Colwell, B.M. v A.R.C. Engineering Pty Ltd

[1985] FCA 79

.

..

; 79

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION	)	QLD PET 839 of 1984
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF OUEENSLAND

RE: BERYL MAY COLIaLL and

MALCOLM IAN COLWELL

EX PARTE:

SPENDER J. 8 I”IF.RCi 1985

REASONS FOR JUDGMENT

This is a creditor’s petition for sequestration orders

against Beryl May Colwell and Malcoln Ian Colwell (the debtors).

They apply to set aside the bankruptcy notice as invalid. The

application raises an interesting point concerning the form	of
bankruptcy notice currently used in Queensland,	as well as other
matters of a mole general kind.

The debtors were the defendants in an action brought in

the District Court of Queensland at Brisbane by the petitioning

creditor as plaintiff.

On 8 June 1984 the creditor obtained judynent aqainst

the debtors For $19,920.75 in default of entry of appearance and

defence. Qn 25 January 1985 an application Esrousht by the

debtors in the District Court to hcve chis ludgn~ent set aside was

dlsmissed. On 2 2 February 1985 an application was made by the

.

2.

debtors to the Supreme Court for leave to appeal to the Full

Court of the Supreme Court against that decision. Mr Justice

G.N. Williams refused leave to appeal.

I was told from the Bar table, and I accept, that Mr and

Mrs Colwell are to lodqe an appeal to the Full Court forthwith from the decision of Mr Justice G.N. Williams refusing leave.

This court of course has, on the hearing of a petition,

power to	go behlnd a judgment debt and enquire whether there	is
in truth a	real debt. Corney v. Brian	(1950-51) 84 C.L.R. 343;

B N v. Mahonev (1.972) 126 C.L.R. 212; 1972 A.L.R. 307. A court

exercising jurisdiction in bankruptcy should be particularly

careful when the judgment debt is obtained by default, and	it is
asserted that the debt	1s not owing.

The basis of the several attempts by the Colwells to

have the judgment obtained in tine District Court set aside

appears from what is sworn by	Mr Colwell in an affldavlt on 18
January 1985:-

"I ZRY and verily believe that my wife and I are

not indebted	to	A.R.C. as	claimed and that any
moneys owinq	to	A.R.C. are	owed by the company

M.I. and B.M. Colwell Pty Limited."

The material in the first of two paragraphs numbered 9

of that affidavit, which immediately precedes this cleim, is in

my view quite insufficient to establish this defence, and inconslstent with it. There, Mr Colwell stated:-

"I say and verily believe that there 1 s a good

defence to these proceedings and that if allowed

in to defend, the Defence will rely upon the

following facts :-

(a) I first commenced trading with A.R.C. in or

about 1970 at which time an account was opened

with A.R.C. in the name of B. & M. Colwell.

(bl In or about 1975 the business previously

conducted by B & M Colwell was acquired by

M.I. C B.M. Colwell Pty Limited.

(c) In or about 1974 my wife and I opened a

hardware store called "Briqhtways 8urleiqh

Nardware" and on incorporation of the Building

Company this partnership was taken over by the company.

(d) Until mid 1984, Brightways Burleigh Hardware

conducted an account with A.R.C. and the

account was always paid by way of a cheque

drawn on the account of the Company.

(e) In or about February, 1984, I was approached

by Rcbert Neumann. a Director of one of the

Neumann Companies, who told me that B.R.C. had refused to supply him with steel on t,he basis

that they were worried about the Neumanns'

intention to commence the production of steel

mesh in Australia. Robert Neumann told me

A.R.C. had flatly refused	to	supply them and
requested that	I obtain steel mesh	€or them
from A.R.C. through	Briqhtways	Burleigh
Hardware.

(f) Upon agreeing to do this for Robert Neuaann, I

telephoned A.R.C. and spoke with Mr. Peter

Jones.	To the best of my recollection, the
conversation went	as follows:-
I said:	'It is Mal Colwell of Briqhtways

Eurleigh Hardware here. I would like to place an order for some steel. What discount do we get?'

He said	'I will have to check and will phone
you back.'

I said 'R'rhto. The number is 350 124. '

(g) Shortly after that conversatlon, Jones

telephoned me and said :

'You are on twelve and a half percent discount

delivered to site.'

I sald 'All riqht, would you please dellver

400 sheets of F62, 150 sheets of F72, 100

sheets of F52.'

Arrangements were then made for the delivery

of the steel to a site on which	an associated
company bad a crane.

(h)	I subsequently placed two further orders wlth
A.R.C. for steel which was on delivered to
Neumanns. The second order was not delivered
untll the sum of $6,000 was pald off the

account.

(i) I belleve that between the second order and

the thlrd order, 1 had a conversation wlth Mr

Jones wherein I informed him the goods were

being on supplied to Neumanns. He advised

that A.R.C. did not supply Neumanns and that

he would have	to report back to Head Offlce.
Subsequently A.R.C.	refused to supply further
steel to the	Buildmg Company for on selllng
to Neumanns.

The material before me includes a letter dated 31 May

1984 from Mr 2nd	Mrs Colwell's then solicitors whlch said, inter
alia:-

"We act on behalf of the Defendants In this matter.

We have been advised by our clients that following

contact made by them with your client it has been

suggested that you are in possession of all

Invoices and accounts pertaining to your client's

claim. We would request copies thereof for which

our clients are prepared to pay a reasonable cost

s o	that such documentation might be perused and
checked	agamst our clients' records, whereupon

following ~ a m e thls matter will receive our

clients' further actentlon.	"
In reply to that letter, on 1	June 1984 the sollcitors

for the respondent herein forwarded to Mr and Mrs Colwell coples

of the statements and invoices fron A.R.C. Engineering Pty Ltd In

respect of the claim in the District Court action. Each of those

lnvolces 1 s addressed to	B.M. and M.I.	Colwell, as 1 s the
statement.

Coples of these documents are part of annexure “ A 2 ” to

the airldavlt of Mr Colwell sworn on 18 January 1985.

Further, Mr and Mrs Colwell, in a jolnt affidavit In

these proceedings sworn	on	8 November 1964, the purpose of whlch
was to secure an adjournment	of these proceedings, said	m
paragraph 8:-

“We say that since the incorporatlon of each of our

Companles and throughout the term of those

Companles involvement in various projects we have not claimed at any time any Directors fees andlor wages. We have been advlsed by our Accountants

and verlly believe that we zre entltled to claim such fees and wages and say that wlth the orderly

sales of the Companles assets as lndlcated above

and from monies available after payment of

unsecured credltors there would be funds avallable

for payment to us by the Companles in respect of

fees and wages upon receipt of whlch monles we

would then be able to liquidate all personal debts we may have and includlnq of course the Judqment

Creditor’s debt In these proceedinqs.. ..”

(My underlining.)

In any event, whether Mr Colwell in placlng the orders

for reinforclng mesh was acting on behalf of the partnership of

his wife and hlmself, as the invoices and statements for A . R . C .

Engineering Fty Ltd strongly indicate, or as agent for a

principal whether dlsclosed or undlsclosed, In my vlew the

judgment obtained sacjsfles the requirements OC s.52(1) of the

Act, and in particular the requirement that the debt on which the

petitloning creditor relies is stlll owlng. Reference may

profitably be made in this regard to the discussion in Simon v.

O'Gorman (1979-80) 27 A.r,.R. 619.

In my view, the petition is founded on a real debt.

On 13 July 1984, the credltor proclrred the issue of a

bankruptcy notice directed to the debtor, whlch recited that the

creditor clamed the amount of the judgment debt and requlred che

debtor, within 14 days after the service of the notlce on	hlm
(excluding the day	of service):-

"(a) to pay the sum of $19,920.75 so claimed by the

judgment creditor to the judgment creditor; or

(b)	to secure the payment of the sum referred to
in the last preceding paragraph to the
satisfaction the of Supreme Court of

Queensland or the Federal Court of Australia

or other court exerclsing Federal ~urlsdlction

in bankruptcy, pursuant to the provisions of
sectlon 27 of the Bankruptcy Act 1966, or the

~udgment creditor, or compound the sum so

specified to the satisfaction of the judgment

creditor.

It also advised:-

"AND FTJRTHER TAKE NOTICE that if, withln the perlod
set out above, you fail either to comply m t h

either of che abovementloned requirements of this

Notice or to satisfy the Supreme Court of

Queensland or the Federal Court of Australia or

other court exercising Federal Jurlsdlction	In
bankruptcy pursuant	to the provlsions of Section

27 of the Bankruptcy Act 1966 that you have a

counterclaim, set-off or cross-demand equal to or

exceeding the sum specified in paragraph (a) of

this Notlce, being a counter-clalm, set-off or

class-demand that you could not have set	up In the
action (or proceediag) in which the judgment	(or

order) was obtained, ysu wlll have committed an

act of bankruptcy on which bankruptcy proceedlngs

may be taken against	you.	"
The	bankruptcy notice was served on the debtor	on 25

J u l y 1984. They d1.d not comply with its requlrerents, or seek

any extension of time to comply with those requlrements, or file

an affidavlt under s . 4 1 ( 7 ) of the Bankruptcy Act 1966. If the

notice is valid, then each of the debtors commltted	an	act of
bankruptcy on 8 August 1904.

The first ground on whlch che notice IS attacked 1 s that

It is invalidated by the existence within It of a defect of such

a kind	as "could reasonably nislead a debtor upon whnm	i_t was
served": Pillai v. Comptroller of Incotnr_ T C	C19701 A . C .	1124 at
p.1135.

It 1 s argued on behalf of the debtor that the debtor

could reasonably be mlsled by:-

"(a) the words at the top left-hand corner of the

notlce 'Banlrruptcy Distrlct of the Southern

Dlstr~ct of the State of Queensland'; and

(b) the words. where they severally appear I . . . The

Sapreme Court of Queensland	or	the Federal
Court of	Australia or other court exercising	I I,

Federal jurisdiction in bankruptcy ...

The core of the submission is that because of the

alleged defects, the debtor to whom the notice is addressed would

be embarrassed as to what steps he should take and to what court

he mlght go to comply with the notice.

The argument is based on s .41 of the Bankruptcy Act

which provides in paragraph (a) of strb-5.1 that a bankruptcy

notice "shall be in accordance with the prescrlbed form". Rule	8
of the Bankruptcy Rules then provides that "for the purposes of
that paragraph,	a bankruptcy notice shall be in accordance with
Form 4".

Form 4 has provision beneath the heading "Bankruptcy

Notice" for "Tltle" which provislon Rule 6 ( 3 ) then provides

"shall be taken to indicate that a document requlred to be in

accordance with that form shall be intituled - (a) if the

document is for use In connexion wlth a proceeding ln the Court -

In accordance with Form 1; or (b) in any other case - in

accordance with Form 2 . "

It is concended on behalf of the debtor that in each of

these cases, the use of "shall" indicates that these were

mandatory requirements.

Counsel's contention is that a bankruptcy notlce is a

"document for use in connectlon with a proceedlnq in the court"

and must, therefore, be in accordance with Form 1.

Form 1 provldes that the words which are to appear in

the top left-hand corner of the notlce are "IN THE 'FEDERAL COURT

or,

OF BANKRUPTCY' If the proceeding is instituted out of another words appeared.

court, the name of that court followed by the words 'EXERCISING

Further to counsel's contention, Form 4 provides in the paragraph corresponding to that at the bottom of the bankruptcy notice in issue, for the insertion of "the name of the Court", whereas the notice in issue specifies any one of the Supreme

Court of Queensland, Federal Court of Australia, or other court exerclsing Federal ~urisdiction in bankruptcy.

It is to be observed that in Form 4, the requirement

concerning the securing of papment refers to che "(name of the

court)"; s.41(2)(a)(ii) requires a bankruptcy notice to require	a
debtor to secure to the satlsfaction	of "the Court" the amount of

the ~udgment debt or order. In Form 4 , the part giving notlce of

the consequences of non-compliance with the notice or

establishing the existence of the counter-claim, set-off or

cross-demand of which s.4O(l)(g)	speaks includes the reference
"(here insert the name of the Court)	".

Tn consequence, it is said the debtor cannot know from

the face of the notice which court it is that he must satisfy of

the matters specifled therein or., even, out of whlch court the

notice has issued.	So, it js said, there is a defect in the
notlce In failing to comply with che requlrements	of the Act and
Rules such	as could reasonably mislead a debtor upon whom it is

served	and	is, consequently,	a	defect which invalidates the
notice.

First, there is a defect as rpgards the title on the

bankruptcy notice only if it be one "for use In connexlon with a

proceeding in the Court" : Rule 6(3).

In my opinion, a bankruptcy notice is not such a

document.

A person applies for a bankruptcy notice by applylng to

the Registrar in accordance with Rule 7 of the Bankruptcy Ruler;.

"Registrar", by s . 5 of the Act, means "Heqlstrar a in

Bankruptcy", and s.14 prescribes that there shall be a Reglstrar

in Bankruptcy for each Bankruptcy District in Australla.

"Where the Registrar is satisfied that application has

been duly made to him for the issue of a bankruptcy notlce and

that the copies of the form of bclnkruptcy notlce furnlshed to him

in accordance with paragraph (2)(b) are in order for slgnature,

the Registrar shall sign and stamp each of those copies and

return them to the applicant": Rule 7 ( 5 ) .

Rule 7 ( 6 ) provides:-

"Where the Registrar issues	a	bankruptcy notice,
the applicant shall file	a copy of the notice.	"

There is no necessary identity of a Registrar In

Bankruptcy for a particular Bankruptcy Distrlct in Australia, and

a Registrar of any Court exercising ~urisdiction under the

Bankruptcy Act. It is clear, in my view, from those requlrements that a bankruptcy notice is not one for use In connection with a

proceeding in the court. A bankruptcy notice 1s therefore

properly lntituled as in Form 2.

The notice 1 S not a document for use ~n connect~on wlth

a proceeding In the court for it issues at	a	stage before
proceedings in	a	court arise; it is only consequent upon the

debtor's actions in relation to that notice that proceedings in	a
court can arlse.

Secondly, as to the alleged defects zn the body of the

notice, counsel for the debtor contend that even if the notice is

properly intituled, it is still invalidated by the exlstence

within it of a fatal defect in that it is amblquous in referring

to a multlpliclty of courts.

Sectlon 41(2) of the Act requires: 

"The prescribed form of bankruptcy notlce shall be

such that the notice -

(a) requires the debtor named in it, within a

specified time (being the time referred to in

sub-paragraph 40(l)(g)(i) or (li), whlchevcr

is appropriate) to -

(1) pay the judgment debt or sum ordered

to be paid in accordance with the
judgment or order; or

(ii)     secure the payment of the debt or sum

CO the satisfaction of the Court or

the creditor or his agent, lf any,

specified in the notice or compound

the debt or sum to the satisfactlon of

the creditor or his agent, If any,

specified in the notice; and

(b) states the consequences of non-compllance with the requirements of the notlce."

Section 5 of the Act provides that "the Court" means "a

Court having ~urisdictlon in bankruptcy under this Act." The

debtors' argument before me is that that means a particular

nominated court and does not mean any court having jurisdiction

I n bankruptcy under this Act.	T'hs	notice adopting the latter
view	of the words	"a Court having jurlsdiction In bankruptcy

under this Act". it 1s said, means that the notice	is misleadlng
and, consequently, invalid.

Counsel for the debtor relied in support of this

contentlon upon In re a Debtor No. 21 of 1950; ex parte The

Debtor v. Bowmaker Ltd and Anor No. 1 (1951) Ch. 313 in which the

copy of the bankruptcy notice served on the debtor was headed in

the name of a County Court from which it was not issued, though

bearing the seal of the court from which It was in fact issued.

It was held that thls was	a defect which could have misled the
debtor and the notice	was, therefore, invalid.

However, there the name of the County Court which the

notice bore in error, in fact had no bankruptcy jurisdiction.

Here, on the other hand, that jurisdiction is borne	by all the
courts referred to in the notice.

Although a bankruptcy notice, being the document which

sets in motion the whole process that may ultimately lead to

bankruptcy (with the quasi-penal consequences that that entails)

is, therefore, to be strictly and narrowly construed and, any

equivocation must generally be resolved in favour of the debtor,

there is no such equivocation here. All the courts referred to

In the notlce have Federal jurisdiction in bankruptcy and,	in my
new, the debtor is just	as enticled to satlsfy the Supreme Court
of Queensland, or	other court exercising Federal jurisdlctlon in

bankruptcy, of the matters specified in the notice as he is to

satisfy the Federal Court of those matters. Tne observation of

Wiiliams, Kicto and Taylor JJ. in James v. Federal Conmlssioner

of Taxatlon (1955) 93 C.L.R. 631 at p.639, while speaklng of a

different option open to a debtor axe not without relevance:-

"It is the duty of a debtor to seek out the

judgment creditor and pay the judqment debt to the

creditor if he is in Australia. The debtor has

the correlative right to pay the creditor wherever

he can find him so that a debtor could be

seriously prejudiced if	he was led to believe that
he was bound to pay the credltor	at one particular

place. The objection is not a trifllng one

particularly in a large geographlcal area 11.ke Australia. It is one of substance. If a Judgment creditor can direct payment at one place

exclusively it means that, although he and the debtor resic're of carry on busirress In the same vicinity, the credltor can require the debtor to

seek him	or his agent out in some remote part of
the realm.
To the criticism that	a creditor would have difflculty

in knowing whether the debtor had commlcted an act of bankruptcy,

the same criticism applies in relatlon to the present

multiplicity of options open to a debtor, bilt to a lesser degree.

The fact 1s that in many, if not 211, Bankruptcy

Districts, there are at least two courts whlch have a physlcai

presence in tnat district, and which have c:oncurrent jurisdlction

in bankruptcy. More importantly, by s.ZB(13 of the Act, each

court having jurisdiction in bankruptcy under 5 .27 has

jurisdiction throughout Australia.

In my view, the options which s.41(2) requires a debtor

to be given by a bankruptcy notice are cither to pay the ~udgment

debt or sum crdered to be paid in accordance with the judgment or

order, or to secme the payment of the dEbt or sum to the

satisfaction of a Court exercising jurisdiction in Bankruptcy or

the creditor or his agent, if any, specified in the notice or

compound the debt or sum to the satlsfaction of the creditor or

his agent, if any, specified in the notice.

If a notice merely gave an option to satisfy the Supreme

Court of New South Wales, or the Federal Court of Australia, or

indeed any particular one of the courts having jurisdiction under

the Act under 5.27, it is in my view strongly arguable that the

mandatory requirements	of s.41(2)	have not been met in such	a
notlce.

Further, in my view, the act of bankrupzcy constituted

by s.40(l)(g), contempiates that the judgment debtor has neither

complied with the requirements of the notice nor satisfied

court exercising jurisdiction in bankruptcy that he has a counter-claim, set-off or cross demand equal to or exceeding the

amount of the judgment debt or sum payable mder the final order,

as the C& .se may b me, being a counter-claim, SE :t-off or cross

demand that he could not have set up in the action or proceeding

In which the judgment or order was obtained. I accept that he

might face certain practical difficulties depending on the court

he approaches. Equally, there may be practical difficulties

flowing from the fact that the Federal Court can sit and has

registries at locations involving great geographical separation.

I have not overlooked the definition of "filed" in Rule

4 , nor the provisions of Rule 10.

In my view, the notice is not defective by having

several references to courts exercising jurisdiction In

bankruptcy, rather than nominating one such court.

Tt was submitted on behalf of the debtor that other and

more minor defects existed in the notice, the cumulative effect

of which, when considered together with those matters already

canvassed, rendered the notice one capable of reasonably

misleading the debtors and, therefore, invalid.

Thus, it was contended that other matters specified in

Form 1 were also missing. I have already concluded that there is

no requirement under the Act that the notice be in that form.

Further, it was contended that, even If the notice be

required to be in Form	2 ,	the debtor's occupatlon was not
specified, and the creditor's address lacked	a	street number,

The judgment creditor is described in the bankruptcy notice as

"A.R .C . ENGINEERING PTY LTD a company duly incorporated according
to law in the State of Victoria and having Its principal office

in the State of Queensland at Ellison Road, Geebunq in the said

State." Counsel for the debtor was uncertain. in fact, whether

there was any error involved In that omission, and no material was before me to indicate th&t the address of the company was other than as appears in the notice.

Of the requirements of the judginent creditor's eddresv

in a bankruptcy notice, VaughRn Williams L.J. i:~ KBeauchamp; ex

parte Beauchamp C19041 1 K.B. 572 at p.583 said:-

"What then are the necessary conditions of the

address? We think that the address must be of a

place where the creditor Is to be found durinq the seven days, and this is so whether that address is of the residence or of Lhe place of business of the creditor; an8 we think t'hat, i f the address

given in the bankruptcy notice is such an address

at the date of the service of the notice,

occasional absence of the creditor from that

address, even for R whole day, will not render the bankruptcy notice inefficient, unless the absence is ~ u c h as to deprive the debtor of a reasonable opportunity of paying the debt or securing it or

compounding for it according to the terms of the

notice.	"
On the whole of this material,	I do not find that there

is any gromd for concluding that the debtors could reasonably

have been misled by the notice. l do not belj.eve, therefore,

that any fatal defect exists in the notice.

I am also satisfied. contrary to counsel's submissions,

that there are no considerations of "fairness" which ought to

lead other than to the making of a sequestration order in this

instance. There is no material before me to suggesr: that I

should properly defer the making of any sequestration order.

The mere fact that an appeal is to be lodged shortly

from the refusal of Mr Justice	G.N.	Williams' refusal to grant
leave to appeal from	the refusal of a Distrlct Court Judge	to set

aside the judgment on which the petition is founded 1 s not a

ground for not proceeding to make a sequestration order: - Re

Flatau; ex parte Scotch L4hiskv Distillers Ltd (1888) 22 Q.B.D. 83

particularly at p.85. Conversely, I 'nave no doubt that where an

appeal for the judgment or1 which the petitlon is founded is

pending, in the ordinary course it would be	the exercise	of a
very wise discretion to adjourn the hearing	of	the petition

generally, with liberty to apply: Ex parte Hayworth In re Rhodes

(1884-5) 24 Q.B.D. 49.

I have considered the basis and the prospects of success

of the proposed appeal, and have earlier referred to some of the

material relevant thereto. Another creditor appeared in support

of the making of sequestration orders. In that lnstance also,

the debtors have embarked on attempts to set the judgment debt

aside.

I propose to make sequestration orders against each of

the debtors.

I find the x t s of bankruptcy alleged in paragraph 4 of

the petition. I am satisfied	of the other matters of which the
Act requires proof. I make	a sequestration order against the

. '

18.

estate of Beryl May Colwell and a sequestration order against	the
estate of Malcolm Ian Colwell. I direct	that the petitioning
creditor's costs of and incidental	to this petition be taxed and
paid by the judgment debtors.

I further decline to stay these order:.

,. ,.