FEDERAL COURT OF AUSTRALIA

General Motors Acceptance Corporation Australia v Marshall [2002] FCA 1006

BANKRUPTCY – alleged deficiencies of Bankruptcy Notice – issue as to legislative provisions for the calculation of interest on debt – where Notice required payment to a solicitor rather than the creditor

BANKRUPTCY – substituted petitioner – whether substituted petitioner was creditor at time of act of bankruptcy and at other relevant times – whether abuse of process – effect of security

Bankruptcy Act 1966 (Cth) ss 43, 44, 49, 52(2)(b), 306

Local Court (Civil Claims) Act 1970 (NSW) ss 39(1), 39(2)

Supreme Court Act 1970 (NSW) s 95(1)

Acts Interpretation Act 1901 (Cth) s 25C

Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 distinguished

Jiminez v Welcome Homes Real Estate Pty Ltd [2001] FMCA 122 not followed

Boorowa Shire Council v Booth [2001] FMCA 31 not followed

Wright v Australia & New Zealand Banking Group Ltd [2001] FCA 386 referred to

St George Bank Ltd v Baldwin [2001] FCA 161 referred to

Kirk v Ashdown [1999] FCA 1664 referred to

Kleinwort Benson v Crowl (1988) 165 CLR 71 applied

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

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

Re St Leon;  Ex parte National Australia Bank Ltd (1994) 56 FCR 371 not followed

Shephard v Blueberry Farms of Australia (Corindi) Ltd [2001] FMC 2 approved

Re Martin; Ex parte Government Employees Finance and Industrial Loan Corporation (1969) 13 FLR 353 distinguished

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

McNamara v Langford (1931) 45 CLR 267 applied

Re Seckold (1935) 5 ABC 195 cited

Re Mendonca (1969) 15 FLR 256 cited

Re Wiggins (1979) 30 ALR 443 cited

GENERAL MOTORS ACCEPTANCE CORPORATION AUSTRALIA v GARRY BRENT MARSHALL (AKA GARRY MARSHALL, AKA GARY MARSHALL)

A 7004 OF 2001

GYLES J

SYDNEY (HEARD IN CANBERRA)

13 AUGUST 2002

THE COURT ORDERS THAT:

1.                  Upon the amendment referred to in par [39] of the reasons for judgment being made, the estate of the respondent debtor be sequestrated.

2.                  A decision on costs is reserved with liberty granted to the parties to file written submissions as to costs within seven days.

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

REASONS FOR JUDGMENT

1                     In this matter, the applicant judgment creditor, General Motors Acceptance Corporation Australia (“GMAC”), seeks a sequestration order against Garry Brent Marshall (“Marshall”), a judgment debtor, pursuant to s 43 of the Bankruptcy Act 1966 (Cth) (“the Act”).

2                     GMAC is not the original petitioning creditor in this proceeding.  The petition was filed on 14 May 2001 by EA Bourne Pty Limited (“Bourne”) and was based upon non-compliance with a bankruptcy notice (“the Notice”) founded upon a debt of $4,978.16 pursuant to a judgment of the Local Court at Tumut in New South Wales entered on 16 January 1997.  On 13 December 2001, orders were made substituting GMAC as applicant creditor pursuant to s 49 of the Act which provides:

“49      Where a creditor’s petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor.”

On 15 February 2002, GMAC filed an amended creditor’s petition.

3                     The matter was originally listed for hearing on 24 April 2002.  When it came before me at that time counsel for Marshall sought leave to file in Court an Amended Notice of Intention to Oppose the Petition.  That leave was granted and it became clear that the matter could not be heard on that day.  Accordingly, the matter was stood over for a period.

4                     The grounds of the Amended Notice of Intention to Oppose are:

“1.       I am not indebted as alleged.

Particulars

(a)       The applicant was not a creditor at the date of the alleged act of bankruptcy.

(b)       The applicant as not a creditor within s 44.

2.         I have this date made an application to pay by instalments.

3.         I have not committed any act of bankruptcy as alleged and I have applied to the NSW Supreme Court for the decision of the Magistrate in the EA Bourke [sic] matter to be reversed.

Particulars

Bankruptcy Notice B8053/00 is invalid.

4.         I am solvent.

5.         There is other sufficient cause to dismiss the petition.

Particulars

(a)       The facts and circumstances of the case.

(b)       The presentation of the amended petition was and continues as an abuse of process.”

5                     The grounds were refined during the course of the hearing and I will deal with the arguments presented.

Validity of Bankruptcy Notice

6                     The first defect in the Notice alleged on behalf of Marshall is an incorrect identification of the legislative source of the right of the creditor to claim interest on the judgment debt. 

7                     Item 3 of the schedule in the Notice provided:

8                     Note 2 to the Schedule to the Notice relevantly provided (under the heading “For the Information of the Creditor”):

“Note 2.  Interest accrued (item 3 of the Schedule)

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

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

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

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

9                     The attached document was as follows:

“ “A”

Interest Calculations

Interest pursuant to Section 95(1) of the Supreme Court Act 1970, as follows:

Judgment dated 16 January 1997 for $4,978.16

AMOUNT OF JUDGMENT               $4,978.16

AMOUNT OF INTEREST                  $1,810.45

TOTAL CLAIMED                              $6,788.61 and no more”

10                  A copy form of the Certificate of Judgment verifying the judgment debt relied upon in the petition was attached to the bankruptcy notice.  This Certificate is correctly headed, “Local Courts (Civil Claims) Act, 1970” and is issued from the Local Court at Tumut.  Paragraph 3 of that Certificate provided:

“3.      Interest is payable on the judgment debt at the rate PRESCRIBED FOR THE PURPOSES OF SECTION 95(1) OF THE SUPREME COURT ACT, 1970.”

11                  Sections 39(1) and (2) of the Local Courts (Civil Claims) Act 1970 (NSW) provided:

 “39     Interest on judgment debt

(1)       Unless a court orders in any particular case that interest be not payable, interest shall, subject to subsection (3), be payable on so much of the amount of a judgment debt as is from time to time unpaid.

(2)       Interest payable under subsection (1) in respect of a judgment debt shall –

(a)       subject to subsection (3), be calculated as from the date when the judgment debt came into being or from such later date as a court in any particular case fixes;

(b)       be calculated at such rate as may be prescribed by the rules;  and

(c)        form part of the judgment debt, but not so as to require the payment of interest upon interest.”

Part 13 r 3 of the Local Courts (Civil Claims) Rules 1988 (NSW) provided (so far as is relevant):

 “Interest on judgment debt

3.         For the purposes of section 39(2)(b) of the Act, the prescribed rate per cent yearly, in respect of any period mentioned in Column 1 of the Table below, is the rate specified in Column 2 of that Table in respect of that period.

TABLE

                        Column 1                                            Column 2

…

After 27 May 1993                                                    the rate prescribed for the purposes of s 95(1) of the Supreme Court Act 1970.”

12                  Section 95(1) of the Supreme Court Act 1970 (NSW) provided:

 “95     Interest on debt under judgment or order

(1)       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.”

Rates have been prescribed from time to time since 27 May 1993.  There is no suggestion that the rates set forth in the interest calculations in the Notice are not as prescribed.

13                  The provision identified in the interest calculation appendix to this Notice, the Supreme Court Act 1970 (NSW) s 95(1), is, it is argued by counsel for Marshall, the ‘rate provision’ in this case and not, as should have been identified, the ‘source provision’.  It is submitted that the correct source provision is the Local Courts (Civil Claims) Act 1970 (NSW) s 39(1).  Counsel argued that this defect should be held fatal to the notice pursuant to the decision in Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 (“Australian Steel Co”).  It was submitted that I should follow the decisions to that effect of Driver FM in Jiminez v Welcome Homes Real Estate Pty Ltd [2001] FMCA 122 and Raphael FM in Boorowa Shire Council v Booth [2001] FMCA 31.

14                  With respect to this alleged deficiency in the Notice, counsel for GMAC submitted that this case is to be distinguished from Australian Steel Co as the Notice in this case refers to both supporting statutes, whereas in Australian Steel Co there was a complete failure to refer to the source provision, and relied upon decisions of Beaumont J in Wright v Australia & New Zealand Banking Group Ltd [2001] FCA 386, of Madgwick J in St George Bank Ltd v Baldwin [2001] FCA 161, and of the Full Court in Kirk v Ashdown [1999] FCA 1664.  It was argued that the Notice contains the essential elements as required and would not reasonably mislead a debtor.  It was submitted that the approach the Court should take in respect of alleged deficiencies in bankruptcy notices is that determined by the High Court in Kleinwort Benson v Crowl (1988) 165 CLR 71 and that even if there is a deficiency it is cured by s 306 of the Act, which provides:

“306(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 the 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.”

15                  This case is a further illustration of the minefield that bankruptcy law has become for judgment creditors since the decision in Australian Steel Co.  There is a real question as to what was authoritatively decided by that judgment.  The majority declined to follow the reasoning in another, earlier, Full Court decision of Kirk v Ashdown.  They did not, and could not have, overruled that decision (or George v Tricontinental Corporation Ltd (1994) 53 FCR 284) for reasons I endeavoured to express in Australian Steel Co (at [123]).

16                  In my opinion, the decision in Australian Steel Co should be understood by reference to the facts which arose for decision in that case.  Having in mind the earlier Full Court decisions in George v Tricontinental Corporation Ltd, Kirk v Ashdown and Trustees of the Franciscan Missionaries of Mary v Weir (2000) 98 FCR 447 and the reasoning of the High Court in Kleinwort Benson, I do not agree that the effect of the current provisions is that any failure to follow the detail of the prescribed form is a failure to comply with an essential statutory requirement and so fatal to validity as (on one view) may have been held by the majority in Australian Steel Co (see [40] but cf [42] and [44]).  The decision in Re St Leon;  Ex parte National Australia Bank Ltd (1994) 56 FCR 371 to which reference is made in that connection is impossible to reconcile with Kleinwort Benson and the Full Court decisions to which I have referred.

17                  Nonetheless, Australian Steel Co decided that a particular form of bankruptcy notice was invalid, and there is no other contrary decision of a Full Court on the same form.  In those circumstances, if the form of bankruptcy notice here were the same as that considered in Australian Steel Co, then I should follow the decision in that case regardless of the reasoning leading to it.

18                  A copy of the bankruptcy notice in Australian Steel Co has been provided by counsel for GMAC.  The relevant parts of the Schedule and the Notes are the same as in the present case.  The attached calculation of interest was as follows:

 “INTEREST

(a)       Interest is being claimed pursuant to Section 101 of the Supreme Court Act 1986 (Vic)

(b)       20/4/99 to 12/5/99 being 22 days @ 12.3% on $7,998.74 = $59.30

            Interest Total = $59.30”

The attached certified extract of judgment referred to the Melbourne Magistrates Court but did not refer to post judgment interest, or to any provision of any Act. 

19                  The position concerning post judgment interest in Victoria is explained in the following passage from the judgment of the majority in Australian Steel Co:

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”

20                  It will be seen that in that case the relevant provision which fixed the rate was not the Supreme Court Act 1986 (Vic) (to which reference was made in the Notice) but the Penalties Interest Rates Act 1983 (Vic) (to which reference was not made).  In the present case, the provision of the Supreme Court Act 1970 (NSW) to which reference was made in the Notice did fix the rate as it was expressly incorporated by reference in the relevant Local Court rule.  Further, the Notice and the Certificate of Judgment make it plain that the judgment is governed by the Local Courts (Civil Claims) Act 1970 (NSW).  The only provision of that Act which deals with post judgment interest is s 39, which leads inexorably to Pt 13 r 3 of the Rules, which unequivocally identifies the provision referred to in the Notice.  Put another way, the debtor could actually verify the interest entitlement by reference to s 95(1) of the Supreme Court Act 1970 (NSW), which was the identified provision by contrast with the position in Australian Steel Co ([44]).  The debtor would not be misled.  It follows that I do not agree with the decision of Raphael FM in Boorowa Shire Council v Booth or that of Driver FM in Jiminez v Welcome Homes Real Estate Pty Ltd, and prefer the original preference of Driver FM as expressed in Shephard v Blueberry Farms of Australia (Corindi) Ltd [2001] FMC 2.  In considering this issue, I have received considerable assistance from the approach of Beaumont J in Wright v Australia & New Zealand Banking Group Ltd, particularly at [6]-[25] (cf Madgwick J in St George Bank Ltd v Baldwin, particularly at [4]-[8]).

21                  My conclusion is that there was no defect or irregularity in the Notice as alleged, but if there were there would be substantial compliance with the form as permitted by s 25C of the Acts Interpretation Act 1901 (Cth).  In any event, as there is no evidence of substantial injustice, s 306 of the Act would apply to any such irregularity.

22                  The second defect alleged is that the Notice requires payment otherwise than in accordance with the judgment debt.  This is so because the Notice, in par 4, requires payment to be made to “Canberra Lawyers, Barristers and Solicitors, of 7/13 Napier Close, Deakin, ACT 2600”, however the judgment relied upon is in favour of EA Bourne Pty Ltd.  Counsel for Marshall relies on the decision in Re Martin; Ex parte Government Employees Finance and Industrial Loan Corporation (1969) 13 FLR 353 and James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 639-641.

23                  Counsel for GMAC submits that there is no inhibition upon a creditor company appointing an agent to receive payment of a judgment debt, which is the effect of the relevant portion of the Notice.  The debtor is left in no doubt as to the manner of payment.

24                  In my opinion, the submission for GMAC is correct, and is made clear in the present case by the following portion of the Notice:

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

Peter Robert Harris

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

“P Harris”

and whose address for service is:

Canberra Lawyers,

Barristers and Solicitors,

7/13 Napier Close,

DEAKIN  ACT  2600

Telephone number:                             02 6282 7120

Fax number:                                       02 6282 7130

DX number (if applicable)                  DX 24616 DEAKIN”

25                  The decisions in Re Martin and James v Federal Commissioner of Taxation turned upon the terms of the Bankruptcy Act as it stood at the respective times of those decisions.  Those provisions are no longer part of the Act.  The present prescribed form of bankruptcy notice leaves open the procedure in the present case.  I note in passing that the bankruptcy notice in Australian Steel Co was prepared on the same basis and no point was taken.

GMAC as creditor

26                  The position concerning GMAC as a creditor is somewhat complicated.  It is a judgment creditor of Marshall, having obtained default judgment against him in November 2001 in the sum of $20,543.85.  Marshall has since attempted, without success, to have that judgment set aside.  He later successfully applied to pay by instalments, but that decision was reversed.

27                  However, it is contended for Marshall (and accepted by counsel for GMAC) that a substituted petitioner must be a creditor at the date of the alleged act of bankruptcy which, in the present case, was in late January 2001 (McNamara v Langford (1931) 45 CLR 267).  Such liability is not established by the later judgment as such.

28                  The Local Court proceedings had been commenced on 27 June 2001 – after the act of bankruptcy.  The claim was for $31,231.19 plus interest and costs.  The cause of action was pleaded as follows:

 “First Loan and Mortgage Agreement

3.         On 11 September 1996 the Plaintiff and the Defendant entered into a loan and mortgage agreement (“the First Loan Agreement”).

Particulars

The First Loan Agreement was in writing

4.         As a result of the First Loan Agreement the Plaintiff set up an account in its books known as account numbered 759190692821 styled “Garry Brent Marshall”.

5.         The terms of the First Loan Agreement included, inter alia:

            (a)       that the Plaintiff would advance to the Defendant the sum of $37,566.60 (including credit charges);

            (b)       that the advance would be secured by a mortgage over a motor vehicle, being a 1996 Mitsubishi tabletop truck, registration number QNM 794 (“the First Vehicle”) by the Defendant to the Plaintiff;

            (c)        that the Defendant would make repayments to the Plaintiff by way of 20 payments of $1,878.33 at 3 monthly intervals from 11 December 1996.

6.         In breach of the First Loan Agreement the Defendant failed to make payments due on 11 June 2000 and thereafter.

7.         On or about 4 July 2000 the Plaintiff forwarded to the Defendant a notice of default dated 4 July 2000 for the amount outstanding pursuant to the First Loan Agreement.

8.         The Defendant has failed to comply with the notice of default.

Second Loan and Mortgage Agreement

9.         On 7 September 1996 the Plaintiff and the Defendant entered into a further loan and mortgage agreement (“the Second Loan Agreement”).

Particulars

The Second Loan Agreement was in writing.

10.       As a result of the Second Loan Agreement the Plaintiff set up an account in its books known as “account numbered 759 1906 92661” styled “Garry Brent Marshall”.

11.       The terms of the Second Loan Agreement included, inter alia:

            (a)       that the Plaintiff would advance to the Defendant the sum of $44,608.80 (including credit charges);

            (b)       that the advance would be secured by a mortgage over a motor vehicle, being a 1991 Nissan Patrol, registration number QNM 780 (“the Second Vehicle”) by the Defendant to the Plaintiff;

            (c)        that the Defendant would make repayments to the Plaintiff by way of 20 payments of $2,230.44 at 3 monthly intervals, commencing on 7 December 1996.

12.       In breach of the Second Loan Agreement the Defendant failed to make payments due on 7 June 2000 and thereafter.

13.       On or about 4 July 2000 the Plaintiff forwarded to the Defendant a notice of default dated 4 July 2000 for the amount outstanding pursuant to the Second Loan Agreement.

14.       The Defendant failed to comply with the notice of default.

15.       As at 27 June 2001 the amount of $31,231.19 remains outstanding pursuant to the terms of the First Loan Agreement and the Second Loan Agreement.”

29                  The defence filed by Marshall was as follows (so far as relevant):

 “3.     The defendant agrees he entered into a loan and mortgage agreement with the Plaintiff in accordance with the “First Loan Agreement” on 11 September, 1996.

4.         The defendant does not dispute the particulars contained in paragraph (4) of the Plaintiffs pleadings.

5.         The defendant agrees with the terms of the First Loan Agreement as summarised in 5(a), 5(b), and 5(c) of the pleadings.

6.         The defendant agrees that he failed to meet the payment due on 11 June, 2000 and all thereafter however the defendant claims that he and the plaintiff entered into an arrangement that all payments due and owing as of 11 June, 2000 and thereafter be deferred until September, 2001.

7.         The defendant denies that he at any time received a notice of default dated 04 July 2000 for any amount outstanding pursuant to the First Loan Agreement.

8.         The defendant denies he failed to comply with the notice of default as this notice was not served upon him.

9.         The defendant agrees a further loan and mortgage agreement was entered on 07 September, 1996 in accordance with the “Second Loan Agreement”.

10.       The defendant does not dispute the particulars contained in paragraph (10) of the pleadings.

11.       The defendant agrees with the terms of the Second Loan Agreement as summarised in 11(a) 11(b) and 11(c).

12.       The defendant agrees that he failed to meet the payment due on 07 June, 2000 and thereafter however the defendant claims that he and the plaintiff entered into an arrangement that all payments due and owing as of 11 June 2000 and thereafter be deferred until September, 2001.

13.       The defendant denies that he at any time received a notice of default dated 04 July, 2000 for any amount outstanding pursuant to the First Loan Agreement.

14.       The defendant denies he failed to comply with the notice of default as this notice was not served upon him.

15.       The defendant denies that the amount of $31,231.19 is outstanding but will admit that the sum of $9391.65 is owing for the period 11 June, 2000 to 11 September. 2001 pursuant to the First Loan Agreement together with the sum of $11152.20 owing for the period from 07 June, 200 [sic] to 07 September, 2001 pursuant to the Second Loan Agreement.”

30                  The judgment was based upon par 15 of the defence which admits that certain amounts were owing for a period between June 2000 and September 2001, ie, at the time of the act of bankruptcy.  The case for the balance of the amount claimed is apparently proceeding in the Local Court on a defended basis.  Counsel for Marshall points to pars 6 and 12 of the defence and submits that there was no admission of any debt as at the date of the act of bankruptcy.  He also points to pars 7, 8, 13 and 14 of the defence as negating the case pleaded by GMAC.

31                  The question is whether, at the time of the act of bankruptcy, there was a liquidated sum due and payable either immediately or at a certain future time (s 44(1)(b)).  In my opinion, there was.  The gist of the arrangements put forward by Marshall in the defence was that payments due and owing as of 7 June and 11 June 2000 respectively were deferred until 7 September and 11 September 2001 respectively.  These were sums due and payable at a certain future time (Re Seckold (1935) 5 ABC 195;  Re Mendonca (1969) 15 FLR 256).  As submitted by counsel for GMAC, the statutory requirement in s 44 is that there be a debt in excess of $2,000 rather than a debt of any particular amount.

32                  Counsel for Marshall also argued that there was no proper proof that the debt was owing as at the date upon which the original petition was presented in May 2001.  Section 49 speaks in the present tense and the requirement is that the substituted petitioner be a creditor in sufficient amount at the time of substitution.  However, even if the substituted creditor has to be a creditor at the date of presentation of the original petition, it would follow from my reasoning above that the requirement would be satisfied.

Abuse of Process

33                  The next point raised on behalf of Marshall was that a sequestration order should not be made in exercise of the discretion under s 52(2)(b) because there has been an abuse of process by GMAC and because of other circumstances.  The bases for this put by counsel for Marshall were summarised as follows:

 “(a) At the time P sought substitution, P by affidavit stated the nature and amount of the alleged debt wrongly, and it ought to have known the statement was wrong.

(b)       The debt (if any) cannot be stated correctly as to quality or as to quantity.  There are three alternative acts of bankruptcy alleged.

(c)        R is acting in good faith and has attempted to proffer part of the Nov 2001 judgment debt.”

34                  The first point turns on the continued claim for the whole alleged debt of $31,231.19 which is, inter alia, reflected in par 1 of the amended petition, notwithstanding that the judgment is for a lesser sum.  A claim for the balance is being pursued in the Local Court.  The fact that the proven debt is less than the amount pleaded is of no consequence and does not involve any abuse of process.  Apart from the technicalities of pleading, nothing follows from the fact that, presently, the liability which has been established may be said to arise from judgment rather than contract.  Marshall could not have been misled.  The act of bankruptcy as pleaded is based upon the judgment debt.  Both s 306 of the Act and the relieving provisions of the Rules of Court are ample to overlook any pleading deficiency in this case.  A complaint seems to be that GMAC deliberately withheld information from the Court and the other party at various stages of the case.  Whilst there may be a question as to the effectiveness of some of the pleadings and the evidence, I reject the charge of deliberate abuse of process. 

35                  The second point as to the nature and quality of the debt is answered in the same way.  The fact that three alternative dates are alleged for the act of bankruptcy is not inappropriate where there is a doubt as to time of service of the bankruptcy notice.  The third point involves no abuse of process.  Even if the proffered instalment had been paid and received, the debt would have exceeded the statutory amount.

Security

36                  However, an aspect of the matter which needs to be noted is par 2 of the amended petition, which is in the following terms:

“The Applicant Creditor holds security over the property of the Respondent Debtor to the value of $17,000, consisting of a mortgage over a motor vehicle, being a 1996 Mitsubishi table top truck, registration no. QNM 794 to the value of $7,000 and a further mortgage over a motor vehicle, being a 1991 Nissan Patrol registration no. QNM 780 to the value of $10,000, which leaves an unsecured debt of $11,231.19.”

This presumably followed from s 44(2) which provides (so far as relevant):

 “… a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.”

and from the definitions of “secured creditor” and “property” in s 5.

37                  However, it was submitted by counsel for GMAC that s 44(2) does not apply to a substituted petitioner, as s 49 governs substitution of petitioners and is silent on the point. Whilst the argument has some support from the terms of s 49, in my opinion the words “as if the substituted creditor … had been the petitioning creditor” are apt to make ss 44(2)-(5) applicable to a substituted petitioner.  (The point was conceded in Re Wiggins (1979) 30 ALR 443 at 445.)

38                  The existence of security does not disentitle the creditor from obtaining a sequestration order.  In the present case, if the facts in par 2 of the amended petition were established, then the requirements of s 44(1) would be satisfied, although the unsecured debt alleged would be more than that judgment debt plus interest less the security.  In order to avoid any problem of proof, counsel for GMAC made the following statement towards the end of his final address:

 “… reserving all its other rights at law and in equity [or] otherwise … to the extent that it is a secured creditor within the meaning of the Bankruptcy Act 1966 … GMAC is willing to surrender its said security over the property of the debtor as alleged in the petition for the benefit of creditors generally in the event of a sequestration order being made against the debtor and, further, that GMAC is prepared to endorse the petition thus.”

39                  Counsel for Marshall opposed this occurring at such a late stage in the proceedings.  He said that his course had been plotted by reference to the issues as understood at the start of the hearing.  I cannot discern any prejudice to Marshall arising from what is proposed, either before or after a sequestration order is made, apart (possibly) from costs.  The position of any other unsecured creditor would be improved.  In my opinion, the further amendment of the Amended Petition which is foreshadowed should be permitted and avoids any difficulty arising from s 44 and par 2.  Leave is granted accordingly, and service is dispensed with.

40                  The issue of solvency was not pressed at the hearing.

Conclusion

41                  I therefore reject all of the arguments for Marshall.  There is no dispute about proof of all other matters essential to be established by GMAC.  Accordingly, there will be an order that the estate of Marshall be sequestrated, conditionally upon the amendment referred to in par [39] being made.

42                  The question of costs requires some consideration.  As GMAC has succeeded, it would normally be entitled to an order for costs.  However, a potentially crucial amendment as to security was first foreshadowed on behalf of GMAC during final address.  The force of this is somewhat diminished as it did not respond to a point clearly or distinctly taken by or on behalf of Marshall until oral address.  Furthermore, as counsel for Marshall conceded, the verification of the Amended Petition provided some evidence in support of valuation.  Whether it would have been sufficient is another matter.  In the circumstances, my disposition is not to make any order for costs.  However, I will defer deciding that question to enable any party to remind me of any special circumstances in the matter which it contends should lead to any different costs orders.  This should be done by written submissions provided to my Associate within seven days from this day.

Associate:

Dated:              13 August 2002