Pinkerton, Daniel James v B.G. Textiles Pty Ltd (in liq)

CATCHWORDS

34-0

BANKRUPTCY - Service of bankruptcy notice on Sunday

- Whether

valid service

- Amount claimed in bankruptcy notice

- Interest

calculated to date prior to issue

of notice - Whether notice

valid - Denial that debt owinu	- Circumstances in which Court
will uo behind judgement.

DANIEL JAMES PINKERTON EX PARTE B

G TEXTILES PTY LIMITED

(IN

LIQUIDATION)

P.432 OF 1984

WILCOX J

27 SEPTEMBER 1984. 4 OCTOBER 1984

SYDNEY

IN THE FEDERAL COIJRT OF AUSTRALIA

)

NEW SOUTH WALES DISTRICT REGISTRY

)	No. P.432 of 1984

)

GENERAL DIVISION

)

BETWEN: DANIEL JAMES PINKEXTON

Bankrupt

Ex PAR-=:

B.G. TEXTILES PTY LIMITED

(IN LIQUIDATION)

Applicant

ORDERS

CORAM:	WILCOX J
D B : -	27 SEPTEMBER 1984, 4 OCTOBER 1984

PLACE

: SYDNEY

1. Sequestration Order made.

2. Order that costs be taxed and paid according to the Act.

Direct that draft

order be delivered within

7 days.

IN THE FEDERAL COURT OF AUSTRALIA

) )

NEW SOUTH WALES DISTRICT REGISTRY 1

No. P.432 of 1984

)

GENERAL DIVISION

)

DANIEL JAMES PINKERTON

Bankrupt

M PARE:	-	B.G. TEXTILES PTY LIMITED
(IN LIQUIDATION)

Applicant

REASONS FOR JUDGMENT

mm:	wIr.cox J
m:	27 SEPTEMBER 1984. 4 OCTOBER 1984

PLACE: SYDNEY

27 SEPZEMBER 1984

A Petltion

for the makinu

of a Sequestration Order

auainst the Estate of Daniel James Pinkerton came before me last

Monday 24 September. Counsel for

Mr Pinkerton appeared to oppose

the making of

a Sequestratlon Order and to submit that the

petition should be dlsmissed. He relied

w o n certain grounds

which had been foreshadowed in

a Notice of Opposltion dated 22

Auqust 1984 and filed on behalf

of the debtor. He also souuht to

rely upon various matters

which had been raised by

the Reuistrar

L .

in his certificate under Rule

22.

I will deal separately

with

each of the objections relied upon by counsel for

the debtor

although some of them, which are

of little or no substance. may

be disposed

of quite shortly.

The act

of bankruptcy relled upon by the petitioning

creditor is stated in the petltion as being the failure of the

debtor on

or before 4 March 1984 elther to comply with the

requirements of a Bankruptcy Notice served

on him on 19 Februarv

1984 or to satisfy the Court that

e had a counter claim. set-off

or cross-demand equal to

or exceedinu the sum specified in

parauraph (a) of the Bankruptcv Notice. It appears from

affidavit of R

J Speed sworn on

28 February 1984 that the

Bankruptcy Notice was served on the debtor at approximatelv

4.50

am on Sunday 19 February 1984. The Reuistrar has pointed out

that, under those clrcumstances. the last day for compliance with

the requirements of the Bankruptcv Notice was Monday

5 March

1984. and that the petition should have

so stated. Rule

2 0 2 ( 2 )

of the Bankruptcy Rules provides

that where the last day of a

period during which an act may be done falls on a Sunday then the

act may be done on the first day followincr that day that is not

Sunday or holiday. It follows that the last day for compliance

wlth the requirements of the Bankruptcy Notice was Monday.

March 1984 and that the petition is erroneous in this reuard.

Section 306(1) of the Bankruptcy Act

1966 provides:

"306(1) Proceedings under this Act are not

invalidated by a formal defect or

irregularity. unless the Court before which

the objection on that ground is made is of

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".

I reaard the mlsstatement of the last day for compliance

with the requirements of the Bankruptcy Notice as being a formal

defect or irreuularity. There is nothlncr before me to indicate

that anv injustice has been caused by that defect or

irregularity.	I propose to apply s.306(1) in relation to this
matter.

In connection with service.

an ob3ection was taken by

counsel for the debtor which was not the subject

of comment bv

the Registrar in his Rule 22 certificate and was not included in

the arounds stated in the filed Notice of Opposition. The complaint 1s that the Bankruptcy Notlce was served on a Sunday whlch. it is said. is contrary to law. In this recrard counsel

referred-to the decislon of Clyne

J In Re CoTlev: ex parte

Sundell (1964)

20 ABC 229.

However, counsel verv properly also

referred me to the decislon of McGrecror

J In ReHopper: ex parte

Esanda Limited ( 1 9 8 0 ) 43 FLR 452. In that latter case his Honour distlngulshed the declsion in CoDlev as turning upon the provisionns of the then Bankruptcy Rules. McGreuor J held that the provisions of the current Bankruptcy Rules in relation to

service of

a Bankruptcv Notice-. which are contained in

r.15 of

the Bankruptcy Rules are intended to be comprehensive and that

there is no warrant for enuraftinu upon them qualifications

derived from other leuislation. His Honour specifically held

that the Rules do not forbid the service of a Bankruptcy Notice

on a Sunday.

I respectfully auree with the view taken by

his

Honour and I hold that there is

no substance in the objection

that this Bankruptcy Notice was served on a Sunday.

The next matter relates to the statement

of he amount

due in the Bankruptcy Nptice. The relevant portion of the

Notice read as follows:

"WHEREAS B.G. Textiles Pty Limited

(in liquidation) of

Suite 5505. M.L.C. Centre. Martin Place. Sydney

(hereinafter referred to as "the iuduement creditor")

has claimed that the sum of $26.590.44 touether with

interest thereon at the rate of

$10 per centum per

annum from 5th May. 1981 which at 13th December. 1983

amounts to $6.935.36 makina total of $33.525.80 is

due by you

to it under a fmal iuduement obtained

auainst you in the Supreme Court of New South Wales on

I ,

the 5th day of Mav 1981. beina a judgement the

executlon of which has not been stayed:

THEREFORE TAKE NOTICE that within fourteen

(14) days after service of this notice on you.

excludinu the day on which this notice is served	on
you. you are required -

(A)	to pay the sum of $33.525.80 so claimed by the juduement creditor to the Juduement Creditor

( B )

to secure the payment of the sum referred to

in parauraph (A) to the satisfaction

of the

Federal Court

of Australia or the juduement

;

creditor (or his auent whose name and address are Norman Saul Isenberq of Norman Isenberq & I I Associates Suite 107. 83 York Street. Sydnev)

or compound the sum

so specified to the

satisfaction of the iuduement creditor (or his

aaent) :

The Reuistrar points out that the requirement

of the

Notice, in respect of payment. is

"to pap the sum of

$33.525.80"

without differentiation between the iuduement debt and interest.

Counsel for the debtor did not press

an aruument that this

constituted a defect. Whilst it was proper

for the Reaistrar to

draw attention to the fact that this portion of the Notlce,

unlike the recltal above. did not break up the amount claimed it

is my view that there is no defect in

a notice which requires

pavment of a specified sum. beinu the total of the juduement debt

and the interest thereon which has been claimed. There can be no

possibility of the debtor beinu perplexed

or mislead in a case

where the Notice itself shows how that amount has been

calculated. If. contrary to my view. the form of the requirement

for payment does constltute

a defect or irreuularity then I would

apply s.306(1); there is no possibilitv of injustice beinu caused

and none has been alleued.

The third matter referred to by the Reulstrar is that the notice. in accordance with form

6 attached to the petition

and intended to inform the debtor as

to the hearinu date and as

to the procedural steps required of him if

he ntends to deny

dispute any statements in the petition

or to oppose the petition

was not. at Its head, completed with his name.

Thls was a

careless oversiaht by the solicitors who filed the petition and

constitutes an irreaularity. However.

I do not think that there

6 .

is any doubt that the debtor would have understood the notice to

be directed to him.

No suuuestion has-been made of anv Injustice

havinqbeen caused and i apply s.306(1) to this irregularity.

The flrst of the matters raised in the filed notice of opposition is a denial by the debtor that he is indebted to the

creditor.

The only evidentiary material before me

to support

this denial is an affidavit by the debtor In which he denies his

indebtedness. in broad terms and without uivinq any detail

as to

the reason for denlal. and in which he reveals that the iuduement

upon which the petition relies was obtained by default in the

Supreme Court of New South Wales. From the Bar table

I was

informed that the debtor, and his wife. Narelle Constance

Pinkerton. who 1 s a joint debtor under the judaement, recently

made an application to the Supreme Court to set aside the default

judaement which application was dismissed because of thelr delay.

There is no question about the Iurisdlctlon of this

Court to uo behind a iuduement and to inqulre for Itself whether or not the debt claimed by the creditor is in fact owina: see

the article “Going Behind

a Juduement” in

47 Australian Law

Journal 377 and the cases referred to therein. The authorities

establish that in the case of a judaement entered after

a trial

on the merits,

a court exercisinu jurisdiction in bankruptcy will

go behind a juduement only where there

is evidence before it of

circumstances tendina to show fraud, collusion

or miscarriage of

justice. In the case of a default juduement the debtor need not

7 .

uo so far. However, the juduement is prima facie evidence of the

debt and there must be material put before the bankruptcy court

to justify an investigation by it

of the existence of the debt.

the test has been stated in various ways.

In Cornev v Brien

(1951) 84 CLR 343 Dixon. Williams. Webb and Kitto

JJ at pp

347-348 cited with approval varlous statements of principle. one

of which was that "upon a prima face case beinu shown" the court

mav uo behlnd a judaement for the purpose of satisfyinu itself

that the debt enforceable thereunder was

real debt. In that

same case Fullapar

J at ~p 357-358 said that the court will

behind the juduement "if there is what it regards as a bona flde

alleuation that no real debt 'lay behind' the judgement". He

went on to point out that the determination s to whether there

is such an allegation map itself involve some preliminary

lnvestiuation of the merits of the attack on the judgement but

that, once it decides to	a0 behind the iudaement. the whole
matter 1s open.

In Wren v

M a a

(1972) 126 CLR 212 Barwlck

CJ. with

whom Windeper and Owen

JJ agreed. said at pp 224-225:

"The Court's discretion in my oplnion is

discretion to accept the !uduement

satisfactorv proof of that debt. That

discretion is not well exercised where

substantial reasons are uiven for questioning

whether behind that juduement there is in

truth and reality	a debt due to the
petitioner".

8 .

The evidence

so far put before me -does not meet any of

the tests referred to In these authorities. It is not enouah

that there simply be

a statement by the debtor denying his

liability. There must be some evidentiary material placed before

the Court to show that there is a crenuine issue on

liability, a

substantial question as to the correctness of the default Iudqement. However. durina.argument on this question I indicated

to counsel for the debtor that

I would afford to his client

short period of time in which to file

an affidavit. if he

wished. to bring the evidence within the principles indicated by

these cases. I defer dealing further with this ground of

opposition until counsel has had	an opportunity of placing before
me any such evidence.

The second uround of opposition taken in the filed

Notice of Opposition

is that the Bankruptcy Notlce is ambiguous

in as much as

it does not contain

an unequivocal demand

of the

amount due under the juduement and the debtor is entitled to have

the notice set aside as it has

a tendency to perplex and confuse

him with respect to the precise amount which he is required to

pay in full and final satisfaction of the judgement. Counsel for

the debtor elaborated this complalnt in arqument, pointing out

that the calculation of interest is made

as at

13 December 1983

whereas the Bankruptcy Notice was issued on

27 January 1984. He

says that the form of the Bankruptcy Notice leaves uncertain whether the debtor is required by the creditor to pay to him

interest on the juduement fallinu due between	13 December and	27
Januarv.

There is

a lonu standinu principle that a bankruptcy

notice is invalid if it misstates the terms of the juduement upon

which it purports to be founded: see Re H.B.

(1904) 1 KB 94 at p

103, Re McEonald; ex parte Elder Smith Goldsborouqh Mart Limited

(1978) 32 FLR 11;

Be Schierholter; ex parte Geis

(1978) 19 ALR

113. This principle extends to taxed costs. which are part the judgement: see Re Jack: ex parte CV Holland (Holdinqs)

Limlted (1959) 19 ABC 268.

However. althouuh interest on

juduement may be claimed in

a bankruptcy notice (see h?ullevey;

ex parte Australian and New Zealand Bank Limited

(1977) 32 FLR 1.

Re Munson; ex parte Deputy Commlssioner

of Taxation (1977) 29 FLR

479) the authorities indicate that

a bankruptcy notice

will not

be invalid simply because the amount

of interest claimed in the

Notice is less than that which is properly payable by the debtor.

In MUAS-

the amount claimed

f o r interest in the bankruptcy

notice was understated. partly because

of an erroneous assumption

as to the date upon which the notice would be lssued by the

Reuistrar and partlv because of

a miscalculatlon. Riley J held

that the debtor would not have been perplexed	or embarrassed and
applied s.306(1) of the Act.

10.

Re Manion; ex parte Deputy Commissioner of Taxation

(1979) 23 ALR 270 was a similar case where the understatement on

the bankruptcy notice occurred because of the same combination of

circumstances. Lockhart J at p 273 dlstinguished the position of

an understatement of interest with the position which occurs

where there is

an understatement of the judgement debt sayinu:

"Although interest is necessarily and

inextricably attached to the judgement debt,

in my opinion it does not itself answer the

description of the sum due by the debtor to

the petitioning creditor under the final

Judgement".

Lockhart J pointed out, as Riley

J had before him. that

there was necessarily extreme difficulty in accurately

calculating the amount of the interest

as at the date of issue of

the Bankruptcy Notice. The Bankruptcy Notice

is the document of

the Reuistrar. not of the creditor. and the period of time which

will elapsed between the application for issue and actual issue

is difficult accurately to predict. Hls'Honour went on to follow

the approach of Riley

J and to applv

s.306(1).

In my opinion, the present case is

a tronuer one. in

favour of the creditor. than was either Munson

r Manion. In

each of those cases the Bankruptcy Notice incorrectlv stated that

a given sum

was due for interest at the date of the issue

of the

Bankruptcy Notice. In the present case there is no inaccuracy in the Bankruptcy Notice. The Notice specifies the interest which

had accrued to

13 December 1983.

No complaint is made of

11.

inaccuracy in that statement. Neither is there any ambiguity in

relation to the amount of money which must be paid by the debtor

in order to avoid the commlssion

of an act of bankruptcy. This

sum is clearly stated

as being $33.525.80.

Had the debtor paid

that amount then it is clear beyond argument to the contrary that

he would have avoided committing

an act of bankruptcy,

notwithstanding the fact that further moneys may be payable by

him for interest on the Iudgement. There is no misstatement made

to the debtor: the only complaint that

c n be made is that the

creditor miuht properly have included in his demand a greater sum

by way of interest. Because there is no inaccuracy. it seems to

me that it is not correct to say that there is a formal defect

Irregularity in the bankruptcy notlce. There could only be such

a defect or irregularity if. as a matter of

law, the creditor was

required, in issulng

a bankruptcv notice. to claim the whole of

the interest which was in fact due to him as of the date of issue

of the Bankruptcy Notice or alternativelv expressly to walve any

later claim for the balance of such interest.

No authority has

been cited to

me for that proposition and

I see nothinu in

principle to commend it. Accordingly I am of the vlew that there

is no necessity to resort to

s.306 in relation to this matter.

add. however, that if

I be in error

In that reaard then this is

certainly a case in which there

1s no iniustice to the debtor and

I would apply

5 . 3 0 6 so as to overcome the irregularity

or defect.

12.

The final matter raised by the debtor is that both the Bankruptcy Notice and the petition are said to have been issued irregu.larly because they were issued at the instance of the

petltioning creditor's solicitor rather than

t the instance of

the petitioning creditor itself. In relation to the Bankruptcy

Notice counsel refers to s.41(3)(a) of the Act which provides

that a Bankruptcy Notice shall not be issued in relation to

debtor, "except on the appllcation of a creditor who has obtained against the debtor a final judgement" etc. Counsel argues that

this means that the creditor must personally seek the issue of

Bankrupty Notice.

I reject this argument. The provision is

clearly directed to the qualification of

a creditor to seek the

issue of a Bankruptcy Notice. It does not require the creditor

to make the appllcation personally. Such

a result would lead to

absurdity in the case of a corporate credltor. which necessarily

must act by an agent.

In the case of the petition. the point is differently

expressed.

The petition is executed under the common seal of the

petitioning creditor,

B G Textiles Pty Limitd (in liquidation).

However, the footnote to the petltion reads:

"This petition is filed by Norman Saul

Isenberg on behalf of Norman Isenberg	&
Associates".

The typist should, of course, have shown the petition as

having been filed

on behalf of B G Textiles Pty Limited

(in

liquidation).

I do not accept the submission of counsel that

13.

this means that the petition is not filed on behalf of

B G

Textiles Pty Limited (in liquidation). In every other respect, the petition is the document of that company. The reference is an obvious error and could not possibly cause any confusion. If

it constitutes an irregularity.	which I doubt, 5.306 should be
applied.

In the result.

I reject all of the submissions uoinu

the validity of the documents upon which the petitioning creditor

relies.

I now return to the question whether there is material

to Justify the court aoina behind the	~udgement	debt.
4 OCTOBER 1984

This matter was last before me

on Thursday, 27

September. On that occasion I delivered a iudgement which dealt

with various matters of law which had been araued by counsel on

behalf of the debtor on Monday. 24 September. One

of the arounds

of opposition to the makinq of a sequestration order which was

taken bv the debtor was that no moneys were owinu by him to the

creditor.

I dealt shortly with the principles established by the

authorities as to the circumstances in which the Court

will go

behind a ?uduement debt for the purpose

of inquiry as to whether

there is, in fact. a debt owed to the petitioning creditor in

amount exceedinu

$1,000.

14.

After dealing with the other submissions put on behalf

of the debtor, all of which

I determined adversely to him.

considered certain affidavit evidence which was placed before me

on each side in relation to the circumstances in which the debt

was said to have arisen. Part of that material is an affidavit

from the debtor in which he deposed to a conversation which he

claimed to have had with

Mr Noel Betty,

a director of the

juduement creditor, in June 1979. According to

Mr Pinkerton in

that affldavit. there was discussion about the fact that

companv, Bankstown Clothinas Limited, was to take over the

business which had previously been carried on by a partnership,

Dentex Industries, of

whlch Mr and Mrs Pinkerton were members

along with

Mr and Mrs Gallagher. The conversation as set out in

Mr Pinkerton's affidavit is susceptible of an interpretation that

in the future B

G Textiles Pty Limited would look to the company

Bankstown Clothinus Limited for payment not only of aoods to be

supplied in the future but also in respect

of the then

outstandinq account. The amount owinq

at that time. accordlnu to

the leduer card of the petitioning creditor. was $28.552.24.

After 1 July 1979 there was some small reduction in that

outstanding account reducina the balance by the end of

1979

/ l

$26,390.44. Subsequently,

B G Textiles Ptv Limited sued. inter

alia, Mr Pinkerton to recover that

sun and siuned a default

judgement in the sum of $26.590.44. The difference of $200	I
understand is scale costs.

15.

An affidavit was filed on behalf of the petitioning

creditor sworn

by Mr G M Speddmu in which certain hearsay

lnformation was set out being statements attributed to Mr Petty

the effect of

which was inconsistent with the evidence of

Plnkerton as to the content of that conversatlon.

I took the

vlew that on this matter

I should not.proceed on the basis of

hearsay evldence and

I have rejected that material. However,

did indicate that

I would be prepared to afford to the

petitioning creditor an opportunity of obtaining	an affidavit in
reply from Mr Betty.

Mr Speddinu's affidavit also set out documentarv

materlal includinu a copy of

a letter written by solicitors

previously acting for

Mr and Mrs Pinkerton to solicitors actinq

for the petitionina creditor, in whlch the solicitors for

Mr and

Mrs Pinkerton claim that the amount owlnu

by their client

is some

$13,000 to $14.000 less than the amount claimed. On this basis

the true debt would be about

$12,000 to $13,000.

The material which was provided also indicated that the

claim made by

Mr Pinkerton as to an agreement for

a transfer of

the liability was not made during

a recent appllcation on behalf

of the four partners in Dantex Industries to set aside the

default juduement,

an application which was heard and refused by

a Master in the Supreme Court of New South Wales.

16.

Under those circumstances.

I was pressed with the

submission on

27 September that I should take the view that the

material did not satisfy the tests laid down in the authorities,

and that I should not go behind the ludgement debt but simply

proceed to consider the making of a sequestration order.

It seemed to me that the material which had been put

before the Court did little to raise any real question as to the

existence of a debt exceeding $1,000; the conversation deposed to

by Mr Pinkerton seemed to me hiqhly unlikely to have occurred. I

could not Imagine that a business creditor would be prepared to

agree to look to

a newly formed company for payment of a

substantial account when it had existlnu rights against four

persons who in partnership had purchased the goods.

Furthermore. the claim of

an agreement was inconsistent

with the letter from the previous solicitors of the debtor. and it is remarkable that, if such an aureement had occurred, It had not been raised in the application to the Master.

Notwithstandinu all that.

I felt that I should afford to

the debtor the opportunity

of establishing. if he could, that

there was no debt exceeding

$1,000 despite the existence of the

judgement aualnst hlm. I therefore adjourned the matter to

17.

today, uiving

directions as to the filing

of any further

affidavits in

order that the matter could

be finally resolved,

necessary with cross-examination of deponents in order	to resolve
any disputed question of fact.

I have, however, today been informed by counsel for the

debtor that on instructions qiven to him by his client he

concedes that his client is indebted to the petitioning creditor

in an amount exceeding $1,000.

He informs me that there

nothing further he wishes to say In opposition to the makinq of

sequestration order. He has asked that I stav the operation of

anv sequestration order

for a period of 21 days in accordance

with section

5 2 ( 3 ) of the Bankruptcy Act. but no reason has been

furnished to me as to whv that course should be taken.

understand from what

1s said by counsel that his client may wish

to appeal to arque the correctness of one or more of the rulinus

of law which I have previously made auainst him, but

I do not see

that the question whether

o not a stay is qranted would affect

Mr Plnkerton's riqhts on any appeal.

In relation to the question whether the whole amount of

the moneys the subject of the default judqement in the Supreme

Court is in fact owing

- this is a matter which can be examined

by the trustee and

he can act accordingly in response to any

proof of debt

which the petitioninq creditor may seek to lodge.

18.

In short. I see no reason at all for grantinu the

application for

a stay of a sequestration order and

I do not

propose to impose such

a stay.

The petitioning creditor has filed

a consent of a

trustee. a registered trustee, namely Max Christopher Donnelly.

and it appears to me that all the necessary requisites o making

the sequestration order have been satisfied. On the previous

occasion I pointed out that there was an error in the petition as

to the date upon

which the act of bankruptcy was committed.

thlnk that it is appropriate for the petition to be formally

amended

rectify

that

error:

I order

that

the

petition

8 . .

amended so as to substitute in paraqraph	4 of the petition the
date 5 March 1984 for 4 March 1984.

I .

I am satisfied that the debtor committed the act of

bankruptcy alleqed

in the petition as

so amended namely that

failed, on

or before 5 March 1984.

either to comply with the

requirements of the bankruptcy notice served on him on the 19th

day

February

1984.

or to satisfy the court that

he had a

counter claim set off

a cross demand equal to

or exceeding the

sum specified in parauraeh

B of the bankruptcv notice. I am

satisfied with the

proof of the other matters required by section

52(1) of the Bankruptcv Act. I note that Max Christopher

Donnelly. a reuistered trustee. has consented to act

as a trustee

of the estate of the debtor:

I make a sequestration order auainst

the estate of the debtor:

I order that costs includinu costs

19.

which have been expressly reserved and the costs occasioned by

the various adjournments

of the hearinu of the matter, be taxed

and paid accordinu to the Act;

I direct that a draft of this

order be delivered to the Reuistrar within seven days In

accordance with rule

124(2).

I refuse the

application for a stay of the sequestration

order.

I certify that this and the & y 1 7 k t I (IF) preceding pages are a true copy of the Reasons for Judqement herein of his

Honour Mr Justice Wllcox.

[1984] FCA 340

27 Sep 1984