Gerard Wheelahan v Commissioner of the State of Bank of Vic

[1982] FCA 44

Re: GERARD WHEELAHAN AND CATHERINE ANNE WHEELAHAN
Ex parte: THE COMMISSIONERS OF THE STATE BANK OF VICTORIA (1982) 58 FLR 91
No. P30 and 31 of 1982
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Sweeney J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - whether defects should be regarded as formal defects or irregularities - whether defects are reasonably capable of misleading a hypothetical debtor - whether the court should relieve the petitioning creditor from the consequences of not complying with the Rules.

Bankruptcy Act 1966 (C'th) SS 40(1)(g); 41; 306(1)

Bankruptcy Rules Rule 8; 195(1)(2); Form 4

Bankruptcy - Bankruptcy notice - Defects - Formal defects or irregularities - Whether defects reasonably capable of misleading hypothetical debtor - Whether court should relieve petitioning creditor from consequences of not complying with rules - Bankruptcy Act 1966 (Cth), ss. 40 (1) (g), 41, 306 (1) - Bankruptcy Rules, rr. 8, 195 (1), (2), Form 4.

HEADNOTE

In considering whether a bankruptcy notice was invalid as being capable of misleading a debtor, or whether the bankruptcy notice could be saved by operation of the provisions contained in s. 306 (1) of the Bankruptcy Act 1966 (the Act) and r. 195 (1) and (2) of the Bankruptcy Rules,

Held: (1) A bankruptcy notice being penal or quasi-penal in effect is a matter of strict form in which defects will be fatal.
Re a Debtor; Ex parte The Debtor v. Hunter, (1952) 1 Ch 192; Re Howes; Ex parte Hughes, (1892) 2 QB 628, referred to with approval.

(2) The test to be applied in considering the validity or otherwise of a bankruptcy notice is an objective one.

Roufos v. Andrea (1981), 57 FLR 10, followed.

(3) In applying the objective test it is proper to look at the notice as a whole to consider its effect on a hypothetical debtor. Viewed as a whole the present bankruptcy notice was not reasonably capable of misleading such a debtor.

In the circumstances a sequestration order was granted.

HEARING

Melbourne, 1982, March 24; April 5. #DATE 5:4:1982

PETITION.

The petitioning creditor, the Commissioners of the State Bank of Victoria, sought an order of sequestration against the estate of the debtor in that she failed on or before 9th November, 1981, to comply with the requirements of a bankruptcy notice issued on 22nd September, 1981.

The facts are set out in the judgment below.

J. Stevenson, for the petitioning creditor.

T. Irlicht (solicitor), for the debtor.

Cur. adv. vult.

Solicitor for the petitioning creditor: Ian F. Purbrick.

Solicitor for the debtor: T. Irlicht.

D. LEVIN

JUDGE1

This is a petition by the Commissioners of the State Bank of Victoria ("the petitioning creditor") for an order of sequestration against the estate of Gerard Wheelahan ("the debtor") on the ground of his alleged failure to comply with the requirements of a bankruptcy notice issued on 22 September 1981.

Mr. Stevenson of Counsel appeared for the petitioning creditor and Mr. Irlicht for the debtor. Leave to intervene was sought on behalf of the Commercial Bank of Australia Limited, claiming to be a creditor of the debtor, in the amount of $18,868.02. Similar leave was sought on behalf of the Australia New Zealand Banking Group Limited, claiming to be a creditor in the amount of $20,666.60. No decision was made in relation to these applications for leave, which were simply noted.

The debtor filed and served a notice of intention to oppose the petition, raising the same grounds as those relied upon by Catherine Anne Wheelahan in P.31 of 1982.

Mr. Irlicht took the same course in relation to this notice as that which he followed in Mrs. Wheelahan's case and relied upon the same submissions in support of the debtor's attack upon the bankruptcy notice in the present case, which had defects corresponding with those in the notice served upon Mrs. Wheelahan.

It was common ground between the parties that if the attack upon the bankruptcy notice in Mrs. Wheelahan's case were to fail, so would the attack upon the bankruptcy notice in the present case.

Mr. Irlicht did not dispute the proof of any of the matters set out in S.52(1)(a)(b) and (c) of the Bankruptcy Act 1966, apart from his attacks upon the bankruptcy notice, which I reject for the reasons given in Mrs. Wheelahan's case. I am satisfied with the proof of those matters. No attempt was made on behalf of the debtor to bring him within the provisions of S.52(2).

There will be an order of sequestration against the estate of the debtor, the act of bankruptcy being the failure of the debtor to comply with the requirements of a bankruptcy notice on or before 9 November, 1981. Costs, including reserved costs, will be in accordance with the statute.

JUDGE2

In this petition The Commissioners of the State Bank of Victoria ("the petitioning creditor") seek an order of sequestration against the estate of Catherine Anne Wheelahan ("the debtor") in that she failed on or before 9 November 1981 to comply with the requirements of a bankruptcy notice issued on 22 September 1981.

Mr. Stevenson of Counsel appeared for the petitioning creditor and Mr. Irlicht for the debtor. Leave to intervene was sought on behalf of the Commercial Bank of Australia Limited, which claimed to be a creditor of the debtor, in the amount of $16,930.50. Similar leave was sought on behalf of General Credits Limited, claiming to be a creditor in the amount of $18,250.33. No decision was made in relation to these applications for leave, which were simply noted.

In her notice of intention to oppose the petition, the debtor set out the following grounds:

"1. She denies that she has committed any act of bankruptcy.

2. She says that the Bankruptcy Notice is irregular in that it refers to "Final Judgment or Order" and that it is not in the prescribed form.

3. The Judgment of the Supreme Court of Victoria dated the 17th of July 1980 has been varied by an agreement between the parties embodied in the letter from the Petitioning Creditor to Messers. Madden, Butler, Elder & Graham dated the 21st July 1980."

When the petition came on for hearing Mr. Irlicht indicated that his client no longer sought to rely upon ground 3. He amplified ground 2 by indicating that his client would also contend as follows:
(a) that the bankruptcy notice was irregular in that it referred merely to an order and not to a final order;

(b) the draftsman did not strike out the alternative words "or order", "proceeding" and "order" in the places where the notice provided alternatives; and

(c) in the unnumbered paragraph immediately above the signature of the Deputy Registrar the notice spoke of "the sum specified in paragraph (1)" whereas it contained no paragraph numbered (1) and in its first paragraph it referred to a number of different sums.

Sec. 40(1)(g) of the Bankruptcy Act 1966 ("the Act") provides as follows:
"(1) A debtor commits an act of bankruptcy in each of the following cases:-
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(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 fixed by the Registrar by whom the notice was issued; 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 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 could not have set up in the action or proceeding in which the judgment or order was obtained.

S41(1) of the Act provides that a bankruptcy notice shall be in accordance with the prescribed form and Rule 8 of the Bankruptcy Rules reads:
"8 For the purposes of paragraph 41(1)(a) of the Act, a bankruptcy notice shall be in accordance with Form 4."
Form 4 reads as follows:

FORM 4

Rule 8. BANKRUPTCY NOTICE (Title)

To: (name, address and occupation of judgment debtor)

WHEREAS (name and address of judgment creditor)

(hereinafter referred to as "the judgment creditor") has claimed that the sum of $ is due by you to him under a final judgment (or order) obtained by him

against you in the Court of on the

day of ,19 , being a judgment (or an order) the execution of which has not been stayed:

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):

AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the abovementioned requirements of this notice or to satisfy the (here insert the name of the Court) that you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a), being a counter-claim, set-off or cross demand that you could not have set up in the action (or proceeding) in which the judgment (or order) was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you.

Dated this day of , 19

Registrar.

NOTE: If you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a), being a counter-claim, set-off or cross demand that you could not have set up in the action (or proceeding) in which the judgment (or order) was obtained, you may, under sub-section 41(7) of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counterclaim, set off or cross demand, as the case requires, and the reasons why you were unable to set up the counter-claim, set off or cross demand, and, if you do so, the time for complying with the requirements of this notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counter-claim, set-off or cross demand.

This notice was issued on the application of (name of the solicitor for the judgment creditor or the name of the judgment creditor, as the case may be) whose address for service is

The bankruptcy notice in the present case reads as follows:

FORM 4

BANKRUPTCY NOTICE

Bankruptcy Act 1966

Bankruptcy District of the State of Victoria No. B.1799 of 1981

RE: CATHERINE ANNE WHEELAHAN of 201 Victoria Street, Ballarat

Married Woman Judgment debtor

EX PARTE: THE COMMISSIONERS OF THE STATE BANK OF VICTORIA

Judgment creditor

To: Catherine Anne Wheelahan

of 201 Victoria Street, Ballarat

WHEREAS THE COMMISSIONERS OF THE STATE BANK OF VICTORIA formerly called THE COMMISSIONERS OF THE STATE SAVINGS BANK OF VICTORIA but the name of which was altered by The State Bank Act 1980 being Act No. 9458 of The Parliament of Victoria and of which the Head Office was at 233 Collins Street, Melbourne but which is now at 385 Bourke Street, Melbourne (hereinafter referred to as "the judgment creditor") has claimed that the sum of SEVEN THOUSAND AND SEVENTY DOLLARS AND EIGHTY TWO CENTS ($7,070.82) is due by you to it under a final judgement or order obtained by it against you in the Supreme Court of Victoria on the 17th day of July 1980 being a judgement or order the execution of which has not been stayed and which sum is calculated as follows:

Total amount of judgement $7,140.99

Add interest at 8% under the Supreme

Court Act 1958 for 96 days to 21 October 1980 150.25

--------- $7,291.24

Less amount paid 21 October 1980 for

interest and costs 703.51

--------- $6,587.73

Add interest at 8% per annum to

21 September 1981 - 11 months 483.09

--------- $7,070.82

ANY FURTHER CLAIM FOR INTEREST BEYOND THAT ABOVE STATED IS ABANDONED FOR THE PURPOSES OF COMPLIANCE WITH THE REQUIREMENTS OF THIS BANKRUPTCY NOTICE.

THEREFORE TAKE NOTICE that within 14 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 $7,070.82 so claimed by the judgment creditor to the judgment creditor; or

(b) to secure the payment of the sum referred to in the last preceding paragraph to the satisfaction of the Federal Court of Australia or the judgment creditor or compound the sum so specified to the satisfaction of the judgment creditor.

AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the abovementioned requirements of this notice or to satisfy the Federal Court of Australia that you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (1), being a counter-claim, set-off or cross demand that you could not have set up in the action/proceeding in which the judgment/order was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you.

Dated this 22 day of SEPTEMBER 1981.

Registrar.

NOTE: If you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a), being a counter-claim, set-off or cross demand that you could not have set up in the action/proceeding in which the judgment/order was obtained, you may, under sub-section (7) of section 41 of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counterclaim, set-off or cross demand, as the case requires, and the reasons why you were unable to set up the counter-claim, set-off or cross demand and, if you do so, the time for complying with the requirements of this notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counter-claim, set-off or cross demand.

This notice was issued on the application of Ian F. Purbrick, the solicitor for the judgment creditor whose address for service is 385 Bourke Street, Melbourne, Vic. 3000.

I have underlined certain portions of the bankruptcy notice to facilitate reference to them.

Mr. Irlicht contended that the service of the bankruptcy notice could not give rise to an act of bankruptcy as the notice was invalid. It is common ground that the notice was defective in the three respects contended by Mr. Irlicht. The question to be decided is whether these defects render the notice invalid.

Mr. Stevenson's answer to Mr. Irlich's criticisms of the form of the bankruptcy notice was based upon S306(1) of the Act and Rule 195(1) and (2) of the Bankruptcy Rules. S306(1) reads 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."
Rule 195(1) and (2) provide as follows:-
(1) Subject to sub-rule (2), non-compliance with these Rules does not render a proceeding void unless the Court so directs.

(2) Where the provisions of these Rules have not been complied with in relation to a proceeding-

(a) the proceeding may be set aside, either wholly or in part, as irregular, or may be amended or otherwise dealt with in such manner and upon such terms as the Court thinks fit; or

(b) the Court may, upon such terms as the Court thinks fit, relieve a party from the consequences of non-compliance with these Rules.

In the application of S.306 to challenges to bankruptcy notices, the general attitude of the courts has been to favour a rule of strict interpretation.

As Dancwertz J. said in the case of In Re a Debtor (1952 Ch. 192 at 196): "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 provisions and closely guarded by the courts" (See also Re Haritos; Ex parte Hill 15 F.L.R. 378).

A similar view had been expressed by Bowen L. J, (See in Re Howes; Ex parte Hughes (1892 2 QB628 at 632) in these words:-
"I do not regard this as a merely technical matter, for bankruptcy proceedings are of a peculiar character. They invole quasi-penal consequences to the debtor, and it is essential that all those forms, the object of which is to prevent injustice, should be strictly followed".

The question which arises under S.306 is whether the admitted defects in the bankruptcy notice, or any of them, should be regarded as formal defects or irregularities. Under Rule 195 the Court has to consider whether it should relieve the petitioning creditor from the consequences of non-compliance with the Rules, constituted by the departures from Form 4, which is prescribed by Rule 8.

A recent judgment of a Full Court of this Court in Roufos v Andrea, 10 December 1981, referred to the question of the test to be applied when considering a defect in the form of a bankruptcy notice, observing:
"In such a case, it has been established by the authorities that the test of whether a bankruptcy notice is invalid is an objective one. The relevant question is whether the defect in the notice is such that it could reasonably mislead a debtor, not whether the debtor upon whom it was served was in fact misled (see James v Federal Commissioner of Taxation (1955) 93 C.L.R. 631 at 644)"

It is clear from the judgment of the High Court that defects in a bankruptcy notice, which make it reasonably capable of misleading such a hypothetical debtor, cannot be saved. It was common ground between the parties in the present case that the test to be applied was the objective test of the effect of the Bankruptcy notice upon a hypothetical debtor, not the test whether the debtor actually served with the notice was in fact misled by it.

Mr. Irlicht contended that the notice was capable of misleading a hypothetical debtor because the draftsman, if he used Form 4 as a precedent, did not strike out the alternative words in that form "(or order)" where they first appear in the recital to the notice, and did not allege that any order relied upon in it was a final order.

It is clear from the terms of S.40(1)(g) that if a bankruptcy notice is to be founded upon an order, that order must be final. The alternative words "(or order)" are included in Form 4 to indicate that either the words "final judgment" or "final order" are to be used, as the case requires.

Mr. Stevenson contended that this failure did not make the notice reasonably capable of misleading a hypothetical debtor because, having recited that the sum of $7,070.82 was due by the debtor to the petitioning creditor the notice went on to set out the manner in which that sum was calculated, and the calculation began by setting out the "total amount of judgment" as $7,140.99. Mr. Irlicht submitted that this portion of the notice should be treated as merely giving particulars of the earlier allegation that the sum was due under a "final Judgment or order" and should not be treated as throwing any light on the meaning of that expression.

In my opinion, in considering the question whether a bankruptcy notice is reasonably capable of misleading a hypothetical debtor, it is proper to look at the notice as a whole. When the present notice is so regarded, the failure to strike out the words "or order" is not reasonably capable of misleading a hypothetical debtor. A hypothetical debtor would appreciate from the reference to "judgment" in the expression "total amount of judgment" that the petitioning creditor was relying upon a judgment of the Supreme Court which had been earlier described as "final".

This construction of the bankruptcy notice is fatal to Mr. Irlicht's contention that, for all that appeared, the creditor may have been seeking to found its bankruptcy notice upon an order which was not final.

Mr. Irlicht also referred to the failure to strike out other alternative words, where alternatives appear in the notice. The later references to "judgment or order" and "judgment/order" in the bankruptcy notice are not, in my opinion, reasonably capable of misleading a hypothetical debtor, for the reasons already given in relation to the expression "final judgment or order".

The expression "action/proceeding" occurs in the bankruptcy notice instead of the word "action". The failure to strike out the alternative word, "proceeding", is not, in my opinion, reasonably capable of misleading a hypothetical debtor, because the earlier portion of the notice had made it clear that the notice was based upon a judgment of the Supreme Court.

Mr. Irlicht's next contention was based upon what appears to have been an error by the draftsman of the notice in the unnumbered paragraph immediately above the signature of the Deputy Registrar. He used the words "exceeding the sum specified in paragraph (1)" whereas Form 4 uses the words "exceeding the sum specified in paragraph (a)". The bankruptcy notice contained a paragraph (a) but no paragraph (1). Is this error reasonably capable of misleading a hypothetical debtor? In my opinion it is not. In the unnumbered paragraph immediately above the signature of the Deputy Registrar the draftsman uses the expression "the sum" in the words "exceeding the sum specified in paragraph (1)". It seems to me that the bankruptcy notice, when read as a whole, provides its own lexicon, to enable the reader to ascertain the meaning of the expression "the sum". This expression is applied earlier in the notice in the recital to the notice as follows:
"the sum of SEVEN THOUSAND AND SEVENTY DOLLARS AND EIGHTY TWO CENTS ($7,070.82)"
Again in the recital one finds the expression "which sum" referring to the amount of $7,070.82. After the words "THEREFORE TAKE NOTICE", paragraph (a) speaks of "the sum of $7,070.82 so claimed by the judgment creditor". Other amounts are set out in the notice in the course of calculating the sum $7,070.82, but the notice uses the expression "the sum" in relation to that amount of $7,070.82 and to no other amount.

In my opinion, the words "exceeding the sum specified in paragraph (1)" are not reasonably capable of misleading a hypothetical debtor, because there is only one "sum" specified in the bankruptcy notice, and that is $7,070.82.

I have dealt with Mr. Irlicht's criticisms of the bankruptcy notice one by one, but whether those criticisms be considered individually or collectively, they do not, in my opinion, justify the conclusion that the bankruptcy notice is reasonably capable of misleading a hypothetical debtor. I consider that the present case is one in which it is proper to relieve the petitioning creditor from the consequences of non-compliance with the Rules.

S52(1) of the Act requires the Court, at the hearing of a petition to require proof of:
(a) the matters stated in the petition (for which purposes the Court may accept the affidavit verifying the petition as sufficient);

(b) service of the petition; and

(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing,

and, if it is satisfied with the proof of those matters, it may make a sequestration order against the estate of the debtor.

Mr. Irlicht does not dispute any of these matters, apart from his attacks on the bankruptcy notice which I have already dealt with, nor does he seek to rely upon the provisions of S52(2) of the Act. I am satisfied with the proof of the matters set out in S52(1).

There will be an order of sequestration against the estate of the debtor, the act of bankruptcy being the failure of the debtor to comply with the requirements of a bankruptcy notice on or before 9 November 1981. Costs including reserved costs, will be in accordance with the statute.