; Ex parte The Debtor  (1979) 24 ALR 494 at 498.

16                  A notice that could reasonably mislead a debtor even if he is not, in fact, misled may be invalid: James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644; Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135; Re Wimborne (supra) at 499 and Re Gray; Ex parte Person to Person Financial Services Pty Ltd (1980) 48 FLR 379.

17                  In Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 23 ALR 270, for example, the bankruptcy notice there under consideration was held to be invalid because material words in the document were illegible.  In Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 it was held that the failure to state the address of the creditor in a bankruptcy notice rendered the notice a nullity, and was not a mere formal defect or irregularity within the meaning of s 306 of the Act.  In Scerri v Cahill (unreported, Federal Court of Australia, Beaumont J, 17 March 1998) a bankruptcy notice was held to be invalid because it wrongly specified compliance as required within fourteen days instead of twenty-one days, as prescribed, and was issued without any copy of the judgment attached.  These defects were found to be fundamental, going “well beyond formal defects”, and beyond remedy through s 306.

18                  Where, however, there is a defect or irregularity in a bankruptcy notice which is merely one of form, and not of substance, and which could not mislead or embarrass the debtor, such defect or irregularity will not invalidate the bankruptcy notice.  For example, where the creditor’s Australian Company Number was omitted, or the address of the creditor was included in the middle of the notice rather than at its beginning, the defect was not a failure to meet an essential requirement of the Act unless the misplacement of the address was apt to mislead the debtor - Yu v Farrow Mortgage Services Pty Ltd (supra) at 307.  An incorrect date of judgment specified in a bankruptcy notice does not necessarily invalidate that notice –  Re Wong; Ex parte Kitson (1979) 38 FLR 207 per Lockhart J; and Re Hodgson; Ex Parte FCR Motion Technology Pty Ltd [1999] FCA 263.  See also Ex parte Johnson; re Johnson (1883) 25 Ch 112; Re Low; Ex parte Gibson [1895] 1 QB 734 and Re Wenham; Ex parte Battams [1900] 2 QB 698 at 708, all decisions based upon the legislative precursors to s 306 of the Act.

19                  There are many cases which illustrate the principles set out above.  They tend, however, to involve nothing more than the application of settled principles to particular fact situations.  It is sufficient for present purposes to note merely that while some defects have been held to invalidate bankruptcy notices, other bankruptcy notices, ostensibly tainted by defects or irregularities, have been treated as having been saved by the operation of s 306 of the Act, or by operation of one of its legislative precursors.  Whether or not a particular defect results in invalidity must depend upon the nature of that particular defect, and its likely effect upon a debtor.

Conclusions

The absence of particulars regarding the sum of $191,752.85

20                  I can see no reason why a failure to state in the body of a bankruptcy notice that the debt claimed represents the balance of an amount of a judgment or order, less a payment made, should invalidate that notice.  The use of a schedule to a notice is expressly contemplated in Form 1.  The Schedule to the bankruptcy notice under challenge makes clear that the original amount of the judgment or order was $374,708.89.  This sum, together with interest accrued of $71,254.66 makes a total of $445,963.55.  From that total, the sum of $191,752.85 has been deducted in order to arrive at the total debt owing of $254,210.70.  The sum of $191,752.85 is described as “payments made and/or credits allowed since date of judgment or order”.  That is an entirely accurate description of the nature of that sum.  It reflects the fact that there has either been a payment of that sum by the debtor, or that he has been credited with that sum by the creditor.  It matters not in the slightest which of these two alternatives provides the basis for the figure in question.  I do not believe that the failure to specify with any greater precision how the sum of $191,752.85 was arrived at constitutes a defect of any kind in the notice.  If it did, it would be, at most, a formal defect of the type which would not, pursuant to s 306 of the Act, invalidate the notice.

The interest calculations

21                  The fact that the interest calculations are set out in a document entitled “SCHEDULE OF INTEREST PAYABLE”, which Schedule is not referred to in the body of the bankruptcy notice as such, but merely as a document attached to that notice, is, in my opinion, of no consequence.  The format adopted by the respondent in this case accords precisely with that which is prescribed in Form 1.  Note 2 to the Schedule to the notice expressly contemplates that details of the calculation of the amount of interest claimed are to be set out “in a document attached to this Bankruptcy Notice”.  That is precisely what has been done in this case.  The document so attached sets out, in accordance with the requirements of Note 2, the provision under which the interest is being claimed – s 101 of the Supreme Court Act 1986 (Vic).  It also sets out in accordance with the requirements of Note 2 the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.  As different rates have been claimed for different periods, full details have been shown. 

22                  A bankruptcy notice must, while being read strictly, also be read sensibly, and not perversely.  It must also be read as a whole, and may be read in the light of facts extraneous to the notice itself – Re Wimborne (supra) at 499. 

23                  There is nothing misleading or inaccurate about the treatment accorded to the interest component in the notice.  The debtor could not, on any view, have been misled as to that interest component.  If there were a formal defect in relation to the interest component, s 306 of the Act would, in any event, operate to save the notice.

Failure to comply with the form prescribed

24                  This ground is, in my view, devoid of any merit whatsoever.  It is true that the note which appears under paragraph 3 in the prescribed form has been omitted from the bankruptcy notice.  So it ought to have been.  The purpose intended to be served by that note was to remind the party completing the notice to insert the requisite number of days within which the debtor was obliged to pay to the creditor the amount of his debt, or to make an arrangement to the creditor’s satisfaction for settlement of the debt.  The number twenty-one had been inserted in the first line of paragraph 3 of the present notice.  It makes no sense at all to insist that a note appear in a notice advising the creditor that the number of days to be inserted is twenty-one, when that figure has itself already been inserted in the appropriate place. 

25                  Moreover, it is simply absurd to think that a bankruptcy notice could be invalidated by failing to include the expression “Note:  The address must be within Australia” when the address for payment of the debt, which has been inserted in the notice, makes it plain that the address is within Australia.

26                  Finally, the omission of the words “for your State or Territory” after the words “Federal Court Registry” in paragraph 10 of the bankruptcy notice, when the address inserted makes it plain that the relevant Court Registry is located at 450 Little Bourke Street, Melbourne, cannot constitute a defect of any kind in the notice, let alone a defect which could invalidate that notice. 

27                  If it were necessary to have resort to s 306 of the Act to save the notice by reason of any of these matters, I would not hesitate to invoke that section.  However, in my opinion, none of these matters can properly be described as a defect or irregularity of any kind.

Orders

28                  The applicant has failed to make good any of his contentions regarding the supposed invalidity of the bankruptcy notice.  The application to set aside the notice should be dismissed.  The costs of and incidental to the application, including reserved costs, should be costs in the petition in the event that a petition is presented by the respondent based on non-compliance with the bankruptcy notice, and a sequestration order is made.  Otherwise, the applicant should pay the respondent’s costs.

Associate:

Dated: