Hussey, C.C. v Tsai Pty Ltd

[1989] FCA 301

Re: COLIN CHARLES HUSSEY
And: TSAI PTY LTD, VACLAV FRYS and MIROSLAVA FRYS
No. P607 of 1988
FED No. 301
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
BANKRUPTCY DIVISION
Sweeney J.(1)

CATCHWORDS

Bankruptcy - Bankruptcy Notice - validity where Court not specified and where date alteration not initialled - whether such omissions are misleading to debtor - whether stay of execution under an application to pay judgment debt by installments granted after service of bankruptcy notice, but before expiry of its period, invalidates a bankruptcy notice.

James v. Federal Commissioner of Taxation (1955) 93 CLR 631

Pillai v. Comptroller of Income Tax (1970) AC 1124

Re: Wong (1979) 27 ALR 405

Re: Kim Schekeloff, Ex Parte Kim Schekeloff (Applicant) v. The Hopkins Group Pty Limited & Anor (Respondents)

HEARING

MELBOURNE

#DATE 15:6:1989

Counsel for the Debtor: Mr T. Irlicht

Solicitors for the Debtor: Irlicht & Broberg

Counsel for the petitioning creditors: Mr N.C. Franzi

Solicitors for the petitioning creditors: Wisewould Schilling

ORDER

There be an order of sequestration against the estate of the debtor, the act of bankruptcy being the failure of the debtor to comply with the bankruptcy notice on or before 21 October 1988.

Costs, including reserved costs, to be in accordance with the statute.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

In this case the debtor has challenged the validity of the bankruptcy notice relied upon in support of the petition. He has drawn attention to the fact that, while the recital in the notice set out correctly the names of the parties to, and the date and amount of the final order, it described the order as obtained by the creditors "in the Court at Broadmeadows". The word "Magistrates" was omitted. This was said to produce the result that the notice was capable of misleading the debtor. As the High Court said in James v. Federal Commissioner of Taxation (1955) 93 CLR 631 at 644:

"The court cannot enquire whether the debtor has in fact been misled or not. In this case it is probable that he was not misled. It is sufficient that he could be misled".

1. In Pillai v. Comptroller of Income Tax (1970) AC 1124 at 1135, and Re: Wong (1979) 27 ALR 405 the test was stated in the form of the question:
   

Is the defect of a kind which could reasonably mislead the debtor?

1. In my opinion, the omission of the word "Magistrates" is not such as to lead to an affirmative answer to the question. The notice, having correctly recited that the creditors were relying upon a final order for the correct amount obtained by them against him upon the correct date in a court at Broadmeadows, could not reasonably have misled the debtor. He could not reasonably conclude that, by some strange coincidence, such an order could have been made in that amount, between those parties and on that day, in some other court in Broadmeadows. The present case is not merely one in which the debtor was probably not misled, but rather one in which he could not reasonably have been misled. This conclusion is strengthened by the fact that there is only one court which sits at Broadmeadows, which would be well known to the debtor, who is a solicitor.

2. The other feature of the bankruptcy notice relied upon by the debtor was that the final paragraph was in the following form.
   

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

Dated this 24th day of August 1988".

1. It was submitted that because the alteration of the date was not initialled by the Registrar, it was capable of misleading him into believing that the alteration was made by a third party without the authority of the Registrar and consequently the bankruptcy notice was rendered void. Bearing in mind that the Registry seal was impressed upon the same line as the date in the notice. I am of opinion that it sufficiently authenticated the handwritten date inserted in the notice, and that it was not reasonably capable of misleading the debtor.

2. The debtor also contended that at the date of the alleged commission of an act of bankruptcy there was no final order against the debtor within the meaning of s.40(1)(g) of the Bankruptcy Act 1966, being an order "the execution of which has not been stayed". This proposition was said to be established because on 12 October 1988, being 5 days after the service on him of the bankruptcy notice, the debtor lodged an application in the Magistrates Court at Broadmeadows for an order for payment by instalments. The debtor clearly had a sufficient understanding of the bankruptcy notice to enable him to lodge his application in the appropriate court.

3. Section 6(8) of the Judgment Debt Recovery Act 1984 (Vic) reads as follows:
   

"Where an application under sub-section (1) is made-

(a) the applicant shall serve a copy of the application on the judgment creditor or judgment debtor (as the case may be); and

(b) from the time of service the application shall operate as a stay of enforcement or execution of the judgment in respect of which the application is made until the proper officer of the court or the court (as the case requires) deals with the matter.".

1. The parties were unaware of any recent authority on the point so raised and after the conclusion of argument, judgment having been reserved, I directed their attention to the unreported judgment of Burchett J. delivered in Re: Kim Schekeloff, Ex Parte Kim Schekeloff (Applicant) v. The Hopkins Group Pty Limited & Anor (Respondents) in Sydney on 31 March 1989, and have since received their written submissions in relation to it.

2. In that case, his Honour decided that orders in the District Court of New South Wales for payment by instalments of judgments upon which bankruptcy notices were founded which were made after service of the notices did not afford good reason for setting the notices aside. Having reviewed the authorities in detail, his Honour held, at p 10, that "the bankruptcy notices in the present case are not liable to be set aside by reason of the orders for payment by instalments, and staying execution, which were not made until after service of the notices". Having had the advantage of reading his Honour's judgment, and finding myself in complete and respectful agreement with his conclusion and his reasons for it, by parity of reasoning I hold that the failure to comply with the bankruptcy notice in the present case gave rise to an act of bankruptcy.

3. There was otherwise no challenge to the petitioners' right to obtain an order of sequestration, which I am satisfied should be made, the act of bankruptcy being the failure of the debtor to comply with the bankruptcy notice on or before 21 October 1988. Costs, including reserved costs, will be in accordance with the statute.