Mahmut, A v Inghams Enterprises P/L
[1994] FCA 386
•25 MAY 1994
AYSE MAHMUT and CAVIT MAHMUT v INGHAMS ENTERPRISES PTY LTD
No. SN747 of 1992
FED No. 386/94
Number of pages - 8
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
GENERAL DIVISION
VON DOUSSA J
CATCHWORDS
Bankruptcy - bankruptcy notice - application to set aside - misstatements of the component parts and calculation of the amount demanded - whether notice could reasonably mislead the debtors - whether formal defect or irregularity.
HEARING
ADELAIDE, 25 May 1994
#DATE 25:5:1994
Counsel for the creditor: Ms R Spencer
Solicitor for the creditor: Kelly and Co.
ORDER
THE COURT ORDERS THAT:
1. The Court declares that the bankruptcy notice issued against the
debtors on 21 August 1992 is a nullity.
2. Insofar as it is necessary so to do, the bankruptcy notice is set
aside.
3. The judgment creditor pay to the judgment debtors the sum of $275
being the costs fixed by the Court as the judgment debtors costs of and incidental to the application to set aside the bankruptcy notice.
Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.
JUDGE1
VON DOUSSA J This is an application by two debtors to set aside a bankruptcy notice that was issued on 21 August 1992 and served shortly thereafter on each of them. The notice was a 14 day notice. Within the time limited for compliance therewith an application was made to the Court to set aside the notice and for the matter to be transferred to the Sydney Registry.
On the same day that the application to set aside the notice was filed, affidavits were also filed by each of the debtors, obviously drawn by themselves, which asserted that they had a counter-claim which exceeded the amount of the demand in the bankruptcy notice and which could not have been set up in the proceedings in which judgment had been given against them. Other matters were also raised in the affidavits including the fact that the debtors had lodged an appeal against the Local Court judgment on which the bankruptcy notice was based. No further particulars were given at that stage of the grounds upon which it was contended that the bankruptcy notice should be set aside. Nevertheless, from time to time thereafter the time for compliance with the bankruptcy notice was extended by either a Registrar or a Judge of this Court pursuant to ss.41(6) and 41(6B).
The matter first came on for hearing before this Court on 16 November 1992. On that occasion the debtors were represented by the male debtor, Mr Mahmut. On that day the appeal against the Local Court judgment was due to be heard. The application was adjourned pending the outcome of the appeal. There was no discussion about the transfer of the proceedings to the Sydney Registry.
The matter has had a most unfortunate history thereafter. There have been numerous listings before the Court, many of which have been required because of the non-appearance of the debtors at earlier listings. In early 1993 the debtors say they were coming to Adelaide for the purposes of a hearing, and also to arrange paperwork necessary for a further appeal to the Full Court of the Supreme Court of South Australia against the Local Court judgment (as the appeal to a single Judge of the Supreme Court had been dismissed) when they had a car accident and suffered injury. Their injuries have added to the delays which have occurred.
It has been drawn to my attention that on two adjournments, namely on 28 March 1994 and 27 April 1994, further orders were not made under s.41(6A) extending time for compliance with the bankruptcy notice. A perusal of the file indicates that this was an oversight on the part of the Court. Mr Mahmut has applied today to have time for compliance extended, notwithstanding that it has expired. I propose to make such an order: see Streimer v Tamas (1981) 37 ALR 211 at 222-223. It is argued in opposition to the making of this order by the solicitor for the judgment creditor that the debtors should have made the application at the time of the adjournment. It was not for the judgment creditor to make application on their behalf. With that submission I generally agree. However, the adjournment on 28 March 1994 was requested by the debtors in a letter to the judge then seized of the matter. The letter apologised for delays; explained the continuing ill health of the debtors, and sought "one last adjournment". Implicit in that letter was a request that all consequential orders be made to preserve the position and rights of the debtors, pending the outcome of the application to set aside the bankruptcy notice. It is for that reason that I say the matter was apparently overlooked by the Court. On the next occasion, 27 April 1994, neither side appeared. In the circumstances it must have been the intention of the Court in further adjourning the matter that the rights of the parties would be preserved to enable the outstanding application to be determined on the merits.
It was not until April of this year that positive steps were taken towards having the matter finally determined. The matter was listed for hearing on 27 April 1994, but, as I have noted, there was no appearance of either party and the matter was adjourned by the Court until today. However, later on 27 April 1994, written submissions were received by facsimile from the debtors in New South Wales which articulated for the first time a number of grounds, besides the alleged counter-claim set off or cross-demand, why the bankruptcy notice should be set aside. By this time the appeal to the Full Court of the Supreme Court of South Australia had been heard and decided against the debtors.
I detect at least seven separate grounds in the written submissions. The first ground is that the bankruptcy notice should be set aside because of a defect as to the amounts claimed and the computation of that amount which renders it a nullity. In my opinion, that question should be determined first because if the debtors are correct the other grounds do not arise. It would be inappropriate to consider the other grounds because on the issue of a further bankruptcy notice, similar questions are likely to arise again, but the information placed before the Court could well be more extensive and therefore different. I note also that there is still outstanding an application by the debtors for special leave to appeal to the High Court of Australia against the decision of the Full Court of the Supreme Court of South Australia.
In the Local Court of Adelaide both the debtors had been jointly sued as partners in a chicken business in New South Wales. At the end of a trial, judgment was entered against each of them on 12 June 1992 for $9,023.10 together with costs. Thereafter the judgment creditor taxed a bill of costs. Correspondence exhibited to one of the affidavits in this Court shows that by letter dated 29 July 1992 from the judgment creditor's solicitors to the male debtor an allocatur was enclosed certifying the taxed costs at $3,574.
Against that background I set out the relevant parts of the bankruptcy notice that was issued on 21 August 1992:
"TO: DR. CAVIT MAHMUT and
MRS. AYSE MAHMUT
both of 24 MOUNT STREET
BONNY RIGG NSW 2177
WHEREAS INGHAMS ENTERPRISES PTY. LTD. trading as PAPE BROS. POULTRY SERVICE of Port Wakefield Road, Bolivar in the State of South Australia (hereinafter referred to as 'the Judgment Creditor') has claimed that the sum of $12,764.39 is due by you to the Judgment Creditor being the sum of $9,023.10 under a final judgment obtained by the Judgment Creditor against you in the Local Court of Adelaide on the 12th day of June, 1992 being a judgment the execution of which has not been stayed together with interest totalling $49.67 (calculated on the sum of $9,023.10 at a rate of 10% from the 1st day of August, 1992 to the 19th day of August, 1992).
THEREFORE TAKE NOTICE that within 14 days after service of this notice on you, excluding the day on which this notice is served on you, you are required:-
(a) To pay the sum of $12,764.39 so claimed by the Judgment Creditor to the Judgment Creditor; or
(b) To secure the payment of the sum referred to in paragraph
(a) to the satisfaction of the Federal Court of Australia or the Judgment Creditor or the agents of the Judgment Creditor who are Kelly and Co. of Level 17, 55 Waymouth Street, Adelaide or compound the sum so specified to the satisfaction of the Judgment Creditor or its agent. ..."
The bankruptcy notice asserts in the opening words of the preamble that the judgment creditor has claimed $12,764.39, and then makes a positive demand for that sum in the first of the requirements stated in the operative portion of the notice. Standing alone, those portions of the notice make an unambiguous demand for $12,764.39.
However, the debtors contend that the balance of the text of the preamble contains misstatements as to the amount due and as to the computation of the amount demanded, and that the text of the notice, when the full preamble is considered, is perplexing and liable to mislead the debtor as to its requirements because the amount which should be paid to the judgment creditor is unclear.
The debtors say, for the purposes of s.41(5) of the Bankruptcy Act 1966, that there is a misstatement in the bankruptcy notice as to the amount that is in fact due. The debtors did not give precise notice that they disputed the validity of the notice on this ground until today. However that notice, nonetheless, is given within the time allowed for payment because that time has been periodically extended and the time for compliance has not yet expired.
If it were the case that the amount of $12,764.39 exceeded the amount in fact due, the bankruptcy notice would automatically be invalid: Re Murray (1959) 18 ABC 152; Walsh v Deputy Commissioner of Taxation (1984) 53 ALR 606.
The solicitor for the judgment creditor has today been able to explain how the figure of $12,764.39 was arrived at. For the purposes of that explanation it was necessary to have regard to a certified copy of the record of the Local Court of Adelaide which was filed in this Court with the request to issue the bankruptcy notice. That document is not one which was in the possession of the debtors and it was not served upon them with the bankruptcy notice. The explanation for the amount of $12,764.39 is as follows. In the certificate, a "total" figure is given, which includes certain items of costs including the taxed costs, and interest presumably calculated to 31 July 1992 being the day on which the certificate was issued. That "total" is $12,717.42. If there is added to that sum interest at the rate of 10 per cent for 19 days, namely $46.97, the amount of $12,764.39 is achieved. The additional interest calculation assumes the statutory rate of interest on Local Court judgments, and that interest is payable in addition to the "total" stated in the certificate from and including 1 August 1992.
The amount of $12,764.39 is, therefore, in fact due under all the orders of the Local Court together with interest, if interest is to be calculated up to but excluding 19 August 1992. If it is to be calculated up to and including 19 August 1992 it understates the amount due by $2.47. The bankruptcy notice is not rendered invalid by there being a demand for a sum which is greater than that which was owing under all the orders of the Court.
For the reason that the amount of $12,764.39 is an amount in fact due under all the orders of the Court together with interest up to but not including 19 August 1992, the solicitor for the judgment creditor argues that any problem arising from inconsistency in other figures in the preamble to the bankruptcy notice with the amount of the demand should be treated merely as a formal defect or irregularity which is cured by s.306 of the Bankruptcy Act.
In Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71, the bankruptcy notice correctly stated the amount of the judgment upon which it was based, but understated the amount of statutory interest thereon. Although the dates and rate of interest necessary to correctly calculate the interest due were stated in the bankruptcy notice, there was no further indication in the bankruptcy notice that the excess of the interest in fact due, was being waived.
The bankruptcy notice was held to be valid by the majority of the High Court who said at 80-81:
"Although the recital negatives any waiver of entitlement to interest due, the body of the notice makes it clear that it was the sum of $1,442,438.30 that was required to be paid, secured or compounded. More importantly the notice specified that it was failure to comply with the requirement to pay the sum of $1,442,438.30, or to secure or compound that sum, or to satisfy the Federal Court of the existence of a relevant counter-claim, set off or cross-demand equal to or exceeding the sum specified in paragraph (a), i.e. $1,442,438.30 that would constitute the act of bankruptcy. There could thus be no uncertainty as to what would constitute compliance with the notice. The notice cannot be regarded as capable of misleading and accordingly cannot be said to be a nullity. The understatement thus constituted a formal defect or irregularity which attracts the operation of section 306(1) of the Act."
The solicitor for the judgment creditor seeks to apply that reasoning to the present case. The demand in paragraph (a) of the subject bankruptcy notice was for an amount which in fact was due under the orders of the Court, including the costs, orders and interest thereon; as that amount was unequivocally stated, the bankruptcy notice should be upheld. The majority of the High Court, however said at 79-80:
"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: James v Federal Commissioner of Taxation
(1955) 93 CLR 631 at 644; Pillai v Comptroller of Income Tax
(1970) AC 1124 at 1135. In such cases the notice is a nullity whether or not the debtor in fact is misled: in Re A Judgment Debtor 530 of 1908 (1908) 2 KB 474 at 481.
In my view the present case is to be distinguished from Kleinwort Benson Australia Limited v Crowl, in that the preamble in the notice served on the debtors put forward a basis for the calculation of the amount claimed which did have the potential to reasonably mislead them.
The test is whether the notice could reasonably mislead a debtor as to what is necessary to comply with it and it is not necessary that the debtor was in fact misled. The debtors in the present case received the notice and were entitled to have regard to its full text to understand the demand that was being made upon them. Whilst a certain sum was demanded in the operative part of the notice the explanation for that sum, put in doubt whether the demand was correct. The debtors, it can be assumed, would have known or had the ability to check that the judgment entered against them was for $9,023.10. Quite obviously there was some error in the notice thereafter, either as to the calculation in the interest or as to the amount claimed, or there was some omission.
The debtors were thus required to embark upon an exercise themselves of seeking information to endeavour to work out whether there was error in the amount claimed or whether there was some other omission. The debtors were in possession of the letter of 29 July 1992 which informed them of the amount of the taxed costs. Had they added those taxed costs to the amount of the judgment and added also the interest calculation stated in the bankruptcy notice a figure of $12,646.77 would have been arrived at. That exercise would serve only to further confuse, not clarify that $12,764.39 was correctly due, and properly demanded.
The debtors might then have endeavoured to check the interest calculation. Indeed that attempt was undertaken for the purposes of preparing the written submissions that have been made by the debtors. The debtors assumed, quite reasonably in my view, that as the notice was dated 21 August 1992 and as the period of interest said to be in question was 1 August 1992 to 19 August 1992, that the latter date was to be taken as included in the period so that interest ran over 20 days. That calculation produces a figure of $49.44, again adding to the confusion.
It appears that there has been a typing error in respect of the interest calculation in the bankruptcy notice and that the figure that was intended to be stated for the calculation was $46.97 (not $49.67), that being 10 per cent for a period of 19 days.
The exercises which I have suggested were exercises that the debtors could have undertaken on the information before them, not exercises that the law necessarily required them to do, but had they done them they would still have been uncertain as to the amount that was really due under the judgment and orders of the Court in relation to costs, together with interest.
The debtors' state of being perplexed would be heightened by a further look at the letter of 29 July 1992, as that letter, besides forwarding the allocatur, informed the debtors that the judgment creditor was now in a position to proceed to bankruptcy and "we therefore urge you to forward the moneys due, namely $14,085.96 by return mail".
Against the background of that letter and the knowledge which the debtors could be expected to have had when they received the bankruptcy notice, in my view the bankruptcy notice could reasonably mislead the debtors as to what was required of them to comply with it. For that reason, in my opinion the notice is a nullity, and the defect in it is not one that attracts the operation of s.306.
The solicitor for the judgment creditor urges that the Court should find that the debtors were not in fact misled at all by the statement in the bankruptcy notice because they did not raise any issue about the inconsistency of the figures stated in it at the time. Two things are to be said about that submission. The first is that as a matter of law if the notice is one that may reasonably mislead a debtor it is a nullity, and it is not to the point that the debtor was in fact not misled. The second is that I am not satisfied that the debtors were not misled. I think that the more likely explanation for the delay in relying on a defect in the notice is that the figures were not closely considered when the notice was first received because the main ground on which the debtors opposed the bankruptcy notice was their belief that they had a counter-claim set off or cross-demand that could be set up in answer to the notice. Moreover they had a deep feeling of injustice which arose from their perceptions of the way in which the trial had been conducted, which they believed should lead to the judgment being set aside on appeal or alternatively should lead the Federal Court to go behind the judgment and to set aside the notice.
I think it is more probable that the potential of the document to mislead only received the debtors' attention when steps were taken by them to prepare submissions for the hearing. When they did attend to the wording of the notice it seems probable that they were misled as their written submissions indicate an understanding that interest had been calculated for 20 days, and an inability to explain the amount of $12,764.39.
I emphasise again that the judgment creditor was only able to explain that figure by reference to a document not available to the judgment debtors.
For those reasons, in my view, the notice is a nullity and the Court should so declare. Insofar as it is necessary to do so the Court should also order that the bankruptcy notice served on the debtors be set aside. It is unnecessary in those circumstances to attend to the other grounds upon which the bankruptcy notice is opposed.
There is an application for costs from Mr Mahmut on behalf of the debtors and there is another application for costs from the judgment creditor. Costs are in the discretion of the Court. There has been a lengthy debate about items of cost involved in the transport of Mr Mahmut and his wife to South Australia for one or other of the hearings, and also about the opposing claims for costs of unnecessary hearings, and adjournments which the judgment creditor seeks from the debtors. I think if either side were to sit down and closely work out what costs had been incurred in respect of the attendances for which they have claimed, they would have arrived at somewhat higher amounts than they have actually claimed.
I consider the claims by each of the parties, with one or two exceptions, are conservative. I think the amount claimed by way of overall costs in respect of 27 January 1993 by Mr Mahmut is too high. He is not entitled to recover his loss of no-claim bonus and excess arising from the motor accident, and I think the amount claimed for facsimiles is too high. On the other side, I doubt that one or two of the attendances in respect of which a claim has been made by the judgment creditor should be allowed. What I propose is to use the broad figures that have been given to me by the parties, and to set the claim of the judgment creditor off against the claim of the debtors. I make an order for the balance, namely an order in favour of Mr Mahmut for $275. The costs are to be paid within 14 days.
0
6
0