DJ Sweeney Holdings Pty Ltd v McLeod - [2011] FMCA 608

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DJ SWEENEY HOLDINGS PTY LTD v MCLEOD

[2011] FMCA 608

BANKRUPTCY – Bankruptcy notice – whether bankruptcy notice can be issued by separate creditors for separate debts against the one debtor.

Bankruptcy Act 1966, ss.41, 44
Bankruptcy Legislation Amendment Bill 2002
Acts Interpretation Act 1901, s.23

Scook v Sims Construction Pty Ltd [2004] FCAFC 306
McIntyre v Gye [1994] 122 ALR 289
GPW Aussie Exports v Latin & Anor (1998) 85 FCR 324
Low, Re: Ex parte Argentine Gold Fields Ltd [1891] 1 QB 147
Wallace & Two Others v Kelsall (1840) 7 Meeson and Welsby 264, 151 E.R. 765
McWilliam v Jackson [2000] 96 FCR 561
Re Hamor; Ex Parte Deamor& Anor [1968] 11 FLR 261
Brebner v Bruce (1950) 82 CLR 161
Owners of Strata Plan No 5459 v Mason [1999] FCA 1137; (1999) 91 FCR 92
McDonnell v Fernwood Fitness Centre Pty Ltd [2005] FMCA 877
James v Federal Commissioner of Taxation [1955] 93 CLR 631

Applicant:

DJ SWEENEY HOLDINGS PTY LTD

Respondent:

VICKI MARGARET MCLEOD

File Number:

SYG 522 of 2011

Judgment of:

Raphael FM

Hearing date:

2 August 2011

Date of Last Submission:

2 August 2011

Delivered at:

Sydney

Delivered on:

9 August 2011

REPRESENTATION

Counsel for the Applicant:

D.W. Rayment

Solicitors for the Applicant:

David Begg & Associates

For the Respondent:

In person by phone

ORDERS

Petition dismissed.
No order as to costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 522 of 2011

DJ SWEENEY HOLDINGS PTY LTD

Applicant

And

VICKI MARGARET MCLEOD

Respondent

REASONS FOR JUDGMENT

This proceeding, which is an application for a sequestration order against the respondent, raises the interesting question whether a bankruptcy notice may be issued on behalf of two different creditors in respect of two different debts, albeit owed by the one debtor. If this is the case then the petition may proceed to finalisation at the next hearing but if it is not then the petition must be dismissed based as it is upon an invalid bankruptcy notice.
The bankruptcy notice itself is in the new form. It is addressed to the respondent and states:
“You are notified that:
Creditor’s name and ABN/CAN if applicable (if more than one creditor, include all creditors)
DJ SWEENEY HOLDINGS PTY LIMITED CAN 087 686 128 AND DAVID JAMES SWEENEY
Address
LOT 1 CAMPBELLTOWN ROAD
Address (line 2)  Postcode
INGLEBURN NSW   2565
claim/s that you owed the following debt
1.   Amount as per the attached final judgment/s or final order/s
(note A)  $304,329.17
2.   Add legal costs (note B)
3.   Add interest accrued since date of judgment/s or order/s (note C)    $ 34,756.05
4.   Sub total (1+2+3)  $339,085.22
5.   Less payments made and/or credit allowed since judgment/s
or order/s $0.00
6.   TOTAL DEBT AMOUNT (4-5)  $339,085.22”
On page 2 of the notice it states in paragraph 1:
“You are required, within 21* days after service on you of the Bankruptcy Notice, to either:
(a) pay to the creditor the amount of the debt claimed; or
(b) make arrangements to the creditor’s satisfaction for settlement of the debt.
*    A Bankruptcy Notice served in Australia must be complied with within 21 days after service. The Court may fix a different time for compliance where it gives leave to serve a Bankruptcy Notice outside of Australia.”
And in paragraph 2:
“Payment of the debt can be made to (name and address, including telephone, fax and email address if appropriate):
DAVID BEGG 7 ASSOCIATES, LVL 12, 75 ELIZABETH STREET, SYDNEY NSW 2000 TEL: 0292325377 FAX: 0292325388 EMAIL: [email protected]”
There is then attached to the document certified copies of two default judgments, both made in the same proceedings in the District Court of New South Wales Numbered 2892/09. The proceedings were between DJ Sweeney Holdings Pty Limited ACN 087 686 128 First Plaintiff, David James Sweeney Second Plaintiff and Bruce Phillip McLeod First Defendant and Vicki Margaret McLeod Second Defendant. The first Judgment is for the total sum of $256,408.79 and is expressed to be between the First Plaintiff and the First and Second Defendant and the Judgment date is 19 August 2009. The second copy Judgment is between the same parties but is said to be between the Second Plaintiff and the First and Second Defendants. The date is 19 August 2009 and the amount of the judgment totals $47,920.38. Included in the Bankruptcy Notice is what is known as a schedule of post judgment interest calculations. This schedule is divided between the two judgments clearly setting out the different amounts of those judgments, the rates of interest applying and the total for the various periods. No claim has been raised in respect of this schedule.
It should be made clear that the concern about the validity of the bankruptcy notice is a matter that was not raised by the debtor who appeared before me at the telephone and whose sole objection to the sequestration order was that the debts belonged to her husband rather than herself. The matter was raised, properly in my view, by Mr Rayment, who appeared for the creditors. He presented me with an elegant argument as to why the bankruptcy notice should be considered valid all the while ensuring that I was made aware of those authorities he had discovered that could be said to stand against that proposition.
The first port of call in consideration of this conundrum is s.41 of the Bankruptcy Act 1966 (the “Act”) which is headed Bankruptcy Notices. The relevant sub-sections are 41(1) and 41(3):
“Bankruptcy notices
(1) An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:
(a) a final judgment or final order that:
(i) is of the kind described in paragraph 40(1)(g); and
(ii) is for an amount of at least $5,000; or
(b) 2 or more final judgments or final orders that:
(i) are of the kind described in paragraph 40(1)(g); and
(ii) taken together are for an amount of at least $5,000.
(3) A bankruptcy notice shall not be issued in relation to a debtor:
(a) except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;
(b) if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed; or
(c) in respect of a judgment or order for the payment of money if:
(i) a period of more than 6 years has elapsed since the judgment was given or the order was made; or
(ii) the operation of the judgment or order is suspended under section 37. “
It will be seen immediately that the legislation refers to “a creditor”. It should also be noted that s.41(1) was amended by the insertion of s.41(1)(b) by the Bankruptcy Legislation Amendment Bill 2002 (effective 5 May 2003). Previously s.41(1) read:
“41 Bankruptcy notices
(1)An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that:
(a)is described in paragraph 40(1)(g); and
(b)is for an amount of at least $2,000.”
The effect of the amendment was to allow the joinder of two or more judgments or orders in a bankruptcy notice. As the service notes:
“Under the previous law only one judgment could be used to found a bankruptcy notice: Re Low; Ex Parte Argentine Goldfields Limited [1891] 1QB 147 [and other cases there cited].”
The amendment, whilst making specific mention of two or more judgments does not make any reference to two or more creditors but the lore, as Mr Rayment describes it, has long been that two or more creditors in the same interest can issue a bankruptcy notice, pre 2003 in respect of the one judgment, or post 2003 in respect of two or more judgments; Scook v Sims Construction Pty Ltd [2004] FCAFC 306. Mr Rayment also accepts as the lore that bankruptcy notices are not issued by two or more creditors otherwise than when they are in the same interest but he argues by reference to s.23 of the Acts Interpretation Act 1901:
“Rules as to gender and number
In any Act, unless the contrary intention appears:
(a) words importing a gender include every other gender; and
(b) words in the singular number include the plural and words in the plural number include the singular.”
that this is a rule of practice rather than one of law and there is nothing to prevent it. He argues that if the ordinary provisions of the Acts Interpretation Act were not to apply then the legislation, in this case the Bankruptcy Act, should say so. He says there is nothing in the Bankruptcy Act limiting the issue of bankruptcy notices to debts held by persons in the same interest and he notes that under s.44(1)(a) that two or more creditors may join in a petition. Mr Rayment makes reference to the decision of the Full Court of the Federal Court in McIntyre v Gye [1994] 122 ALR 289 per Davies, Burchett and Gummow JJ where the court was dealing with a bankruptcy notice that recited Mr Gye and Mr Perkes as the judgment creditors. That was correct as they were owed moneys under certain costs orders by Mr McIntyre. They were owed the money in the same interest as joint tenants. However, they had decided to sever the joint tenancy and became entitled as between themselves as tenants in common in equal shares. Thus there were two separate creditors, each entitled to a moiety of the judgment debt:
“Counsel for Mr McIntyre submitted that the bankruptcy notice was bad in several respects. First, it was said that in view of the severance in equity of the judgment debt and the receipt of notice thereof by Mr McIntyre before the date of the bankruptcy notice, he would have been acting at his peril if he had paid the amount demanded to Mr Gye and Mr Perkes jointly, rather than seeing that there was receipt as to half by each of them. Furthermore, one of the alternative requirements of the bankruptcy notice was that Mr McIntyre secure or compound the sum specified therein ``to the satisfaction of the judgment creditor'’. However, in the events that had happened, any compounding or giving of security would have to have dealt with each of Mr Gye and Mr Perkes as to his particular one half share. It was, counsel for Mr McIntyre submitted, true that the legal title to the judgment debt remained vested in law in Mr Gye and Mr Perkes jointly. Nevertheless, the severance in equity and the existence of notice thereof produced these consequences for the validity of the notice.”
The court opined at [301]:
“We have reached the conclusion that the bankruptcy notice was a nullity because it could reasonably mislead the debtor as to what was necessary to comply with it. However, we prefer not to rest, and do not rest, that conclusion upon any matters going to the availability of execution or the existence of a set-off. What we accept are the submissions of counsel for Mr McIntyre that the notice was bad, in view of the consequences of the severance in equity of the judgment debt upon which it was based and the receipt of notice thereof by Mr McIntyre before the date of the bankruptcy notice. In particular, the bankruptcy notice could reasonably mislead the debtor both as to what would be sufficient to effect payment by him and also as to what was necessary to secure or compound the sum specified therein to the satisfaction of what on the first page of the bankruptcy notice is identified as the ``Judgment Creditors'’ and later therein as ``the Judgment Creditor'’. Any composition would have to have been not, as to the whole sum, with Mr Gye and Mr Perkes jointly, but by reason of the notice of their distinct equitable interests, with Mr Gye and Mr Perkes each as to his particular one half share.”
Mr Rayment relies on this case as indicating that the Full Bench were not troubled by the fact that there were two creditors, their concern was the possibility that the notice could mislead the debtor for the reasons given. In the penultimate paragraph of the judgment their Honours state:
“What Mr Gye and Mr Perkes were not at liberty to do was to make an agreement changing the equitable ownership of the joint right created by the order and then to issue a bankruptcy notice which ignored the effect of the change; cf Re: Pollnow (1994) 12 ACLC 88 at [93].”
It is implicit in Mr Rayment’s argument that the court would have approved of a bankruptcy notice that required payment of one half of the debt to Mr Perkes and the other half to Mr Guy.
The argument raised by Mr Rayment on s.23 of the Acts Interpretation Act was given some consideration by Goldberg J in GPW Aussie Exports v Latin & Anor (1998) 85 FCR 324. This was in regard to the pre 2002 amendments relating to the number of judgments that could be the subject of a bankruptcy notice. His Honour commenced by citing the line of authorities that held a bankruptcy notice is a nullity if founded on more than one judgment or order. He noted the history commencing with Low, Re: Ex parte Argentine Gold Fields Ltd [1891] 1 QB 147 and cited a number of other judgments both in Australia and the United Kingdom where that decision had been followed. At [325 - 326] he says:
“My attention has been drawn to a recent decision of Beaumont J in Illawarra Credit Union Ltd v Olejniczak (unreported, Federal Court, Beaumont J, No NG 7300 of 1998, 26 May 1998) in which his Honour held that it was open to a creditor to rely upon more than one judgment in a bankruptcy notice for the purpose of founding an act of bankruptcy by way of failure to comply with the bankruptcy notice. His Honour held that the provisions of s 23(b) of the Acts Interpretation Act were applicable on the basis that there was nothing in the context of s 41 which indicated a contrary intention to construing the reference in s 40(1)(g) to a final judgment, final order and judgment debt in the plural. His Honour accordingly held the bankruptcy notice valid and made a sequestration order.
The proceeding before his Honour was unopposed, there being no appearance for the debtor, his Honour's reasons were given ex tempore and his Honour was not given the benefit of reference to or citation of any of the authorities in this area, particularly the decisions to which I have referred above. I would therefore, with respect, differ from his Honour in concluding that resort can be had to s 23(b) of the Acts Interpretation Act so as to validate a bankruptcy notice predicated on more than one final judgment or final order.
The line of authority to which I have referred is too well established to enable me as a single judge to reconsider the matter. In any event, it would only be appropriate for me to do so if I was of the opinion that the decisions in those cases were clearly wrong. I am not of that opinion. Although it does not appear that s 23(b) of the Acts Interpretation Act was considered in any of the Australian authorities to which I have referred I consider that the reasoning in those cases is inconsistent with the proposition that s 40(1)(g) does not exhibit a contrary intention to the expressions "final judgment" and "final order" being read in the plural. In my opinion the structure of s 40(1)(g) and in particular the reference to satisfying the court of a counter-claim, set-off or cross demand that could not have been set up in the action in which the judgment or order was obtained does exhibit a contrary intention .”
The apparent inconsistency between the generally accepted position that joint creditors can be parties to a bankruptcy notice and an argument that the use of the word “creditor” in s.41 should be restricted to the singular is that any one of several joint creditors can give good discharge for the debt: Wallace & Two Others v Kelsall (1840) 7 Meeson and Welsby 264, 151 E.R. 765 hence the identification of the relevant creditor is central to the validity of a bankruptcy notice: McWilliam v Jackson [2000] 96 FCR 561. But where there is a joint debt it is not necessary in the bankruptcy notice to state that payment must be made to all the creditors: Re Hamor; Ex Parte Deamor& Anor [1968] 11 FLR 261 per Gibbs J. In circumstances of a joint debt, whilst there may be more than one person entitled to the funds there is in reality only one debt.
That is not the case here. There are judgments in respect of each of the creditors for different amounts. There is no connection between the two judgments save that they were both obtained in the same action against the same defendant. There are therefore two debts. But Mr Rayment would argue that s.41(1)(b) opens the door for two or more judgments and thus to two or more debts. Against this argument it could be said that if the legislature thought it necessary to bring in an amendment to allow a notice to refer to two or more judgments (possibly after giving due consideration to the views of Goldberg J in GPW Aussie Exports) then the fact that it did not pluralise the word “creditor” can be used in aid of an argument that this is one sub-section where the Acts Interpretation Act was not intended to apply.
I would suggest that there is a good reason for this inference. That is that a notice issued by two or more creditors in respect of two or more debts is likely to mislead or confuse the debtor. What does a debtor do when faced with two debts in respect of one of which he believes he has a cross claim, cross demand or set off equal to or exceeding the amount of the judgment? Does he apply under s.41(7) which has the affect of extending the time for compliance with the bankruptcy notice? Does that extension of time apply to the second debt? The identity of the creditor to be paid also raises the possibility of confusion. Mr Rayment argues that the notice in this case requires payment to be made to the solicitor. But does the debtor know whether he is to provide the solicitor with one cheque, for both creditors or a cheque for each? The debtor is not obliged to make payment to the solicitor, it is only an alternative available to him. What if she wishes to pay the creditor personally? There is nothing in the bankruptcy notice which instructs her to pay each creditor separately with separate cheques or cash and one creditor cannot give a discharge for the other as they are not debts held in the same interest.
The reference to the 2002 Amendment to s.41 in the Explanatory Memorandum does not provide much illumination of the legislature’s thinking:
[81]It is proposed by item 19 that subsection 41(1) be repealed and replaced by a new subsection to allow 2 or more final judgments or final orders valued at $2,000 (rather than one as is currently required) to support the issue of a bankruptcy notice. Item 20 proposes a consequential drafting change.
[82]Items 21 and 22 propose consequential amendments to paragraphs 41(6A)(a) and 41(6C)(a) to take account of the fact that multiple final judgments or final orders may support the issue of a bankruptcy notice. By transitional provision item 205, these changes will apply to the issue of bankruptcy notices on applications that are made after commencement.
The Amendment is not referred to at all in the Second Reading Speech.
In Brebner v Bruce (1950) 82 CLR 161 Fullagar J considered the meaning of the phrase, “unless the contrary intention appears” and opined (at [175]):
“To provide that a certain position shall be taken to exist "unless a contrary intention appears" in an instrument is a common enough form of enactment. A well-known instance is to be found in s. 27 of the Wills Act 1837 (Eng.). Speaking of that section in Scriven v. Sandom, Sir William Page Wood V.C. said:—"There is no contrary intention within the meaning of the statute, unless you find something in the will inconsistent with the view that the general devise was meant as an execution of the power. It would not be a safe rule to proceed upon, to pick out little circumstances, and infer from them whether the testator had or had not in his mind the intention of exercising the power; there ought to be shewn something which can fairly be described as inconsistent with such an intention." This provided, he said, "the only safe rule for discriminating between mere conjecture and the contrary intent required by the statute". The "contrary intention" need not, of course, be stated in express words, but it must "appear", and I think it can appear only by express words or by necessary implication.”
See also Owners of Strata Plan No 5459 v Mason [1999] FCA 1137; (1999) 91 FCR 92 at [4-6] and [10] per Emmet J. I am of the view that in the present case the contrary intention is necessarily implied.

In the final analysis I believe that s.41(1) of the Act does not extend to permit of multiple creditors unless they are in the same interest: see also McDonnell v Fernwood Fitness Centre Pty Ltd [2005] FMCA 877 at [18-28]. If my understanding and reasoning are incorrect then I would say that in this particular case I believe that the notice itself is liable to mislead the debtor, noting that the court cannot enquire whether the debtor has in fact been misled or not: James v Federal Commissioner of Taxation [1955] 93 CLR 631 at [644]. The bankruptcy notice issued against Mrs Vicki Margaret McLeod is invalid and thus a petition based upon it cannot proceed. The petition is dismissed. There will be no order as to costs as the respondent debtor was not represented.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Raphael FM

Date: 9 August 2011