BERNARD v VALASSIS - [2002] FMCA 285

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BERNARD v VALASSIS

[2002] FMCA 285

BANKRUPTCY – Bankruptcy petition – opposition on the grounds of alleged defect in bankruptcy notice – the failure to mention s.39 of the Local Courts (Civil Claims) Act1970 in the form – whether previous authority on point still valid – need for Federal Court and Federal Magistrates Court to be consistent – later decision of federal court followed – defect not fatal – application granted.

Bankruptcy Act 1966 (Cth) s.306

Local Courts (Civil Claims) Act 1970 (NSW) s.39

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

Boorowa Shire Council v Stewart Edgar John Booth [2001] FMCA 31

Australian Steel Co (Operations) Pty Ltd v Lewis (2001) 109 FCR 33
Jiminez v Welcome Homes real Estate Pty Ltd [2001] FMCA 122
General Motors Acceptance Corp Australia v Marshall [2002] FCA 1006
McDowell v Fox [2002] FMCA 254

Applicant:

ERIC BERNARD

Respondent:

DENNIS VALASSIS

File No:

SZ790 of 2002

Delivered on:

18 November 2002

Delivered at:

Sydney

Hearing Date:

5 November 2002

Judgment of:

Raphael FM

REPRESENTATION

Counsel for the Applicant:

Ms Margaret Sneddon

Solicitors for the Applicant:

Mr Charles Geoffrey Nye of Gray & Perkins Solicitors

Solicitors for the Respondent:

No appearance

ORDERS

Sequestration order made against the estate of Dennis Valassis.
Maxwell William Prentice be appointed to act as trustee of the insolvent estate.
Applicant’s costs to be paid from the estate of the debtor in accordance with the provisions of the Bankruptcy Act and shall be calculated in accordance with the provisions of the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ790 of 2002

ERIC BERNARD

Applicant

And

DENIS VALASSIS

Respondent

REASONS FOR JUDGMENT

When this application for a sequestration order came before a registrar of this court she pointed out to the petitioning creditor that she believed that there was a matter of concern arising out of the manner in which the bankruptcy notice upon which the creditor intended to rely had been drawn. After an adjournment the matter was referred to me for decision. At the hearing the debtor did not appear and was not represented. I was assisted by some well-prepared submissions on the part of Counsel for the petitioning creditor.
The bankruptcy notice was prepared in accordance with Form 1 from regulation 4.02 of the Bankruptcy Regulations. On page five of the notice the following appears:
“Note two: Interest Accrued (Item 3 of the Schedule)
If interest is being claimed in this bankruptcy notice, details of the calculations 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)
There is then attached to the notice a document headed
“SCHEDULE OF INTEREST”
Section 95(1) of the Supreme Court Act, 1970
Judgment debt $7 348.00
$18.19
$266.34
Total $7632.53
Date of judgment – 19^th February 2002
19/02/02 to 28/02/02 at 10% being 9 days at $2.01 per day
01/03/02 to 25/07/02 at 9% being 147 days at $1.81 per day
Behind the schedule of interest there is a local court certificate of judgment. That document is headed:
“Local Courts (Civil Claims) Act 1970
CERTIFICATE OF JUDGMENT
…(3) Interest is payable on the judgment debt at the rate PRESCRIBED FOR THE PURPOSES OF s 95(1) OF THE SUPREME COURT ACT 1970.
The applicant concedes that there is no mention in the form of s.39 of the Local Courts (Civil Claims) Act which is the relevant provision dealing with post judgment interest. That is the provision, which the entitlement to interest arises. The provision under which the interest to which the creditor is entitled is calculated in s.95(1) of the Supreme Court Act.
In Boorowa Shire Council v Stewart Edgar John Booth [2001] FMCA 31, I dealt with a similar situation and between [11] and [17] I found that the failure to make reference to s.39 of the Local Courts Act was fatal to the bankruptcy notice as being a failure to comply with a provision that was a requirement made essential by the Act. I interpreted the decision of the majority in Australian Steel Co (Operations) Pty Ltd v Lewis (2001) 109 FCR 33 as making this point clear and preventing the defect from being rectified by recourse to s.306 (1) of the Act.
This decision was followed reluctantly by FM Driver in Jiminez v Welcome Homes Real Estate Pty Ltd [2001] FMCA 122. These decisions remained the law in this court until recently.
The same alleged defect in a bankruptcy notice was considered by Gyles J in General Motors Acceptance Corp Australia v Marshall [2002] FCA 1006 at [20] and [21] His Honour said:
“[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 Rate Act 1893 (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 it was expressly incorporated by reference to 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 in s39, which leads inexorably to Pt13 r3 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 s95 (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 in Beaumont J in Wright v Australia & New Zealand Banking Group Ltd, particularly at [6]-[25] (cf Madgwick 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 s25C of the Acts Interpretation Act 1901 (Cth). In any event, as there is no evidence of substantial injustice, s306 of the Act would apply to any such irregularity.”
FM Driver had the opportunity of considering General Motors Acceptance Corp in McDowell v Fox [2002] FMCA 254 [23]–[24]. After referring to the passage from the decision of Gyles J set out above the learned FM said:
“[23]Whilst that decision is not strictly binding upon this court, it is a highly persuasive authority which should be followed unless it is contradicted by a decision of the Full Federal Court. Now here are respectable arguments supporting both lines of authority. Both s 39(1) of the Local Courts Act and s 95(1) of the Supreme Court Act are provisions under which, in general terms, interest is claimed arising out of Local Court proceedings. The first provides the legal authority, while the latter is the provision under which the rate is fixed…on that view, while s39(1) is strictly the correct provision, a reference to s95(1) is not wrong, because the rate has to be calculated before interest can be recovered. On that view, both provisions are provisions under which interest is claimed in Local Court proceedings. The stricter view is that can only be one correct provision. In addition, while a debtor could in theory proceed from s 39(1) through to s 95(1) to gain an understanding of the interest claimed if only the former were mentioned, to proceed backwards from s 95(1) is very difficult, if not impossible.
[24] The answer to the problem in my view needs to be pragmatic. This court should strive to avoid a position where registrars exercising delegated powers from both courts are presented with conflicting authorities from each court about how the validity of a bankruptcy notice should be determined. Accordingly, a bankruptcy notice having attached to it an interest rate at schedule which identifies either s 95(1) of the Supreme Court Act or s39(1) of the Local Courts Act as the provision under which interest is claimed on a judgment of the NSW Local Court should be accepted as valid.”
I find FM Driver’s arguments persuasive. I note that these cases are not exactly on all fours with the decision in Australian Steel where a patently wrong provision was inserted. Gyles J who was in the minority in Australian Steel believes the cases can be distinguished. There is certainly force in the argument which was made in the dissenting judgments in Australian Steel that the purpose of the amendments to the Bankruptcy Act which saw the introduction of the new form was to make things easier and to do away with excess formality.
I therefore propose to follow the decision of Gyles J for the reasons set out in the obiter dicta of Driver FM in McDowell. The petitioning creditor provided the necessary up to date affidavits to enable me to deal with the application for a sequestration order. I am satisfied of the matters required by s.52 of the Bankruptcy Act and I make a sequestration order against the estate of Dennis Valassis. I note that a form of consent to act as trustee has been received from Maxwell William Prentice and I so appoint him. I order that the costs of the applicant shall be paid from the estate of the debtor in accordance with the provisions of the Bankruptcy Act and shall be calculated in accordance with the provisions of the Federal Court Rules.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: