Pyramid Building Soc (in liq) v Terry, Bruce Mitchell

[1998] FCA 431

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7824 of 1997

BETWEEN:

PYRAMID BUILDING SOCIETY (IN LIQUIDATION)
Applicant

AND:

BRUCE MITCHELL TERRY
First Respondent

JUDITH WENDY TERRY
Second Respondent

JUDGE:	RYAN J
DATE:	7 APRIL 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

By their notice of intention to oppose the making of a sequestration order, as amended by leave on 30 March 1998, the debtors have raised the following as grounds upon which the Court should dismiss the petition of the petitioning creditor, Pyramid Building Society (in liquidation), (“Pyramid”):

1.The Bankruptcy Notice was not issued by an authorised representative of the Applicant.

2.The Bankruptcy Notice has not been signed by the Applicant.

3.The Bankruptcy Notice does not comply with the Bankruptcy Regulations.

4.The Petition has not been verified by the Applicant.

5.The Applicant has brought this Petition for ulterior motives and not for the purpose intended by the Bankruptcy Act and therefore should be dismissed.

6.The Applicant has compromised the whole benefit of judgment debt derived under the final order.

It is convenient to consider each of those grounds separately and in the order which it appears in the debtors’ notice.  I deal first with the ground that the bankruptcy notice was not issued by an authorised representative.  The bankruptcy notice conformed with Form 1 contained in Schedule 1 to the Bankruptcy Regulations and concluded with this notation:

The person who applied for this Notice to be issued is:

Jonathan Kramersh
Holding Redlich
Lawyers and Consultants
350 William Street
MELBOURNE   VIC   3000

Then follows a signature and then is given an address for service at the office of Messrs Holding Redlich.

In my view, the relevant part of Form 1, as prescribed to come into use in December 1996, allows a bankruptcy notice to be issued on the application of an agent of a creditor.  No provision is made for extrinsic proof of the agent’s authority as it is contemplated that the agent will confirm his or her authority “by the following signature”.  In the present case there is no challenge to the authenticity of Mr Kramersh’s signature, so he has complied with the requirements of the form by himself confirming by his signature that he is the authorised agent of the creditor: Re Spitzer; Ex parte Weltrans Agency Establishment (1979) 25 ALR 447 on which counsel for the debtor relied in this context exemplifies the general, but not inflexible, rule that the Court requires extrinsic proof of the authority of a person purporting to sign a petition on behalf of a corporation. However, the new form of bankruptcy notice has dispensed with any such requirement in respect of the authority of a signatory to procure the issue of a bankruptcy notice.

The second ground relied on was that the bankruptcy notice was not signed by the petitioning creditor.  This ground has been rendered unavailable by the conclusion reached in respect of ground 1.  Regulation 4.01 of the Bankruptcy Regulations requires only that the draft bankruptcy notice be signed by the person applying for its issue who may be an agent of the creditor.  The operative signature is that of the Official Receiver as contemplated by Reg 4.01(2).

The third ground relied on was that the bankruptcy notice does not comply with the Bankruptcy Regulations.  This ground embodies an attack on the way in which Annexure A to the bankruptcy notice recited the accrual of interest on the foundational judgment debt.  Annexure A to the bankruptcy notice recited:

Interest claimed pursuant to Section 101 of the Supreme Court Act 1986

-       Principal Sum ordered by the  $1,313,790.25
        Supreme Court of Victoria

at Melbourne on 8 September 1994:
PLUS

-       Interest at the rate of 13.2% from  $43,236.30
        9 September, 1994 to 8 December, 1994

(91 days)
LESS
-       Payment received on 8 December, 1994              $35,000.00
PLUS

-       Interest at the rate of 13.2% on  $144,289.58
        $1,278,790.25 from 9 December, 1994

to 16 October, 1995 (312 days)
LESS
-       Payment received on 16 October, 1995                $15,000.00
PLUS

-       Interest at the rate of 13.2% on  $179,160.44
        $1,263,790.25 from 17 October, 1995

to 12 November, 1996 (392 days)
LESS
-       Payment received on 12 November, 1996            $15,000.00
PLUS

-       Interest at the rate of 13.2% on  $163,937.08
        $1,248,790.25 from 13 November, 1996
        to 10 November, 1997 (363 days)

-       Interest rate:  $13.2% Pursuant
  to Section 2 of the
  Penalty Interest

Rates Act 1983)

-       Total Amount of Interest Claimed:  $530,623.40

That annexure makes it clear that the creditor has applied payments received from time to time in reduction of the principal amount of the judgment debt and then calculated interest pursuant to s 101 of the Supreme Court Act on the new balance which had been arrived at after crediting the payment received.  The total amount of interest claimed was calculated by adding the amount of interest referable to each period defined by the payment of $35,000 and two payments of $15,000 each on 8 December 1994, 16 October 1995 and 12 November 1996 respectively. It is trite law that it is open to a creditor to appropriate a payment to any part of the debt owed by a debtor and, in my view, the bankruptcy notice in this respect contains nothing misleading or impermissible.

A second basis of this ground of attack is that the address specified in the bankruptcy notice for payment of a debt, although the registered office of Pyramid, was not, in fact, an address at which the debt could have been paid.  The relevant paragraphs of the affidavit of the firstnamed debtor, Mr Terry, sworn 6 March 1998, are in these terms:

5.1Second, I was unable to effect payment to the Applicant at the address set out in the Bankruptcy Notice.

Shortly after the receipt of the Bankruptcy Notice I called at Level 26 William Street, Melbourne in order to query someone at that address on how the amount being sought had been calculated having regard to the fact that the Schedule was missing from the Bankruptcy Notice.  I also wanted to determine how the interest component was being sought and calculated as I was unable to determine this amount from the content of the Bankruptcy Notice.

I further noted that payments had been received by the creditor, these payments I knew had not been made by us.  Accordingly I wanted to know what the balance of the debt could have been if these payments continued to be made in the future.  There was no information provided on the Bankruptcy Notice to ascertain these matters and no information about these payments had been provided to us prior to the issue of the Bankruptcy Notice.

In addition, I wanted to determine as to whether an arrangement could have been made for the settlement of the balance of the debt if any was due and owing to the creditor.

5.2I called at Level 26, 140 William Street, Melbourne a couple of days after we were served with the Bankruptcy Notice.  Upon arrival on Level 26 I was unable to determine whether the creditor in effect occupied that floor or conducted any business from that Level.

A receptionist was present on the floor and after querying whether I could speak to someone connected with Pyramid Building Society I was advised by her that the creditor did not conduct any business from that floor or premises but that its offices were located at Level 18, 535 Bourke Street, Melbourne and that if I had any queries relating to Pyramid Building Society, such queries should be directed at the offices of Pyramid Building Society at that address.

Accordingly I came to the conclusion that payment could not have been effected at that address or that I was not able to make any arrangement for settlement of the debt at the address required by and as denoted in paragraph 4 of the Bankruptcy Notice.

5.3Following my attendance at Level 26, 140 William Street, Melbourne I instructed my Solicitors to write to the Solicitors who acted on behalf of the creditor in connection with the Supreme Court proceeding to determine at first instance their reaction to a proposal I wanted the creditor to consider.

There is then exhibited to the same affidavit a letter to the debtors’ solicitors on the letterhead of Pyramid Building Society and other entities which indicates their address as “Level 18, 535 Bourke Street, Melbourne”.  The same letterhead contained a postal address of “GPO Box 541F, Melbourne”.  The letter was signed by C. Massey as Manager of Pyramid Building Society (In Liquidation). 

In response to that evidence Mr Meredith, a partner of the liquidator of Pyramid, has deposed:

6(b)Mr Terry asserts that he was not able to effect payment of the debt claimed in the Bankruptcy Notice to the Applicant at the address set out in the Bankruptcy Notice or that he was unable to make any arrangement for settlement of the debt at that address, being Level 26, 140 William Street, Melbourne.  Part of Level 26, 140 William Street, Melbourne contains the administration office of Ferrier Hodgson and is also the registered office address of the Applicant.  It is staffed during normal business hours by nine people solely in the employ of Ferrier Hodgson.  The office is identified on a clear glass door with the words “Ferrier Hodgson”.  Immediately inside the clear glass door there is a clearly visible board on the left wall which states that Level 26, 140 William Street, Melbourne is the registered office address of, inter alia, the Applicant.

To the right of the glass door marked “Ferrier Hodgson” there is a glass door marked “Ferrier Hodgson Corporate Advisory” which leads to the reception area of Ferrier Hodgson Corporate Advisory, an associated professional practice of Ferrier Hodgson.  A receptionist is located immediately inside the entrance of the offices of Ferrier Hodgson Corporate Advisory and she is clearly visible from outside the glass door to that office.

In the circumstances, it is incorrect to state that payment or any arrangement to make payment of the debt referred to in the Bankruptcy Notice could not be made at Level 26, 140 William Street, Melbourne as there is staff on hand to accept tendered payment.

The office of the Liquidator together with my office are situated at Level 25, 140 William Street, Melbourne.  All of Level 25 and part of Level 26, 140 William Street, Melbourne are offices of Ferrier Hodgson.

Level 26, 140 William Street, Melbourne has been the registered office address of the Applicant since 30 November, 1994.

The deponent then exhibits copies of letters from the liquidator to Mr LaFranchi at the Victorian Financial Institution Commission dated 11 and 30 November 1994.  He goes on to refer to the previous registered office address of the applicant as having been at Level 11, 459 Collins Street, Melbourne and continues:

Mr Terry has been aware for at least three years that the Liquidator was a partner of Ferrier Hodgson as he sent a “without prejudice” letter dated 7 November, 1994 addressed to the Liquidator at Ferrier Hodgson, 459 Collins Street, Melbourne.

A copy of that letter sealing up the contents is then exhibited to the affidavit.  The affidavit continues:

Notwithstanding that the Applicant generally conducts its day to day operations from Level 18, 535 Bourke Street, Melbourne, all proposals and/or arrangements with debtors of the Applicant are considered and approved or declined by the Liquidator or by myself on behalf of the Liquidator at the offices of Ferrier Hodgson, which include part of Level 26, 140 William Street, Melbourne.

I am informed by my staff that have the responsibility for the day to day management of the Loan and verily believe that at no time have the Respondents tendered payment of the debt claimed in the Bankruptcy Notice or any sum at all and have not made any request to the Applicant as to how the debt claimed in the Bankruptcy Notice, including the interest component of the debt claimed was calculated.

In reply to Mr Meredith’s affidavit, Mr Terry has sworn in a subsequent affidavit of 30 March 1998:

6.1I refer to the affidavit of G P Meredith sworn herein and say that the Bankruptcy Notice directed us to make payment or make an arrangement for settlement at Level 26 and say there was no staff at Level 26 to discuss the matter or accept any payment.

I refer to the matters deposed by me in paragraph 5.1 and 5.2 of my previous affidavit.  I was not directed by any one to go to Level 25.

6.2The letter I sent to Tony Hodgson on 17 November, 1994 was sent and the subsequent meeting I had with him was at 459 Collins Street, not Level 26.

Form 1 in Schedule 1 of the Bankruptcy Regulations requires a bankruptcy notice to recite that:

Payment of the debt can be made to:

(name)           ___________________________________

of:        (address)           ___________________________________
  ___________________________________
  ___________________________________

That part of the bankruptcy notice was filled up in the present case by inserting the name “Pyramid Building Society (In Liquidation)” and the address “Level 26, 140 William Street, MELBOURNE”.  That address I am satisfied was, during the period of 21 days within which the debtor was required to pay the debt, an address of Pyramid.

This is not a case where the bankruptcy notice nowhere contained any address of the creditor;  cp Re Haritos; Ex parte Hill (1968) 15 FLR 378. Here an address was given which was the registered office of Pyramid and at which there were in attendance persons who could have made arrangements for payment of the debt to be received had the debtors ever evinced an intention to pay it.

I adopt with respect the observations of Pincus J in Re Nugent; Ex parte Nugent (1985) 5 FCR 161 at 163 where his Honour said:

The onus, in my opinion, is on the applicant to prove facts showing that the notice should be set aside.  Although no one at the address given had prior authority to accept payment, it is not proved that if the debtor had really desired to pay it would have been impossible, or even difficult, for him to do so.  The question is whether in these circumstances there is any invalidity in the proceedings.

That approach to the question was not disturbed on appeal sub nom Nugent v Brialkim Pty Ltd (1985) 61 ALR 725. In my view, the debtors have not discharged the onus of showing that the bankruptcy notice was deficient in this respect.

A further attack on the bankruptcy notice which was apparently subsumed under this head of the notice of opposition was that the bankruptcy notice did not contain a schedule.  Form 1 in Schedule 1 to the Regulations prescribes the following as the form which a bankruptcy notice should take:

Schedule

Column 1	Column 2
1.    Amount of judgment or order
plus       2.    Legal costs if ordered to be paid and a   specific amount was not included in the   judgment or order
plus       3.    If claimed in this Bankruptcy Notice,   interest accrued since the date of   judgment or order
4.    Subtotal
less        5.    Payments made and/or credits allowed since   date of judgment or order
6.    Total debt owing

The bankruptcy notice in the present case followed that form but omitted the heading “Schedule”.  In my view the omission of that heading is a mere formal defect or irregularity.  The bankruptcy notice contained all of the information which the creditor was required to convey to the debtor and the omission of the heading “Schedule” in my view did not cause any substantial injustice to the debtors and was not of a kind which could not be remedied by order of the Court.  The appropriate test is that laid down in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 79 where it was indicated:

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 p 644;  Pillai v Comptroller of Income Tax [1970] AC 1124, at p 1131.  In such cases the notice is a nullity whether or not the debtor in fact is misled:  In re A Judgment Debtor [1908] 2 KB 474, at p 481.

To the extent that the omission of the heading “Schedule” constitutes a formal defect or irregularity I consider that it can be cured by resort to s 306 of the Bankruptcy Act 1966.

The fourth ground of opposition is that the petition has not been verified by the applicant. Paragraphs 1, 2 and 3 of the petition have been verified by an affidavit affirmed 11 December 1997 by Mr Meredith. It appears on the face of that affidavit that Mr Meredith is “a person who knows the relevant facts” within the meaning of s 47(1) of the Bankruptcy Act.  Accordingly, I do not consider that the debtors have made out this ground of their notice of opposition.

The fifth ground of opposition relied on raised the matter of ulterior motives.  As I understood it, the principal basis on which the Court was invited to impute ulterior motives to Pyramid was that a compromise had been agreed to with Mr Hegarty who was a co-guarantor with the debtors of the principal debt.  However, there is no evidence to suggest that Pyramid has been discriminatory in extending a facility to compromise the debt in that way in Mr Hegarty and not extending a similar facility to the present debtors.  There is no evidence of any willingness on the part of the present debtors to reach an accommodation similar to that which appears to have been reached by Mr Hegarty and, in my view, the debtors have not made out a lack of bona fides of the kind discussed in Rozenbes v Kronhill (1956) 95 CLR 407 where the High Court adverted to the possibility of a petition being dismissed where it had been issued by way of seeking to extort payment of moneys which the debtor is not bound to pay or in order to obtain some secret or unfair advantage over other creditors. The Court went on to say at 417:

But extortion will not be held to have taken place “in the absence of mala fides or anything amounting to oppression in fact”.  There must be a real intention on the part of the creditor to use the process for some other end than its legitimate end, and there must be a real exertion of pressure.

I am not persuaded on the facts of this case that there has been any intention on the part of Pyramid to use this petition for some other end than procuring the payment of this debt as far as it can be procured by an administration in bankruptcy.  It is not without significance that it is not disputed that the debtors have no ability to pay any significant part of the amount of the judgment debt.

The sixth ground relied on was the subject of liberty given to counsel for the debtors to canvass in written submissions the terms of the deed of settlement concluded between Pyramid and Mr Hegarty on 28 November 1994.  A copy of that deed was produced on subpoena in the course of the hearing on 30 March and was made available to counsel for the debtors.  The facility to furnish those written submissions was not availed of and counsel for the debtors has indicated today that ground 6 of the notice of opposition is not persisted in. Accordingly, it follows that, as none of the five remaining grounds relied on has been made out, there must be a sequestration order, the formal matters of proof having been satisfied by the affidavits filed today.  I shall therefore order that there be a sequestration order against the estates of each of the debtors and that the petitioning creditor’s costs including any reserved costs be taxed and paid out of the estates of the debtors in accordance with the statute.

I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated:            7 April 1998

Counsel for the Applicant:	Mr R Brett, QC with Mr J Nolan
Solicitors for the Applicant:	Holding Redlich
Counsel for the First and Second Respondents:	Mr V Ruta
Solicitors for the First and Second Respondents:	Di Mauro Davis Zucco
Date of Hearing:	30 March and 7 April 1998
Date of Judgment:	7 April 1998