Donald, Thomas James v Hudson, Robert James Neilson Jnr

[1998] FCA 588

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7501 of 1997 & NG 8168 of 1997

IN THE MATTER OF: JAMES NEILSON HUDSON JNR

BETWEEN:	THOMAS JAMES DONALD & STEPHEN WILLIAM MICHAEL WHALAN APPLICANTS
AND:	ROBERT JAMES NEILSON HUDSON JNR RESPONDENT

JUDGE:	TAMBERLIN J
DATE:	19 MAY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(Ex-tempore Judgment)

In this matter, the debtor has sought an adjournment of the hearing of the petition.  The brief history of the matter is that there was a challenge to the Bankruptcy Notice, which was argued before Lindgren J.  His Honour delivered judgment on 12 August 1997, dismissing the challenge.

The debt arose from an order of a Magistrate made following a hearing on 10 and 11 October 1996, dismissing Mr Hudson’s application to the Magistrate’s Court on 11 October 1996.  On 24 October 1996, the Magistrate ordered Mr Hudson to pay the costs of the fourth and fifth respondents in the total sum of $5,540, including their own witnesses' expenses, to be divided equally between the respondents, that is to say, $2,770 to be paid to each of the creditors.  It is on that order that the Bankruptcy Notice was founded.

In the course of his judgment, his Honour dealt with three matters, the first of which was that the Bankruptcy Notice overstated by $2 the amount of the debt.  His Honour found there was ample evidence that there had never been any misunderstanding on the part of Mr Hudson as to the correct amount, so that there was never a question as to any deliberate attempt to over-claim.

His Honour, having examined the relevant authorities, came to the conclusion that the overstatement could be cured by the application of s 306(1) of the Bankruptcy Act 1966 (Cth) (“the Act”), which provides that:

“Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”

His Honour considered that the overstatement by $2 was a formal defect or irregularity within the scope of s 306(1) since the defect was one which could not reasonably mislead the debtor. His Honour had regard to a number of authorities on this question. His Honour dismissed the challenge and ordered the applicant debtor to pay the cost of the respondents on that application.

An appeal from the judgment of Lindgren J was brought to this Court and was heard on 11 March 1998.  The three members of the Court were of the opinion that the appeal should be dismissed with costs and agreed with the reasons given by Lindgren J in his judgment.

Since that date, an application for special leave has been filed in the High Court and this is the basis on which the debtor seeks an adjournment of the hearing of the petition.  In support of the grant of an adjournment, reference has been made on behalf of the debtor to three authorities.  The first is the decision of the High Court in Walsh v Deputy Commissioner of Taxation of the Commonwealth of Australia (1984) 156 CLR 337.

In that case the Chief Justice, with whom the other members of the Court agreed, said at 339,

“There is no doubt that a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under section 41(5) of the Bankruptcy Act 1966 (Cth) as amended, that he disputes the validity of the notice on that ground.”

The issue that must be decided is whether the notice of an overstatement of the amount due is to be made at the time of issue of the notice or at the time of its service. In the case referred to above, the overstatement was considerably and substantially in excess of the amount actually owing. It was in this context that the High Court made the statement set out above. There is no suggestion in that case that any argument was advanced on the basis of s 306 of the Act.

The second case referred to on behalf of the debtor as the basis for an adjournment was the decision of Pincus J in the case of re Wilhelmsen ex parte Gould (1986) 66 ALR 189, which followed and applied the statements of the High Court in Walsh.  However, again the circumstances were far removed from the present case.  In that case the Bankruptcy Notice grossly overstated the amount due by about $160,000.  In addition, the overstatement was found by his Honour to be deliberate, at least in the sense that it was clear to the creditors that no such claim was then due.  In the present case, the error was inadvertent and was arithmetic in character with no suggestion of any intent.  No attempt was made in re Wilhelmsen, for understandable reasons, to contend that s 306 applied.

The third case referred to in argument was the decision of Burchett J in re Clubb; ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123. In that case the error occurred inadvertently. The Bankruptcy Notice overstated the amount of interest claimed by an amount of $213 in relation to a total amount claimed of $739,000 approximately. Burchett J set aside the Bankruptcy Notice. The overstatement was not insubstantial in itself, although proportionately it was not large either. However, there is no indication that s 306 was argued before his Honour.

None of the above authorities persuade me in the present case, where there has been an inadvertent overstatement in a minimal amount of $2 in circumstances where the true amount of the debt was found to be known to the debtor, that there is any basis for setting aside the Bankruptcy Notice. In reaching this view I have taken into account the fact that four Judges of this Court, one at first instance and three on appeal, have considered the substance of the arguments and have unanimously agreed that s 306 applies. In these circumstances, I have reached the conclusion that this is not an appropriate case in which to grant an adjournment of the petition and I propose to proceed with the hearing of the petition in this matter. I consider that the overstatement of $2 is de minimus and that it would be in no way serve the interest of justice to set aside the Notice in the circumstances of this case.

Two further issues have been raised in relation to the affidavits, which have been filed in the matter.  The first one relates to r 19(3) of O 77 of the Federal Court Rules.  That rule requires that the applicant file an affidavit of a personal search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition, setting out the relevant details and making the relevant statements. In the present case the affidavit was sworn on 15 May 1998, which was a Friday, and the present hearing is on the following Tuesday morning. I am satisfied that any irregularity in respect of the affidavit should be cured by the application of s 306(1) and in the absence of any contrary evidence, I apply that provision to the affidavit.

The second issue relates to r 19(4), which requires that the applicant must file an affidavit of a person who knows the relevant facts sworn as soon as practicable before the hearing date.  I am satisfied in the circumstances of this case that last Friday is within that description.  The search was made one clear working day before the hearing.

Accordingly, I refuse the application for adjournment.  I do not think there is any formal objection to the making the orders which have been sought.  Therefore, I order that the estate of the debtor be sequestrated and that the petitioning of creditor's costs, including any reserve costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

In view of the history of the matter and the absence of any substantive merit in the application as I see it, I will not grant a stay in relation to the operation of the orders.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:

Dated:            19 May 1998

Counsel for the Applicant (Debtor):	Mr M K Rollinson
Counsel for the Respondent (Creditor):	Ms R Winfield
Solicitor for the Respondent:	Messrs Tonkins Drysdale Partners
Date of Hearing:	19 May 1998
Date of Judgment:	19 May 1998