Re Cirillo, V.G. v Ex parte Heytrack (Aust) Pty Ltd

Re: VINCENZO GIOVANNI CIRILLO
Ex Parte: HEYTRACK (AUST) PTY LTD
No. S P297 of 1990
FED No. 132
Bankruptcy Act

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
Von Doussa J.(1)

CATCHWORDS

Bankruptcy Act - creditor's petition - whether act of bankruptcy proved - validity of bankruptcy notice - whether calculation of the claim for interest accurately stated - whether misdescription of petitioning creditor's name and inadequate description of its address were formal defects or irregularities validated by s.306 - bankruptcy notice and creditor's petition issued by one only of two creditors in whose favour judgment was entered - no proof whether debtor owed obligation jointly or jointly and severally.

Bankruptcy Act 1966, ss.41(2)(a), 41(3)(a), 306

Local and District Criminal Courts Act 1926 (S.A.) s.35g, 153(1), 153(2)

HEARING

ADELAIDE

#DATE 22:3:1991

Counsel for the debtor: Mr W.H. Hall

Solicitor for the debtor: W.H. Hall and Associates

Counsel for the petitioning Mr S.N. Robson
creditor:

Solicitor for the petitioning Hume Taylor and Co.
creditor:

ORDER

The creditor's petition be dismissed with costs.

NOTE: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

JUDGE1

This is a petition for the sequestration of the estate of Vincenzo Giovanni Cirillo. The act of bankruptcy on which the petition is based is the failure to comply with the bankruptcy notice, dated 26 March 1990, which was served on the debtor on 26 June 1990. The debtor opposes the petition on numerous grounds.

To keep the proceedings within manageable and reasonable bounds, the court ordered that some of the grounds of opposition be heard and determined ahead of others and, in particular, ahead of the ground which asserts the solvency of the debtor.
Today, three broad grounds have been argued which, I think, encompass grounds 7 to 14, 17 and 19 to 22 of the notice of opposition. I propose to take the grounds in the reverse order to that in which Mr Hall, for the debtor, argued them.
The first broad ground concerns the statement of a claim for interest in the bankruptcy notice. The bankruptcy notice was based on a judgment in the District Court of Adelaide entered in accordance with the provision of the Local and District Criminal Courts Act 1926 (S.A.). As the matters which the debtor contends render the bankruptcy notice invalid relate back to the terms of the Certificate of Judgment issued by that court, I set out the terms of the certificate :

"CERTIFICATE OF JUDGMENT

IN THE DISTRICT COURT OF ADELAIDE

Number and year of action in

which Judgment or Order obtained 286/88

Name, place of residence, and HEYTRACK (AUST) PTY LTD occupation of person in whose whose registered office in favour Judgment or Order is Micklehan Road, made or given, or to whom Tullamarine, Victoria 3043. payment is to be made Machinery Distributors. and Peter Heyes, Mickleham Road, Tullamarine Victoria 3043, Managing Director. Name and place of residence Vincenzo Giovanni CIRILLO of person ordered to pay money 3 Hubbe Crescent BURNSIDE SA 5066 Date of Judgment or Order 30/11/89

Amount ordered to be paid There will be judgment on the claim in the sum of $66832.79 together with interest from the date of the institution of proceedings at the rate of 10% per annum until payment of the judgment debt. Particulars of the amount due Amount due $80574.24 under the Judgment or Order at

the time this certificate Subsequent fees and costs issued up to and inclusive of this certificate $ -

I certify that this certificate correctly and fully sets forth the particulars of *a Judgment given in *an Order made in (*Strike out what is inapplicable) this Court on the 30th day of November 1989, in a suit wherein HEYTRACK (Aust) PTY LTD and PETER HEYES were Plaintiffs and VINCENZO GIOVANNI CIRILLO was Defendant.

Given under my hand and the seal of this Court this 19th day of February 1990.

Clerk of the Court

The Local and District Criminal Courts Act, para.153(1)(b), provides that a judgment shall carry interest at the prescribed rate, which is 10 per centum per annum, from the date of entry to the date of payment. It is permissible for statutory interest under that provision on a judgment to be claimed in a bankruptcy notice, but experience has shown that claims for interest of that kind are prone to give rise to difficulties, and argument about the validity of the bankruptcy notice.

Such a case was considered by a Full Court of this Court in Re Farrugia (1988) 80 ALR 651. At p 653, the court said:

"If a judgment creditor chooses to claim interest on a judgment debt it is necessary for the calculation of the claim to be accurately stated in the notice and for the period during which the claim is made to be specified: Re Mullavey per C.A. Sweeney J at 284; Re Davis; Ex parte DCT (1963) 19 ABC 100; (1963) ALR 764; Re McDonald; Ex parte Elder Smith Goldsbrough Mort Ltd (1978) 18 ALR 505 per Riley J at 507."

Later in the judgment, at p 655, the Court said:

"A bankruptcy notice is a statutory document which must be complied with by the debtor if he is to avoid committing an act of bankruptcy. It must be unequivocal in its terms and clear to the debtor. Strict compliance with the requisites of a bankruptcy notice is essential to its validity: James v FCT (1955) 93 CLR 631 at 644. If a bankruptcy notice claims interest on a judgment debt, it must be so expressed that it is clear that all that is claimed by the creditor from the debtor in the notice is the amount or the amounts specified, so that the debtor is informed that if he wishes to comply with the requirements of the notice he may do so and that, if he does not, he shall commit an act of bankruptcy. It is a question of interpretation of the bankruptcy notice in each case whether this requirement is complied with. But it is not necessary that the notice state in terms that any right to future accruals of interest on the judgment is abandoned or waived. There is no reason in principle why this should be so. All that is necessary is that the bankruptcy notice should clearly and unequivocally state what the debtor is required to do to avoid the commission of an act of bankruptcy. Such clear and unequivocal statement in turn requires an accurate statement of the amount which the debtor is required to pay, secure or compound."

The questions in this case, therefore - adopting phrases out of the passages which I have read - are whether the calculation of the claim for interest was accurately stated, whether the period during which the claim is made was specified, and whether the notice by its terms was unequivocal and clear to the debtor.
In my opinion, the answer to each of those questions must be in the negative. The bankruptcy notice in its relevant portions read:

"Whereas Heytrack (Aust) Pty Ltd ... has claimed the sum of $66,832.79 plus interest thereon at the rate of 10 per centum per annum from the 30th day of November, 1989 which at the 19th day of February, 1990 amounted to $13,741.45 and no more is due by you to it under a final judgment obtained ... on the 30th day of November, 1989 being a judgment the execution of which has not been stayed."

The notice went on to require payment of $80,574.24 or that sum be secured or compounded to the satisfaction of the judgment creditor. The amount of $80,574.24 is the total of the two sums earlier mentioned in the notice.
It is immediately apparent, upon reading the opening parts of the bankruptcy notice, that there is something amiss with the claim for interest. Interest at 10 per cent per annum for the period stated in the notice would be in the order of $1,483.14 and by its terms the notice claims more than $12,000 in addition. The explanation for that inconsistency does not appear from a reading of the notice.
It is not for the debtor to speculate. He is entitled to be told clearly what the claim for interest is and the periods during which it is made. But if the debtor were to embark upon an exercise of speculation, the first thing that he would notice on re-reading the document is that the starting date for the calculation of interest appears to be correct because later in the bankruptcy notice it is stated that the judgment was entered on 30 November 1989. This date would be the starting point in the ordinary course for a calculation of statutory interest which is what the document purports to claim, that is, statutory interest under para.153(1)(b) of the Local and District Criminal Courts Act. This speculation could lead the debtor to conclude that the amount claimed was a gross over-estimate.
Another possibility might be - and indeed it is one that was suggested in discussion between counsel and the Bench in the preliminary hearing of this matter - that taxed costs have been included in the amount claimed. But no indication is given by the terms of the bankruptcy notice as to whether this is the case. The debtor's notice of opposition pleads several grounds which assume this is the explanation for the comparatively large sum claimed as "interest". These grounds contend that the bankruptcy notice is invalid because the allocator certifying the taxed costs has never been served upon the debtor as required by sub.s.153(2) of the Local and District Criminal Courts Act: see Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552.
The debtor on receiving the bankruptcy notice would not have had available to him the certificate of judgment. Recourse to the certificate of judgment does not satisfactorily explain how the apparent error occurred in the bankruptcy notice. Counsel for the petitioning creditor has today suggested that error occurs in the bankruptcy notice in one respect only; that the stated starting date for the calculation, namely 30 November 1989, should have read 20 January 1988. That is not a date which appears on the certificate of judgment, but extrinsic evidence - namely, reference to the summons which initiated the District Court proceedings - shows that the proceedings were issued on that date. It could be presumed that a calculation of interest would have been performed at some stage from that date to give rise to the "amount ordered to be paid" which is stated in the certificate of judgment.
Counsel have endeavoured to calculate what would be the rate of interest at 10 per cent on $66,832.79 from 20 January 1988 either to 30 November 1989, which was the date of judgment, or to 19 February 1990, which is the date the certificate of judgment was signed and sealed by the Clerk of the Local Court. The figure of $13,741.45 bears some similarity - that is, a similarity within some $200 - to the calculation from the date of the commencement of the proceedings to 19 February 1990 and perhaps that is the explanation.
A reference to the certificate of judgment suggests to me that a fundamental difficulty has arisen from the way in which the order of the court was recorded in the District Court, and from the way in which it has been implemented. I have earlier set out the terms of the certificate of judgment, and in particular the "amount ordered to be paid". There is provision in the Local and District Criminal Courts Act, in s.35g, for the court to include interest on a claim up to the date of judgment and to include that interest as part of the judgment.
I anticipate that the judge making the order in question intended that the order as recorded operate pursuant to that section. However, the implementation of such an order should have led to the calculation of a fixed sum of money due as at the date of judgment, namely 30 November 1989, and that sum should then have been recorded as the judgment amount. On that amount, the statutory interest provisions of para.153(1)(b) would then have operated.
I further suspect that the amount of $80,574.24 is the product of an administrative exercise when the certificate of judgment was applied for. Presumably an officer of the court has done a calculation when preparing the certificate of judgment, and has shown an amount calculated to the day on which the calculation was performed. But there has been a delay of some days between that event and the signing and sealing of the certificate by the clerk. This could account for the difficulty in reconciling the calculations.
I mention these matters in an effort to try and explain what may have happened. However, they are not matters that would have been known to the debtor. The plain fact is that a reading of the bankruptcy notice is likely to cause considerable confusion in the minds of both the informed and the uninformed. It cannot, in my view, be said that it contains an accurate statement of the claim for interest, nor does it contain an accurate statement of the period for which interest is claimed.
For these reasons, I think the debtor has made out the first of the broad grounds upon which he challenges the validity of the bankruptcy notice.
The second ground of challenge concerns the misdescription of the name, and an inadequate description of the address, of the petitioning creditor. The correct registered name and registered office address of the petitioning creditor, according to the records of the Australian Securities Commission, is Heytrack (Australia) Proprietary Limited, registered office at Cnr Freight and Mickleham Rd, Tullamarine, Victoria, 3043.
The description of the petitioning creditor and the address for the petitioning creditor shown throughout these proceedings and in particular in the bankruptcy notice is as set out in the certificate of judgment earlier recorded, namely, Heytrack (Aust) Pty Ltd, whose registered office is Micklehan Road, Tullamarine, Victoria, 3043.
Evidence has been given by a director of the petitioning creditor that the petitioning creditor carries on a large machinery distributing business in Victoria and has done so for many years from addresses in Mickleham Road, Tullamarine. Although it has from time to time operated from different premises, at least for the last few years it has been in one only location in Tullamarine, namely, at the location of the registered office. The petitioning creditor has customarily used the abbreviated name which has been employed in these proceedings, and does so on its letterhead. Moreover, the petitioning creditor has had dealings over a sustained period of time with the debtor. The debtor has attended the premises of the petitioning creditor on numerous occasions. As a matter of fact, it is hardly likely that the debtor would have been in any state of uncertainty or confusion upon receiving th bankruptcy notice or the creditor's petition as to the identity of the petitioning creditor, or the location at which the petitioning creditor could be found for the purposes of payment, security or compromise of the debt.
The debtor, however, argues that these irregularities invalidate the bankruptcy notice. In my view, the name and address are formal defects or irregularities of the kind which are validated by s.306 of the Bankruptcy Act. Sub-section (1) of that section provides:

"Proceedings under this 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 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."

The nature of a formal defect or irregularity was considered by Lockhart J. in Re Wimborne (1979) 24 ALR 494. At pp 498-499 Justice Lockhart said:

"A 'formal defect or any irregularity' is one that could not reasonably mislead the debtor. If the defect is of such a kind as could reasonably mislead the debtor upon whom it was served the defect is fatal to the notice: see Re a Debtor; Ex parte The Debtor v Bowmaker Ltd (1951) Ch 313 and Pillai v Comptroller of Income Tax (1970) AC 1124 at 1135.

The test is not whether the debtor was in fact misled. It is sufficient that he could be misled. In James v F.C. of T., supra, Williams, Kitto and Taylor JJ said (93 CLR at 644): 'The court cannot inquire whether the debtor has in fact been misled or not. In this case it is probable that he was not misled. It is sufficient that he could be misled.'"

However the point that is made in that decision, and in the cases earlier cited, is that whilst the court is not concerned to determine whether the debtor was in fact misled, the court must have regard to the circumstances of the particular debtor to determine whether he could have been misled. The circumstances of this particular debtor are that he was well aware of the identity of the petitioning creditor and the place of business and registered office of the petitioning creditor. The bankruptcy notice upon which the petition is founded is not therefore invalid by reason of the misdescription of the creditor's name and by the inadequate description of the address as the debtor could not have been misled.
The third broad ground upon which challenge is made has its origins in the form of the judgment. It is contended by the debtor that the judgment debt is one owed by him jointly to the petitioning creditor and to Peter Heyes, the other judgment creditor identified in the certificate of judgment and as only one of the joint creditors has been named in the bankruptcy notice, and has presented the petition, both the bankruptcy notice and the creditor's petition are defective.
The form of the judgment is consistent with the judgment being one in respect of an obligation owed jointly by the debtor to the creditors. However, that is not conclusive. It would be open to the judgment creditors, in my opinion, to lead evidence to establish clearly the basis of their claim and whether it was in respect of an obligation owed to them jointly, or to them jointly and severally.
Although the matter was distinctly raised in the course of the hearing by the debtor, the evidence does not satisfy me that the debt was one owed jointly and severally, and not one owed jointly. The particulars of claim have been tendered today, but they are brief, as is customary in that jurisdiction, and ambiguous as to the nature of the obligation. The debtor's contention is that in the absence of proof from the petitioning creditor that the debt was one owed jointly and severally, this court should assume that it was a joint debt and approach the matter accordingly. I am disposed to think that argument is correct.
In the case of a judgment entered in favour of judgment creditors to whom an obligation is owed jointly by a debtor, it is clear that proceedings under the Bankruptcy Act, whether a bankruptcy notice or a creditor's petition, must be taken out in the name of all those to whom the joint obligation is owed. Paragraph 41(3)(a) of the Bankruptcy Act 1966 provides that a bankruptcy notice shall not be issued in relation to a debtor except on the application of a creditor who has obtained a final judgment or final order. In relation to the forerunner of that section, namely, s.52(j) of the Bankruptcy Act 1924-1933, Latham C.J. said in Australian Workers' Union and Ors v Bowen (1946) 72 CLR 575 at 583:

"The Bankruptcy Act 1924-1933, s.52(j), provides that a bankruptcy notice may be issued upon the application of a creditor who has obtained a final judgment. A judgment creditor can issue a bankruptcy notice only if he is in a position to issue execution (Ex parte Woodall; In re Woodall (1884) 13 QBD 479; Ex parte Ide; In re Ide (1886) 17 QBD 755). Only one writ of execution can be issued for the one judgment debt to which joint judgment creditors are entitled, and a bankruptcy notice in the case of such creditors can be effective only when issued by or on behalf of all the judgment creditors. So also a bankruptcy petition must be presented by all the joint judgment creditors: Ex parte Owen; In re Owen (1884) 13 QBD 113; Brickland v. Newsome (1808) 1 Camp 474 (170 ER 1026), and see Re Tucker; Ex parte Tucker (1895) 73 LT 170."

There also arises a further consideration under para.41(2)(a) of the Bankruptcy Act which provides that the prescribed form of a bankruptcy notice shall be such that the notice requires the debtor named in it to pay the judgment debt or sum ordered to be paid in accordance with the judgment or order. In relation to a similar provision in the former Bankruptcy Act, Gibbs J., as he then was, in Re Hamor; Ex parte Deamer and Anor (1967) 11 FLR 261 at p 262 said:

"Section 53 of the Bankruptcy Act 1924-1965 (under which these proceedings are taken) provides inter alia that a bankruptcy notice 'shall require the debtor to pay the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order...'. In the present case the judgment created a joint right in the defendants to be paid; the right to enforce the judgment was vested in Charles R. Deamer and Noyes Bros. Pty. Ltd. jointly and not severally (see Australian Workers' Union v. Bowen (1946) 72 CLR 575. Clearly it was necessary, if the notice were to be valid, that both creditors should have authorized its issue, but both did so. However, the notice required the debtor not to pay Charles R. Deamer and Noyes Bros. Pty Ltd., but to pay Charles R. Deamer or Noyes Bros. Pty. Ltd. The question is whether the use of 'or' instead of 'and' means that the notice did not require the debtor to pay the judgment debt in accordance with the terms of the judgment and rendered the notice invalid."

On the footing that the judgment was in favour of the judgment creditors jointly, the bankruptcy notice is bad on the ground that only one of the creditors has been named as the judgment creditor. In the absence of proof whether the debtor's obligation was owed jointly, or jointly and severally, the petitioning creditor has not proved the validity of the bankruptcy notice and the act of bankruptcy relied on.
In addition, no evidence was led before the court today from the other judgment creditor in support of the allegation that the judgment debt is still due. Even if the obligation which is now recorded in the judgment were one owed by the debtor jointly and severally to the two judgment creditors, it seems to me that to make good the allegation that the obligation is still due, it is necessary where only one of the judgment creditors is named as petitioning creditor to call evidence that the liability under the judgment, although due severally, has not been discharged by payment by the debtor to the other judgment creditor.
In my view, for the reasons given, the bankruptcy notice was not valid. I therefore dismiss the creditor's petition with costs.

[1991] FCA 132

22 MARCH 1991