FEDERAL COURT OF AUSTRALIA

 

Kyriackou v Shield Mercantile Pty Ltd [2004] FCA 490

BANKRUPTCY – sequestration order made – claim that bankruptcy notice invalid – requirement of strict compliance with prescribed form – omission from notice of particular words – omission of “the creditor” under name of party claiming debt owed to creditor – omission of drafting notes – whether errors, and if so, whether errors of form or substance – notice invalid

Bankruptcy Act 1966(Cth) ss 41(2), 306

Bankruptcy Regulations reg 4.02

Acts Interpretation Act 1901 (Cth) s 25C

The Australian Steel Company (Operations) Pty Ltd v Lewis (2001) 109 FCR 33 applied

Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494 referred to

Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 applied

Re St Leon; Ex parte National Australia Bank Limited (1994) 54 FCR 371 discussed

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

Northam v Commonwealth Bank of Australia [1999] FCA 544 followed

McWilliam v Jackson (2000) 96 FCR 561 referred to

Slan v Mitry [2003] FMCA 237 referred to

General Motors Acceptance Corporation Australia v Marshall (2002) 124 FCR 210 referred to

Marshall v General Motors Acceptance Corporation Australia (2003) 127 FCR 453 applied

MICHAEL KYRIACKOU v SHIELD MERCANTILE PTY LTD (ACN 08 082 737 442) and OFFICIAL TRUSTEE IN BANKRUPTCY

V960 OF 2003

 

 

 

 

WEINBERG J

26 APRIL 2004

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V960 OF 2003

 

BETWEEN:	MICHAEL KYRIACKOU APPELLANT
AND:	SHIELD MERCANTILE PTY LTD (ACN 08 082 737 442) FIRST RESPONDENT   OFFICIAL TRUSTEE IN BANKRUPTCY SECOND RESPONDENT
JUDGE:	WEINBERG J
DATE OF ORDER:	26 APRIL 2004
WHERE MADE:	MELBOURNE

 

THE COURT ORDERS THAT:

 

1.                  The parties file and serve draft short minutes of order to give effect to these reasons for judgment, including appropriate orders as to costs, on or before 3 June 2004.

2.                  The matter otherwise be stood over to 17 June 2004 at 10.15 am.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V960 OF 2003

 

BETWEEN:	MICHAEL KYRIACKOU APPELLANT
AND:	SHIELD MERCANTILE PTY LTD (ACN 08 082 737 442) FIRST RESPONDENT   OFFICIAL TRUSTEE IN BANKRUPTCY SECOND RESPONDENT

 

JUDGE:	WEINBERG J
DATE:	26 APRIL 2004
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1                     This is an appeal from a decision of a Federal Magistrate made on 8 October 2003, dismissing an application for review of a decision by a Registrar who, on 26 June 2003, made a sequestration order against the appellant, Michael Kyriackou.

background facts

2                     The background to this appeal can be briefly summarised. On 22 May 2002, Shield Mercantile Pty Ltd, the first respondent, instituted proceedings against the appellant in the Melbourne Magistrates Court. The first respondent claimed, inter alia, that it was entitled to a sum of $20,400, which it contended was money had and received.

3                     On 16 January 2003, the Magistrates Court entered judgment in the sum of $23,080.28 in favour of the first respondent. That judgment included $20,651.36 in respect of the claim, $1,627.92 interest, and $801.00 costs.

4                     On 17 February 2003, the Official Receiver issued a bankruptcy notice on behalf of the first respondent. On 19 February 2003, that notice was served upon the appellant. On 17 April 2003, the first respondent presented a creditor’s petition in the Federal Magistrates Court arising out of the appellant’s failure to pay the sum demanded. On 26 June 2003, a Registrar made a sequestration order against the appellant’s estate. On 30 June 2003, the appellant filed an application for review of that decision.

5                     The case came before the Federal Magistrate on 8 September 2003. On that day his Honour heard, as a preliminary matter, a challenge to the validity of the bankruptcy notice. On 24 September 2003, his Honour delivered reasons for judgment, rejecting that challenge. On 8 October 2003, his Honour heard the substantive application for review. He delivered reasons for judgment that same day. He ordered that the application for review be dismissed, and that the creditor’s costs, and those of the Official Trustee, be paid out of the bankrupt estate. On 14 October 2003, the appellant lodged an appeal against that decision. The sole ground of the appeal is that the Magistrate erred in holding that the bankruptcy notice was valid.

the bankruptcy notice

6                     The attack upon the validity of the bankruptcy notice can best be understood by setting the notice out in full.

“FORM 1

Bankruptcy Act 1966

 

BANKRUPTCY NOTICE

This Bankruptcy Notice is prescribed, under subsection 41(2) of the Bankruptcy Act 1966 (“the Act”), by r. 4.02 of the Bankruptcy Regulations.

To: Michael Kyriackou

(“the debtor”)

of 140 Barry Road, Thomastown, Victoria 3074.

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. Shield Mercantile Pty Ltd (A.B.N. 48 082 737 442)

of Level 8, 167-169 Queen Street, Melbourne, Victoria 3000.

claims you owe the creditor a debt of $23,276.62, as shown in the Schedule.

2. The creditor claims that the debt is due and payable by you. A copy of the judgments or orders relied upon by the creditor is attached. At the time of applying for this Notice, execution of the judgments or orders had not been stayed.

3. You are required, within 21 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.

4. Payment of the debt can be made to:

Comlaw Barrister & Solicitors

216 Glenhuntly Road, Elsternwick, Victoria 3185

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 Court (that is, the Federal Court of Australia or the Federal Magistrates Court) does not extend, or is not deemed to have extended, the time for compliance with this Bankruptcy Notice (see paragraph 6, below).

6. The Court may extend the time for compliance with this Bankruptcy Notice if, within the time stated in paragraph 3 above, you apply to the Court on one or both of the following grounds:

(a) that you have instituted proceedings to set aside the judgments or orders in respect of which this Bankruptcy Notice has been issued;

(b) that you have filed with the Court an application (on one or more grounds, apart from the grounds mentioned in paragraph 7, below) to set aside this Bankruptcy Notice.

7. In addition, within the time specified in paragraph 3 above, you may file an application to the Court for an order to set aside this Bankruptcy Notice on the specific grounds that:

(a) you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in this Bankruptcy Notice as owing to the creditor; and

(b) in the action or proceeding in which the judgments or orders mentioned in paragraph 2 of this Bankruptcy Notice was obtained, you could not have set up that counter-claim, set-off or cross demand*.

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

 

8. You should note the following points carefully:

(a) If you file, at the Court, an application mentioned in paragraph 6 (a) or (b), you must still comply with this Bankruptcy Notice within the time stated in paragraph 3 above unless the Court extends the time for you to comply.

(b) If you file, at the Court, an application mentioned in paragraph 7 (a), you need not comply with this Bankruptcy Notice until the Court decides whether you have grounds for a counter-claim, set-off or cross demand. Whether you will have to comply at that stage will depend on the Court's decision.

WARNING

9. The information in paragraphs 6, 7 and 8 is based on provisions of section 41 of the Act. 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.

Schedule

Column 1	Column 2
1. Amount of judgment or order made in Magistrates’ Court of Victoria at Melbourne on 16 January 2003	$23,080.28
plus 2. Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders (see Note 1, below)	NIL
plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2, below)	$196.34
4. Subtotal	$23,276.62
less 5. Payments made and/or credits allowed since date of judgments or orders	NIL
6. Total debt owing	$23,276.62

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

 

For the Information of the Creditor - 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.

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

It may be necessary to disclose some or all of the information provided by you on this Form to Government agencies and departments for any purpose under the Act. Also, the information may be included on a public record or given to other persons, bodies or agencies for purposes authorised by the Act.

______________________________________________________________

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

Charles Leonidas, of Comlaw Barristers &

Solicitors, Solicitor and Agent for the

Creditor

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

___________________________

(signature)

and whose address for service is:

COMLAW, Barristers & Solicitors of 216

Glenhuntly Road, Elsternwick, Victoria

3185

Telephone number (03) 9523 1800

Fax Number (03) 9523 1822

DX number (if applicable):

…….

Details of Interest Claimed

1. The provision under which interest is being claimed is:

Magistrates’ Court Act 1989 (Vic), Section 100(7) calculated pursuant to Section 2 of the Penalty Interest Rates Act 1983 (Vic).

 

2. Calculation of interest:

On the principal sum of $23,080.28 for the period

16/1/03 to 12/2/02003 (inclusive) at the interest rate of

11.50% per annum (27 days)

$196.34

 

Total interest claimed $196.34

 

 

FORM 4

CERTIFIED EXTRACT

(CIVIL)

Case No Q01077108

 

On 16/1/2003 the Magistrates’ Court at MELBOURNE

 

made the following entries in the register:

 

PLAINTIFF: SHIELD MERCANTILE PTY LTD 48082737442

 

DEFENDANT/S: MICHAEL KYRIACKOU

 

PROCEEDING: MONEY RECEIVED

 

SHIELD MERCANTILE PTY LTD 48082737442 – V – MICHAEL KYRIACKOU

 

DEFAULT ORDER REQUEST

 

Claim order:

 

MICHAEL KYRIACKOU to pay SHIELD MERCANTILE PTY LTD 48082737442

Claim $20651.36 and Interest $1627.92 Costs $801.00

 

Magistrate/Registrar: M. SMITH

I am a Registrar of the Magistrates’ Court of Victoria at MELBOURNE

and I certify that in my opinion this information is a true

extract from the registrar of the Court.

 

DATE: 13/2/2003

………………………. Signature

 

KELLY RYAN

Deputy Registrar

Magistrates’ Court of Victoria

233 William St Melbourne”

the appellant’s submissions

7                     Mr Arthur, for the appellant, submitted that the reason the bankruptcy notice was invalid was because it did not comply with the requirements of s 41(2) of the Bankruptcy Act 1966(Cth) (“the Act”) and of reg 4.02 of the Bankruptcy Regulations (“the Regulations”). Section 41(2) provides:

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

The form prescribed by the Regulations is set in Form 1 of Schedule 1 of the Bankruptcy Forms.

8                     The differences between the form prescribed by the Regulations, and the actual bankruptcy notice served in this case, were as follows:

·                    the prescribed form contains a note in square brackets that appears immediately above the name of the debtor. That note reads:

“[NOTE: Words appearing below in italics are for guidance in the completion of this Notice, and are not to be reproduced in this Notice.]”

The bankruptcy notice served in this case did not contain this note.

·                    the prescribed form contains the words “the creditor”, in round brackets, immediately below the name of the party claiming that the debtor owes the creditor a debt of a particular amount as shown in the Schedule. These words were not reproduced in the bankruptcy notice.

·                    the prescribed form contains a note in square brackets that appears immediately after par 3(b). That note reads:

“[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.]”

The bankruptcy notice served in this case did not contain this note.

·                    the prescribed form contains a note in square brackets that appears immediately after par 4. That paragraph sets out the address at which payment of the debt can be made. The note reads:

“[NOTE: The address must be in Australia.]”

The bankruptcy notice served in this case did not contain this note.

9                     The Federal Magistrate found that these departures from the prescribed form were of no legal significance. He concluded that the words within the brackets in the prescribed form, as set out above, were “merely aids for the assistance of persons” completing that form. This appeal raises for consideration the correctness of that conclusion.

10                  Mr Arthur submitted that there had to be strict compliance with the legislative requirements for a bankruptcy notice. He relied, in particular, upon The Australian Steel Company (Operations) Pty Ltd v Lewis (2001) 109 FCR 33 (“Australian Steel”), a decision of specially constituted Full Court of five. In that case, the majority, Black CJ, Heerey and Sundberg JJ, held that a bankruptcy notice that did not correctly state the statutory provision under which interest was being claimed, notwithstanding that it correctly stated the amount of interest claimed, was a nullity. The reasoning of the majority was that the notice failed to meet a requirement made essential by the Act, and therefore contained a substantive defect. The fact that the particular omission could not reasonably have misled the debtor as to what was necessary in order to ensure compliance was held to be of no consequence.

11                  In a joint judgment,the majority said at [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.”

12                  Their Honours then referred with approval to the observations of Lockhart J in Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494 where his Honour said at 498:

“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 …”

13                  Their Honours also referred to the well-known statement by Deane J in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 where his Honour said at 81-2:

“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; see also James v. Federal Commissioner of Taxation. 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, see also In Re a Debtor, No 21 of 1950; Ex parte the Debtor v. Bowmaker Ltd. 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. 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.” (footnotes omitted)

14                  The majority in Australian Steel noted that Deane J had been in the minority in Kleinwort Benson, but concluded that nothing said by the majority in that case was in any way inconsistent with his Honour’s broad statement of principle. The majority in Australian Steel said at [25]:

“… 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 … such a statement needs to be substantially qualified when applied to bankruptcy notices.” (emphasis added)

15                  In Kleinwort Benson, the bankruptcy notice that led to the making of the sequestration order understated the amount of interest due. A Full Court of this Court had held that this defect should result in the sequestration order being set aside. By majority, the High Court reversed that decision. The joint judgment of the majority (Mason CJ, Wilson, Brennan and Gaudron JJ) said at 77:

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

16                  Their Honours continued at 79-80:

“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; Pillai. 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.” (emphasis added, footnotes omitted)

17                  In Australian Steel, the majority interpreted this passage at [32] in the following terms:

“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.”

18                  Finally, it should be noted that in Australian Steel, the majority made the following comments at [39]-[43] regarding the test for determining whether a requirement is made “essential” by the Act:

“[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) 199 CLR 370 at 383-385; 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 10 separate court jurisdictions, containing some 22 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 [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 applies to the content of the form as well as its format (see Franciscan at 457 [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.”

19                  Mr Arthur submitted that the bankruptcy notice served upon the appellant in the present case did not accord with the form prescribed by the Regulations. He submitted that each omission from the prescribed form involved a matter made essential by s 41(2) of the Act. The absence of the words contained in brackets, as set out at [8] above, thereby invalidated the notice, even if the failure to include those words could not reasonably have misled the debtor as to what was necessary to ensure compliance.

20                  Mr Arthur also relied upon Re St Leon; Ex parte National Australia Bank Limited (1994) 54 FCR 371 in which the bankruptcy notice failed to provide an address for the creditor. Lindgren J held that the failure to set out the creditor’s address meant that the bankruptcy notice did not comply with the requirements of the Act because the notice was not in accordance with the prescribed form. His Honour concluded that the omission of the address could not be regarded as a “formal defect or irregularity” within the meaning of s 306(1) of the Act. That subsection provides that proceedings under the Act are not invalidated by a formal defect or irregularity unless the Court 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 the Court.

21                  Lindgren J said at 378:

“I think that it is consistent with the terms of the joint judgment [in Kleinwort Benson] that the statutory requirement that a bankruptcy notice be in accordance with the prescribed form is itself a requirement made essential by the Act.”

22                  It is interesting to note that Lindgren J also said at 378 that it was difficult, in the face of the plain language of s 41(1)(a), to assume that anything that was in fact in the prescribed form, though not required to be in it by s 41(2), was not made “essential” by the Act. For example, his Honour observed, it was difficult to accept that the note at the foot of the prescribed form could be omitted without rendering the notice invalid.

23                  Mr Arthur noted that the majority in Australian Steel had referred with approval to the observation by Lindgren J that is set out at [21]above.

24                  In short, Mr Arthur submitted that the reasoning of the majority in Australian Steel led inexorably to the conclusion that the bankruptcy notice served upon the appellant was a nullity, and could not therefore form the basis for the sequestration order that had been made.

the first respondent’s submissions

25                  Mr Fary, for the first respondent, submitted that the majority judgment in Australian Steel had to be understood in context. Their Honours had applied a “purposive test” for validity based upon the well-known observations of the High Court in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355. Mr Fary submitted that the purpose of the requirement that the source of the creditor’s entitlement to interest be set out correctly was that identified by the majority in Australian Steel at [42] (set out at [18] above).

26                  Mr Fary submitted that the differences between the prescribed form and the bankruptcy notice served in the present case could easily be distinguished from the actual omission that had led to the invalidity of the bankruptcy notice in Australian Steel. He submitted that the failure to include in the bankruptcy notice the drafting notes contained within the square brackets in the prescribed form was of no legal significance. These notes were merely drafting instructions. It was inconceivable that the legislature would have intended them to be replicated in the notice itself. Indeed, it would have been pointless to include them in the notice, given that what they required of the person completing the notice had already been done. See generally Northam v Commonwealth Bank of Australia [1999] FCA 544.

27                  Further, or in the alternative, Mr Fary submitted that if the omission of the drafting instructions did constitute a defect or irregularity, it was a defect or irregularity that was formal, and not substantive, and would be cured either by s 306 of the Act, or s 25C of the Acts Interpretation Act 1901 (Cth). The latter section provides that 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.

28                  Turning to the failure to include the words “the creditor” in the bankruptcy notice, Mr Fary submitted that a purposive approach should be adopted when considering whether the omission of those words meant that the notice “fail[ed] to meet a requirement made essential by the Act”. While the inclusion of those words aided in the description of the parties, that description was complete without them. There could be no doubt, when reading the bankruptcy notice as a whole, as to the identity of the creditor. Accordingly, it should not be inferred that the legislature intended that a bankruptcy notice that omitted those words would be invalid.

29                  Mr Fary further submitted that the essential requirement in par 1 of the bankruptcy notice was that the creditor be identified. He referred to McWilliam v Jackson (2000) 96 FCR 561 in which the bankruptcy notice which described the creditor as “Anthony Jackson & Others” was held to be invalid on the basis that it failed properly to identify the person or persons who constituted “the creditor”. That case was readily distinguishable from the present case.

30                  If, contrary to his primary submission, the bankruptcy notice was defective by reason of the failure to include the words “the creditor”, the defect was purely formal and could be cured by invoking s 306 of the Act or s 25C of the Acts Interpretation Act. It could not be said that the omission of those words could mislead a debtor in any relevant respect.

31                  Mr Fary relied upon the bankruptcy notice as a whole in developing this submission. He pointed to the description of the person who had signed the notice. It provided “the person who applied for this notice to be issued is: Charles Leonidas, of Comlaw Barristers and Solicitors, Solicitor and Agent for the Creditor”. The notice also provided that the person who signed it “confirms by the following signature that he or she is the creditor’s authorised agent”.

32                  In addition, the bankruptcy notice had attached to it a certified extract of proceedings in the Magistrates Court at Melbourne in which the first respondent was named as plaintiff, and the appellant as defendant. The extract recorded that the appellant was required to pay the first respondent an amount of $20,651.36, together with interest of $1,627.92 and costs of $801.00. Anyone of ordinary common sense could have calculated that these three amounts, added together, came to $23,080.28, as shown in the Schedule to the bankruptcy notice, to which one would add $196.34 as interest accrued since the date of judgment or order. These amounts came to $23,276.62, the amount claimed in the bankruptcy notice to be the debt owed to the creditor. Accordingly, there could be no doubt, when the bankruptcy notice was read as a whole, that the designated creditor was the first respondent, and that the basis upon which the debt existed was the judgment in its favour as found by the Melbourne Magistrates Court.

33                  Mr Fary distinguished a decision of the Federal Magistrates Court in Slan v Mitry [2003] FMCA 237 on the basis that the bankruptcy notice in that case had omitted both the designations “the debtor”, and “the creditor”.

The second respondent’s submissions

34                  It should be noted that Mr Gurvich, counsel for the Official Trustee in Bankruptcy, did not seek to be heard in relation to the validity of the bankruptcy notice. His client would only have an interest in the proceeding in the event that the bankruptcy notice was set aside. He would seek to be heard regarding the form of any orders that might be made.

conclusion

35                  I have concluded, albeit with some reluctance, that the appeal must be allowed. Australian Steel seems to me to require a finding that the bankruptcy notice did not comply with a requirement made essential by the Act.

36                  The purpose of a bankruptcy notice is to convey to the debtor the amount claimed by the creditor, and to give the debtor the opportunity to pay or secure that amount. It is important that a bankruptcy notice be prepared with great care. The courts require strict compliance with the Act and Regulations. The reason for this is that a bankruptcy notice sets in train the entire process leading to bankruptcy, a process that has been described as “quasi-penal”.

37                  Formal errors in a bankruptcy notice do not result in its invalidity unless they have caused substantial injustice. However, substantive errors will generally lead to the notice being regarded as invalid and of no effect. If a bankruptcy notice is invalid, any bankruptcy proceedings based upon that notice will be dismissed.

38                  One of the purposes that a bankruptcy notice must serve is to identify with clarity both who the creditor is, and who the debtor. It must also convey to the debtor how the debt that is alleged to be owing is said to have arisen. These are matters of substance, and not matters of form.

39                  In the present case, I am quite satisfied that the appellant was at all material times well aware of who the creditor was, and the basis upon which the debt was said to be owing. However, Australian Steel makes it clear that whether or not the debtor is actually aware of these matters is not the test. The bankruptcy notice must spell them out. The debtor is not required to put two and two together, and come to the obvious conclusion. It is not sufficient to say that the debtor must have known who the creditor was, and why the money was owing. The surrounding circumstances cannot substitute for what the bankruptcy notice must itself contain.

40                  The critical defect in the present bankruptcy notice was its failure to identify, or define, the creditor. It is true that the first respondent was named in the notice, and on more than one occasion. However, par 1 simply said:

“Shield Mercantile Pty Ltd (A.B.N. 48 082 737 442)

of Level 8, 167-169 Queen Street, Melbourne, Victoria 3000.

claims you the creditor a debt of $23,276.62, as shown in the Schedule”.

41                  The Schedule to which reference was made contained two amounts which, when added together, came to the figure of $23,276.62. It referred to a judgment or order made in the Melbourne Magistrates Court on 16 January 2003 but did not specify in whose favour that judgment or order had been made. There was a certified extract from the Magistrates Court identifying the first respondent as plaintiff in a civil proceeding for “money received” against the appellant. That extract bore the date 16 January 2003, but did not include within it either the amount of $23,080.28, as contained in the first item of the Schedule, or the amount of $23,276.62, which was the total amount claimed in the bankruptcy notice.

42                  It is trite to observe that the appellant could easily have worked out for himself that the first respondent was “the creditor” to which reference was made in par 1 of the bankruptcy notice. However, that is not what the notice actually said. Rather, it named the first respondent as having claimed that the appellant owed “the creditor” (whoever that might be) a debt of $23,276.62. Had the definition “the creditor” below the first respondent’s name, as the form requires, there would have been no doubt whatever about the identity of that party. Alternatively, it would have been sufficient to insert after the words “claims you owe” the word “it”, rather than “the creditor”, in order to avoid any possibility of uncertainty. The failure to identify or define the creditor cannot be regarded as a formal defect or irregularity. It is a matter of substance.

43                  It gives me no satisfaction to arrive at this conclusion. Were it not for Australian Steel, I would have said that a bankruptcy notice, like other important documents, should be read sensibly, and not perversely. The notion that there is an area of the law where form takes precedence over substance is not intuitively attractive. Nonetheless, I consider that I am bound by Australian Steel to conclude that this bankruptcy notice failed adequately to identify or define the creditor, a matter made essential by the Act and Regulations. I note that the binding quality of the majority judgment has been described as conjectural: General Motors Acceptance Corporation Australia v Marshall (2002) 124 FCR 210 per Gyles J and, on appeal, Marshall v General Motors Acceptance Corporation Australia (2003) 127 FCR 453 per Spender J at 457. However, the decision of Gyles J was reversed on appeal, and Spender J was in dissent. Both Cooper and North JJ followed Australian Steel, and I consider that I too should do so.

44                  A bankruptcy notice that fails correctly to identify the statute under which interest is claimed cannot sensibly be regarded as invalid, while one that fails adequately to identify the creditor is upheld. The defect or irregularity in the present case was, on any view, of greater significance that that which was held to invalidate the bankruptcy notice in Australian Steel. The bankruptcy notice in the present case was therefore invalid.

45                  I do not propose to say very much about the appellant’s alternative grounds for challenging the bankruptcy notice based upon the omission of the drafting notes in square brackets. In Northam, I held that a challenge to a bankruptcy notice on identical grounds was devoid of any merit. I can see no reason to depart from that view. There is no purpose whatever in requiring a bankruptcy notice to set out verbatim the drafting notes prepared for the assistance of the draftsperson. Bankruptcy law is often highly technical, and occasionally far removed from common sense. However, to hold that a bankruptcy notice is invalid merely because it fails to include the drafting notes would, in my view, bring this branch of the law into total disrepute. This is so notwithstanding the fact that the first drafting note contained in the form provides that only words in italics are not to be reproduced in the notice, and these notes are not in italics.

46                  It follows that the learned Federal Magistrate erred in failing to set aside the bankruptcy notice. I shall hear the parties further as to the consequences of that error and, in particular, upon the form of any orders that should be made.

I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Associate:

Dated: 26 April 2004

Counsel for the Applicant:	Mr J K Arthur
Solicitor for the Applicant:	John Finlayson Lawyers
Counsel for the First Respondent:	Mr P Fary
Solicitor for the First Respondent:	Comlaw Barristers & Solicitors
Counsel for the Second Respondent:	Mr M K Gurvich
Solicitor for the Second Respondent:	Charles Fice
Date of Hearing:	31 March 2004
Date of Judgment:	26 April 2004