BMW Australia Finance Limited v Jackson
[2006] FMCA 401
•3 April 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BMW AUSTRALIA FINANCE LIMITED v JACKSON | [2006] FMCA 401 |
| BANKRUPTCY – Bankruptcy notice – opposition to petition on grounds that Bankruptcy Notice is defective –failure to complete paragraph 4 of Bankruptcy Notice – debtor would not suffer irremediable injustice – s.306(1) of the Bankruptcy Act 1966 (Cth) applies. |
| Acts Interpretation Act 1901 (Cth) Bankruptcy Act 1966 (Cth), ss.41(2), 306 Bankruptcy Regulations 4.02 Interpretation Act 1987 (NSW), s.25C |
| Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 Bank of Melbourne Ltd v Sandra Mary Hannan [1997] 898 FCA Kleinwort Benson Australia Ltd v Crowl (1988) 79 ALR 161 Kyriackou v Shield Mercantile Pty Ltd [2004] FCA 490 Lee v Smith [2002] FMCA 59 McWilliam v Jackson (2000) 96 FCR 561 Shannon & Anor v King [2005] FMCA 1264 Worchild v The Drink Nightclub (Qld) Pty Ltd [2005] FCA 863 Worchild v The Drink Nightclub (Qld) Pty Ltd [2005] FCAFC 240 |
| Applicant: | BMW AUSTRALIA FINANCE LIMITED |
| Respondent: | ANTHONY CHARLES JACKSON |
| File Number: | SYG1051 of 2005 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 14 March 2006 |
| Delivered at: | Sydney |
| Delivered on: | 3 April 2006 |
REPRESENTATION
| Advocate for the Applicant: | Mr B Lloyd |
| Solicitors for the Applicant: | Cridlands Lawyers |
| Advocate for the Respondent: | Mr K McKenzie |
| Solicitors for the Respondent: | Haylen McKenzie Solicitors |
ORDERS
A date for resuming the hearing of the petition will be appointed.
Costs in relation to the hearing on 14 March 2006 are reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1051 of 2005
| BMW AUSTRALIA FINANCE LIMITED |
Applicant
And
| ANTHONY CHARLES JACKSON |
Respondent
REASONS FOR JUDGMENT
The proceedings
This is a creditor’s petition filed on 26 April 2005, which seeks a sequestration order against the debtor based on his failure to comply with the requirements of the Bankruptcy Notice NN2294/04. The bankruptcy notice was issued on 3 September 2004, requiring compliance on or before 13 December 2004.
The hearing of the petition was adjourned several times before being referred to me by a Registrar on 14 March 2006. On that day, I heard the Notice of Intention to Oppose Application or Petition filed by the respondent debtor on 11 July 2005. That notice disclosed that the respondent intended to do so on the following grounds:
1. The Bankruptcy Notice served upon me was defective in that it did not comply with the provisions of the Bankruptcy Act as to form and content and therefore does not support the Petition.
2. The defect is comprised by the failure to complete paragraph 4 of the Notice.
During the hearing, I heard arguments from both sides in respect of the validity of the bankruptcy notice. Specifically, to the completion of paragraph 4 of that notice. This was the only issue between the parties, being whether the bankruptcy notice suffered from a formal defect which would result in its invalidity.
Legislation and regulations
Section 41(2) of the Bankruptcy Act 1966 (Cth) (“the Act”) deals with bankruptcy notices. Section 306(1) deals with formal defect of that Notice and the concept “substantial injustice”. I also refer below to the relevant part of the Bankruptcy Regulations 1996 (Cth) (“the Regulations”):
Section 41 Bankruptcy Notices
…41(2) [Notice must accord with form prescribed] The notice must be in accordance with the form prescribed by the regulations.
…
Section 306 FORMAL DEFECT NOT TO INVALIDATE PROCEEDINGS
306(1) [In proceedings] 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.
…
REGULATION 4.02 FORM OF BANKRUPTCY NOTICES
4.02(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.
4.02(2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).
4.02(3) Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901.
The relevant sections of the Acts Interpretation Act 1901 (Cth) are:
…SECTION 25C COMPLIANCE WITH FORMS
25C 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.
…
SECTION 46 CONSTRUCTION OF INSTRUMENTS
46(1) If a provision confers on an authority the power to make an instrument that is neither a legislative instrument within the meaning of the Legislative Instruments Act 2003 nor a rule of court, then, unless the contrary intention appears:
(a) this Act applies to any instrument so made as if it were an Act and as if each provision of the instrument were a section of an Act;
Finally I refer to the relevant Schedule of the Regulations:
BANKRUPTCY REGULATIONS 1996 – SCHEDULE 1
Forms
(regulation 4.02)
Form 1 Bankruptcy Notice
Bankruptcy Act 1966
BANKRUPTCY NOTICE
This Bankruptcy Notice is prescribed, under subs.41(2) of the Bankruptcy Act 1966 (‘the Act’), by r.4.02 of the Bankruptcy Regulations.
Note Words appearing below in italics are for guidance in the completion of this Notice, and are not to be reproduced in the Notice.
…
4. Payment of the debt can be made to:
(name) _____________________
of: (address) _____________________
_____________________
Note The address must be within Australia.
Applicant’s submissions
Mr Lloyd, for the applicant, referred me to paragraph 4 of the creditor’s bankruptcy notice which had been completed in the following manner:
4.Payment of the debt can be made to:
of *C/-Cridlands Lawyers
Level 23, 264 George Street
SYDNEY NSW 2000
[NOTE: The address must be within Australia.]
Mr Lloyd submitted that the payment was to be made to Cridlands Lawyers and that “Cridlands Lawyers” after the word “of” rather than before. It was in fact complete, although slightly mis-positioned in the context of the surrounding text. Mr Lloyd also submitted that there is an established line of authority to suggest that payment of a debt in a bankruptcy notice can be made to a creditor’s solicitors. He relied on Worchild v Drink Nightclub (Qld) Pty Ltd [2005] FCA 863 (“Worchild”), which states that payment can be made to a creditor’s lawyer and that there is no requirement that the relationship between the nominated payee and the creditor be stated. Mr Lloyd submitted that there has been a slight error in so much as there has been a “care of” inserted. The name “Cridlands Lawyers” was placed after the word “of” in paragraph 4, which is a formal defect in the notice. However s.306(1) of the Act applies to ensure that the bankruptcy notice is not invalidated as a result of that formal defect. It was submitted that there has been no substantial injustice caused to the debtor in receiving that notice.
Mr Lloyd also submitted that the form of the notice was in accordance with reg.4.02 of the Regulations and is therefore not invalidated.
Mr Lloyd referred the Court to Bank of Melbourne Ltd v Sandra Mary Hannan [1997] 898 FCA per Northrop ACJ where His Honour stated:
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.
His Honour noted that the only relevant non-compliance was that the address of the creditor was not set out in paragraph 1. However, despite this, there had been substantial compliance with the requirements of the reg.4.02 and 4.03 of the Regulations. His Honour found that although there was a formal defect or irregularity in the bankruptcy notice, the bankruptcy notice could not be regarded as capable of misleading. Accordingly it could not be said to be a nulity.
Mr Lloyd argued that an objective person reading the notice would not be confused as to whom payment of the debt was to be made, if considered in the following way:
a)Under Item 3(a) the notice states to the debtor:
You are required within 21 days after service on you of this Bankruptcy Notice to pay the creditor the amount of the debt.
b)The creditor is already identified under Item 1 as:
BMW Australia Finance Limited (ACN 007 101 715) (“the creditor”)
c)Item 4 states:
Payment of the debt can be made to:
of *C/-Cridlands Lawyers
Level 23, 264 George Street
SYDNEY NSW 2000
[NOTE: The address must be within Australia.]
d)On page seven of the notice, Cridlands Lawyers is clearly identified as the creditor’s authorised agent.
Mr Lloyd submitted that the above information – all contained in the bankruptcy notice – makes it clear what the debtor had to do if he wished to pay the debt. He has to draft a cheque for the amount of the debt, payable to Cridlands Lawyers, at Level 23, 264 George Street. Alternatively if he had placed “BMW Australia Finance Limited” on a cheque and attended the above address, he would also be successful in paying the debt.
Respondent’s submissions
Mr McKenzie, for the respondent, formally referred to the Notice of Intention to Oppose the Application or Petition filed on 11 July 2005. He also referred to the sworn affidavit of his client, Anthony Charles Badham Jackson, of the same date. Both documents placed the issue before this Court.
Mr McKenzie also handed up a copy of a prescribed bankruptcy notice form to assist in his explanation of what should have been provided in paragraph 4 of the notice. He submitted that a name of a person or organisation, to whom or which a debt can be paid, must be inserted in paragraph 4. In his client’s bankruptcy notice, while the address is there, the name simply is not. Consequently, the notice is void. Mr McKenzie also submitted that the question of whether or not a bankruptcy notice needs to comply strictly with the form, otherwise was resolved in the Full Federal Court decision of Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 (“Australian Steel”).
Mr McKenzie acknowledged that the Federal Court has taken a different approach to the question of whether or not a bankruptcy notice should be (very) strictly complied with. The approach of the Federal Court ranges from invalidity of the notice if anything is left out, to a more relaxed approach which permits slight variations or discrepancies.
The McDonald, Henry and Meek publication “Bankruptcy Law and Practice” indicates that the preponderance of authority is that the notice must be strictly complied with, although the authors of that text prefer the slightly more relaxed approach. Mr McKenzie noted that whichever approach is adopted, the notice in these proceedings is invalid. Following the approach of Australian Steel, the omission of a name renders the notice invalid as it is an essential requirement. If the alternate line was followed and the test in Worchild was adopted, paragraph 4 of the bankruptcy notice must state an identified person at an identified address. In support of his argument, Mr McKenzie relied on the observation of His Honour Dowsett J in Worchild at [9]:
There was in that bankruptcy notice, no statement to the effect that ‘Payment of the debt can be made to “an identified person” at an unidentified address.’
Mr McKenzie submitted that it was clear that Dowsett J viewed “an identified person” as a requirement of the regulations. This view was supported by the Full Federal Court in Worchild v Drink Nightclub (Qld) Pty Ltd [2005] FCAFC 240. Their Honours, Kiefel, Jacobson and Greenwood JJ dismissed the appeal and dealt with the particular issue about an address at [4]:
…The appellant’s first ground of appeal relies upon the decision of Lingren J in Re St Leon; Ex parte National Australia Bank Limited (1994) 54 FCR 371 (“Re St Leon”). Section 41 of the Bankruptcy Act requires a bankruptcy notice to be in accordance with the prescribed form. Form 1 requires an address for the creditor to be stated in notice. In Re St Leon, the address of the creditor did not appear in the body of the bankruptcy notice. The creditor’s solicitors’ address appeared in another place on the document. The notice conveyed only that they were responsible for the preparation of filing of the document. The notice was held not to comply with the Bankruptcy Act because there was a total failure to state the creditor’s address. In the present case, the respondents’ solicitors address is clearly given as the respondents’ address as creditors and as address for payment. Dowsett J held in Re St Leon was of no relevance to the notice in this case. His Honour was clearly correct in that view.
Ms McKenzie also submitted that the decision of Dowsett J in Worchild refers to the decision of the High Court in Kleinwort Benson Australia Ltd v Crowl (1988) 79 ALR 161 (“Kleinwort Benson”), which is a leading High Court authority on the bankruptcy notice under the old form (pre-1996). It sets out the traditional view of how bankruptcy notices ought to be dealt with. The test in Kleinwort Benson at 164 is as follows:
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?
Mr McKenzie submitted that in the notice, the identity of the person to whom money can be paid is a substantive rather than a formal matter. He also submitted that because it is a substantive matter, it cannot be corrected under s.306 of the Act, which allows for four errors on a notice to be remedied. The whole regime of bankruptcy notices is designed to allow people to either pay money or come to some other arrangement with a creditor. If not, a particularly serious consequence occurs – the right for the creditor to apply to have someone made bankrupt.
Mr McKenzie further submitted that the bankruptcy notice in this matter contained three different addresses for the creditor:
a)In paragraph 1, an address in Mulgrave, Victoria;
b)In paragraph 4, the address: c/- Cridlands Lawyers, Level 23, 264 George Street, Sydney, NSW 2000; and
c)In the Local Court’s Certificate of Judgment, the address: c/- Dickson Fisher Macansh, Solicitors, Level 23, 264 George Street, Sydney.
The differing addresses and absence of a name meant that the notice was objectively confusing and not the sort of defect that can be cured under s.306 of the Act.
The Court was also referred to Kyriackou v Shield Mercantile Pty Ltd [2004] FCA 490 per Weinberg J, where the omission of “the creditor” from paragraph 1 of a bankruptcy notice was a defect. His Honour held that the omission was enough to invalidate the Bankruptcy Notice in those proceedings. I was also referred to the decision of McWilliam v Jackson (2000) 96 FCR 561, per Wilcox J at [19]:
It will be apparent that identification of the relevant creditor is of central importance to a proper understanding of a bankruptcy notice and the obligations of the addressee in respect of the notice.
Reasons
The leading decision on defective bankruptcy notices is the decision of the High Court in Kleinwort Benson, a decision made on 1 July 1988. Hence that authority applies to bankruptcy notices issued under s.41 of the Act prior to the legislative amendments in 1996. Although the Act has been amended, the principles established in Kleinwort Benson remain applicable to notices issued after the amendments, critically, in respect of the correct test to determine validity of a bankruptcy notice. Subsequent to the 1996 amendments, a specially constituted Full Federal Court in Australian Steel, by majority, took a slightly less rigid approach than that in Kleinwort Benson to what would cause a defect and invalidity of a bankruptcy notice. I am bound by Australian Steel.I am also guided by the detailed analysis of the leading cases on this subject and also Shannon & Anor v King [2005] FMCA 1264 per Walters FM.
Federal Magistrate Walters in Shannon & Anor v King discussed the consequences of non-compliance with Form A. His Honour also identified the relevant test established in Kleinwort Benson (then followed in Australian Steel) which sets out three questions to ask in order to establish invalidity of a notice. Those tests are:
a)Is the bankruptcy notice effective or irregular?
b)If so, is the defect or irregularity substantive or formal?
c)If it is formal only, has it occasioned substantial or irremediable injustice?
This particular bankruptcy notice does not conform to the layout of paragraph 4 as contained in Form 1 of Schedule 1 of the Regulations. I accept there is a defect or irregularity in the bankruptcy notice and that it does not wholly confirm with the requirement in paragraph 4 to list a separate name and address.
The next question to ask is: is the defect or irregularity substantive, or alternatively, is it purely formal? Initially, Mr Lloyd, relied on the Worchild which established that the payment of a debt of a bankruptcy notice can be made to the creditor’s solicitors. It was not necessary to identify the creditor-solicitor relationship within the notice. An identification of such a relationship would do little more than explain that the name of the creditor appearing in paragraph 1 and the party permitted to accept payment of the debt may be different. I do not believe that this leads to any confusion that the creditor is indeed BMW Australia Finance Limited; and the firm of solicitors retained to accept payment of the debt in the bankruptcy notice is a different organisation.
Mr Lloyd’s reference to Bank of Melbourne Ltd v Sandra Mary Hannan (at [9] above) does not appear to greatly assist his argument because the error in that case related to the omission of the creditor’s address in paragraph 1 of Form 1. Paragraph 4 in that case complied with the requirement of Form 1 and can be distinguished from the matter currently before this Court. Some assistance can be obtained from Lee v Smith [2002] FMCA 59 per Raphael FM which considered a defect in paragraph 4 of a bankruptcy notice. In that case, paragraph 4 had been completed in the following manner:
4. Payment of the debt can be made to:
Lazarus Smith Lawyers
of: St Martins Tower,
Level 13, 31 Market Street
SYDNEY NSW 2000
[NOTE: The address must be within Australia.]
The debtor argued that the bankruptcy notice was invalid because of failure to include the name of the creditor and the word, “care of or C/O” before the words, “Lazarus Smith Lawyers”. The argument was based on the premise that the notice serves a dual purpose in that it requires the creditor to identify a payee and provide an address at which the payment can be made. It was argued that the debtor would be misled because they would not know to whom or where the payment should be made.
After considering other decisions in which the format and layout of the contents of paragraph 4, His Honour Raphael FM made the following observations at [6]:
It is my view that the amendments which were made in 1996 to the form of the bankruptcy notice were made to assist parties and to provide a clearer form to be used. The name of the creditor was clearly stated in paragraph 1 together with his address. One might ask what is the point of the words used in paragraph 4 "payment of the debt can be made to". Unless it provides some form of alternative to payment of the creditor at the address listed in paragraph 1. Mr Marshall rightly points out that not all creditors are resident in Australia and therefore the note that is found in paragraph 4 may well indicate an address in Australia whereas paragraph 1 may indicate an address outside Australia.
I return to the argument of Mr Lloyd at [11] above where it was submitted that if the bankruptcy notice is considered as a whole, an objective reader would not be confused as to who payment of the debt was to be made. Mr Lloyd contended that if the debtor attended Level 23, 264 George Street, Sydney and located Cridlands Lawyers, he could successfully make the payment irrespective of whether he had addressed his cheque to BMW Australia Finance Limited, or alternatively, Cridlands Lawyers. The bankruptcy notice requires the debtor to seek out his creditor and pay him. Paragraph 4 allows the payment to be made to a person at a place nominated. Irrespective of whether the debtor tendered cash or provided a cheque made payable to either Cridlands Lawyers or the judgment creditor by attending the address stated in paragraph 4, the debtor would be able to satisfy the bankruptcy notice. For these reasons, I believe that the defect or irregularity is formal in nature.
The third issue to decide, given that the defect or irregularity is formal only, is has it occasioned substantial and irremediable injustice. The fundamental objective of the bankruptcy notice is to have the debtor pay the creditor the debt nominated in the notice within a nominated time limit. The failure to meet that requirement has serious and harsh consequence for the debtor. If the bankruptcy notice prevents the debtor from satisfying this requirement because the debtor could not locate where the debt could be satisfied, then he would suffer substantial irremediable injustice. This would not occur if the debtor attends Cridlands Lawyers at Level 23, 264 George Street, Sydney. He could make the payment. The information contained in the bankruptcy notice would not prevent the debtor from satisfying this requirement.
Consequently, s.306(1) of the Act would apply to validate the notice.
Conclusion
Given that a bankruptcy notice is valid for the reasons set out above, and in the absence of any other ground raised in the Notice of Intention to Oppose Application or Petition, the creditor’s petition should proceed.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate:
Date: 30 March 2006
0
8
4