Bank of Melbourne Ltd v Hannan, Sandra Mary

[1997] FCA 898

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - amendments to Bankruptcy Act and Regulations between 16 December 1996 and 14 April 1997 - construction and application of Reg 4.02 - bankruptcy notice based on a final judgment or final order - absence of order for taxed costs - no legal obligation of debtor/bankrupt to pay costs of issuing bankruptcy notice - fee is not a debt unless by Court order - leave granted to amend amount of judgment debt - non-conformity with Form 1 - formal defect or irregularity - not misleading - not nullity.

Bankruptcy Act 1966
Bankruptcy Regulations SR No 263 of 1996
Federal Court of Australia Act 1976, s 35A(7)

Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Jeffrey Michael Lydan & Anor v The Distribution Group (Federal Court of Australia, Northrop ACJ, unreported 5 September 1997)

BANK OF MELBOURNE LIMITED (ACN 007 270 448) v SANDRA MARY HANNAN
VG 7442 OF 1997

NORTHROP ACJ
MELBOURNE
5 SEPTEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA  DISTRICT REGISTRY	)  VG 7442 of 1997
IN THE MATTER OF:

SANDRA MARY HANNAN
Debtor

BANK OF MELBOURNE LIMITED (ACN 007 270 448)
Applicant

and

SANDRA MARY HANNAN
Respondent

COURT:	NORTHROP ACJ
PLACE:	MELBOURNE
DATE:	5 SEPTEMBER 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. A sequestration order be made against the estate of Sandra Mary Hannan.

1. The applicant’s costs including reserved costs but excluding costs reserved by the order made on 19 August 1997, be taxed and paid according to the Bankruptcy Act.

Note:The respondent Sandra Mary Hannan committed the act of bankruptcy on 2 May 1997.

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	)  VG 7442 of 1997
IN THE MATTER OF:

SANDRA MARY HANNAN
Debtor

BANK OF MELBOURNE LIMITED (ACN 007 270 448)
Applicant

and

SANDRA MARY HANNAN
Respondent

COURT:	NORTHROP ACJ
PLACE:	MELBOURNE
DATE:	5 SEPTEMBER 1997

REASONS FOR JUDGMENT

This petition for a sequestration order came on for hearing before a Registrar of the Court but under s 35A(7) of the Federal Court of Australia Act 1976 was referred to the Court for determination by the Court constituted by a Judge. Two issues of principle arise for determination. The first issue relates to the construction and application of Reg 4.02 and Form 1 in Schedule 1 of the Bankruptcy Regulations. The hearing of this petition came on for hearing immediately after the hearing of Re Lydan and Birrell; Ex parte The Distribution Group Ltd (VG No 7432 of 1997) which raised the identical issue as the first issue in the matter presently before the Court. Counsel for Ms Hannan adopted the submissions made on behalf of Lydan and Birrell. Judgment in that matter is being given on the same day as judgment in this matter. The reasons for judgment in Lydan and Birrell are annexed to the reasons for judgment in this matter and are to be read as part of the reasons in this matter. In particular, the relevant statutory provisions, Bankruptcy Regulations and Bankruptcy Rules are set out in Lydan & Birrell. The reasons for rejecting the submissions of counsel for the creditor in Lydan and Birrell apply in this matter.

The relevant facts in this matter can be stated briefly. By a judgment in default of appearance and entered on 21 January 1997 the Bank of Melbourne Ltd (“the Creditor”) obtained a final judgment in the Supreme Court of Victoria against Sandra Mary Hannan (“the Debtor”) under which the debtor was ordered to pay the creditor “$999,606.07 and $19,745.91 interest and $1450.00 costs”. Thus, the total amount of the judgment debt was $1,020,801.98. On 4 February 1997, the Creditor caused a bankruptcy notice to be issued by the Official Receiver and directed to the Debtor. The notice was in general conformity with Bankruptcy Regulation 4.02 and Form 1 of Schedule 1. The notice claimed that the Debtor owed the Creditor “a debt of $1,025,913.15 as shown in the Schedule”. The Schedule was as follows:-

Column 1	Column 2
1.          Amount of judgment or order	$1,020,801.98
plus  2.           Legal costs if ordered to be paid and a specific amount was not included in the judgment or order (see Note 1, below)
plus   3.If claimed in this Bankruptcy Notice, interest accrued since the day of judgment or order (see Note 2, below)	4,799.17
4.          Subtotal
less    5.          Payments made since date of judgment or order
6.          Subtotal
plus  7.           Cost of this Bankruptcy Notice	312.00
8.          Total debt owing.	$ 1,025,913.15

In Item 1, the amount of the judgment is correctly stated. In item 3 the interest claimed is in conformity with Note 2 in the notice. The calculation of the interest from the date of judgment to the date of the issue of the bankruptcy notice, is set out in a document attached to the bankruptcy notice. In compliance with practice, this amount of interest can be included in the total judgment debt; see Crowl (1988) 165 CLR 71 at 77-78, a passage set out in Lydan and Birrell. It follows that the total amount of the judgment debt on which the bankruptcy notice is based is $1,025,601.15 but this amount is not recorded in item 4.

Item 7 claims $312 which was said to be the sum of $300, the fee paid for the issue of the bankruptcy notice and $12 a fee paid for a search required before the notice could be issued.

For the reasons given in Lydan and Birrell the sum claimed in the bankruptcy notice is not a debt or liability owed by the Debtor to the Creditor. Thus the amount of the judgment debt is $1,025,601.15, not $1,025,913.15.

The error is made worse by subsequent events.

Paragraph 2 of the petition is as follows:-

“2.The Debtor is justly and truly indebted to the petitioner in the sum of $1,025,913.15 pursuant to a final judgment obtained by the petitioner in the Supreme Court of Victoria at Melbourne on 21 January 1997 for money owing pursuant to a guarantee.”

On any view, this is wrong. The error is compounded by the affidavit verifying paragraph 2 of the petition in which a senior manager, commercial loans administration, of the Creditor swore that the statements contained in paragraph 2 of the petition are true “within my own knowledge”.

Nevertheless, for the reasons given in Lydan and Birrell, no action having been taken by the Debtor, the Court is prepared to apply s 41(5) and (6) of the Bankruptcy Act 1966 with the result that leave will be given to further amend paragraph 2 of the petition by substituting for the sum of $1,025,913.15, the sum of $1,025,601.15 and to dispense with re-verification and re-service of the further amended petition. It is noted that on 19 August 1997, a Registrar granted leave to amend paragraph 4 of the petition to substitute 2 May 1997 for 3 May 1997 as the date of commission of the act of bankruptcy.

The second issue arising in this petition did not arise in Lydan and Birrell. Bankruptcy Reg 4.02(1) provides that for the purposes of s 41(2) of the Bankruptcy Act, the form of bankruptcy notice set out in Form 1 is prescribed. By reason of Reg 1.03(2) this means Form 1 in Schedule 1 to the Regulations is the prescribed form. Reg 4.02(2) provides that a bankruptcy notice must follow Form 1 in respect of its format but that regulation is not to be taken as expressing an intention contrary to s 25C  of the Acts Interpretation Act 1901. Thus despite the use of the word “must” in Reg 4.02(2) strict compliance with Form 1 is not required.

Paragraph 1 of Form 1 is as follows:-

“1.(name)  ____________________________________

(“the creditor”)

of (address)                ____________________________________

____________________________________

____________________________________

claims you owe the creditor a debt of $ [amount], as shown in the Schedule.”

Paragraph 3 and 4 of Form 1 are as follows:-

“3.      You are required, within [insert number in accordance with the note to this paragraph] days after service on you of this Bankruptcy Notice:

(a)to pay to the creditor the amount of the debt; or

(b)to make an arrangement to the creditor’s satisfaction for settlement of the debt.

[NOTE:  The number of days to be inserted is 21 or, if an order has been made under subparagraph 40(1)(g)(ii) of the Act, the number of days constituting the time fixed by the order.]

4.        Payment of the debt can be made to:

(name)            _______________________________

of (address)            _______________________________ ”

Form 1 includes provisions of the rights a debtor has under the Bankruptcy Act but they are not relevant for the purposes of this petition.

In the present case, the name of the Creditor was inserted in paragraph 1 of the bankruptcy notice but its address was not. In paragraph 4 the bankruptcy notice stated that payment of the debt could be made to:-

“Minter Ellison
           Lawyers
           of 40 Market Street
           MELBOURNE    VIC    3000”

Minter Ellison are the solicitors for the Creditor. This appears from the front page of the bankruptcy notice. The address and telephone and fax numbers of Minter Ellison are set out also. It appears that paragraph 4 of the bankruptcy notice is in conformity with Form 1. The only relevant non-conformity with Form 1 is that the address of the Creditor is not set out in paragraph 1. This non-conformity is a formal defect or irregularity in the bankruptcy notice. The issue is whether that defect or irregularity makes the bankruptcy notice invalid.

Counsel for the Creditor referred the Court to a number of authorities based on the form of a bankruptcy notice prescribed before 16 December 1996 and in conformity with s 41(2) then in operation. Under that form the debtor was required to pay the amount claimed by the judgment creditor or where the judgment required payment in a particular way to pay in that particular way or to secure the payment to the satisfaction of the Court or the judgment creditor or “his agent whose name and address are” set out or compound the sum so specified to the satisfaction of the judgment creditor or “his agent”.

Under paragraph 3 of Form 1, the debtor is required to pay the amount of the debt to the creditor or “to make an arrangement to the creditor’s satisfaction for settlement of the debt”. Under paragraph 4 of Form 1 the person and address to whom payment can be made must be set out.

The authorities referred to by counsel were Re Haritos; Ex parte Hill (1968) 15 FLR 378, Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371; Re Mullavey; Ex parte Australia and New Zealand Banking Group Ltd (1977) 32 FLR 1, Re Nugent; Ex parte Nugent (1985) 5 FCR 161 and Re Pugliese; Ex parte The Chase Manhattan Bank of Australia Ltd (1993) 44 FCR 536. None of those authorities are directly in point but contain much of interest.

In the present case the name and address of the person to whom the debt can be paid was given. The alternative contained in paragraph 3 of Form 1 is “to make an arrangement to the creditor’s satisfaction for settlement of the debt”. Here the word “arrangement” is not to be given the meaning of an arrangement as used in Part X of the Bankruptcy Act. It is to be given its usual meaning of a settlement or adjustment by agreement. If this course is followed care must be taken having regard to the question of whether the debtor is in fact solvent or not. If the debtor is seeking to make an arrangement, the starting point would be to contact the person to whom payment can be made, or to the creditor directly.

In the present case, the only relevant non-compliance is that the address of the Creditor is not set out in paragraph 1. In my opinion, in all the circumstances of this case, there has been substantial compliance with the requirements of Bankruptcy Regs 4.02 and 4.03.

Section 306(1) of the Bankruptcy Act 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 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.”

As said earlier there is a formal defect or irregularity in the bankruptcy notice. The bankruptcy notice cannot be regarded as capable of misleading and accordingly cannot be said to be a nullity.

In the present case, the Debtor has not appeared and has made no objection to the bankruptcy notice. The opinion expressed in Crowl at 81 applies. That opinion is set out:-

“Section 306(1) operates automatically 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 that court”. In the present case no evidence was presented and no claim was made of actual injustice. There was thus no basis upon which an opinion could be formed to deny the operation of s.306(1).”

In the result, the Court will make the orders set out earlier in these reasons. On all the material before the Court, I am satisfied that the Debtor on 2 May 1997 committed the act of bankruptcy alleged in the petition as amended. I am satisfied with the proof of the other matters of which s 52(1) of the Bankruptcy Act requires proof. The Court will make a sequestration order against the estate of the Debtor. For the reasons given in Lydan and Birrell the Court will order that the Creditor’s costs, including reserved costs but excluding costs reserved by the order made on 19 August 1997, be taxed and paid according to the Bankruptcy Act.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R M Northrop

Associate:

Dated:            5 September 1997

Counsel for the Applicant:	Ms S Horovitz
Solicitor for the Applicant:	Minter Ellison
Date of Hearing:	25 August 1997
Date of Judgment:	5 September 1997