Jones v Verity
[2007] FMCA 1108
•12 July 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| JONES v VERITY | [2007] FMCA 1108 |
| BANKRUPTCY – Creditors Petition – whether defect in Bankruptcy Notice – failure to provide proper address of creditor – preliminary issue – whether error by failure to identify relevant legislation relied on for interest – reference to Penalty Interest Rates Act. |
| Bankruptcy Act 1966, ss.306, 306(1) Federal Magistrates Court Rules 2001, r.6.01(3) Penalty Interest Rates Act 1983, s.2 Magistrates' Court Act 1971, s.100(7) Supreme Court Act 1958 County Court Act 1958 |
| Nugent v Brialkim Pty Ltd & Anor (1985) 61 ALR 725 Boorowa Shire Council v Booth [2001] FMCA 31 Herchenroder & Anor v Smith [2003] FMCA 96 David Sarikay v Victorian WorkCover Authority [1997] FCA 1372 Adams v Lambert (2005) 225 ALR 396 Quitstar Pty Ltd v Cooline Pacific Pty Ltd (2002) 41 ACSR 491 Foot v Midwest Finance Pty Ltd (1997) 78 FCR 306 |
| Applicant Creditor: | JENNIFER IRENE JONES |
| Respondent Debtor: | ROBIN ARTHUR VERITY |
| File number: | MLG 1236 of 2006 |
| Judgment of: | McInnis FM |
| Hearing date: | 4 May 2007 |
| Delivered at: | Melbourne |
| Delivered on: | 12 July 2007 |
REPRESENTATION
| Counsel for the Applicant Creditor: | Mr J. Geale |
| Solicitors for the Applicant Creditor: | Keith Elliott |
| Counsel for the Respondent Debtor: | Mr J. Dunne |
| Solicitors for the Respondent Debtor: | Dibbs Abbott Stillman |
ORDERS
The Creditor's Petition be dismissed.
Costs reserved.
Liberty to apply is granted to the parties in relation to the issue of costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1236 of 2006
| JENNIFER IRENE JONES |
Applicant Creditor
And
| ROBIN ARTHUR VERITY |
Respondent Debtor
REASONS FOR JUDGMENT
In these proceedings, Jennifer Irene Jones (the Applicant Creditor), by a creditor's petition filed 2 October 2006, seeks a sequestration order against Robin Arthur Verity (the Respondent Debtor).
The Applicant Creditor relies upon a bankruptcy notice, number VN1511 of 2006, which was issued on 15 August 2006 (the notice).
The Respondent Debtor has sought to raise as a preliminary issue, in opposition to the creditor's petition, namely a claim that the notice is defective and that it is fundamentally flawed as a result of not disclosing a proper address for the creditor in any part of the notice. Further, it is sought to be argued that the notice is invalid on the ground that the schedule of interest and interest calculation does not comply with the bankruptcy rules on the ground that there is no specification as to the source of the interest claimed.
At the commencement of the proceedings the court determined that it was appropriate to resolve the preliminary issues concerning the validity of the notice relied upon by the Applicant Creditor in this petition. It is evident that there are now two issues which I shall refer to as follows:
·The creditor's address
·Statement of interest
It should also be noted that in the event that the court determines on the preliminary issue that the notice is valid, then the parties will be given an opportunity to be further heard in relation to any other issues arising out of the petition including, amongst other matters, the question of the Respondent Debtor's solvency.
The Creditor's Address
To understand the submissions made in relation to this preliminary issue, it is relevant to note that in the notice on page 1 paragraph 1 the following appears:
“1. JENNIFER IRENE JONES
("the creditor")
of: C/- Keith A. Elliot, Legal Practitioner, 17 Adrian Avenue, Vermont South, 3133.”
On page 2 of the notice the following relevantly appears:
“4. Payment of the debt can be made to:
KEITH A. ELLIOT, LEGAL PRACTITIONER
Of:P O BOX 6113
VERMONT SOUTH, 3133”
At page 7 of the notice the following appears:
“The person who applied for this notice to be issued is:
Keith Alexander Elliott
Legal practitioner
who confirms by the following signature that he or she is the
creditor/the creditor's authorised agent:(signature)
and whose address for service is:
P O Box 6113
VERMONT SOUTH
3133
Telephone and fax numbers (03) 9887 8136
(including STD code): (03) 9887 8436”
A number of observations can be made in relation to the notice and the addresses provided. The first observation is that Jennifer Irene Jones is referred to as "the creditor". The address of the creditor is an address which clearly indicates "c/-" and the solicitor's name and address is provided. There is no issue taken as to whether a creditor is entitled to provide an address care of a solicitor.
It is also noted, however, that the notice specifically provides that payment of the debt can be made to the same named practitioner, though instead of the street address, namely, "17 Adrian Avenue", the author of the notice has inserted "PO BOX 6113." It is then evident that at page 7 of the notice as set out, the full name of the legal practitioner is included, namely, "Keith Alexander Elliot", and the address for service again repeats the address, "PO Box 6113, Vermont South, 3133."
It is common ground therefore that the street address provided for the creditor appears to be care of her solicitor at "17 Adrian Avenue, Vermont South, 3133," and that this appears in the details provided in relation to the creditor at page 1 paragraph 1 of the notice. Elsewhere it is not disputed that instructions are given for payment of the debt to the legal practitioner, though by reference to a post office box address.
Respondent Debtor’s Submissions
The respondent debtor submitted that the notice is "fundamentally flawed as a result of not disclosing a proper address for the creditor in any part of the notice".
The observations the court has made in relation to the notice are relied upon by the respondent debtor. It is further noted that the address which appears on the general form of order from the State Magistrates Court at Ringwood appears to be again a post office box address for the Applicant Creditor's solicitors. The Applicant Creditor was the plaintiff in the Magistrates Court proceedings and there is no dispute that the Respondent Debtor was the defendant in those proceedings.
It is submitted on behalf of the Respondent Debtor that there is established authority that the notice must contain an address of the creditor "at which, during the currency of the notice, the creditor can be paid or where an agreement can be made with him or on his behalf to secure or compound the debt". Reference was made to the decision of the Full Court of the Federal Court in Nugent v Brialkim Pty Ltd & Anor (1985) 61 ALR 725 (Nugent) where the court relevantly states at p.726 the following:
“Judgments of long standing have held in relation to comparable provisions in the bankruptcy legislation of England and the Australian Bankruptcy Act 1924 that a judgment creditor must give an address or addresses where he, or, if more than one, they, or one of them, or some agent authorized on his or their behalf, may be found: see Re Beauchamp Ex parte Beauchamp [1904] 1 KB 572 and James v FC of T (1955) 93 CLR 631 at 639. The question before this court must be considered in the light of the following passage from James’ case (at p 639): “It is the duty of a debtor to seek out the judgment creditor and pay the judgment debt to the creditor if he is in Australia. The debtor has the correlative right to pay the creditor wherever he can find him so that a debtor could be seriously prejudiced if he was led to believe that he was bound to pay the creditor at one particular place.”
…
It is not sufficient that a creditor merely give an address where he is known. It must be an address at which he can be paid or where an agreement may be made with him or on his behalf to secure or compound it. If the creditor gives his home as his address he is not bound to remain there all day and night during the currency of the notice. Obviously that would be absurd. Similarly, if he gives his business address he is not bound to remain there always, or even throughout the whole of normal business hours (whatever that expression may mean these days) during the currency of the notice.
…
In my opinion, the address stated must be one at which the debtor may, during the currency of the notice, make payment of the amount claimed in the notice, or one where he may make arrangements to secure or compound the debt. It may be that in certain circumstances, although he may make arrangements to secure or compound by calling at the address stated in the notice, he will do so by speaking to persons who are themselves not physically at that address, but are, for example, available on the telephone. The examples of the possibilities are manifold and need no elaboration.
The test must satisfy the demands of common sense in the highly ordered and busy world in which we live, tempered by a consideration of the implications of a bankruptcy notice and the serious consequences that can flow from non-compliance with its requirements. I respectfully agree with the primary judge that the basic principle is that the address given should be one at which during the relevant period it is reasonably practicable for the debtor to make payment or to offer to secure or compound.”
Reference was made to decisions of Raphael FM in Boorowa Shire Council v Booth [2001] FMCA 31 (Boorowa Shire) and Herchenroder & Anor v Smith [2003] FMCA 96 (Herchenroder). It was submitted by counsel for the Respondent Debtor that the facts in each of the Federal Magistrates Court cases are "slightly different but similar" to the present case.
In Boorowa Shire it was noted that the facts in that case were that the bankruptcy notice provided the street address of the council. It was noted that in Boorowa, paragraph 4 of the bankruptcy notice provided a "PO Box address." The address for service which appears at page 5 of the notice in that case provided a street address for service which was the address for the council. The argument in that matter appears to be that the inclusion of only the "PO Box" as the address for payment in paragraph 4 was claimed to vitiate the notice.
Reference was made to paragraph 9 of the Court's decision in Boorowa Shire where the court states relevantly as follows:
“9.In this case I am not satisfied that the address quoted is not an address at which the creditor can be found. The debtor gave evidence that he was aware that the Council offices were in Market Street Boorowa, he had been there. He also gave evidence that the post office was in Marsden Street Boorowa and he had been there as well. If the notice had given as the address for payment the post office box at the post office, then I would have been inclined to follow the decision of Black CJ in Sarikay. But to my mind what occurred here was not the inclusion of an incorrect address, but the inclusion of a totally otiose reference to a post office box in what was otherwise a correct and well known address. If the debtor had on the last minute of the last day wished to comply with the terms of the bankruptcy notice he would have taken himself to Boorowa Council at Market Street Boorowa, the same place given as the address of the creditor in paragraph 1 and the address for service of the person who issued the notice, Mr Philpott, on page 5. Having decided that the address was not incorrect I must also decide whether or not the inclusion of the P O Box number was likely to mislead, confuse or perplex a debtor. I do not think it would.”
Reference was made then to the decision of Raphael FM in Herchenroder where His Honour in that case dealt with circumstances where the address on page 1 of the bankruptcy notice provided a solicitor's address as being "PO Box 13, Lismore, 2480" and the creditor's address as "265 Mount Samson, Yugar, QLD" in paragraph 1 of the bankruptcy notice. On page 7 of the notice in that case, an address was given of a solicitor and that address was "35 Woodlark Street, Lismore, NSW."
The following extract from His Honour's decision in Herchenroder was referred to:
“9.The question of the appropriate address is also discussed by Foster J in Foot v Midwest Finance Pty Limited (1997) 78 FCR 306 at 307 where His Honour said:
“Clearly, the underlying rationale of these cases is that the bankruptcy notice must make clear to the debtor what he or she must do to comply with its requirements. It must avoid the consequences of committing an act of bankruptcy. If he or she is left uncertain in this regard then the notice is rendered invalid and non-compliance with it does not have that serious result.”
I would have had no difficulty in agreeing with Mr Smark that the notice was invalid if Mr Bigelow's address for service given on page 7 of the notice had been in the same form as the address noted in paragraph 4 or, for example, if he had added his DX number and had not set out the actual street address. But I am of the view that the applicant in this case was unlikely to have been misled in any way by paragraph 4 and that the failure to provide a street address in that paragraph is a matter of form which can be rectified pursuant to s.306(1) of the Bankruptcy Act.”
It was submitted on behalf of the Respondent Debtor that the facts situation in the present case is "identical with that posited by His Honour" in Herchenroder "in that the facts in this case are precisely as that suggested by His Honour; namely, that the PO Box address of the solicitor is the address for service on page 7 of the notice, which is exactly the same address as in paragraph 4 and, further, which is exactly the same address noted on the certificate of judgment; namely, PO Box 6113, Vermont South, 3133".
It was argued by the Respondent Debtor that the purpose of a bankruptcy notice is to "tell the debtor how much he is to pay, where he is to pay it and why he is paying it". No doubt was raised as to the identity of the creditor but it was submitted that notice "has a manifest deficiency in that it doesn't, in the place where payment can be made, give a place where it can be paid".
A post office box, it was submitted, cannot be "a place where payment can be made" and reliance was placed upon the earlier authorities including Nugent's case.
It was noted that in Boorowa Shire the notice had in fact referred to both a PO Box and street address for the council in paragraph 4. Further, the address for service at page 5 of the notice in that case provided a street address for the council. The reference by His Honour Raphael FM in paragraph 9 of the decision in Boorowa Shire to the decision of Black CJ in Sarikay is a reference to David Sarikay v Victorian WorkCover Authority [1997] FCA 1372. It was submitted by the Respondent Debtor's counsel that the decision of the Federal Court referred to service on a PO Box not constituting an address for service pursuant to the Federal Court Rules. In the present case it was submitted that the notice only provides a PO Box and there is no street address at all set out in paragraph 4 of the notice.
Relying upon the decision of Raphael FM in Herchenroder, it was submitted that the circumstances in the present case, as indicated earlier, are similar to the circumstances referred to by His Honour whereby he would have had no difficulty agreeing with a submission that the notice was invalid if the creditor's address for service at page 7 had been in the same form as the address in paragraph 4 "or, for example, if he had added the DX number and not set out the actual street address". In the present case it was submitted that the notice in fact provides in paragraph 4 a "PO Box" address and does the same thing in relation to the "address for service". Hence, it was argued that the facts of the present case, though not identical with the facts confronting the Court in Herchenroder, are identical to the scenario referred to by the Court in that case and that hence the notice in the present case is invalid.
It was argued that although there is an address for service and the address provided is the solicitor for the Applicant Creditor and that the Applicant Creditor's address is care of the solicitor, that information itself does not overcome the problem with the validity of the notice. It was submitted that the address for service provided is in fact a "PO Box" address and this therefore offends the principles set out in the decisions referred to earlier. It was argued that it is no answer to simply state that the debtor would have known the name of the solicitor and could have attended the solicitor's office and paid the debt or made other arrangements.
Reference was made to the High Court decision in Adams v Lambert (2005) 225 ALR 396. It was submitted in the present case that the address is a fundamental requirement of the notice and the address must be a place, as opposed to a PO Box address, where payment can be made. The fact that the debtor may have made payments by way of compliance with instalment orders by sending payments to the PO Box address, it was submitted, is "not the test that applies in requiring an address, where theoretically it can be compromised, it can be satisfied, or payment can be tendered". It was argued that that is a fatal flaw on its own without any further issues to be relied upon.
Applicant Creditor's Submissions
It was submitted on behalf of the Applicant Creditor that the notice is not defective by reason of the inclusion of a PO Box address within the notice. It was argued the notice also includes a street address at which the Applicant Creditor could have been paid or arrangements could have been made with the Applicant Creditor to secure or compound the debt. In the alternative it was argued that if the inclusion of the PO Box resulted in the notice being defective (which is denied), then the defect is a matter of form which could be rectified by s.306(1) of the Bankruptcy Act 1966 (the Bankruptcy Act).
Counsel for the Applicant Creditor stated that there is "no dispute between the parties as to whether or not the bankruptcy notice needs to include a street address at which, during the currency of the notice, the applicant could have been paid or an agreement could have been made with it or on its behalf so as to secure or compound the debt". The notice, it was submitted, would be defective if there was no street address on it at all. It was further conceded that there is authority for the proposition conceded but the specific authorities relied upon by the respondent debtor do not include circumstances similar to the present case where there are two addresses; namely, a PO Box address and a street address. It is argued that the address of the solicitor at which the debt could be paid or an agreement could have been reached in respect of the debt was provided as the address of the creditor at page 1 of the notice.
The reference to the PO Box addresses in paragraph 4 on page 2 of the notice and as the address for service, it was argued, does not invalidate the notice. If, in the alternative as indicated, the notice is defective, then the defect is not of a type which could not be remedied by s.306(1) of the Bankruptcy Act.
It was noted that the facts in BoorowaShire reveal that there were three different addresses in that case; one included a partial street address and there was an absence of a street number. It was argued that in the present case the conclusion of the court in Boorowa Shire applies to the extent that the debtor would not have been misled, confused or perplexed by the addresses provided. In the present case, it was argued, one street address is provided and, if the debtor wished to make arrangements in relation to the debt, then he could make use of that address. It was submitted and not challenged that the debtor had in the past been capable of making instalment payments in respect of the debt and had made those payments to the creditor's solicitors. At one point it was submitted that those payments were made at the PO Box address, though it is not clear that that assertion is supported by the evidence.
As I understood the submissions for the Applicant Creditor, it was agreed that essentially the argument to be advanced on behalf of the Applicant Creditor is that the evidence of instalment payments being made at the street address of the solicitor would support the proposition that there is no confusion in the mind of the debtor that payments could still be made to that address or arrangements made in order to satisfy the requirements of the notice.
The only change that occurred, it was submitted, is that instead of the street address there appears a PO Box address. The identity of the solicitor remained constant.
During the course of submissions, counsel for the Applicant Creditor also referred to the decision of Raphael FM in Herchenroder. It was noted that in that case, despite the inclusion of two different street addresses and one PO Box address, the court concluded that the debtor was unlikely to be misled in any way by the address in paragraph 4 of the bankruptcy notice in that case and that the failure to provide the address could be rectified pursuant to s.306(1) of the Bankruptcy Act.
To the extent that it might be relevant, counsel for the Applicant Creditor appeared to rely upon Rule 6.01(3) of the Federal Magistrates Court Rules 2001 which relevantly provides as follows:
“(3) An address for service:
(a) must be an address in Australia; and
(b) must include a telephone number at which the party may be contacted during normal business hours; and
(c) may include a facsimile number (if any) for the party.”
As I understood the submissions made by counsel for the Applicant Creditor, it was argued that although a "PO Box is not normally acceptable, the Court Rules provide for service on a party by a facsimile transmission". In the alternative it was noted that a party, pursuant to the Federal Magistrates Court Rules, may request another party to serve him or her in a particular way outside those allowed for by the Rules.
It is submitted that the inclusion of a PO Box address in the present case together with a facsimile number could properly be regarded as the valid address for service in compliance with the Court Rules. Alternatively, it is argued, the Applicant Creditor would have been estopped from denying that service on the stated PO Box address was not valid and the inclusion of a PO Box address could not be claimed to be something misleading, and again, as submitted earlier, if a defect, it is one capable of correction by s.306(1) of the Bankruptcy Act.
It is argued that an analogy can be drawn between the bankruptcy notice and a statutory demand and in the present case no substantial injustice has been occasioned by the error in the address (see Quitstar Pty Ltd v Cooline Pacific Pty Ltd (2002) 41 ACSR 491 at [17] (Quitstar)). In the Quitstar case it was noted that the court held that although a PO Box address had been given as an address for service, that did not cause the company debtor in that instance to be unable to pursue appropriate avenues to challenge the notice where it appears that copies of objection had been served.
Reasoning
In this matter I am not persuaded that the reliance by the Applicant Creditor, by way of analogy, upon the Court Rules which may or may not have relevance in circumstances similar to those of the decision of the Court in Quitstar, apply to a bankruptcy notice. The obligations upon a debtor to a bankruptcy notice are different to providing objections to an application in a corporations matter arising from a statutory demand. In my view the Court Rules should not be permitted to be used in order to assist creditors in meeting requirements pursuant to the Bankruptcy Act or Regulations when arranging for bankruptcy notices to be issued.
In the present case it is clear in my view that at all times the Respondent Debtor was aware that Keith Elliot was the legal practitioner acting for and on behalf of the Applicant Creditor. The notice also clearly stated that the Applicant Creditor gave, appropriately, as her address the address of that legal practitioner. That address is clearly a street address at which payments of instalments of the same debt had been made by the Respondent Debtor.
Accordingly, I find that at all material times the address of the legal practitioner, being the address given for the Applicant Creditor, would be an address known to the Respondent Debtor at which payment could be made of the amount claimed in the bankruptcy notice or at which arrangements could otherwise be made so as to secure or compound the debt.
In the light of those findings, it is clear to me that the impermissible reference to a PO Box address in paragraph 4 of the notice does not of itself render the notice invalid. I note that His Honour Raphael FM in Herchenroder refers appropriately to the decision of Foster J in Foot v Midwest Finance Pty Ltd (1997) 78 FCR 306 which in my view is equally applicable as a matter of principle to the present case. I accept the underlying rationale of these matters is that the notice must make clear to the Respondent Debtor what he or she "must do to comply with its requirements". I further accept that the notice in the present case must avoid the consequence of the Respondent Debtor committing an act of bankruptcy. In the present case, given my findings, I am not satisfied that the Respondent Debtor, confronted with a consistent reference to the known legal practitioner of the Respondent Debtor with both a post office box and street address provided, would have been left in any uncertainty in relation to the opportunity to comply with the bankruptcy notice.
In the event that I am incorrect in my assessment of the validity of the bankruptcy notice in relation to the issue of address, I am otherwise satisfied that in the present case, having regard to my findings, this in any event is not a matter which could not be rectified pursuant to s.306(1) of the Bankruptcy Act. In the present case there has been a failure to provide a street address in one part of the notice but the identity and street address of the same legal practitioner appears throughout. In addition, there is evidence that instalments were made to that address by the Respondent Debtor. Hence, confined to the circumstances and facts to this case, I am satisfied that the omission of the street address in paragraph 4 in this instance is properly to be regarded as a defect of the kind contemplated by the High Court in Adams v Lambert and one which can be subject to what I would regard as an appropriate correction pursuant to s.306 of the Bankruptcy Act.
Each case may give rise to different errors and it may well be that where the identity of the current legal practitioner and street address is not provided, then a different outcome would be achieved and the notice rendered invalid. However, for the reasons given, I am not satisfied in the present case that on this ground it is appropriate to declare to the bankruptcy notice invalid. Accordingly, the Respondent Debtor has failed to persuade me that I should determine that the bankruptcy notice is invalid by reason of the omission of a street address from paragraph 4 of the notice. As indicated, in the alternative I accept, as submitted by the Applicant Creditor, that in any event, having regard to the circumstances of this particular case, the defect is a matter of form capable of rectification pursuant to s.306(1) of the Bankruptcy Act.
Statement of Interest
In the schedule to the notice the following appears:
“Schedule
Column 1
Column 2
1. Amount of judgment or orders
$35,195.78
plus 2. Legal costs if ordered to be paid and a
specific amount was not included in the
judgments or orders (see Note 1, below)
$ 7,081.21
plus 3. If claimed in this Bankruptcy Notice,
interest accrued since the date of
judgments or orders (see Note 2, below)$ 827.34
4. Subtotal
$43,104.33
Less 5. Payments made and/or credits allowed since date of judgments or orders
6. Total debt owing
$43,104.33
It will be noted from the schedule that in relation to interest it is stated, "If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2 below)."
Note 2 provides as follows:
“Note 2: Interest accrued (item 3 of the Schedule)
If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice. The document must state:
(a) the provision under which the interest is being claimed; and
(b) the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.
(NB. If different rates are claimed for different periods, full details must be shown)”
In the notice the following page with the heading “INTEREST CALCULATIONS” appears:
“INTEREST CALCULATIONS
Date of Judgment: 28 February, 2006.
Amount of Judgment: $35,195.78
Date of Payment of Judgment Debt: 28 May, 2006.
Penalty Interest Rate under Section 2.
Penalty Interest Rate Act 1983: 11%
Period: 29 May 2006 to 14 August 2006:
78 days
Interest Payable: $827.34”
It is also noted that in the "GENERAL FORM OF ORDER" annexed to the notice, the following words appear as order 1:
“1. That there be Judgment for the Plaintiff against the Defendant in the sum of $35,195.78 together with costs as agreed between the parties at Scale E in a total sum of $7.081.21 with no Order as to interest.”
It should also be noted that the order made by the State Magistrates Court states:
“Date made: 20 February 2006.”
It will be observed that, allowing for the stay of three months for execution of the judgment and costs, it would appear that the date of judgment referred to in the "interest calculations" of "28 February 2006" is incorrect and that the three-month allowance leading to date of payment of judgment debt, namely, 28 May 2006, is also incorrect. Those dates should be "20 February 2006" and "21 May 2006" respectively. Likewise, the period of calculation of interest should be "22 May 2006 to 14 August 2006" in lieu of "29 May 2006 to 14 August 2006." This would alter the number of days and interest payable. As I understand it, no issue is taken about the incorrect reference to dates.
It is relevant, however, to refer to the Penalty Interest Rates Act 1983 (Vic) (Penalty Interest Rates Act) which is relevantly claimed to be:
“An Act to amend the Supreme Court Act 1958, the County Court Act 1958, the Property Law Act 1958, the Transfer of Land Act 1958 and the Magistrates’ Courts Act 1971 with respect to the Payment of Interest on certain unpaid Moneys, to make Provision for Rates of Interest payable under certain Instruments and for Purposes connected therewith."
Section 2 of the Penalty Interest Rates Act relevantly provides:
“2(1)The penalty interest rate is the interest rate expressed as a percentage fixed by the Attorney-General from time to time by notice published in the Government Gazette.
(2) The Attorney-General must determine the penalty interest rate to be fixed by-
(a)obtaining from time to time a recommendation from the Treasurer as to an appropriate institutional rate of interest, which must be a rate-
(i) which is charged for loans or paid for borrowings by a public or commercial institution; and
(ii) which, in the opinion of the Treasurer, reflects prevailing commercial rates of interest; and
(b)determining, after consultation with the Treasurer, whether the recommended institutional rate should be adjusted to include a penalty element, and, if so, the nature and size of the adjustment; and
(c)adding or subtracting the adjustment (if any) to or from the institutional rate.
(3) If there is any change to the percentage of the institutional rate, the Attorney-General may fix a new penalty interest rate to take account of the change and may do this without complying with sub-section (2).”
It may be noted in passing that the correct title of the Act is "Penalty Interest Rates Act" and not "Penalty Interest Rate Act”, which appears in the notice. Again it appears no issue is taken in relation to the misdescription of the Act.
It is also noted in passing that a document attached to the bankruptcy notice from the State Magistrates Court appears to be a printout of the judgment details and refers to an order being made on "28/02/2006" and the amount of the order being "claim $35,195.78 and interest $0, cost $7081.21, stay 3 MONTHS".
Respondent Debtor's Submissions
It is submitted on behalf of the Respondent Debtor that the bankruptcy notice is invalid as the schedule of interest and interest calculations do not comply with the Rules in that "there is no specification whatsoever made as to the source of the interest entitlement".
Reference was made to the High Court decision of Adams v Lambert. In that case it is noted that the interest calculation was claimed to be correct but the statutory entitlement to interest was misdescribed in that the "wrong provision of the District Court Act was referred to". It was submitted that in the present case there is no reference at all to any entitlement.
The relevant extracts from the decision of the High Court in Adams v Lambert appear to be the following:
“[30] The misdescription of the relevant section of the District Court Act was not capable of misleading the respondent as to what he had to do to comply with the notice. This is not a matter of dispute. The question is whether the misdescription involved a failure to meet a requirement made essential by the Act. On the true construction of the Act, is it essential that there be no misdescription of the relevant section? Is it the purpose of the legislation that any slip, such as giving a reference to the statutory provision governing pre-judgment interest when what is intended is a reference to the provision governing post-judgment interest, should invalidate the notice? Is this so no matter how clear it might be from other parts of the notice that the claim is for post-judgment interest?
[31] Section 306, in its application to bankruptcy notices, makes it plain that some instances of non-compliance with the requirements as to the form of a notice will not invalidate the notice. The practical significance of an error or deficiency could vary according to the circumstances of each particular case. Errors or deficiencies in compliance with requirements as to form may involve questions of degree as well as of kind. At the same time, the decision in Kleinwort Benson shows that an error may be covered by s 306 even though it involves a substantial misstatement of an amount of money. It was essential that the bankruptcy notice state the amount claimed. Was it essential that the amount be correct? Section 41(5) made it clear that an overstatement, even a large overstatement, would not necessarily invalidate the notice. This court concluded that it was not the legislative purpose that a substantial understatement should necessarily invalidate the notice. That is to say, accurately stating the amount of interest owing was not a matter of such importance that error necessarily resulted in invalidity. In the present case, overstatement or understatement of the amount of post-judgment interest owing would not necessarily have invalidated the notice. That is part of the context in which legislative purpose is to be considered in deciding whether the reference to s 83A rather than s 85 was fatal.
[32] In Lewis,25 Gyles J accurately identified the question as whether correct completion of the form prescribed by the regulations in every respect is a requirement made essential by the Act. Bearing in mind that, in the present case, the error could not have misled the respondent as to what it was necessary to do in order to comply with the requirements of the notice, it is difficult to understand how, consistently with Kleinwort Benson, the respondent could succeed without an affirmative answer to that question. In their dissenting reasons in Lewis, Lee J and Gyles J both gave a detailed account of the 1996 amendments to the Act and Regulations. It is unnecessary to repeat what they said in that respect. Lee J concluded:26
[93] Properly construed, the Act and Regulations do not express an intention to create a new regime of strict compliance imposed on a judgment creditor issuing a bankruptcy notice. The tenor of the Act and Regulations is not consistent with that conclusion. An attempt has been made to recast the process of issue of a bankruptcy notice in terms more understandable to a judgment debtor, but the essential requirements of a bankruptcy notice remain as they have been stated by bankruptcy legislation over many years.
[33] Lee J also said:27
It cannot be correct that amendments to the Act that left undisturbed s 41(5) and (6) which state that a notice that demands payment of a sum that is unjustified or excessive is only invalid if a debtor gives notice within a prescribed period, introduced a new regime in respect of bankruptcy notices under which a judgment debtor could have such a notice set aside where the amount claimed is due in fact and there is no prospect that the debtor could be misled as to the steps to be taken to comply with the notice. The amending Act could not have contemplated that a mistaken citation of the source of entitlement to claim interest would be a substantive defect or irregularity in the notice so as to exclude the operation of s 306 of the Act.
[34] That view of the legislative purpose is persuasive. The effect of the majority view in Lewis is to attribute to the legislature an overwhelming preference for form over substance. That should not be done. Given that s 306 relieves against the invalidating consequences of some mistakes in the preparation of bankruptcy notices, the mistake that was made in this case falls within its terms.”
Counsel for the Respondent Debtor submitted that the present facts are distinguishable from those in Adams v Lambert as in the present case there is no reference to any entitlement "whatsoever".
Reference was made to the following paragraph from the High Court decision in Adams v Lambert:
“[5]The scope for error in a bankruptcy notice is as wide as the scope of the contents of such a notice. The cases provide examples of many different kinds and degrees of error. As Gyles J and the Full Court pointed out, there is no material difference between the error in the bankruptcy notice in this case and the error in the bankruptcy notice in Lewis. It seems to be a not uncommon mistake. An apparent source of confusion is the difference between pre-judgment interest and post-judgment interest. There is nothing to be gained by reviewing all the decisions in the Federal Court in recent years concerning different errors in bankruptcy notices. The error in this case is a convenient focus for an examination of the effect of s 306 of the Act. Because the error in the notice in this case is not materially different from the error in the notice in Lewis, success of the present appeal necessarily involves a conclusion that Lewis was wrongly decided. That may mean that a number of other decisions that followed Lewis and applied its reasoning to somewhat different errors were also incorrect, but those decisions are not directly under review.”
It was further argued that the present case is distinguishable from the facts and circumstances referred to in Adams v Lambert in the matter of Lewis. In the Lewis case it was argued there was an incorrect reference to the entitlement to interest, whereas in the present case there is simply no reference to the entitlement.
It is submitted that the reference to the Penalty Interest Rates Act 1983 and the rate of 11 per cent appears to be calculated on a 78-day period and applies to the amount of the judgment, namely, $35,195.78, and apparently not to the cost component. It was also noted that reference in the bankruptcy notice to the "date of payment of judgment debt" presumably is meant to refer to "date when payment was due of judgment debt". There appears to be no dispute that the interest rate of 11 per cent would appear to be the relevant penalty interest rate pursuant to s.2 of the Penalty Interest Rates Act.
That legislation, however, it was argued, does not provide a basis upon which the Applicant Creditor can claim an entitlement to interest. There was no specific reference made to the Magistrates' Court Act 1971 and in particular s.100(7) of that Act. An entitlement to interest, it was argued, does not arise from s.2 of the Penalty Interest Rates Act. It is common ground that that Act only provides for the rate of interest. It was submitted by counsel for the Respondent Debtor that it does not deal with any entitlement.
Relying upon the decision of the High Court in Adams v Lambert, it was submitted that the defect in this instance cannot be cured by s.306 of the Bankruptcy Act. However, in this case it was argued it is not simply a reference to the wrong section of the right Act but rather a failure to refer to the correct Act at all.
In the present case it was submitted that it is not "a question of misdescription". It was further argued it is "not a question of whether it's post-judgment or pre-judgment" but rather "there just simply isn't any entitlement".
Applicant Creditor's Submissions
It was submitted on behalf of the Applicant Creditor that item 3 of the schedule, which appears at page 5 of the notice set out earlier in this judgment, makes it clear "that the interest claimed in the bankruptcy notice is post-judgment interest"; so too, it was argued, does the interest calculation attached to the judgment. Reference was made to the phrase "interest accrued since the date of judgments" appearing in item 3 to the schedule. It was argued that apart from a reference to the incorrect act under which the entitlement to interest arises, the calculation was otherwise correct and that accordingly the circumstances in the present case are "analogous to the facts in Adams v Lambert ... and the Australian Steel Company".
In the present case, as with Adams v Lambert, there has been a mistaken citation of the source of entitlement to claim interest. Accordingly, it was argued, there is no difference between a mistaken reference to an entitlement to pre-judgment interests, which was the case in Adams v Lambert, and "a mistaken reference to the Act by which the rate of interest is determined". It was argued that neither are correct citations but nor in either case would they be likely to mislead the Respondent Debtor as to what is necessary to comply with the bankruptcy notice.
It was noted that in Adams v Lambert the Court considered whether misdescription of the statutory provision under which interest is claimed was a defect capable of resolution under s.306(1) of the Bankruptcy Act. The court in Adams v Lambert cited with approval the decision of Lee J in Lewis as set out earlier in this judgment (see paragraph [57]).
As I understand the Applicant Creditor's submissions, it was conceded that the period of time over which interest was calculated may be incorrect, leading to a slight error in the total amount of interest claimed. There did not seem to be any dispute that reference to the Penalty Interest Rates Act was an incorrect reference and/or misdescription of the Act giving rise to an entitlement to interest. Nevertheless, it was argued that reference to the Penalty Interest Rates Act was a reference to the entitlement to interest even though in reality that Act refers to the rate at which the amount of interest is determined. However, it was noted that there is no requirement on a creditor to state the Act under which the rate is determined but rather a requirement to state the entitlement to interest. Reference was made to ‘Note 2’ under the schedule on the notice where the requirement is for the document to state "the provision under which the interest is being claimed".
It was argued that the reference to the Penalty Interest Rates Act was intended to be a reference to the entitlement and, albeit incorrect and perhaps a misdescription of the entitlement, it is a misdescription of a kind capable of being rectified by s.306(1), applying the principles set out in Adams v Lambert. It was submitted that it is not appropriate to limit the operation of the decision in Adams v Lambert and reference was made to paragraph 5 of the Court's decision in that case where the court states relevantly:
“… There is nothing to be gained by reviewing all the decisions in the Federal Court in recent years concerning different errors in bankruptcy notices. The error in this case is a convenient focus for an examination of the effect of s 306 of the Act. …”
It was noted that the High Court approved and found persuasive the statement of Lee J set out earlier and further noted that in the case of Lewis there had been an incorrect statement of the Act and section. It was argued that that is no different to the present case where there is still a mistaken citation as to the entitlement to claim interest and this is not an error which is likely to mislead the debtor.
Specifically, it was submitted:
“The debtor is no better off by going to a mistaken citation as to pre-judgment interest or a mistaken judgment as to interest under a different court, than it is in referring directly to an act which tells you what the interest rate should be.”
It was noted in fact that the Acts do not indicate specifically the interest rate which is dealt with by Regulations pursuant to the relevant legislation.
Reasoning
It is readily conceded in the present case that the reference to the Penalty Interest Rates Act 1983 is wrong. That Act only provides for a determination of the rate of interest which may be claimed as post‑judgment interest pursuant to other legislation. Specifically, in the present case the rate may be fixed under the Magistrates' Court Act 1971.
Likewise, it is clear to me that in the present case, unlike Adams v Lambert and Lewis, it is not simply a matter of citing one Act which has an entitlement to interest in one Court when another Act for another court should have been cited. In the present case, what has been cited is not an entitlement to interest but an Act of Parliament which provides for the rates of interest payable. It is clear that the entitlement to interest arises under other legislation.
Hence, in the present case, unlike the circumstances in Lewis, the Court is not confronted with reference to an Act relating to one court when reference should have been made to legislation applying to another court.
The question for the court to consider in the circumstances is whether the failure to refer to any Act of Parliament giving rise to an entitlement to interest can properly be regarded as an error or defect which could be rectified by operation of s.306 of the Bankruptcy Act or whether it involves the failure to meet a requirement made essential by that Act.
Form 1 of the Regulations provides, pursuant to Regulation 4.02, the prescribed bankruptcy notice. Regulation 4.02 relevantly provides:
“4.02(1)For the purposes of subsection 41 (2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.
(2A 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.”
Form 1 is found in Schedule 1 of the Bankruptcy Regulations. That form clearly provides for a requirement which I regard as made essential by the Act in the terms which appear in "Note 2" as follows:
“Note 2: Interest accrued (item 3 of the Schedule)
If interest is being claimed in this Bankruptcy Notice, details of the calculation of the amount of interest claimed are to be set out in a document attached to this Bankruptcy Notice. The document must state:
(a) the provision under which the interest is being claimed; and
(b) the principal sum on which, the period for which, and the interest rate or rates at which, the interest is being claimed.
(NB: If different rates are claimed for different periods, full details must be shown)”
I have deliberately set out the note again in this judgment and emphasise the words "the provision under which the interest is being claimed".
It is argued by the Applicant Creditor's counsel that the clear intention of the reference to the Penalty Interest Rates Act was meant to be a reference to the provision under which the interest is being claimed. Hence, it is argued, misdescription of that Act is an irregularity or defect of a kind which can be cured by s.306 of the Bankruptcy Act by application of the principles in Adams v Lambert.
In my view the present case is distinguishable from Adams v Lambert in that the reference to the Penalty Interest Rates Act is a reference only to an Act which refers to the calculation of the rate of interest. Unlike the other cases, it does not provide any entitlement to interest and this is not a case where it could be claimed that there is simply a misdescription of a provision under which the interest is being claimed or indeed misdescription of an Act of Parliament under which interest is being claimed. The Penalty Interest Rates Act, unlike the Supreme Court Act 1958, the County Court Act 1958 or the Magistrates' Court Act 1971 (and their equivalents in other states and territories), does not provide any entitlement at all to interest; it only provides for calculation of the rate of interest arising out of an entitlement under the other legislation.
If the Applicant Creditor had simply referred to the Supreme Court Act or another Act where an interest entitlement arises, then I am satisfied that the principles in Adams v Lambert would apply and that this would be an irregularity or a defect of a kind curable by the operation of s.306 of the Bankruptcy Act.
In my view, however, that is not the case in the present application and there has been a failure to comply with the requirement made essential by the Act; namely, to specify "the provision under which the interest is being claimed". It is not a failure to specify the rate of interest being claimed. All that has occurred in this case is a reference that has been made to legislation which does relate to the rate of interest rather than the provision under which interest is being claimed.
Accordingly, in my view, for the reasons given, the reference to the Penalty Interest Rates Act is not a defect which can be cured by operation of s.306 of the Bankruptcy Act and the bankruptcy notice is invalid.
Conclusion
It follows therefore that the Creditor's Petition should be dismissed with costs.
I certify that the preceding eighty-five (85) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 12 July 2007
8
5
6