FEDERAL COURT OF AUSTRALIA

Khadpekar v Kowanyama Aboriginal Council [1999] FCA 1748

BANKRUPTCY - validity of bankruptcy notice - circumstances surrounding judgment establishing debt - default judgment where service alleged to be defective - effect of failure to lodge an appeal in time - no extension for compliance with bankruptcy notice - whether notice understating interest due is misleading

Supreme Court Act 1995 (Qld) s 45

Bankruptcy Act 1966 (Cth) ss 306, 41

Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 Cited

Re Schierholter:  Ex Parte Geis (1978) 32 FLR 22 Distinguished

Re Preston:  Ex Parte Commercial Bank of Australia Ltd  (1982) 45 ALR 105 Discussed

MANGALA KHADPEKAR TRADING AS ARCHIPLANNING NETWORK v KOWANYAMA ABORIGINAL COUNCIL

Q7223 OF 1999

KIEFEL J

15 DECEMBER 1999

BRISBANE

THE COURT ORDERS THAT:

The application be dismissed with costs.

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

REASONS FOR JUDGMENT

1                     Ms Khadpekar applies to set aside a bankruptcy notice served on her by the Kowanyama Aboriginal Council on 4 May 1999.  The notice claimed a debt owing of $51,148.01.  The notice was founded on a judgment of the Magistrates’ Court in Cairns entered in favour of the Council on 16 September 1997 for the sum of $45,466.56.

2                     Ms Khadpekar’s principal contention was that the judgment in the Magistrates’ Court was improperly obtained because the Council’s solicitors deliberately withheld service of documents upon her between May and September 1997, as a result of which she was unaware of steps she was obliged to take in the proceedings.  It was as a result of those defaults that judgment was entered against her.  If that argument were accepted, it could not be said to be established, on the present material, that there was a debt owing to the Council in the sum claimed.

3                     In the proceedings brought by the Council before the Magistrates’ Court, it was alleged that Ms Khadpekar had received payment for professional services which had not been provided by her to the Council.  Ms Khadpekar was personally served with the plaint on 21 February 1997, and she filed an entry of appearance and defence and counterclaim.  She did not serve it, but the Council’s solicitors obtained a copy.  An address for service was provided by her in that document, her then residential address at Holloway’s Beach.  Shortly afterwards, in April 1997, she moved to another address.  Between May and September 1997 she resided at Smithfield Heights.  She did not advise the Magistrates’ Court or the Council about her change of address.  Affidavits of service, by post, to her old residential address are annexed to her affidavits.  She points out that her postal address, at a post office box, remained the same;  that she had organised for telephone and facsimile messages to be redirected to a new number;  and that her new residential address appeared in the new phone book soon after she moved.  It remains the case, however, that the Council’s solicitors were not aware of her change of address for service, so that alternative means of notifying Ms Khadpekar could not have been considered necessary.  Correspondence by Ms Khadpekar to the Council in May 1997 contained only a reference to her post office box, even if they had thought to check current addresses.  I do not accept the assertions that they knew that she was no longer at her old address.  Ms Khadpekar refers to a phone call, which she says occurred sometime in early May, when she was telephoned by someone in the solicitor’s office and asked for her current address.  This allegation was also raised in the Magistrates’ Court, in the application to set aside the judgment.  There is, however, nothing to suggest why the solicitors would make such an enquiry.  They had obtained a copy of the entry of appearance of defence and, consistently thereafter, served documents by post to that address.  The solicitors had an interest in bringing documents to Ms Khadpekar’s attention, if further steps were to be taken by them, on behalf of their client, if they received information concerning a change of address.

4                     Ms Khadpekar also alleges that service by the Council’s solicitors at her previous address was not attempted.  In this respect, she relies upon a document which is said to have been signed by the tenant of the premises at Holloway’s Beach between May and September 1997.  That document contains a statement that no mail was received which required redirection to the applicant.  It is somewhat elliptical.  I do not, however, accept the assertion as evidence.  Other evidence, adduced by Ms Khadpekar from the postal authorities, tends to suggest the mail forwarded was likely received. 

5                     On 16 September 1997, judgment was entered against Ms Khadpekar on grounds that she had not appeared or taken any steps in the matter.  This followed some applications by the Council to the Court respecting discovery.

6                     Ms Khadpekar also listed a number of defects which she said rendered the bankruptcy notice invalid.  Each of them was discussed with Ms Khadpekar during the course of the hearing.  They were not all matters of substance, and I do not propose to deal with each of them in these reasons, save for the question of the identification of the interest claimed in the bankruptcy notice.

7                     Ms Khadpekar pointed out, correctly, that the calculation of interest which had accrued since the date of judgment, pursuant to s 48 of the Supreme Court Act 1995 (Qld), was understated. 

8                     Item 3 of the Schedule to the Bankruptcy Notice provided the following calculation:

“Interest is being claimed in this Bankruptcy Notice.  Details of the calculation of the amount of interest claimed are set out as follows:

1.         The provision under which the interest is being claimed is section 48 Supreme Court Act 1995;

2.         The principal sum on which the interest is being claimed is $45,466.56

3.         The period for which the interest is being claimed is from the date of judgment, 16 December 1997 to 1 April 1999.  This constitutes a period of 471 days;

4.         The prescribed interest rate for that part of the relevant period comprising 16 December 1997 to 30 June 1998 (196 days) is 10% per annum.  The prescribed interest rate for that part of the relevant period comprising 1 July 1998 to 15 April 1999 (289 days) is 9% per annum.

5.         The formula for the calculation of interest:-

            Amount of claim ($45,466.56) X Interest Rate (10%) X period for which interest is being claimed (196 days) = $2,441.49

                                                365 days

            PLUS

            Amount of claim ($45,466.56 X Interest Rate (9%) X period for which interest is being claimed (289 days) = $3,239.96

                                    365 days

            TOTAL AMOUNT OF INTEREST = $5,681.45”.

9                     The date of judgment, after which the interest accrued, is incorrectly stated as 16 December 1997.  That was a date after the unsuccessful application by Ms Khadpekar to have the judgment set aside.

10                  The front page of the Bankruptcy Notice says that the Council “claims you owe the creditor a debt of $51,148.01 as shown in the Schedule”.  It goes on to require her, within 21 days after service of the notice, to pay the amount of “the debt” to it or make a satisfactory arrangement for its settlement.  The schedule identifies the judgment debt and the sum of $5,681.45 as accrued interest.

11                  An understatement may be capable of misleading a debtor, if it is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice.  No such uncertainty, however, arises if it is clear that payment of the amount specified in the notice will constitute compliance with it:  Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71, 80-81.  If the notice cannot reasonably be regarded as misleading it is not a nullity and the understatement constitutes a formal defect or irregularity which is excused by s 306 Bankruptcy Act 1966 (Cth). 

12                  The Bankruptcy Notice here clearly states the amount which is claimed and which is required to be paid.  It seems to me that, while a debtor might well appreciate that there was an error, resulting in an understatement of the amount of interest accruing on the judgment, he or she could not have been in any doubt about the sum which was required to be paid.  This ground also fails. 

13                  Ms Khadpekar referred me to two authorities in support of her argument.  Re Schierholter;  Ex Parte Geis (1978) 32 FLR 22, however, concerned a different situation.  There, the amount of the judgment debt itself had been understated.  It could not therefore be said that the notice required the debtor to pay “the judgment debt or sum ordered to be paid in accordance with the judgment or order” as s 41 then required.  More to the point, in Re Preston;  Ex Parte Commercial Bank of Australia Ltd  (1982) 45 ALR 105 it was contended that a notice was invalid because it understated interest and there was no clear intention on the part of the creditor to abandon the balance.  Sheppard J, however, held that a debtor could not reasonably be misled by what was claimed as the amount due and that the bankruptcy notice was not invalidated by the understatement.

14                  With respect to Ms Khadpekar’s application to set aside the judgment of 16 September 1997, I was informed that the Magistrate acceded to a submission, on the part of the Council, that the Magistrates’ Court had no power to set it aside.  The reasons were not produced.  Ms Khadpekar wishes to bring an appeal from that decision to the District Court but will, no doubt, require an extension of time.  She explains that she has been unable to lodge an appearance to do so because of poor health she has suffered.  Unfortunately for Ms Khadpekar as an appeal has not been lodged, and lodged prior to the expiration of the time limited by the bankruptcy notice, no extension of time for compliance with the notice can be given under s 41(6A).  However, whilst Ms Khadpekar has not been successful in her application to have the bankruptcy notice set aside, she is still able to pursue her appeal rights, subject to any necessary extensions of time being granted.  The making of a sequestration order in these proceedings is not automatic and would be influenced by a successful outcome on an appeal.

15                  The application will be dismissed with costs.

Associate:

Dated:              15 December 1999