FEDERAL COURT OF AUSTRALIA

Australian Central Credit Union Ltd v Laing [2001] FCA 1154

BANKRUPTCY - opposition to creditor’s petition - whether bankruptcy notice valid - whether bankruptcy notice stated “the provision under which the interest is being claimed” in accordance with Note 2(a) of Form 1 of Schedule 1 of the Regulations under the Bankruptcy Act 1966 (Cth).

BANKRUPTCY - overstatement of interest on bankruptcy notice - whether bankruptcy notice invalidated by reason of claim in excess of entitlement - whether overstatement of interest misleading.

Bankruptcy Act 1966 (Cth)

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

Registrar of Titles (WA) v Franzon (1976) 50 ALJR 4 applied

Re Walsh (1982) 65 FLR 87 considered

Olivieri v Stafford (1989) 24 FCR 413 considered

Re Aeckerle;  ex parte Cinco Holdings Pty Ltd [1996] FCA 933 considered

AUSTRALIAN CENTRAL CREDIT UNION LIMITED v ANNETTE MARSHA LAING

D 7006 OF 2000

MANSFIELD J

DARWIN

21 AUGUST 2001

THE COURT ORDERS THAT:

1.         The Creditor’s Petition be dismissed.

2.         There be no order as to costs.

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

REASONS FOR JUDGMENT

1                     At the time of the hearing of this creditor’s petition, the respondent had only partly repaid the judgment debt and interest.  There was $3,751.50 outstanding.  Counsel for the creditor indicated that the respondent was in a position to pay that outstanding amount.  I reserved judgment, in part to give her the opportunity to do so.  The outstanding debt has now been paid.  The parties are agreed that the petition should be dismissed.  The remaining issue concerns the costs of the petition.

2                     The petition for a sequestration order was based upon the failure of the respondent to comply on or before 1 June 2000 with the requirements of a bankruptcy notice served on 11 April 2000.  The bankruptcy notice issued on 11 April 2000 was in respect of a judgment debt including costs of $10,927.23 plus interest then calculated at $101.20, making a total of $11,028.43.  The judgment was entered on 14 February 2000.  As noted, the respondent has since significantly reduced that indebtedness.

3                     The creditor’s petition was filed on 28 June 2000.  The respondent by noticed filed on 31 July 2000 opposed the petition on the grounds :

1.         that the bankruptcy notice issued on 11 April 2000 did not state “the provision under which the interest is being claimed” in accordance with Note 2(a) of Form 1 of Schedule 1 to the Regulations under the Bankruptcy Act 1966 (Cth) (“the Act”).

2.         that the bankruptcy notice claimed interest on the judgment calculated from 15 February 2000 rather than from 2 March 2000.

so that the bankruptcy notice was invalid.  Consequently, it is claimed, there was no act of bankruptcy upon which the petition was based and it should be dismissed.  The entitlement of a debtor to take such points in opposition to a petition for a sequestration order, without having applied to set aside the bankruptcy notice itself under s 41 of the Act, was accepted by the parties.

4                     It was in relation to those two matters that the argument on the hearing took place.  Although the petition is now to be dismissed, the basis upon which that is to take place is important to the issue of costs.  The applicant contends that the petition was validly issued, so it is being dismissed only because the debt has been paid.  The applicant claims the costs of the proceedings.  The respondent contends that the petition should be dismissed because the bankruptcy notice was invalid, and that in that circumstances all costs should be paid by the applicant.

5                     The parties accepted that, in addressing the grounds of opposition to the petition, I should follow the majority (Black CJ, Heerey and Sundberg JJ) in The Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915 (“Lewis”).  Their Honours said at [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 purposes 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.”

6                     The first ground of opposition therefore turns upon whether the bankruptcy notice does comply with the essential requirement prescribed by Note 2 of Form 1.  That Form is set out in full in Lewis at [11] and I will not repeat it.  Note 2 reads :

“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)”

7                     The bankruptcy notice claimed interest of $101.20.  It contained Note 2.  Attached to the bankruptcy notice was a document in the following terms :

“The Creditor claims interest pursuant to the Local Court rules (NT) on $10,927.23 for the period of 15 February 2000 to 10 April 2000 being a period of 55 days at the rate of 6.14% p.a. being a daily rate of $1.84.

55 x $1.84 = $101.20”

8                     There was also attached to the bankruptcy notice a copy of the judgment order of the Local Court including the following, also relevant to the second ground of opposition :

“Defendant to pay by instalments of $300.00 per fortnight, first payment due 2 March 2000 and fortnightly thereafter until the judgment debt is paid in full.

.....

Pursuant to rule 39.04, while the defendant complies with the instalment order, further interest may not be claimed.

Interest accrues on the balance of the judgment debt at various rates for set periods, as prescribed in the Supreme Court Rules.

The current rate of interest as at this judgment is 6.14% per annum.”

9                     The respondent contends that the reference simply to “the Local Court rules (NT)” in the short document attached to the bankruptcy notice does not meet the requirements of Note 2, and that the word “provision” in Note 2 means the particular section or subsection of the legislation upon which the interest liability arises.  The required reference was to Rule 39.01 of the Local Court Rules.  That, she acknowledges, would be sufficient even though it would direct her to Rule 59.02 of the Supreme Court Rules (NT) which fixes the interest rate on judgment from time to time as the ten year Commonwealth Bond rate at 1 July in each year, and which is apparently published by the Supreme Court as a Master’s Direction from time to time.

10                  Although Lewis decides that compliance with Note 2 of Form 1 is essential to the validity of a bankruptcy notice, it did not specifically address whether general reference to the relevant legislation or rules is a sufficient reference to “the provision” under which the interest is being claimed, or whether it is necessary to refer to the section or clause of the legislation or rules.  That turns upon the meaning of the word “provision” in Note 2 of Form 1.  In Lewis, the problem was that the bankruptcy notice referred to the wrong legislation.  The parties’ researches nor my own have found a decision where the particular circumstance now arising has been addressed.

11                  It is appropriate to start from the ordinary and current meaning of the word “provision”.  It is, relevantly, a clause in a statute, contract or other legal instrument:  Black’s Law Dictionary, 7 ed (1999) 1240;  Australian Oxford Dictionary (1999), 1084.  If the word “provision” bears that meaning, it accords with the use of the word in many other sections of the Act;  the word “provision” is so used in excess of 100 times in the Act.  There is no reason to think that the word has not been used consistently throughout the Act:  see Registrar of Titles (WA) v Franzon (1976) 50 ALJR 4 per Mason J at 6.  I think that meaning also serves the purpose of the requirement which Note 2 imposes, as identified by the majority in Lewis, namely to enable the debtor to verify that the amount claimed is in fact due.  Consequently, in my judgment, the document attached to the bankruptcy notice did not comply with the requirement of Note 2 because it referred only to the Local Court Rules, and not expressly to Rule 39.01 of those Rules.

12                  In this matter the copy of the judgment relied upon by the applicant (required to be attached to the bankruptcy notice by cl 2 of Form 1) does refer to certain provisions concerning the calculation of interest.  I have set out its relevant contents above.  I do not consider that those terms of the judgment satisfy the requirement of Note 2, even assuming (which I do not decide) that the “document” required by Note 2 may include both the calculation made to satisfy subcl (b) and separately a document such as the judgment which contains reference to the provision under which interest is payable.  The judgment does not refer to r 39.01 of the Local Court Rules.  The reference to r 39.04 of the Local Court Rules does not purport to be a reference to the provision under which interest is payable.  The judgment also refers to the Supreme Court Rules, but not to r 59.02 of those Rules.  I consider that the judgment has the same vice as the document containing the calculation of interest, namely the absence of any reference to the particular provision under which interest is payable.

13                  For those reasons, I consider that the bankruptcy notice is invalid and that consequently the petition should be dismissed.

14                  I should briefly mention the second ground of opposition to the petition.  The respondent did not comply with the instalment order at all, as she did not make the first payment of $300 due on 2 March 2000.  Under the terms of the judgment, and apparently r 39.04 of the Local Court rules, interest could not be claimed whilst she complied with that order.  That suspension of any interest obligation ceased as the respondent did not comply with the instalment payment order.  As a matter of construction of the judgment, in my view the entitlement to interest then revived but I consider it revived in respect of the period from the judgment (or had she been paying the instalments, from the date of the last payment in accordance with the instalment payment order).  If I am wrong about that, I do not consider any overstatement of interest in the circumstances invalidates the bankruptcy notice.  I consider that s 41(5) of the Act operates to that effect.  The overstatement was slight and was referable to the interest claim only.  No notice was given of the overstatement.  It is apparent from the documents attached to the bankruptcy notice that the respondent had the means of identifying clearly the rate of interest charged and the period in respect of which interest was charged, and of measuring or comparing that period to the interest allowable under the judgment including the instalment payments order.  Her notice of opposition to the petition shows that she has done that comparison.  I do not consider that the respondent could reasonably have been misled by the claimed overstatement:  cp Re Walsh (1982) 65 FLR 87 per Lockhart J at 91 - 92;  Olivieri v Stafford (1989) 24 FCR 413 per Gummow J at 428;  Re Aeckerle;  ex parte Cinco Holdings Pty Ltd [1996] FCA 933.

15                  The parties were in dispute as to what order for costs should be made if I dismissed the petition because the bankruptcy notice was invalid.  In my judgment, in the particular circumstances, the appropriate order is that each party should bear its or her own costs.  The respondent would normally be entitled to costs of the petition, but instead of having her grounds of opposition dealt with she has sought the petition be adjourned from time to time and ultimately for a lengthy period on the basis that she should be given the opportunity to pay the debt.  The applicant has thereby, from time to time, had to prepare affidavits to satisfy the requirements of the Act and the Bankruptcy Regulations in anticipation that the petition would be heard.  There have been eight occasions, including this hearing, when the petition  has come before the Court and those occasions have mainly been as a result of adjournments of the petition at the request of the respondent, albeit sometimes with the agreement of the applicant.

16                  I do not consider that it is fair, in those circumstances, for the respondent to have all her costs of the petition.  Indeed, in my view, the applicant should be entitled to recover such of the costs subsequent to the attendance on 5 September 2000, save for the hearing.  The material relied upon in support of the grounds of opposition was the content of the bankruptcy notice itself and its attachments.  The additional work required thereafter was, except for the hearing, mainly caused by the respondent’s requests to delay the hearing of the petition. 

17                  Rather than make separate orders for costs, I have adopted a broad axe approach to the allocation of costs entitlements.  On that basis, it seems to me that a fair result would be to make no order for costs in favour of either party.  I have, in reaching that view, not overlooked the matters put by the respondent.  I do not accept that it is relevant to the question of costs that the applicant might have accepted the respondent’s proposal of an irrevocable instruction to her solicitors to pay the judgment debt and interest from the anticipated proceeds of a claim for damages which she was pursuing against a third party.  That was a matter for the applicant.  The material shows that, despite her expectations, the applicant did not resolve that claim as promptly as she initially anticipated.  Nor do I accept that it is relevant to the question of costs that the applicant chose to pursue recovery of the judgment debt and interest by the procedures available under the Act.  The Act prescribes the threshold level of a debt which may be recovered under its processes, and the judgment debt will exceed that threshold.

18                  In my judgment the petition should be dismissed.  I make no order as to the costs of the petition.

Associate:

Dated:              20 August 2001