HUSSAIN v Deputy Commissioner of Taxation - [2006] FMCA 1247

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HUSSAIN v DEPUTY COMMISSIONER OF TAXATION

[2006] FMCA 1247

BANKRUPTCY – Bankruptcy notice – whether instructions in prescribed form must be reproduced in bankruptcy notice – whether substantial compliance with requirements for bankruptcy notice – whether omissions from bankruptcy notice formal defect or irregularity – whether omissions from bankruptcy notice misleading – whether interest on judgment claimed in bankruptcy notice correctly calculated.

Bankruptcy Act 1966 (Cth), ss.42(2), 306

Acts Interpretation Act 1901 (Cth), s.25C

Civil Procedure Act 2005(NSW), s.101

District Court Act 1973(NSW) s.83A

County Court Act 1958 (Vic) s.73(4)

Bankruptcy Regulations1996 (Cth) r.4.02

Adams v Lambert [2006] HCA 10
Australian Steel Company Operations Pty Ltd v Lewis [2000] 109 FCR 33
P. Acker Flower Buds Pty Ltd v Coulter [2004] FCA 1486

Applicant:

FAHMI HUSSAIN

Respondent:

DEPUTY COMMISSIONER OF TAXATION

File number:

SYG 1183 of 2006

Judgment of:

Phipps FM

Hearing date:

1 August 2006

Date of last submission:

1 August 2006

Delivered at:

Sydney

Delivered on:

1 August 2006

REPRESENTATION

Counsel for the Applicant:

Mr D. Knaggs

Solicitors for the Applicant:

Cross Law

Counsel for the Respondent:

Mr A. Iuliano

Solicitors for the Respondent:

ATO Legal Services Branch

ORDERS

The application is dismissed.
The applicant pay the respondent’s costs fixed at $7,000.00.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1183 of 2006

FAHMI HUSSAIN

Applicant

And

DEPUTY COMMISSIONER OF TAXATION

Respondent

REASONS FOR JUDGMENT

(Revised from the transcript)

The respondent, the Deputy Commissioner of Taxation obtained the issue of a bankruptcy notice against the applicant on 23 March 2005. The applicant applied to set aside the bankruptcy notice. A registrar dismissed that application on 30 May 2006. The applicant now applies to review the decision of the registrar. Two grounds are relied upon by the applicant. The first is that there are omissions from the bankruptcy notice of matters contained in the prescribed form and the second is that the amount of interest on judgment pursuant to s.101 of the Civil Procedure Act 2005 (NSW) is over stated, miscalculated by a period of three or four days.
The statutory provisions governing bankruptcy notices are these: Section 42(2) of the Bankruptcy Act 1966 (Cth) provides that a bankruptcy notice must be in accordance with the forms prescribed by the bankruptcy regulations. Regulation 4.02.2 of the Bankruptcy Regulations1966 (Cth) requires that the notice follow the prescribed form of notice. The whole of regulation 4.02 is relevant. It provides:
Form of bankruptcy notices
(1)For the purposes of subsection 41 (2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.
(2)A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).
(3)Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901 .
Note Under section 25C of the Acts Interpretation Act 1901 , where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient; see also paragraph 46 (1) (a) of that Act for the application of that Act to legislative instruments other than Acts.
The note sets out the substance of s.25C. One omission only to the bankruptcy notice was alleged in the original application. I granted leave to amend to include two others. As amended they are these:
a)the words appearing towards the top of the form:
[NOTE: Words appearing below in italics are for guidance in the completion of this Notice, and are not to be reproduced in the Notice.
b)At the conclusion of paragraph 3:
[NOTE: The number of days to be inserted is 21 or, if an order has been made under subparagraph 40(1)(g)(ii) of the Act, the number of days constituting the time fixed by the order.]
c)Under paragraph 4:
[NOTE: The address must be within Australia.]
The original application to set aside the bankruptcy notice referred only to the note under paragraph 3.
The argument put by Mr Knaggs for the applicant and Mr Iuliano for the respondent referred to the decision of the High Court in Adams v Lambert [2006] HCA 10 which considered the approach which had been taken to defects in bankruptcy notices by the Full Court of the Federal Court in Australian Steel Company Operations Pty Ltd v Lewis [2000] 109 FCR; 33. That case had taken what for present purposes can be described as a strict approach to the requirements for a bankruptcy notice. I consider that the first reason for finding that the applicant's argument does not succeed is simpler than the effect of s.25C of the Acts Interpretation Act and s.306 of the Bankruptcy Act (which excuses formal defects or irregularities that do not cause substantial injustice).
I consider that none of the matters referred to are parts of the form in the sense that they need to be reproduced. The first is:
[NOTE :Words appearing below in italics are for guidance in the completion of this Notice, and are not to be reproduced in the Notice].
This is clearly an instruction to the person preparing the notice. It says nothing to the debtor receiving the notice or to any other person receiving the notice once the notice has been completed. The words which are in italics are obvious deletions in any event, being (name) and (address), which appear several times.
The second is the note to paragraph 3 which says:
[NOTE: The number of days to be inserted is 21 or, if an order has been made under subparagraph 40(1)(g)(ii) of the Act, the number of days constituting the time fixed by the order.]
It is an instruction which refers to words which are in italics. Paragraph 3 reads:
You are required, within (insert number in accordance with the note to this paragraph) days after service on you of this bankruptcy notice
(a) to pay to the creditor the amount of the debt; or
(b) to make an arrangement to the creditor’s satisfaction for settlement of the debt.
The combination of the words in italics being the subject matter of the instruction, plus the nature of the instruction itself leads to the conclusion that it is not part of the form.
Sub-paragraph 40(1)(g)(ii)of the Bankruptcy Act provides for an order permitting service of a bankruptcy notice overseas. An essential part of such an order is the time for compliance with the notice. It has no application to this case. It is common ground that no application under that subparagraph was made. I consider the words are not part of the Bankruptcy Notice but only an instruction.
The third one has the same characteristics as the one I have just referred to. Paragraph 4 of the form is:
Payment of the debt can made to:
(name)…………………………………………………….
of (address)…………………………………………
[Note: The address must be within Australia.]
A combination of the reference to something which is contained in italics, so that the words name and address are not to be included because of the instruction at the start of the form, and the nature of the instruction itself, leads to the conclusion that it is not part of the Bankruptcy Notice.
The bankruptcy notice is something which is addressed to a debtor or an alleged debtor. The three notes which are the subject of the ground say nothing at all to a debtor. Indeed, they say nothing to a creditor except that they are instructions to the person completing the bankruptcy notice, who may be a creditor, but more likely somebody acting on behalf of a creditor. I consider that they are not part of the notice.
In Lambert the bankruptcy notice included an amount of interest, $66.58 on a judgment debt. The bankruptcy notice referred to s.83A of the District Court Act 1973 (NSW). That was a section which dealt with interest up to judgment. The notice should have referred to s.85 which was then the provision which dealt with interest after judgment. In the Federal Court the bankruptcy notice was held invalid following the Australian Steel Company case. The High Court allowed the appeal and reversed that decision.
There were two arguments. The first was based on r.4.02(3) of the Bankruptcy Regulations which says that sub-regulation (2) is not to be taken as expressing an intention contrary to s.25C of the Acts Interpretation Act That section says strict compliance with the form is not required. The High Court said at [22]
The prescribed form of notice, in note 2 at the conclusion of the notice, requires that when interest is claimed, amongst other things, there must be set out the provision under which the interest is being claimed.
The High Court rejected the argument that a reference to the District Court Act was sufficient compliance with the requirement to state the provision under which interest is being claimed. The Court said at [22]:
The difficulty is that in a case such as the present, where there is a specific requirement to state a provision, it is not substantial compliance to state a different provision. In such a case the problem cannot be avoided by looking at the form as a whole and observing, like the curate’s egg, it is bad only in part. At the same time, the kind and degree of error is relevant to a consideration of section 306.
If I am wrong in finding that the omitted sections from the prescribed form are not part of the form but mere instructions then I consider that, unlike in Adams v Lambert, the omission of those provisions meant there had been substantial compliance. Unlike in Adams v Lambert they are not a specific requirement to state a specific provision such as the section of an Act under which interest is being claimed.
This case can be distinguished from Australian Steel Company v Lewis, if parts of that judgment are still binding authority on this court. Section 25C says that strict compliance is not required, substantial compliance is sufficient. There has been substantial compliance with the first of the notes, that is, "NOTE, words appearing below in italics are for guidance in completion of this Notice, and are not to be reproduced in this Notice." That instruction has been complied with in the notice in this case.
There has been substantial compliance with the second note under paragraph 3 which requires the number of days to be inserted.

The number of days has been inserted.
The same applies for the third note under paragraph 4. It requires that the address must be within Australia. The address is within Australia.
Section 306 is a further alternative. Section.306(1) provides:
Proceeding under this Act are not invalidated by a formal defect or any irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
The High Court in Adams v Lambert, considering how that section should be applied, said at [25]:
In some cases the answer to that question may be easy. In others, a difficult question of judgment may be involved. The matter for judgment was identified by this Court in Kleinwort Benson Australia Ltd v Crowl[19]. In that case, the majority[20] contrasted the concept of a formal defect or irregularity with a defect or irregularity that renders a bankruptcy notice a nullity that cannot be saved by s 306. To describe a defect as merely formal, or to describe a notice as a nullity, is, of course, to state a conclusion, rather than the reason for reaching that conclusion. Even so, it is necessary to identify the question that arises for judgment. The majority, referring to James v Federal Commissioner of Taxation[21], and Pillai v Comptroller of Income Tax[22], summarised the exclusionary aspect of the meaning of "a formal defect or an irregularity" by saying[23]:
"The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice."
The words which have been omitted are not something made essential by the Act; they are instructions for the completion of the notice.

The debtor cannot have been misled by their omission.
It would mean nothing to a bankrupt to be told that words appearing below in italics are for guidance in the completion of this notice and are not to be reproduced in the notice. If anything, it might lead to a debtor to wonder where the words in italics were, so if it anything it might be a distraction, although unlikely.
To be told that the number of days to be inserted is 21 or if an order has been made under sub-para.40(1)(g)(ii) of the Act, the number of days constituting the time fixed by the order, would not assist a debtor .

The omission does not mislead a debtor. The notice states the number of days for payment, 21. The debtor knows that he has 21 days to comply with the requirements in paragraph 3. No order was made otherwise. It would not assist a debtor at all to know about that note.
The third note is about the address for payment. The address the debtor is given for payment is Deputy Commissioner of Taxation, 100 Market Street, Sydney, New South Wales. It assists a debtor not at all to be told that that address must be within Australia. It clearly is within Australia.
The second objection taken to the bankruptcy notice concerns the interest claimed on the amount of the judgment of the District Court of New South Wales. A copy is attached to the bankruptcy notice.

It reads:
DATE OF JUDGMENT OR ORDER
**Date made or given    20 January 2006.
**Date entered
TERMS OF JUGDMENT OR ORDER
1      Verdict and judgment for the plaintiff in the sum of $88,104.20;
2      The defendant to pay the plaintiff's costs of the proceedings;
3These orders are stayed until 4 pm, Tuesday, 24 January 2006 should the defendant wish to restore the matter to the list on Wednesday, 25 January 2006;
4If no application to restore is made the orders will be deemed final.
The total amount claimed for payment in the bankruptcy notice is $89,299.04. The additional amount is interest of $1194.84, that is, interest claimed from 21 January 2006 to 16 March 2006.
The applicant's objection to the notice is that interest was only due from 24 January or possibly 25 January, not 21 January. The interest is claimed under s.101 of the Civil Procedure Act 2005 (NSW).

It provides:
(1)Unless the court orders otherwise, interest is payable on so much of the amount of the judgment exclusive of any order for costs as is from time to time unpaid.
(2)Interest under subsection (1) is to be calculated at the prescribed rate or at such other rate as the court may order as from:
(a) the date on which the judgment takes effect, or
(b) such later date as the court may order.
Apart from the date from which interest has been calculated it is accepted that the correct rate has been used and the correct calculation has been made.
Mr Knaggs for the applicant argues that by the terms of the order the judgment took effect on 24 January or possibly 25 January. He argues that is so because the order says these orders are stayed until 4 pm, Tuesday, 24 January 2006.
The interest on judgment provision in the County Court Act 1958 (Vic) was considered by Weinberg J in P. Acker Flowerbulbs Pty Ltd v Coulter [2004] FCA 1486, a decision on appeal from a Federal Magistrate. Section 73(4) of that Act ([11] of the judgment) provides:
Every judgment debt shall carry interest at the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 from the time the judgment is entered or the order made or, in the case of costs to be assessed, from the assessment of those costs or such other day as the court orders, and the amount of the interest shall be stated in the body of and may be seized under warrant of execution on such judgment.
The judgment of the County Court in that case was for an amount of $68,553.50. Paragraph 4 of the judgment read:
The payment of the sum referred to in paragraph 1 hereof and the payment of the costs referred to in paragraph 3 hereof, be stayed for one month from today's date.
At [30] Weinberg J noted that the judge formulated the stay as a stay on payment, but his Honour concluded that that was no more than a stay on execution. His Honour then went on to consider whether a stay on execution meant that the statutory judgment interest did not start to run until the stay ended and concluded that it did not. His Honour reviewed a number of authorities and a number of similar provisions in other jurisdictions.
The immediate distinction which Mr Knaggs points to is that s.101 says the date on which the judgment takes effect whereas s.73 says from the time the judgment is entered or the order made.
The issue is the meaning of the District Court's order. Paragraph 3 states “These orders are stayed until 4 pm, Tuesday, 24 January 2006 should the defendant wish to restore the matter to the list on Wednesday, 25 January 2006.” When does that mean the judgment takes effect within the meaning of s.101(2)?
Paragraph 4 of the order states, “If no application to restore is made the orders will be deemed final.”
The date the orders are made is 20 January 2006. The interpretation of the order is that the defendant had the opportunity to apply to restore the matter to the list and then no doubt make further applications as a result of it being restored to the list, but if he did not make that application then the orders will be deemed final. The orders deemed final are made on 20 January 2006. They are:
1 Verdict and judgment for the plaintiff in the sum of $88,104.20;
2 The defendant to pay the plaintiff's costs of the proceedings;
The meaning of the order is that these two substantive paragraphs are deemed final as at the date they are made which is 20 January 2006.

I do not see any other possible interpretation. There can only be one date on which the judgment takes effect within the meaning of s.101(2) and that is 20 January 2006. That means that the calculation of interest in the bankruptcy notice is correct.
The application to review the registrar's decision is dismissed.
The applicant is ordered to pay the respondent’s costs fixed at $7,000.00.

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Phipps FM

Associate: Jan Smith

Date: 29 August 2006