Hussain v King Investment Solutions

[2006] FMCA 426

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HUSSAIN & ANOR v KING INVESTMENT SOLUTIONS [2006] FMCA 426

BANKRUPTCY – Application to set aside Bankruptcy Notice – where only notice of alleged misstatement of amount owed was given in application to set aside – where the application was not served within the time set out in FMCR 30.02 – where no extension of time for compliance was requested nor obtained.

Bankruptcy Act 1966, ss.41(5), (6)A
Federal Magistrates Court Rules 2001

Streimer v Tamas [1981] 54 FLR 253

First Applicant:	FAHMI MUSTAFA HUSSAIN
Second Applicant:	MERAJ ATHER HUSSAIN

Respondent: KING INVESTMENT SOLUTIONS PTY LTD (ACN 077 985 392)

File Number: SYG3660 of 2005

Judgment of: Raphael FM

Hearing date: 21 March 2006

Date of Last Submission: 21 March 2006

Delivered at: Sydney

Delivered on: 21 March 2006

REPRESENTATION

Solicitors for the Applicant: Douglas Knaggs

Counsel for the Respondent	Sarah Hill
Solicitors for the Respondent:	Bransgroves Solicitors

ORDERS

1. Application dismissed.

2. Applicant debtors pay the respondent creditor's costs to be taxed if not agreed in accordance with the Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG3660 of 2005

FAHMI MUSTAFA HUSSAIN

First Applicant

MERAJ ATHER HUSSAIN

Second Applicant

And

KING INVESTMENT SOLUTIONS PTY LTD
(ACN 077 985 392)

Respondent

REASONS FOR JUDGMENT

(as corrected)

1. This is an application to set aside a bankruptcy notice numbered NN 4161/05 issued against husband and wife debtors by a money lender who lent them the sum of $95,000 for a period of two months commencing on 17 December 2004.  The money lender took security by way of mortgage of real property owned by the borrowers and the loan was said to be at an interest rate of 60% per annum with a higher rate of 118.8% per annum compounded.  The debtors were intending to refinance the property with another institution.  They were not successful.  The lender commenced proceedings against the borrowers and obtained judgment in the Supreme Court of New South Wales in proceedings No 2411 of 2005.  The judgment was for the sum of $151,430.00 which was the principal sum plus interest due up to the date of judgment in accordance with the mortgage.  The date of judgment was 15 August 2005.

2. Thereafter, interest continued to run under the mortgage together with certain penalties.  The creditor, through its director, deposes in an affidavit filed on 31 January 2006 that:

   “On or about 2 September 2005 I had a telephone conversation with Fahmi Mustafa Hussain, one of the applicants and words to the following effect were said:

   Hussain:   If I paid you $20,000 before the eviction, would you stay the eviction?  Then after two weeks I will pay you more.

   King:  Yes, I will stay the eviction for two weeks.

   On or about 5 September 2005 Mr Hussain paid the respondent $20,000 and I instructed my solicitors to stay the eviction.”

3. The creditor claims that the money paid by Mr Hussain was taken towards interest, expenses and costs due under the mortgage independent of the judgment and therefore the bankruptcy notice issued for the full amount of the judgment debt.

4. It is common ground that the final day for payment under the bankruptcy notice was 13 December 2005.  On that day the solicitor for the debtors issued out of this court an application to set aside the bankruptcy notice.  The document states at paragraph A1:

   “The debtors hereby give notice that they dispute the validity of the [sic] on the grounds of overstatement in that bankruptcy notice claims $20,000 more than the amount of the judgment debt due and owing as at the date if issue of the notice [sic]; that amount $20,000 having been paid to the creditor on 5 September 2005.”

   Section 41(5) of the Bankruptcy Act 1966 (the “Act”) is in the following form:

“(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 a misstatement.”

1. It is generally accepted that there should be a separate notice given to the creditor concerning the overstatement and that the application to set aside the bankruptcy notice would state that this notice had been given.  Mr Knaggs argues that this is not necessary and that the notice given in the application to set aside the bankruptcy notice is sufficient in itself.  For the purposes of these proceedings only I am prepared to accept that argument but it would mean, to my mind, that the requirement of Federal Magistrates Court Rule 30.02 that the application and accompanying documents must be served on the respondent creditor within three days after the application is filed, become of almost mandatory importance.  Otherwise, the creditor would have no notice of the possible error in the bankruptcy notice.

2. In this case, the application to set aside the bankruptcy notice was not served within three days.  Although taken out on 13 December, it was not served until 9 January 2006.  Mr Knaggs says that this does not alter the fact that the notice was served "within the time allowed for payment".  He says this because he argues that the time for compliance with the bankruptcy notice is extended by virtue of the issue of the application to set the notice aside.  The difficulty which I have with this argument put by Mr Knaggs is that the provisions of s.41(6)A give the court the power to extend the time for compliance with the bankruptcy notice, but in this case no request for such extension appears to have been made nor given by the Registry, which would normally happen.  To that extent, it seems to me that the time for compliance with the bankruptcy notice expired, unless I was to exercise my discretion relying on Streimer v Tamas [1981] 54 FLR 253. I am not prepared to exercise any discretion that may be available to me in that regard as I consider that the failure to serve the application within the time limited by the Rules should not be excused in a case where no notice under s.41(5) is independently served.

3. Mr Knaggs has argued that the bankruptcy notice is invalid due to the inability of the applicant creditor to establish what a deduction of $2,000.00 has been made for.  He may well be right about this but that only restores the matter to the situation whereby an overstatement has been made and, for the reasons given, I am not prepared to allow that to be argued. 

4. I dismiss the application and I order that the applicant debtors pay the respondent creditor's costs to be taxed if not agreed in accordance with the Rules.

I certify that the preceding eight (8) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date: