FEDERAL COURT OF AUSTRALIA

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

BANKRUPTCY ‑ Bankruptcy notice ‑ Bankruptcy Act provides that “notice must be in accordance with form prescribed” ‑ Notice based on judgment in Magistrates’ Court ‑ Prescribed form requires statement of provision under which interest claimed ‑ Completed form asserted that entitlement to interest derived from Supreme Court Act ‑ In fact entitlement derived from Magistrates’ Court Act ‑ Quantum of interest the same under both Acts ‑ Whether error a failure to meet a requirement made essential by Bankruptcy Act ‑ Purposive approach to ascertainment of essentiality.

Bankruptcy Act 1966, s 41(2), (5), (6)

Bankruptcy Regulations, reg 4.02

Kirk v Ashdown [1999] FCA 1664 not followed

Bendigo Bank Ltd v Williams (2000) 98 FCR 377 followed

Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 cited

Re Wimborne (1979) 24 ALR 494 cited

Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 applied

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 applied

Deputy Commissioner of Taxation v Woodhams (2000) 169 ALR 503 cited

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

EMCL Pty Ltd v Esanda Finance Corp Ltd [1999] FCA 978 cited

James v Federal Commissioner of Taxation (1955) 93 CLR 631 cited

Re Hansen; Ex parte Hansen (1985) 4 FCR 590 cited

Re Gyngell; Ex parte Speedo Group Limited (1990) 27 FCR 531 cited

Re Beauchamp; Ex parte Beauchamp [1904] 1 KB 572 cited

Re Celestine; Ex parte Monte Paschi Australia Ltd (1997) 71 FCR 399 cited

Farrugia v Farrugia [2000] 99 FCR 16 not followed

Distribution Group Ltd v Lyndan (1997) 78 FCR 240 referred to

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

Re Munson, Ex parte Deputy Commissioner of Taxation (1977) 29 FLR 479 referred to

Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co of Sydney Ltd (1979) 23 ALR 522 not followed

Northam v Commonwealth Bank of Australia [2000] FCA 544 referred to

Boylan v Farthing [2000] FCA 575 referred to

Foote v Mid-West Finance Pty Ltd (in liq) (1997) 78 FCR 306 referred to

Hilti Australia Pty Ltd v Millard (1997) 78 FCR 453 referred to

St George Bank Ltd v Klintwirth & Klintworth (1998) 157 ALR 286 referred to

Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441 referred to

Re Scerri (1998) 82 FCR 146 referred to

American Express International v Held (1999) 168 ALR 185 referred to

St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094 referred to

Re A Debtor (No 478 of 1908) [1908] 2 KB 684 referred to

Bank of Melbourne Limited v Hannan (1997) 78 FCR 249 referred to

Cabvil Pty Ltd v Hoiberg [1999] FCA 1791 referred to

George v Tricontinental Corporation Ltd (1994) 53 FCR 284 referred to

Gardiner v Gardiner (1992) 39 FCR 259 referred to

Re Farrugia; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 1 referred to

In re A Debtor, No. 21 of 1950; Ex parte the Debtor v Bowmaker Ltd [1951] 1 Ch 313 cited

Pillai v Comptroller of Income Tax [1970] AC 1124 cited

Formosa v Secretary, Department of Social Security (1988) 46 FCR 117 cited

James v Federal Commissioner of Taxation (1955) 93 CLR 631

THE AUSTRALIAN STEEL COMPANY (OPERATIONS) PTY LTD v WARREN LEWIS

V 7728 OF 1999

ROYAL & SUN ALLIANCE WORKERS’ COMPENSATION LTD v PETER JOHN OAKES

V 7859 OF 1999

JULIE MAREE OAKES and METROPOLITAN FIRE & EMERGENCY SERVICES BOARD v JOHN ZEMLIC

V 7860 OF 1999

BLACK CJ, LEE, HEEREY, SUNDBERG and GYLES JJ

22 DECEMBER 2000

MELBOURNE

GENERAL DISTRIBUTION

THE COURT ORDERS THAT the petition be dismissed.

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

GENERAL DISTRIBUTION

THE COURT ORDERS THAT the petition be dismissed.

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

THE COURT ORDERS THAT the petition be dismissed.

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

REASONS FOR JUDGMENT

BLACK CJ, HEEREY AND SUNDBERG JJ:

1                     Pursuant to a direction by the Chief Justice under s 20(1A) of the Federal Court of Australia Act 1976 (Cth), three creditors’ petitions have been heard by this Full Court exercising the original jurisdiction of the Court.  In each case the act of bankruptcy relied on is failure to comply with a bankruptcy notice:  Bankruptcy Act 1966 (Cth) (the Act) s 40(1)(g). 

2                     In the extensive amendments to the Act and the regulations in 1996 the form of bankruptcy notice has been made substantially more complex.  There have been conflicting Full Court decisions as to the consequence of non-compliance with the new form of notice. 

3                     In the present cases the notices all had the same defect.  Each notice was founded on an order made in the Magistrates’ Court of Victoria and claimed interest from the date of the order to the date of issue of the notice.  In a schedule attached to each notice the calculation of interest was set out and also, as is now required, a statement as to “the provision under which the interest is being claimed”.  The notices stated that interest was claimed “pursuant to section 101 of the Supreme Court Act 1986 (Vic)”.  However that provision did not apply to the orders founding the notices.  Interest on Magistrates’ Court orders is governed by s 100(7) of the Magistrates’ Court Act 1989 (Vic).  That section provides:

“Every judgment debt carries interest at the rate for the time being fixed under s 2 of the Penalty Interest Rates Act 1983 from the time the order is made.”

4                     Section 101 of the Supreme Court Act is as follows:

“Every judgment debt carries interest at the rate for the time being fixed under s 2 of the Penalty Interest Rates Act 1983 from the time the judgment is given or, in the case of costs which are taxable by the taxing master, from the date of the order from the taxing master stating the result of the taxation or such other date as the Court orders.”

5                     Generally speaking, costs in the Supreme Court are ordered to be taxed, whereas costs in the Magistrates’ Court are fixed at the time of the making of the order. 

6                     The Penalty Interest Rates Act 1983 (Vic) s   2 provides for the proclamation of interest rates from time to time.  The applicable rate in the present cases was published in the Victorian Government Gazette No 7 of 19 February 1998 at 395.  Thus in dollar terms the amount of interest payable on a judgment debt of a given amount over a given period will be the same whether the judgment is in the Supreme Court or the Magistrates’ Court.  In the present cases the amounts are as follows:

                                                    Order                   Interest

The Australian Steel Company

(Operations) Pty Ltd v Lewis                   $7,998.74            $59.30

Royal & Sun Alliance Workers’

Compensation Ltd v Oakes                      $2,964.85             $63.94

Metropolitan Fire & Emergency

Services Board v Zemlic                           $14,645.25           $315.86

7                     The debtors did not appear and were not represented.  However Mr G T Bigmore QC and Mr M Galvin appeared as amici curiae.  The Court has been much assisted by their helpful submissions, as it was by those of Mr J Nolan, counsel for the applicants.

The legislation

8                     Section 41(1) in combination with s 40(1)(g) has the effect that 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 is for an amount of at least $2,000.  Section 41(2) provides:

“The notice must be in accordance with the form prescribed by the regulations.” 

9                     Section 41 contains in sub-s (5) and (6) express provisions dealing with notices which are defective by reason of the amount claimed exceeding the amount in fact due:

“(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 notices to the creditor that he or she disputes the validity of the notice of the ground of the misstatement.

  (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 subsection (5), he or she shall be deemed to have complied with the notice if, within the time allowed for payment, he or she takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it.”

10                  Regulation 4.02 is as follows:

“(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’.

[NOTE: Under section 25C of the ‘Acts Interpretation Act 1901’, 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; see also paragraph 46(1)(a) of that Act for the application of that Act to legislative instruments other than Acts.]”

11                  Form 1 in the regulations is as follows:

“                                                  SCHEDULE 1              Subregulation 1.03(2)

FORMS

                                                         FORM 1                             Regulation 4.02

Bankruptcy Act 1966

BANKRUPTCY NOTICE

(prescribed under subsection 41(2) of the Act)

To:               (name)                                     ____________________________

                                                                                    (“the debtor”)

                     of (address)                             ____________________________

                                                                    ____________________________

                                                                    ____________________________

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.                  (name)                                     ____________________________

                                                                                     (“the creditor”)

                     of (address)                             ____________________________

                                                                    ____________________________

                                                                    ____________________________

claims you owe the creditor a debt of $ (amount), 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 [insert number in accordance with the note to this paragraph] 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.

[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.]

4.    Payment of the debt can be made to:

                     (name)                                     ____________________________

                 of (address*)                               ____________________________

                                                                    ____________________________

                                                                    ____________________________

*  the address must be within Australia

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 the ‘Information for debtors’ section, below).

Schedule

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

______________________________________________________________

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.

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

*     Note 3:  Foreign currency amount conversion

                     (see Bankruptcy Regulations, reg 4.04.)

       Total debt owing, expressed in foreign currency                           (amount)

       Commonwealth Bank of Australia opening telegraphic

       transfer rate on ___/___/___ (date)                        x                            (rate)

                                                                                                                                             ______________

    Australian dollar equivalent                                                =       $   [amount]

                                                                                                                                             ______________

*     delete Note 3 if not applicable

______________________________________________________________

Information for debtors

1.    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 Australian application (on one or more grounds, apart from the grounds mentioned in paragraph 2, below) to set aside this Bankruptcy Notice.

2.    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 counterclaim, set-off or cross demand equal to or exceeding the sum specified in this Bankruptcy Notice as owing to the judgment 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 counterclaim, set-off or cross demand*.

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

NB:

       (i)    If you file, at the Federal Court Registry, an application mentioned in paragraph 2(a) of ‘Information for debtors’, you need not comply with this Bankruptcy Notice until the Court decides whether you have grounds for a counterclaim, set off or cross demand.  Whether you will have to comply at that stage will depend on the Court’s decision.

WARNING

The above information is based on provisions of section 41 of the Bankruptcy

Act 1966.  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.

3.    The nearest Federal Court Registry to the debtor’s address as shown on this Bankruptcy Notice is located at:

[set out the address of the relevant Registry]

This notice was prepared by and issued on the application of:

                     (name)                                     ____________________________

                 of (address*)                               ____________________________

                                                                    ____________________________

                                                                    ____________________________

            (telephone/fax/DX numbers             ____________________________

12                  Section 306(1) of the Act provides:

“(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.”

13                  Prior to the 1996 amendments s 41 relevantly provided:

“41.(1)    A bankruptcy notice:

       (a)     shall be in accordance with the prescribed form; and

       (b)     shall be issued by the Registrar.

       (2)     The prescribed form of bankruptcy notice shall be such that the notice:

       (a)     requires the debtor named in it, within a specified time (being the time referred to in subparagraph 40(1)(g)(i) or (ii), whichever is appropriate) to:

         (i)   pay the judgment debt or sum ordered to be paid in accordance with the judgment or order; or

         (ii)  secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and

(b)     states the consequences of non-compliance with the requirements of the notice.”

14                  The form then prescribed by the Bankruptcy Rules was much simpler.  Amongst other things, it had no specific provision about claims for interest, calculation of interest or specification of the provision under which interest was claimed. 

15                  Section 306(1) was not altered by the 1996 amendments.

Full Court decisions since the 1996 amendments

16                  In Kirk v Ashdown [1999] FCA 1664 the creditor did not specify any provision under which interest was claimed.  A Full Court held that the omission to specify the source of the obligation to pay interest should be regarded as a formal defect or irregularity and, consequently, the notice was held not to be invalid.

17                  In Bendigo Bank Ltd v Williams (2000) 98 FCR 377 there was again an entire omission to provide the source of the debtor’s obligation to pay interest.  A Full Court by a majority declined to follow Kirk.  Moore and Lehane JJ said (at par 31) that none of the earlier authorities

“…justifies a proposition that where the legislative scheme specifically and unambiguously requires particular matters to be included or stated in a bankruptcy notice, and does so without any indication as to whether any is essential or any not, the Court is at liberty to hold of some that they are essential but of others that they are not.

…

Still less, in our view, is it possible to justify, on the basis of the authorities, a proposition that any failure to comply with the requirements of the legislation (including the prescribed form) is a formal defect or irregularity which causes no injustice provided that it does not have the potential to mislead the debtor, or leave the debtor in a state of uncertainty, as to what would constitute compliance with the notice.”

18                  Finally in Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 a Full Court held that a notice signed by an employee of the solicitor for the creditor was valid and that resort to s 306 was not necessary.  In an obiter comment the Court expressed disagreement with the majority in Bendigo Bank. 

19                  The majority in Bendigo Bank did not depart form Kirk lightly.  Their Honours discussed in detail the principles applicable where it is argued an appellate Court should not follow a decision of an earlier differently constituted Court and concluded that in the circumstances it was proper to do so:  (2000) 98 FCR at 398‑399.

20                  While we do not see any error in their Honours’ reasoning on this issue, it is necessary to keep in mind that the Court as presently constituted is not sitting on appeal from the decision in Bendigo Bank (or the decisions in Kirk and Franciscans).  We are exercising the original jurisdiction of the Court because the Chief Justice has considered the matter of sufficient importance to warrant a direction under s 20(1A) of the Federal Court of Australia Act. 

21                  Thus we do not see the present hearing as being concerned with the issue whether, on the correct application of the doctrine of precedent, the majority in Bendigo Bank should have followed Kirk.  Certainly the argument did not proceed on such a basis.  As we understand it, this Court was convened because there are conflicting Full Court decisions affecting the day to day operation of the bankruptcy law and an authoritative determination is needed. 

Bankruptcy notices

22                  Non-compliance with a bankruptcy notice is, by far, the act of bankruptcy most commonly relied on by creditors.  Non-compliance does not merely provide means of proof of insolvency (cf the statutory demand in company winding-up proceedings).  It is an act of bankruptcy in itself.  Non-compliance with a bankruptcy notice not only has profound consequences for the debtor but also affects the rights and obligations of others.  These are but some of the reasons why courts have required strict compliance with the legislative requirements for a bankruptcy notice.

23                  In Re Wimborne (1979) 24 ALR 494 at 498 Lockhart J said:

“The courts have said time and time again that bankruptcy notices must conform strictly to the requirements of the bankruptcy legislation and rules of court; see James v FC of T (1955) 93 CLR 631, especially per Williams, Kitto and Taylor JJ at 644; Re Howes; Ex parte Hughes [1892] 2 QB 628; Re OCS (a debtor); Ex parte The Debtor [1904] 2 KB 161; Re O’Keefe; Ex parte Australian Factors Ltd (1963) 19 ABC 101, and Re Mellick (1971) 19 FLR 1.”

24                  In Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 at 81 Deane J said:

       “It has long been a fundamental precept of the law of bankruptcy that ‘a bankruptcy notice, which is the foundation of a bankruptcy, attended as a bankruptcy is with penal consequences, is a matter in which great strictness is required’:  per Cozens-Hardy M.R., In re A Judgment Debtor, 530 of 1908 [1908] 3 K.B. 474, at pp. 476-477; see also James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631, at p. 644.  A defect in a bankruptcy notice will invalidate it ‘except in the case of a merely formal defect’:  per Vaughan Williams L.J., In re O.C.S. (A Debtor); Ex parte The Debtor [1904] 2 K.B. 161, at p. 163, see also In Re a Debtor, No 21 of 1950; Ex parte the Debtor v. Bowmaker Ltd [1951] Ch. 313, at p.317.  If a defect in a bankruptcy notice is other than a formal one, the notice itself is defective and failure to comply with it does not constitute an act of bankruptcy. 

       It is true that the strictness of the above rules leaves open the possibility of abuse by unscrupulous debtors.  That is, however, an unavoidable concomitant of the protection of ordinary people faced with the threat of being made bankrupt.  Many, and possibly most, of the petitions in the bankruptcy lists of this country seek the bankruptcy of honest, albeit unbusinesslike or naive, people whose indebtedness springs from causes which evoke sympathy rather than indignation.  For such people, bankruptcy does not represent a game to be played to the frustration of their creditors.  It represents a pronouncement of failure and humiliation attended by the fear of unknown consequences and the susceptibility to criminal punishment for what would otherwise be innocent conduct:  see, e.g., per Griffith C.J., Hamilton v. Warne (1907) 4 C.L.R. 1293, at p. 1297.  As Riley J., a noted Australian authority on bankruptcy law, sometimes pointed out to those appearing before him, the least that the courts can do is to insist that a person who seeks to subject another to the law of bankruptcy himself strictly observes the requirements of that law.”

25                  His Honour was in the minority as to the result of that case but nothing in the judgment of the majority (Mason CJ, Wilson, Brennan and Gaudron JJ) is inconsistent with his Honour’s general statement. Not infrequently in the daily business of this Court sequestration orders are sought against debtors who are plainly insolvent and who have probably not been misled by defects in the bankruptcy notice served on them, yet the petition is dismissed.  While it may be true in general terms to say that bankruptcy administration emphasises substance over form (Franciscans at par 15), such a statement needs to be substantially qualified when applied to bankruptcy notices.

26                  Taking the present cases as an example, the proposition that interest on a Magistrates’ Court order is claimable under the Magistrates Court Act and not under the Supreme Court Act is not an arcane piece of legal knowledge.  It appears in the text of Victorian public statutes with which Victorian solicitors, particularly those practising in insolvency matters, should be familiar.  To echo the comment of Riley J, quoted by Deane J, it is not too much to ask that solicitors read carefully the form of bankruptcy notice prescribed by law and prepare a proper notice containing accurate information before setting in motion the great engine of the bankruptcy law.

Kleinwort Benson Australia Ltd v Crowl

27                  The leading authority on defective bankruptcy notices is the decision of the High Court in Kleinwort Benson.  Although that case dealt with a bankruptcy notice issued under s 41 in its previous form, it has never been suggested, and was not in the present cases, that the principles enunciated by the majority are inapplicable to bankruptcy notices issued since the 1996 amendments.

28                  In Kleinwort Benson the defect was an understatement in the notice of the amount of interest accrued.  The difference was substantial, some $23,000.  By a majority, a Full Court of this Court had set aside the sequestration order.  By a majority the High Court allowed the petitioning creditor’s appeal.  The majority formulated the issues in these terms (at 77, Roman numerals added):

“Three questions arise as to the validity of the bankruptcy notices in this case:  [i] are they defective or irregular; if so, [ii] is the defect or irregularity substantive or formal; and [iii] if it is formal only, has it occasioned substantial and irremediable injustice?”

29                  Issue [iii] repeats the language of s 306(1) which, as the majority pointed out subsequently (at 81), “applies automatically” to validate the notice unless substantial and irremediable injustice is found to have been caused by the formal defect or irregularity. 

30                  Immediately after the passage at 77 just cited the majority went on to note that

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

31                  Issue [i] having been thus resolved, their Honours then proceeded to address issue [ii].  After discussing authorities, they (at 79) summarised their effect in these terms:

“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 C.L.R. 631, at p.644, Pillai v Comptroller of Income Tax [1970] A.C. p.1124 at 1135.  In such cases the notice is a nullity whether or not the debtor in fact is misled:  In re  a Judgment Debtor, 530 of 1908 [1908] 2 K.B. 474, at p.481.”  (Emphasis added)

32                  Thus essentiality of the requirement which the notice fails to meet and capacity of the notice to reasonably mislead a debtor are alternative ways in which a defect or irregularity may be found to be “substantive”.  It must logically follow that a notice which fails to meet a requirement made essential by the Act will contain a substantive defect even if the notice could not reasonably mislead a debtor as to what was necessary for compliance. 

33                  Their Honours went on to resolve the issue of essentiality (at 80):

“If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s.41(2)(a)(i) – the only requirements presently relevant – are met.  Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.”

In other words, the notice set out the amount in fact claimed and that amount was in fact due – albeit that more was also due.

34                  The reason that their Honours found that the relevant essential requirement of the Act had been met was not that what happened was merely “filling in the wrong amount”.  On the contrary, the amount in fact due had been filled in, in the sense that a greater amount was due and the greater included the lesser amount appearing in the notice.  Still less is this part of the judgment in Kleinwort Benson any authority for the proposition that as long as the correct form is used what the creditor inserts does not matter.

35                  Obviously enough, if the defect in question had been held to be in respect of an essential requirement of the Act, it would not have been necessary to go on to consider the notice’s capacity to mislead.  But, having found no breach of an essential requirement, the majority proceeded to discuss capacity to mislead.  Their Honours said (at 80):

“It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice 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.  In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice.  No such uncertainty arises if it clear that payment of the amount specified in the notice will constitute compliance with the notice.”

36                  After discussing the particular terms of the notice in question their Honours concluded (at 80):

“There could thus be no uncertainty as to what would constitute compliance with the notice.  The notice cannot be regarded as capable of misleading and accordingly cannot be said to be a nullity.  The understatement thus constituted a formal defect or irregularity which attracts the operation of s.306(1) of the Act.”

37                  It was on this point that Deane J parted company with the majority (at 84-85).

38                  It is clear from the majority’s judgment read as a whole that their Honours were not saying that capacity to mislead is the only test as to whether a defect is substantive, as distinct from formal.  There is another and separate test, namely whether an essential requirement of the Act has not been met.  Each is a subset of issue [ii].  On the facts of Kleinwort Benson both tests were held not to have been satisfied.  Finally, the majority noted that, there being a formal defect or irregularity, s 306(1) operated automatically.  There had been no evidence presented and no claim made of actual injustice.  Therefore their Honours held (at 81) there was no basis upon which an opinion could be formed to deny the operation of s 306(1).

Determining whether a requirement is made essential

39                  Kleinwort Benson decides that a bankruptcy notice that does not contain a requirement made essential by the Act is not a valid notice.  In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390‑391 McHugh, Gummow, Kirby and Hayne JJ, after discarding the elusive distinction between directory and mandatory requirements as a test of validity, said:

“A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid.  … In determining the question of purpose, regard must be had to ‘the language of the relevant provision and the scope and purpose of the whole statute’.”

In the light of this passage, it can be seen that a requirement is “made essential” within the Kleinwort Benson principle when the enquiry as to purpose discloses the intention that an act done in breach should be invalid.  See also Deputy Commissioner of Taxation v Woodhams (2000) 169 ALR 503 at 512‑513.

40                  In 1996 Parliament chose to make a form to be prescribed by regulation the sole criterion of whether a bankruptcy notice complied with the Act, with the consequence that an act of bankruptcy would be committed in the case of non-compliance with such a notice.  This being the will of Parliament, it is not for a court to treat the terms of the prescribed form as inherently less important than a requirement specified in the Act itself, so as to attract a more lenient view in the case of non-compliance.  Valid delegated legislation (and there is no suggestion that the present regulations are otherwise) is binding law because that is what Parliament has willed.  As Lindgren J said in Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 at 378 (obviously in relation to a pre-1996 notice)

“… the statutory requirement that a bankruptcy notice be in accordance with the prescribed form is itself a requirement made essential by the Act.”

41                  This proposition is a fortiori since the 1996 amendments as the majority in Bendigo Bank, correctly in our view, pointed out (at par 19).  Moreover, this is a case where the 1996 amendments resulted in “a framework built on by contemporaneously prepared regulations”, in which case the latter may be a reliable guide to the meaning of the former:  Hanlon v The Law Society [1981] AC 124 at 194.  The law now is that a bankruptcy notice has to contain substantially more information than it did prior to the 1996 amendments.  The law now is not just that a notice shall have certain characteristics stipulated in the Act.  The notice “must be in accordance with the form prescribed by the regulations”. 

42                  In our view the purpose of the requirement that the source of the creditor’s entitlement to interest be stated can only be to enable the debtor to verify that the amount claimed is in fact due.  The same purpose lies behind the requirement that a copy of the judgment relied on be attached to the notice.  Bankruptcy notices can be served anywhere in Australia, a country with ten separate court jurisdictions, containing some twenty-two levels of courts, each with its own statutory foundation, quite apart from tribunals and other bodies with power to make enforceable orders for the payment of money.  The applicable interest rate can often be a matter of dispute:  see for example EMCL Pty Ltd v Esanda Finance Corp Ltd [1999] FCA 978 at par 58 et seq.  That case dealt with the different issue of an award of interest by a court at the time of judgment, but it illustrates the potential for confusion and uncertainty as to applicable rates of interest in litigation in a multi-jurisdictional country.  The form prescribed by the regulations provides the answer.  Having regard to the purpose behind the requirement that the provision under which interest is being claimed, and correctly claimed, be included in the notice, that requirement is made essential by the Act, and a notice issued in breach of the requirement will be invalid.

43                  Our conclusion is unaffected by reg 4.02(3).  If that provision is to be taken as a statement that s 25C of the Acts Interpretation Act 1901 applies to the content of the form as well as its format (see Trustees of the Franciscan Missionaries of Mary v Weir, par 16), the failure to comply with a requirement in such a way that the purpose behind the requirement is thereby thwarted, cannot be excused under s 25C on the ground that there has been substantial compliance.  Essentiality for the purpose of the Kleinwort Benson principle being determined by purpose, a provision as to substantial compliance, assuming it applies at all, cannot make unessential that which purpose reveals as essential.  It can hardly be said that there has been substantial compliance with a prescribed form where the form fails to include information made essential by an enactment.

The notices in the present cases

44                  Unlike Kirk, a provision founding the claim for interest was inserted in the notices under consideration here.  But it was not the provision under which interest could validly be claimed.  A debtor could not verify the interest entitlement asserted in the notice by resort to s 101 of the Supreme Court Act, even though it would produce the same amount of interest as resort to s 100(7) of the Magistrates’ Court Act would produce.  That is adventitious.  The evident purpose behind the requirement that the source of the entitlement to interest be disclosed having been thwarted by the omission of the source, the notices are invalid.  For the reasons already explained, it does not matter whether or not the debtor might be misled as to the amount that he or she needed to pay.  That consideration only becomes relevant if the defect in question is in respect of a requirement not made essential by the Act.

45                  We should add that we do not see any rational basis for distinguishing between, on the one hand, the form itself and, on the other hand, information inserted in the form by the creditor.  Material in the latter category, such as the amount of the judgment, interest and costs and the address of the creditor, is unique to the debtor and, if anything, of more importance to the debtor than the text of the form as appearing in the regulations.  This conclusion seems obvious enough when one considers the nature and function of a bankruptcy notice and the consequences of non-compliance.  And there are numerous cases where bankruptcy notices have been held invalid because of incorrect information contained therein.  Some examples are:

·          James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 643

Notice wrongly sought to restrict debtor to paying debt to creditors at one particular place

·          Re Hansen; Ex parte Hansen (1985) 4 FCR 590

Incorrect name of judgment creditor

·          Re Gyngell; Ex parte Speedo Group Limited (1990) 27 FCR 531

Incorrect requirement that judgment debt be paid to Registrar of Local Court

·          Re Beauchamp; Ex parte Beauchamp [1904] 1 KB 572 at 583-584

Wrong address of creditor

·          Re Celestine; Ex parte Monte Paschi Australia Ltd (1997) 71 FCR 399

Wrong address of court.

46                              And in Kleinwort Benson itself the majority commenced with the observation (165 CLR at 80) that a bankruptcy notice “which mis-states the amount due to the creditor is defective or irregular”.  This was an error in the information inserted in the form.  But the High Court did not treat s 41(2) as being, for that reason, inapplicable. 

The earlier decisions

47                  In our opinion Kirk v Ashdown was wrongly decided and the result in Bendigo Bank is correct, although as will have been seen, our reasoning differs from that of the majority in Bendigo Bank.  On the purposive approach we favour, the result in nearly all of the thirty or so post‑1996 decisions on the validity of bankruptcy notices (whether of Full Courts or single judges) would have been the same.  Obviously the result would have been different in Kirk v Ashdown.  It would also have been different in Farrugia v Farrugia [2000] 99 FCR 16, a decision of a single judge, where the words “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” were not in bold type as prescribed.  Bold type was held to be an essential requirement, and the failure to use it rendered the notice invalid.

Order

48                  In each case the petition should be dismissed.

Associate:

Dated:                          22 December 2000

REASONS FOR JUDGMENT

LEE J:

49                  The nature of these proceedings and the relevant facts are set out in the joint reasons of Black CJ, Heerey  and Sundberg JJ and it is unnecessary to repeat them.

50                  The issue before the Court arises out of amendments made to the Bankruptcy Act 1966 (Cth) (“the Act”) by the Bankruptcy Legislation Amendment Act 1996 (Cth) (“the amending Act”).

51                  The relevant provisions of the Act read as below before amendments effected by the amending Act came into force on 16 December 1996:

“40(1) A debtor commits an act of bankruptcy in each of the following cases:

            …

            (g)        if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

                          (i)      where the notice was served in Australia – within the time fixed by the Registrar by whom the notice was issued; or

                          (ii)     where the notice was served elsewhere – within the time fixed for the purpose by the order giving leave to effect the service;

                          comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained;

            …

41(1) A bankruptcy notice:

            (a)        shall be in accordance with the prescribed form; and

            (b)        shall be issued by the Registrar.

41(2) The prescribed form of bankruptcy notice shall be such that the notice:

            (a)        requires the debtor named in it, within a specified time (being the time referred to in subparagraph 40(1)(g)(i) or (ii), whichever is appropriate) to:

                       (i)         pay the judgment debt or sum ordered to be paid in accordance with the judgment or order; or

                       (ii)        secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and

            (b)       states the consequences of non-compliance with the requirements of the notice.

…

41(3) A bankruptcy notice shall not be issued in relation to a debtor:

            (a)        except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;

            (b)        if, at the time of the application for its issue, execution of the judgment or order to which it relates has been stayed; or

            (c)        in respect of a judgment or order for the payment of money made by the Court in the exercise of the jurisdiction conferred on it by this Act if:

                       (i)        a period of more than 6 years has elapsed since the judgment was given or the order was made; or

                       (ii)       the operation of the judgment or order is suspended under section 37.

…

41(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.

41(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 subsection (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.”

52                  Before the amending Act was enacted, r 8 of the Bankruptcy Rules (“the Rules”), made under s 315 of the Act, provided as follows:

“8. For the purposes of paragraph 41(1)(a) of the Act, a bankruptcy notice shall be in accordance with Form 4.”

Form 4 was set out in Sch 1 of the Rules and read as follows:

“BANKRUPTCY NOTICE

(Title)

            To: (name, address and occupation of judgment debtor)

            WHEREAS (name and address of judgment creditor)

(hereinafter referred to as ‘the judgment creditor’) has claimed that the sum of $            is due by you to him under a final judgment (or order) obtained by him against you in the                         Court of                    on the

day of                        , 19     , being a judgment (or an order) the execution of which has not been stayed:

            THEREFORE TAKE NOTICE that within                   days after service of this notice on you, excluding the day on which this notice is served on you, you are required –

            (a)        to pay the sum of $             so claimed by the judgment creditor to (here insert ‘the judgment creditor’ or, if the judgment or order requires payment to be made to a court or a person other than the judgment creditor, the name and address of the court or the other person to whom payment is required to be made); or

            (b)        to secure the payment of the sum referred to in paragraph (a) to the satisfaction of the (name of the Court) or the judgment creditor (or his agent whose name and address are                   ) or compound the sum so specified to the satisfaction of the judgment creditor (or his agent):

            AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the abovementioned requirements of this notice or to satisfy the (here insert the name of the Court) that you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a), being a counter-claim, set-off or cross demand that you could not have set up in the action (or proceeding) in which the judgment (or order) was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you.

            Dated this                   day of                   , 19           .

Registrar

            NOTE: If you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a) being a counter-claim, set-off or cross demand that you could not have set up in the action (or proceeding) in which the judgment (or order) was obtained, you may, under sub-section 41(7) of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counter-claim, set-off or cross demand, as the case requires, and the reasons why you were unable to set up the counter-claim, set-off or cross demand, and, if you do so, the time for complying with the requirements of this notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counter-claim, set-off, or cross demand.

                        This notice was issued on the application of (name of the solicitor for the judgment creditor or the name of the judgment creditor, as the case may be) whose address for service is                     

                                                                           ”

53                  Prior to the amending Act, an application for the issue of a bankruptcy notice was made to a Registrar in Bankruptcy (“the Registrar”) pursuant to r 7 of the Rules which read as follows:

“7(1)   Application may be made to the Registrar for the issue of a bankruptcy notice by filing an application, in accordance with Form 3, with the Registrar.

7(2) At the time when the application is filed, the applicant shall:

            (a)        file one of the following documents in respect of the final judgment or final order in relation to which the bankruptcy notice is to be issued:

                       (i)         an office, sealed or certified copy of the judgment or order;

                       …

            (b)        furnish to the Registrar, for signature and stamping by the Registrar, so many copies of a form of bankruptcy notice as are required for service and for annexure to any affidavits of service, and one additional copy of that form for filing.

…

7(5)     Where the Registrar is satisfied that application has been duly made to him for the issue of a bankruptcy notice and that the copies of the form of bankruptcy notice furnished to him in accordance with paragraph (2)(b) are in order for signature, the Registrar shall sign and stamp each of those copies and return them to the applicant.

…”

54                  After the amending Act came into force, the relevant sections were amended to read as follows:

“40(1) A debtor commits an act of bankruptcy in each of the following cases:

            …

            (g)        if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

                       (i)         where the notice was served in Australia – within the time specified in the notice; or

                       (ii)        where the notice was served elsewhere – within the time fixed for the purpose by the order giving leave to effect the service;

                       comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

            …

41(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.

…”

55                  It is to be noted that the effect of ss 41(3), (5) and (6) remained unchanged.

56                  The rule or regulation-making power contained in s 315 of the Act was replaced by a provision for the making of regulations only. The Rules ceased on the date the amending Act came into force and on the same day the Bankruptcy Regulations (“the Regulations”) were promulgated. Between 16 December 1996 and 31 July 1997, however, the Federal Court Rules adopted the Rules as part of the Rules of the Court.

57                  Regulations 4.01 and 4.02 prescribed as follows in respect of application for, and issue of, bankruptcy notices:

“4.01(1) In order to apply for the issue of a bankruptcy notice, a person must lodge with the Official Receiver:

            (a)        a duly completed draft bankruptcy notice; and

            (b)        one of the following documents in respect of the final judgment or final order specified by the person on the approved form:

                       (i)         a sealed or certified copy of the judgment or order;

            …

            (c)        a copy of the draft bankruptcy notice for the Official Receiver’s records and sufficient additional copies of the draft bankruptcy notice for service and for annexure to any required affidavits of service.

4.01(2) If documents are lodged with the Official Receiver in accordance with subregulation (1), he or she must sign (by hand or by facsimile reproduction) and date the copies of the bankruptcy notice lodged in accordance with paragraph (1)(c), and return to the applicant the additional copies referred to in that paragraph.

4.02(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.

4.02(2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).

4.02(3) Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901.

[Note: Under section 25C of the Acts Interpretation Act 1901, 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; see also paragraph 46(1)(a) of that Act for the application of that Act to legislative instruments other than Acts.]”

58                  Form 1 as set out in Sch 1 of the Regulations published as Statutory Rule 1996 No 263 read as follows:

[IMPORTANT NOTE - A Scanned version of Form 1 appears here in the text of the judgment, and is too large to be reproduced. As the extract scanned was unable to be reproduced, readers should refer to the appropriate Forms of the Regulations as at the time referred to therein. Please be advised that this note is not part of the Judgment.]

59                  On 14 April 1997 Form 1 as set out above, was amended and a new Form 1 substituted by reg 35.1 of the Bankruptcy Regulations (Amendment) published as Statutory Rule 1997 No 76. That form, being the relevant Form in the instant matters, read as follows:

[IMPORTANT NOTE - A Scanned version of Form 1 appears here in the text of the judgment, and is too large to be reproduced. As the extract scanned was unable to be reproduced, readers should refer to the appropriate Forms of the Regulations as at the time referred to therein. Please be advised that this note is not part of the Judgment.]

60                  The amended Form deleted an improper inclusion therein of provision for a claim for the costs of the issue of a bankruptcy notice. (See:  Distribution Group Ltd v Lyndan (1997) 78 FCR 240 per Northrop J at 247.) Furthermore, the Form was revised in significant respects by deleting the “postscript” to the notice headed “Information for debtors”, setting out that material as part of the substantive paragraphs of the notice directed to the debtor (pars 6-10).

61                  The Form was further amended by inserting several “postscripts” to the notice each headed “For the Information of the Creditor”, containing material which had appeared in the previous Form as “Notes to the Schedule” and new material which informed the creditor of impairment of the creditor’s privacy rights.

62                  With regard to the Regulations, it is to be noted that the former requirement of r 7 of the Rules that the Registrar be satisfied that an application had been duly made and that the documents produced were in order for signature, was not replicated in the obligations imposed on the Official Receiver. In reg 4.01(2) the Official Receiver is instructed that he or she must sign the documents lodged in accordance with reg 4.01(1). In the form of notice prescribed pursuant to reg 4.02(1), the signature of the Official Receiver is endorsed in a box described  “For Official Use Only”. That suggests that the signature of the Official Receiver is a record made by that officer of the issue of the notice, rather than notification to a debtor that the notice served on the debtor is a direction to the debtor under the hand of the Official Receiver. The Official Receiver is not required to be satisfied that the application for issue of a notice has been duly made notwithstanding the requirement in s 41(3) of the Act that a bankruptcy notice not be issued in relation to a debtor unless circumstances exist as specified in that subsection. Although reg 4.01(2) requires the Official Receiver to sign and return copies of the draft bankruptcy notice lodged in accordance with reg 4.01(1), perhaps it may be argued that there is an implied obligation on the Official Receiver to be satisfied that the draft bankruptcy notice has been duly completed and, therefore, that the contents of the copy document filed pursuant to reg 4.01(1)(b) accord with the minimal details required to be set out in par 1, and in the Schedule, of the draft bankruptcy notice. It is assumed that the words “specified by the person on the approved form” as used in r 4.01(1)(b) refer to the draft bankruptcy notice.

63                  Prior to the amending Act, a bankruptcy notice was the Registrar’s document issued by the Registrar under statutory authority. (See: Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 340; Re Munson; Ex parte Deputy Commissioner of Taxation (1977) 29 FLR 479 at 480; Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co of Sydney Ltd (1979) 23 ALR 522.) In that document the Registrar commanded a judgment debtor to take notice that the debtor, within a specified period, was required to pay the sum set out in the notice or secure payment of that sum to the satisfaction of the Court or the judgment creditor, or compound the sum to the satisfaction of the judgment creditor. The debtor was given notice by the Registrar that if the debtor failed to comply with the notice, the debtor would commit an act of bankruptcy.

64                  The purpose of a bankruptcy notice has not been altered by the amending Act, namely to give notice to a judgment debtor that the judgment creditor claims a sum to be due under a judgment and that failure to pay that sum within the period specified in the notice will have serious consequences under the Act. Most of the other usual requirements of the notice have been continued, namely that the debtor be informed:

      (i)         of the creditor’s address and of any other address that the creditor nominates for the place of payment of the sum or where the debtor may propose a compromise of the debt;

            (ii)        that the debtor may apply to the Court to extend the time for compliance with the notice, or to set the notice aside, if specified grounds exist; and

            (iii)        where the Court is situated.

Several requirements have been deleted. For example, the debtor now is not informed that it is sufficient to comply with the notice by securing the payment of the sum demanded, and the creditor is not restricted to directing the debtor to pay the judgment debt “in accordance with the judgment”, the requirement to that effect in s 41(2)(a)(i) of the Act having been repealed. (See:  In re HB [1904] 1 KB 94.)

65                  The form of bankruptcy notice substituted by the amending Act and Regulations (“the new notice”) is not expressed in the peremptory terms of the notice it replaced (“the old notice”) and, indeed, it does not inform the debtor that to fail to comply with the notice is to commit an act of bankruptcy. An act of bankruptcy is a matter of significance under the Act in that it attracts the “relation back” doctrine and determines the deemed date of commencement of a bankruptcy, whether or not a petition in bankruptcy is based on that act (s 115). The new notice is not a command to a judgment debtor made by a person authorised to make it by the Act. In neutral and unattributed terms, and in plain language, albeit with complex results (see:  Distribution Group per Northrop J at 243), it purports to inform a judgment debtor that the document served upon the debtor is an important document and that bankruptcy proceedings may be commenced if the debtor does not pay, as required by the notice, the sum claimed therein as a judgment debt by the creditor or make an arrangement for settlement of that debt. The notice speaks to the debtor in ten substantive paragraphs and a Schedule. The sum claimed by the judgment creditor in the bankruptcy notice is set out in par 1 of the notice and in the Schedule to the notice. In par 2 of the notice, a debtor is informed that a copy of the judgment or order relied upon by the judgment creditor, is attached to the notice. The debtor is advised that legal advice should be obtained if the debtor is unsure what to do after reading the document. Further, the debtor is told that the information set out in pars 6, 7 and 8 of the notice paraphrases the relevant law and that it “might be unwise to rely solely on this summary”.

66                  In addition to paragraphs directed to the debtor, the prescribed form of the new notice contains instructions addressed to the person completing a “draft bankruptcy notice” or, perhaps, addressed to the Official Receiver. (See: Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 at [8].) For example, an introductory Note in the prescribed form instructs that words in italics “are for guidance in completion of this Notice, and are not to be reproduced in the Notice”. Although the Note is not in italics, it would seem to follow that it is not intended that the Note be part of the bankruptcy notice served on the debtor. Similarly, a paragraph headed “For the Information of the Creditor     Note about use of information” set out in the prescribed form would not appear to be relevant to the obligations of the person upon whom a bankruptcy notice is to be served and it suggests that it is intended that compliance with the requirements of the Act and Regulations would be satisfied if that paragraph were omitted from a “draft bankruptcy notice” presented to the Official Receiver, notwithstanding that neither the heading to, nor the paragraph, appears in italics. (See: Northam v Commonwealth Bank of Australia [2000] FCA 544 at [24]-[27]; Boylan v Farthing [2000] FCA 575 at [15].)

67                  After the substantive paragraphs and Schedule directed to the debtor, there is a heading “For the Information of the Creditor – Notes to the Schedule” under which the judgment creditor is instructed to attach a certificate of taxed costs if costs are claimed as part of the judgment debt, and a document setting out the facts relied upon to calculate the amount of interest claimed where interest is included in the amount set out in the Schedule to the notice.

68                  Having regard to the foregoing, it would seem that the purpose of the amending Act, effected by the Regulations, was to make a bankruptcy notice easier to comprehend by a person on whom it was served. No material was put before the Court to suggest that Parliament had been made aware of a particular mischief that it sought to rectify by introducing a requirement that there be strict compliance by judgment creditors with a new form of bankruptcy notice. It is obvious that the prescribed form of the new notice is intended to be less intimidating for a judgment debtor. Reducing the formality of a bankruptcy notice to assist a judgment debtor suggests the antithesis of any legislative intent that form, and not substance, govern the rights of a judgment creditor under the same notice.

69                  The Act as amended does not specify what a prescribed form of bankruptcy notice must contain and is to be contrasted with the terms of the Act before amendment where s 41(2) set out the matters a bankruptcy notice must include. The essential requirements of a bankruptcy notice could be divined from those stipulations. (See: Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 76.) In addition to the matters specified in s 41(2), it was arguable that other matters inextricably linked thereto, and specified in the prescribed form of notice, could become essential requirements of the notice, for example, the address of the creditor, or of the Court, where payment was to be made of the sum claimed by the creditor, or a proposal put by the debtor for securing or compounding the debt. (See:  Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371; Foote v Mid-West Finance Pty Ltd (in liq) (1997) 78 FCR 306; Hilti Australia Pty Ltd v Millard (1997) 78 FCR 453.) It is not necessary to determine the correctness of that view.

70                  Under s 41(2) as it now stands, the Act goes no further than restating that which was formerly provided in s 41(1), namely that a bankruptcy notice be in accordance with the form prescribed. Nothing turns on the fact that the old form was prescribed by rules and the new form prescribed by regulations. On its face, therefore, the amendment has made the Act less prescriptive in operation than it was before the amendment.

71                  In the old notice, identification of the judgment relied upon was essential and was provided for in the form. As a matter of practice, costs and interest could be included as part of the sum owing under the judgment provided they were sums for which the creditor could enforce payment by execution, but no further identification of the source of the obligation, other than the judgment, was necessary. (See: Kleinwort Benson at 77; In Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 23 ALR 270 at 273.) Identification of the authority to claim costs or interest flowed from identification of the judgment or order relied upon and provision of information in respect of costs and interest was not essential for the debtor to obtain an understanding the requirements of the bankruptcy notice. It was suggested in CBC Sydney (at 526) that inclusion of particulars of the calculation of interest in the bankruptcy notice was essential to the validity of the notice. It is not clear on the authorities referred to in CBC Sydney that such particulars were ever an essential requirement. It would appear that there was no greater requirement than that the amount claimed for interest be calculated accurately and recited in the notice and not be claimed as an uncalculated amount. (See:  Re Davis; Ex parte Deputy Commissioner of Taxation  (1963) 19 ABC 100; Re McDonald; Ex parte Elder Smith Goldsbrough Mort Ltd (1978) 18 ALR 505 at 507.)

72                  The new notice does not require the judgment or order relied upon to be identified in the body of the notice but par 2 of the substantive part of the notice directed to the debtor states that a copy of the judgment or order relied upon by the creditor is attached. It may be said, therefore, that the attachment referred to now performs the essential requirement of the old notice that there be identification of the judgment or order relied upon. It can be seen that if a notice does not recite in the body thereof, particulars of the judgment or order relied upon, it may be necessary to provide a copy of the relevant judgment or order for the debtor to understand the requirements of the notice. (See: Haros v National Australia Bank Ltd (unreported, Federal Court of Australia, Ryan J, 24 November 1997 – 1391/1997).) However, where a creditor is instructed by a note endorsed on the new notice to attach other documents that relate to matters of costs and interest, it does not follow that such an endorsement expresses the intention of Parliament that provision of that material become an essential requirement of the notice.

73                  Furthermore, the only document required to be lodged with the Official Receiver pursuant to reg 4.01, other than the draft bankruptcy notice and additional copies thereof, is the sealed or certified copy of the judgment or order. The Regulations do not require the person applying for the issue of a bankruptcy notice to lodge with the Official Receiver a certificate of the taxed costs or a document showing how interest was calculated if the draft bankruptcy notice includes a claim for costs or interest. As noted earlier, the form of bankruptcy notice in force before the amending Act was enacted did not refer to external documents. As noted above, reg 4.01 does not require more than one sealed or certified copy of the relevant judgment or order be lodged with the Official Receiver and is silent on whether the Official Receiver retains that document or returns it to the party seeking the issue of a bankruptcy notice. Paragraph 2 of the new notice, which seems to place greater reliance on its substance than form, states that a “copy” of the judgment or order relied upon is “attached” and does not state that the “attached” document is a sealed or certified copy of the judgment or order. (See:  St George Bank Ltd v Klintworth & Klintworth (1998) 157 ALR 286 at 288.)

74                  Under the Act and Regulations as they now stand, the Official Receiver authorises the issue and service of a bankruptcy notice by signing the “additional copies” lodged under reg 4.01(1)(c). It is not a requirement of the legislation that an attached document be affixed to the notice authorised by the Official Receiver for service upon the debtor. Regulation 4.01 does not instruct the Official Receiver to attach any document to the copies of the draft bankruptcy notice that are lodged with the Official Receiver under reg 4.01(1)(c) and signed and returned by the Official Receiver under reg 4.01(2). It should be noted also that reg 4.01 provides no instruction to the Official Receiver on what is to be done with the “duly completed draft bankruptcy notice” lodged with the Official Receiver pursuant to reg 4.01(1)(a). These provisions seem to be concerned more with substance than form.

75                  Whether a document referred to in the prescribed form of notice as a document attached to the form, may be said to be part of the prescribed form and whether a failure to attach such a document is a substantive defect or irregularity in the bankruptcy notice issued, notwithstanding that the sum demanded is the sum, in fact, due and payable, is unnecessary to decide. (See:  Commonwealth Bank of Australia v Horvath (Junior) (1999) 161 ALR 441; Re Scerri (1998) 82 FCR 146; American Express International Inc v Held (1999) 168 ALR 185.)

76                  It is also unnecessary to consider whether a direction to a creditor in the prescribed form of bankruptcy notice, instructing the creditor to attach a document, has the effect of making that document part of the prescribed notice. The substantive content of the notice remained as it was before the amending Act was enacted, except for deletion of the right to comply with the notice by securing payment of the sum demanded in the notice. An obligation to deliver material to the judgment debtor, in addition to the bankruptcy notice, and not referred to in the substantive part of the notice directed to the debtor, may have been a concurrent requirement imposed by the Regulations. It was not contended that in that regard the Regulations exceeded the power delegated by the Act.

77                  A certificate of taxed costs pursuant to a judgment is a matter of record. If a copy of the certificate were not provided to a judgment debtor with a bankruptcy notice, the judgment debtor could obtain that information from the relevant record. Similarly, interest accrues on a judgment debt pursuant to statutory provisions of which the creditor and debtor may be presumed to have equal knowledge. At any time a judgment debtor may refer to those provisions to calculate the interest accruing on a judgment debt. If a judgment creditor calculates correctly the amount of interest due according to those statutory provisions but in the bankruptcy notice names incorrectly the statute that provides that interest accrues, that error would not raise a presumption that the judgment debtor would be unable to understand what the debtor had to do to comply with the notice. The assistance to a judgment debtor that the Regulations direct be provided to a debtor by delivering to the debtor material additional to the bankruptcy notice, would not make accuracy of that material in all respects an essential requirement of the bankruptcy notice, particularly where the basic purpose of the notice has been met, namely to advise a judgment debtor of a claim by a judgment creditor for payment of a sum that is due and owing by that judgment debtor. Indeed, the bankruptcy notice itself reminds the judgment debtor that the prescribed words of the bankruptcy notice may be misleading and warns the judgment debtor to obtain legal advice. Such an injunction must be even more relevant in respect of material accompanying the bankruptcy notice that has no prescribed form, to wit, a document prepared by the creditor detailing how the amount of interest due has been calculated.

78                  In many cases a debtor would have to make independent enquiry to determine whether the sum claimed by a judgment creditor is in fact the sum due. For example, where a judgment debt has been reduced by payments made from proceeds obtained by execution upon the judgment, it would be difficult for a judgment debtor to check the accuracy of the judgment creditor’s claim as to the interest that has accrued and, therefore, the sum owing under the judgment. Neither the Act, nor the Regulations, requires a judgment creditor to provide such information. If the dates and sums on which interest is calculated vary according to the dates on which payments or proceeds of execution are received by, or on behalf of, the judgment creditor, the judgment debtor could not check the accuracy of the creditor’s calculations from material attached to a bankruptcy notice to ascertain whether the principal sums, or periods in which interest has been calculated, are correct. In fact, a debtor would have to make further enquiry or search court records. (See:  St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094.)

79                  In the terms of the new notice, the amount claimed by a judgment creditor as the amount a judgment debtor is required to pay, is to be set out in par 1 of, and in the Schedule to, the notice. If the amount claimed is the amount due in fact, the purpose of the notice in that regard will be met. Thus, if a creditor records in the Schedule the sum due under the judgment and the amount of interest that has accrued since the date of the judgment, the purpose of s 41(2) of the Act will be satisfied.

80                  Even if it could be said that a document prepared by a judgment creditor and attached to the notice is part of the notice prescribed, such a document must be read with, and not to the exclusion of, the substantive purpose of the notice.

81                  The important requirement of a bankruptcy notice is that the amount for which payment is demanded in the notice be the correct sum. A demand that the debtor pay more than the amount due by the debtor to the judgment creditor is a substantive defect or irregularity in the bankruptcy notice. (See:  In re a Debtor (No 478 of 1908) [1908] 2 KB 684.) But for ss 41(5) and (6), a notice demanding more than the amount due would be invalid. Understatement of the amount due, however, is no more than a formal defect or irregularity in the notice that attracts the operation of s 306 of the Act unless, objectively, the understatement is capable of misleading the debtor as to what the debtor must do to comply with the notice. (See: Kleinwort Benson at 80.)

82                  Until Kleinwort Benson, a line of authority had arisen in this Court that understatement of the judgment debt rendered a bankruptcy notice invalid, but understatement of the interest due on the judgment debt was only a formal defect in the notice, able to be remedied by the operation of s 306 of the Act. Kleinwort Benson made it clear that the essential requirement of the Act was that the amount demanded from the debtor be a sum, including interest, due and payable by the debtor and understatement of that sum would depart from that requirement in form only, unless on an objective view it may be said that the notice was capable of producing uncertainty as to the obligation it imposed on the debtor.

83                  That, of course, is consistent with the overall purpose of the notice. A bankruptcy notice is a statutory means for determining whether a person may be declared insolvent under the Act without awaiting the result of execution on the judgment upon which the notice is based. The person ordered by judgment or order of a court to pay a sum will be presumed to be insolvent and to be a person against whom a sequestration order may be made under the Act, if a demand for payment of the monies due under the judgment is made upon the judgment debtor by the judgment creditor by notice issued pursuant to the Act and the debtor fails to comply with the requirements of the notice.

84                  Therefore, if the amount demanded in the bankruptcy notice is less than the sum actually due, that in itself will not involve a significant departure from the purpose of the notice. The question will be whether the notice makes clear to the judgment debtor the steps the debtor must take to comply with the notice and informs the debtor of the consequence under the Act of failing to so comply. Understatement by the creditor of the amount due by the debtor under the judgment permits the debtor to comply with the notice by paying only the sum demanded. Compliance with a bankruptcy notice that claims less than the amount due under the judgment or court order will not discharge the judgment debt. Notwithstanding the demand for payment contained in a bankruptcy notice, a judgment debtor must decide, albeit that no instruction to that effect appears in the notice, whether compliance with the notice would have the effect of giving the judgment creditor a preference and be an act of bankruptcy under s 40(1)(b) of the Act.

85                  In each of the matters before the Court the amount claimed in the respective bankruptcy notices was the sum due. It is submitted, however, that an error in the information provided in those notices relating to the calculation of the amount of interest due, invalidated each notice notwithstanding that the error did not make the calculation of interest inaccurate. The submissions rely upon a decision of a Full Court of this Court in Bendigo Bank Ltd v Williams (2000) 98 FCR 377.

86                  In Bendigo Bank it was held that the amended Act and the Regulations constituted “new and significantly changed legislation” (par 32), the proper construction of which required invalidation of a bankruptcy notice that did not meet the requirements of the “statutory scheme” as reflected in s 41(2) and reg 4.02.

87                  The relevant regulations must be construed in conjunction with the Act and, in particular, regard must be given to the purpose of a bankruptcy notice as established by the provisions of the Act. It would require the use of clear terms in the Act before the relevant regulations may be said to make terms of a bankruptcy notice essential requirements thereof if they would not be essential requirements of such a notice according to the proper construction of the Act. In the form of bankruptcy notice prescribed by the Regulations, it may be said that the essential requirements of the notice for the purpose of the Act remain as they have always stood and that it is the manner in which instructions are conveyed to the judgment debtor that has changed.

88                  Furthermore, reg 4.02, does not exclude the operation of s 25C of the Acts Interpretation Act 1901 (Cth) (“the AI Act”) and, therefore, strict compliance with the form prescribed pursuant to that regulation, is not required. Thus there will be accordance with the form prescribed for the purposes of s 41(2) where there has been substantial compliance with the form. (See:  Bank of Melbourne Limited v Hannan (1997) 78 FCR 249; Kirk v Ashdown [1999] FCA 1664 at [16]-[18]; Trustees v Weir at [15]-[16].) The same conclusion may be reached if regard is given to the terms of s 41(2) without resort to s 25C of the AI Act. (See:  Farrugia v Farrugia (2000) 99 FCR 16 per Katz J at [61]-[68].)

89                  In Bendigo Bank, it is suggested in the reasons of the majority (par 16) that the terms of reg 4.02(2) are to be taken to reflect the intention of the legislature, through its delegate, that s 25C of the AI Act not apply to reg 4.02 other than reg 4.02(2). Therefore, it was said, no question of substantial compliance with the form of notice prescribed could arise. As pointed out in Trustees v Weir (par 16), the relevant intention is constant in respect of the whole of the regulation and it follows that there is no intention to exclude the operation of the AI Act in respect of any part of reg 4.02. Kirk v Ashdown accepted that construction and established that strict compliance with the form prescribed in reg 4.02 is not required and substantial compliance with the form will be sufficient.

90                  Therefore, the question in the instant cases is whether the form of the notice in each case has been complied with substantially. The amount demanded from the debtor in the notice is in fact the amount due by the debtor under a judgment entered against the debtor by the creditor, details of which are set out in a copy of the judgment attached to the notice, and the interest on the judgment included in the sum claimed by the creditor is the correct amount. A document attached to the notice set out correctly the rate of interest that applied, the period for which interest was to be calculated, and the sum on which it was so calculated. The document recited the wrong statute that permitted interest to be calculated on and as part of the judgment debt. Instead of citing the Magistrates’ Court Act 1989 (Vic) the document referred to the Supreme Court Act 1986 (Vic). As it happens, each statute stated that the rate set by the Penalty Interest Rates Act 1983 (Vic) was the rate at which interest accrued.

91                  Even if the narrowest construction were applied to the Act and Regulations, the creditor did not fail to comply with reg 4.02 and the requirements of the prescribed form. The creditor attached to the notice a document that set out the details required by the form under the heading “For the Information of the Creditor – Notes to the Schedule…Note 2” namely, “the provision under which the interest is being claimed”. As it happens, the creditor described incorrectly the statute which provided that interest accrued on the judgment debt.

92                  If, despite all of the foregoing, it could be said that the creditor did not comply substantially with the requirements of the form, that departure did not cease to be a formal defect or irregularity to which s 306 would apply unless it could be said that the error was capable of misleading a debtor as to the amount due and what the notice required the debtor to do. Bendigo Bank was not a case where the additional material provided by the creditor pursuant to “Note 2” contained an error but a case where the document to which “Note 2” referred was not attached to the bankruptcy notice and for that reason it was held that the notice was invalidated and that s 306 had no operation. Importantly, however, and consistently with the view expressed above, the majority (par 36) acknowledged that where information has been supplied purportedly in compliance with “Note 2”, and the information is inaccurate or incomplete, then the question may arise whether the defect is merely formal in which case s 306 may apply and it may be relevant to ask whether a debtor could be misled. I note that their Honours went on to say that the relevant enquiry would not be whether a debtor may be misled as to what must be done to avoid an act of bankruptcy but whether the debtor may be misled as to the information the debtor is intended to derive from the material required to be provided. The latter observation is not consistent with the principle stated in Kleinwort Benson, namely that notwithstanding that there may be a formal defect or irregularity in a notice, the purpose of the notice will be met unless that defect or irregularity could reasonably mislead a judgment debtor as to what the debtor is required to do to comply with the notice.

93                  Properly construed, the Act and Regulations do not express an intention to create a new regime of strict compliance imposed on a judgment creditor issuing a bankruptcy notice. The tenor of the Act and Regulations is not consistent with that conclusion. An attempt has been made to recast the process of issue of a bankruptcy notice in terms more understandable to a judgment debtor, but the essential requirements of a bankruptcy notice remain as they have been stated by bankruptcy legislation over many years.

94                  Proper construction of the Act and Regulations must take account of the substantial amelioration of the effects of bankruptcy under that legislation that has taken place since the days when bankruptcy was regarded as penal in nature. Where it is contended that legislative provisions provide for consequences of invalidity, construction of those provisions must have regard to the overriding purpose of the legislation as a whole. That principle was stated as follows by McHugh, Gummow, Kirby and Hayne JJ in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391:

“In our opinion, the Court of Appeal of New South Wales was correct in Tasker v Fullwood in criticising the continued use of the ‘elusive distinction between directory and mandatory requirements’ and the division of directory acts into those which have substantially complied with a statutory command and those which have not.  They are classifications that have outlived their usefulness because they deflect attention from the real issue which is whether an act done in breach of the legislative provision is invalid.  The classification of a statutory provision as mandatory or directory records a result which has been reached on other grounds.  The classification is the end of the inquiry, not the beginning.  That being so, a court, determining the validity of an act done in breach of a statutory provision, may easily focus on the wrong factors if it asks itself whether compliance with the provision is mandatory or directory and, if directory, whether there has been substantial compliance with the provision.  A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid.  This has been the preferred approach of courts in this country in recent years, particularly in New South Wales.  In determining the question of purpose, regard must be had to ‘the language of the relevant provision and the scope and object of the whole statute’.” [Footnotes omitted]

95                  In Deputy Commissioner of Taxation v Woodhams (2000) 169 ALR 503, the High Court (at [33]-[41]) affirmed that it is the statutory purpose to be served by a statutory notice which determines whether a purported notice complies with the requirements of the legislation, or is a nullity:

“[33] It is the legislative purpose to be served by the giving of a s 222AOE notice that determines the nature and extent of the information necessary to satisfy the requirement to set out details of the unpaid amount of the company’s liability under a remittance provision in respect of deductions. At this stage of the argument, the concern is with absence of information, rather than erroneous or misleading information. Absence of information will involve a failure to provide necessary details if, without such information, the notice will not fulfil the purpose for which it is required to be given.

[34] The primary source of guidance as to the statutory purpose of the notice before action required by s 222AOE is to be found in s 222ANA. Division 9 seeks to achieve the object that either the deducted amounts are remitted or paid to the Commissioner or the company is promptly taken out of the control of the directors and dealt with under the insolvency laws.

[35] The notice in question is addressed to a director of the company. Such a person will ordinarily have access to information concerning the company’s liabilities. The notice does not create a liability to pay a penalty, and if there is to be action to recover the penalty under s 221R it will be taken in the appropriate civil jurisdiction. In that event, the rules of court will require the elements of the cause of action to be pleaded and particularised in the ordinary way. A notice before action is not intended to serve the purpose of a statement of claim.

[36] The first purpose of the notice is to inform the recipient of the unpaid amount of the company’s liability under the remittance provisions, and of the recipient’s liability to a penalty in the same amount. The second purpose, consistently with s 222ANA, is to inform the recipient of the alternative courses available, as set out in s 222AOE(b), which will result in remission of the penalty, the object being to encourage the recipient to take such steps as are necessary to bring about the result that one or other of those courses is followed.

[37] In a number of respects, the due date for remittance of a deducted amount is relevant to a director’s liability to pay a penalty, but that is not the liability to which s 222AOE is referring. The section does not require that the notice state details of the facts relevant to the director’s liability. That is a function to be served by the pleadings and particulars, if and when action is taken to recover the penalty. Nor does the section require details of all facts relevant to the company’s liability. It requires details of the unpaid amount of the company’s liability. Once again, if there is an issue as to that liability, it will be litigated in the recovery action.

[38] The notice in the present case contained all the information that was necessary to fulfil the statutory purpose to be served by the notice. It informed the recipient, in detail, of the unpaid amounts of the company’s liability, and of the liability by way of penalty which the revenue authorities were asserting attached to him. It also informed him of the steps available to bring about a remission of that penalty. The statute fixed the due dates in respect of each deduction. Fulfilment of the purpose to be served by the notice before action did not necessitate informing the recipient of the operation of the statute in that respect.

[39] The decision in Gruber, in so far as it held that a notice under s 222AOE is required to set out the due dates of amounts to be remitted, is erroneous and should be overruled.

[40] In Kleinwort Benson Australia Ltd v Crowl [footnote omitted] it was said that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the legislation, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice. For the reasons given above, the notices in the present case did not fail to meet a requirement made essential by the Act. In this Court it was argued, for the first time, that they were misleading. In that connection reference was also made to a covering letter accompanying the notices.

[41] It was argued that the notices, and the letter, in asserting in a peremptory and summary fashion the recipient’s liability to a penalty, incorrectly represented the true position. The existence of liability of the kind asserted depended upon a number of facts and circumstances which, at least in theory, might have been open to question or dispute. (In fact, they were not disputed in the subsequent recovery action.) This argument proceeds upon a false premise as to the purpose of the statutory notices. They were not intended to explain the legal basis of the asserted liability. They were notices before action; not pleadings. They were designed to serve a specific purpose, explained above.”

96                  In the matters before us, each notice complied with the Act by setting out the amount due, in fact, by the debtor. An attached document which set out details of the calculation of the amount of interest included in that sum recorded the correct calculations. Could it be said that incorrect citation of the statute that prescribed that interest was payable by the debtor on a judgment debt could mislead the debtor as to the steps to be taken by the debtor to comply with the notice? The answer, obviously, is no. Kirk v Ashdown reached that conclusion when the source of the obligation to pay interest had been omitted entirely from the documents supplied by the creditor pursuant to “Note 2”. Unless the law declared by a unanimous decision of a Full Court is plainly wrong, it is to be followed in the instant matters in respect of which it is directly in point. (See:  Cabvil Pty Ltd v Hoiberg [1999] FCA 1791 per Cooper J at [23].)

97                  For the reasons set out above I am of the view the reasoning of the Full Court in Kirk v Ashdown sets out correctly the proper construction of the Act. It cannot be correct that amendments to the Act that left undisturbed ss 41(5) and (6) which state that a notice that demands payment of a sum that is unjustified or excessive is only invalid if a debtor gives notice within a prescribed period, introduced a new regime in respect of bankruptcy notices under which a judgment debtor could have such a notice set aside where the amount claimed is due in fact and there is no prospect that the debtor could be misled as to the steps to be taken to comply with the notice. The amending Act could not have contemplated that a mistaken citation of the source of entitlement to claim interest would be a substantive defect or irregularity in the notice so as to exclude the operation of s 306 of the Act. (See:  George v Tricontinental Corporation Ltd (1994) 53 FCR 284; Gardiner v Gardiner (1992) 39 FCR 259 at 267-268; Re Farrugia; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 1 at 4-5.)

98                  With respect, the position is set out correctly in Trustees v Weir at [15]-[16]:

“Whereas s 41(2) was previously expressed in terms of the substance of what the bankruptcy notice must contain, it is now expressed entirely in terms of the prescribed form.  In so far as the form prescribed under the new provision embodies matters of substance required to be contained in a bankruptcy notice, the reasoning in James and Kleinwort Benson Australia Limited v Crowl is not at all displaced.  It would be surprising if it were, since the amendment of s 41 does not (nor did the Explanatory Memorandum circulated by the Attorney-General when the amendment came before Parliament as the Bankruptcy Legislation Amendment Bill 1996, nor did the second reading speech of the Attorney-General reported in the House of Representatives Hansard of 26 June 1996 at 2825 et seq) demonstrate any intention to introduce an upheaval of principle; the obvious explanation of the amendment relates to the machinery for the implementation of the substitution of one ministerial authority issuing bankruptcy notices for another (that is, of the Official Receiver for the Registrar of the Court).  But it would work a far reaching reversal of the operation of the Act if the amendment of s 41(2) were to be regarded as doing away with the emphasis of bankruptcy administration on matters of substance, in favour of the elevation of form as the criterion of validity.  That would be the consequence if every part of the prescribed form were treated as something made essential by the Act, and it would use the expression coined by the majority in Kleinwort Benson Australia Limited v Crowl in a sense that would turn their actual decision (which excused, as Deane J emphasized, a quite serious defect) on its head.  Such an approach would be completely at odds with the formulation in James confining the consequence of invalidation to important breaches of the relevant provisions of the Act and matters that could mislead, that is to say, to defects of substance.

In our opinion, as a matter of construction, the very fact that the new s 41(2) is expressed in terms of form aligns it directly and naturally with s 306.  The new s 41(2) does not amend s 306; it is inserted into an Act that already contains that provision, and it is intended to operate accordingly in the statutory setting into which it is received.  The form must be complied with, but in the context of an Act containing s 306, a “formal defect” by the express terms of the statute does not attract the invalidating consequences once associated with a mandatory provision:  Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.  It is in fact recognized in regulation 4.02 that the prescription of a form of bankruptcy notice does not involve a requirement of strict compliance, substantial compliance being sufficient.  That the draftsman attributed this consequence to the operation of s 25C of the Acts Interpretation Act 1901, rather than to s 306 of the Act, and that express attention was drawn to the matter only because of a drafting problem related to the issue of format, in no way detracts from the conclusion that the regulation was not intended to prescribe a form in precise terms, but one to be complied with in substance.  As Katz J pointed out in Farrugia v Farrugia (at para 66), the reference to s 25C in the regulation “discloses an intention in the delegated legislator not to attempt to impose by subreg 4.02(2) a requirement which has to be strictly complied with”.  And, logically, if it was thought s 25C would apply to subreg (2), it must have been thought it would apply to subreg (1), so that the relevant intention must have been the same.”

99                  The bankruptcy notices are not invalid and the petitions must be set down for further hearing.

Associate:

Dated:              22 December 2000
IN THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

GYLES J:

100               I have had the advantage of reading the judgment of Lee J in draft.  I am indebted to the careful analysis of the problem by Lee J.  I agree with the conclusion reached by him that the bankruptcy notices in issue are not invalid, and with his reasons for that conclusion.  Because of the importance of the issue in the bankruptcy jurisdiction, I take the liberty of adding a contribution of my own, without intending to qualify my agreement with his Honour. 

101               This bench has been assembled to sit at first instance to consider whether to follow the decision in Bendigo Bank Ltd v Williams (2000) 173 ALR 175 (“Bendigo Bank”), in which a Full Court refused to follow the earlier Full Court decision of Kirk v Ashdown [1999] FCA 1664 (“Kirk”).  Argument proceeded on the basis that it is our task to resolve that question by coming to our own view as to which is the correct or preferable decision. I doubt the correctness of that approach, but will proceed accordingly and explain my doubt later.

102               The most important question is whether correct completion of the form prescribed by the regulations in every respect is a requirement made essential by the Act to the exclusion of s 25C of the Acts Interpretation Act 1901 (Cth) (except in one very limited respect) and s 306 of the Bankruptcy Act 1966 (Cth) (“the Act”).  The affirmative conclusion to that question reached by the majority in Bendigo Bank is in issue.

103                 The first task is to isolate the difference in principle between the decision in Kirk on the one hand, and the judgment of the majority in Bendigo Bank on the other.  The reasoning in Kirk is clear and, on its face,  is a conventional application of the decision of the High Court in Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 (“Kleinwort Benson”).  It proceeds as follows:

1.                  the fact that the prescribed form had been used but part of it had not been completed was not a breach of a requirement of the Act within the meaning of Kleinwort Benson

2.                  the irregularity was therefore to be considered as of substance, and not within the purview of s 306 of the Act, if it could reasonably mislead as to what is necessary to comply with the notice

3.                  that, on the facts, the irregularity could not reasonably mislead a debtor as to what is necessary to comply with the notice

4.                  thus, s 306 applied as there was no proof of injustice in the particular case.

104               The reasoning of the majority in Bendigo Bank seems to be as follows:

1.                  the combined effect of s 41(2) and reg 4.02 is that compliance with the prescribed form is a requirement of the Act within the meaning of Kleinwort Benson in the sense that not only must the form be used, it must be correctly and accurately filled in in all respects

2.                  section 25C of the Acts Interpretation Act 1901 (Cth) does not apply to bankruptcy notices save for matters of format.  There must be strict compliance in relation to the contents of the notice – substantial compliance will not do

3.                  deciding whether a defect or irregularity is within the purview of s 306 does not depend upon (indeed, it is irrelevant to inquire) whether a debtor could reasonably be misled as to what is necessary to comply with the notice

4.                  the complete omission of part of the prescribed form could not be a defect or irregularity within the purview of s 306, regardless of the reasonable impact of the omission upon the hypothetical debtor.

105               The critical portion of the judgment in Kleinwort Benson  (at 79) is:

 “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 C.L.R. 631, at p.644, Pillai v Comptroller of Income Tax [1970] A.C. 1124 at p.1135.  In such cases the notice is a nullity whether or not the debtor in fact is misled:  In re a Judgment Debtor, 530 of 1908 [1908] 2 K.B. 474, at p.481.”  (Emphasis added)

106               The reasoning of the majority in Bendigo Bank depends upon the present terms of      s 41(2):  “the notice must be in accordance with the form prescribed by the regulations” to conclude that strict compliance with the prescribed form is an essential requirement of the Act within the meaning of that passage of the High Court judgment. 

107               However, the relevant part of s 41 at the time of the decision in Kleinwort Benson was as follows:

 “(1)    A bankruptcy notice –

(a)               shall be in accordance with the prescribed form;  and

                        (b)        shall be issued by the Registrar.(emphasis added)

108               The prescribed form of bankruptcy notice prior to the current form is set out in the judgment of Lee J.  A portion of the form was:

“WHEREAS (name, address and occupation of judgment creditor) (hereinafter referred to as “the judgment creditor”)  has claimed that the sum of $……… is due by you to him under a final judgment (or order) obtained by him against you …”

Furthermore, as appears from the judgment of Lee J, the relevant Bankruptcy Rule then provided that “a bankruptcy notice shall be in accordance with Form 4” (emphasis added).

109               The problem in Kleinwort Benson was that the amount inserted as due under a final judgment (including interest) understated the interest, and so understated the amount claimed to be due under the judgment.  In other words, there (as here), the correct form had been used but, in one respect, had been incorrectly filled in.  It seems to me to be quite clear that the High Court found that filling in the wrong amount in the prescribed form was an irregularity, but was not a breach of an essential requirement of the Act.  If it had been held to be a breach of an essential requirement of the Act, that would have been the end of the matter, and there would have been no consideration of the alternative question.  Section 25C was not referred to in the argument or the judgments in Kleinwort Benson, perhaps because it had then only relatively recently been passed.  Indeed, it was not referred to in the 1988 edition of the standard text – Pearce & Geddes, Statutory Interpretation in Australia, 3^rd ed.  In any event, having applied s 306 it would not have been necessary to resort to s 25C.

110               In my opinion, the 1996 amendments did not operate to make compliance with the prescribed form essential where it had not been essential previously.  Section 41(2) which is the critical provision now is indistinguishable from the former s 41(1)(a) – there is no difference in effect between “shall be” and “must be”.   Furthermore, the 1996 amendment actually omits the mandatory requirements of s 41 referred to by the High Court in Kleinwort Benson.  In other words, the section is less prescriptive than it was.  Section 306 has remained unamended throughout.  In my opinion, the change of the issuing authority from Registrar of the Court to Official Receiver has no impact upon the question of construction involved here. 

111               There is nothing in the language of reg 4.02 which points to the necessity of strict compliance.  Sub-regulation (1) simply prescribes the form as Form 1.  This is not materially different from the Rule which applied at the time of the decision in Kleinwort Benson.  Where mandatory language is used in sub-reg (2), it is in relation to format only, and this is immediately qualified by recognition of the impact of s 25C of the Acts Interpretation Act.  Furthermore, the express wording of the regulation provides the clearest possible indication that s 25C would, rather than would not, apply to compliance with the form as far as content is concerned.  I agree with the opinion of the Full Court in Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574 (“Weir”) as to that point (at par 16). 

112               As noted by the Court in Weir (par 15), there was no hint in relation to the 1996 amendments that they were aimed at making a significant alteration of the law relating to validity of bankruptcy notices as settled by the High Court.  Indeed, it must be taken that the legislature would have regarded Kleinwort Benson as representing the established law as to bankruptcy notices in general, and the application of s 306 in particular.  We were referred to nothing in the legislation itself or in any extrinsic material which would support the contention that the legislature intended that the completion of bankruptcy notices was to be a new and greater hazard for creditors than hitherto.  Construction of the statute is not assisted by reference to the duties of solicitors.

113               It is suggested that the 1996 amendments can be construed by reference to the new regulations.  I do not agree.  The regulations do not control the construction of the Act in any way.  The 1996 amendments to the Act itself have nothing new (or relevant) to say concerning the required content of bankruptcy notices.  As I have said, the only material change to the Act was to make the position less, rather than more, prescriptive than previously.  The circumstance that the form now provides for much more information and is more complicated than hitherto would tend against a conclusion that the correctness and completeness of all information is a statutory requisite in the Kleinwort Benson sense.  The varying nature and importance of the contents of the form which appears from the analysis by Lee J supports this conclusion.  Delegated legislation is, of course, binding.  That proposition is of no assistance in deciding whether strict compliance with a form prescribed by delegated legislation is made essential by the Act within the meaning of the majority judgment in Kleinwort Benson.  Consideration of what was said by the majority at 76 of  Kleinwort Benson shows that the phrase  “made essential by the Act” in this context means what it says, and does not encompass the effect of a form prescribed by the executive government.

114               It is worth noting that the High Court in Kleinwort Benson did not purport to break new ground, but rather applied established authorities, and in particular adopted the approval of the decision in In re A Debtor, No. 21 of 1950;  Ex parte the Debtor v Bowmaker Ltd [1951] 1 Ch 313 by the Privy Council in Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135 in the following terms:

“What, then, is a “formal defect or irregularity” within the meaning of the section?  This was discussed in relation to a bankruptcy notice in In re A Debtor (No 21 of 1950), Ex parte the Debtor v Bowmaker Ltd [1951] Ch 313, in which the earlier authorities were considered.  The test there laid down was whether the defect in the notice was of such a kind as could reasonably mislead a debtor upon whom it was served.  If it was, the notice was not validated by the section notwithstanding that the particular debtor upon whom it was served was not in fact misled.  If, on the other hand, it could not reasonably mislead the debtor it was a formal defect and validated by the section.  Their Lordships are here only concerned with the application of the section to a bankruptcy notice.  They are not concerned with whether the same test is appropriate to determine the validity of subsequent steps in bankruptcy proceedings.  In their view any failure to comply with the statutory provisions as to the form of a bankruptcy notice of a kind which could not reasonably mislead a debtor upon whom it is served is a “formal defect” and validated by the section.”

The decision in In re A Debtor itself did not purport to make new law, but, in turn, considered earlier authority.

115               According to the established authority of Kleinwort Benson, departures from the prescribed form of the kind in issue here, where the defect relates to information to the recipient, are to be assessed by reference to the criterion of whether the departure could reasonably mislead the debtor as to what is required to comply with the notice.  That criterion is capable of rational and sensible application to such cases, although minds may differ from time to time as to particular instances.  By contrast, the judgment of the majority in Bendigo Bank  does not provide any useful guideline for the application of s 306.  Thus, not only is the certainty of a High Court judgment disturbed, it is disturbed in a fashion which causes further uncertainty.  McHugh J recently stressed the advantages of certainty in the law (see Perre v Apand Pty Ltd (1999) 73 ALJR 1190 at 1205-6, pars 100, 101 and 102).  We are not concerned here to consider all kinds of defects or irregularities in bankruptcy notices.

116               In my opinion, the Full Court in Weir was correct in saying (par 15) that:

 “But it would work a far reaching reversal of the operation of the Act if the amendment of s 41(2) were to be regarded as doing away with the emphasis of bankruptcy administration on matters of substance, in favour of the elevation of form as the criterion of validity.  That would be the consequence if every part of the prescribed form were treated as something made essential by the Act and it would use the expression coined by the majority in Kleinwort Benson Australian Ltd v Crowl in a sense that would turn their actual decision (which excused, as Deane J emphasized, a quite serious defect) on its head.”

117               With respect to those who take a different view, in my opinion, the decision of the majority in Bendigo Bank is plainly inconsistent with the decision of the High Court in Kleinwort Benson.  The reasoning in Bendigo Bank, and in some of the single judge decisions to which reference is made in it, are consistent with the view that Deane J, who was the sole dissentient in Kleinwort Benson, was correct and the decision of the Court wrong.  If the correctness of the decision in Kleinwort Benson is to be reconsidered it must be done either by the High Court or the legislature.  To pay proper deference to precedent is not to treat the High Court judgment as a statute, as was suggested in Bendigo Bank (par 30).

118               I thus conclude that the judgment in Kirk approached the issue in accordance with the correct principles, and was, indeed, a conventional application of Kleinwort Benson, although I would add that in cases such as this s 25C of the Acts Interpretation Act should also be applied as I mention later.  I conclude that the decision of the majority in Bendigo Bank was wrong and that Kiefel J, in dissent, was correct.  Incidentally, I cannot see any material distinction in principle between the approach of Kiefel J and that of the Court in Kirk.  Whether or not a correct decision on the facts was made in Kirk is not a matter which falls for decision in this case.  I agree with the dicta in Weir.

119               Since coming to this view, I have had the benefit of reading a copy of the judgment of Black CJ, Heerey and Sundberg JJ in draft.  I do not recall the argument which forms the nub of the draft joint judgment being addressed in submissions, and it does not form any part of the reasoning in the Full Court decisions we are considering.  Be that as it may, that argument seems to me to be inconsistent with the decision in Bendigo Bank, which as a consequence should be regarded as overruled.  The essence of the decision in Bendigo Bank was that a bankruptcy notice which is not in accordance with the prescribed form would not be in accordance with an essential requirement of the Act, and so invalid.  On this reasoning, it is not for the court to second guess the legislature as to which parts of the form are essential.  However, their Honours do not come to this conclusion, but accept that some failures to comply with the prescribed form will not be a breach of an essential statutory requirement and will not lead to invalidity.  This is plainly correct, but is inconsistent with the decision in Bendigo Bank. 

120               I do not believe that the decision in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (“Project Blue Sky”) qualifies the application of Kleinwort Benson to this case.  Project Blue Sky did not involve failure to fill in a prescribed form properly in every respect.  It dealt with the different question as to whether an act done in breach of a condition regulating the exercise of a statutory power is necessarily invalid and of no effect (par 91).  The validity of a subordinate instrument which did not comply with the statute was upheld.  To the extent that the decision provides guidance here, I agree with Lee J that it points in the direction of not requiring strict compliance with the prescribed form.  The decision of the Full Court in Formosa v Secretary, Department of Social Security (1988) 46 FCR 117 (“Formosa”), particularly per Davies and Gummow JJ at 120-124, is much closer to the present case than Project Blue Sky.  See also McRae v Coulton (1986) 7 NSWLR 644 at 660D-663B.  Project Blue Sky does not deal with s 25C of the Acts Interpretation Act, the significance of which appears from the discussion in Formosa (see 123.2).  See also Hamilton v Minister for Immigration & Ethnic Affairs (1994) 53 FCR 349 at 359;  Yong v Minister for Immigration & Ehnic Affairs (1997) 75 FCR 155 at 162D-E, 167B;  and Weir (supra) at par 16.  There is no contrary indication in the statute here, so s 25C “puts beyond doubt” (to take the phrase of Davies and Gummow JJ in Formosa) that strict compliance with the prescribed form here is not required and substantial compliance is sufficient.   Furthermore, Project Blue Sky did not deal with a situation in which s 306 of the Act, or anything like it, was applicable.  It does not affect the manner in which the majority in Kleinwort Benson approached that question.

121               Lee J has referred to the amelioration of the effects of bankruptcy since the days when some of the strictures concerning bankruptcy notices were laid down.  I would add that the public interest in the effect upon the creditors of and persons dealing with an insolvent person also needs to be considered.  Sequestration does not automatically follow from non-compliance with a bankruptcy notice.  However, if a bankruptcy notice is too readily set aside as invalid, the consequence is that transactions of a person who may turn out to be insolvent, which have the effect of improperly prejudicing creditors, may escape scrutiny.

122               Even if it is concluded that there is a choice as to what breaches lead to invalidity on a purposive basis, in my opinion, the decision in Kleinwort Benson gives authoritative guidance for cases such as the present – the purpose is to inform the judgment debtor as to what is requiredto comply with the notice.  This test has stood for many years, and should not be displaced.   I also have difficulty with the notion that a purposive test, such as that applied in Kleinwort Benson, Project Blue Sky and Deputy Commissioner of Taxation v Woodhams (2000) 74 ALJR 564, 169 ALR 503, involves discerning separate purposes for each particular part of a prescribed form, rather than discerning the purpose of the form itself, and then considering the effect of the irregularity.  I cannot agree that some parts of a prescribed form are made essential by the Act and others are not made essential by the Act (as that concept is used in Kleinwort Benson) when all that the Act says is that a notice shall be in accordance with the prescribed form.

123               I said earlier that I doubted whether this Court is simply free to come to a view as to whether Bendigo Bank was correct in principle.  The majority in that case declined to follow Kirk.  The decision in Kirk was unanimous, was reasoned, referred to both the relevant legislation and the governing High Court authority, and applied that authority.  It affirmed the reasoned decision of the trial judge in that case.  In my opinion, the better view is that it was not open to the majority in Bendigo Bank to prefer their own opinion as to the correct result to that of the previous Full Court decision directly in point.  The relevant authorities have recently been reviewed by the Full Court in Telstra Corporation Ltd v Treloar [2000] FCA 1170, pars 23 to 28 per Branson and Finkelstein JJ and pars 32 to 36 and par 41 per Gyles J.  This Full Court is in no  better position than the Court in Bendigo Bank to simply prefer our opinion to that of the Full Court in Kirk.  The fact that we sit as five does not change our function or role. 

124               I turn to the application of the principles established by Kleinwort Benson to the facts. I have held (with Lee J) that the provision of the incorrect information, whilst an irregularity, is not a breach of a requirement made essential by the Act.  I therefore consider the application of s 306.  Is the incorrect reference in these notices to the statute by which interest is payable capable of reasonably misleading a debtor as to what is required to comply with the notice?  I agree with Lee J that, in the present case, the answer is no, and agree with his reasons for that conclusion.  There is no practical difference between the operation of the statute nominated and that which should have been nominated so far as the amount of interest was concerned.  That is the critical issue so far as compliance is concerned.  Here, the debtors were told the precise amount which was to be paid or in relation to which an arrangement for settlement should be made, and how interest upon it was to be calculated.  The backdrop, after all, is that “it is the duty of a debtor to seek out the judgment creditor and pay the judgment debt to the creditor if he is in Australia” (James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 639).  That includes a duty to pay interest on the judgment as required by law.  The statute, rather than the creditor or the bankruptcy notice, imposes the obligation to pay interest.  If the hypothetical debtor did track the relevant provisions (with legal advice if necessary, as the form invites), he or she would find that the method of calculation of interest was correct.  The irregularity in George v Tricontinental Corporation Ltd (1994) 53 FCR 284 was at least as capable of misleading a debtor as that in this case, and there is much to be said for the view that the reasoning of the unanimous decision of the Full Court in that case should be applied in this case, on this point.  As there is no evidence of substantial injustice, s 306 will apply to the irregularity in each case. 

125               In my opinion, there is also substantial compliance with the prescribed form as permitted by s 25C of the Acts Interpretation Act for the same reasons.

126               I therefore find that the bankruptcy notice is valid in each case.

Associate:        

Dated:                      22 December 2000