Penrith Waste Services Pty Ltd v Brown

[2005] FCA 781

FEDERAL COURT OF AUSTRALIA

Penrith Waste Services Pty Ltd v Brown [2005] FCA 781

PENRITH WASTE SERVICES PTY LTD v DAVID ALISTAIR BROWN

NSD597 OF 2005

EMMETT J
31 MAY 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD597 OF 2005

BETWEEN:	PENRITH WASTE SERVICES PTY LTD APPLICANT CREDITOR
AND:	DAVID ALISTAIR BROWN RESPONDENT DEBTOR
JUDGE:	EMMETT J
DATE OF ORDER:	31 MAY 2005
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.the estate of the respondent debtor, David Alistair Brown, be sequestrated;

2.the Official Receiver in Bankruptcy be appointed the trustee in bankruptcy of the estate;

3.that the applicant creditor’s costs of the creditor’s petition be paid out of the estate,

4.notes that the relevant act of bankruptcy occurred on 17 March 2005,

5.upon terms that the debtor file a statement of affairs pursuant to section 54 of the Bankruptcy Act no later than 20 June 2004,

6.all proceedings under the sequestration order be stayed for the period of 21 days.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD597 OF 2005

BETWEEN:	PENRITH WASTE SERVICES PTY LTD APPLICANT CREDITOR
AND:	DAVID ALISTAIR BROWN RESPONDENT DEBTOR

JUDGE:	EMMETT J
DATE:	31 MAY 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. I have before me a petition for a sequestration order under the Bankruptcy Act 1966 (Cth) (‘the Act’) in respect of the estate of David Alistair Brown (‘the Debtor’).  The applicant creditor is Penrith Waste Services Pty Ltd (‘the Creditor’).  The Creditor’s petition is based on the act of bankruptcy of failing to comply with a bankruptcy notice dated 17 February 2005.  The bankruptcy notice was served on the Debtor on 24 February 2005. 

2. The bankruptcy notice was not complied with. The issue before me is whether or not the bankruptcy notice could be complied with. The Debtor says that the bankruptcy notice was a nullity and that, accordingly, there was no act of bankruptcy, because failure to comply with a nullity does not constitute an act of bankruptcy. Section 40(1)(g) of the Act provides that a debtor commits an act of bankruptcy if a creditor who has obtained against the debtor a final judgment, has served on the debtor a bankruptcy notice and the debtor does not, within the time specified in the notice,

3. comply with the requirements of the notice or satisfy the Court that he has a counter claim, set-off or cross demand equal to or exceeding the amount of the judgment debt.

4. On 6 December 2004, the Supreme Court of New South Wales ordered that judgment be entered in favour of the Creditor against the Debtor in the sum of $300,000. It is common ground that that order is a final judgment within the meaning of s 40(1)(g). Section 41(1) provides:

   ‘An official receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that is of the kind described in section 40(1)(g) and is for an amount of at least $2000.’

5. Bankruptcy notice NN411-05 was issued by the Official Receiver on 17 February 2005.  Section 41(5) provides:

   ‘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 missed statement.’

   That provision is not attracted in the present case, but it has some bearing on the question that has been raised before me. 

6. Section 43(1)(a) of the Act provides:

   ‘Where a debtor has committed an act of bankruptcy [and the prerequisites of section 43(1)(b) have been satisfied] the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.’

   It is common ground that those prerequisites have been satisfied in the present case.  Section 52(1) of the Act then provides:

   ‘At the hearing of a creditors petition, the Court shall require proof of:

   (a)the matters stated in the petition…

   (b)service of the petition; and

   (c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing

   and, if it is satisfied of the proof of those matters, may make a sequestration order against the estate of the debtor.’

7. One of the matters stated in the petition is that the Debtor committed an act of bankruptcy. Section 41(2) of the Act provides:

   ‘The notice must be in accordance with the form prescribed by the regulations.’

8. It is common ground that bankruptcy notice NN411-05 is in accordance with the form prescribed by the regulations, subject to one matter.  Paragraph 1 of the bankruptcy notice in question relevantly provides that the Creditor:

   ‘claims you owe the creditor a debt of $     as shown in the Schedule.’

   The form prescribed by the regulations contains such a blank space.  The obvious intention is that a sum of money be inserted in the blank space. 

9. There is a schedule to the bankruptcy notice NN411-05, which refers to the amount of judgments or orders as $300,000.  Opposite item 6, ‘total debt owing’, the sum of $300,000 has been inserted.  None of the other items in the schedule have been completed, although there is space for the insertion of costs and interest where appropriate.  Attached to the bankruptcy notice is a copy of the order of the Supreme Court of 26 November 2004, which was entered on 6 December 2004.  That order clearly refers to the sum of $300,000.  The Debtor says that the failure to insert a figure in the blank space, to which I have referred, renders the bankruptcy notice a nullity. 

10. Understatement in a bankruptcy notice of the amount due, whether it be an understatement of the judgment debt or of interest payable on the judgment debt, will constitute a defect which is substantive, rather than formal, only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice, see Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 80. In this case, of course, there is not so much an understatement: it is common ground that the amount shown in the schedule is correct.

11. A bankruptcy notice that misstates the amount due to the Creditor is defective or irregular. A bankruptcy notice must correctly state the amount of the debt upon which it is based otherwise the bankruptcy notice will be invalid. However, there are qualifications of that general proposition. One is that, if a misstatement is a mere clerical error that could not mislead or embarrass the debtor because he could see on the face of the document the amount that was really claimed from him, the defect will merely be a formal one, such as will be cured pursuant to s 306 of the Act. Section 306(1) of the Act relevantly provides:

    ‘Proceedings under the Act are not invalidated by a formal defect or an irregularity unless the court before which the objection on that ground is made is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.’

12. It has not been suggested, on behalf of the Debtor, that any substantial injustice has been caused by the failure to insert a sum of money in the blank space. The question here is whether or not that defect or irregularity, is substantive or formal. A defect or irregularity may be substantive if, as a consequence of the defect or irregularity, the notice would reasonably mislead a debtor or the notice fails to meet an essential requirement of the Act or Regulations.

13. The question of whether or not a defect or irregularity is reasonably capable of misleading a debtor is one to be determined objectively, independently of the particular debtor involved.  A bankruptcy notice that it is reasonably capable of misleading a debtor will be defective, notwithstanding that the debtor is not, in fact, misled, see, generally, Australian Steel Co (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 at [32] to [39].

14. I do not consider that any recipient of bankruptcy notice NN411-05 could reasonably be misled as to the amount demanded.  True it is that there is a statement that the Creditor claims that the Debtor owes the Creditor ‘a debt of $……’.  However, that statement also indicates that the amount claimed to be owing is as shown in the schedule.  Paragraph 2 of the bankruptcy notice goes on to say:

    ‘The Creditor claims that the debt is due and payable by you.  A copy of the judgments or orders relied upon by the Creditor is attached.  At the time of applying for this Notice, execution of the judgments or orders had not been stayed.’

    No person reading the bankruptcy notice could fail to understand, unequivocally, that the amount that was being demanded was the sum of $300,000 referred to in the schedule and referred to in the copy of the order of the Supreme Court attached to the bankruptcy notice. 

15. I would be disposed to conclude that there is an irregularity in the sense that, while there is no direction in the Regulations for the blank space to be completed with the amount of the debt, it is clear that that was what is intended.  That did not happen.  Nevertheless, it seems to me to be a purely formal defect or irregularity.  It is not suggested, as I have indicated, that the Debtor was in any way misled; nor could any reasonable person be misled, as to what was required by the bankruptcy notice. 

16. I am satisfied that an act of bankruptcy occurred when the Debtor failed to comply with the bankruptcy notice.  Counsel for the Debtor has accepted that, but for the question that I have just dealt with, there is no reason why a sequestration order ought not to be made.

17. I am satisfied that the Creditor has proved the matters as stated in the petition and has proved service of the petition.  I am also satisfied that the debt, on which the petitioning creditor relies, is still owing.  It follows that I should make a sequestration order in respect of the estate of the Debtor. 

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:            10 June 2006

Counsel for the Applicant:	Mr G.E. Underwood
Solicitor for the Applicant:	Bradfield & Scott
Counsel for the Respondent:	Mr G. Carolan
Solicitor for the Respondent:	Farry & Co
Date of Hearing:	31 May 2005
Date of Judgment:	31 May 2005