Re Chambers, N. v Ex parte Mitsubishe Electric Australia

[1991] FCA 318

Re: NEIL CHAMBERS
Ex Parte: MITSUBISHI ELECTRIC AUSTRALIA PTY LTD
No. P2833 of 1990
FED No. 318
Bankruptcy
29 FCR 507

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice requiring payment to the Registrar of a New South Wales Local Court - change to rules of that Court after issue of bankruptcy notice but before service of notice - provision no longer made for payment to Registrar - whether bankruptcy notice required payment in accordance with the Local Court judgment - whether notice bad.

HEARING

SYDNEY

#DATE 14:6:1991

The debtor did not appear.

Solicitors for Sally Nash and Co.
Petitioning Creditor:

ORDER

Make a sequestration order in respect of the estate of the debtor.

Costs of the petitioning creditor to be paid out of the estate of the debtor in accordance with the statute.

NOTE: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

JUDGE1

In a creditor's petition for the sequestration of the estate of a debtor, the act of bankruptcy relied on being the alleged failure by the debtor to comply with the requirements of a bankruptcy notice, a question has arisen as to the validity of the notice.

1. On 13 February 1990, the creditor recovered judgment in a Local Court against the debtor in the sum of $10,111.90. On 9 April 1990, the creditor applied for the issue of a bankruptcy notice. On 17 April 1990, a bankruptcy notice was issued in the following terms, so far as relevant:
   

"WHEREAS: MITSUBISHI ELECTRIC AUSTRALIA PTY LTD of 73-75 Epping Road, NORTH RYDE NSW 2113.

(hereinafter referred to as 'the judgment creditor') has claimed that the sum of $10,111.90 together with interest thereon at the rate of 15 per centum per annum from 13 February, 1990 to 6th April, 1990 which amounts to $206.09 making a total of $10,317.99 is due by you to it under a final judgment obtained by it against you in the Local Court at 302 Castlereagh Street, Sydney on the 13th day of February 1990, being a judgment the execution of which has not been stayed: THEREFORE TAKE NOTICE that within 28 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 $10,317.99 so claimed by the judgment creditor to The Registrar - Local Court at 302 Castlereagh Street, Sydney"

1. The notice is in the prescribed form. By s.41(2) of the Bankruptcy Act 1966, the notice must require the debtor to pay the judgment debt or sum ordered to be paid "in accordance with the judgment or order...".

2. It will be seen that the notice required payment to be made to the Registrar - Local Court. At the date of the issue of the notice, this requirement was validly made. Until the Local Courts (Civil Claims) Rules 1988 were changed (with effect from 27 April 1990) Part 27 Rule 1 of the Rules provided as follows:
   

"1. (1) The Court may, on the application of any party to an action, or without any such application being made, when giving judgment in the action, order that the judgment debt (if any) be paid at such time, or by such instalments payable at such times, as it thinks fit.

(2) Subject to this Part, every judgment debt shall be payable forthwith.

(3) Subject to subrule (5), the amount of every judgment debt arising from an action shall be payable to the registrar where-

(a) it is payable in one sum; or

(b) an order for its payment by instalments requires the instalments to be paid to the registrar.

(4) Where the court or registrar orders payment of a judgment debt by instalments and does not require payment of the instalments to the registrar, the instalments are payabale to the judgment creditor or at the judgment creditor's direction.

(5) Notwithstanding subrule (3), any payment by or on behalf of a judgment debtor made on account of a judgment debt to or at the direction of the judgment creditor shall, if accepted by or on behalf of the judgment creditor, operate to reduce the judgment debt by the amount of the payment.

(6) Where the court makes an order under subrule (1) the order shall, while it remains in force, operate as a stay of enforcement of the judgment.

(7) Where a judgment creditor files an affidavit for the purpose of requiring the issue of any document for or in connection with the enforcement of a judgment, the affidavit shall, in any action (whether in a court or in any other Court) by the judgment debtor against the registrar for the wrongful issue of the document, be conclusive evidence in favour of the registrar that at the time of the issue of the document-

(a) where an amount is stated in the affidavit as having been paid in reduction of the judgment debt - that amount and no other amount had been paid; or

(b) where there is a statement in the affidavit that no amount has been paid in reduction of the judgment debt - no amount had been paid,

by or on behalf of the judgment debtor in reduction of the judgment debt." (Emphasis added)

1. A further Rule was made with effect from 27 April 1990. This amended Part 27 by omitting Rule 1 (3) and omitting from Rule 1 (5) the opening words "Notwithstanding subrule (3)".

2. The bankruptcy notice was served on 18 September 1990. No payments have been made in reduction of the judgment debt. The question arises whether, having regard to the changes in the Rules between the issue of the notice and its service, the notice is valid.

3. A somewhat similar question was considered by Gummow J. in Re Soudakoff, Ex parte Crest Air Conditioning Pty. Limited, 13 March 1991, unreported. A bankruptcy notice issued on 13 September 1990 referred to a final order obtained in a Local Court and required the debtor to pay the judgment debt to the Registrar of the Local Court. Gummow J. referred to the amendment of the Local Court Rules and said:
   

"The result of this was that at the time of the application on 29 August 1990 for the issue of the bankruptcy notice and at the time of the issue of the notice on 13 September 1990, there was no provision in the Local Courts Rules for the method of payment of a judgment debt payable in full, other than the implicit indication in sub-rule 1 (5), as amended, that payment would be made to or at the direction of the judgment creditor."

1. Gummow J. accepted the submission put on behalf of the debtor that the bankruptcy notice was bad for the following reasons: (i) in the absence of a direction as to payment in the judgment itself, the judgment should be interpreted as requiring payment in accordance with the Local Courts Rules; (ii) at the time of recovery of the judgment in the Local Court, the Rules provided that the judgment debt was payable to the Registrar; (iii) at the time of the issue of the bankruptcy notice, the Rules no longer so provided, (following the 1990 amendment) yet the bankruptcy notice stipulated payment to the Registrar and (iv) the requirement under the federal law that the debtor be required by the bankruptcy notice to pay the judgment debt or sum ordered to be paid "in accordance with the judgment or order" was ambulatory in character in the sense that what was required by the federal law in the present case was payment in accordance with the State law as it stood during the time for payment specified in the bankruptcy notice, that is to say from the date of service of the notice until the expiration of the period prescribed in it.

2. Gummow J. said:
   

"It would be a strange result if a bankruptcy notice was bad unless it required payment in a manner not in accordance with what the applicable law now required to discharge the judgment debt in question, but in accordance with what had been required at a past time."

1. Gummow J. did not regard the defect as merely formal for the purposes of s.306(1) of the Bankruptcy Act or as susceptible of amendment under s.33(1)(b).

2. The present case is distinguishable on its facts from Re Soudakoff because the present bankruptcy notice was issued before the 1990 amendment to the Local Court Rules took effect. That is, the notice was in accordance with the Rules at the time of its issue, but not at the time of its service.

3. A question rather similar to that now arising was considered in Walsh v The Deputy Commissioner of Taxation of the Commonwealth of Australia (1984) 156 CLR 337. It was there held that a bankruptcy notice that requires a judgment debtor to pay a sum which is in fact due at the date of its issue is not rendered invalid by the fact that the amount due under the judgment was reduced by payment made between the dates of issue and service.

4. Gibbs C.J. (with the agreement of Mason, Brennan, Deane and Dawson JJ.) said (at 340):
   

"A bankruptcy notice is a document issued by the registrar, under statutory authority: see s.41(1) of the Bankruptcy Act. Normally, therefore, it would be expected that the validity of the notice should be tested as at the date of its issue. The prescribed form of notice bears a date and the notice itself states that the judgment creditor 'has claimed that (the specified sum) is due by you to him'. In form the notice speaks as at the date which it bears, that is the date of its issue, and although service is essential to make non-compliance an act of bankruptcy, and although the time fixed for compliance runs from the date of service, the notice must be understood as speaking as at the date of its issue and the requirements of the notice, for the purposes of s.40(1)(g) of the Bankruptcy Act, must be ascertained in that context. This reinforces the view that the amount which must be correctly stated is the amount of the judgment debt owing at the date of issue. This conclusion is satisfactory from a practical point of view since it is ordinarily within the knowledge of the debtor whether or not any payments have been made since the issue of the notice and the ability to invalidate a notice on the ground that payments were subsequently made opens the way to evasion."

1. In my opinion, this reasoning should be applied, by analogy, in the present case. It follows, in my view, that the validity of the notice should be tested as at 17 April 1990. As at that date, the notice required payment of the judgment debt in accordance with the practice and procedure of the Local Court. Accordingly, in my view, the notice was good, notwithstanding that as from 27 April 1990 a different practice and procedure was introduced.

2. I make a sequestration order in respect of the estate of the debtor. I order that the costs of the petitioning creditor be paid out of the estate of the debtor in accordance with the statute.