Bridgestone Australia Ltd v Amarasekera
[2006] FMCA 106
•1 February 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BRIDGESTONE AUSTRALIA LTD v AMARASEKERA | [2006] FMCA 106 |
| BANKRUPTCY – Bankruptcy Notice – application to set aside on grounds of defects or irregularities – particular defect – likely effect upon debtor. |
| Bankruptcy Act 1966 (Cth) Supreme Court Act 1986 (Vic) Penalty Interest Rates Act 1983 (Vic) Acts Interpretation Act 1901 (Cth) |
| Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644 re A Judgment Debtor, 530 of 1908 (1908) 2 KB 474 Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 Wright v Australian and New Zealand Banking Group (2001) FCA 386 |
| Applicant: | BRIDGESTONE AUSTRALIA LTD |
| Respondent: | AJITH UDAYA AMARASEKERA |
| File Number: | MLG 1213 of 2005 |
| Judgment of: | Hartnett FM |
| Hearing date: | 23 January 2006 |
| Delivered at: | Melbourne |
| Delivered on: | 1 February 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr D.C. Turner |
| Solicitors for the Applicant: | Wisewoulds |
| Counsel for the Respondent: | Mr K. Baker |
| Solicitors for the Respondent: | Bullards |
THE COURT ORDERS THAT:
There be a sequestration order against the estate of Ajith Udaya Amarasekera.
The petitioning creditor’s costs, including reserved costs, if any, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that the date of the act of bankruptcy is 18 August 2005.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1213 of 2005
| BRIDGESTONE AUSTRALIA LTD (ACN 007 516 841) |
Applicant
And
| AJITH UDAYA AMARASEKERA |
Respondent
REASONS FOR JUDGMENT
The applicant creditor Bridgestone Australia Ltd applies to the court in petition filed on 30 September 2005 for a sequestration order under section 43 of the Bankruptcy Act 1966 (Cth) against the estate of the respondent. The petitioner relies upon a Bankruptcy Notice No 1541 of 2005, which is dated 21st day of July 2005 and was served upon the respondent on the 28th day of July 2005. The applicant creditor claims that the respondent debtor within six months before the presentation of the petition committed an act of bankruptcy in that on or before
15 August 2005 he failed to comply with the said Bankruptcy Notice. The respondent opposes the petition on the grounds that:
(i)the Bankruptcy Notice upon which the petition is founded is flawed and misleading and as a consequence is fatally defective; and
(ii)by reason of the Bankruptcy Notice being fatally defective, the petition cannot stand.
The respondent relies upon an affidavit filed by Mr Anthony Bullard filed 18 November 2005, being a partner in the firm of Bullards, Barristers and Solicitors, that firm being the solicitors for the respondent. The opposition of the respondent is in essence that on page 6 of the Bankruptcy Notice there appears under the heading “Calculation of the Amount of Interest Claimed” in part that interest is calculated on the orders totalling the sum of $70,635.30 and that the total interest in the sum of $18,865.98 is calculated on that sum as follows:- whereupon what follows is a tabular calculation of total interest being calculations for an amount claimed of $14,995.09. The insertion of the sums of $70,635.30 and $18,865.98 appear nowhere else in the Bankruptcy Notice.
Page 1 of the Bankruptcy Notice, paragraph 1, advises the respondent that it is claimed he owes to the creditor a debt of $360,954.77 as shown in the Schedule. The Schedule is set out on page 3 of the Bankruptcy Notice. That schedule is as follows:
Schedule:
1. Amount of judgments or orders
Order of Master Evans made 25 February 2005
$324,915.82
Interest under the Order of Master Evans made 25 February 2002:
$21,043.86
SUBTOTAL:
$349,959.68
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)
$14,995.091
Plus: 4. SUBTOTAL
$360,954.77
Less: 5. Payments made and/or credits allowed since date of judgments or orders:
Nil
6. Total debt owing:
$360,954.77
The order of Master Evans and quantum of that order, together with the interest as calculated accords with the total debt claimed to be owing by the debtor to the creditor on page 1 of the Bankruptcy Notice. On the last page of the Bankruptcy Notice, being page 6, there appears the following:
Calculation of the amount of interest claimed:
As required in note 2 to the Schedule of the Bankruptcy Notice herein:
(a) the interest is calculated on the Orders, totalling the sum of $70,635.30, pursuant to section 101 of the Supreme Court Act 1986 (Victoria) and calculated in accordance with the rates as fixed from time to time under section 2 of the Penalty Interest Rates Act 1983 (Victoria),
(b) the total interest in the sum of $18,865.98 is calculated on that sum as follows:
Order Period Amount Interest rate Days $ 25/02/05-31/03/05 $324,915.82 12% 34 $3,631.94 01/04/05-20/07/05 $324,915.82 11.5% 111 $11,363.15
Total interest: $14,995.09
Section 41 of the Bankruptcy Act 1966 (Cth) (the Act) makes provision for the issue of Bankruptcy Notices. Subsection 41(2) of the Act provides that:
The Notice must be in accordance with the form prescribed by the Regulations.
Regulation 4.02 of the Bankruptcy Regulations (the Regulations) provides:
(1) For the purposes of subsection 41(2) of the Act, the form of Bankruptcy Notice set out in form 1 is prescribed.
(2) A Bankruptcy Notice must follow form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).
(3) Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901 .
Section 25C of the Acts Interpretation Act 1901 (Cth) 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.
Form 1, to which Regulation 4.02 refers, is contained in Schedule 1 to the Bankruptcy Regulations. The Bankruptcy Notice which was served upon the applicant in the present proceedings follows Form 1. A copy of the judgment of the Supreme Court of Victoria given by Master Evans on 25 February 2005 is attached to the Notice.
Master Evans ordered the defendant (the respondent in these proceedings) to pay to the plaintiff (the applicant in these proceedings) $324,915.82. He also ordered the defendant to pay interest of $21,043.86. The sums of $70,635.30 and $18,865.98 differ substantially from the amount claimed in paragraph 1 of the Bankruptcy Notice and from the total of the two amounts that Master Evans ordered the defendant (respondent) to pay.
Consideration
There must be strict compliance with the Act and Regulations and as a consequence the form of Bankruptcy Notice prescribed by the Regulations if a Bankruptcy Notice is to be relied upon as the basis for establishing the commission of an act of bankruptcy pursuant to section 40(1) of the Act. In Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 the High Court by majority held that an understatement of accrued interest claimed in a Bankruptcy Notice did not invalidate the Notice. The majority approached the issue of invalidity in the following at page 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?
Mason CJ Wilson, Brennan and Gaudron JJ said 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 (1955) 93 CLR 631 at 644 ... 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(1908) 2 KB 474 at 481.
Such statement of principle is to be understood with reference to
s.306 of the Act. Section 306 relevantly provides as follows:
(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.
The rules relating to the issue of a Bankruptcy Notice against a debtor require strict compliance. A creditor who seeks to avail himself of a Bankruptcy Notice as the means of enforcing a debt must adhere strictly to the requirements of the Act and the Regulations.
Where however, there is a defect or irregularity in a Bankruptcy Notice which could not mislead or embarrass the debtor, then such defect or irregularity will not invalidate the Bankruptcy Notice. Where the debtor could see on the face of a document what was the amount which was really claimed from him, the defect would be merely a formal one which could be cured under s.306(1) of the Act (Deane J at page 82 of James v Federal Commissioner of Taxation (1955) 93 CLR 631).
In Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 the majority said at 45:
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 ... 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.
The majority went on to indicate that a 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 of the Acts Interpretation Act 1901 (Cth) on the ground that there has been substantial compliance.
For present purposes, the court must apply these principles to the facts in this particular case. Has the inclusion of the two amounts of $70,635.30 and $18,865.98 - being inadvertently included amounts – been capable of misleading the debtor, whether in fact the debtor was or was not misled?
It is not disputed that the information provided on page 6 of the Notice is incorrect as to the inclusion of the two erroneous amounts. Is this inclusion a substantive defect, or rather a formal one which could not reasonably mislead the debtor?
Paragraph 1 of the Bankruptcy Notice clearly sets out the amount owed to the creditor, being the sum of $360,954.77. It accords with the Schedule as set out on page 3, to which paragraph 1 refers. The Schedule sets out interest under the order of Master Evans together with interest accrued since the date of the order. The calculation of the amount of interest claimed accords with the Schedule in the tabular form “Total Interest Claimed”, and otherwise the sums as referred to in subparagraphs (a) and (b) on page 6 of the Bankruptcy Notice do not refer to any other amounts claimed in the Bankruptcy Notice or in the attached order of Master Evans.
The applicant claims that the inclusion of the two amounts of $70,635.30 and $18,865.98 do not form part of the Notice and that their inclusion does not invalidate the Bankruptcy Notice or make it confusing and perplexing.
Interest in the Bankruptcy Notice is only claimed on the one amount, namely $324,915.82, being the amount of the order as set out in the tabulated section of the note 2 attachment to the Notice. The Notice is founded only on one order, that being the order of Master Evans of 25 February 2005. The applicant argues that the two additional amounts are plainly inadvertent and that the correct amounts are plainly set out in the tabular part of the interest calculation attachment. The Notice itself correctly states the amount of the order and interest calculated to the date of the Notice. That amount is set out in paragraph 1 of the Notice. Details of the amount payable by the debtor are set out in the Schedule, as made essential by s.41 of the Act and Rule 4.02.
The argument relates to note 2 to form 1, which requires that the document must state the:
a)provision under which interest is being claimed, and
b)principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.
This is to satisfy the requirement that if interest is to be included in the Notice it must be calculated (Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 78).
The note 2 attachment to the Notice correctly sets out the source of the interest entitlement, namely section 101 of the Supreme Court Act 1989 (Victoria), and calculated in accordance with the rate fixed from time to time by the Penalty Interest Rates Act 1983 (Victoria). More than one interest rate is applicable. The attachment sets out the two periods and the applicable rate of interest for each period in tabular form. It also correctly sets out the principal sum, namely the order on which interest for each relevant period is calculated. Finally, it sets out the total interest of $14,995.09 which appears in item 3 of the Schedule. There is no defect in the interest calculation of the kind made essential by the Act or the Rules. The Notice correctly states the amount due to enable the debtor to know what he must do to comply with the Notice.
In my view, the debtor could not reasonably be misled as to what it was that was necessary for him to do to comply with the Notice. It is clear from paragraph 1 and the details in the Schedule what he must do to comply. Note 2 states that if interest is included, details of the calculation of the interest must be attached. Note 2 does set out what must be included and each of the prescribed matters is included in the interest calculation.
The inclusion of the inadvertent amounts of $70,635.30 and $18,865.98 in the manner in which they are so included is a formal defect which could not reasonably mislead the debtor. Such defect is cured by the operation of s.306 of the Act, as I find no substantial injustice could be caused by the irregularity.
There was nothing in note 2 that was misleading or inaccurate about the manner in which the interest component in the Notice was detailed. The debtor could not have been misled as to that interest component, save for the formal defect of the inclusion of the amount above the tabular form of $18,865.98 which section 306 of the Act operates to save.
I apply the purposive test from Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 being:
The purposive test is satisfied in the present context: firstly, it is obvious from the copy judgment attached that it was a judgment of the Supreme Court; secondly, it was equally obvious from a commonsense and ordinary reading of the response given to note 2 that it was intended to refer to the Supreme Court Act and that the additional reference to the local court act was plainly inadvertent, and should accordingly be ignored.
I conclude there has been no failure by the applicant to state any matter made essential by the Act and the Rules and that no substantial injustice has been caused to the debtor. I accept the submission made by counsel for the applicant that there is no internal inconsistency in the Bankruptcy Notice because of the inclusion of the otiose amounts, as the matters made essential by the Act and the Rules are all present and correct. The total amount payable as set out in paragraph 1, the Schedule and the note 2 are all consistent. The additional amounts are plainly inadvertent and should, in the words of Beaumont J in Wright v Australian and New Zealand Banking Group (2001) FCA 386 at 8 be ignored.
I do not accept the judgment debtor's argument to the contrary. The critical consideration is the application of an ordinary or natural commonsense approach to the language used in the Notice read as a whole (see Wright v Australian and New Zealand Banking Group (2001) FCA 386 paragraph 53, Beaumont J). Accordingly, the court is not satisfied that the Bankruptcy Notice is flawed or misleading; and the court is satisfied that it can found the creditor's petition.
The debtor has failed to satisfy or pay the amount claimed in the Notice. I am satisfied that the debtor committed an act of bankruptcy on 18 August 2005. I am satisfied as to the contents of those affidavits verifying paragraphs 1, 2, 3 and 4 of the creditor's petition. There is filed an affidavit of the service of the creditor's petition, the supporting affidavits and a consent to act as trustee and the court is satisfied that an act of bankruptcy has been committed pursuant to s.40(1)(g) of the Act. Accordingly, a sequestration order against the estate of the respondent shall be made.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Hartnett FM.
Associate: Anna French
Date: 1 February 2006
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