HUSSAIN v Citibank Pty Ltd

[2005] FMCA 1606

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HUSSAIN v CITIBANK PTY LTD [2005] FMCA 1606

BANKRUPTCY – Application to set aside bankruptcy notice – whether prescribed form misleading – whether invalid as ultra vires the rule–making power.   

Bankruptcy Act 1966, ss.41G(2)(1), 41(2), 306(1), 315(1)
Bankruptcy Regulations 1996, r.4.02
Acts Interpretation Act 1901, ss.25C & 46(1)(a)
Corporations Act 2001, s.459J
Bankruptcy Legislation Amendment Act 1996

James v Federal Commissioner of Taxation (1955) 93 CLR 631
Quitstar v Cooline Pacific Pty Limited [2003] NSWCA 359
Kleinwort Benson Australia v Crowl (1988) 165 CLR 71
Australian Steel Company (Operations) Pty Ltd v Lewis (2001) 109 FCR 33
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Blackshaw Services Pty Limited v Cureton [2003] FMCA 591
Carbines v Powell (1925) 36 CLR 88
Grech v Bird (1936) 56 CLR 228
Shanahan v Scott (1957) 96 CLR 245 at 250
South Australia v Tanner (1988 – 1989) 166 CLR 161
Brayson Motors Pty Ltd (in liquidation) v Federal Commissioner of Taxation (1985) 156 CLR 651
Thorne EMI Pty Ltd v Federal Commissioner of Taxation (1987) 71 ALR 728
Bendigo Bank Ltd v Williams (2000) 173 ALR 175
Williams v Melbourne Corporation (1933) 49 CLR 142
Morton v Union Steamship Co of New Zealand Ltd (1951) 83 CLR 402
Ex parte Zietsch; re Craig (1944) 44 SR (NSW) 360
Re McCormack; Ex parte Taylor (1985) 10 FCR 162
Ex parte Pritchard (1874) 14 SCR (NSW) 226
Gill v City of Prahran [1926] VLR 410
Koetsveld v Patrick (1903) 29 VLR 152

Applicant: FAHMI HUSSAIN

Respondent: CITIBANK PTY LTD

File Number: SYG2768 of 2005

Judgment of: Barnes FM

Hearing date: 25 October 2005

Last Submission: 31 October 2005

Delivered at: Sydney

Delivered on: 16 November 2005

REPRESENTATION

Solicitors for the Applicant: Cross Law

Counsel for the Respondent: Mr R. Brender

Solicitors for the Respondent: Maunder & Jeffrey

ORDERS

1. The application to set aside bankruptcy notice NN 2816/05 is dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2768 of 2005

FAHMI HUSSAIN

Applicant

And

CITIBANK PTY LTD

Respondent

REASONS FOR JUDGMENT

1. By application filed on 28 September 2005 the applicant applied to set aside Bankruptcy Notice NN2816 of 2005 which was issued at the request of the respondent on 5 August 2005 and served on the applicant on 7 September 2005.  The ground relied upon by the applicant is as follows:

   A1     Debtors are likely to be perplexed and thoroughly confused by the Notice (which admittedly follows the prescribed form, the debtor contending it is ultra vires the rule-making power) because paragraph 3(b) [sic] refers to the Court being “deemed” to have extended the time for compliance with the Bankruptcy Notice, and then says:

   “(see paragraph 6 below)”

   whereas paragraph 6 has nothing to say about a deemed extending of time; that doesn’t come until paragraph 8(b) and then only by implication.. (The statutory basis of 8(b) is s.41(7), which provides that the time for compliance ‘shall be deemed to have been extended’ where the debtor applies ‘on the grounds that the debtor has a set-off’ [&c]).

   A2     The notice is therefore incurably defective.

2. Despite the reference to paragraph 3(b) of the Bankruptcy Notice it is clear that the applicant’s complaint relates to paragraph 5(b) of the form of bankruptcy notice prescribed under s.41(2) of the Bankruptcy Act 1966 (C’th) (the Act) by Regulation 4.02 of the Bankruptcy Regulations.

The legislation and the prescribed form of bankruptcy notice

1. Section 41(1) of the Act provides that an Official Receiver may issue a bankruptcy notice on the application of a creditor in certain specified circumstances. Section 41(2) provides:

   The notice must be in accordance with the form prescribed by the Regulations.

2. Section 315(1) of the Act provides that the Governor General may make regulations prescribing matters:

   (a)required or permitted by this Act to be prescribed; or

   (b)necessary or convenient to be prescribed for carrying out or giving effect to this Act.

   It is also relevant to note that Section 306(1) provides:

   “Proceedings under this Act are not invalidated by a formal defect or irregularity, unless the court before which the objection on that ground is made is of the 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.”

3. Regulation 4.02 of the Bankruptcy Regulations 1996 provides that for the purposes of sub-s. 41(2) of the Act the form of bankruptcy notice set out in Form 1 is prescribed. Form 1 is contained in Schedule 1 to the Regulations. Sub-regulation 4.02(2) which requires the bankruptcy notice to follow Form 1 in respect to its format, is not to be taken as expressing an intention contrary to s.25C of the Acts Interpretation Act 1901, under which, 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 sub-regulation 4.02(3) and also paragraph 46(1)(a) of the Acts InterpretationAct 1901).

4. Paragraph 3 of the prescribed form of bankruptcy notice states that the debtor is required “within 21 days after service” of the bankruptcy notice to pay the creditor the amount of the debt claimed or to make an arrangement for settlement of the debt.  The form provides that the number of days to be inserted is 21 unless an order has been made under s.41G(2) of the Act.  In this instance ‘21’ is inserted in the bankruptcy notice.  The notice then provides in paragraph 4 for the place of payment for the debt and relevantly continues:

   5.   Bankruptcy proceedings may be taken against you if, within the time stated in paragraph 3, above;

   a) you do not comply with the requirements of either paragraph 3(a) or paragraph 3(b) above; and

   b) the Court (that is, the Federal Court of Australia or the Federal Magistrates Court) does not extend, or is not deemed to have extended, the time for compliance with this Bankruptcy Notice (see paragraph 6, below)

   6.  The Court may extend the time for compliance with this Bankruptcy Notice if, within the time stated in paragraph 3 above, you apply to the Court on one or both of the following grounds:

   (a)that you have instituted proceedings to set aside the judgments or orders in respect of which this Bankruptcy Notice has been issued;

   (b)that you have filed with the Court an application (on one or more grounds apart from the grounds mentioned in paragraph 7, below) to set aside this Bankruptcy Notice.

   7.  In addition, within the time specified in paragraph 3 above, you may file an application to the Court for an order to set aside this Bankruptcy Notice on the specific grounds that:

   (a)you have a counterclaim, set-off or cross demand equal to or exceeding the sum specified in this Bankruptcy Notice as owing to the Creditor; and

   (b)in the action or proceeding in which the Judgments or orders mentioned in paragraph 2 of this Bankruptcy Notice was obtained, you could not have set up that counter-claim, set-off or cross demand*. 

   *this means that, because of a legal obstacle, you could not have raised that counter-claim, set-off or cross demand in defence of the creditor’s court action against you. It is not enough if, for example, you simply neglected or overlooked the matter.

   8.You should note the following points carefully:

   (a)If you file, at the Court, an application in paragraph 6(a) or (b), you must still comply with this Bankruptcy Notice within the time stated in paragraph 3 above unless the Court extends the time for you to comply. 

   (b)If you file, at the Court, an application mentioned in paragraph 7(a), you need not comply with this Bankruptcy Notice until the Court decides whether you have grounds for a counter-claim, set-off or cross demand.  Whether you will have to comply at that stage will depend on the Court’s decision. 

   WARNING

   9.The information in paragraph 6, 7 and 8 is based on provisions of section 41 of the Act. The information is a summary only, and not a complete statement of the relevant law. It might be unwise to rely solely on this summary. If you need a more detailed explanation, you should seek legal advice.

Applicant’s contentions

1. The bankruptcy notice served on the applicant follows Form 1.  There is no suggestion that it departs from that form in any respect whatsoever.  Rather the applicant asserted that debtors are likely to be perplexed and thoroughly confused by the notice and that the prescribed form is ultra-vires the rule-making power. It is said that the notice is “incurably defective”.

2. The applicant contended that the prescribed form offends against requirements for a valid bankruptcy notice and is not within the rule-making power on the basis that the bankruptcy notice must set out the consequences of non-compliance with the notice and that this obligation includes the need to set out the circumstances in which those consequences are delayed by extension of the time allowed for compliance in paragraph 3 of the notice.  It was submitted that paragraph 5(b) of the prescribed form misstates those circumstances or misdirects the debtor to paragraph 6 of the notice. 

3. The applicant’s written submissions describe Paragraph 5(b) as stating that: “Bankruptcy proceedings may be taken against you if, within the time stated in paragraph 3 above…(b)… the Court … is not deemed to have extended the time for compliance with this notice (see paragraph 6, below)”.  The applicant’s argument in relation to the alleged misleading nature of paragraph 5(b) is twofold.  First it is said that the paragraph refers not only to the Court extending time (which it is conceded is dealt with in paragraph 6) but also to it being ‘deemed to have’ extended time for compliance which, it is said, is not dealt with in paragraph 6.  It is argued that while paragraph 8(b) does say something that maybe construed by an intelligent debtor as an allusion to something equivalent to an extension of time for compliance, a notional debtor (such as was considered in James v Federal Commissioner of Taxation (1955) 93 CLR 631) would be thoroughly perplexed and misled by paragraph 5(b). It is submitted that paragraph 5(b) is misleading in referring only to paragraph 6 (which deals with actual extensions of time for compliance) and not also paragraph 8(b) which is said to deal with circumstances in s.41(7) of the Act and that to convey that “the full story” of extending time for compliance is found in paragraph 6 and to fail to make reference to paragraph 8(b) in paragraph 5(b) is not a “summary” of the consequences as stated in paragraph 9 and nor is it merely misleading but in fact it is wrong.

4. The second aspect of the argument is that paragraph 5(b) is inherently misleading in its reference to the Court … being “deemed, to have extended, the time for compliance” because the Act does not in fact provide for the Court to be deemed to have extended the time for compliance with the bankruptcy notice. Rather, it is said, that the Act provides for either extension of time by the Court on application by the debtor on the grounds referred to in paragraph 6 of the bankruptcy notice or for what the applicant describes as a “statutory extending” of the time for compliance pursuant to s.41(7) of the Act (which it is conceded is dealt with by paragraph 8(b) of the bankruptcy notice). In other words issue is taken with the reference to the “Court” being deemed to have extended the time for compliance with the notice when the time is in fact deemed to have been extended by force of s.41(7) where the debtor has applied to the Court for an order setting aside a bankruptcy notice on the basis that he or she has a counter-claim, set-off or cross-demand and the Court has not before the expiration of the time fixed for compliance determined whether it is satisfied that the debtor has such a counter-claim set off or cross-demand.

5. It is argued that for the notice just to direct the debtor towards sections of the Act or to mention the possible availability of legal advice does not suffice as the form itself must state the consequences and must do so accurately. 

6. On the basis of these contentions it is submitted was that the prescribed form of notice is liable to mislead a debtor and should be set aside as invalid because it could not possibly be said to achieve the purpose for which the delegated rule-making power was conferred (South Australia v Tanner and Others (1988 – 1989) 166 CLR 161). That purpose was said to be to prescribe a notice which stated plainly to a debtor the penal consequences of non-compliance. It was submitted that a prescribed form which misdirected a debtor about the consequences of non-compliance with the form (in particular in relation to the steps needed to extend time for compliance) was not within a rule-making power such as s.315 of the Act, which allows rules to be made that are ‘convenient’ for carrying out or giving effect to the Act.

7. The applicant contended that, in keeping with the character of a bankruptcy notice as a penal demand, s.41 of the Act used to require that the bankruptcy notice state the consequences of non-compliance with the requirements of the notice. Although this provision was removed from the Act in 1996, it was submitted that, consistent with the requirement in the present s.41(2) that the bankruptcy notice must be in accordance with the prescribed form, the requirement that the notice state the consequences of non-compliance was “and is by common law” its most important feature. It was contended that as a matter of statutory construction subordinate legislation is invalid if it fails to conform to the existing law, whether that law is the enabling or other statute law or is the common law.

8. The solicitor for the applicant contended generally that for subordinate legislation to be valid it had to stay within the ambit of the Act and that as the form in this instance was misleading it was beyond the rule-making power pursuant to which the form was prescribed. It was said that the form was not in keeping with the purpose of the legislation insofar as that required the bankruptcy notice to tell the debtor not only how to pay money owed but also the consequences of non-compliance. It was said that this remained a purpose of the legislation or of the “common law” despite the difference between s.41(2)(b) prior to 1996 (when it specifically referred to the bankruptcy notice stating the consequences of non-compliance) and the present s.41 which merely prescribes that the prescribed form must be used.

9. The applicant did not point to any authority directly in point in support of his contention that the prescribed form of the bankruptcy notice was ultra vires the rule-making power.  Rather it was submitted that it was not within the mandate of the regulations to have such a glaring deficiency in a form and that it was not within the spirit of the Act that the debtor not be told the consequences of non-compliance.  It was contended that the prescribed form was not fairly and reasonably related to the scope and object of the Bankruptcy Act 1966, that in addition to a regulation being “necessary or convenient” as referred to in s.315 of the Bankruptcy Act 1966 the regulation should also give effect to “common law surrounding the Act” and that the import of the prior law which required specification of the consequences of non-compliance would have been in the mind of the framers of the 1996 amendments and that the regulations had to take this into account. It was submitted that a regulation that had the outcome of being misleading or perplexing was not within the rule-making power because a penal document with its drastic consequences ought not to be vague or inaccurate about the steps needed to avoid those consequences and that s.25C of the Acts Interpretation Act 1901 did not overcome the operation of this principle.

10. It was also contended that s.306 of the Bankruptcy Act could not be used to cure the defect and because the defect could not be regarded as a formal defect or an irregularity. Reference was made to the decision of the High Court of Australia in James v Federal Commissioner of Taxation (1955) 93 CLR 631 in support of the proposition that a bankruptcy notice is invalid if it is capable of misleading or perplexing a notional debtor. It was suggested that this principle applied even if the notice was in accordance with the prescribed form. It was suggested that at the time the form of bankruptcy notice was prescribed the law as expounded in James – which was said to be that a bankruptcy notice is to be set aside if it could mislead a debtor – must be taken as known to the draftsman. 

11. The solicitor for the applicant sought to distinguish the decision of the New South Wales Court of Appeal in Quitstar v Cooline Pacific Pty Limited [2003] NSWCA 359. That case involved the validity of a statutory demand under the Corporations Act 2001. The form of the demand followed the form prescribed under that Act except that it referred to the “Corporations Law” instead of “Corporations Act 2001”. The solicitor for Quitstar (the same solicitor as appears for the applicant in this case) contended first that strict compliance with the mandatory prescribed form was necessary. Such an issue does not arise in this case as there was strict compliance with the mandatory form. However it was also submitted in that case that the form prescribed under the Corporations Act was invalid because it was misleading as it included a statement that the creditor may rely on a failure to comply with the demand as grounds for an application for winding up of the company, when in fact persons other than the creditor could also rely on such a failure. It was submitted that the Corporations Act 2001 did not authorise the formulation of a misleading form, so that the form was invalid and statutory demands containing a similar paragraph were also invalid because misleading.

12. Hodgson JA, with whom Sheller JA and McColl JA agreed, rejected both arguments.  In the course of rejecting the contention that the reference to “Corporations Law” meant that the document was not a statutory demand under the Corporations Act 2001, his Honour concluded that there was substantial compliance with the prescribed form (see s.25C of the Acts Interpretation Act) and that if that was wrong, the mistake was a defect within s.459J of the Corporations Act 2001 (a provision which is broader than s.306(1) of the Bankruptcy Act 1966 which deals with formal defects or irregularities).  His Honour then addressed the validity of the prescribed form as follows:

    “Whether or not the tendency of a form to mislead could invalidate a regulation, it is my opinion that the omission in the prescribed form to mention the possibility that persons other than the creditor might rely on non-compliance as a ground for seeking to wind up the company falls far short of being misleading in a sense that might conceivably invalidate subordinate legislation.  At most, any discrepancy between the prescribed form and the Act would be a defect in the demand, and would justify the setting aside of the demand only if substantial injustice would otherwise be caused, in terms of s.459J of the Act.  As mentioned earlier, there is no suggestion of that in this case.”

13. Counsel for the respondent had relied on Quitstar, pointing out that the applicant’s argument was novel and without any authority to support it.  However it was contended for the applicant in this case that the defects test for a bankruptcy notice was different (see Jamesv Federal Commissioner of Taxation) and that the Court should set aside the prescribed form, quashing Regulation 4.1 on the ground that the form did not properly state the consequences of non-compliance as required by s.41 of the Bankruptcy Act1966 and was capable of misleading a debtor.   

1. For a number of reasons, I am not persuaded that the bankruptcy notice should be set aside.  While it is not disputed that the Court has the power to set aside invalid or substantially defective bankruptcy notices, the contentions of the applicant in this instance are not such as to persuade me that the form prescribed is invalid.  First, there is no suggestion that the form of the bankruptcy notice departs in any way from the prescribed form.  It is the case that the authorities suggest that a bankruptcy notice that does not contain a requirement made essential by the Act is not a valid notice (see Kleinwort Benson Australia v Crowl (1988) 165 CLR 71 at 77 and Australian Steel Company (Operations) Pty Ltd v Lewis (2001) 109 FCR 33 and that non-compliance with an essential requirement of a bankruptcy notice will lead to invalidity where, consistent with the purposive approach to statutory interpretation in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [44] – [45] the intent of the legislature is that an omission of this kind would invalidate the notice. The authorities in relation to such essential requirements of a bankruptcy notice deal not with a bankruptcy notice which complies with the prescribed form but rather with the effect of departures from the form or errors in what is included. In any event as explained below, it has not been established that any essential requirement has been omitted.

2. It is also the case that it has been held that, even if such defects in a bankruptcy notice are not matters made “essential” by the Act, they would invalidate the bankruptcy notice if they are matters which “could reasonably mislead a debtor”.  No issue is taken by the respondent with the applicant’s contention that the relevant test in that respect is objective and not whether the particular debtor in question would be misled or that in this context it has been suggested that a debtor needs to understand by reading the bankruptcy notice what has to be done to comply with its requirements and thus avoid the consequences of an act of bankruptcy and “is not expected or required to work … things out for himself” (Blackshaw Services Pty Limited v Cureton [2003] FMCA 591 at [10] per Raphael FM). However the decision in James does not advance the applicant’s case. This was not a case in which the prescribed form itself was said to be misleading and hence ultra vires the rule-making power. In that case it was held by the High Court that a particular bankruptcy notice did not follow the prescribed form varied to meet the circumstances as was required under s.53 of the Bankruptcy Act 1924 – 1954 (the predecessor to s.41 of the present Act). It contained two defects. First it contained a restriction that was not in accordance with the terms of the order for payment of costs, on which the bankruptcy notice had been based. Secondly, it failed to notify the debtor that as an alternative to payment of the debt he could secure or compound the debt to the satisfaction of the creditors. It was found to be “capable of misleading” the debtor as to the manner in which he may secure or compound the debt. It was in this context that it was held to be sufficient that the debtor could be misled, that strict compliance with the requirements of a bankruptcy motive was essential and that the defects were breaches of important provisions of the Act and could not be regarded as formal defects or irregularities (and thus were not within s. 7, the equivalent of s.366). This was not a case in which the prescribed form itself was said to be misleading and hence ultra vires the rule-making power.

3. Further, even if a tendency of the form as prescribed to mislead could invalidate the bankruptcy notice and the regulation itself as contended, I am of the view that the manner in which the bankruptcy notice is drafted is not misleading in any sense that “might conceivably invalidate subordinate legislation” (see to the same effect Quitstar Pty Ltd v Cooline Pacific Pty Ltd at [35]). 

4. The applicant and respondent relied on a number of principles in relation to the validity of subordinate legislation.  It is the case that regulations must be confined to the same field of operation as that marked out by the Act (see Isaacs J in Carbines v Powell (1925) 36 CLR 88 at 91) and must not vary or depart from positive provisions made by the Act (see Grech v Bird (1936) 56 CLR 228 at 239). Delegated legislation made pursuant to a broad power such as s.315 may be inconsistent with the enabling Act considered as a whole if there is such a departure. (See Morton v Union Steamship Co of New Zealand Ltd (1951) 83 CLR 402). The regulation-making power does not enable extension of the scope or general operation of the Act or a widening of the purposes of the Act (see Shanahan v Scott (1957)

   
   

   96 CLR 245 at 250 per Dixon CJ, Williams, Webb, Fullagar and Kitto JJ suggesting that the regulation-making power will not support attempts “to depart from or vary the plan which the legislature has adopted to attain its ends”). It is not necessary to consider in detail the precise scope and operation of such principles, as none are offended.

5. First, there is no suggestion that the prescription of a form of Bankruptcy Notice in Schedule 1 of the Bankruptcy Regulations is not within the ambit of the regulation-making power in s.315 of the Bankruptcy Act1966.  As Wilson, Dawson, Toohey and Gaudron JJ stated in South Australia v Tanner at 164 – 165 the starting point for any consideration of the validity of the regulation must be to determine the “true nature and purpose of the (regulation-making) power” (see Dixon J in Williams v Melbourne Corporation (1933) 49 CLR 142 at 155). Consistent with s.41 of the Bankruptcy Act, the Governor-General is empowered to make regulations (such as Regulation 4.02) prescribing the form of the bankruptcy notice as required by s.41(2). The form is “capable of being considered to be reasonably proportionate to the end to be achieved” (ibid at 167 – 168).

6. In South Australia v Tanner (1988-1989) 166 CLR 161 Brennan J stated:

   In deciding whether an impugned regulation is valid, the Court has three steps to take:  it construes the terms in which Parliament has conferred the power to make the regulation, it ascertains the scope and legal effect of the impugned regulation and it determines whether the regulation having that scope and legal effect is within the ambit of the power.

7. Regulation 4.02 of the Bankruptcy Regulations provides simply that for the purposes of sub-s.41(2) of the Act the form of bankruptcy notice set out in Form 1 is prescribed. It is important to note that, since 1966 , s.41 has been limited to requiring the notice to be in accordance with the prescribed form. This is in contrast to s.41 as it was prior to the 1996 amendments when it required that a bankruptcy notice not only be in accordance with the prescribed form but also that it include certain matters and as set out above state the consequences of non-compliance with the requirements of the notice.

8. It is said that the form prescribed fails to conform with the Act or the purposes of the Act because it is vague or inaccurate.  In Australian Steel Company (Operations) Pty Ltd v Lewis, after consideration of the circumstances in which bankruptcy notices will be invalid (although not because of the use of the prescribed form but rather because of what is added to or changed in the bankruptcy notice) Black CJ, Heerey and Sundberg J went on to say, at [40] – [41]:

   In 1996 Parliament chose to make a form to be prescribed by regulation the sole criterion of whether a bankruptcy notice complied with the Act, with the consequence that an act of bankruptcy would be committed in the case of non-compliance with such a notice.  This being the will of Parliament, it is not for a Court to treat the terms of the prescribed form as inherently less important than a requirement specified in the Act itself, so as to attract a more lenient view in the case of non-compliance.  Valid delegated legislation (and there is no suggestion that the present regulations are otherwise) is binding law because that is what Parliament has willed.  As Lindgren J said in Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 at 378 (obviously in relation to a pre-1996 notice): “… the statutory requirement that a bankruptcy notice be in accordance with the prescribed form is itself a requirement made essential by the Act.”

   This proposition is a fortiori since the 1996 amendments as the majority in Bendigo Bank, correctly in our view, pointed out (at 384 [19]).  Moreover, this is a case where the 1996 amendments resulted in “a framework built on by contemporaneously prepared regulations”, in which case the latter may be a reliable guide to the meaning of the former: Hanlon v Law Society [1981] AC 124 at 194.  The law now is that a bankruptcy notice has to contain substantially more information than it did prior to the 1996 amendments.  The law now is not just that a notice shall have certain characteristics stipulated in the Act.  The notice “must be in accordance with the form prescribed by the regulations”.

9. The Bankruptcy Regulations were made under the Bankruptcy Act 1966 and commenced on 16 December 1996 (see Regulations 101 and 102) being made at the same time that the amendments were made to the Bankruptcy Act by the Bankruptcy Legislation Amendment Act 1996 which included amendments to ss.41 and 315. The form for a bankruptcy notice was included in Schedule 1 to the Regulations (see Regulation 4.02) where it remains.

10. As Mason J stated in Brayson Motors Pty Ltd (in liquidation) v FCT (1985) 156 CLR 651 at 652:

    One looks at regulations, not to construe an overall scheme or to throw light on ambiguity in a statutory provision, but to ascertain what the scheme is. 

11. Also see Thorne EMI Pty Ltd v FCT (1987) 71 ALR 728 at 734 – 735 per Beaumont J and Bendigo Bank Ltd v Williams (2000) 173 ALR 175 in which Moore and Lehane JJ stated at:

    The meaning and effect of s.41 [of the Bankruptcy Act] can be ascertained by reviewing the scheme rendered complete by the regulations.  In our view, the scheme appears to be this.  The characteristics of a valid bankruptcy notice (subject to s.41(5) and (6)) are those identified in Form 1.  Those characteristics include information that the form expressly or impliedly directs to be included.

12. This suggestion of Moore and Lehane JJ in Bendigo Bank v Williams was approved by Black CJ, Heerey and Sundberg JJ in Australian Steel Co.  Subsections 41(5) and (6) (which deal with the situation where the amount specified in the bankruptcy notice exceeds the amount in fact due) do not apply to this case.  In this context the views of the majority in Australian Steel Company at [41] about the effect of the 1996 amendments and the suggestion that the contemporaneously prepared regulations may be a reliable guide to the meaning of the Act are relevant. The characteristics of a valid bankruptcy notice are those identified in Form 1. A consideration of the scheme in which the bankruptcy regulations are found leads to the conclusion that the scope and effect of the form is within the ambit of the regulation-making power conferred by s.315 of the Bankruptcy Act 1966. 

13. Contrary to the contentions of the applicant, it has not been established that the prescribed form has a tendency to mislead in the manner contended such that it could invalidate the form. The submission about the manner in which the notice refers to the Court being deemed to extend time for compliance raises the issue of whether there is a departure from the positive provisions of the Act. However I am not persuaded that the manner in which “deeming” is referred to in the Bankruptcy Notice constitutes a departure from the positive provisions in the Act, in particular s.41(7) which deals with a deemed extension of time (cf Morton v Union Steamship Co of New Zealand Ltd (1951) 83 CLR 402) or that Paragraph 5(b) is otherwise misleading such as to invalidate the prescribed form of notice.

14. Paragraph 5 of the prescribed form states that bankruptcy proceedings may be taken against the recipient of the notice if the recipient does not comply with the requirements of the notice within the time stated and the Court does not extend or is not deemed to have extended the time for compliance with the bankruptcy notice. As described above, one limb of the applicant’s complaint in relation to the language of paragraph 5(b) is that it is not consistent with s.41(7) of the Bankruptcy Act which is as follows:

    Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.

15. Subsections 41(6A) and (6C) deal with situations where, if a debtor applies to the Court, the Court may extend the time for compliance with a bankruptcy notice. The reference in paragraph 5(b) of the bankruptcy notice to the Court extending the time for compliance is consistent with these provisions. The applicant’s argument is that the Court is not deemed to have extended the time for compliance where s.41(7) applies, but rather by force of that provision itself the time is deemed to have been extended where it is applicable. However, in the context of the further explanations in paragraph 6, 7, 8 and the warning in paragraph 9 that the information in the notice is a summary only, the prescribed form of notice is not misleading in a manner such as to invalidate the bankruptcy notice. This is clear when one considers the paragraphs which follow paragraph 5(b). Paragraph 5(b) directs one’s attention to paragraph 6. This of itself is not misleading as contended, because paragraph 6 deals with situations where the Court may extend the time for compliance. There is no necessity for paragraph 5 to also draw attention to paragraph 8(b) because when one reads paragraph 6, paragraph (b) of that paragraph distinguishes the situation dealt with in paragraph 7 (which in turn is a reference back to s.41(7)). Hence paragraph 6, in referring to paragraph 7, invites or leads the reader to a consideration of its terms.

16. Paragraph 7 provides that in addition to what is provided for in paragraph 6, the debtor may file an application to set aside the bankruptcy notice on the further ground set out in paragraph 7. In that context paragraph 8 relates back to both paragraphs 6 and 7 and deals with each of the kinds of application that may be made by a debtor. It calls to attention (in subparagraph (a)) that the application mentioned in paragraph 6(a) and (b) still requires the debtor to comply with the bankruptcy notice within the time stated unless the Court extends the time for compliance, while paragraph 8(b) makes it clear that if an application is of the kind mentioned in paragraph 7(a) (that is the sort within s.41(7A)) then the debtor need not comply with the bankruptcy notice until the Court decides whether the debtor has grounds for a counter-claim, set-off or cross-demand.

17. These paragraphs (taken together) are an accurate summary of the nature of the obligations of the recipient of a bankruptcy notice and the effect of the time limits and when they apply. This is reinforced by paragraph 9 which provides the warning that the information in paragraph 6, 7, and 8 is based on provisions of s.41 of the Act and is a summary only and not a complete statement of the relevant law, that it might be unwise to rely solely on that summary and that if a more detailed explanation is needed the debtor should seek legal advice.

18. It has not been established that the reference in paragraph 5 to paragraph 6 and not to paragraph 8 or the manner in which the deemed extension of time is described would “thoroughly perplex or mislead a debtor” either because paragraph 6 is only applicable to an actual extension and not a deemed extension or because s.41(7A) refers to a deemed extension of time rather than to the Court being deemed to have extended the time for compliance or otherwise. As was found in relation to a different claimed ‘error’ in Quitstar v Cooline, whether or not the tendency of a prescribed bankruptcy form to mislead could invalidate a regulation, in this instance the issues raised about the prescribed form fall “far short of being misleading in a sense that might conceivably invalidate subordinate legislation” (Quitstar at [35]).

19. Nor am I persuaded that the form is invalidated because it is not consistent with “common law and with the general body of statute law” as contended. It is consistent with the enabling Act. It summarises and does not depart from the positive provisions of the Act, particularly s.41. It cannot be said that the prescribed form was not reasonably adopted as a means of attaining the ends for which the rule making power was granted. In context, paragraph 5(b) is sufficiently clear. The form gives a debtor adequate information as to the nature and extent of the obligations of a recipient of a bankruptcy notice and consequences of non-compliance. Ex parte Zietsch; re Craig (1944) 44 SR (NSW) 360 does not assist the applicant. That case considered whether a provision (which prohibited profiteering during wartime) infringed the requirement that a statutory regulation be sufficiently certain to enable identification of the nature and extent of the legal duty imposed. The prescribed form of bankruptcy notice is not uncertain in the manner considered in that case. Indeed, it is relevant to note the comments of Jordan CJ in Zietsch (with whom Davidson and Street JJ concurred) at 214 – 5 to the effect that a court:

    “should not be astute to pick holes in a regulation or order, and hold it to be bad because of possibilities of obscurity which are purely theoretical or fanciful.”

20. The applicant contended that the prescribed form was invalid because it was not consistent with a claimed common law requirement that a bankruptcy notice state the consequences of non-compliance with the notice.  If there is such an applicable common law requirement it is met by the summary contained in paragraphs 3 to 9 of the form.  Again the authority relied on by the applicant, Ex parte Pritchard (1876) 14 SCR (NSW) 226, does not advance the applicant’s case.  In that case it was contended that a council by-law regulating driving or riding a horse around a corner within the city of Sydney at a pace faster than a walk was ultra vires as it interfered with a clear common law right –the right of persons, unless restricted by a statute, to use a highway either on foot or with horses or vehicles.  As the by-law did not prohibit, but only regulated, persons driving around corners it was found not to violate any common law maxim.  In this instance the Bankruptcy Act 1966 and regulations provide the scheme for the law in relation to bankruptcy in general and bankruptcy notices in particular.  The characteristics of a valid bankruptcy notice are, as stated in Australian Steel Company, those identified in Form 1.  No failure to conform to any applicable maxim of common law is established. 

21. The fundamental difficulty with the applicant’s argument is that, even if the form does not adopt precisely the same language as s.41(7A) and requires the debtor to read all of the paragraphs from 5 to 9 consecutively, it has not been established that it is misleading. The suggested lack of absolute clarity and ease of comprehension and completeness in the form do not mean that the bankruptcy notice is invalid. As suggested in Gill v City of Prahran [1926] VLR 410 and Koetsveld v Patrick (1903) 29 VLR 152 delegated legislation is not impugned merely because it is difficult to understand or expressed in bad English.

1. This means it is unnecessary, strictly speaking, to consider the operation of s.306 of the Act. Section 306 is usually considered in its application to a failure to comply strictly with the form prescribed under s.41(2) and regulation 4.02, but if it can be said that there is a defect in the bankruptcy notice because paragraph 5(b) does not include a reference to paragraph 6 and paragraph 8(b) or because of the reference to the Court being deemed to have extended the time for compliance rather than a statement that the time for compliance is deemed to be extended, then such defects would be mere formal defects which would not invalidate the bankruptcy notice. It cannot be said that substantial injustice has been caused by the claimed defects. The concerns raised by the applicant about the form are not such as to mislead a recipient of a bankruptcy notice as to what he or she is required to do. The form includes the requirements made essential by the Act (see Re McCormack; Ex parte Taylor (1985) 10 FCR 162 at 165 and Australian Steel Co per Black CJ, Heerey and Sundberg JJ). 

2. Accordingly the application to set aside the bankruptcy notice is dismissed. 

I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  16 November 2005.