Coleman v Gannaway

Case [2023] FCA 224

FEDERAL COURT OF AUSTRALIA

Coleman v Gannaway [2023] FCA 224   

File number: NSD 967 of 2022
Judgment of: JACKMAN J
Date of judgment: 16 March 2023
Catchwords: BANKRUPTCY AND INSOLVENCY – application to set aside bankruptcy notice issued under s 41(1) of the Bankruptcy Act 1966 (Cth) – where bankruptcy notice includes arithmetical error in currency conversion – where bankruptcy notice annexes two judgments – where creditor claimed lesser sum in bankruptcy notice than actual sums constituting foreign currency judgment debt – whether defect in bankruptcy notice is merely formal
Legislation:

Acts Interpretations Act 1901 (Cth) s 25C

Bankruptcy Act1966 (Cth) ss 30, 41, 306

Bankruptcy Regulations 2021 (Cth) regs 8, 9, 12; sch 1
Cases cited:

Adams v Lambert (2006) 228 CLR 409

Dua v Dawn Jade Ltd [2015] FCA 505

Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71

Mastronardo v Commonwealth Bank of Australia Ltd (2019) 269 FCR 529

Parianos v Lymlind Pty Ltd (1999) 93 FCR 191
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 47
Date of hearing: 9 March 2023
Counsel for the Applicant: Mr T Smartt
Solicitor for the Applicant: Shiff & Company
Counsel for the Respondent: Mr NYH Li
Solicitor for the Respondent: David Legal

ORDERS

NSD 967 of 2022
BETWEEN:

DAVID COLEMAN

Applicant
AND:

PAUL GANNAWAY

Respondent

ORDER MADE BY:

JACKMAN J

DATE OF ORDER:

16 MARCH 2023

THE COURT ORDERS THAT:

1.Pursuant to s 30(1) of the Bankruptcy Act1966 (Cth), the Bankruptcy Notice BN 257781 issued on 24 October 2022 at the request of the respondent be set aside.

2.The respondent pay the applicant’s costs.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

JACKMAN J:

  1. The applicant in these proceedings seeks an order setting aside the Bankruptcy Notice BN 257781 issued on 24 October 2022 at the request of the respondent (the Bankruptcy Notice), pursuant to s 30(1) of the Bankruptcy Act 1966 (Cth) (the Act).

  2. On 15 October 2021, the High Court of the Republic of Singapore entered judgment against the applicant in favour of the respondent ordering the applicant to pay:

    (1)The sums of SGD825,000 and USD55,000;

    (2)Interest of 5.33% per annum on the sum of SGD750,000 from 15 September 2021 till the date of this judgment;

    (3)Interest of 10% per month on the sum of USD50,000 from 13 January 2020 till the date of this judgment; and

    (4)Costs on an indemnity basis, fixed at SGD9,000 (all in), inclusive of the costs of HC/SUM 3747/2021 and the proceedings in HC/S 1085/2020.

  3. I will refer to that judgment as the Singaporean Judgment.

  4. On 18 February 2022, the Supreme Court of New South Wales registered the Singaporean Judgment. I will refer to that judgment as the NSW Judgment. The terms of the NSW Judgment are relevantly as follows:

    David James Henry Coleman, first defendant is to pay Paul…

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Details
AGLC
Coleman v Gannaway [2023] FCA 224
Case
[2023] FCA 224
Decision Date

CaseChat Overview and Summary

The matter of Coleman v Gannaway, which came before the Supreme Court of New South Wales, involved a dispute concerning the validity of a bankruptcy notice issued under section 41(1) of the Bankruptcy Act 1966 (Cth). The notice, which was issued by the Official Receiver at the request of the respondent, annexed two judgments: one in Singaporean Dollars and another in United States Dollars. The applicant sought to set aside the bankruptcy notice, primarily due to an arithmetical error in the currency conversion calculation presented in the notice.

The key legal issues before the court were whether the arithmetical error in the currency conversion calculation in the bankruptcy notice rendered it defective, and if so, whether this defect was merely formal. The court had to consider whether the error was significant enough to render the notice a nullity, or if it could be considered a minor irregularity that did not affect the fundamental compliance with the statutory requirements. The respondent argued that the error was not material and that the notice was still valid despite the discrepancy.

In determining the matter, the court examined the statutory and regulatory framework governing the issuance of bankruptcy notices. The court noted that the regulation required the bankruptcy notice to include the conversion calculation for the equivalent amount in Australian currency. The arithmetical error in the conversion calculation meant that the notice did not comply with this requirement. The court further considered the principles established in relevant case law, which indicated that a bankruptcy notice could be declared a nullity if it failed to meet an essential requirement made by the Act or if it could reasonably mislead the debtor. The court concluded that the non-compliance with the regulation was a formal defect that rendered the notice invalid.

Consequently, the court set aside the bankruptcy notice issued on 24 October 2022 and ordered that the respondent pay the applicant’s costs. The court's decision highlighted the importance of strict compliance with statutory and regulatory requirements in the issuance of bankruptcy notices, particularly in relation to currency conversion calculations.

Orders

Orders of the court

1. Pursuant to s 30(1) of the Bankruptcy Act 1966 (Cth), the Bankruptcy Notice BN 257781 issued on 24 October 2022 at the request of the respondent be set aside.

2. The respondent pay the applicant’s costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

On 18 February 2022, the Supreme Court of New South Wales registered the Singaporean Judgment. I will refer to that judgment as the NSW Judgment. The terms of the NSW Judgment are relevantly as follows:David James Henry Coleman, first defendant is to pay Paul Roland Gannaway, first plaintiff the sum ofClaim amount: $825,000.00Interest claimed: $3390.57Filing fees: $1169.00Other costs: $900.00TOTAL: $838,559.57The NSW Judgment referred to the above Judgment being in respect of the judgment entered in Singaporean Dollars.David James Henry Coleman, first defendant is to pay Paul Roland Gannaway, first plaintiff the sum ofClaim amount: $55,000.00Interest claimed: $8,794.52TOTAL: $63,794.52The NSW Judgment referred to that as being in respect of the judgment being entered in United States Dollars. On 24 October 2022, the Official Receiver issued the bankruptcy notice at the request of the respondent. The bankruptcy notice annexed both the Singaporean Judgment and the NSW Judgment. The first page of the bankruptcy notice was as follows: It will be observed, in relation to the calculation in Note A, that $828,390.57 x 1.11 does not equal $923,614.07. Rather, it equals $919,513.53. It is also relevant to note, because it features prominently in the applicant’s argument, that the amount of SGD828,390.57 was not the amount of the total judgment in Singaporean Dollars expressed in either of the accompanying final judgments. On 11 November 2022, the applicant commenced these proceedings by which he applied to set aside the Bankruptcy Notice. The only amounts claimed in the Bankruptcy Notice were the sums of SGD825,000.00, being the principal amount of the Singaporean Judgment, and the interest amount in the NSW Judgment of SGD3,390.57, being a total of SGD828,390.57. The Bankruptcy Notice does not claim the USD component of the NSW Judgment, nor does it claim the costs component of the Singaporean Judgment. The respondent read the affidavit of Mr David, the solicitor acting on behalf of the respondent, dealing with the process of generating the Bankruptcy Notice. He explains that the creditor logs into the website of the Australian Financial Security Authority (AFSA) and then commences the “submit a bankruptcy notice” process. In the section titled General Details, the details of the judgment or order are entered, including the judgment or order case number, court, state, order, date and amount. In the section titled Interest Schedule, the details of the interest claimed are entered. In the section titled Claim Details, the details of the claim are entered, and as the judgment is a foreign currency judgment, details of the foreign judgment are entered in this section. Mr David then entered the amounts claimed of SGD825,000.00 and the interest of SGD3,390.57, being a total of SGD828,390.57. Mr David then entered the exchange rate of 1.11495 (explained below), and the amount was then automatically converted into the AUD amount of $923,614.07. Legal costs of $1,169.00 (being the filing fee for the NSW Judgment) were then added. Interest amounts of $39,456.03 were added. The total debt of $964,239.10 was automatically generated. Mr David then filled in the debtor details, creditor details and contact details in the appropriate section. The above information was then submitted, and the Bankruptcy Notice was then issued.

Ratio Decidendi

Legal Principle Established

As to the submission that the Bankruptcy Notice was defective because both the Singaporean Judgment and the NSW Judgment accompanied it, the respondent submitted that the figure of SGD828,390.57 was clearly referable to the principal amount of SGD825,00.00 and the interest claimed of SGD3,390.57 in the NSW Judgment. The respondent submitted that it was clear that the costs order of SGD9,000.00 was not being claimed in the Bankruptcy Notice. The respondent submitted that the Bankruptcy Notice made clear that payment of the total amount specified of AUD964,239.10 would constitute compliance with the notice, and that the judgment creditor was not requiring the judgment debtor to do anything other than to pay that amount.CONSIDERATION In my opinion, the error in Note A in the Bankruptcy Notice constitutes a non-compliance with reg 12(2)(b), which requires that the bankruptcy notice “must” include “the conversion calculation for the equivalent amount of Australian currency”. The bankruptcy notice referred to the multiplier as being 1.11, rather than the calculation which was actually performed using 1.11495. Accordingly, the stated product AUD923,614.07 was wrong as a matter of arithmetic, based on the figures that were adopted in Note A, even though it was in fact the product which was produced by the calculation that was in fact performed. Accordingly, Note A did not set out the conversion calculation which was actually performed, and nor did it set out, as a result of the calculation expressed in Note A, the “equivalent” amount of Australian currency. The question then arises as to the consequences of that non-compliance, having regard to s 306(1) of the Act and the issue whether the non-compliance was a formal defect or irregularity. In Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79-80, Mason CJ, Wilson, Brennan and Gaudron JJ said: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… In such cases the notice is a nullity whether or not the debtor in fact is misled… That statement was cited with approval in Adams v Lambert (2006) 228 CLR 409 at [25]. As Sackville J pointed out in Parianos v Lymlind Pty Ltd, above, at [13], that passage makes clear that a Bankruptcy Notice is a nullity if it fails to meet a requirement made essential by the Act, whether or not the notice could reasonably mislead a debtor. His Honour also said at [15] that there was no basis for drawing a distinction between a requirement made essential to the validity of a Bankruptcy Notice by the Act, and one rendered essential by a valid regulation made pursuant to the Act. Sackville J also held at [16] that the language of the then regulation strongly suggested that it was intended to create requirements essential to the validity of a Bankruptcy Notice, pointing out the emphatic language in which the regulation is expressed, including the repeated use of the word “must”.