Frosso Coumanios v Bank of Western Australia Limited - [2009] FMCA 487

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FROSSO COUMANIOS v BANK OF WESTERN AUSTRALIA LIMITED

[2009] FMCA 487

BANKRUPTCY – Application to set aside a bankruptcy notice – whether defect or irregularity in the manner in which the notice required payment of interest – whether interest was calculated in accordance with the judgment – whether reference to “payments” rather than “credits” constituted a defect or irregularity – s.306 of the Bankruptcy Act.

Acts Interpretation Act 1901 (Cth), s.25C
Bankruptcy Act 1966 (Cth), ss.30, 40, 41, 306
Bankruptcy Regulations 1996 (Cth), regs.4.01, 4.02
Civil Procedure Act 2005 (NSW), s.101
Supreme Court Act 1970 (NSW)
Uniform Civil Procedure Rules 2005 (NSW), r.36.7

Adams v Lambert (2006) 228 CLR 409
Bendigo Bank Ltd v Williams and Others (2000) 98 FCR 377
Brookfield v Yevad Products Pty Ltd (formerly Davey Products Pty Ltd) (2002) 192 ALR 111
Budimir v McMahon [2000] FCA 1312
Ex parte Fewings; In re Sneyd (1883) 25 Ch D 338
Filler v Haskell [2003] FCA 121
GR Finance Limited v Francis Waldron [2009] FMCA 418
In Re a Judgment Debtor [1908] 2 KB 474
Irani v Hollyburton UK Ltd (2007) 163 FCR 329
James v Federal Commissioner of Taxation (1995) 93 CLR 631
Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71
Malek v Macquarie Leasing Pty Ltd (2007) 156 FCR 552
Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101
Pillai v Comptroller of Income Tax [1970] AC 1124
Re Demarco (Debtor); Demarco v Australia and New Zealand Banking Group Limited (unreported, Federal Court of, 29 July 1997)
Re Munson; Ex Parte Deputy Commissioner of Taxation (1977) 29 FLR 479
Re Wimborne; Ex parte the debtor (1979) 24 ALR 494
Somes v Duke Group Ltd [2000] FCA 248
Snelgrove v Roskell (2007) 157 FCR 313
Sunderland v G & J Drivas Pty Ltd [2000] FCA 1029

Applicant:

FROSSO COUMANIOS

Respondent:

BANK OF WESTERN AUSTRALIA LIMITED

File Number:

SYG 3362 of 2008

Judgment of:

Barnes FM

Hearing date:

28 April 2009

Delivered at:

Sydney

Delivered on:

22 May 2009

REPRESENTATION

Counsel for the Applicant:

Mr D Ash

Solicitors for the Applicant:

McKells Solicitors

Counsel for the Respondent:

Mr S Ipp

Solicitors for the Respondent:

Henry Davis York

ORDERS

That the application to set aside bankruptcy notice NN4094 of 2008 be dismissed.
That the applicant pay the costs of the respondent as agreed and in the absence of agreement taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3362 of 2008

FROSSO COUMANIOS

Applicant

And

BANK OF WESTERN AUSTRALIA LIMITED

Respondent

REASONS FOR JUDGMENT

This application

The applicant, Frosso Coumanios, seeks to set aside bankruptcy notice number NN4094 of 2008 on the grounds that it is invalid because of the manner in which it claims interest and/or because the calculation of post-judgment interest in the bankruptcy notice refers to “payments” rather than to “credits”. It was submitted that these defects could not be cured under s.306(1) of the Bankruptcy Act 1966 (Cth). The applicant relies on an affidavit sworn by her on 27 February 2009. The respondent relies on an affidavit of Andrew Ng-Saad said to have been sworn on 17 November 2008, an affidavit of Noel Richard McCoy sworn on 10 March 2009, an affidavit of Rajiv Goyal sworn on 27 April 2009 and an affidavit of Onno David Hornstra affirmed on 27 April 2009. I note as a preliminary point that no issue is taken in these proceedings as to service of the bankruptcy notice on Mrs Coumanios.
The background to these proceedings is that on 24 October 2008 a bankruptcy notice was issued in which the respondent, the Bank of Western Australia Limited (the Bank), claimed that the applicant owed it a debt of $175,028.95. The bankruptcy notice was based on a judgment in favour of the Bank in proceedings number 16143 of 2006 in the Supreme Court of New South Wales against four defendants, including Mrs Coumanios and her two sons Stanley and John Coumanios, who are each the subject of separate bankruptcy notices. They have each applied in this Court to set aside the bankruptcy notices on the same grounds as are raised in these proceedings. The three matters were heard at the same time, although an additional issue arose in relation to whether the applications by Stanley and Frosso Coumanios were made out of time.
The underlying liability of Mrs Coumanios is said to have arisen by reason of a guarantee provided to the Bank in relation to a loan to Debona Pty Ltd (which is now in liquidation). Mrs Coumanios is also a debtor of the Bank by reason of her liability pursuant to certain personal loan facilities. On default, the Bank appointed receivers and managers of security consisting of certain properties and commenced the proceedings in the Supreme Court seeking possession of the property and payment of an amount said to be owed to the Bank by each of John, Stanley and Frosso Coumanios. On 4 September 2007 the Bank and the Coumanioses entered a deed of forbearance, one of the terms of which was that the Coumanioses consented to judgment for the Bank in the Supreme Court proceedings in the form in which orders were made on 6 September 2007.
A sealed copy of the judgment of the Supreme Court made on 6 September 2007 and entered on 10 September 2007 is attached to the bankruptcy notice. Relevantly, in addition to orders in relation to possession of property, the Court ordered judgment for the plaintiff Bank against the defendants in the sum of $2,138,523.67 plus post-judgment interest and costs.
The Schedule to the bankruptcy notice claims the amount of the judgment together with interest accrued since the date of judgment or orders in the sum of $176,291.86. Subtracted from the total of these two amounts are what are described in the Schedule as “[p]ayments made and/or credits allowed since date of judgments or orders” in the sum of $2,139,786.58. This was said to leave a total debt owing and claimed under the bankruptcy notice of $175,028.95.
It is not disputed in these proceedings that the bankruptcy notice was served on Mrs Coumanios on 26 November 2008. Mrs Coumanios commenced these proceedings on 18 December 2008. Originally she sought to assert that she had a counter-claim, set-off or cross demand. She also claimed that she intended to recommence proceedings in the Supreme Court that had been dismissed that would, if successful, extinguish the respondent’s claim. She claimed generally that the respondent’s claims, including the claim for interest, appeared to be erroneous or excessive and sought to claim under s.41(5) of the Bankruptcy Act that the sum specified as the amount due exceeded the amount in fact due. She now relies on two grounds that assert that there are defects or irregularities in the bankruptcy notice, in particular in relation to the claim for interest.

Whether application out of time

An initial issue arose as to whether the application to set aside the bankruptcy notice was out of time, irregular or invalid and hence ought to be dismissed.
The bankruptcy notice was issued on 24 October 2008 and said to have been served on the applicant on 26 November 2008. The applicant was said to have until 17 December 2008 to either comply with the bankruptcy notice or to seek to have it set aside so as to avoid committing an act of bankruptcy (s.40(1)(g)). The respondent submitted that the applicant could only commence these proceedings before the time for compliance expired under s.40(1)(g) of the Act (17 December 2008) and that as these proceedings were commenced on 18 December 2008 they were one day too late.
The respondent contended that the basis for the present application was originally a claim that the debtor had a counter-claim, set-off, or cross demand. This claim was not brought before the expiration of the time fixed for compliance with the notice (see s.41(7)). It is no longer pursued. The present claims relate to suggested defects in the bankruptcy notice, although a claim disputing the respondent’s claim to interest was referred to generally in the affidavit of Mrs Coumanios in support of her application.
The applicant accepted that if the application was filed more than 21 days after service of the bankruptcy notice an act of bankruptcy would have been committed but submitted that this did not prevent a later application (not based on a counter-claim, set-off or cross demand) to set aside the bankruptcy notice being pursued at a later date. The applicant submitted that it was not the case that any challenge to a bankruptcy notice had to be brought within the time fixed for compliance with the notice. This was said to be consistent with the fact that an issue as to the invalidity of a bankruptcy notice could be raised on the hearing of a creditor’s petition, notwithstanding that prima facie an act of bankruptcy had occurred.
Section 40(1)(g) of the Act is as follows:
(1)     A debtor commits an act of bankruptcy in each of the following cases:
…
(g)     if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia--within the time specified in the notice; or
(ii)     where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
No authority was cited by either party on this issue. I raised with the parties the decision in Brookfield v Yevad Products Pty Ltd(formerly Davey Products Pty Ltd) (2002) 192 ALR 111 and gave them time to file post-hearing written submission on this issue. Neither party took that opportunity.
In Brookfield Raphael FM held that the failure to comply with time limits in ss.41(6A) and (7) was not a bar to a subsequent application to set aside a bankruptcy notice where the validity of the bankruptcy notice was impugned and that such an application could be made after the time for compliance had expired. His Honour suggested that the source of power to set aside an invalid or substantially defective bankruptcy notice arose under s.30 of the Act (and see Re Vella; Ex parte Seymour (1983) 67 FLR 287 and Budimir v McMahon [2000] FCA 1312). As Raphael FM stated in Brookfield at [12]:
There is no doubt that had this matter proceeded to the application for a sequestration order the court would have had the power to set aside the bankruptcy notice at that time (Kleinwort Benson Australia Limited v Crowl [1988] HCA 34; (1998) 165 CLR 71). If the court can set aside a bankruptcy notice at this time by declaring it a nullity, even where an act of bankruptcy has taken place, it cannot be held to be restrained from doing so between the time at which the act of bankruptcy is committed and the hearing of the petition.
I agree with his Honour. I note that the applicant sought to rely on s.30 in her supporting affidavit. While the appropriate time to hear such an application would normally be on the hearing of the petition, it was not suggested that if the Court had power to hear the application I should exercise my discretion not to do so. In any event, the same issues are raised in the associated matter of John Coumanios v Bank of Western Australia Ltd [2009] FMCA 485. The application in that matter was filed within the time for compliance with that bankruptcy notice. In such exceptional circumstances, I consider it is appropriate to consider this application (see Brookfield at [13]).

Whether the bankruptcy notice contains a defect or irregularity in relation to the claim for interest

The first ground relied on by Mrs Coumanios is that the bankruptcy notice is invalid and hence should be set aside because of a defect or irregularity in relation to the basis of the claim for interest. As indicated, in item 3 of the Schedule to the bankruptcy notice interest accrued since the date of judgments or orders in the sum of $176,291.86 was claimed. The Schedule referred to Note 2 to the Schedule which provides
Note 2: Interest accrued (item 3 of the Schedule)
If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice. The document must state:
(a) the provision under which the interest is being claimed; and
(b) the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.
(NB: If different rates are claimed for different periods, full details must be shown.)
Attached to the bankruptcy notice is a document headed “Details of the calculation of the amount of interest claimed in item 3 in the Schedule to this Bankruptcy Notice.” This document is relevant to this ground and also to the second ground. It is convenient to reproduce it in full.

Date	Description	Interest on balance of outstanding judgment debt	Payment	Balance owing to creditor by debtor
6/09/2007	Judgment Debt	$2,138,523.67
18/05/2008	Interest on judgment debt, $2,138,523.67 from 6 September 2007 to 18 May 2008 @ 10% per annum pursuant to section 101 of the Civil Procedure Act 2005 (NSW) (Act)	$149,403.71	$2,287,927.38
19/05/2008	Payment	$285,836.76	$2,002,090.62
19/05/2008	Interest on balance of judgment debt, $2,002,090.62, from 19 May 2008 to 19 May 2008 @ 10% per annum pursuant to section 101 of the Act	$584.52	$2,002,639.14
20/05/2008	Payment	$165,089.72	$1,837,549.42
30/06/2008	Interest on balance of judgment debt, $1,837,549.42, from 20 May 2008 to 30 June 2008 @ 10% per annum pursuant to section 101 of the Act	$20,640.97	$1,858,190.38
1/07/2008	Payment	$1,639,181.59	$219,008.79
24/08/2008	Interest on balance of judgment debt, $219,008.79, from 1 July 2008 to 24 August 2008 @ 10% per annum pursuant to section 101 of the Act	$3,240.13	$222,248.92
25/08/2008	Payment	$49,678.51	$172,570.41
16/10/2008	Interest on balance of judgment debt, $172,570.41, from 25 August 2008 to 16 October 2008 @ 10% per annum pursuant to section 101 of the Act	$2,458.54	$175,028.95
Total Interest	$176,291.86

It is apparent that interest is claimed from the date of the judgment to 18 May 2008 at “10% per annum pursuant to section 101 of the Civil Procedure Act 2005 (NSW)”. Thereafter a number of “payments” are recorded and interest claimed on the balance of the judgment debt after allowance for each such “payment” for periods up to 16 October 2008. In each such case the interest is said to be at “10% per annum pursuant to section 101 of the Act”.
Section 101 of the Civil Procedure Act 2005 (NSW) is the source of the entitlement to post-judgment interest on judgments of New South Wales courts, including the Supreme Court of New South Wales. Relevantly it is as follows:
(1)     Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid.
(2)     Interest under subsection (1) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from:
(a)     the date on which the judgment takes effect, or
(b)     such later date as the court may order.
…
(6)     This section does not authorise the giving of interest on any interest payable under this section.
(7)     In this section, a reference to the "prescribed rate" of interest is a reference to the rate of interest prescribed by the uniform rules for the purposes of this section.
Under r.36.7 of the Uniform Civil Procedure Rules 2005 (NSW) the prescribed rates at which interest is payable under s.101 of the Civil Procedure Act 2005 are as set out in Schedule 5 of the Rules (see s.101(7)). At all relevant times, the interest rate prescribed by Schedule 5 was 10 per cent per year.
Term 6 of the Supreme Court judgment to which Mrs Coumanios consented is as follows:
Pursuant to section 101 of the Civil Procedure Act 2005 interest be paid on the judgment obtained by the plaintiff against the defendants at the prescribed rate or at various rates charged by the plaintiff to customers on like accounts (compounded monthly) from the date of judgment on so much of the money as is from time to time unpaid, whichever is the higher.
Counsel for the applicant suggested that the form of the judgment was probably bad as it lacked finality and the “customer rate” was a compounding rate contrary to s.101(6) of the Civil Procedure Act, which prohibits compound interest. However it was acknowledged that it must be accepted in this Court that the Supreme Court judgment was valid on its face.
The applicant submitted that s.101(2) of the Civil Procedure Act was the only “jurisdiction” for both rates referred to in term 6 of the judgment. It was contended that under term 6 of the judgment the rate of interest (whether the “prescribed rate” or what might be called the “customer rate”) was ordered “[p]ursuant to section 101 of the Civil Procedure Act 2005.” Hence interest was said to be payable pursuant to that Act, either at the prescribed rate or at the customer rate, whichever was the higher. On this basis it was acknowledged that there was no mistake in the statements in the document attached to the bankruptcy notice containing details of interest that in each instance the calculation of interest was “pursuant to section 101” of the Act (cf Adams v Lambert (2006) 228 CLR 409).
However the applicant contended that the bankruptcy notice was defective and not able to be cured under s.306(1) of the Bankruptcy Act because it failed to meet a requirement made essential by the Bankruptcy Act or could reasonably mislead a debtor as to what was necessary to comply with the notice in the manner considered in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 79 – 80:
The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v Federal Commissioner of Taxation (1955) HCA 75; (1955) 93 CLR 631, at p.644; Pillai [1970] A.C., at p.1135. In such cases the notice is a nullity whether or not the debtor in fact is misled: In Re a Judgment Debtor, 530 of 1908 [1908] 2 K.B. 474, at p.481.W
It was submitted that it was not clear whether the statement “pursuant to section 101 of the Act” meant “pursuant to the Act, at the prescribed rate” or “pursuant to the Act, at the customer rate”. Beyond this, it was said that it was not clear whether the notice required payment of interest pursuant to the Act at the prescribed rate because that was the higher rate; or payment of interest pursuant to the Act at the prescribed rate because, although that was the lower rate, the creditor elected to charge it; or payment of interest pursuant to the Act at the customer rate and, by coincidence, that that was the same rate as the prescribed rate. Moreover it was said that there was no indication as to the circumstance of any election as to the rate to be charged, on whose authority any such election was made and how it was communicated to the applicant.
Counsel for the applicant acknowledged that since the decision in Kleinwort Benson s.41(2) of the Bankruptcy Act had been amended and no longer specified that the bankruptcy notice must require payment “in accordance with the judgment.” Section 41(2) now provides that the notice must be in accordance with the form prescribed by the Regulations. Regulation 4.02 of the Bankruptcy Regulations is as follows:
(1) For the purposes of subsection 41 (2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.
(2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).
(3) Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901.
Note Under section 25C of the Acts Interpretation Act 1901, where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient; see also paragraph 46 (1) (a) of that Act for the application of that Act to legislative instruments other than Acts

Form 1 is to be found in Schedule 1 to the Regulations. The applicant contended that the bankruptcy notice must be “substantively” in the form required (by virtue of s.41(2)) read with reg.4.02 and having regard to s.25C of the Acts Interpretation Act 1901 (Cth). It was submitted that the only fair inference to be drawn from paragraphs one and two of the bankruptcy notice (in particular) was that it was still a requirement made essential by s.41(2) of the Act that the notice required payment in accordance with the judgment. Paragraph one of the bankruptcy notice stated that the creditor claimed that the recipient of the bankruptcy notice owed it a debt of $175,028.95 as shown in the Schedule. Paragraph two in the Form of notice is as follows: “The creditor claims that the debt is due and payable by you. A copy of the judgment or orders relied upon by the creditor is attached. At the time of applying for this notice, execution of the judgment or orders had not been stayed”.
It was suggested that there was nothing in Adams v Lambert (2006) 228 CLR 409 (which considered the operation of s.306(1) of the Act) to suggest that there was any amelioration of that obligation or any relief from an obligation to state the basis upon which interest was claimed and that this defect could not be cured under that section. Section 306(1) is as follows:
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.
The essence of the applicant’s argument was that one simply did not know whether the notice required payment in accordance with the judgment, in particular whether it required payment of interest at the only permissible rate. It was submitted that hence it could not be said that the notice required payment in accordance with the judgment and that it was therefore invalid as failing to meet a requirement made essential by the Act. It was submitted that this was not a mere formal defect or irregularity that could be cured under s.306(1) as considered in Adams v Lambert.
In addition it was contended (by reference to the same concerns) that the bankruptcy notice could reasonably mislead a debtor as to what was necessary to comply with the notice and that hence this was not a formal defect or irregularity within s.306(1). Reliance was placed on what was said by the High Court in Kleinwort Benson at 80:
It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice.
The applicant submitted that in this case it was not clear that payment of the amount specified in the bankruptcy notice would constitute compliance with the notice. While item 6 to the Schedule stated “[t]otal debt owing” and referred to an amount of $175,028.95, there was said to be no means by which the debtor could determine whether what was said to be the total debt owing was in fact the amount due under the terms of the judgment.
The respondent contended first that the bankruptcy notice satisfied matters of form, being in the form required by Form 1 and reg.4.02(2). A sealed copy of the judgment was attached to the notice as required by reg.4.01(1)(b)(i). It was also submitted that the requirements of Note 2 to the Schedule were satisfied, in that the table of interest calculation stated the provision under which interest was claimed, the principal sum on which, the period for which, and the interest rate at which interest was claimed. On this basis it was submitted that there had been compliance with all the formal requirements in relation to the bankruptcy notice and that it was not necessary to identify the source of the entitlement to interest beyond the reference to s.101 of the Civil Procedure Act and the correct prescribed rate of 10 per cent. It was also contended that the respondent had claimed interest in the notice in accordance with the judgment pursuant to s.101 of the Civil Procedure Act.
Counsel for the respondent suggested that in every case the starting point under s.101(2) of the Civil Procedure Act was that interest was to be calculated at the prescribed rate unless the court made some other order. In this case it was suggested that the Supreme Court had made an order that the statutory prescribed rate of interest applied and that the wording of Term 6 of the judgment, read with s.101(2) of the Civil Procedure Act, was not such as to constitute an order that some rate other than the prescribed rate be paid. It was suggested that to give effect to s.101(2), if any party to the Supreme Court proceedings sought interest to be charged at a rate other than the prescribed rate it would be necessary for such party to invoke a formal procedure to seek an alternative order.
Reliance was placed on the approach taken by Beaumont J in Re Demarco (Debtor); Demarco v Australia and New Zealand Banking Group Limited (unreported, Federal Court of Australia, 29 July 1997) in relation to s.95(1) of the Supreme Court Act 1970 (NSW) (the predecessor to s.101 of the Civil Procedure Act). Section 95(1) provided:
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 the time to time unpaid.
It was submitted that, although in slightly different form, this provision had the same effect as s.101(2) of the Civil Procedure Act. In Re Demarco Beaumont J considered the construction of s.95(1) in relation to a judgment containing a term (said to be similar to term 6 of the judgment in issue in these proceedings) that: “the first, second and third defendants pay interest to the plaintiff at the rate charged to customers of the plaintiff on like accounts or pursuant to S95 of the Supreme Court Act, 1970, whichever is the higher, on the balance of the judgment which from time to time remains unpaid”.
In Re Demarco the debtor had given notice to the creditor pursuant to s.41(5) of the Act disputing the validity of the bankruptcy notice on the ground that the sum specified as the amount due exceeded the amount in fact due in circumstances where interest was calculated in the bankruptcy notice as compound interest. It was accepted by both parties that the amount of interest charged in the bankruptcy notice was calculated by reference to the rate prescribed under s.95(1). Beaumont J found that, unless the Supreme Court had ordered otherwise, simple and not compound interest was payable under s.95. His Honour held that the bankruptcy notice was defective for calculating interest on a compound basis because there was no entitlement to charge interest on a compound basis and found that it was incorrect to state in the notice that the interest claimed was calculated in accordance with the provisions of s.95. Relevantly, his Honour expressed the view that under the term of the judgment in question, s.95(1) would only apply if “the rate prescribed under s95(1)” was the higher rate of the two rates referred to in that judgment. In other words such interest would be payable under s.95 at the prescribed rate, although the Court could displace the operation of s.95 by ordering that interest be payable at some other rate. In such a case the interest would not be payable under s.95 (but would be payable pursuant to the judgment).
Re Demarco was said by the respondent to suggest that a Court could “otherwise order”, but if it did not do so, post-judgment interest would be calculated at the prescribed rate under s.101 (not at some other rate). Reliance was also placed on the fact that, as stated in Re Demarco, any contractual right to interest merged in the judgment, so that thereafter a creditor’s entitlement to interest was said to depend on the operation of legislation such as s.95 of the Supreme Court Act and, now, s.101 of the Civil Procedure Act (see Ex parte Fewings; In re Sneyd (1883) 25 Ch D 338 but cf Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101).
It was submitted by the respondent that term 6 of the Supreme Court judgment in this case could not be read as an order to pay interest to be calculated “at such other rate” as provided for in s.101(2) of the Civil Procedure Act. In other words it was said that the judgment provided for post-judgment interest under s.101 at the prescribed rate and hence that the bankruptcy notice properly calculated interest at the prescribed rate on a simple interest basis in accordance with the judgment and was not defective as failing to meet a requirement made essential by the Bankruptcy Act.
It was also submitted that the notice was not such as might reasonably mislead a debtor as to what had to be done to comply with the Act, it being clear that the notice required payment of interest at 10 per cent per annum as set out in the document attached to the bankruptcy notice (see Adams v Lambert).
It was submitted that if there was a defect or irregularity it was a formal defect or irregularity that could be cured under s.306 on the approach taken in Adams v Lambert.
It is necessary to consider first whether the bankruptcy notice failed to comply with the Bankruptcy Act, having regard to the operation of s.25C of the Acts Interpretation Act in relation to substantial compliance and all the circumstances of the case and hence was defective or irregular. If there was such a defect or irregularity it would be then necessary to determine whether the defect or irregularity was a “formal” defect within s.306(1) (see Irani v Hollyburton UK Ltd (2007) 163 FCR 329 at [14] – [17]). This involves two levels of enquiry (see Irani v Hollyburton UK Ltd, Snelgrove v Roskell (2007) 157 FCR 313 per Jacobson J, Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at [15] per Mason CJ, Wilson, Brennan and Gaudron JJ and Adams v Lambert (2006) 228 CLR 409 at [25] ff). In relation to s.306(1), it is necessary to consider whether the bankruptcy notice failed to meet a requirement made essential by the Bankruptcy Act or whether it could reasonably mislead a debtor as to what was necessary to comply with the notice. If so the notice would be invalid and should be set aside whether or not the debtor was in fact misled. In Irani v Hollyburton UK Ltd (at [17]) Middleton J stressed that these two aspects had to be addressed separately. If a defect was merely formal so that s.306(1) applied, consideration must be given to the issue of substantial injustice.
The document in relation to calculation of interest attached to the bankruptcy notice is part of the bankruptcy notice (Adams v Lambert at [22]). There is no irregularity, error or omission apparent on the face of this document considered in isolation (cf Adams v Lambert). As counsel for the applicant submitted, there is no mistake in the statement that the calculation of interest was “pursuant to section 101 of the Civil Procedure Act.” The notice itself did not purport to claim or calculate interest on a compound basis (cf Re Demarco and s.101(6)).
Both the wording of s.95 of the Supreme Court Act and the wording of the term of the judgment in issue in Re Demarco differ from s.101 of the Civil Procedure Act and the term of the judgment in issue in this case. Contrary to the respondent’s contention, it is apparent that in term 6 of the judgment the Supreme Court ordered that post-judgment interest be paid at “the higher” of the prescribed rate or the customer rate. It did not simply order that interest be payable at the prescribed rate.
Under s.101(1) post-judgment interest is payable “[u]nless the court orders otherwise”. Unlike s.95 of the Supreme Act, s.101(2) merely provides for calculation of the rate and the commencement date of interest where the court has not made an order that the interest is not to be paid. The rate of interest is to be “the prescribed rate or such other rate as the court may order.” In contrast to the position in relation to s.95 considered in Re Demarco, if the court made an order that post-judgment interest was payable at a rate other than the prescribed rate the interest would still be payable “pursuant to” s.101. By term 6 of the judgment the Supreme Court ordered that the interest rate be “the higher” of the prescribed rate or the customer rate. The “higher” of these two rates was “such other rate as the court may order” within s.101(2). This is not a case in which it can be said that interest was ordered at the prescribed rate alone. It is not apparent that the Bank would have had to make a separate application to the Supreme Court under s.101(2) that the judgment carry interest at a particular rate higher than the prescribed rate.
No authority was cited in support of the proposition that the lack of clarity that was said to arise from the absence of explanation as to whether 10 per cent per anum was the “prescribed rate” or the “customer rate” constituted a defect or irregularity. Nonetheless, it is necessary to consider whether, given that the judgment required payment of post-judgment interest at the “higher” of the prescribed rate and the customer rate, the fact that interest was claimed in the bankruptcy notice at what was in fact the prescribed rate (but without explanation for the basis on which this was done) constituted a defect or irregularity and, if so, whether it was a mere “formal” defect or irregularity.
The preliminary issue is whether there is a defect or irregularity (see Irani v Hollyburton UK Ltd at [14] – [17]). The bankruptcy notice on its face appears to comply substantially with Form 1 (and see s.25C of the Acts Interpretations Act, Adams v Lambert at [22] and Malek v Macquarie Leasing Pty Ltd (2007) 156 FCR 552 at [17]). As counsel for the applicant conceded, the source of entitlement to interest was s.101 of the Civil Procedure Act. This was disclosed in the notice (cf GR Finance Limited v Francis Waldron [2009] FMCA 418). There is no suggestion that the interest was in fact calculated at other than the disclosed rate of 10 per cent or that compound interest was charged. It is clear that the interest claimed was post-judgment interest on the outstanding balance of the judgment debt. The notice was in the form required, a sealed copy of the judgment was attached and the requirements of Note 2 satisfied.
What is less clear is whether the interest in the notice was claimed in accordance with the judgment of the Supreme Court. The respondent did not submit that such a requirement was inapplicable, but rather that it was met. Hence, for present purposes I have proceeded on the basis that it is a requirement of the Bankruptcy Act that the bankruptcy notice claim interest in accordance with the judgment (cf s.41(2) as presently drafted and reg 4.02). There is no evidence before the Court from either party in relation to what the “customer rate” of interest charged by the Bank was at the relevant time. Nonetheless, I accept that the basis on which the interest rate was calculated and whether this was the “higher rate” was uncertain (notwithstanding that 10 per cent was the prescribed rate). Assuming for present purposes that such omission meant that one could not be satisfied that the notice claimed interest at the higher of the two rates referred to in the judgment and hence that it was not in accordance with the judgment, I am however satisfied that such defect or irregularity is a formal defect or irregularity that can be cured under s.306(1) of the Act.
As the High Court pointed out in Adams v Lambert, Kleinwort Benson identified the matter for judgment in a determination of whether a defect or irregularity was of the kind or degree of defect to be a formal defect able to be cured under s.306 of the Act. The High Court stated in Adams v Lambert at [24] – [26]:
The composite expression "a formal defect or an irregularity", in its application to a bankruptcy notice, conveys a meaning with elements of both inclusion and exclusion. A failure to comply with a requirement, to be found in the Act, imposed by reference to the regulations as to information to be furnished by the notice, is a defect or irregularity. So, in Kleinwort Benson Australia Ltd v Crowl, an erroneous statement of the amount of interest owing on a judgment debt was a defect or irregularity. What is excluded from the section is a defect or irregularity of such a nature that, reading s 306 in the context of the whole Act, it is not "a formal defect or an irregularity". What kind, or degree, of defect is to be regarded as having such a nature?
In some cases the answer to that question may be easy. In others, a difficult question of judgment may be involved. The matter for judgment was identified by this Court in Kleinwort Benson Australia Ltd v Crowl. In that case, the majority contrasted the concept of a formal defect or irregularity with a defect or irregularity that renders a bankruptcy notice a nullity that cannot be saved by s 306. To describe a defect as merely formal, or to describe a notice as a nullity, is, of course, to state a conclusion, rather than the reason for reaching that conclusion. Even so, it is necessary to identify the question that arises for judgment. The majority, referring to James v Federal Commissioner of Taxation, and Pillai v Comptroller of Income Tax, summarised the exclusionary aspect of the meaning of "a formal defect or an irregularity" by saying:
“The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice.”
The question of construction raised by the words "a formal defect or an irregularity" is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authorityhttp://subscriber.lawbookco.com.au/lbcbin/lpext.dll?f=id$id=cl%3Ar%3A6ea5$cid=cl$t=hyperlink.htm$an=JD_df.228.CLR.00409038$3.0 - JD_df.228.CLR.00409038 it was said: "A better test ... is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid ... In determining the question of purpose, regard must be had to `the language of the relevant provision and the scope and object of the whole statute.' (Footnotes omitted).
In considering such a purposive approach, it is relevant to note that as the High Court pointed out at [31], s.306 makes it plain that some instances of non-compliance with form will not invalidate a bankruptcy notice and that there are questions of degree and kind. The Court rejected the approach of attributing to the legislature a preference for form over substance (at [34]).
In effect the applicant contended that given that the judgment provided for payment of interest at the higher of two rates and that only the prescribed rate could be determined by reference to the Civil Procedure Act and Rules, the bankruptcy notice should have disclosed whether the interest rate was calculated at the prescribed rate or the customer rate and whether the rate was “the higher”, so that the debtor could check the claim.

However even if the suggested shortcomings do constitute a deficiency in the bankruptcy notice as an incomplete disclosure, it has not been established that there was a failure to meet “a requirement made essential by” the Bankruptcy Act. In Kleinwort Benson Mason CJ, Wilson, Brennan and Gaudron JJ expressed the view (at 80) that if the amount specified in a bankruptcy notice was in fact due and payment was claimed in accordance with the judgment, the “essential requirements” of former s.41(2)(a)(i) of the Bankruptcy Act would be met. At that time s.41(2)(a)(i) provided that the prescribed Form of the notice had to be such that it “requires the debtor named in it, within [the] specified time ... to … pay the judgment debt or sum ordered to be paid in accordance with the judgment or order…”. Their Honours suggested that it was “clear enough from the terms of s 41(2)(a)(i) of the Act that a notice must require payment "in accordance with the judgment". A notice specifying payment in accordance with some other arrangement does not satisfy this requirement” (Kleinwort Benson at 79).
In Adams v Lambert at [13] – [14] the High Court referred with apparent approval to the views of Kiefel J (dissenting) in Bendigo Bank Ltd v Williams and Others (2000) 98 FCR 377 as follows:
The evident purpose of the requirement to state the provision under which interest is being claimed is to assist the debtor to check the claim. Nevertheless, as Kiefel J pointed out in her dissenting judgment in Bendigo Bank Ltd v Williams, such information is normally incomplete. It would tell a debtor who is represented by a lawyer something the lawyer would, or should, already know. It would set an unrepresented debtor upon a train of inquiry that, in most cases, would require further information in order to find the relevant rate of interest.
The requirement in question is established by three levels of prescription. Section 41(2) of the Act states that a bankruptcy notice must be in the form prescribed by the regulations. Regulation 4.02 states that, for the purposes of s 41(2), the form set out in Form 1 is prescribed. Note 2 to the Schedule in Form 1 states that a document attached to the notice must state the provisions under which interest is being claimed. The use of the word “must” is significant, but it should be kept in perspective. A prescription as to a form to be followed will normally be expressed in language of obligation rather than of permission. That is the idea of a form. Such a prescription raises the question to be considered in the present case; it does not answer it. (Footnotes omitted).
In this case an evaluation of the significance or importance of the particular error or deficiency in the circumstances of the case in light of the legislative purpose of the Act and of the provisions relating to bankruptcy notices and given the fact that interest was claimed at a rate that was the prescribed rate and not at any other possibly higher rate leads me to the view that there has not been a failure to meet a requirement made essential by the Act. What is “essential” should be seen in light of the fact that a bankruptcy notice is not invalid for claiming less interest on the judgment than is in fact due, provided the sum specified in the notice is all that is claimed in it (Kleinwort Benson and Filler v Haskell [2003] FCA 121 at [10] – [13]).
Further in this case payment of the amount claimed would constitute compliance. Hence if there was an understatement because the prescribed rate of 10 per cent was not the higher rate it would not mislead the debtor as to what had to be done to comply with the notice (see Kleinwort Benson at 80; Somes v Duke Group Ltd [2000] FCA 248; Sunderland v G & J Drivas Pty Ltd [2000] FCA 1029 at [9]; and Re Munson; Ex Parte Deputy Commissioner of Taxation (1977) 29 FLR 479). Nor, if the prescribed rate was in fact the higher rate, would the bankruptcy notice be misleading.
Hence the suggested shortcomings at most constitute a formal defect or irregularity curable under s.306(1), there being no suggestion of substantial injustice.

The “payments” or “credits”

The other ground relied on by the applicant relates to the fact that the document calculating interest referred to “payments”. It was said to be clear on the evidence before the Court that there were no actual payments by the applicant or by anyone on their behalf, but rather amounts applied by the respondent itself to the debt. As the Schedule to the bankruptcy notice referred to “payments made and/or credits allowed”, it was conceded that it could not be said that there was any failure to meet a requirement made essential by the Act, but it was submitted that the notice could nonetheless reasonably mislead the debtor as to what was necessary to comply with it.
The document attached to the bankruptcy notice was said to be defective because it referred only to “payments” when there were no payments but only credits arising from proceeds of sale and rent being applied to the debt. It was said to be misleading to refer to credits as the one thing that they were not (payments), particularly in circumstances where there was more than one judgment debtor in relation to the debt in question, each of whom may be reasonably perplexed to read of “payments” which neither he nor she nor another debtor had made.
However, as the respondent contended, the reference in the notice to payments rather than to credits arose naturally from the wording in the Schedule to Form 1 and the fact that mortgaged properties were sold by receivers appointed by the respondent who accounted to the respondent for the sale proceeds. Indeed in that sense there could be said to be “payments”. The notice was clear on its terms, in that it required the debtor to pay $175,028.95 in order to comply with it, so that the reference to payments in the notice could not reasonably mislead a debtor as to what was necessary to comply with it.
As counsel for the respondent pointed out, to determine whether the debtor could be misled by a bankruptcy notice, the court is not confined to a examination of the notice itself but may have regard to facts extraneous to the notice (Re Wimborne; Ex parte the debtor (1979) 24 ALR 494). As attested to in paragraph 15 of her affidavit sworn on 27 February 2009, the debtor was aware of and referred to the sale by the respondent as mortgagee of three properties and the approximate sale prices. It can be inferred that the fact that the judgment debt would be reduced by sums received by the respondent upon the sale of such mortgaged property was known to the applicant, so that a debtor in the position of Mrs Coumanios would not have been misled by the reference in the notice to “payments” rather than to “credits”. In any event, it was not misleading as to what had to be done to comply with the notice and hence, if the reference in the notice to “payments” was a defect, it was a formal defect to which s.306(1) of the Act applied so that the notice is not invalid, no substantial injustice having been established.
In written submissions the applicant also submitted that the bankruptcy notice was defective on the basis that the “payments” were greater than the debt. However this ground was not pressed.
As neither of the grounds relied on are made out, the application to set aside the bankruptcy notice should be dismissed with costs.

I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 22 May 2009