Crowl, A v Kleinwort Benson Australia Ltd
[1987] FCA 362
•10 JULY 1987
Re: JAMES ALBERT CROWL; DELIA MARY CROWL and MALCOLM CHARLES TUCKER
And: KLEINWORT BENSON AUSTRALIA LIMITED
Nos. G225, G226 and G227 of 1987
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.
Wilcox J.
Burchett J.
CATCHWORDS
Bankruptcy - bankruptcy notice understated amount of interest due - whether bankruptcy notice was bad - whether debtor could be perplexed or embarrassed - whether defect only formal
HEARING
SYDNEY
#DATE 10:7:1987
Counsel for the Appellants: Mr R W R Parker QC with Mr P Dowdy
Solicitors for the Appellants: Gye and Perkes
Counsel for the Respondent: Mr D E Grieve QC with Mr R J Wright
Solicitors for the Respondent: Clayton Utz
ORDER
Appeal allowed.
Set aside the orders made by the Court on 6 May 1987; in lieu thereof order that the petitions be dismissed with costs.
Respondent pay the appellants' costs of the appeal.
Note: Settlement and entry of orders 1 and 3 and the first
part of order 2 is dealt with by Order 36 of the Federal Court Rules and the latter part of order 2 is dealt with in Bankruptcy Rule 124.
JUDGE1
In each of these bankruptcy matters the appellants, the judgment debtors below, appeal from orders made by a Judge of the Court sequestrating their respective estates. A separate petition was presented against each debtor, but the same point is raised in each of the appeals and it is convenient to consider first the petition presented against the first appellant, James Albert Crowl ("the debtor").
The petition which was presented by the respondent Kleinwort Benson Australia Limited, alleged as an act of bankruptcy the debtor's failure to comply with the requirements of a bankruptcy notice. That notice, so far as relevant, was in the following terms:
"To: James Albert Crowl of 47 Wollundry Avenue, Wagga Wagga, in the State of New South Wales, Accountant.
WHEREAS KLEINWORT BENSON AUSTRALIA LIMITED a duly incorporated company having a place of business at Level 27, 60 Margaret Street, Sydney (hereinafter referred to as 'the judgment creditor') has claimed that the sum of $1,399,085.81 together with interest thereon at the rate of 19.5 per centum per annum from 3rd July, 1986 which at 30th September, 1986 amounts to $43,352.49 making a total of $1,442,438.30 is due by you to it under a final judgment obtained by it against you in the Supreme Court of New South Wales on the 3rd day of July, 1986, being a judgment the execution of which has not been stayed.
THEREFORE TAKE NOTICE that within 28 days after service of this notice on you, excluding the day on which this notice is served on you, you are required:
(a) to pay the sum of $1,442,438.30 so claimed by the judgment creditor to the judgment creditor; or
(b) to secure the payment of the sum referred to in paragraph (a) to the satisfaction of the Federal Court of Australia or the judgment creditor or compound the sum so specified to the satisfaction of the judgment creditor...."
It is common ground that the notice incorrectly recited the amount of the interest due as at 30 September 1986. Although the notice claimed that interest in the amount of $43,352.49 had accrued by 30 September 1986, it is accepted by the respondent that the figure was understated by more than $23,000.00. The correct amount of interest was either $67,270.50 (if the calculation commences on the date of judgment) or $66,523.59 (if the calculation commences on the next day). Before the learned Judge, it was contended on behalf of the debtor that, because of the understatement, the notice was bad.
In rejecting this contention, the learned Judge stated that an understatement of the amount of interest due "is not necessary fatal....the question in the end being whether the debtor could be 'perplexed or embarrassed' by the understatement..." His Honour said (at p.3) of his reasons:
"Each case must, it seems to me, depend on its own facts and the present case is one where the amount of the judgment is correctly stated, the amount of the interest rate is correctly stated and the only mistake is as to the total amount of interest. Whilst I was much pressed with the amount of the discrepancy between the interest payable and that claimed, the issue is not to be determined purely by looking at the number of dollars involved. Relativity is involved. In my view, bearing in mind the amount of the judgment, the case is not one where the debtor could be said to be perplexed or embarrassed by the mistake and I regard it as one to which s.306(1) applies."
The interest claimed in the notice was payable pursuant to s.95(1) of the Supreme Court Act 1970 (N.S.W.). It provides that where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on so much of the money as is from time to time unpaid. Liability for interest on a judgment debt is not specifically mentioned in the relevant provisions of the Bankruptcy Act 1966 ("the Act"), although, as will appear later, nothing turns on this here. A bankruptcy notice shall be in accordance with the prescribed form (s.41(1)(a)) which 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(1)(g)(i) or (ii), whichever is appropriate) to -
(i) 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 to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and
(b) states the consequences of non-compliance with the requirements of the notice."
(s.41(2)).
By r.8 of the Bankruptcy Rules, for the purposes of s.41(1)(a) of the Act, a bankruptcy notice shall be in accordance with Form 4. That Form, so far as presently material, provides -
"THEREFORE TAKE NOTICE that within days after service of this notice on you, excluding the day on which this notice is served on you, you are required -
(a) to pay the sum of $ so claimed by the judgment creditor to (here insert 'the judgment creditor' or, if the judgment or order requires payment to be made to a court or a person other than the judgment creditor, the name and address of the court or the other person to whom payment is required to be made);
or
(b) to secure the payment of the sum referred to in paragraph (a) to the satisfaction of the (name of the court) or the judgment creditor (or his agent whose name and address are ) or compound the sum so specified to the satisfaction of the judgment creditor (or his agent)"
The general principles in this area were restated by Lockhart J. in Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co. of Sydney Ltd. (1979) 23 ALR 522 at p 526:
"It is well established that it is permissible, though not obligatory, to include in a bankruptcy notice, a claim for interest on a judgment debt which bears interest. In Re Lehmann; Ex parte Hasluck (1890) 7 Morrell 181; Re Cooper (1911) 2 KB 550; Re O'Keefe (1963) 19 ABC 101; (1964) ALR 561 (a decision of Clyne J); Re Mullavey; Ex parte ANZ Banking Group Ltd. (a decision of C A Sweeney J)
(1977) 20 ALR 276; Re Munson, supra; and Re Manion; Ex parte Deputy Commissioner of Taxation (a decision of myself) (1979) 23 ALR 270.
If a judgment creditor chooses to claim interest on a judgment debt, it is necessary for the calculation of the claim to be accurate, and for the period during which the claim is made to be specified: Re Mullavey, supra; Re Davis; Ex parte Deputy Commissioner of Taxation (1963) 19 ABC 100; (1963) ALR 764, and Re McDonald (1978) 18 ALR 505.
Understatement of the amount of statutory interest accrued from the date of judgment to the date of issue of a bankruptcy notice or other date specified in the notice does not necessarily vitiate the bankruptcy notice. Section 306 of the Act may be capable of operating to validate a bankruptcy notice that otherwise would be invalid. See the decision of Riley J in Re Munson, supra, and my own decision in Re Manion, supra."
(See also Re Preston; Ex parte Commercial Bank of Australia Ltd. (1982) 45 ALR 105 per Sheppard J. at p 109; Re Pinkerton; Ex parte B.G. Textiles Pty. Ltd. (In Liq.) (1984) 4 FCR 64 per Wilcox J. at p 68; Re Schierholter; Ex parte Geis (1978) 19 ALR 113 per Nimmo and Deane JJ. at pp 120-121).
It is trite law that strict compliance with the requisites of a bankruptcy notice is essential to its validity (see James v. Federal Commissioner of Taxation (1955) 93 CLR 631 at p 644); and that the relevant inquiry is whether the notice is capable of misleading the debtor as to the manner in which he may comply with its requirements: the Court cannot inquire whether the debtor has in fact been misled or not - it is sufficient that he could be misled (ibid) or, as it is often put, "perplexed or embarrassed" by the notice (see Re Davis; Ex parte The Deputy Commissioner of Taxation (1963) 19 ABC 100).
It is convenient and, I think, appropriate, to approach the matter in two stages. First, was there a defect in the notice? Secondly, if so, is the defect only formal and if so, has it caused substantial injustice which cannot be remedied by an order of the Court (see s.306(1) of the Act).
It could hardly be disputed that, by understating the interest claimed by more than $23,000.00, the notice was defective. It was suggested during the course of argument by senior counsel for the respondent that it is possible to construe the notice as requiring payment of the sum of $1,442,438.30 simpliciter and that since it was always open to the respondent to claim less than the whole of the interest due, the notice was not defective. The suggestion must be rejected. The notice should be read as a whole and when so read, it appears that the calculation of the sum of $1,442,438.30 claimed contains an error. Even if the requirement provision (para.(a) of the notice) is looked at in isolation, as the respondent invites us to do, it appears that the sum of $1,442,438.30 is the figure "so claimed". Thus, we are taken back to the recital which, it is accepted, is defective. In short, the requirement provision, which, of course, is of fundamental importance to the debtor, picks up, or incorporates by reference, the error in the recital. Moreover, para.(b) of the required provision refers back to para.(a). The result is that the whole of the requirement provision (both (a) and (b)) is defective.
Senior counsel for the respondent also contended that some significance should be attached to the circumstance that the mistake occurred in respect of interest rather than in respect of the judgment debt itself. As has been said, s.41(2) does not specifically mention interest but the settled course of authority has treated interest as an amount payable under or pursuant to the judgment or order for the purposes of s.41(2). It is true that, in some respects, interest may be treated differently from the judgment debt. In particular, as has been noted, it is open to a judgment creditor to claim only part of the interest due in his notice so as to avoid unnecessary complications of the kind discussed by Lockhart J. in the Commercial Banking Case, supra. However, the point here is a different one. Where there is an error made in the calculation of the interest claimed and a consequential mistake made in the total sum claimed (i.e. the judgment debt plus interest) it does not assist the respondent to point to the circumstance that the initial error occurred in the context of a mistake made in the calculation of the interest claimed. An understatement of the amount due by way of interest is just as capable of misleading a debtor as an understatement of the judgment debt.
The amount of interest involved in the understatement was, in my opinion, significant enough to be capable of misleading or "perplexing or embarrassing" the debtor. It is true, as the learned Judge said, that relative to the judgment debt, the understated sum may not be great. Yet, on any view, it was a significant amount. It is not a case of a minor departure which would have been obvious to the debtor. Nor is it a matter which is de minimis. The error must mean that the notice was defective.
But was the defect "formal" for the purposes of s.306(1)? This is the real question here.
In James' Case it was held first, that the bankruptcy notice was not in accordance with the terms of the order; and secondly, that it was capable of misleading the debtor as to the manner in which he might secure or compound the debt (at p.644). Williams, Kitto and Taylor JJ. said (ibid):
"But strict compliance with the requisites of a bankruptcy notice is essential to its validity and in these two respects the bankruptcy notice does not comply with these requisites. The defects cannot be regarded as formal defects or irregularities. They are breaches of important provisions of s.53 (the precursor of s.41(2))..."
Similar comments could be made here. The notice wrongly stated the amount of interest due pursuant to the judgment with the result that the debtor could be perplexed as to the amount required to be paid by him or, if he wished, to be secured or compounded in order to comply with its requirements. This involves a breach of the "important" provisions of s.41(2) of the Act.
In Pillai v. Comptroller of Income Tax (1970) AC 1124, Lord Diplock, speaking of the Malaysian equivalent of s.306(1) in a passage frequently cited, said (at p 1135):
"It is implicit in the section that proceedings in bankruptcy may be so defective as to render them a nullity notwithstanding that no substantial and irremedial injustice has in fact been caused by the defect. The section draws a distinction between such a defect and a 'formal defect or irregularity.' It is only the latter which are validated by the section, provided that no substantial and irremedial injustice has been caused.
What, then, is a 'formal defect or irregularity' within the meaning of the section? This was discussed in relation to a bankruptcy notice in In re A Debtor (No. 21 of 1950), Ex parte the Debtor v. Bowmaker Ltd. (1951) Ch 313, in which the earlier authorities were considered. The test there laid down was whether the defect in the notice was of such a kind as could reasonably mislead a debtor upon whom it was served. If it was, the notice was not validated by the section notwithstanding that the particular debtor upon whom it was served was not in fact misled. If, on the other hand, it could not reasonably mislead the debtor it was a formal defect and validated by the section. Their Lordships are here only concerned with the application of the section to a bankruptcy notice. They are not concerned with whether the same test is appropriate to determine the validity of subsequent steps in bankruptcy proceedings. In their view any failure to comply with the statutory provisions as to the form of a bankruptcy notice of a kind which could not reasonably mislead a debtor upon whom it is served is a 'formal defect' and validated by the section."
It may be thought that, at least in terms of sequence, the approach taken by Lord Diplock departs from that adopted by the High Court in James' Case. In James, the initial inquiry was made whether there was a defect in the notice. This involved considering whether the debtor could reasonably be misled. Having resolved that question in the affirmative, the High Court then proceeded to consider whether the defect was formal. It concluded that it was not because a breach of an "important" provision was involved. By contrast, Lord Diplock embarked upon a consideration of the subject matter of the High Court's first inquiry in the context of determining whether the Malaysian equivalent of s.306(1) should be applied.
In the ultimate analysis, it makes little difference which approach is adopted. But, in this Court, the point must, of course, be concluded in favour of the views expressed by the High Court. This means that if a significant breach of an important provision such as s.41(2) is established, the defect cannot be regarded as formal. In the result, s.306(1) cannot save the notice.
The same defect appears in the bankruptcy notices served upon the second and third appellants. Accordingly, in my view, those notices were also bad.
I would allow the appeals with costs. I would set aside the orders made by the learned Judge; in lieu thereof, I would order that the petitions be dismissed with costs.
JUDGE2
I have had the advantage of reading in draft form the reasons for judgment of Beaumont and Burchett JJ. Notwithstanding my respect for each of them, I regret that I cannot share their view, which seems to me to run counter to recent relevant authority.
The question at issue in the appeals is whether a bankruptcy notice in the prescribed form which, by miscalculation of the statutory interest payable upon the judgment debt, understates the total sum owing by the debtor is for that reason ineffective to ground the commission of an act of bankruptcy. The point has some general importance. Experience shows that such errors are not uncommon. Although this situation is regrettable, it is understandable. The computation of statutory interest is often complex, especially in cases where there has been some change in the prescribed rate, or some part payment, during the relevant period. Typographical errors are easily made, and not always readily detected.
The view has so far been taken that a computation error understating the interest properly payable is not necessarily fatal to the effectiveness of the bankruptcy notice; that, in the absence of evidence of substantial injustice, s.306 of the Bankruptcy Act 1966 may be applied to the notice. The rationale of that approach is that an inconsistency between the money sum demanded and the amount payable upon a proper computation of the interest is not something which would be likely to perplex or mislead the debtor; the reason being that the debtor would realise that, in order to avoid committing an act of bankruptcy, he or she had to pay, secure or compound only the specified money sum and not the amount correctly due. The decision in this case overturns that approach and results in a situation in which any erroneous understatement, however minute, invalidates the bankruptcy notice. The effect will be that some debtors will find themselves, through the industry of their lawyers rather than any virtue of their own, able to resist the making of a sequestration order and to force the creditor to start again, with the issue of a fresh bankruptcy notice. In every case this course will cause delay and wasted expense. In some cases, by affecting the date to which the bankruptcy relates back, it will affect the ultimate recovery rights of creditors, including creditors unconnected with the error.
I say that the effect of the majority's view is that any erroneous understatement invalidates the notice because there is here no scope for the operation of the maxim de minimis non curat lex. The whole point of the appellants' argument is that a debtor who chose to check the interest calculation would realise that the amount properly payable exceeded the sum demanded and would then be uncertain how much to pay, secure or compound. The assumption is that this uncertainty might so affect the debtor's response to the notice as to lead to a failure to act in accordance with its requirements; where, in the absence of the error, the notice might have been complied with. Upon this argument the amount of the discrepancy is irrelevant; an error of $10 must be regarded as having the same paralysis potential as one of $10,000.
The relevant principles of law are set out in the authorities referred to by my colleagues. A bankruptcy notice must follow the prescribed form. It may not impose additional restrictions upon the debtor or mislead the debtor as to his or her statutory rights: James v. Federal Commissioner of Taxation (1955) 93 CLR 631. A notice must not mis-state the terms of the judgment: Re H B (1904) 1 KB 94. It must not mislead or perplex the debtor as to the action necessary for compliance with its terms: In re A Debtor; ex parte The Debtor v. Bowmaker Ltd. (1951) 1 Ch 313. It is important to note that a notice is not rendered ineffective simply because, upon receipt of the notice, the debtor is uncertain whether additional monies will later be claimed. It is clear law that a creditor may issue a bankruptcy notice requiring payment only of the judgment debt, without any reference to the interest which has accrued upon the judgment. Alternatively, the creditor may claim interest, correctly calculated, for a period closing before the date of issue of the notice, as occurred in Re Pinkerton; ex parte B G Textiles Pty. Ltd. (in Liq) (1984) 4 FCR 64 and as was apparently attempted to be done in the present cases. In either situation the recipient of the notice may be caused to wonder whether the creditor will later claim interest, or the balance of the interest. Without contact with the creditor the debtor will not know how much will need to be paid to dispose of that creditor. But uncertainty on this type of matter is not perplexity going to the validity of the notice. The only relevant perplexity is perplexity as to the action required of the debtor in order to avoid the commission of an act of bankruptcy.
The question, then, is whether the present appellants might reasonably have been perplexed, upon receipt of the subject notices, as to the course which they should take in order to avoid committing acts of bankruptcy. Of course, if a particular appellant did not realise that there was an error in the interest computation, there would be no possibility of perplexity. He or she would, unquestioningly and rightly, believe that an act of bankruptcy could be avoided by paying, securing or compounding the sum demanded viz $1,442,438.30. But one must assume that the computation would be checked and the error discovered. Would the recipient be left in any doubt as to the amount necessary to be paid, secured or compounded?
I think not. The requirement of para.(a) of the notice is "to pay the sum of $1,442,438.30 ... to the judgment creditor". The sum is precisely specified. The payee is identified. If those words stood alone it would be impossible to contend that there was any ambiguity in the requirement of para.(a). And, as para.(b) -- dealing with securing or compounding the debt -- and the concluding words of the notice -- dealing with counter-claims etc. -- speak of the sum "referred to", or "specified", in para.(a), there could be no question as to the necessary amount of any security, composition or counter-claim.
The appellants' point, of course, is that the words in para.(a) which I have quoted do not stand alone, that the specified money sum is described as being "so claimed by the judgment creditor". The words are clearly intended as a reference back to the recital wherein it is stated that Kleinwort Benson Australia Limited ("the judgment creditor") "has claimed that the sum of $1,399,085.81 together with interest thereon at the rate of 19.5 per centum from 3rd July, 1986 which at 30th September, 1986 amounts to $43,352.49 making a total of $1,442, 438.30 is due by you under a final judgment" etc. But the actual claim in the recital is that the judgment sum of $1,399,085.81, together with interest thereon at 19.5% per annum, is due under the judgment. The error occurrs in the aside, inserted as an explanation of the total sum of $1,442,438.80, that interest to 30 September 1986 amounts to $43,352.49. Giving full weight to the presence, and importance, of the words "so claimed by the judgment creditor" in para.(a), it seems to me that the recipients of these notices would have got no more from those words than the fact that the specified amount was claimed by virtue of the judgment and interest. The recipient would see that the draftsman had calculated the interest to 30 September 1986 and, having checked the position, would realise that this was incorrect and that the creditor could have required payment of a larger sum under the notice. He or she might wonder whether the balance would be claimed. But there would be no reason for the recipient to doubt that the amount to be paid under para.(a) was the sum which it specified: $1,442,438.30.
This conclusion accords with earlier decisions in this Court. In Munson; ex parte Deputy Commissioner of Taxation (1977) 29 FLR 479 Riley J distinguished the case of an erroneous understatement of interest from the situation discussed in Re H B, where the bankruptcy notice misrepresented the terms of the judgment. At p 483 his Honour said:
"In the present case I do not think it can reasonably be said that the debtor, who was accurately told by the bankruptcy notice that his judgment debt amounted to $26,364.08, and that the rate of interest on it was $10 per cent per annum, could be perplexed or embarrassed by the interest on that debt being stated at $122.79 less than it really was. In my opinion this is a proper case for the application of s.306(1), and I do not think that the bankruptcy notice should be held invalid."
Lockhart J followed this decision in Re Manion; ex parte Deputy Commissioner of Taxation (1979) 23 ALR 270. This also was a case in which the bankruptcy notice understated the amount of interest. Although pressed with the Full Court decision in Re Schierholter; ex parte Geis (1978) 19 ALR 113 -- upon which Burchett J places some reliance -- Lockhart J held that the error did not affect the validity of the notice. At pp.278-279 he said:
"Re Schierholter is distinguishable from the present case. It did not involve the question of understatement of the amount of interest due from the date of judgment to the date of the bankruptcy notice. It was a case that turned very much upon its own rather unusual facts. Also the petitioning creditor and the debtor both joined in seeking that the sequestration order be set aside. It appears from the reason of Franki J that the authorities which were referred to relating to the validity of the bankruptcy notice were not challenged before their Honours by either party.
In my opinion the understatement of the amount of statutory interest accrued from the date of judgment to the date of the issue of the bankruptcy notice does not vitiate the bankruptcy notice. The debtor was told by the notice that the balance due under the judgment was $22,824.31. There was no evidence to suggest that this was an inaccurate figure. The debtor was also told that the petitioning creditor claimed interest at the rate of $10 per cent per annum.
The bankruptcy notice must be read as a whole. I have said earlier that the composition of the first paragraph of the bankruptcy notice commencing with the words 'WHEREAS the Deputy Commissioner of Taxation ...' leaves much to be desired; but even when coupled with the understatement of the amount of interest the debtor could not be said to have been perplexed and embarrased by it."
In Re Preston; ex parte Commercial Bank of Australia Ltd. (1982) 45 ALR 105 Sheppard J dealt with a number of challenges to the validity of a bankruptcy notice. One contention was that the notice was bad because it understated the interest payable on the judgment debt during a specified closed period. The notice was relevantly indistinguishable from those the subject of the present appeals. Sheppard J rejected the debtor's contention. At p.109 he referred to the principle in Re H B, the distinction drawn by Riley J in Munson and the later adoption of Munson by Lockhart J in Manion and in Re Bankruptcy Act 1966; ex parte Commercial Banking Co. of Sydney Ltd. (1979) 23 ALR 522. His Honour proceeded, at pp 109-110:
"I am satisfied that I should adopt what has been said both by Riley and Lockhart JJ in the cases to which I have referred. It is important for the administration of bankruptcy law in the community that there be evenness, so far as possible, in the decisions of single judges. Even if I had been of opinion that the view espoused by the two judges was not correct, I would nevertheless have taken the course of following them, leaving any correction to be made on appeal. However, I am in full agreement with the views which they have expressed.
Counsel for the debtors submitted that their decisions were in conflict with the decision of the Full Court of this court in Re Schierholter (1978) 19 ALR 113. That was a decision in which the principle propounded in Re H B was applied. In that case the judgment creditor had obtained judgment against the debtor in a sum plus costs. A bankruptcy notice claimed as due under the judgment the sum of $2735. The amount in fact due in respect of the judgment debt and costs was $2830. If costs were ignored, the amount outstanding was $2631. The court held the notice bad. But it seems to me that that case was quite different from the present where there is no understatement of the amount due under the judgment itself; the understatement applies only in relation to the amount of judgment interest to which the petitioning creditor is entitled by reason of the operation of s 95 of the Supreme Court Act 1970 (NSW). That point of distinction was drawn by Lockhart J in Re Manion, supra, where he considered the question of whether there was any conflict between the decision of Riley J in Re Munson, supra, and the decision of the Full Court in Re Schierholter, supra: see 23 ALR at 278.
For the above reasons I was satisfied that the approach of the judges in Munson's case and Manion's case should be followed here, the circumstances being no different. In the result the understatement of judgment interest is a defect or irregularity within s 306 of the Act and does not operate to invalidate the bankruptcy notice."
The decisions to which I have referred are indistinguishable from the present case. They have stood for some years. They have, I believe, been followed from time to time in unreported decisions. I am not aware of any decision in this Court, or any other court, to the contrary. The overwhelming body of opinion is that an error of the type here present is not relevantly perplexing or misleading, so that it does not invalidate the notice. I share, and would follow, that view.
I would dismiss the appeals.
JUDGE3
It is unnecessary for me to set out the facts of this appeal since they are contained in the Reasons for Judgment of Beaumont J. with which, subject to what follows, I am in general agreement.
The bankruptcy notice seems to me to be clearly defective. It commences by reciting the respondent's claim "that the sum of $1,399,085-81 together with interest thereon at the rate of 19.5 per centum per annum from 3 July 1986 which at 30 September 1986 amounts to $43,352-49 making a total of $1,442,438-30 is due ... under a final judgment," and proceeds to require the recipient within twenty-eight days "to pay the sum of $1,442,438-30 so claimed by the judgment creditor to the judgment creditor ..." (emphasis is mine). Once it is appreciated that interest on the principal debt stated in this notice at the rate and for the period specified exceeds $43,352-49 by at least $23,000-00 it seems to me beyond argument that the notice seriously misrepresents the position. Such a discrepancy cannot be brushed aside as negligible.
A recipient of the notice who observed the miscalculation would I think inevitably be placed in a quandary. He is told, it is true, to pay the sum of $1,442,438-30, but can he safely assume that such a payment will satisfy his obligation under the notice? For what he is told is not simply to pay the sum mentioned, but to pay that sum "so claimed by the judgment creditor". The words in quotation marks must refer him back to the statement in the recital that the judgment creditor "has claimed that the sum of (the principal sum) together with interest thereon at the rate of 19.5 per centum per annum from 3 July 1986 ... is due by you to it under a final judgment ... being a judgment the execution of which has not been stayed." Inserted in this statement is an incorrect assertion of fact that at 30 September 1986 such interest amounts to a figure which yields a total indebtedness in the sum of $1,442,438-30, but the insertion in the recital, on the face of the language, in no way qualifies the claim for interest at the correct rate. A recipient might reasonably wonder whether he should pay an amount explicitly based on a quite patent error in the notice, or whether he is required to pay the actual amount represented by a correct statement in the same notice of his obligation in respect of the period nominated. If the notice merely contained some misinformation and then made an unambiguous demand for a particular figure, it may be that the respondent's argument would be tenable. But the demand, by referring to the amount demanded as "so claimed", is by no means unambiguous. It could reasonably lead to the conclusion that the real claim must be complied with.
The question then becomes whether a notice defective in such a way can, as the learned Judge at first instance thought, be cured by resort to s.306. As was emphasized both by the High Court in James v. Federal Commissioner of Taxation (1955) 93 CLR 631 at 644 and by the Privy Council in Pillai v. Comptroller of Income Tax (1970) AC 1124 at 1135 in a passage which I quoted (correcting what appeared to me to be a printing error) in Re McCormac; Ex parte Taylor (1985) 10 FCR 162 at 163-4, a defect can only be cured under s.306(1) where it can be described as "formal" or as an "irregularity". It does not seem to me that the defect here is of that order.
In Re Davis; Ex parte The Deputy Commissioner of Taxation (1963) 19 ABC 100 Clyne J. held a bankruptcy notice which claimed interest as well as the principal sum due under a judgment, without specifying the amount of the interest, to be "a bad notice", saying "the notice is perplexing and is an embarrassment to the debtor; the debtor, if able to pay, is not obliged to calculate and ascertain the amount of interest which must be paid by him to his creditors." It would be curious if a notice which required such a calculation but contained no misleading or incorrect statement is bad, but a notice which on the face of it claims a sum incorrectly calculated in respect of the same item (i.e. interest) is good. To my mind the second notice is much the more perplexing and embarrassing.
But counsel suggested that Clyne J.'s use of the words "perplexing" and "embarrassment" represented a new and perhaps somewhat heretical departure in the law. This is not correct. Both words have been used for a very long time in the law of bankruptcy to describe the criteria for a bad bankruptcy notice. For example, in In Re a Judgment Debtor (1908) 2 KB 474 the words "puzzle", "perplex", "embarrassing", and "misleading" were all used to describe tests for a bad bankruptcy notice. That case was treated as authoritatively holding that a notice is invalid if it is "calculated to embarrass the debtor", or "puzzle and perplex the debtor", by Harman J. in In Re a Debtor; Ex parte The Debtor v. Bowmaker Ltd. (1951) Ch 313 at 318-9, a case which was itself cited as authoritative in the joint judgment of the High Court in James' case (supra, at 644). Harman J. treated both these statements as laying down a test of whether the defect in the notice was of such a kind as could reasonably mislead a debtor upon whom it was served. In this form, the test was adopted by the Privy Council in Pillai's case (supra, at 1135). It seems to me that if a notice is perplexing or embarrassing, it may fairly be said that it is capable of misleading a recipient who has only a limited time within which to act upon the demand made by the notce. At any rate, in such a case substantial and irremediable injustice may have been caused, and that is the ultimate criterion set by the language of s.306(1) itself. I have previously attempted to explain the place of the test laid down in Pillai's case, in relation to problems of this kind, in Re McCormac (supra at 166-7).
In James' case (ubi supra) the joint judgment states:
"But strict compliance with the requisites of a
bankruptcy notice is essential to its validity ... ."
Among the authorities relied on is Re a Debtor; Ex parte The Debtor v. Hunter (Liquidator of Marvel Paper Products Ltd) (1952) Ch 192 at 196 where it was stated:
"It is clear in the present case that a debtor might have
been misled on the subject of set-off or counterclaim,
whether in fact he was misled or not, and it has been laid
down by the courts again and again that bankruptcy notices
are matters of strict form in which defects will be fatal,
because they are penal proceedings and closely guarded by
the courts."
A similar view was expressed by Harman J. in In Re a Debtor; Ex parte The Debtor v. Bowmaker Ltd. (supra, at 318) where he said:
"A bankruptcy notice, being the document which sets in
motion the whole process leading to bankruptcy (which
is in the nature of a criminal matter), must be very
strictly and narrowly construed on the footing that it is
a penal matter; and it is much easier to cure a defect
in a petition, apparently, than in a bankruptcy notice."
He cited as authority for that proposition a judgment of Vaughan-Williams L.J. whom he described as "a great authority on bankruptcy". His own judgment, as I have said, has been treated as authoritative both by the joint judgment of the High Court in James' case and by the Privy Council in Pillai's case.A similar approach seems to me to underly the decision of this Court in Re Shierholter; Ex parte Geis (1978) 19 ALR 113, a decision which I cannot distinguish in principle from the present case. There the bankruptcy notice claimed an amount as due in respect of a debt, for which judgment had been obtained, together with the costs payable under the judgment. The total of the judgment debt and costs was in fact $2,830-45, but in error the bankruptcy notice claimed the sum of $2,735-95 as due. It seems to me that a bankruptcy notice, such as that with which the present case is concerned, which claims an amount for judgment and interest for a defined period, but shows the interest as less than the amount of interest due for that period, contains an entirely similar error. In the joint judgment of Nimmo and Deane JJ. at 121 it was said:
"The amount was understated by reason of an error which
was apparently made as regards the amount of the costs.
There is no question, in the present matter, of the excess
being waived or of the bankruptcy notice making it clear
that nothing more is claimed beyond the amount specified ...
In the light of the authorities to which reference has
been made and which have not been challenged before us,
the result is that the effect of the understatement of
the amount due under the County Court judgment was to
invalidate the bankruptcy notice.
... Nor, in all the circumstances, is the mistake something
which can properly be regarded as covered by the
provisions of s.306 of the Act." (They referred to
James' case.)
The third member of the Court, Franki J., at 115 said:
"For the reasons expressed by Nimmo and Deane JJ.,
with which I agree, it seems clear that upon the
authorities, which have not been challenged before us,
a bankruptcy notice does not comply with the requirement
of s.41 of the Bankruptcy Act 1966 where it specifies a
lesser sum than the judgment debt, unless the notice
makes it clear that nothing more is claimed to be due
under the judgment debt."
In the present case, far from making it clear that nothing more was claimed, the bankruptcy notice contained a recital which made it crystal clear that the full amount actually due was claimed.
I agree with the orders proposed by Beaumont J.
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