Preston v Commercial Bank of Australia

[1982] FCA 213

Re: JOHN CLEMENT PRESTON and MARJO ELIZABETH PRESTON
Ex parte: THE COMMERCIAL BANK OF AUSTRALIA LIMITED (1982) 67 FLR 299
No. P819 of 1982
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Sheppard J.(1)

CATCHWORDS

Bankruptcy - form of bankruptcy notice - notice said to require both payment of judgment debt and the securing or compounding of the debt - notice understated amount of judgment interest - notice contained inappropriate reference to costs - notice held good - Bankruptcy Act 1966, ss.40(1)(g), 40(3), 41(1) and (2), 306, 315; Rules 4(4), 6(1), 8 and Form 4 in Schedule 1.

Bankruptcy - Bankruptcy notice - Validity of notice - Whether capable of misleading or perplexing - Whether defects or irregularities merely formal - Bankruptcy Act 1966 (Cth), ss 41(1)(a), 306 - Bankruptcy rules, rr. 4(4), 6(1), 8 and sched., form 4.

HEADNOTE

Two debtors were served with a bankruptcy notice which in all material respects followed the words of form 4 in the schedule to the bankruptcy rules. It required the debtors "(A) to pay the sum . . . so claimed . . . to the judgment creditor or (B) to secure the payment of the sum . . . to the satisfaction of the Federal Court of Australia or the judgment creditor . . . or compound the sum . . . to the satisfaction of the judgment creditor". It warned the debtors that they will have committed an act of bankruptcy if "you fail either to comply with either of the above-mentioned requirements of this notice or to satisfy the Federal Court of Australia that you have a counterclaim, set-off . . . ."

The notice contained an error in that it understated by one day's interest the amount of interest then due on the judgment debt. In addition, the interest claimed in the notice was stated to be "on so much of the judgment debt (including costs) as is from time to time unpaid . . . ", whereas costs in respect of the judgment debt had not been taxed and therefore interest could not have commenced to accrue on the costs pursuant to s. 95 of the Supreme Court Act 1970 (N.S.W.). The debtors sought to invalidate the notice on the grounds that it was reasonably capable of misleading or perplexing the debtors.

Held: (1) The word "either", where secondly appearing in the warning contained in the notice, was used plainly in the sense of one of two, and no one reading the document could reasonably think that the notice required compliance with both paragraphs lettered "(A)" and "(B)", and therefore the notice was not reasonably capable of perplexing or misleading the debtors.

(2) The understatement of the amount of interest and the incorrect reference to costs were formal defects or irregularities within s. 306 of the Bankruptcy Act 1966 (Cth) and did not invalidate the notice.

Re Munson (1977) 29 FLR 479; Re Manion (1979) 37 FLR 78; Ex parte Commerical Banking Company of Sydney Limited (1979) 23 ALR 522, followed.

Re H.B. (1904) 1 KB 94; Re Schierholter (1978) 32 FLR 22, distinguished.

(3) Although the test is always whether a notice is capable of misleading or perplexing a debtor, one cannot look at any particular matter without taking into account its own surrounding circumstances and the general knowledge of the litigation leading to a judgment which a particular debtor ought reasonably be deemed to have.

HEARING

1982, September 21, 22; October 13. #DATE 13:10:1982

PETITION.

This was the hearing of a bankruptcy petition, founded on the alleged failure of the debtors to comply with a bankruptcy notice, in the course of which the debtors claimed that the petition was invalid.

B.W. Collins, for the petitioning creditor.

R.F. Smart, for the debtors.

Cur. adv. vult.

Solicitors for the petitioning creditor: Sly & Russell.

Solicitors for the debtors: Strong Brown & Associates.

F.P.C.

Orders accordingly.

JUDGE1

In the course of the hearing of a bankruptcy petition a number of challenges were made to the validity of a bankruptcy notice, non-compliance with which was said to constitute the act of bankruptcy relied upon by the petitioning creditor. On 22 September last I announced that I was against the debtors' submissions but did not then give reasons for my decision. What follows are those reasons.

In order to understand the points argued, it is necessary to refer to the entirety of the bankruptcy notice. Rather than set it out here, I have appended it as an annexure. My doing so will enable a facsimile of it to be available to persons reading what I have said. To a degree one submission made on behalf of the debtors depends upon the way some of the wording is set out.

The submissions made on behalf of the debtors were:
1. The notice was reasonably capable of misleading or perplexing the debtors because -
(a) a reasonable reading of it required the debtors both to pay the amount of the judgment within the time specified and also, within that time, to comply with at least one of the courses of action specified in the paragraph lettered (B).
(b) Alternatively, a reasonable reading of it required either payment of the amount of the judgment or the compliance with each of the courses of action specified in paragraph (B).
2. The notice was reasonably capable of misleading or perplexing the debtors because the amount of $5,134.27 said to be the amount of judgment interest was understated and there was no clear intention evinced to abandon the unspecified balance.
3. The notice was reasonably capable of misleading or perplexing the debtors because of the presence of the words "(including costs)" after the words "together with interest thereon at the rate of $10 per centum per annum on so much of the judgment debt", in the recital to the notice.

Counsel for the petitioning creditor contended that the first submission should fail because the submission made by counsel for the debtors misconceived the true meaning and effect of the words in question. In the case of the second and third submissions his principal contention was that the matters relied upon were formal defects or irregularities only and that they should be treated as such pursuant to s.306 of the Bankruptcy Act 1966 ("the Act"). He conceded that the amount of judgment interest was understated. The words "(including costs)" were of course present in the notice.

I deal with each of the submissions made on behalf of the debtors as follows.

For the purposes of the first submission it is necessary to refer to the relevant legislation. The act of bankruptcy is provided for in paragraph 40(1)(g) of the Act. The paragraph refers to the debtor being served with "a bankruptcy notice under this Act". It goes on to specify the time for compliance. The essence of the provision is that a debtor upon whom a bankruptcy notice has been served will be guilty of an act of bankruptcy if he does not comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand of the kind specified in the paragraph.

Section 40(3) contains some provisions relevant to the interpretation of paragraph 40(1)(g) but it is unnecessary to refer to these. Paragraph 41(1)(a) provides, inter alia, that a bankruptcy notice "shall be in accordance with the prescribed form". Section 41(2) is as follows:

"The prescribed form of bankruptcy notice shall be such that the notice -
(a) requires the debtor named in it, within a specified time (being the time referred to in sub-paragraph 40(1)(g)(i) or (ii), whichever is appropriate) to -
(i) pay the judgment debt or sum ordered to be paid in accordance with the judgment or order; or
(ii) secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and
(b) states the consequences of non-compliance with the requirements of the notice."

There are other provisions of s.41 relevant to bankruptcy notices and compliance therewith, but it is unnecessary to refer to these.

Section 315 of the Act contains the usual provision for the making of rules or regulations prescribing all matters which are required or permitted to be prescribed by the Act. Rule 8 made pursuant to that power provides that for the purposes of paragraph 41(1)(a) of the Act a bankruptcy notice shall be in accordance with Form 4. Rule 6(1) provides that strict compliance with the forms in Schedule 1 is not necessary and substantial compliance is sufficient. Form 4 is in Schedule 1 to the Rules; see Rule 4(4).

The bankruptcy notice in the present case did not follow precisely the form of the bankruptcy notice provided for in Form 4. However, it did in all respects follow the words of the form so far as concerns the words which the first submission calls into question. The submission therefore attacks the prescribed form of bankruptcy notice. That of itself provides no answer to the debtors' submission, although it tends to make one cautious in one's approach to it.

The first part of the submission seizes upon the word "either" where secondly used in the statement of the consequences of non-compliance towards the end of the notice. It is said that the word is used in the sense of "each" or "both". Undoubtedly the word may be used in that sense; I refer to the Shorter Oxford Dictionary where there is a quotation from one of Sir Walter Scott's works exemplifying this usage - "There was a huge fireplace at either end of the hall". Judicial definitions of the word establish also that it may be used as meaning each or both as well as one of two; re Pickworth (1899) 1 Ch.642 per Lindley M.R. at pp.648-649; Currie v. Glen (1936) 54 C.L.R. 445 at p.453 and re Fyfe (1946) A.L.R. 344. However in the first of the cases cited, Lindley M.R. said that the word "either" is taken in the ordinary sense as one of the two and as not meaning both.

In the submission of counsel for the debtors the word, when intended to be used in the sense of one of two, was invariably accompanied by the word "or". That word was indeed to be found in the last paragraph of the notice prior to the Deputy Registrar's signature. But the word "or" there used was used in conjunction with the word "either" where firstly used in the paragraph, not where it was secondly used. Thus the notice told the debtors that they would have committed an act of bankruptcy if they failed either to comply with either of the earlier mentioned requirements or to satisfy the Court of the existence of a counter-claim, set-off or cross demand of the kind specified. On the other hand, the word "either" where secondly used was not used in conjunction with the word "or". That, so it was said, made it reasonably possible for a reasonable person to read the word in the sense of each. Counsel emphasised that it was not necessary that he demonstrate that this was the meaning; all he had to do was to show that the words used were reasonably capable of misleading or perplexing the debtors. Whether they did or not was not a relevant question; James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631.

I rejected the submission for three reasons, although I acknowledge that the second and third may only be more particular ways of stating the first. My reasons were,
(a) the submission does violence to what I believe to be plain and ordinary words plainly indicating that the word "either" where secondly used, was indeed used in sense of one of two.
(b) It is in fact used in conjunction with the word "or". The word "or" to which I refer is that appearing in large black type as the only word in the line separating the two paragraphs lettered "(A)" and "(B)". The use of it, particularly in so prominent a fashion, makes it clear that the two paragraphs are alternatives. No one reading the document reasonably could think otherwise.
(c) The substance of the notice is that it requires payment or requires the debtors to secure or compound the sum in question to the satisfaction of the creditor, or to secure it to the satisfaction of the Court. How anyone acting reasonably could think that he was required both to pay and to secure or compound I do not understand. With due respect to the argument which was so earnestly presented, I think that it was based on considerations which were quite fanciful and unreal.

The alternative part of the submission seemed to be founded upon the fact that three alternative courses of action were included in one paragraph - paragraph (B) - which is introduced by the word "OR". I do not perceive why this should make at all possible a construction which requires what are plainly alternatives to be read as if they were not. The suggested construction requires the word "or" which separates each course of action which the debtors may adopt to be read as "and". There is no warrant for so doing. It is to be observed that in this respect the form of the notice follows precisely the words and form of paragraph 41(2)(a) of the Act.

I turn to the second of the submissions made. It concerns the understatement of the amount of judgment interest. It has long been established that a notice will be bad if it specifies an amount which is less than the amount to which the judgment creditor is entitled under the judgment and does not clearly indicate that the creditor is prepared to abandon the excess; Re H.B. (1904) 1 K.B. 94. It is curious to me that such a severe view has been taken. It may have been thought that a more serious misstatement would have been one which specified the amount of the judgment debt to be greater than the amount in fact due. But that situation is specifically provided for in s.41(5). It is strange that courts have not evolved some similar mitigating procedure to deal with notices which understate the amount due. However, they have not, and I must deal with the matter on that basis.

As earlier mentioned, counsel for the petitioning creditor has conceded that the amount of judgment interest was erroneously calculated. It should have been calculated on the basis that 19 May, 1982, was included as an interest day. This was not done and the amount of judgment interest specified as $5,134.27 was less by $106.96 than the correct figure.

Notwithstanding the decision in Re H.B. (supra), the Court here has determined that the understatement of judgment interest is not to be treated as having the consequences which ensue where the understatement is of the amount of the judgment debt itself. So much was decided by Riley J. in Re Munson (1977) 29 F.L.R. 479. His Honour said, after a full consideration of the authorities (p.483):

"In the present case I do not think it can reasonably be said that the debtor, who was accurately told by the bankruptcy notice that his judgment debt amounted to $26,364.08, and that the rate of interest on it was $10 per cent per annum, could be perplexed or embarrassed by the interest on that debt being stated at $122.79 less than it really was. In my opinion this is a proper case for the application of s.306(1), and I do not think that the bankruptcy notice should be held invalid."

His Honour's view was adopted by Lockhart J. in Re Manion (1979) 23 A.L.R. 270 where Lockhart J. applied it to the facts of that case. Lockhart J. restated the principle in Re the Bankruptcy Act 1966; ex parte Commercial Banking Company of Sydney Limited (1979) 23 A.L.R. 522 at p.526.

I am satisfied that I should adopt what has been said both by Riley and Lockhart JJ. in the cases to which I have referred. It is important for the administration of bankruptcy law in the community that there be evenness, so far as possible, in the decisions of single judges. Even if I had been of opinion that the view espoused by the two judges was not correct, I would nevertheless have taken the course of following them leaving any correction to be made on appeal. However, I am in full agreement with the views which they have expressed.

Counsel for the debtors submitted that their decisions were in conflict with the decision of the Full Court of this Court in Re Schierholter (1978) 19 A.L.R. 113. That was a decision in which the principle propounded in Re H.B. was applied. In that case the judgment creditor had obtained judgment against the debtor in a sum plus costs. A bankruptcy notice claimed as due under the judgment the sum of $2,735. The amount in fact due in respect of the judgment debt and costs was $2,830. If costs were ignored, the amount outstanding was $2,631. The Court held the notice bad. But it seems to me that that case was quite different from the present where there is no understatement of the amount due under the judgment itself; the understatement applies only in relation to the amount of judgment interest to which the petitioning creditor is entitled by reason of the operation of s.95 of the Supreme Court Act 1970(N.S.W.). That point of distinction was drawn by Lockhart J. in Re Manion (supra) where he considered the question of whether there was any conflict between the decision of Riley J. in Re Munson (supra) and the decision of the Full Court in Re Schierholter (supra); see 23 A.L.R. at p.278.

For the above reasons I was satisfied that the approach of the judges in Munson's case and Manion's case should be followed here, the circumstances being no different. In the result the understatement of judgment interest is a defect or irregularity within s.306 of the Act and does not operate to invalidate the bankruptcy notice.

The final submission depended upon the words "(including costs)" in the recital to the notice. I have no doubt that the words should not have been included. They are quite inappropriate, particularly as no costs have been taxed. But the error is again in relation to the statement of the amount of judgment or statutory interest. Section 95 of the Supreme Court Act does provide, in effect, that costs, when ascertained, are to bear interest. If any costs had been taxed the statement would have been, to a degree, correct, although somewhat elliptical. The debtors knew that no costs had been taxed. Although the test is always whether a notice is capable of misleading or perplexing a debtor, one cannot look at any particular matter without taking into account its own surrounding circumstances and the general knowledge of the litigation leading to a judgment which a particular debtor ought reasonably be deemed to have.

More importantly, there is, subject to the error which formed the basis of the second submission, no question but that the interest claimed was interest on the judgment debt itself (not on costs) from the date of entry of the judgment to 19 May, 1982.

In those circumstances I was unable to perceive how it reasonably could be said that the notice was capable of misleading or perplexing the debors. Furthermore, the defect, relating as it does to judgment interest and not to the judgment itself, ought stand in no different situation from those relied upon in Munson's case and Manion's case.

For the above reasons I considered that the defect relied upon was also a formal defect or irregularity for the purposes of s.306 of the Act.

Thus it was that I rejected each of the submissions relied upon by counsel for the debtors.