FEDERAL COURT OF AUSTRALIA

Commonwealth Development Bank of Australia Ltd v Adams [2002] FCA 225

COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA LTD (ACN 074 707 458) v BARRY ROBERT ADAMS & CATHERINE MAISIE ADAMS

N 7001 OF 2002

COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA LTD (ACN 074 707 458) v RICHARD DELAVAL KNIGHT-GREGSON & GEORGE ALEXANDER KNIGHT-GREGSON

N7012 OF 2002

EMMETT J

20 FEBRUARY 2002

SYDNEY

THE COURT ORDERS THAT:

1.         the application be dismissed.

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

THE COURT ORDERS THAT:

1.         the application be dismissed.

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

N 7001 OF 2002

N 7012 OF 2002

REASONS FOR JUDGMENT

1                     In each case of these matters the petitioner is the Commonwealth Development Bank of Australia Limited.  Both matters have been referred to me by a deputy registrar since each raises a similar question.  The petitions are based on the failure to comply with a bankruptcy notice.  Each bankruptcy notice contains a deficiency.  The deficiency is similar in each case.

2                     In proceeding N7012 of 2002 the debtor is Richard Delaval Knight-Gregson (“Knight-Gregson”).  In proceeding N7001of 2002 the debtors are Barry Robert Adams and Catherine Maisie Adams (“Adams”).  In each case, the bankruptcy notice is based on a judgment of the Supreme Court of New South Wales.  In each case, interest is claimed since the date of judgment. 

3                     The form of the bankruptcy notice requires that, if interest is being claimed in the bankruptcy notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to it.  The document must state, inter alia,the provision under which the interest is being claimed.

4                     In the case of Knight-Gregson, a document is attached entitled “Interest Calculation”.  The following statement appears:

“Details of Calculation of Interest claimed:

Interest is claimed pursuant to section 94 of the Supreme Court Act 1973.  The current rate of interest as at the date of preparation of this notice is 10 per cent per annum.

………………………

(e)        interest is being claimed for the period from 28 April 2001 to 17 September 2001.”

There then appears a total under the heading “Summary of Interest Calculation”.  The headings of the columns in the table are “Dates”, “Judgment Debt”, “Daily Increase”, “Interest Rate Pursuant to s 85” and “Interest Amount”.

5                     In the case of Adams, a similar document is attached headed “Interest Calculation”.  The same notation appears, concerning details of calculation of interest claimed, as appears in the Knight-Gregson bankruptcy notice.  However, in the table in the bankruptcy notice addressed to Adams there are four column headings being “Dates”, “Interest Rate Pursuant to S 94, “Balance” and “Interest Amount”.

6                     It is apparent to me that the documents attached to the bankruptcy notices should have referred to s 95 of the Supreme Court Act 1970 (NSW) rather than s 94 and s 85 in one case and s 94 in the other.  Section 85 of the Supreme Court Act has nothing to do with interest.  It is concerned with trial proceedings and is contained in Division 2 of Part 6 which is generally headed “Procedure”.  Sections 94 and 95 appear in Division 3, which is concerned with “Judgments and Orders”.  Division 3 is also contained within Part 6.

7                     Section 94 relevantly provides as follows:

“(1) In any proceedings for the recovery of any money (including any debt or

damages or the value of any goods), the Court may order that there shall be

included, in the sum for which judgment is given, interest at such rate as it

thinks fit on the whole or any part of the money for the whole or any part of

the period between the date when the cause of action arose and the date when

the judgment takes effect.”

8                     Whether s 94 interest was included in the amount of the judgments is not to the point.  It may well be that contractual interest was included in the judgment debts which relate to loans made by the petitioner to the debtors.

9                     The Supreme Court has published Practice Note No. 92 which is relevantly in the following terms:

“2.   When computing interest for the purposes of s94 of the Supreme Court Act 1970, subject to any evidence adduced, it may be taken that the rate of interest that is appropriate to guide the Court in respect of any period mentioned in column 1 of Schedule J of the Supreme Court Rules 1970 is the rate per cent yearly mentioned in column 2 of that Schedule beside that period.”

Schedule J of the Supreme Court Rules is referred to in a number of rules to which I shall make reference shortly. 

10                  Section 95 of the Supreme Court Act relevantly provides as follows:

“where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on so much of the money as is from time to time unpaid.”

Thus, it is clear that the intention of the drafter of the bankruptcy notices was to refer to s 95.  I say it is clear, in the sense that it would be clear to a lawyer. That may not, however, be sufficient. 

Under Part 40 rule 7(2) the prescribed rate of interest for the purposes of section 95 of the Act is, in respect of any period mentioned in column 1 of Schedule J, the rate percent yearly mentioned in column 2 of that Schedule beside that period.  Schedule J is also referred to in a number of other rules which are not presently relevant, what is significant, however, is the difference between ss 94 and 95.  The rate of interest under s 94 is a matter for the Court.  However, the Practice Note referring to Schedule J is a matter of convenience.  That is to say the Court has announced that, in the absence of any other evidence, it will assume that an appropriate rate of interest up to judgment is the rate prescribed by Part 40 rule 7(2) as the rate of the calculation of interest on any judgment.

11                  The purpose of the requirement that the source of a creditor’s entitlement to interest be stated in a bankruptcy notice is to enable the debtor to verify that the amount claimed is in fact due.  See Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915 (“the Australian Steel Case”) at [42]. The Bankruptcy Act 1966 (Cth) makes it essential that the provision under which interest is claimed is included in the notice.  A notice issued in breach of the requirement will be invalid (see also [42]).

12                  The question that arises concerning the validity of the bankruptcy notices is whether the requirement that the source of the entitlement to interest must be disclosed is essential.  It does not matter whether or not the debtor might be misled as to the amount that he or she needed to pay.  Such a consideration only becomes relevant if the defect in question is in respect of a requirement not made essential by the Act (see the Australian Steel Case at [44]).

13                  In Wright v Australian & New Zealand Banking Group Ltd [2001] FCA 386, Beaumont J dealt with a bankruptcy notice based on a judgment of the Supreme Court Act.  The statement in the notice erroneously referred to s 39 of the Local Courts (Civil Claims) Act 1970 (NSW) as well as to s 95(1) of the Supreme Court Act.  Beaumont J considered that the reference to the Local Courts Act was obviously inapposite and that it was equally obvious that it was intended that reference was being made to the Supreme Court Act as the only legislation capable of application.  By adopting a natural and commonsense approach to the construction of the notice, absurdities were avoided and actual intentions were given effect.  His Honour concluded therefore, that the notice was valid.

14                  The issue before the Court in the Australian Steel Case concerned a bankruptcy notice in which reference was made to the Magistrates’ Court Act 1989 (Vic) rather than to the Supreme Court Act 1986 (Vic).  In contrast there was no reference to the correct act in the Australian Steel Case, whereas in the case before Beaumont J both statutes were mentioned.

15                  Beaumont J considered that it was significant that while, in each case the error was quite obvious, in the case before him the reader’s attention was actually drawn to the Supreme Court Act and to the correct provision of that Act (see [23]).  His Honour considered that it was obvious from the copy judgment attached to the bankruptcy notice that it was based on a judgment of the Supreme Court.  His Honour considered that it was equally obvious, from a commonsense and ordinary reading of the response given to note 2, that it was intended to refer to the Supreme Court Act and that the additional reference to the Local Court Act in that case was plainly inadvertent and should accordingly be ignored.

16                  In the present case, while there is no inadvertent reference to the wrong legislation or the wrong Act, there is in fact no reference to the correct provision, namely s 95 of the Supreme Court Act.  It is true that because of Practice Note 92, the interest rate that would have applied under s 94 would more likely than not have been the same as the interest rate that would apply under s 95.  However, that circumstance is in a sense, fortuitous, or “adventitious” to use the expression employed in the Australian Steel Case at [44].  Given that the requirement is essential, as held by the Full Court in Australian Steel, strict compliance with the requirement is necessary.

17                  A reference to s 94 does not direct the debtor to the source of his liability for interest.  It may well be that a lawyer familiar with the structure of the Supreme Court Act would have no difficulty in finding the rates of interest.  However, there is nothing in s 94 to indicate that the rate of interest which a judgment creditor is entitled to claim under s 95 is the rate adopted by the Court as a matter of practice for purposes of ordering interest at its discretion under s 94.  Since I am bound by the decision in Australian Steel it is not appropriate for me to make any comment about the conclusions of the Court in that case.  Given that the requirement to state the source of the creditor’s entitlement to interest is essential it follows, in my opinion, that the bankruptcy notices in question are invalid since they do not state the source of the petitioner’s entitlement to interest.  Accordingly, in my opinion, the petition should be dismissed.

Associate:

Dated:              8 March 2002