IRANI v Hollyburton UK Ltd
[2005] FMCA 109
•3 March 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| IRANI V HOLLYBURTON UK LTD | [2005] FMCA 109 |
| BANKRUPTCY – Overstatement in a bankruptcy notice – amount due by debtor – power to extend time under s.41(5) – interest at `yearly’ rate apportioned for period in leap year assuming a year of 365 days – whether interest was excessive – bankruptcy notice set aside – Bankruptcy Act 1966 (Cth) ss 30(1); 41(5). |
Bankruptcy Act 1966 (Cth)
Walsh v Deputy Commissioner of Taxation (1984) 53 ALR 606
Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 58 ALR 185
Re Serafino; Ex parte Classic Manufacturing Pty Ltd (1989) 86 ALR 283
Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 279
Re Clubb, Ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123
R v Inhabitants of Roxley (1829) 5 Man & Ry KB 40
R v Inhabitants of Worminghall (1817) 6 M & S 350
Re Anthony John Whittet (Unreported, Federal Court, 12 July 1990)
Re Farrugia; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 1
Re McDonald; Ex parte Elder Smith Goldsbrough Mort Ltd (1978) 18 ALR 505
Re Prossimo; Ex parte De Marco (1952) 16 ABC 86
Re Murray (1959) 18 ABC 152
Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552
Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 5 FCR 84
| Applicant: | BOMAN IRANI |
| Respondent: | HOLLYBURTON UK LTD |
| File No: | MLG 1613 of 2004 |
| Delivered on: | 3 March 2005 |
| Delivered at: | Dandenong |
| Hearing date: | 7 February 2005 |
| Judgment of: | Hartnett FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Parncutt |
| Solicitors for the Applicant: | COMLAW |
| Counsel for the Respondent: | Mr Shied |
| Solicitors for the Respondent: | Erica Strugnell & Co |
ORDER
MADE 7 FEBRUARY 2005
The time for compliance with the Bankruptcy Notice VN1880 of 2004 served 23 November 2004 be extended to 4pm on 7 March 2005.
Reserve costs.
MADE 3 MARCH 2005
The application is upheld and the Bankruptcy Notice No. VN1880 of 2004 is set aside.
The Respondent pay the costs of the Applicant as agreed or in default of agreement taxed in accordance with the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1613 of 2004
| BOMAN IRANI |
Applicant
And
| HOLLYBURTON UK LTD |
Respondent
REASONS FOR JUDGMENT
Background
This is an application under ss 30(1) and 41 of the Bankruptcy Act 1966 (Cth) (the Act) to set aside Bankruptcy Notice No. VN1880 of 2004 dated 19 November 2004 and served by the respondent creditor upon the applicant debtor on 23 November 2004. The application is supported by affidavit which states that a notice under s.41(5) has been given to the creditor.
The date of compliance with the bankruptcy notice was 14 December 2004.
On 9 December 2004, within time for compliance, the applicant gave Notice pursuant to s.41(5) to the respondent alleging that the amount claimed by the creditor exceeded the amount in fact due and contesting the validity of the bankruptcy notice. The applicant submits that the interest claimed in the Bankruptcy Notice was incorrectly calculated.
On 13 December 2004 and within time for compliance the application to set aside the bankruptcy notice was filed. That day the matter proceeded before a Registrar who made orders extending the time for compliance with the bankruptcy notice to 4pm on the date of hearing being 7 February 2005.
The applicant submits that the respondent overstated the amount of the alleged debt by $123.57 in claiming interest in the sum of $87,026.97 when the applicant submits the interest correctly calculated is $86,903.40. The applicant submits that the total debt owing set out in the schedule to the Bankruptcy Notice is overstated in that it should be $516,443.06 and not $516, 616.62.
If a bankruptcy notice overstates the amount due by the debtor and the debtor gives timely notice (within the time specified for compliance) to the creditor of the overstatement then s.41(5) of the Act has the effect of rendering a bankruptcy notice invalid (Walsh v Deputy Commissioner of Taxation (1984) 53 ALR 606; Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 58 ALR 185; Re Serafino; Ex parte Classic Manufacturing Pty Ltd (1989) 86 ALR 283 at 285). An overstatement in itself is not enough to render the bankruptcy notice invalid; the debtor must act to resist the bankruptcy notice (Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 279). Subsection 41(5) states that:
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 the matter before me the applicant asserts that the bankruptcy notice overstates the amount owed by the debtor to the creditor by error of calculation by the creditor of the number of days on which interest could be claimed. The applicant’s s.41(5) notice states as follows:
Interest on the amount claimed was calculated by dividing the interest for a year by 365 and multiplying by the stated number of days, when in fact it should have been calculated by dividing the interest for a year by 366 days for the judgment year commencing 12 June 2003.
The applicant alleges that the overstatement is fatal to the notice.
The applicant further submits that the respondent failed to take into account the difference between a calendar year and a judgment year and did not take into account the fact that the judgment was given in a “judgment year” (the period of 12 months beginning with the day after the judgment) when a leap year of 366 days occurred.
The applicant further submits that where the judgment year comprises partly a 365-day year and party a 366-day year, then interest – or the annual interest rate – is calculated not on an annual rate of 365 days but 366 days. Consequently, failure by a creditor to take a leap year into account and calculate by a divisor of 366 days has the necessary effect of increasing the amount calculated thus resulting in an overstatement of a debt.
The judgment debt on which the bankruptcy notice is founded was made on 12 June 2003. The judgment year, commencing for a period of 12 months from 13 June 2003, ran through calendar years 2003 and 2004. There was no argument between the parties that the right to interest commenced on 13 June 2003 and it is on that basis these reasons proceed. The calendar year 2003 comprised 365 days. The calendar year 2004 comprised 366 days.
The applicant directed the Court to the decision in Re Clubb, Ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123 where Burchett J held [at 123]:
When a leap year occurred, a year must be understood to mean 366 days. The courts have declined to treat 365 days as a standard or conventional year when a leap year was involved. The method used by the bank in the present case produced in respect of a leap year a total charge for interest exceeding that which the Supreme Court Act 1970 (NSW) imposed. It also produced the curious anomaly, if applied to the portion of a leap year consisting of 365 days, that the interest for that portion of the leap year would be identical with the interest which could lawfully be exacted for the full leap year. For these reasons the bankruptcy notice was invalid and must be set aside (R v Inhabitants of Roxley (1829) 5 Man & Ry KB 40; R v Inhabitants of Worminghall (1817) 6 M & S 350, considered and applied).
The respondent, in opposition to the application claims the application is without merit and that the calculations made by the applicant have been incorrectly calculated for the calendar year ended 31 December 2003 on the basis of a 366 day year.
Consideration
In Re Anthony John Whittet (Unreported, Federal Court, 12 July 1990) Einfeld J stated [at 6]:
There is no doubt that the creditor must accurately claim interest: Re Farrugia; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 1 at 2. Nor is the debtor required to do his own calculations nor respond to a notice where it is not apparent on its face what he should pay: Re McDonald; Ex parte Elder Smith Goldsbrough Mort Ltd (1978) 18 ALR 505 at 507. The question here is whether this notice qualifies for those categorisations.
Interest on a judgment debt is calculated yearly from the date of the debt. Between 13 June 2003 and 12 June 2004 there were 366 days. Any calculation in that determined period should use a divisor of 366 in order to calculate a daily rate of interest.
The Re Prossimo line of authority (see Re Prossimo; Ex parte De Marco (1952) 16 ABC 86; Re Murray (1959) 18 ABC 152; Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552; Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 5 FCR 84) is the traditional line of authority in Australia on the effect of a s.41(5) Notice on a bankruptcy notice. These authorities take the strict view that if a notice is given under s.41(5) of the Act within the time allowed for compliance with a bankruptcy notice which overstates the amount owing to the creditor, the bankruptcy notice is fatally defective.
Further, an overstatement in a bankruptcy notice is not a matter which can be cured under s.306 of the Act.
Accordingly, the application must be upheld.
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Associate: Sophie Killen
Date: 3 March 2005
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