Re Fazzolare, John Domenic & Ors Ex Parte Fazzolare, John Domenic & Anor v Westpac Banking Corporation

[1997] FCA 190

CATCHWORDS

BANKRUPTCY - whether bankruptcy notice valid - whether underlying debt owing - whether final judgment immediately enforceable - whether amendment required for final judgment - consideration of purpose of going behind a judgment - whether bankruptcy notice misleading - whether particulars in notice adequate.

Bankruptcy Act 1966 (Cth) s 40(3)(d)
Westpac/Challenge Act 1996 (SA) s 11

Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552, applied.

Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 83 ALR 365, cited.

Abigroup Ltd v Abignano (1992) 39 FCR 74, cited

Re Ide; Ex parte Ide (1886) 17 QBD 755, cited

Re Gualtieri; Ex parte Martin & Savage Pty Ltd (1995)
58 FCR 55, cited

Re Richards; Ex parte Sommers (1947) 14 ABC 112, cited

Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311, cited

Corney v Brien (1951) 84 CLR 343, cited

Re Woodall; Ex parte Woodall (1884) 13 QBD 479, cited

Re Keelan; Ex parte Bank of South Australia Ltd (1995)
57 FCR 592, distinguised

James v Federal Commissioner of Taxation (1955) 93 CLR 631, cited

Re: JOHN DOMENIC FAZZOLARE, PAULINE FAZZOLARE, NICHOLAS NOTARAS & HELEN NOTARAS (Debtors) and EX PARTE: JOHN DOMENIC FAZZOLARE AND PAULINE FAZZOLARE (Applicants) AND WESTPAC BANKING CORPORATION (Respondents)
No NG 7206 of 1997

Tamberlin J
Sydney
27 March 1997

IN THE FEDERAL COURT OF AUSTRALIA )                 
GENERAL DIVISION                 )    No NG 7206 of 1997
BANKRUPTCY DISTRICT OF THE       )
STATE OF NEW SOUTH WALES             )   

Re:      JOHN DOMENIC FAZZOLARE
  PAULINE FAZZOLARE
  NICHOLAS NOTARAS and
  HELEN NOTARAS

Debtors

AND:

Ex Parte: JOHN DOMENIC FAZZOLARE
  AND PAULINE FAZZOLARE

Applicants

WESTPAC BANKING CORPORATION
  (ARBN 007 457 141)

Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       27 MARCH 1997

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The bankruptcy notice be set aside.

1. The respondent pay the costs of the applicants.

NOTE:     Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )                 
GENERAL DIVISION                 )
BANKRUPTCY DISTRICT OF THE       )    No NG 7206 of 1997
STATE OF NEW SOUTH WALES             )        

Re:      JOHN DOMENIC FAZZOLARE
  PAULINE FAZZOLARE
  NICHOLAS NOTARAS and
  HELEN NOTARAS

Debtors

AND:

Ex Parte: JOHN DOMENIC FAZZOLARE
  AND PAULINE FAZZOLARE

Applicants

WESTPAC BANKING CORPORATION
  (ARBN 007 457 141)

Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       27 MARCH 1997

REASONS FOR JUDGMENT

TAMBERLIN J:

This is an application to set aside a bankruptcy notice issued on 23 January 1997.

There are two grounds. These are that:

1. When the judgment was entered in the Supreme Court against the applicants in favour of Challenge Bank Limited ("Challenge") no debt was owed by the applicants to Challenge.

1. Alternatively, the notice was misleading.

Background
On 5 August 1996 Challenge commenced proceedings in the Commercial Division of the Supreme Court of New South Wales to recover moneys from the debtors. On 1 October 1996 the "Westpac/Challenge" Act 1996 (South Australia) (the "Westpac Act") came into operation.

The effect of the Act was that on 1 October 1996 the undertaking of Challenge was divested from Challenge and vested in Westpac Banking Corporation ("Westpac"). See s 7. The expression "undertaking" included all the property of Challenge (s 3). Section 11 of the Westpac Act provides:

"Legal Proceedings

11(1) This section applies to -

(a)any action ... or proceeding which is at the commencement time [1 October 1996] pending by ... Challenge ...

(2) Any action ... or proceeding to which this section applies, is not .. in any way prejudicially affected by reason of this Act, and may, without any further act, deed or instrument other than any appropriate amendment of the records of the relevant court or tribunal, be prosecuted and continued and enforced by ... Westpac, in its own name as and when it might have been ... enforced by ... Challenge if this Act had not been enacted."

On 4 October 1996 Challenge obtained judgment, effective from that date, in the Supreme Court of New South Wales for $532,970.85 together with $997 costs against the debtors.

On 23 January 1997 a bankruptcy notice was issued. It was addressed to the debtors and relevantly reads:

"1.Westpac Banking Corporation (ARBN 007 457 141) pursuant to the Westpac/Challenge Act 1996 whereby the debt vests from Challenge Bank Limited (ACN 009 230 433) to Westpac Banking Corporation ("the creditor") of Level 4, 341 George Street Sydney in the State of New South Wales claims you owe the creditor a debt of $552,358.50 as shown in the Schedule.

2.The creditor claims that the debt is due and payable by you. A copy of the judgment or order relied upon by the creditor is attached. At the time of applying for this Notice, execution of the judgment or order had not been stayed.

3.   ....

4.Payment of the debt can be made to:

Westpac Banking Corporation ...."

A copy of the Supreme Court judgment was attached to the bankruptcy notice.

The applicants submit that on 4 October 1996, when judgment was entered, Challenge had been divested of its right to recover the debt and that Westpac was the only party entitled to recover the debt. Accordingly, Challenge was not entitled to obtain judgment in the Supreme Court on the debt because the judgment on which the notice was based was not supported by any underlying debt to Challenge.

The applicants contend that prior to the entry of judgment, in order to make it immediately enforceable, Westpac should have sought to be substituted as plaintiff. This is said to flow from the words of subs 11(2) of the Westpac Act which enables enforcement by Westpac:

".... without any further act, deed or instrument other than any appropriate amendment of the records of the relevant court..." (Emphasis added)

The relevant court, of course, was the Supreme Court. There has been no such amendment. Therefore the judgment could not be relied on.

Legal Principles
The settled practice of the Court in relation to bankruptcy notices is that such notices will be construed so as to require strict compliance with and adherence to the requirements of the Act. The reason for this is explained by Fisher J, when setting aside a bankruptcy notice on "highly technical" grounds, in Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 558:

"A more strict compliance is required in the case of a bankruptcy notice than of a petition for a sequestration order, the consequences of non-compliance with a bankruptcy notice are penal or quasi-penal in nature .... and creditors who avail themselves of proceedings of this nature to enforce payment of debts must be prepared to adhere to the requirements of the Acts and Rules however technical they may appear to be..."

The above statement of principle was approved by Gummow J in Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 83 ALR 365 at 275.

It is settled law that a final judgment means any judgment upon which the creditors are in a position to issue execution: Abigroup Ltd v Abignano (1992) 39 FCR 74 at 79-81. If the leave of the Court is required to levy execution then the judgment is not a final judgment within s 40(1)(g) of the Act: Re Ide; Ex parte Ide (1886) 17 QBD 755; Re Gualtieri; Ex parte Martin & Savage Pty Ltd (1995) 58 FCR 55. The judgment creditor must be in a position to be able to issue immediate execution: Re Richards; Ex parte Sommers (1947) 14 ABC 112 and Abignano (supra) at 80.

In my view the words "other than any appropriate amendment of the records of the relevant court" in ss 11(2), require that such an amendment must be made to the Supreme Court record before the judgment can be enforced by Westpac. Since no such amendment was made there was therefore no final judgment which could be immediately enforced by Westpac as at 23 January 1997 when the notice was issued. Accordingly, the notice was invalid and must be set aside.

Counsel for Westpac referred to the decision of Gibbs J in Re  Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311 at 320, where Gibbs J said:

"The court will go behind the judgment for the purpose of considering whether it was founded on a real debt ... The object of going behind a judgment is not to inquire whether the proper procedure was followed to obtain it, but to determine whether the debtor in reality owed to the creditor the moneys which the judgment held that he owed...." (Emphasis added)

In Corney v Brien (1951) 84 CLR 343, Fullagar J, after reviewing the authorities, said at 358:

"As Lord Esher MR said in In re Fraser; Ex parte Central Bank of London [1892] 2 QB at 636-637: 'The existence of the judgment is no doubt prima-facie evidence of the existence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor.'"

The present case
A submission was made that there really was a debt due in the present case, albeit to Westpac, and that was sufficient to support the judgment and the notice.

This approach does not, however, advance the creditor's position because at 4 October 1996, when judgment was given in favour of Challenge, the debt was due to Westpac but Westpac was only entitled to immediate execution after the relevant court record had been amended. This had not been done prior to issue of the notice.

Counsel for Westpac also referred to s 40(3)(d) of the Act which provides:

"(d)a person who is for the time being entitled to enforce a final judgment ... for the payment of money shall be deemed to be a creditor who has obtained a final judgment ...."

This provision simply incorporates into the Act the principles applied in Re Woodall; Ex parte Woodall (1884) 13 QBD 479; and Re Ide (supra).

The submission was, that by operation of s 11(2) Westpac was entitled to enforce the judgment. However, for reasons given above I do not consider that, as at 23 January 1997 when the notice was issued, Westpac was entitled to enforce the final judgment.

Failure to amend the record of the Supreme Court in this matter as required by the Westpac Act is not a formal defect or irregularity capable of remedy under s 306 of the Act. It goes directly to the immediate enforceability of the judgment relied on.

This ground of challenge to the bankruptcy notice succeeds and the bankruptcy notice should be set aside.

Misleading notice
The applicants also contend that the notice was misleading because it did not spell out in greater detail the way in which Westpac came to issue the notice in its name in circumstances where the judgment was based on a claim made by Challenge. Reference was made to the decision of Branson J in Re Keelan; Ex parte Bank of South Australia Ltd (1995) 57 FCR 592, with reference to Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71.

The decision of Branson J is however clearly distinguishable because in that case there was no reference at all to the legislation which effected the corporatisation of the State Bank of South Australia which had been previously been an emanation of the Crown. In the present case, the bankruptcy notice refers to the Westpac Act and to its effect, albeit in general terms. The adequacy of the particulars as to the manner in which there is an apparent change in the name or identity of a creditor will depend on the circumstances. In this matter the information given in my view is sufficient to prevent it from being misleading.

If the applicant wished to investigate or challenge the assertion that the debt had been vested in Westpac then there was sufficient detail given to enable the debtor to check the position and seek appropriate advice. 

There is no suggestion in this case that the applicants were in fact misled, but that is not necessary: James v Federal Commissioner of Taxation (1955) 93 CLR 631. The question is whether on a reasonable construction of the notice it was capable of misleading. In my view it was not.

For the above reasons, this ground of challenge to the validity of the bankruptcy notice must fail.

Conclusion
The application to set aside the bankruptcy notice should be granted. The bankruptcy notice is set aside. The respondent should pay the applicants' costs.

I certify that this and
the preceding eight (8)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.

Associate:

Date:  27 March 1997  

Solicitor for Applicant:              Blake Waldron Dawson   

Counsel for Respondent:          Mr C R Newlinds  

Solicitor for Respondent:        Kemp Strang & Chippindall

Date of Hearing:               11 March 1997  

Date Judgment Delivered:              27 March 1997