Chulio v Kelly
[2010] FMCA 193
•25 March 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CHULIO & ANOR v KELLY | [2010] FMCA 193 |
| BANKRUPTCY – Creditor’s petition – amended bankruptcy notice – whether bankruptcy notice properly served – whether notice given under s.41(5) of the Bankruptcy Act 1966 (Cth) – whether bankruptcy notice contained formal defects or irregularities – no reference to provision under which interest claimed – incorrect rate of interest for part of period for which interest claimed – misstatement of total debt – failure to include all interest in Schedules of Interest in calculation of total debt due. |
| Acts Interpretations Act 1901 (Cth), s.25C Bankruptcy Act 1966 (Cth), ss.33, 40, 41, 43, 52, 306 Civil Procedure Act 2005 (NSW), s.101 Bankruptcy Regulations 1996 (Cth), regs.4.02, 16.01 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.2.06 Uniform Civil Procedure Rules 2005 (NSW), r.36.7 |
| Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10 Bendigo Bank Ltd v Williams and Others (2000) 98 FCR 377; [2000] FCA 482 Circle Credit Co-op Ltd v Lilikakis (2000) 99 FCR 592; [2000] FCA 667 Clyne v Deputy Commissioner of Taxation (No. 4) (1982) 66 FLR 301 Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425; [2008] FCAFC 185 Deputy Commissioner of Taxation v Cumins [No 5] [2008] FCA 794 George v Tricontinental Corporation Ltd (1994) 53 FCR 284 Irani v Hollyburton UK Ltd (2007) 163 FCR 329; [2007] FCA 1447 James v Deputy Commissioner of Taxation [2010] FMCA 106 James v Federal Commissioner of Taxation (1955) 93 CLR 631; [1955] HCA 75 Jones v Verity [2007] FMCA 1108 Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71; [1988] HCA 34 Malek v Macquarie Leasing Pty Ltd (2007) 156 FCR 552; [2007] FCAFC 14 National Australia Bank Ltd v Westbrook, in the matter of Westbrook [2000] FCA 246 Northam v Commonwealth Bank of Australia [1999] FCA 544 Pillai v Comptroller of Income Tax [1970] AC 1124 Project Blue Sky Inc and Others v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 Prudential-Bache Securities (Australia) Ltd v Warner [1999] FCA 1143 Re Danielle Pender Ex Parte: Warwick Ross Sullivan and Ross Francis Sullivan [1988] FCA 130 Re Wong ; Ex parte Kitson (1979) 38 FLR 207; [1979] FCA 67 Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120; [1999] FCA 255 Skalkos v T & S Recoveries Pty Ltd (2004) 141 FCR 107; [2004] FCAFC 321 Skouloudis v St George Bank Ltd (2008) 173 FCR 236; [2008] FCA 1765 T & S Recoveries Pty Ltd v Skalkos, in the matter of Skalkos [2004] FCA 816 The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33; [2000] FCA 1915 Vaughan v Beretov [2006] FMCA 1294 Wren v Mahony (1972) 126 CLR 212; [1972] HCA 5 |
| Applicants: | SUZANNE CHULIO & ANTONIO CHULIO |
| Respondent: | JOHN KELLY |
| File Number: | SYG 1576 of 2009 |
| Judgment of: | Barnes FM |
| Hearing dates: | 6 November 2009 & 11 December 2009 |
| Date for Last Submission: | 2 February 2010 |
| Delivered at: | Sydney |
| Delivered on: | 25 March 2010 |
REPRESENTATION
| Solicitors for the Applicants: | Consolidated Lawyers |
| Respondent: | In person |
ORDERS
The creditor’s petition be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1576 of 2009
| SUZANNE CHULIO & ANTONIO CHULIO |
Applicants
And
| JOHN KELLY |
Respondent
REASONS FOR JUDGMENT
Background
The applicants, Suzanne Chulio and Antonio Chulio, presented and filed a creditor’s petition in this court on 2 July 2009 seeking that a sequestration order be made against the estate of John Kelly, the respondent debtor.
The creditor’s petition is based on what is said to be a failure by the respondent to comply on or before 22 June 2009 with the requirements of a Bankruptcy Notice served on him on 1 June 2009 or to satisfy the court that he had a counter-claim, set-off, or cross demand as provided for in s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (the Act). The petition claimed that the debtor owed the creditors the amount of $86,237.93.
The respondent, who is self-represented, did not file a notice stating grounds of opposition (see Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) r.2.06(2)(b)), but filed affidavits on 14 October 2009, 3 November 2009, 13 November 2009, and two affidavits on 1 December 2009 which to a large extent are in the nature of submissions.
Before considering the bases on which the respondent opposes the petition, it is convenient to set out something of the history of proceedings between the parties.
In late 2005 Mr Kelly, trading as Gardenscape Landscapes and Design, agreed to carry out a landscaping project for the applicants. There was a dispute between the parties. On or about 23 February 2006 the applicants commenced proceedings in the New South Wales Consumer Trading and Tenancy Tribunal (the CTTT) against Mr Kelly in respect of what they claimed was defective work.
On or about 13 September 2006 the CTTT ordered that Mr Kelly pay the Chulios the sum of $27,315. On 21 September 2006 judgment was entered in Ryde Local Court for the amount of the CTTT judgment together with court costs of $67 (a total of $27,382). A certificate of order or judgment was issued by Ryde Local Court for that amount on 16 March 2009. A copy of that certificate is annexed to Bankruptcy Notice NN 1361 of 2009 issued on 8 April 2009. The certificate of order stated that the amount did not include an order of 1 August 2008 that the judgment debtor (Mr Kelly) pay the creditors’ costs of all the proceedings before the Local Court.
On 24 October 2006, after judgment had been entered in the Local Court, Mr Kelly filed a notice of motion in Ryde Local Court seeking that the proceedings be “stayed ex parte” on the basis of an application he had made to the CTTT for a rehearing. A stay of proceedings was granted.
However Mr Kelly’s application for a rehearing was refused by the CTTT, apparently on the basis that the CTTT did not have jurisdiction to consider the rehearing application as the amount in dispute was more than the monetary limit applicable at that time.
On about 25 October 2006 the Chulios filed a notice of motion in Ryde Local Court seeking that the stay be lifted and that a garnishee order that had been issued on St George Bank on 18 October 2006 be reinstated. On 25 October 2006 the stay of proceedings granted on 24 October 2006 was lifted.
On or about 28 October 2006 Mr Kelly requested a further reconsideration by the CTTT. However he was unsuccessful. He was advised by letter of 9 November 2006 that a rehearing could not be entertained.
According to Mrs Chulio’s affidavit evidence, she and her husband attempted to enforce the Ryde Local Court judgment debt against Mr Kelly by various means, including by way of writ for levy of property and a garnishee order.
In late July 2008 or early August 2008 Mr Kelly filed a further notice of motion in Ryde Local Court seeking an order that proceedings be stayed. The stay was granted. The Chulios filed a further notice of motion seeking that the stay be lifted. The stay of proceedings was lifted and an order was made (apparently on 7 August 2008) that Mr Kelly pay the costs of the Chulios in relation to all the proceedings in the Local Court (proceedings number 309/06).
In the meantime, having been unsuccessful in obtaining a reconsideration or rehearing by the CTTT, on 29 November 2006 Mr Kelly filed a summons in the Supreme Court of New South Wales (in proceedings number 30163/06) seeking leave to appeal the decision of the CTTT.
Mr Kelly was legally represented in relation to the application for leave to appeal. The summons alleged that there was an error of law on the part of the CTTT in relation to its findings about whether there was a repudiation of the contract between the parties; that it was “in error in failing to determine the fair and reasonable value of the works performed by [Mr Kelly]”; and that the CTTT had “denied [Mr Kelly] procedural fairness” because it had “allowed [the Chulios] to amend [their] application by increasing the amount of [their] claim and then refused [Mr Chulio] the right to an adjournment when it became apparent to [him] that it could not provide evidence in answer to the … amended claim”.
On or about 4 July 2007, Hoeben J of the Supreme Court dismissed the appeal with an order that Mr Kelly pay the Chulios’ costs (the first Supreme Court proceedings).
On or about 20 July 2007 Mr Kelly by his father, Mr Gregory Kelly, filed a notice of appeal in the Court of Appeal of New South Wales seeking leave to appeal from the Supreme Court decision. In about December 2007 the Chulios filed a notice of motion seeking that the Court of Appeal proceedings be dismissed or struck out. On or about 4 February 2008 a registrar of the Supreme Court ordered that the Court of Appeal proceedings be dismissed with an order that Mr Kelly pay the costs of “today”. Mrs Chulio’s understanding is that a application for review of the registrar’s decision was made by or on behalf of Mr Kelly, but that on or about 21 April 2008 the application was withdrawn and dismissed with costs against Mr Gregory Kelly.
On about 29 April 2008 Mr Kelly filed a further summons in the Supreme Court of New South Wales seeking leave to appeal against the CTTT decision (proceedings number 30047/08) and filed an amended summons on or about 27 May 2008 in which he claimed that the CTTT had erred in law in granting leave for Mr Kelly’s father to appear on his behalf at the CTTT hearing; and that Mr Kelly was denied procedural fairness in circumstances where, inter alia, the only expert evidence before the Tribunal was that of the expert who gave evidence on behalf of the Chulios.
The Chulios filed a notice of motion seeking dismissal of those proceedings. On or about 23 June 2008 Kirby J dismissed Mr Kelly’s summons and notice of motion and ordered that he pay the Chulio’s costs (the second Supreme Court proceedings).
Mrs Chulio’s evidence is that she and her husband have not, apart from the matters above, been served with any other pleadings that have been or will be filed in a court of competent jurisdiction by Mr Kelly in relation to the CTTT judgment.
The Bankruptcy Notice
Bankruptcy Notice NN 1361/09 was issued on 8 April 2009. The debt relied on in the Bankruptcy Notice that forms the basis for the creditor’s petition consists of the Ryde Local Court judgment debt based on the CTTT decision; costs in accordance with orders made by Ryde Local Court including the costs of the costs assessment; costs in relation to the first Supreme Court proceedings including the costs of the costs assessment; costs in relation to the Court of Appeal proceedings including the costs of the costs assessment; and costs in relation to the second Supreme Court proceedings including the costs of the costs assessment.
The Bankruptcy Notice in its original form claimed that Mr Kelly owed the Chulios a debt of $88,892.08 which was shown in the Schedule within the notice as made up of the amount of the certificate of judgment registered in the Local Court on 21 September 2006 ($27,382.00), together with $53,055.52 which, (as is apparent from annexures) is comprised of the legal costs ordered in the Local Court and Supreme Court proceedings described above together with the costs of each cost assessment. Copies of the order of the Local Court and the certificates of determination of the costs and costs assessments are attached to the original Bankruptcy Notice. In addition, the Bankruptcy Notice claimed interest in the sum of $8,454.56. Annexed to the Bankruptcy Notice are two Schedules of Interest. The first is a “Schedule of Interest for Claim $27,382.00” and claimed interest of $6,863.49 for the period 22 September 2006 to 3 April 2009. Interest was claimed at 9 per cent from 22 September to 31 December 2006 and at 10 per cent thereafter. There is no reference in the Bankruptcy Notice or in the annexures to the provision under which such interest is claimed.
The second annexure is a “Schedule of Interest for Legal Costs of $53,055.52”. Interest was calculated in each case at 10 per cent up to 2 April 2009 in relation to each of eight specified “Assessment Numbers” to a total of $1,591.07. Again there is no reference to the provision under which such interest is claimed.
On 18 May 2009 a registrar of this court made an order for substituted service of the Bankruptcy Notice. It was ordered that service of the Bankruptcy Notice may be effected: (a) by sending it on or before 25 May 2009 by pre-paid ordinary post to Mr Kelly at his Chester Hill address; and (b) by service on any person apparently over the age of 16 years at Mr Kelly’s Chester Hill address or by leaving it in the mailbox for the attention of Mr Kelly. It was also ordered that the Bankruptcy Notice should be deemed to be served on the debtor on 1 June 2009 and that it should be amended to require compliance within 21 days after 1 June 2009.
The amended Bankruptcy Notice
In accordance with the registrar’s orders, Bankruptcy Notice NN 1361/09 was amended to delete the words in paragraph three “after service on you of this Bankruptcy Notice” and to substitute the words “after 1 June 2009”. Hence the amended Bankruptcy Notice provided that the time from which Mr Kelly had 21 days to pay the debt or make an arrangement for settlement of the debt ran from 1 June 2009. This amendment was stamped as authorised by the Official Receiver on 20 May 2009.
The orders for substituted service required two specified forms of service. According to an affidavit of Sarah Malkoun sworn on 21 May 2009 the amended Bankruptcy Notice and a copy of the orders for substituted service were sent to Mr Kelly by pre-paid post to his Chester Hill address on 21 May 2009. There is no suggestion that the Bankruptcy Notice in this form was served on Mr Kelly in any other way.
The further amended Bankruptcy Notice
However, a further amended copy of Bankruptcy Notice NN 1361/09 was filed by the creditors with the Official Receiver on 28 May 2009.
A copy of the further amended Bankruptcy Notice was served on Mr Kelly on 29 May 2009 (together with documents that included the order for substituted service) by leaving the documents in the mailbox at Mr Kelly’s address in a sealed envelope marked for his attention.
The copy of the further amended Bankruptcy Notice annexed to the affidavit of service sworn by Nicholaos Tollas on 31 May 2009 (the service copy) shows that the amount of the debt claimed in paragraph one was amended to $86,237.93. The Schedule was amended to reduce the amount of interest claimed to $6,650.99; to alter the subtotal to $87,087.93; to insert a payment or credit since the date of the judgments or orders of $850.00; and to change the amount of the total debt owing to $86,237.93. It appears as follows in the Bankruptcy Notice:
SCHEDULE
| Column 1 | Column 2 |
| 1. Amount of judgments or orders | $27,382.00 |
| plus 2. Legal costs if ordered to be paid | $53,055.52 |
| plus 3. If claimed in this Bankruptcy |
|
| 4. Subtotal |
|
| less 5. Payments made and/or credits |
|
| 6. Total debt owing |
|
| $86,237.93 |
The amendments to paragraph one and to the Schedule in the service copy of the Bankruptcy Notice were both stamped as authorised by the Official Receiver for the Bankruptcy District of New South Wales. The authorisation stamp beside paragraph one bears a handwritten date of 28 May 2009. However the authorisation stamp beside the Schedule bears the date of 28 June (sic) 2009.
The first annexed Schedule of Interest for Claim was also amended in the copy of the Bankruptcy Notice served on Mr Kelly to state that it was a “Schedule of Interest for Claim
$27,382.00$26,532.00”. The initial amount claimed for the period 22 September 2006 to 3 April 2009 was unchanged at $6,863.49. However the amounts claimed for each of the periods 22 September 2006 to 31 December 2006 and 1 January 2007 to 3 April 2009 were changed (from $681.92 to $660.75 and from $6,181.57 to $5,989.68 respectively), as was the “continuing” daily rate (from $7.50190 to $7.26900 (sic)). The total interest shown as the sum of the two amounts of $660.75 and $5,989.68 was amended from $6,863.49 to $6,650.41(sic)). The amendments to this annexure do not bear any authorisation stamp. The Schedule of Interest appears as follows in the service copy of the further amended Bankruptcy Notice:
| SCHEDULE OF INTEREST FOR CLAIM | ||
| For the period 22/09/2006 to 03/04/2009 | Amount: | $6,863.49 |
| From 22/09/2009 to 31/12/2006 101 days at | 9.00% pa |
|
| From 01/01/2007 to 03/04/2009 824 days at | 10.00% pa |
|
| and continuing daily at the rate of | Total Interest: |
|
| $6,650.41 | ||
The service copy of the further amended Bankruptcy Notice also contained a Schedule of Interest for Legal costs of $53,055.52 which calculated total interest of $1,591.07 and was not amended.
There is evidence before the court of a letter dated 17 November 2009 from the Office of the Official Receiver which advised the creditors’ solicitors that a “registry error” had occurred in that a registry officer incorrectly dated the amendment to the Schedule within the Bankruptcy Notice, 28 June 2009 and confirmed that the amendment to the Schedule was made on 28 May 2009.
Also before the court is a copy of the version of Bankruptcy Notice NN 1361/2009 held by the Official Receiver. In that copy the amendment to paragraph one inserted the sum of $86,237.43 (not .93 cents). The amendments to the Schedule accord with those on the service copy of the further amended Bankruptcy Notice, except that the amendment stamp in relation to the Schedule is dated 28 May 2009. However the Official Receiver’s copy of the Bankruptcy Notice contains no amendments at all to the annexure headed Schedule of Interest for Claim $27,382.00.
The Office of the Official Receiver wrote to Mr Kelly and to the court on 8 January 2010 seeking to clarify the circumstances that caused discrepancies to occur between the registry copy of Bankruptcy Notice NN 1361/09 and the copy served on Mr Kelly. That letter explained that amendments had been noted and authorised on 28 May 2009 in accordance with the general practice of the Official Receiver, including amendments to the Schedule of Interest for Claim, but that this amended page was not officially stamped due to an oversight and was apparently not retained by the Official Receiver and not entered into the official copy of Bankruptcy Notice NN 1361/09.
I note also that while the amendment to paragraph one of the service copy of the Bankruptcy Notice inserted an amount of $86,237.93, the copy retained by the Official Receiver contains an amendment referring to $86,237.43. Hence there are a number of differences between the service copy of the further amended Bankruptcy Notice and the version retained by the Official Receiver.
By affidavit sworn on 31 May 2009 Nicholaos Tollas attested to service of a copy of the Bankruptcy Notice as annexed to his affidavit (that is, the service copy of the further amended Bankruptcy Notice) on Mr Kelly on 29 May 2009 together with a copy of the orders for substituted service made on 18 May 2009 and a covering letter from the solicitors for the creditors that was in the same terms as their letter of 21 May 2009 except that it referred to enclosing an amended Bankruptcy Notice filed on 28 May 2009, whereas the earlier letter referred to enclosing an amended Bankruptcy Notice filed on 20 May 2009.
In these circumstances the respondent raised in these proceedings issues about service of the Bankruptcy Notice, amendment of the Bankruptcy Notice and the validity of the Bankruptcy Notice.
The creditor’s petition
On 2 July 2009 the creditors presented a creditor’s petition in this court. The petition claimed as follows:
The respondent debtor owes the applicant creditors the amount of $86,237.93 pursuant to judgments entered up in Ryde Local Court being Proceedings Number 309/06 for the amount of $27,382.00 and the amount of $53,055.52, less payments made in the amount of $850.00.
The amounts claimed in the creditor’s petition do not add up to $86,237.93. It appears that a description of the basis for the claim for $53,055.52 and interest claimed in the Bankruptcy Notice as part of the total debt has been omitted from the items specified.
The creditor’s petition claimed that the respondent debtor failed to comply on or before 22 June 2009 with the requirements of a Bankruptcy Notice served on him on 1 June 2009 or to satisfy the court that he had a counter-claim, set-off or cross demand. In affidavits of final debt sworn by each of the creditors and filed on 6 November 2009, it was claimed that the amount of $86,237.93 owing by the respondent debtor to the applicant creditors was still unpaid.
When the matter first came before me on 20 October 2009 I listed it for hearing on 6 November 2009. At that stage the only material filed by Mr Kelly was an affidavit of 14 October 2009 in support of an adjournment application on the basis of a foreshadowed meeting with a member of staff of the Minister for Fair Trading and a senior officer from the CTTT to discuss his (and his father’s) concerns about the operation of the CTTT. He claimed he hoped to have the award against him withdrawn.
The parties were given the opportunity to file further evidence. The applicants filed an affidavit of Suzanne Chulio sworn on 26 October 2009 in relation to the history of the matter. On 3 November 2009 Mr Kelly filed an affidavit sworn on 3 October 2009 which gave his account of the dispute between the parties and took issue with the CTTT decision and procedures. On 6 November 2009 the applicants filed the usual affidavits of final debt and final search.
In the course of the hearing, issues in relation to amendments, service and validity of the Bankruptcy Notice were raised. Mr Kelly appeared to contend that he had given the creditors a notice under s.41(5) of the Bankruptcy Act disputing the validity of the Bankruptcy Notice. Mr Kelly claimed that the creditors had been notified within the time fixed for compliance with the Bankruptcy Notice that the sum claimed in the Bankruptcy Notice exceeded what was in fact due. As there was no evidence in this respect before the court, Mr Kelly, who is self-represented, was given the opportunity to file post-hearing affidavit evidence, including a copy of any notice disputing the validity of the Bankruptcy Notice given to the creditors within the 21 days from 1 June 2009 and an affidavit in relation to the manner in which such notice was given to the creditors.
In addition, each party was given the opportunity to file written submissions on issues about service and validity of the bankruptcy notice and errors in the creditor’s petition that had been canvassed in the hearing. These orders were made on the basis that the matter would only come back before the court if Mr Kelly filed evidence of a purported s.41(5) notice.
However the affidavit of Mr Kelly sworn on 11 November 2009 and filed on 13 November 2009 elaborated on his concern expressed at the hearing and in his earlier affidavit about the conduct and result of the CTTT hearing. He also took issue with the difference between the amount claimed in the creditor’s petition and in the affidavits in support. He attached evidence of a garnishee against a bank account and claimed the amount of the debt had been reduced and payment of over $2,000 made, but did not clarify his claim about giving notice to the creditors. He claimed generally that he was confused by the nature of the judgment creditors’ claims.
The applicants’ solicitors then filed written submissions on 19 November 2009. However these submissions also purported to put evidence before the court, in particular in relation to the issue of amendments to the Bankruptcy Notice that had been raised at the hearing.
Instead of confining himself to written submissions in reply on this issue, Mr Kelly then filed written submissions and two further affidavits (sworn on 25 November 2009 and 26 November 2009). One of these addressed the purported service of the Bankruptcy Notice (and attached an additional copy of his submissions), the other elaborated on his concerns about the CTTT hearing. He sought costs and made further submissions.
At this point I brought the parties back before the court to regularise the proceedings and address the “informal” attempts to put fresh evidence before the court and to ensure that each party had the opportunity to address all relevant matters (some of which had emerged in the post-hearing documents filed by the parties). Orders were then made for the parties to file further written submissions in relation to discrepancies between the creditors’ copy of the Bankruptcy Notice and ITSA’s filed copy and associated issues.
Several issues emerged on the material before the court relating to the service of the Bankruptcy Notice; validity of the Bankruptcy Notice (including the issue of a s.41(5)) notice); amendments to the Bankruptcy Notice; whether the court should go behind the CTTT decision and the costs orders on which the Bankruptcy Notice was based; service of the creditor’s petition and accompanying affidavits; the form of the creditor’s petition; whether the necessary supporting affidavits were filed; and the requirements of s.52 of the Bankruptcy Act in particular in relation to the exercise of the court’s discretion.
Service of the Bankruptcy Notice
As set out above, on 18 May 2009 a registrar of this court made substituted service orders in respect of the Bankruptcy Notice which required service both by (a) pre-paid ordinary post on or before 25 May 2009; and (b) by leaving the Bankruptcy Notice with a person above the age of 16 or in the mailbox at the respondent’s home address. No time was specified for the second form of service. However the orders provided that service in accordance with the order be deemed good and sufficient service and that the Bankruptcy Notice be deemed to be served on the debtor on 1 June 2009.
Pursuant to these orders, the time for compliance with the Bankruptcy Notice was amended in the copy of the Bankruptcy Notice served on the respondent by pre-paid ordinary post on 21 May 2009. I am satisfied on the basis of the affidavit of Sarah Malkoun sworn on 21 May 2009 that the amended Bankruptcy Notice, together with a copy of the court orders of 18 May 2009 and a letter from the solicitors for the applicants referring to an amended Bankruptcy Notice filed on 20 May 2009, was served in accordance with paragraph (a) of the order for substituted service.
However, further amendments were made to the Bankruptcy Notice (in particular reflecting a payment or credit of $850 and alterations to the interest claimed) before any service was effected by the second method provided for in the orders for substituted service.
I am satisfied, based on the affidavit of Nicholaos Tollas sworn on 31 May 2009, that a copy of the further amended Bankruptcy Notice was served on Mr Kelly by being left in an envelope marked with his name at his address in Chester Hill, accompanied by a copy of the order for substituted service and a letter from the solicitors for the applicants referring to an amended Bankruptcy Notice filed on 28 May 2009.
However this meant that two different versions of the Bankruptcy Notice were served on the respondent. The creditors sought to rely both on the affidavit of service of the amended Bankruptcy Notice and the affidavit of service of the further amended Bankruptcy Notice. However the same version of the Bankruptcy Notice was not served in the two ways required under the orders for substituted service. In my view service was not effected in accordance with the orders for substituted service made on 18 May 2009.
The solicitors for the applicants addressed this by a contention that the applicants relied on the affidavit of service of the further amended Bankruptcy Notice and that the respondent was not misled by the service of the amended Bankruptcy Notice and then the further amended Bankruptcy Notice.
There is authority to support the proposition that the fact that orders for substituted service have not been complied with does not preclude service in some other way, although this issue was not addressed by either party.
Section 40(1)(g) of the Act refers to a bankruptcy notice being served on the debtor, but the method of service of a bankruptcy notice is not prescribed under the Act, Rules or Regulations. In T & S Recoveries Pty Ltd v Skalkos, in the matter of Skalkos [2004] FCA 816 it was held that service of a bankruptcy notice could be effected in accordance with reg.16.01 of the Bankruptcy Regulations 1996 (Cth), where a substituted service order was made but not complied with by the method of service. As Wilcox J stated (at [16]), a substituted service order is “merely permissive” (and see `kalkos v T & S Recoveries Pty Ltd (2004) 141 FCR 107; [2004] FCAFC 321 at [30] – [31]). Hence the further amended bankruptcy notice could be served in some other way permitted by law.
Relevantly, reg.16.01(1)(c) of the Regulations provides for service of a document by being “left, in an envelope or similar packaging marked with the person's name, at the last‑known address of the person”.
There is no suggestion that the Chester Hill address was not Mr Kelly’s last-known address. I am satisfied that the service of the further amended bankruptcy notice on 29 May 2009 was in accordance with reg.16.01(1)(c). On that basis, under reg.16.01(2), in the absence of proof to the contrary, the further amended Bankruptcy Notice is taken to have been served when left at Mr Kelly’s last-known address. Such service was before the date of 1 June 2009 from which the time for compliance was to run under the amended Bankruptcy Notice.
Mr Kelly did not dispute that he received the further amended Bankruptcy Notice. Insofar as he raised an issue of confusion resulting from service of the further amended Bankruptcy Notice, as in Skalkos (at [18] and on appeal at [38]), there is no evidence that Mr Kelly read the order for substituted service as prescribing an exclusive method of service, discerned that it had not been complied with and decided to disregard the further amended Bankruptcy Notice for that reason.
Mr Kelly’s submission that the order for substituted service required that the Bankruptcy Notice “be amended so as to reflect that it be served on me after (sic) 1 June 2009”, misconstrues the orders, but not in such a manner as to support any contention that such confusion is a basis to question whether the requirement of service of the further amended Bankruptcy Notice was met.
Validity of the bankruptcy notice
In the course of proceedings, a number of issues arose in relation to the validity of the Bankruptcy Notice, notwithstanding that Mr Kelly did not file a notice of opposition. In essence these issues relate to whether there was a s.41(5) notice; possible defects or irregularities in the further amended Bankruptcy Notice; and amendments to the Bankruptcy Notice. It also became apparent that there were differences between the further amended Bankruptcy Notice served on Mr Kelly on 29 May 2009 and the file copy of the Bankruptcy Notice held by the Insolvency and Trustee Service Australia (ITSA).
The parties were given the opportunity to address these issues in submissions. Insofar as necessary, I would dispense with the requirement for a notice of opposition in these circumstances.
Section 41(5) of the Act.
Section 41(5) of the Act provides:
A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.
The amended Bankruptcy Notice served on 21 May 2009 claimed that an amount of $88,892.08 was due to the creditors. It is not in dispute that this exceeded the amount in fact due, as an amount of $850 had been garnisheed from Mr Kelly’s bank account.
As indicated above, it became apparent in the course of the hearing that Mr Kelly contended that he had informed the creditors that allowance had not been made in the amended Bankruptcy Notice served on 21 May 2009 for a payment or credit. He was given the opportunity to file and serve a copy of any notice that was given to the creditors within the 21 days from 1 June 2009 disputing the validity of the Bankruptcy Notice and an affidavit in relation to the manner in which such notice was given to the creditors. However Mr Kelly filed an affidavit of 3 November 2009 in relation to the decision of the CTTT and a further affidavit of 11 November 2009 which took issue with the amount claimed in the creditor’s petition on the basis that prior to filing of the creditor’s petition a garnishee had been made against his bank account for over $2,000. This did not address the matter in issue, although Mr Kelly did attest that while the judgment creditors had been awarded $27,315 at the CTTT hearing, there had been a “partial seizure on that” which he claimed had reduced the debt but did not appear to have been taken into account in the creditor’s petition.
Annexed to Mr Kelly’s affidavit of 13 November 2009 were copies of letters from St George Bank Limited to him dated 20 October 2006 and 8 November 2006 which referred to a debit to his account in the sum of $620 and a further debit of $230 in accordance with a garnishee order and advised that cheques had been forwarded to the creditors. It appears that these are the amounts that Mr Kelly claims were not taken into account in calculation of the debt due in the amended Bankruptcy Notice. However he did not put before the court evidence of any notice to the creditors that he disputed the validity of the Bankruptcy Notice on the grounds of misstatement of the sum specified as the amount due to the creditors.
There is in the material before the court a copy of a letter from the solicitors for the applicants to lawyers apparently acting for Mr Kelly as at 24 June 2009 in which it was advised that on 25 May 2009 the solicitor for the applicants had received a telephone call from a Mr Greg Kelly (who was understood to be Mr Kelly’s father) who had confirmed receipt of the Bankruptcy Notice. That is not proof of a s.41(5) notice.
In written submissions in relation to service of the bankruptcy notice, the solicitors for the applicant stated (although there is no evidence to this effect) that on or about 25 May 2009 the applicants’ solicitor was advised by the respondent debtor’s father by way of telephone that the sum of $850 was garnisheed from the respondent debtor’s bank account in part payment of the debt of $27,832 pursuant to a garnishee order granted by Ryde Local Court. According to the applicants’ submissions, on or about 28 May 2009 the solicitors confirmed the applicants’ instructions and amended the amount in paragraph one, the Schedule and the Schedule of Interest for Claim in the further amended Bankruptcy Notice.
The applicants contended however that the respondent debtor did not give notice pursuant to s.41(5) of the Bankruptcy Act to them or to their solicitor disputing the validity of the bankruptcy notice on the ground of misstatement of the amount due. It was submitted on this basis that the Bankruptcy Notice was not invalidated by reason only that the sum specified in the amended Bankruptcy Notice served on 21 May 2009 as the amount due to the creditors exceeded the amount in fact due in the absence of a s.41(5) notice of overstatement.
In Skouloudis v St George Bank Ltd (2008) 173 FCR 236; [2008] FCA 1765 Edmonds J held that if proper notice of an overstatement under s.41(5) of the Act has been given the bankruptcy notice is invalid from the time of its issue and cannot be amended or cured. However a bankruptcy notice may be amended or cured in the absence of or prior to a s.41(5) notice being given (where, for example, there was an overstatement due to clerical error that could not reasonably mislead the debtor). Hence it is critical to determine first whether a s.41(5) notice was given.
There is no suggestion that any notice was given in writing. While Mr Kelly is presently unrepresented, it is apparent that sometime in June 2009 he had representation, given the time of the correspondence between the solicitors for the applicants and Mr Kelly’s then solicitors in relation to service of the Bankruptcy Notice. However there is no suggestion from Mr Kelly that his former solicitors purported to give the creditors a s.41(5) notice.
In Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120; [1999] FCA 255 at [36] – [37] the Full Court of the Federal Court stated:
… the better view is that a notice by the debtor which simply asserts, without more, that the amount specified in the bankruptcy notice exceeds the amount actually due, does not comply with the requirements of s 41(5) of the Bankruptcy Act. The expression "the misstatement" strongly suggests that the debtor must do more than merely assert that there is a misstatement in the bankruptcy notice. The subsection requires the debtor to provide sufficient information in the notice to enable the creditor to identify what is said to be the alleged misstatement. …
This construction of s 41(5) of the Bankruptcy Act is supported by policy considerations. The object of a debtor's notice under s 41(5) is to inform the creditor that the debtor disputes the bankruptcy notice and does so on the ground of a misstatement contained in that notice. …
In written submissions the creditors’ solicitors conceded that on or about 25 May 2009 the debtor’s father advised by way of telephone that $850 had been garnisheed from the respondent debtor’s bank account. This concession is not a concession that a notice under s.41(5) was given. There is no notice of opposition in this case raising such an issue, rather it is an issue that emerged from what Mr Kelly said in the course of oral submissions. While he filed evidence of the garnishee, he did not file any evidence as to the giving of notice to the creditors pursuant to s.41(5) of the Act. In particular there is no evidence before the court as to any authorisation of Mr Kelly’s father to act on his behalf or any evidence that, whether in a conversation of 25 May 2009 or otherwise, notice was given to the creditors not only of payment of the garnisheed amount but also that the debtor disputed the validity of the Bankruptcy Notice on the ground of the misstatement.
The creditors’ written submissions neither constitute such evidence nor amount to an admission that a s.41(5) notice was given. I have borne in mind that Mr Kelly is presently self-represented and the fact that where there is a purported s.41(5) notice from such a person the court should adopt a “benevolent construction” (see Seovic at [38]). There is no requirement in s.41(5) that the notice be given in any particular form. In James v Deputy Commissioner of Taxation [2010] FMCA 106 Wilson FM expressed the view that an oral notice would suffice under s.41(5) provided it met the requirements of that section (although the applicant in that case did not satisfy his obligations under s.41(5)). It is not necessary to consider whether an oral notice would suffice in this case, as the evidence before the court does not establish that any notice that met the requirements of s.41(5) of the Act was given by Mr Kelly to the applicants or their solicitors. There is no evidence of a written notice and, notwithstanding the opportunity Mr Kelly was given to put further evidence before the court, there is no other evidence in relation to a possible s.41(5) notice, whether by way of a telephone conversation between Mr Kelly’s father and the solicitor for the creditors or by any other form of notification to the creditors.
On the evidence before the court it has not been established that a s.41(5) notice was given. I note that if a s.41(5) notice had been given it would not have been open to the creditors to amend the bankruptcy notice to “correct” the overstatement of the amount due, but that in the absence of a s.41(5) notice it was open to the creditors to amend the bankruptcy notice.
Defects or irregularities in the further amended bankruptcy notice
There are however a number of issues raised about the form and content of the further amended Bankruptcy Notice served on 29 May 2009 and the amendments that were made to the Bankruptcy Notice. It is necessary to refer in some detail to what appears in that Bankruptcy Notice.
The main issues in relation to the form of the further amended Bankruptcy Notice are first that the further amended Bankruptcy Notice does not specify the provision under which interest is being claimed and secondly that both annexed schedules of interest (which, it is conceded by the creditors, are intended to claim interest in accordance with provisions of the Civil Procedure Act 2005 (NSW) and Uniform Civil Procedure Rules 2005 (NSW)) claim interest at 10 per cent per annum on periods including periods after 5 March 2009 up to 2 or 3 April 2009 when in fact the applicable interest rate for the period after 5 March 2009 to April 2009 should have been nine per cent per annum and the amount of interest claimed should have been adjusted accordingly (see s.101 of the Civil Procedure Act and r.36.7 and Schedule 5 of the Uniform Civil Procedure Rules).
In addition, there are a number of errors or discrepancies in the amounts claimed in various parts of the further amended Bankruptcy Notice. In particular, there is a discrepancy between the interest of $6,650.99 claimed in the Schedule within the Bankruptcy Notice and the amounts of $6,650.41 claimed in the first annexed Schedule of Interest for Claim and $1,591.07 claimed in the second annexed Schedule of Interest for Legal Costs. Further, the first annexed Schedule of Interest, which is said to relate to a claim of $26,532.00 (which is not the amount of the judgment debt), specifies two different total amounts of interest for the period 22 September 2006 to 3 April 2009 and the amounts of interest claimed do not add up to either total amount. Moreover, the amendments to the first Schedule of Interest do not bear any stamp of authorisation by the Official Receiver.
It is also apparent that the amounts claimed in Items 1, 2 and 3 in the Schedule within the Bankruptcy Notice do not add up to the amount specified in the subtotal in that Schedule. This means that the claimed total debt owing, according to the Schedule and paragraph one, does not reflect the sum of individual items in the Schedule.
It is necessary to consider whether the notice suffers from defects which render it invalid or whether such defects can be cured under s.306(1) of the Bankruptcy Act.
The amended first annexed Schedule of Interest is set out above. The difference between the total interest claimed in the first annexed Schedule of Interest ($6,650.41) and in the Schedule in the Bankruptcy Notice ($6,650.99) is only .58 cents. The second annexed Schedule of Interest for Legal Costs of $53,055.52 has not been amended. It calculates total interest of $1,591.07 based on interest for eight specified costs assessments for periods between 12 November 2008 and 2 April 2009 all at the rate of 10 per cent per annum. Notwithstanding that the second Schedule calculates interest on legal costs, which make up part of the debt that forms the basis for the Bankruptcy Notice, it appears that the amount in the second annexed Schedule of Interest has not been included in the calculation of the total debt owing in the Schedule within the further amended Bankruptcy Notice (although it was included in the original version of the Schedule to the amended Bankruptcy Notice served on the debtor on 21 May 2009).
It is not in dispute that there is no disclosure anywhere in the further amended Bankruptcy Notice or the attached Schedules of Interest of the provision under which interest is claimed, either on the amount ordered by the CTTT as reflected in the certificate of order of the Local Court or on any of the amounts of costs or costs assessments relied on in the Bankruptcy Notice.
Note 2 to the Schedule requires that details of calculation of the amount of interest claimed be set out in an attached document which must state the provision under which interest is being claimed and the relevant principal sum, period, and interest rate or rates pertaining to the interest being claimed.
Section 101 of the Civil Procedure Act is the source of the entitlement to post-judgment interest on judgments of New South Wales courts. Relevantly, it provides that interest is payable on so much of the amount of a judgment as is from time to time unpaid, calculated at the prescribed rate or such other rate as the court may order, from the date on which the judgment takes effect or such later date as the court may order.
It is not in dispute in this case that the interest in question in each case was to be calculated at the prescribed rate. Under s.101(7) of the Civil Procedure Act that means by reference to the rate of interest prescribed in the Uniform Civil Procedure Rules for the purposes of s.101. Under r.36.7 of the Uniform Civil Procedure Rules the prescribed rate at which interest is payable under s.101 of the Civil Procedure Act is set out in Schedule 5 to the Rules.
In addition to the absence of any reference to the provision under which interest was claimed, the interest calculation in the annexed Schedules of Interest is incorrect as it does not reflect the reduced prescribed rate for post-judgment interest for periods after 5 March 2009 (see r.36.7 and Schedule 5 of the Uniform Civil Procedure Rules). This failure means that the calculation of interest involves an overstatement of the amount said to be due, insofar as interest is included in the total debt owing. Thus not only the amount of interest, but also the total amount claimed under the bankruptcy notice is incorrect.
Mr Kelly also contended that the actual calculation of interest at the rates specified was, in any event, incorrect based on what he contended were his more precise calculations.
While the creditors and debtor differ over the amount of the overstatement of interest overall and that attributable to use of the wrong interest rate after 5 March 2009 in relation to the interest claimed in the first schedule ($21.08 according to the creditors and $28.31 according to the debtor), it is not in dispute that the first Schedule annexed to the Bankruptcy Notice overstates the amount due. Having regard to the further amended Bankruptcy Notice as a whole, the creditors suggested that the amount of interest claimed in the Schedule within the Bankruptcy Notice should be viewed as an understatement, because while the Schedule of Interest for Legal Costs of $53,055.52 totalling $1,591.07 was also annexed to the further amended Bankruptcy Notice, no such amount or amount akin to this amount was claimed in the Schedule within the Bankruptcy Notice or included in the total debt of $86,237.93 said to be owing.
In any event, whether viewed as an overstatement of a component of interest and hence the total debt claimed in the Schedule, or as an understatement of the total debt due, what is apparent is that the combination of errors in the context of this Bankruptcy Notice amount to more than a simple miscalculation of the amount due.
Further, while s.41(5) of the Act provides that a bankruptcy notice is not invalidated “by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due”, in this case the notice cannot be said to be defective only by reason of the overstatement of the amount in fact due. The notice also omits the provision under which interest is claimed. This is a discrete “defect” (cf Deputy Commissioner of Taxation v Cumins [No 5] [2008] FCA 794 and Cumins v Deputy Commissioner of Taxation (2008) 172 FCR 425; [2008] FCAFC 185).
The applicants conceded that there was a failure to state the provision under which interest was claimed as well as errors in the interest rate claimed, but submitted that, consistent with the approach taken by the High Court in Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10, such defects were formal defects or irregularities not capable of causing substantial injustice and that they could be cured under s.306(1) of the Bankruptcy Act.
The applicants referred to Irani v Hollyburton UK Ltd (2007) 163 FCR 329; [2007] FCA 1447 on the basis that in that case a creditor claimed interest in a bankruptcy notice but failed to set out a calculation of the amount of interest claimed. However Middleton J held that there was no defect or irregularity because there had been substantial compliance with the prescribed form and in the particular circumstances of the case the interest calculation was not made essential by the Act.
Reliance was also placed on Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71; [1988] HCA 34 in support of the contention that an understatement (rather than an overstatement) of the amount owing by the debtor could be regarded as a formal defect or irregularity within s.306 of the Act.
In written submissions Mr Kelly contended that s.41(2) of the Bankruptcy Act required the bankruptcy notice to be in accordance with the form prescribed and that compliance with that form was mandatory so that non-compliance rendered the notice invalid and liable to be set aside. He submitted that the circumstances in Adams v Lambert could be distinguished from the present case, as it was said not to be apparent whether the Schedule of Interest related to pre-judgment or post-judgment interest and to what parts of the claim it related and hence it was confusing. It was also said that this was not a case in which there was a misdescription of statutory provisions, but rather there was no description at all of the statutory provision under which interest was claimed. Hence it was said that it was not apparent under which Act interest was being claimed. Given that the Bankruptcy Notice relied on judgments from different courts this was said to be confusing. It was also said that the absence of disclosure meant that the respondent was unable to set upon a train of enquiry in order to find the relevant rate of interest (Adams v Lambert at [13]).
Mr Kelly submitted that in Irani v Hollyburton UK Ltd the bankruptcy notice provided the required detail of the calculation of interest, whereas in this case the relevant provisions were not referred to at all in the Bankruptcy Notice. It was pointed out that this was not a case in which interest was calculated by a court. Rather, interest was claimed in relation to a number of judgments and none of them provided the basis for or specified the section relied upon for the calculation of interest in the Bankruptcy Notice. This was said to be a question of substance, such as to cause a debtor in the position of Mr Kelly some significant confusion.
The respondent also submitted that these errors needed to be considered in the context of the other difficulties with the Bankruptcy Notice. It was contended that these were not formal defects or irregularities that could be cured pursuant to s.306(1) of the Bankruptcy Act because the Bankruptcy Notice was capable of misleading the debtor as to what he had to do to comply with the Notice and/or failed to meet a requirement made essential by the Act and on this basis was invalid.
Where a debtor has committed an act of bankruptcy and certain other requirements are met, the court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor (see ss.43 and 52 of the Act). However if the alleged act of bankruptcy is based on non-compliance with a bankruptcy notice that is a nullity, that does not suffice to found a petition (see National Australia Bank Ltd v Westbrook, in the matter of Westbrook [2000] FCA 246 at [15]).
Section 41(2) of the Bankruptcy Act provides that a bankruptcy notice “must be in accordance with the form prescribed by the regulations”. Regulation 4.02(2) of the Bankruptcy Regulations prescribes the form of bankruptcy notice set out in Form 1 in Schedule 1 to the Regulations for the purposes of subsection s.41(2) of the Bankruptcy Act.
In this instance it is clear that the Bankruptcy Notice is affected by a defect or irregularity. The failure to state the provision under which post-judgment interest was claimed and the misstatement of the percentage rate at which interest was claimed for part of the period constitute such defects or irregularities. It cannot be said that notwithstanding such errors the Bankruptcy Notice substantially complied with Form 1 (see s.25C of the Acts Interpretations Act 1901 (Cth), Adams v Lambert at [22] and Malek v Macquarie Leasing Pty Ltd (2007) 156 FCR 552; [2007] FCAFC 14). Similarly, the erroneous statement of the amount of interest owing on a judgment debt (and hence of the amount due) is a defect or irregularity (see Adams v Lambert at [24]). Indeed the bankruptcy notice suffers from a number of other minor defects or irregularities consisting of mathematical errors. What has to be determined is whether the defects are mere formal defects or irregularities able to be cured under s.306(1) of the Bankruptcy Act which provides:
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 High Court in Adams v Lambert outlined the approach to be taken to the question of whether a defect or irregularity was formal as follows at ([24] – [28]):
The composite expression "a formal defect or an irregularity", in its application to a bankruptcy notice, conveys a meaning with elements of both inclusion and exclusion. A failure to comply with a requirement, to be found in the Act, imposed by reference to the regulations as to information to be furnished by the notice, is a defect or irregularity. So, in Kleinwort Benson Australia Ltd v Crowl, an erroneous statement of the amount of interest owing on a judgment debt was a defect or irregularity. What is excluded from the section is a defect or irregularity of such a nature that, reading s 306 in the context of the whole Act, it is not "a formal defect or an irregularity". What kind, or degree, of defect is to be regarded as having such a nature?
In some cases the answer to that question may be easy. In others, a difficult question of judgment may be involved. The matter for judgment was identified by this Court in Kleinwort Benson Australia Ltd v Crowl. In that case, the majority contrasted the concept of a formal defect or irregularity with a defect or irregularity that renders a bankruptcy notice a nullity that cannot be saved by s 306. To describe a defect as merely formal, or to describe a notice as a nullity, is, of course, to state a conclusion, rather than the reason for reaching that conclusion. Even so, it is necessary to identify the question that arises for judgment. The majority, referring to James v Federal Commissioner of Taxation, and Pillai v Comptroller of Income Tax, summarised the exclusionary aspect of the meaning of "a formal defect or an irregularity" by saying:
“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.”
The question of construction raised by the words "a formal defect or an irregularity" is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authority it was said: "A better test ... is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid ... In determining the question of purpose, regard must be had to `the language of the relevant provision and the scope and object of the whole statute.’”
If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity. …
The other exclusionary aspect of the expression “a formal defect or an irregularity” in s 306 was said to consist in a failure to meet a requirement made essential by the Act. Here again, the word “essential”, in its application in a particular case, involves a conclusion. If a requirement is made essential by the Act, then a failure to meet that requirement is not a formal defect or an irregularity within the meaning of s 306. Whether a requirement is made essential is to be decided by a process of statutory construction undertaken in the manner described above. (Footnotes omitted).
Thus the relevant inquiry is whether the Bankruptcy Notice failed to meet a requirement made essential by the Bankruptcy Act or Regulations or whether it could reasonably mislead a debtor as to what was necessary to comply with the notice.
As pointed out in Adams v Lambert at [22], the requirement to state the “provision” under which interest is claimed appears in Note 2 to the Schedule within the Bankruptcy Notice. It requires reference to a section of the applicable legislation. In Adams v Lambert the bankruptcy notice referred to s.83A of the District Court Act 1973 (NSW) when it should have referred to s.85 of that Act. Such a defect was considered by the High Court to constitute a formal defect or irregularity able to be cured within s.306(1) of the Bankruptcy Act. However in this case there is neither a reference to any applicable legislation nor a reference to a specific section.
The requirement to state the rate at which interest was claimed is also contained in Note 2 to the Schedule. In this case a rate was stated, but it was an incorrect rate for part of the period and hence resulted in a miscalculation of the interest and thus the total amount due to the creditors. Moreover the first annexed Schedule of Interest, claimed interest on an amount other than the amount of the judgment debt and the amount claimed in the Schedule within the Bankruptcy Notice did not accord with the amounts specified in the annexed Schedules.
Having regard to the process of statutory construction referred to in Adams v Lambert, I am satisfied in this case that the failure to refer to the provision under which interest was claimed is a failure to meet a requirement made essential by the Bankruptcy Act and Bankruptcy Regulations. Note 2 to the Schedule in Form 1 provides that if interest is being claimed in the bankruptcy notice, details of the calculation of the amount of interest are to be set out in the attached document which must state the provision under which interest is being claimed, as well as the relevant principal sum, period, and interest rate or rates pertaining to the interest being claimed. It also points out that if different rates are claimed for different periods full details must be shown. In this instance not only did the Bankruptcy Notice not refer to any provision under which the interest was being claimed in relation to any of the judgments providing the basis for the Bankruptcy Notice, but moreover it incorrectly claimed interest at a rate of ten per cent per annum for the period after 5 March 2009, notwithstanding that the prescribed rate for that time was nine per cent per annum. Even if the latter error was regarded in isolation as a formal defect or irregularity, it is a circumstance to be taken into account in considering the nature of the failure to refer to any provision under which interest was claimed.
Of particular relevance are the remarks of the High Court in Adams v Lambert in relation to the purpose of the requirement to state the provision under which interest is being claimed. As the Court stated at [13] – [14]:
The evident purpose of the requirement to state the provision under which interest is being claimed is to assist the debtor to check the claim. Nevertheless, as Kiefel J pointed out in her dissenting judgment in Bendigo Bank Ltd v Williams, such information is normally incomplete. It would tell a debtor who is represented by a lawyer something the lawyer would, or should, already know. It would set an unrepresented debtor upon a train of inquiry that, in most cases, would require further information in order to find the relevant rate of interest.
The requirement in question is established by three levels of prescription. Section 41(2) of the Act states that a bankruptcy notice must be in the form prescribed by the regulations. Regulation 4.02 states that, for the purposes of s 41(2), the form set out in Form 1 is prescribed. Note 2 to the Schedule in Form 1 states that a document attached to the notice must state the provisions under which interest is being claimed. The use of the word “must” is significant, but it should be kept in perspective. A prescription as to a form to be followed will normally be expressed in language of obligation rather than of permission. That is the idea of a form. Such a prescription raises the question to be considered in the present case; it does not answer it. (Footnotes omitted).
The “evident purpose” of the requirement that the bankruptcy notice state the provision under which interest is claimed is “to assist the debtor to check the claim” (Adams v Lambert at [13]). Where, as here, the bankruptcy notice was based on several judgments or orders, it is essential that the source of the entitlement to interest be identified, notwithstanding that correct completion of the prescribed form “in every respect” is not a requirement made essential by the Act (see Adams v Lambert at [32]).
I am satisfied that the defect in this instance can be distinguished from a misdescription of the relevant section of applicable legislation as considered in Adams v Lambert. It is not a mere mistaken citation of the source of entitlement to claim interest (see Adams v Lambert at [33] referring to the approach taken by Lee J in The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 at 68; [2000] FCA 1915). In Adams v Lambert the defect under consideration was a misstatement of a section of the correct legislation under which interest was claimed in the judgment, but the information as to the rate and amount of interest was correctly stated. That is not the position in this case. Moreover, in contrast to the position in Adams v Lambert, the schedules of interest in this case did not make it abundantly clear that the interest claimed was in relation to a judgment and was post-judgment interest (see Adams v Lambert at [19]). Indeed the first Schedule of Interest in the further amended Bankruptcy Notice claims interest on an amount that is not the amount of the judgment debt.
While the Act no longer contains a provision such as the former s.41(2)(a)(i) which required interest to be claimed “in accordance with the judgment”, it is consistent with the purpose of the Bankruptcy Act that a bankruptcy notice based on a judgment debt should, whether in the attached Schedule or elsewhere in the bankruptcy notice, make clear the fact that interest was claimed on the judgment that formed the basis for the bankruptcy notice as a matter of substance. Even if the Bankruptcy Notice did so in relation to the interest for legal costs in the Schedule which referred to a number of different assessment numbers, the Schedule of Interest for the Claim of $26,532.00 makes no reference to the fact that interest was claimed on the judgment consisting of the order of the Local Court at Ryde based on the decision of CTTT (less the amount paid or credited).
In that context the failure to state any provision under which interest was claimed and the manner in which interest was claimed fails to meet the evident purpose of these requirements, which is to assist the debtor to check the claim. While, as acknowledged in Adams v Lambert (at [13]), such information is “normally incomplete”, in this case there was simply no disclosure whatsoever of necessary information to enable the debtor to check the claim.
Even if the absence of such information may not of itself be such as to be capable of misleading the debtor as to what he had to do to comply with the notice (putting on one side for the moment the question of the errors in relation to calculation of interest), the absence of any information at all as to the source of the obligation to pay interest in combination with the other errors in the Bankruptcy Notice is not a mere slip. As the High Court made clear in Adams v Lambert at [31]: “[t]he practical significance of an error or deficiency could vary according to the circumstances of each particular case. Errors or deficiencies in compliance with requirements as to form may involve questions of degree as well as of kind.”
It is the case that, as Middleton J suggested in Irani v Hollyburton UK Ltd, “the calculation of interest in itself is not necessarily an essential requirement of the Act, irrespective of the circumstances of this case” (at [32]) and that overstatement or understatement of the amount of post-judgment interest owing would not necessarily constitute a failure to comply with a requirement made essential by the Act (see Kleinwort Benson Australia Limited v Crowl and Adams v Lambert at [37]). Some instances of non compliance with the form of a notice will not invalidate the notice but may be cured under s.306. However, as Middleton J stated in Irani v Hollyburton UK Ltd at [31], “[t]he whole purpose of the essential requirements of the Act is to inform the debtor clearly and simply of the basis of the debt said to be owed” (and see Adams v Lambert at [13]).
In Irani v Hollyburton UK Ltd Middleton J was of the view that that purpose had been achieved notwithstanding that interest was not calculated in the document annexed to the bankruptcy notice having regard to the bankruptcy notice as a whole. However in that case there was a reference in the bankruptcy notice to an order of the Supreme Court of Victoria which calculated the amount of interest, so that there was not and could not be any dispute about the amount of interest claimed. It was in those circumstances that the Court was satisfied that the bankruptcy notice made clear the fact that interest was claimed on the judgment that formed the basis for the notice and also the amount of the interest.
I note that, consistent with my view, in Jones v Verity [2007] FMCA 1108 McInnis FM found that a failure in a bankruptcy notice to refer to any Act of Parliament giving rise to an entitlement to interest involved “a failure to comply with the requirement made essential by the Act” (at [83]). In the interests of judicial comity I should follow this approach unless I am persuaded that it is clearly wrong. I am not so persuaded. In that case, as in this case, Adams v Lambert was distinguishable. In Jones v Verity there was a reference to legislation in the bankruptcy notice, but it was to legislation that did not provide an entitlement to any interest. In this case there is no reference to any legislative basis for the interest claimed at all and the interest was not in fact calculated correctly in accordance with the applicable provisions (cf George v Tricontinental Corporation Ltd (1994) 53 FCR 284). The Bankruptcy Notice also failed to make it clear (in relation to an aspect of the interest claimed) that the interest was claimed on the judgment reflected in the order of the Local Court attached to the Bankruptcy Notice (or, indeed, whether interest on the costs assessments was claimed).
Consistent with the approach in Jones v Verity, I am of the view that, having regard to the significance of the particular deficiency in the circumstances of this case, the legislative purpose of the Bankruptcy Act and the provisions relating to bankruptcy notices, there has been a failure to meet a requirement made essential by the Act. In light of the kind of mistake, the degree of error and the notice as a whole I am satisfied that the combination of defects constitutes a substantive defect or irregularity such as to exclude the operation of s.306 of the Act (see Lee J in Lewis at [68]).
Moreover in this case the combination of shortcomings in the Bankruptcy Notice is such that it could reasonably mislead a debtor as to what was necessary to comply with the notice.
There was not simply a reference to the wrong provision in legislation under which post-judgment interest was claimed. The basis on which interest was claimed was not made clear as a matter of substance. Having regard to the Bankruptcy Notice as a whole, the significance and importance of the omission of the provision under which interest was claimed and the use in part of the incorrect interest rate, the possibility of confusion to a debtor was added to by the miscalculations in the amounts of interest claimed and the fact that while a Schedule of Interest for Legal Costs was annexed to the Bankruptcy Notice, it was not clear whether the amounts in that Schedule were intended to be claimed, as they did not appear to be included (at least in an identifiable form) in the Schedule to the Bankruptcy Notice. In these circumstances a debtor might reasonably be misled as to what he needed to do to comply with the bankruptcy notice. While an overstatement of interest and hence of the total amount due does not of itself invalidate a notice in the absence of a s.41(5) notice, in this case the information in the Bankruptcy Notice did not enable the debtor to identify or verify that there was a misstatement, let alone the amount of the misstatement.
I have borne in mind that the bankruptcy notice must be considered as a whole and can be read in light of facts extraneous to the notice itself and that it should be read sensibly and not perversely (see Northam v Commonwealth Bank of Australia [1999] FCA 544 per Weinberg J). However in this instance the service of two bankruptcy notices with the differences described above can only have added to, rather than detracted from, the possibility of confusion as to the amount in fact due and the source or sources of the debtor’s liability where a number of judgments or orders were relied on and two Schedules of Interest were attached but amounts claimed that differed in each Bankruptcy Notice and in the further amended Bankruptcy Notice did not reflect the amounts in the Schedules of Interest.
Hence the defects are not formal defects or irregularities capable of being cured under s.306 of the Act. The Bankruptcy Notice is invalid. An invalid bankruptcy notice is a nullity and of no effect. It cannot be amended pursuant to s.33(1)(b) of the Act. It cannot be relied on to found the act of bankruptcy relied on by the creditors (see Skouloudis v St George BankLtd). Hence the creditor’s petition should be dismissed.
These findings are sufficient to dispose of this case and make it unnecessary, strictly speaking, to determine the issues raised by the fact that there were amendments to the Bankruptcy Notice that were on their face unauthorised and the discrepancies between the service copy of the further amended Bankruptcy Notice and the copy of the Bankruptcy Notice in the registry of ITSA.
There are a number of authorities in relation to amendment of a bankruptcy notice on which I was not addressed. I note that as Lockhart J pointed out in both Clyne v Deputy Commissioner of Taxation (No. 4) (1982) 66 FLR 301 at 305 and Re Wong ; Ex parte Kitson (1979) 38 FLR 207 at 217; [1979] FCA 67 and Einfeld J referred to with approval in Re Danielle Pender Ex Parte: Warwick Ross Sullivan and Ross Francis Sullivan [1988] FCA 130 at [17]: “a debtor is not required to manipulate a track through a bankruptcy notice to resolve questions of doubt or ambiguity” (and see Vaughan v Beretov [2006] FMCA 1294).
The parties made written submissions on the relevance of amendments, but did not address the question of whether the Bankruptcy Notice served on 29 May 2009 was a “bankruptcy notice under this Act” as required by s.40(1)(g), s.41(1) and reg.4.02 (compare Circle Credit Co-op Ltd v Lilikakis (2000) 99 FCR 592; [2000] FCA 667 and Prudential-Bache Securities (Australia) Ltd v Warner [1999] FCA 1143 in relation to whether apparently unauthorised amendments invalidate a bankruptcy notice). While the applicants raised the possible application of s.306 of the Act, there is an issue as to whether s.306 is applicable to such amendments (see Re Pender at [18]).
Given the manner in which these matters were addressed in submissions and as resolution of these issues is not essential because the Bankruptcy Notice is invalid, I consider it preferable not to embark on a determination of such matters in this case, particularly as issues of some complexity may be raised by the fact that the Bankruptcy Notice as served was not in the same form as the official copy retained by ITSA.
Issues about the CTTT decision and the costs determinations
Although it is not necessary to consider whether the requirements of s.52(1) of the Bankruptcy Act are met in this case, it is, however, appropriate to refer to Mr Kelly’s extensive submissions taking issue with the procedure and decision of the CTTT decision that formed the basis for the Local Court certificate of order relied on in the Bankruptcy Notice, insofar as this could be seen as a submission that the court should “go behind” the decision of the CTTT.
As the matter was addressed in detailed submissions, I consider it appropriate to indicate that (assuming that the principles in Wren v Mahony (1972) 126 CLR 212; [1972] HCA 5 are applicable to going behind a decision of a Tribunal registered as an order of the Local Court), on the submissions and material before the court I am not persuaded that there are substantial reasons for questioning whether behind the CTTT decision there was in truth and reality a debt due to the petitioner.
The judgments or orders on which the Bankruptcy Notice was based are the certificate of order of the Ryde Local Court in relation to the order of the CTTT and various certificates of determination of costs in relation to subsequent related Local Court and Supreme Court proceedings between the applicants and the respondent.
As Barwick CJ (with whom Windeyer and Owen JJ agreed) stated in Wren v Mahony at [16], in relation to the court’s discretion to accept a creditor’s judgment as proof of the debt relied on to found the creditor’s petition (see s.52(1)(c) of the Bankruptcy Act):
The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of [the petitioning creditor’s] debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.
However the court will not go behind a judgment as a matter of course. The CTTT decision was not in the nature of a default judgment. Further, while Mr Kelly unsuccessfully sought that the CTTT conduct a rehearing, he also applied for leave to appeal to the Supreme Court of New South Wales on the basis of a claimed error of law and lack of procedural fairness (issues Mr Kelly canvassed in submissions in these proceedings). Hoeben J dismissed the appeal on or about 4 July 2007. An appeal to the Court of Appeal was dismissed on or about 4 February 2008. Moreover a second summons seeking leave to appeal against the CTTT judgment was heard and dismissed by Kirby J on or about 23 June 2008. Mr Kelly has exhausted his avenues of appeal and there is no evidence of any other proceedings on foot. The fact that Mr Kelly is of the view that he is waiting for a response to his complaints to the Minister is not such as to warrant going behind the decision of the CTTT. The evidence relied on in that respect indicates that by letter of 28 September 2009 the Minister for Fair Trading advised Mr Kelly’s father that she was satisfied the matters he had raised had been addressed. The Minister noted Mr Kelly’s appeal to the Supreme Court on the grounds of denial of procedural fairness had been dismissed with costs and that there was no further avenue available to him at the CTTT. I also note that while in his affidavit of 14 October 2009 Mr Kelly attested that the purpose of the meeting from his perspective was to seek to have the award against him withdrawn, there is no suggestion that this has occurred. The circumstances are not such as to establish that the court should go behind the CTTT judgment.
Mr Kelly also took issue with the fact that the Bankruptcy Notice was based on more than one judgment, submitting that this was a defect. However two or more judgments debts may be combined in the same notice (see s.41(1)(b)). This does not constitute a defect. Further, insofar as Mr Kelly took issue with “duplication” in bills of costs and costs assessments in relation to the Local Court and Supreme Court proceedings this does not establish that the certificates of assessment should not be accepted as proof that the debts in question were due.
It is not otherwise appropriate to address or determine Mr Kelly’s concerns about service of the creditor’s petition and accompanying affidavits and the matters stated in the creditor’s petition in these proceedings as the creditor’s petition should be dismissed.
I certify that the preceding one hundred and thirty (130) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 25 March 2010
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