Henderson and Anor v National Australia Bank Ltd
[2012] FMCA 14
•23 January 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HENDERSON and ANOR v NATIONAL AUSTRALIA BANK LTD | [2012] FMCA 14 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice – whether overstatement of amount due – whether sale proceeds paid before or after default judgment issued – whether sale proceeds not accounted for – whether Bankruptcy Notice invalid. TIME – Judicial acts – judgment and order – whether related back to earliest moment of day on which made – where conflict between time of judicial act and time of non-judicial act – whether time of judicial act or non-judicial act prevails. |
| Banking Act 1959 (Cth) Bankruptcy Act 1966 (Cth), ss.30, 33(1)(b), 41 Civil Judgments Enforcement Act2004 (WA), s.11(1) Civil Judgments Enforcement Bill 2003 (WA), Explanatory Memorandum Corporations Act 2001 (Cth) Interpretation Act 1984 (WA), s.19(1) and (2)(e) Payment Systems and Netting Act 1998 (Cth) Payment Systems (Regulations) Act 1998 (Cth) Rules of the Supreme Court 1971 (WA), O.42, r 2 |
| Adams v Lambert (2006) 228 CLR 409; [2006] HCA 10 Sgro v Liberty Funding Pty Ltd (2004) 3 ABC(NS) 638; [2004] FMCA 320 Wright v Mills [1843-1860] All ER Rep 842 |
| EP Ellinger, et al, Ellinger’s Modern Banking Law (5th Edn) (Oxford: Oxford University Press, 2011) Mallesons Stephen Jaques, Australian Finance Law (6th Edn) (Sydney: Thomson Reuters, 2008) PP McQuade and MGR Gronow, Australian Bankruptcy Law and Practice (6th Edn) (Sydney:Thomson Reuters, 2008) AL Tyree, Banking Law in Australia (6th Edn) (Chatswood: LexisNexis Butterworths, 2008) |
| First Applicant: | KIM HENDERSON |
| Second Applicant: | SUSAN JANE HENDERSON |
| Respondent: | NATIONAL AUSTRALIA BANK LTD |
| File Number: | PEG 50 of 2011 |
| Judgment of: | Lucev FM |
| Hearing date: | 22 July 2011 |
| Date of Last Submission: | 22 July 2011 |
| Delivered at: | Perth |
| Delivered on: | 23 January 2012 |
REPRESENTATION
| Counsel for the Applicants: | Ms G Visscher |
| Solicitors for the Applicants: | Brickhills |
| Counsel for the Respondent: | Mr D Butler |
| Solicitors for the Respondent: | Lavan Legal |
ORDERS
That Bankruptcy Notice No. 427 dated 24 January 2011 be set aside.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 50 of 2011
| KIM HENDERSON |
First Applicant
| SUSAN JANE HENDERSON |
Second Applicant
And
| NATIONAL AUSTRALIA BANK LTD |
Respondent
REASONS FOR JUDGMENT
The Application
By Application filed on 24 February 2011 the applicants, Mr and Mrs Henderson, seek, under ss.30 and 41 of the Bankruptcy Act 1966 (Cth),[1] an order that Bankruptcy Notice No. 427 dated 24 January 2011,[2] be set aside, on grounds stated in a supporting affidavit. An order for costs is also sought.
[1] “Bankruptcy Act”.
[2] “Bankruptcy Notice”.
The supporting affidavit is that of Susan Jane Henderson sworn 24 February 2011.[3]
[3] “Mrs Henderson’s Affidavit”.
Opposition to the Application
The respondent, National Australia Bank Ltd,[4] filed a Notice Stating Grounds of Opposition to the Application[5] on 15 June 2011 which indicated that NAB opposed the Application to set aside the Bankruptcy Notice because the Application fails to disclose any reasonable basis on which to set aside the Bankruptcy Notice. The Notice of Opposition was supported by two affidavits filed contemporaneously with the Notice of Opposition:
a)the affidavit of Graham Fudge sworn 15 June 2011;[6] and
b)the affidavit of Norman Oehme sworn 15 June 2011,[7]
and a later affidavit of Gregory John Daniel sworn 12 July 2011.[8]
[4] “NAB”.
[5] “Notice of Opposition”.
[6] “Mr Fudge’s Affidavit”.
[7] “Mr Oehme’s Affdavit”.
[8] “Mr Daniel’s Affidavit”.
Facts
The relevant facts are as follows:
a)Mr and Mrs Henderson are directors of Bonthorpe Pty Ltd (ACN 087 984 414) (Receivers and Managers Appointed)[9] in its capacity as trustee for the Wembrey Trust;[10]
[9] “Bonthorpe”.
[10] Mrs Henderson’s Affidavit, para.3.
b)Mr and Mrs Henderson provided guarantees to NAB in relation to various loan facilities between NAB and Bonthorpe;[11]
[11] Mrs Henderson’s Affidavit, para.4.
c)Bonthorpe defaulted on the loan facilities provided by NAB, and on 18 May 2010 receivers and managers were appointed to Bonthorpe;[12]
[12] Mrs Henderson’s Affidavit, para.5; Mr Daniel’s Affidavit, para.3, item 1.
d)on 8 October 2010 a writ of summons was filed in proceedings CIV 2608 of 2010 in the Western Australian Supreme Court, alleging that Mr and Mrs Henderson had failed to comply with their obligations as guarantors of the loan facilities provided by NAB to Bonthorpe;[13]
[13] “Supreme Court Proceedings”; Mrs Henderson’s Affidavit, para.6 and Annexure SJH1; Mr Daniel’s Affidavit, para.3, item 2.
e)on various dates between 20 September 2010 and 5 October 2010 various items the property of Bonthorpe and Mrs Henderson were auctioned, and the proceeds paid to NAB, as follows:
Item Description
Auction Date (and date of payment to NAB)
Sale Amount paid to NAB
1998 – 311 B Excavator
20/09/2010
$22,122.34
John Deere 6400 Tractor
20/09/2010
$19,000.00
Isuzu
21/09/2010
$32,034.02
WL Caprice
05/10/2010
$3,864.50
[14]
[14] Mr Fudge’s Affidavit, paras.4-5 and Annexures GF1-4.
f)on various dates between 25 June 2010 and 9 February 2011 the settlement occurred of the sale of various properties and assets of which Bonthorpe was the registered proprietor, as follows:
Real Property Description
Settlement Date
Sale Price (inc GST)
108 Magpie Rise, Bremer Bay
28/10/2010
$420,000
Lot 110, 90 Cussons Road, Shadforth
12/11/2010
$208,000
Lot 123 Love Crescent, Shadforth
09/02/2011
$236,000
Lot 124, 32 Love Crescent, Shadforth
23/11/2010
$230,000
Lot 135, 39 Honey Possum Court, Shadforth
25/06/2010
$221,400
Lot 136, 43 Honey Possum Court, Shadforth
26/11/2010
$205,000
[15]
[15] Mrs Henderson’s Affidavit, paras.8-12; Mr Oehme’s Affidavit, paras.8 and 9 and Annexures No. 1 – No. 8; Mr Daniel’s Affidavit, para.3, items 3-7.
g)on 2 December 2010 there were distributions to NAB by Bonthorpe’s receivers in the amount of $800,000,[16] in three separate amounts of $20,409.45, $196,351.85 and $583,238.70 respectively;[17]
[16] “$800,000 Distribution”.
[17] Mr Daniel’s Affidavit, para.3, item 8 and para.4 and Annexures GJD1-3.
h)the $800,000 Distribution was allocated as follows:
i)$20,409.45 in partial reduction of a Bonthorpe Market Rate Facility Account with NAB with the account number 59-576-5503;[18]
[18] Mr Daniel’s Affidavit, para.4.1 and Annexure GJD1.
ii)$196,351.85 in partial reduction of a Bonthorpe Market Rate Facility Account with NAB with the account number 86-938-1719;[19] and
[19] Mr Daniel’s Affidavit, para.4.2 and Annexure GJD2.
iii)$583,238.70 in partial reduction of a Bonthorpe Market Rate Facility Account with NAB with the account number 59-799-9469;[20]
[20] Mr Daniel’s Affidavit, para.4.3 and Annexure GJD3.
i)the duplicate copies of the bank statements for each of the accounts reflecting the three transactions constituting the $800,000 Distribution are each annotated as proceeds from sale of properties and dated 2 December 2010, without any indication as to actual time of the payment or transfer of the funds or manner in which payment was made;[21]
[21] Mr Daniel’s Affidavit, Annexures GJD1-3. Counsel for NAB also told the Court that the $800,000 Distribution “was paid on the date that judgment was entered in the Supreme Court proceedings”: Transcript, page 9, namely, 2 December 2010 – see para.4(j) below.
j)an application for default judgment was made in the Supreme Court Proceedings, and no defence having been filed, default judgment was entered[22] in the sum of $9,196,341.79[23] on 2 December 2010;
[22] “Default Judgment”; Mrs Henderson’s Affidavit, para.7 and Annexure SJH2 and SJH6; Mr Daniel’s Affidavit, para.3, items 9-10.
[23] “Default Judgment Debt”.
k)the Default Judgment Debt gave no credit for the $800,000 Distribution;[24]
[24] Mrs Henderson’s Affidavit, para.16 and Annexure SJH2.
l)on 24 January 2011 the Bankruptcy Notice was issued by the Official Receiver;[25]
[25] Mrs Henderson’s Affidavit, Annexure SJH6.
m)the claim under the Bankruptcy Notice was for a total debt amount of $9,270,416.43, being the amount of the Default Judgment Debt plus interest accrued since the date of the Default Judgment, with no deduction for the $800,000 Distribution;
n)the claim under the Bankruptcy Notice was set out as follows:
[NAB] claim/s that you owe the following debt
1. Amount as per the attached final judgment/s or final order/s (note A)
$9,196,341.79
2. Add legal costs (note B)
3. Add interest accrued since date of judgment/s or order/s (note C)
$74,074.64
4. Sub total (1+2+3)
$9,270,416.43
5. Less payments made and/or credit allowed since judgment/s or order/s
6. TOTAL DEBT AMOUNT (4-5)
$9,270,416.43
[26]
[26] Mrs Henderson’s Affidavit, Annexure SJH6.
o)on 23 February 2011 Mr and Mrs Henderson’s solicitors sent to NAB’s solicitors a letter in the following relevant terms:
We refer to the Bankruptcy Notice served on our clients on 3 February 2011.
The Bankruptcy Notice is invalid as the sum specified in the notice, as the amount due to the creditor, exceeds the amount in fact due by our clients.
Payments received on behalf of the NAB by the Receivers and Manages of Bonthorpe Pty Ltd (Receivers and Managers Appointed) (“Bonthorpe”) from the realisation of assets owned by the primary debtor (Bonthorpe) and by Mrs Henderson, have not been applied to reduce the total owed by our clients (as guarantors of Bonthorpe’s indebtedness to the NAB). This sum has not been deducted from the final judgment at number 5 in the calculation of the claimed debt. As a result, this mis-statement invalidates the Bankruptcy Notice.
The following assets of Bonthorpe that have been realised through the Receivers and Managers for the benefit of the NAB and not accounted for in the Bankruptcy Notice are:
1. Bremer Bay, Lot 108 Magpie Rise
2. Denmark Lot 110
3. Denmark Lot 123
4. Denmark Lot 124
5. Denmark Lot 135
6. Denmark Lot 136
7. Isuzu Truck 1CAL929
8. Holden Caprice CNB888
9. 311B Caterpillar Excavator
The following asset of Mrs Henderson has been realised through the Receivers and Managers and not accounted for in the Bankruptcy Notice :
10. John Deere Tractor
Despite request the Receivers and Managers have not provided our clients with an account of the amounts realised for these assets, and by reason of the same our clients are not, at this stage, able to provide an accurate amount of the sale proceeds of the assets.[27]
p)this Application was subsequently filed on 24 February 2011; and
q)on 10 May 2011 there was a further distribution of $400,000 by Bonthorpe’s receivers in partial reduction of a Bonthorpe Market Rate Facility Account with NAB with the account number 79-632-4990.[28]
[27] Mrs Henderson’s Affidavit, para.17 and Annexure SJH7 (“23 February 2011 Letter”).
[28] Mr Daniel’s Affidavit, para.4.4 and Annexure GJD4.
Mr and Mrs Henderson’s submissions
The case for Mr and Mrs Henderson is a comparatively simply one. It proceeds as follows:
a)Default Judgment was entered on 2 December 2010 mirroring the amount sought in the writ of summons without reduction against the principal sums claimed;
b)prior to 2 December 2010 Bonthorpe property assets were sold, and on 2 December 2010 the receivers and managers paid NAB the $800,000 Distribution which reduced the indebtedness of Mr and Mrs Henderson to NAB by $800,000;
c)because NAB did not account for the $800,000 Distribution at the time of the Default Judgment, it can only be assumed that the $800,000 Distribution was paid after the Default Judgment issued;
d)an overstatement in a bankruptcy notice of the amount in fact due renders the notice invalid, and an invalid bankruptcy notice is a nullity and of no effect, and is not a notice under the Bankruptcy Act;[29] and
e)the Bankruptcy Notice is invalid because it does not credit the $800,000 Distribution, and therefore ought to be set aside.
[29] Citing Skouloudis v St George Bank Ltd (2008) 173 FCR 236 at 243-244 and 245-246 per Edmonds J; [2008] FCA 1765 at paras.23 and 35 per Edmonds J (“Skouloudis”), and Sgro v Liberty Funding Pty Ltd (2004) 3 ABC(NS) 638 at 647 per McInnis FM; [2004] FMCA 320 at para.33 per McInnis FM (“Sgro”).
NAB’s submissions
NAB made the following submissions:
a)the Default Judgment is evidence of a debt the validity of which the Court will not inquire into as a matter of course, and not where the grounds of the challenge would, if accepted, only support a finding that the amount of the debt be reduced;
b)there is no suggestion that the Default Judgment was invalid or that there is an absence of liability on the part of Mr and Mrs Henderson in relation to the amount claimed in the Bankruptcy Notice (namely, $9,270,416.43);
c)there is no discrepancy, nor any claimed discrepancy, of the total debt amount in the Bankruptcy Notice; and
d)it is not open for the Court to consider setting aside the Bankruptcy Notice on the basis that NAB erred in failing to include the sale of assets after the date of the Bankruptcy Notice in the total debt amount.
Section 41(5) and the case law on effect of an overstatement
Section 41(5) of the Bankruptcy Act is central to the resolution of the issues in dispute, and provides as follows:
(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.
In Re Bedford; Ex parte H.C. Sleigh (Queensland) Pty Ltd[30] the Queensland Supreme Court, having found that the judgment and bankruptcy notice were for an amount (4,227l 17s 8d) in excess of the debt due (3,927l 17s 8d), said that:
Nowhere in the judgments in that case can I find any statement that suggests that if a judgment for an excessive amount is not set aside, bankruptcy proceedings founded on it are bad, nor can I see in principle why if a judgment is irregular for this reason it should necessarily invalidate subsequent bankruptcy proceedings. The company in the present case has obtained a final judgment which has not been set aside and which, although irregular, is not null. My inquiry has shown that the judgment was founded on a real debt. A bankruptcy notice in the prescribed form was served. The amount stated in the notice was excessive but this does not invalidate the notice …. The act of bankruptcy … has therefore been proved.[31]
[30] (1967) 9 FLR 497 (“Bedford”).
[31] Bedford at 499 per Gibbs J. The case referred to in the first sentence is Muir v Jenks [1913] 2 KB 412.
In Walsh v Deputy Commissioner of Taxation of the Commonwealth of Australia,[32] the High Court said:
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 s. 41(5) of the Bankruptcy Act 1966 (Cth), as amended, that he disputes the validity of the notice on that ground.[33]
and
… the [bankruptcy] notice must be understood as speaking as at the date of its issue and the requirements of the notice, for the purposes of s.40(1)(g) of the Bankruptcy Act, must be ascertained in that context. This reinforces the view that the amount which must be correctly stated is the amount of the judgment debt owing at the date of issue.[34]
[32] (1984) 156 CLR 337 (“Walsh”).
[33] Walsh at 339 per Gibbs CJ (with whom Mason, Brennan, Deane and Dawson JJ agreed).
[34] Walsh at 340 per Gibbs CJ (with whom Mason, Brennan, Deane and Dawson JJ agreed).
Olivieri v Stafford & Ors[35] is a judgment of a Full Court of the Federal Court in which the appellant contended that that the amount of a final judgment in the District Court of New South Wales, being $19,318.93, which was the same amount as the debt said to be owing under the bankruptcy notice, was overstated by an amount of $389, and that the bankruptcy notice was therefore invalid. The appellant had failed in an application to the District Court of New South Wales to set aside the final judgment. The majority in Olivieri upheld the validity of the bankruptcy notice and dismissed the appeal. A number of propositions emerge from the separate majority judgments, including that:
a)a court exercising bankruptcy jurisdiction has power to “go behind” the judgment relied on to found the bankruptcy notice so as to inquire into the existence of the alleged debt,[36] and does so on the basis that a bankruptcy notice which has been “issued for a debt which is liable to be set aside or varied such that the creditor does not have a debt upon which the bankruptcy proceedings can be founded” does not give effect to the provisions of the Bankruptcy Act;[37]
b)if the judgment relied upon to found the bankruptcy notice is a default judgment, the court exercising bankruptcy jurisdiction “will always “go behind” the judgment if there is what it regards as a bona fide allegation that no real debt “lay behind” the judgment”;[38]
c)the judgment stands as prima facie evidence of a debt until a court exercising bankruptcy jurisdiction goes behind the judgment;[39]
d)if a court exercising bankruptcy jurisdiction goes behind the judgment relied upon, the examination of whether there is a bona fide debt “extends to every aspect of the parties dealings”, and not merely limited transactions selected by creditor or debtor;[40]
e)a bankruptcy notice which accurately states the amount of a judgment, which a court exercising bankruptcy jurisdiction has not gone behind, does not overstate the amount due;[41] and
f)a court exercising bankruptcy jurisdiction will only reconsider the judgment relied on to found the bankruptcy notice to determine whether the bankruptcy notice should be set aside, and not merely to ascertain if the judgment debt should be reduced,[42] and hence the court should not go behind a judgment where “to do so would leave a substantial sum still due and owing but unpaid”.[43]
[35] (1989) 24 FCR 413 (“Olivieri”).
[36] Olivieri at 422 per Beaumont J.
[37] Olivieri at 429-430 per Gummow J.
[38] Olivieri at 422 per Beaumont J.
[39] Olivieri at 422 per Beaumont J.
[40] Olivieri at 424 per Beaumont J.
[41] Olivieri at 424 per Beaumont J.
[42] Olivieri at 431-432 per Gummow J, citing Re Riviere; Ex parte Original Mont de Piete Ltd (1919) 20 SR(NSW) 77 at 84 per Owen AJ.
[43] Olivieri at 432 per Gummow J.
In Emerson & Anor v Wreckair Pty Limited[44] the amount claimed in the bankruptcy notice to be due and unpaid was the amount of the judgment debt, but that amount was overstated by either $750 or $900 on a debt of $29,081.65.[45] On appeal to the Supreme Court of Queensland the judgment debt was reduced by the sum of $5,400. That appeal was determined after the validity of the bankruptcy notice had been argued before the Full Court of the Federal Court, but before judgment was delivered.[46] In Wreckair the Full Court of the Federal Court:
[44] (1992) 33 FCR 581 (“Wreckair”).
[45] Wreckair at 582, 584 and 585 per Morling, Neaves and Spender JJ.
[46] Wreckair at 586 per Morling, Neaves and Spender JJ.
a)citing Walsh said that:
i)the relevant date for the inquiry into whether the amount specified in the bankruptcy notice is excessive, that is whether it exceeds the amount in fact due, is the date of the issue of the bankruptcy notice; and
ii)a payment in reduction of the judgment debt made after the issue of a bankruptcy notice, but before the service of the bankruptcy notice will not invalidate the bankruptcy notice;[47]
b)said that once an act of bankruptcy has been committed, it remains an available act of bankruptcy even though the judgment on which it is based is set aside;[48]
c)found that:
i)the amount due by the appellants and the amount for which execution might issue was the amount stated in the judgment (at first instance in the Queensland District Court), and the bankruptcy notice claimed an amount in accordance with that judgment, and was therefore not for an amount exceeding that in fact due;[49]
ii)“[t]he circumstance that the amount of the judgment was subsequently reduced is not to the point”;[50] and
iii)it was not appropriate that a court exercising jurisdiction in bankruptcy, on an application to set aside a bankruptcy notice, go behind a judgment where the grounds for the application, if accepted, would only support a finding that the amount of the debt be reduced, and would not support a finding that there was in truth no debt at all.[51]
[47] Wreckair at 587 per Morling, Neaves and Spender JJ.
[48] Wreckair at 587 per Morling, Neaves and Spender JJ.
[49] Wreckair at 587 per Morling, Neaves and Spender JJ.
[50] Wreckair at 587 per Morling, Neaves and Spender JJ.
[51] Wreckair at 588-589 per Morling, Neaves and Spender JJ.
In Kyriackou v Shield Mercantile Pty Ltd & Anor[52] the Federal Court concluded that:
[36] The purpose of a bankruptcy notice is to convey to the debtor the amount claimed by the creditor, and to give the debtor the opportunity to pay or secure that amount. It is important that a bankruptcy notice be prepared with great care. The courts require strict compliance with the Act and Regulations. The reason for this is that a bankruptcy notice sets in train the entire process leading to bankruptcy, a process that has been described as ‘quasi-penal’.
[37] Formal errors in a bankruptcy notice do not result in its invalidity unless they have caused substantial injustice. However, substantive errors will generally lead to the notice being regarded as invalid and of no effect. If a bankruptcy notice is invalid, any bankruptcy proceedings based upon that notice will be dismissed.
[52] (2004) 138 FCR 324; [2004] FCA 490 (“Kyriackou”).
In Sgro this Court set aside a bankruptcy notice in circumstances where a payment of at least $457,178.36 had been made to the respondent creditor after judgment was entered, but some seven weeks prior to the issuance of the bankruptcy notice. The omission in the bankruptcy notice of the amount paid prior to the issuance of the bankruptcy notice was held to be a failure to meet an essential requirement under the Bankruptcy Act to state amounts paid prior to the issuance of the bankruptcy notice, and was therefore a failure in respect of the substantive matter warranting the setting aside of the bankruptcy notice.[54]
[54] Sgro ABC(NS) at 646-647 per McInnis FM; FMCA at para.31-35 per McInnis FM.
In Adams v Lambert[55] the High Court, having referred to the dissenting judgments in Australian Steel Co (Operations) Pty Ltd v Lewis,[56] said that the “view of the legislative purpose” of s.41(5) of the Bankruptcy Act that was “persuasive”[57] was that expressed in Lewis as follows:
It cannot be correct that amendments to the [Bankruptcy] Act that left undisturbed s 41(5) and (6) which state that a notice that demands payment of a sum that is unjustified or excessive is only invalid if a debtor gives notice within a prescribed period, introduced a new regime in respect of bankruptcy notices under which a judgment debtor could have such a notice set aside where the amount claimed is due in fact and there is no prospect that the debtor could be misled as to the steps to be taken to comply with the notice.[58]
[55] (2006) 228 CLR 409; [2006] HCA 10 (“Adams”)
[56] (2000) 109 FCR 33; [2000] FCA 1915 (“Lewis”). The dissenting judgments were those of Lee J and Gyles J.
[57] Adams CLR at 421 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ; HCA at para.34 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ.
[58] Lewis FCR at 68 per Lee J; FCA at para. 97 per Lee J, quoted at Adams CLR at 421 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ; HCA at para.33 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ (emphasis added).
In Skouloudis the debtor, Ms Skouloudis, had issued a s.41(5) notice under the Bankruptcy Act alleging overstatement on the basis of payments of more than one million dollars prior to the issuance of the bankruptcy notice by the respondent bank. After service of Ms Skouloudis’ s.41(5) notice, this Court allowed the bank to amend the bankruptcy notice to reflect the amount said be due after the payments made prior to the issuance of the bankruptcy notice.[59] The Federal Court held that:
a)the bankruptcy notice was invalid because of the overstatement, saying that it was a correct statement of the law that:
… an overstatement in a bankruptcy notice of the amount in fact due renders the notice invalid, whether or not the overstatement could reasonably mislead the debtor, if a notice complying with the requirements of s 41(5) has been duly given.;[60] and
b)that an invalid bankruptcy notice was not able to be amended under s.33(1)(b) of the Bankruptcy Act once a valid s.41(5) notice under the Bankruptcy Act had been served.[61] The Federal Court said:
If a bankruptcy notice is a nullity and of no effect, it is not a notice under the Act: see Circle Credit Co-Operative Ltd v Lilikakis (2000) 99 FCR 592 at [10] per Heerey J; Chandramouli v Wallader [2001] FCA 808 at [4]. It must be a notice under the Act to be subject to the Court’s power of amendment in s 33(1)(b).[62]
[59] Skouloudis FCR at 238 per Edmonds J; FCA at para.2 per Edmonds J.
[60] Skouloudis FCR at 243-244 per Edmonds J; FCA at para.23 per Edmonds J.
[61] Skouloudis FCR at 245-246 per Edmonds J; FCA at paras.35-36 per Edmonds J.
[62] Skouloudis FCR at 245-246 per Edmonds J; FCA at para.35 per Edmonds J.
Where notice of overstatement of the amount due in the bankruptcy notice has been given for the purposes of s.41(5) of the Bankruptcy Act, the quantum of the overstatement is immaterial.[63]
Consideration
[63] Croker v Commissioner of Taxation (2005) 145 FCR 150 at 152-153 per Hely J; [2005] FCA 127 at paras.9-16 per Hely J (“Croker”). See also PP McQuade and MGR Gronow, Australian Bankruptcy Law and Practice (6th Edn) (Sydney: Thomson Reuters, 2008) at para.41.5.05, where, citing Croker, it is said: “[n]or does it matter that the amount of the overstatement is small compared with the amount of the judgment debt”.
The nature of the issue
The issue in these proceedings is whether the sum specified in the Bankruptcy Notice exceeds the amount owing at the time of its issue, NAB having been given notice in the time prescribed that Mr and Mrs Henderson disputed the validity of the Bankruptcy Notice on the ground of overstatement. Factually, that issue is to be determined by when the $800,000 Distribution was paid to NAB, and whether, depending upon when it was paid, the Bankruptcy Notice is in fact for an amount in excess of that owing to NAB by Mr and Mrs Henderson at the time the Bankruptcy Notice issued (24 January 2011).
For the purposes of determining the issue it is pertinent to observe that:
a)the Default Judgment gave no credit for the $800,000 Distribution;
b)the Default Judgment and the $800,000 Distribution occurred on the same day, 2 December 2010;
c)the Bankruptcy Notice gave no credit for the $800,000 Distribution; and
d)notice of the overstatement in the Bankruptcy Notice was given to NAB by Mr and Mrs Henderson before the due time for payment expired.
No issue was taken in the proceedings with the adequacy of the 23 February 2011 Letter as a notice for the purposes of s.41(5) of the Bankruptcy Act. In the Court’s view the 23 February 2011 Letter was sufficient as such a notice. Whilst it did not specify the amount of the overstatement, and was not able to do so because of a lack of information provided to Mr and Mrs Henderson by the receivers and managers,[64] the 23 February 2011 Letter provided, in particular by the specification of ten assets said to have been sold and for which payment was alleged to have been received by NAB, more than sufficient information to alert NAB to an alleged misstatement of several hundred thousand dollars.[65]
[64] Mrs Henderson’s Affidavit, para.10, Annexures SJH3 and SJH7 (final paragraph).
[65] Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120 at 128-130 per Hill, Sackville and North JJ; [1999] FCA 255 at paras.32-39 per Hill, Sackville and North JJ (“Seovic”).
Timing of payment of the $800,000 Distribution
The timing of the $800,000 Distribution is important because:
a)if payment was made before the Default Judgment issued, there is an error by way of overstatement in the amount of the Default Judgment Debt, in which case the Bankruptcy Notice remains valid; and
b)if payment was made after the Default Judgment issued, there may be an overstatement in the amount then due in the Bankruptcy Notice which, on its face, would render null and of no effect the Bankruptcy Notice, because of the notice given by Mr and Mrs Henderson of the alleged overstatement within the time allowed for payment.
There is no evidence which allows the Court to conclude at what time on 2 December 2010 the $800,000 Distribution was made, and whether it was made before, after, or even, albeit a remote possibility, simultaneously, with the handing down of the Default Judgment. There is no evidence which indicates the time or times at which the three transactions which constitute the $800,000 Distribution were made, or settled, or as to the nature of payments, or the applicable payment, clearing and settlement system or systems which applied to the three transactions, which were in vastly different amounts.[66] Likewise, there is no evidence of the time on 2 December 2010 at which the Default Judgment was delivered or entered.
[66] The precise time at which payment is “made” may be affected by many factors, including:
Mr and Mrs Henderson submit that because of the failure to account for the $800,000 Distribution at the time of the Default Judgment, the Court should assume that payment was made after the Default Judgment issued. In the absence of evidence this cannot simply be assumed, but the issue may be capable of resolution by the application of certain legal presumptions referred to below.
On the face of the record there are two relevant acts: first, the Default Judgment, and, second, the $800,000 Distribution (treated for present purposes as one act although it comprised three separate transactions). The former is a judicial act, the latter a non-judicial act. Absent a relevant statutory provision or rule of court, the common law has traditionally provided that:
a)a judicial act is deemed to have occurred at the earliest moment of the day on which the act was done;[67] and
b)where a judicial act and a non-judicial act occur on the same date, or at the same time, the judicial act takes priority as the first in time.[68]
[67] Wright v Mills [1843-1860] All ER Rep 842 at 843 per Pollock CB (with whom Martin, Bramwell and Watson BB concurred at 843-844); Miller v Teale (1954) 92 CLR 406 at 411 per Dixon CJ, McTiernan, Fullagar and Taylor JJ (“Teale”); Re Seaford (Deceased); Seaford v Seifert [1968] 1 All ER 482 at 486 per Willmer LJ (with whom Davies LJ at 490 agreed) (“Seaford”); Re Palmer (deceased) (a debtor) [1994] 3 All ER 835 at 842 per Balcombe LJ, with whom Evans LJ agreed at 844 (“Palmer”); Re Red Robin Milk Bar Limited [1968] NZLR 28 at 29 per McGregor J.
[68] Re Warren, Wheeler v Mills [1938] 2 All ER 331 at 340 per Luxmoore and Morton JJ (“Warren”), approved in R v Miller (1986) 2 Qd R 518 at 533 per Williams J (“Miller”).
The general rule that judicial acts are deemed to have occurred at the earliest moment of the day on which the act was done has been trenchantly criticised in England. In Palmer one Lord Justice on the Court of Appeal said:
However I question whether this ‘general rule’ necessarily has the effect attributed to it by the judge. It is of considerable antiquity, going back at least to Shelley’s Case, Wolfe v Shelley (1582) 1 Co Rep 93b, 76 ER 206 (the origin of the eponymous rule), and its high-water mark is the case of Wright v Mills (1859) 4 H & N 488, [1843-60] All ER Rep 842, where it was held that a judgment signed at 11 am on the day on which the debtor had died at 9.30am was a regular judgment, since the judgment was deemed to have been signed at the first moment of the day in question. However the universality of the rule was already being questioned by the last quarter of the nineteenth century. In Clarke v Bradlaugh (1881) 8 QBD 63, [1881-5] ALL ER Rep 1002 Lord Coleridge CJ said that he did not recognise the universality of the rule even as to judicial acts; Baggallay LJ said he did not desire to be considered as holding the rule to be inflexible, while Brett LJ said he knew of no principle upon which the rule could be founded (see 8 QBD 63 at 66, 67 and 68, [1881-5] All ER Rep 1002 at 1004, 1005 and 1006). In more recent times this court in Re Seaford (decd) [1968] 1 All ER 482, [1968] P 53 has held that this common law rule has no application in matrimonial proceedings. In the course of their judgments the members of the court expressed considerable distaste for the rule. Thus Willmer LJ said ([1968] 1 All ER 482 at 488, [1968] P 53 at 68):
‘The doctrine, after all, is a highly artificial doctrine, resting as it does upon a legal fiction; and I think that it is fair to ask the question why, in reason, it should be regarded as applicable to what was then a new jurisdiction, more particularly in a case like the present where all the essential facts are known.’
And again ([1968] 1 All ER 482 at 488, [1968] P53 at 69):
‘… we should not be bound by any technical rule to find a fictional answer where the actual facts are known.’
Russell LJ said ([1968] 1 All ER 482 at 491, [1968] P 53 at 73-74):
‘We have been referred to a number of authorities on the matter of this fiction of the law that a judicial act is performed at a particular time, when everyone knows that it was not then performed. None of these authorities decides that the fiction is applicable to a judicial act purported to be performed at a time when the court was entirely without jurisdiction to perform it, and which was therefore, necessarily an absolute nullity. Without authority binding me to do so I should decline to import into the law of England the equation nullity plus fiction equals reality. At 10 a.m. when the judicial act was purported to be performed of filing the lodged application so as to determine the plaintiff’s marriage to the deceased by decree absolute, the marriage had ceased to exist [because of the husband’s death earlier that day], and the ability of the court to determine it was equally non-existent, whether the court knew or was ignorant of that situation. Whom God had put asunder no man could join together, even for the purpose of putting them asunder again.’
If it were necessary for the purposes of this case I would be prepared to hold that it is now time that this ancient rule should be given its quietus in so far as it operates to require the court to assume something that is known to be untrue.
However for present purposes it is sufficient to say that in my judgment the rule cannot be allowed to operate so that, by piling one fiction upon another, a statutory instrument modifying primary legislation is to be construed in such a manner as to render it prima facie ultra vires.[69]
[69] Palmer at 842-843 per Balcombe LJ.
Another Lord Justice in the Court of Appeal in Palmer, having set out the history of the general rule in similar terms to that set out above, concluded that:
In my judgment, in agreement with Balcombe LJ, the time has come to say the fiction should have no place when the true facts are known, at least in cases where the court’s jurisdiction is concerned.[70]
[70] Palmer at 847 per Evans LJ
In Teale the High Court, whilst acknowledging the general rule that judicial acts operate at the earliest moment in the day on which the act was done, did not need to apply the rule because the trial judge had found that the two relevant acts: first, an order nisi for dissolution of marriage made absolute, and, second, a ceremony of marriage on the same day, occurred in the morning and afternoon of that day respectively.[71] In Miller the Queensland Court of Criminal Appeal did not need to apply the general rule because the two acts concerned were both judicial acts, and when both acts are judicial acts, a court is allowed to give consideration to when each act was done and give priority to the judicial act earlier in point of time, unless there be grounds for preferring one act to the other.[72]
[71] Teale at 411 per Dixon CJ, McTiernan, Fullagar and Taylor JJ.
[72] Miller at 533 per Williams J, following Warren at 340 per Luxmoore and Morton JJ.
The Civil Judgments Enforcement Act2004 (WA)[73] provides in s.11(1) as follows:
[73] “CJE Act”.
(1) A judgment has effect —
(a) at the time it is given; or
(b) if it provides, or the court giving it orders, that it has effect from an earlier or later time, at that time.
Order 42, Rule 2 of the Rules of the Supreme Court 1971 (WA)[74] provides as follows:
[74] “Supreme Court Rules”.
(1) A judgment or order of the Court takes effect from the day of its date.
(2) Such judgment or order shall be dated as of the day on which it is pronounced, given or made, unless the Court orders that it be dated as of some earlier or later day, in which case it shall be dated as of that other day.
Although s.11(1)(a) of the CJE Act uses the words “at the time it is given”, rather than the more traditional “from the day of its date”, as is used in the Supreme Court Rules, it does not appear that s.11(1) of the CJE Act was intended to change the common law. The Explanatory Memorandum to the Civil Judgments Enforcement Bill 2003 (WA)[75] provides as follows in relation to what became s.11 of the CJE Act:
This clause provides that a judgment has effect on the date that it is given unless the court provides otherwise and the date of judgment is not affected by the commencement of an appeal.
This clause reflects the accepted common law position that even though a judgment may have to be rendered into a written form, it takes effect from the time it is orally pronounced or delivered in writing.[76]
[75] “CJE Bill Explanatory Memorandum”.
[76] CJE Bill Explanatory Memorandum, page 4.
That passage resolves any doubt,[77] that it was not the intention of the Western Australian Parliament in enacting s.11(1) of the CJE Act to alter the common law. It also says nothing which evinces any intention to alter the common law rule that judgments take effect at the earliest moment of the day on which they are delivered, unless otherwise prescribed.
[77] Interpretation Act 1984 (WA), s.19(1) and (2)(e) allows the use of Explanatory Memoranda to determine the meaning of a provision which is ambiguous or obscure.
In this case, where there is no evidence as to the actual time of the making of the Default Judgment, or of the $800,000 Distribution, and where both were made on the same day, the true facts as to the time of those acts are not known, and therefore the common law rule applies to determine the timing of delivery of the Default Judgment and the making of the transactions comprising the $800,000 Distribution.
The consequence of the application of the common law rule means that the Default Judgment was made at the earliest moment of 2 December 2010 and, even if any or all of the three transactions comprising the $800,000 Distribution were also made at that moment, the common law affords priority to the judicial act of Default Judgment so that it is deemed to be first in time.
There are, however, recognised exceptions to the common law rule that a judgment is deemed to have occurred at the earliest moment of the day on which it was made. Relevantly, an exception is said to arise where the application of the rule would result in an injustice.[78] The cases which relate to the law working an injustice in relation to this exception all relate, however, to situations where the fiction is inconsistent with the real facts, and it is in that sense that an injustice is said to arise.[79] As indicated above, there is no evidence of the real facts of this matter, and, therefore, no injustice of the required type can be said to arise.
[78] Seaford at 486 per Willmer LJ.
[79] Seaford at 486-487 per Willmer LJ and cases there cited.
Because the Default Judgment preceded the $800,000 Distribution there was a payment made after the Default Judgment which ought to have been accounted for, as a credit, on the Bankruptcy Notice. This means that there is an $800,000 overstatement in the Bankruptcy Notice of the total debt owing at the time of issue of the Bankruptcy Notice. For the purposes of s.41(5) of the Bankruptcy Act NAB was given notice of that overstatement by Mr and Mrs Henderson by reason of the 23 February 2011 Letter.
This is not therefore a case in which the Court is being asked to go behind the Default Judgment (as seemed to be submitted by NAB). Rather, what is being asserted, is that there is a substantive error in the amount stated as due at the time of issue of the Bankruptcy Notice by reason of the failure to deduct the amount of the $800,000 Distribution. This is not a case where there has been an alleged failure to take into account in the Default Judgment sums paid prior to the issuance of the Default Judgment, or one where there are errors in calculation as to interest and fees. Rather, in this case there has been a complete omission to give credit in the Bankruptcy Notice for an amount paid, which is not insubstantial, notwithstanding that it leaves outstanding a substantial indebtedness. This is a substantive error of the kind which “generally lead[s] to the notice being regarded as invalid and of no effect.”[80] In circumstances where a notice complying with the requirements of s.41(5) of the Bankruptcy Act has been duly given it is the overstatement of the amount in fact due at the time of the issuance of the Bankruptcy Notice which renders the notice invalid, whether or not that overstatement might reasonably mislead the debtor.[81]
[80] Kyriackou FCR at 336 per Weinberg J; FCA at para.37 per Weinberg J.
[81] Walsh at 339 per Gibbs CJ; Skouloudis FCR at 244 per Edmonds J; FCA at para.23 per Edmonds J; Seovic FCR at 132 per Hill, Sackville and North JJ; FCA at para.50 per Hill, Sackville and North JJ.
Conclusion
In the circumstances, the Court has concluded that:
a)the Bankruptcy Notice overstates the amount of the debt due and owing at the time of its issue by at least the amount of the $800,000 Distribution;
b)the Bankruptcy Notice omits to include the payment of the $800,000 Distribution;
c)for the purposes of s.41(5) of the Bankruptcy Act, notice of the overstatement was given by Mr and Mrs Henderson by reason of the 23 February 2011 Letter; and
d)as a consequence of a), b) and c) above, the Bankruptcy Notice is invalid.
There will therefore be an order that the Bankruptcy Notice be set aside.
The Court will hear the parties as to costs.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Lucev FM
Date: 23 January 2012
[53] Kyriackou FCR at 335-336 per Weinberg J; FCA at paras.36-37 per Weinberg J.
(b) the quantum of payment, and especially whether it is a high value payment;
(c) the type of payment, clearing and settlement system which applies to the payment (eg, Continuous Link Settlement; BPAY, and various high value payment systems such as SWIFT, FINTRACS, CHESS and RITS);
(d) legislation, including the Payment Systems and Netting Act 1998 (Cth), Payment Systems (Regulations) Act 1998 (Cth), Banking Act 1959 (Cth) and Corporations Act 2001 (Cth);
(e) the law of contract;
(f) the common law; and
(g) established commercial custom or usage.
See generally AL Tyree, Banking Law in Australia (6th Edn) (Chatswood: LexisNexis Butterworths, 2008), pages 366-374; Mallesons Stephen Jaques, Australian Finance Law (6th Edn) (Sydney: Thomson Reuters, 2008), Chapter 2; EP Ellinger, et al, Ellinger’s Modern Banking Law (5th Edn) (Oxford: Oxford University Press, 2011), Chapter 13.
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