Chulio v Kelly
[2011] FMCA 280
•24 June 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CHULIO & ANOR v KELLY | [2011] FMCA 280 |
| BANKRUPTCY – Contested creditors petition – whether the bankruptcy notice supporting the petition is vitiated by asserted errors in relation to interest calculations considered – a creditor is free to claim less than the amount of interest due under a statutory provision relating to interest on a judgment – whether the notes in the schedule of interest claimed are legible considered. |
| Bankruptcy Act 1966, ss.52, 306 Civil Procedure Act 2005 (NSW), s.101 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) |
| First Applicant: | SUZANNE CHULIO |
| Second Applicant: | ANTONIO CHULIO |
| Respondent: | JOHN KELLY |
| File Number: | SYG 2244 of 2010 |
| Judgment of: | Driver FM |
| Hearing date: | 21 April 2011 |
| Date of Last Submission: | 27 April 2011 |
| Delivered at: | Sydney |
| Delivered on: | 24 June 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Young |
| Solicitors for the Applicant: | Consolidated Lawyers |
| Counsel for the Respondent: | Mr D Eardley |
| Solicitors for the Respondent: | Lavulo Lawyers |
ORDERS
A sequestration order is made against the estate of John Kelly.
The Court notes that the date of the act of bankruptcy is 15 October 2010.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2244 of 2010
| SUZANNE CHULIO |
First Applicant
ANTONIO CHULIO
Second Applicant
And
| JOHN KELLY |
Respondent
REASONS FOR JUDGMENT
Introduction and background
By a creditor’s petition presented on 18 October 2010, Suzanne Chulio and Antonio Chulio seek a sequestration order against the estate of John Kelly and related orders. The petition is based upon five judgments of the Local Court at Ryde and the Downing Centre in Sydney, totalling $88,233.30, less payments made in the total sum of $2,350 plus interest on the Ryde Local Court judgment in the total sum of $10,145.78. The petition asserts that Mr Kelly failed to comply on or before 15 October 2010 with the requirements of a bankruptcy notice served on him on 23 September 2010.
The petition is supported by the verifying affidavit contained within it of Suzanne Chulio, as well as by the affidavit by Melissa Hoffmann made on 18 October 2010 verifying paragraph 4 of the petition. Service of the bankruptcy notice on Mr Kelly is verified by the affidavit of Nicholaos Tollas (a licensed commercial agent) made on
29 September 2010. Service of the creditor’s petition pursuant to an order for substituted service is established by the affidavit of Kaylar Potter made on 18 November 2010. A further affidavit of service of the creditor’s petition and related documents is made by Nicholaos Tollas on 30 November 2010. The affidavit of Melissa Hoffmann made on
25 February 2011 further supports the petition and is also directed at grounds of opposition to the petition. I also have before me final affidavits of search and debt by Ms Hoffmann made on 21 April 2011 and by Ms Chulio made on the same day.
The petition is opposed by Mr Kelly. His notice of grounds of opposition to the petition filed on 25 February 2011 contains the following grounds:
1. The Bankruptcy Notice number NN3990 is defective because interest is claimed on a [judgment]/order of the Ryde Local Court number 309/06 on the amount of $26,532. The [judgment] order 309/06 dated 21/09/2006 is in the total [a]mount of $27,382 (“debt”). Payments totalling $850 were made to reduce the debt on the 20/10/06 $620 and on the 8/11/06 $230 and a credit of $1,500. The Bankruptcy notice is defective for two reasons, firstly, the amount of the principal debt as at 20/10/06 was $26,762, and on the 8/11/06 the amount of the principal debt was $26,532.00. Secondly, the interest calculation for the period 22/09/06 to 31/12/06 is incorrect in the schedule of post judgment interest calculation of the Bankruptcy Notice.
2. The Bankruptcy Notice is defective because the schedule of post judgment interest for the period 14/07/2010 to 14/09/2010 applies a credit of $2,500, it is not sufficiently clear what the narration “at the time of judgment” refers to.
3. The Copy of the Bankruptcy Notice Schedule of Post Judgment Interest Calculation in respect to the handwriting under the narration “Please note” is not sufficiently legible.
4. This matter has been referred to the Director General, Peter Duncan of the Department of Services, Technology & Administration by Virginia Judge the Minister of Fair Trading. After consideration of the evidence supplied to
Mr Duncan he agreed to refer the conduct of the CTTT member, Jeffery Smith to the Professional Practice & Review Committee to determine what action is appropriate.
The notice of grounds of opposition is supported by the affidavit of John Kelly made on 25 February 2011.
Only Ms Hoffmann was required for cross-examination. I received as an exhibit during the course of that cross-examination a photocopy of the bankruptcy notice served on Mr Kelly[1].
[1] Exhibit A1
Mr Kelly submits that he did not commit any act of bankruptcy because the bankruptcy notice served upon him was defective and that the bankruptcy notice is thereby invalid. The petitioning creditors deny any defect in the bankruptcy notice and further submit that, if there is a defect, it is purely formal and can be corrected pursuant to s.306 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
Consideration
I am satisfied that, if the bankruptcy notice relied upon in the creditor’s petition was valid, the formal requirements for the making of a sequestration order under the Bankruptcy Act and Bankruptcy Regulations and the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) have been met. The issue to be resolved between the parties is whether the bankruptcy notice supporting the petition is valid. That is the issue to which the first three grounds in the notice of grounds of opposition to the petition relate. Ground 4 in that notice was not pressed.
There is no dispute that the bankruptcy notice in question (bankruptcy notice NN3990) was served on Mr Kelly on 23 September 2010.
I have before me a copy of that bankruptcy notice which was tendered in evidence (exhibit A1). The bankruptcy notice claimed the amount of $80,437.52 plus interest of $10,145.78, equalling $90,583.30.
From that amount was deducted payments made since the judgment or orders relied upon of $2,350 leaving a total debt claimed of $88,233.30. The bankruptcy notice includes a schedule of post judgment interest calculation which has been completed in handwriting. The first of two calculations of interest has been made on the basis of s.101 of the Civil Procedure Act 2005 (NSW) (“the Civil Procedure Act”) from 22 September 2006 to 13 July 2010 at four different rates of interest applicable within particular time periods specified in the schedule. The principal amount on which interest is claimed is $26,532. The judgment relied upon is a judgment of the Ryde Local Court in matter 309 of 2006. A notation under the calculation of interest states:
Please note: the amount claimed is the judgment debt in the Ryde Local Court as payment by the judgment debtor to judgment creditor in the sum of $850 post judgment. Interest has been claimed as if the payment had been made at the time of judgment.
There is a separate claim of interest in respect of the same judgment at the rate of interest applicable for the period between 14 July 2010 and 14 September 2010. That calculation is followed by the following notation:
Please note: the amount claimed has been adjusted to allow for a credit of $1,500 in accordance with orders made in the Federal Magistrates Court of Australia on 13 July 2010 in proceedings SYG 1456/2010. Interest has been claimed as if the payment had been made at the time of judgment.
No interest was claimed in relation to the judgments of the Local Court at the Downing Centre. Certificates of the five judgments relied upon were annexed to the bankruptcy notice.
The reference to the orders of this Court in proceedings SYG 1456 of 2010 is a reference to an order for costs against Suzanne and Antonio Chulio and in favour of Mr Kelly made by Registrar Hedge on 13 July 2010, which has been set off against the debt claimed.
The order of the Local Court at Ryde in case 309/2006 entered on
21 September 2006 was for a claim of $27,315 plus court costs of $67 giving a total amount of $27,382.
Mr Kelly asserts that the schedule of interest calculations was in error both in relation to the principal sum of the judgment upon which interest was calculated and in relation to the leap year in 2008.
I understand that the reference to the leap year is a reference to the fact that there was an additional day in that year on which interest should have been calculated. It is conceded on behalf of Mr Kelly that the asserted arithmetical errors in respect to interest favour him. It is further submitted that these inaccuracies in respect to the calculation of interest in the schedule amount to a formal defect or irregularity in the bankruptcy notice. The reference to a “formal” defect or irregularity is important, having regard to s.306 of the Bankruptcy Act which relevantly provides:
(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.
Mr Kelly submits that the defects or irregularities, while formal, will result in substantial injustice and prejudice to him through the making of a sequestration order.
The bankruptcy notice in issue replaces an earlier bankruptcy notice which was set aside by consent in proceedings SYG 1456 of 2010. The present bankruptcy notice Schedule of Post Judgment Interest Calculation refers to a principal amount of $26,532 from 22 September 2006 until 13 July 2010, while the amount of the judgment on
21 September 2006 was $27,382. I do not accept that there is any error in the calculation of post judgment interest, formal or otherwise.
The first notation to the first four interest calculations makes clear that Mr Kelly has been given the benefit of his payments totalling $850 post judgment as if those payments had been made at the time of judgment. A creditor is entitled to calculate interest on a basis beneficial to the debtor, so long as the interest is at the correct rate in accordance with s.101 of the Civil Procedure Act and the basis of calculation is clear. A creditor is entitled to claim interest on a lesser sum than the principal amount on which the creditor is entitled to claim interest. A creditor is also entitled to not claim interest for a particular day such as an additional day in a leap year. Provided that the basis of calculation is clear and the debtor benefits, there is no detriment to the debtor. I reject the first ground in the notice of grounds of opposition.
Likewise, the petitioning creditors gave Mr Kelly the benefit of the amount of $1,500 set off in respect of the period 14 July 2010 to
14 September 2010 as if the payment had been made at the time of judgment. Mr Kelly complains that it is not clear what the words “at the time of judgment” mean. In my view, it is tolerably clear that it was intended to be a reference to the commencing date for the calculation of interest for that period from 14 July 2010.
The calculation related to the judgment of the Ryde Local Court 309/2006 and the calculation was made as if the commencing date was the day after the order of this Court giving rise to the set off. That was not strictly correct as the date of judgment was 21 September 2006 but the intention of the petitioning creditors was clear. The debtor was to be given the benefit of the amount set off for the whole of the period of the calculation of interest after the set off arose. The defect in the use of the words “at the time of judgment” is purely formal and can be corrected pursuant to s.306 of the Bankruptcy Act. I do not accept that the imprecision of language in the notation results in any injustice or prejudice to Mr Kelly. I reject the second ground in the notice of grounds of opposition.
The third ground in the notice of grounds of opposition is that the copy of the bankruptcy notice schedule of post judgment interest calculation in respect to the handwriting under the narration “please note” is not sufficiently legible. It is not clear whether this objection relates to both notations beginning with those words or simply one of them. It is a curious objection because grounds 1 and 2 of the notice of grounds of opposition are the product of a very close analysis of the schedule of post judgment interest calculation which, in my view, would have included reference to the two notations. Indeed, ground 2 identifies particular words of the second notation. Mr Kelly gave affidavit evidence that he could not read the handwritten notation following the words “please note”. Ms Hoffmann, who supervised the preparation of that schedule by a paralegal, gave evidence that the copy served on
Mr Kelly was legible. This is an issue of fact for the Court to resolve by reference to the evidence. The best evidence I have of the legibility of the bankruptcy notice served on Mr Kelly is exhibit A1.
The schedule of post judgment interest, including the two notations, is clear on that copy. It is perfectly legible. I reject ground 3 in the notice of grounds of opposition.
I am satisfied that Mr Kelly committed the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof. I am not satisfied that Mr Kelly has advanced a reason for the Court not to make a sequestration order.
I will make a sequestration order and I will hear the parties as to costs.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 24 June 2011
0
0
3