Re Findlay, I.W. v Ex Parte Ampol Petroleum (Vic) Pty Ltd

[1990] FCA 740

Re: IAN WILLIAM FINDLAY
Ex Parte: AMPOL PETROLEUM (VICTORIA) PTY LIMITED
No. P350 of 1990
FED No. 740
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Sheppard J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice required payment of balance due on judgment - debtor without means of calculating how balance arrived at - bankruptcy notice misleading.

HEARING

SYDNEY

#DATE 21:12:1990

Counsel for the Petitioning Creditor : Mr H. Fraser

Solicitor for the Petitioning Creditor: Hall and Wilcox

Solicitor for the Debtor: Mr T. Irlicht

ORDER

The petition be dismissed.

The petitioning creditor pay the debtor's costs of the petition including any reserved costs.

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

JUDGE1

The facts of this matter are not in dispute. On 4 June 1990 the petitioning creditor presented a petition for the sequestration of the debtor's estate. The act of bankruptcy relied upon in the petition was the debtor's alleged failure, within six months of the presentation of the petition, to comply with the requirements of a bankruptcy notice served on him on 11 November 1989. The notice was a 21 day notice. The act of bankruptcy was alleged to have been committed on 4 December 1989. The judgment debt upon which the judgment was based was a judgment recovered by the petitioning creditor in the Supreme Court of Victoria in the sum of $983,999.03 together with interest, up to the date of judgment, of $135,000. The judgment was recovered on 30 October 1986.

1. The amount claimed as owing in the petition and in the bankruptcy notice was $741,417.60. The reason for the reduction in the amount claimed was the crediting by the petitioning creditor of amounts which the petitioning creditor had received on account of what was owing under the judgment.

2. The critical words of the bankruptcy notice were as follows:-
   

"WHEREAS AMPOL PETROLEUM (VICTORIA) PTY. LIMITED of 499 St. Kilda Road, Melbourne, Victoria (hereinafter referred to as 'the Judgment Creditor') has claimed that the sum of $741,417.60 is the balance due by you to it under the final judgment obtained by it against you in the Supreme Court at Melbourne on the 30th day of October 1986, being a Judgment the execution of which has not been stayed."

1. The debtor filed a notice of opposition to the petition, the grounds of which were as follows:-
   

"1. The Bankruptcy Notice is such as to confuse and mislead the Debtor in that no details of the calculation by which the sum claimed of $741,417.60 is arrived at are given.

2. The sum stated on the Bankruptcy Notice is over stated."

1. Pursuant to subsec. 41(5) of the Bankruptcy Act 1966 ("the Act") the debtor notified the petitioning creditor that he disputed the validity of the bankruptcy notice on the ground of a misstatement, namely, that the sum specified in the notice as the amount due to the petitioning creditor exceeded the amount in fact due. The notice was given on 20 November 1989.

2. In the proceedings which resulted in the judgment of the Supreme Court of Victoria earlier referred to the debtor had maintained a cross-claim. On 5 December 1986 it was adjudged that the debtor recover from the petitioning creditor the sum of $50,502 and that this amount be set off against the petitioning creditor's judgment.

3. The debtor had previously been married but the marriage had been dissolved. On 4 December 1986 Mrs. Findlay made an application to the Family Court for an order that the debtor provide security over his real estate for the purpose of better securing payments which were to become payable to her under the terms of an order of the Family Court made on 13 November 1985. On 19 December 1986 the Family Court dismissed that application. On 23 December 1986 the petitioning creditor issued a writ of execution out of the Supreme Court of Victoria directing the Sheriff to seize the debtor's assets to satisfy its judgment. Mrs. Findlay asserted that on 19 December 1986, four days before the issue of the writ of execution, she obtained a mortgage from the debtor over real estate owned by him or being purchased by him under term contracts. The petitioning creditor disputed the validity of the mortgage and threatened proceedings to have it avoided.

4. On 28 December 1986 the debtor entered into contracts of sale for the sale by him of properties at Swan Hill, Echuca and Kerang. Thereupon the petitioning creditor threatened to make an application to the Supreme Court of Victoria for an order restraining the distribution of the proceeds of sale to arise from the sale of the properties.

5. On 22 January 1987 the debtor, his former wife and the petitioning creditor, entered into a deed which recited the facts to which I have referred and also recited that the parties had agreed to a distribution of the proceeds of the sale of the properties on the terms therein set out. Clause 1 of the deed provided that secured creditors, other than Mrs. Findlay, were first of all to be paid. Then the sum of "approximately $153,210 (plus or minus the normal adjustment at settlement of rates and taxes" and less certain other sums) should be paid to the petitioning creditor in part payment of its judgment. Also to be paid to the petitioning creditor was the balance of deposits after deduction of agents' commission.

6. Clauses 1(d) and (e) of the deed were as follows:-
   

"1. From the proceeds of sale:

........ ........ ........ ........ ........ ........ ..

(d) the sum of $194,000.00 shall be paid into an interest bearing account in the name of Messrs. Stewart and Sons of Echuca, the present solicitors for the former wife. This payment shall not constitute or evidence any abandonment by the former wife of the rights that she claims under the mortgage referred to in Recital E hereof;

(e) the sum of $30,000.00 shall be paid to the former wife in part satisfaction of her entitlement to payment of moneys other than maintenance pursuant to the Order of the Family Court referred to in Recital B hereof."

Recital E referred to the mortgage which Mrs. Findlay claimed to have been given by the debtor. Recital B contained a reference to the order of the Family Court made on 13 November 1985.

1. Clause 2 of the deed provided for the conditions upon which the interest bearing account was to be held, clause 3 for the temporary disposition of any further sums which might become payable to Mrs. Findlay under any "purported security" held by her over the debtor's assets and clause 4 that the agreement was not to operate as the release or discharge of any liability on the part of the debtor to pay the balance owing under the judgment.

2. The petitioning creditor's solicitor is Mr. N.J. Batrouney. He said that the petitioning creditor received a total of $158,016.44 under clause 1(b) of the deed. He also said that the sum of $194,000 referred to in para. 1(d) of the deed was placed in an interest bearing account in the joint name of Mrs. Findlay's solicitors. The petitioning creditor issued a proceeding in the Supreme Court of Victoria against the debtor and Mrs. Findlay seeking to set aside the mortgage said to have been granted by the debtor in Mrs. Findlay's favour. The proceeding was not served. As between the petitioning creditor and Mrs. Findlay the matter was settled on the basis that the petitioning creditor received the sum of $169,062.99 from the sum of $194,000 and interest and Mrs. Findlay received the balance. The debtor was not a party to this settlement which was effected between the petitioning creditor and Mrs. Findlay.

3. The petitioning creditor contends that the amount claimed as owing in the bankruptcy notice and in the petition is correct and is made up as follows:-
   

Balance due under judgment

after deduction of amount

recovered by debtor on

his cross-claim: $1,068,497.03 Less received: Clause 1(b) $158,016.44

Clause 1(d) $169,062.99 $ 327,079.43 $ 741,417.60

1. The debtor disputes this calculation by saying that he is not bound by the settlement achieved between the petitioning creditor and Mrs. Findlay so that the whole of the sum of $194,000 referred to in para. 1(d) of the deed remains outstanding with the consequence that he is indebted to the petitioning creditor in the sum of $910,480.59 rather than in the sum of $741,417.60 which the petitioning creditor claims to be the correct amount.

2. In an affidavit sworn by the debtor on 19 October 1990 reference was made to some of the facts to which I have referred. The debtor said that he was unable to reconcile the balance he believed was owing with the amount claimed in the bankruptcy notice. He also said that he was unaware of how the sum of $194,000 had been disbursed but he believed that a substantial part of it had been paid to the petitioning creditor on the settlement of the proceedings brought by the judgment creditor against him and Mrs. Findlay.

3. Paragraph 40(1)(g) of the Act provides for the act of bankruptcy in question. Section 41 provides for the form of bankruptcy notice. Subsection 41(5) is as follows:-
   

"A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the misstatement."

As mentioned the debtor has given the appropriate notice under this subsection.

1. In Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 37 FLR 78 Lockhart J. considered a number of matters in relation to the form of bankruptcy notices. In relation to the bankruptcy notice there under consideration, his Honour said (p 84):-
   

"In my opinion the opening paragraph of the bankruptcy notice leaves much to be desired. It would be clearer if it stated in the space following the first dollar sign either the amount of the final judgment or the balance thereof due at the date on which the bankruptcy notice is issued. If it is the balance of the judgment that it claimed, that fact should be stated and the amounts paid or credited after judgment was signed should be specified. If interest is claimed, the notice should proceed to provide that interest is claimed at a particular rate from the date of judgment to the date specified in the notice. The total sum claimed to be due by the debtor to the petitioning creditor, inclusive of interest, should then be specified.

Notwithstanding that the bankruptcy notice is not in this form I do not regard it as perplexing a debtor to the point where he could not readily understand it. He can by reading the first paragrpah see that $24,011.24 is the sum of $22,824.31 and $1,186.93. The typing in the first paragraph is not as clear as it should be, but it is going too far to say that a debtor would be perplexed or confused by it."

1. The bankruptcy notice in the Manion case claimed the sum of $24,011.24 as due by the debtor under a final judgment obtained in the Supreme Court of New South Wales "being the balance of a judgment the execution of which has not been stated ..." In the present case the claim is that the sum of $741,417.60 is the balance due by the debtor under a final judgment. Contrary to the submission made by the solicitor for the debtor, Manion's case provides no support for the proposition that a bankruptcy notice in such a form will always be found to be misleading. Lockhart J. pointed out what desirably the bankruptcy notice should have said, but, in the particular circumstances of the case which his Honour had before him, he concluded that it was not so perplexing that a debtor could not understand it.

2. Each case must depend on its own facts and circumstances and it is necessary to consider the facts of this matter. The deed was a deed to which the debtor, as well as the petitioning creditor and Mrs. Findlay, was a party. So far as the evidence discloses, the debtor was not consulted about the way in which the sum of $194,000 was to be disposed of. Apparently the petitioning creditor and Mrs. Findlay reached a solution, satisfactory to them, which gave to Mrs. Findlay an amount to satisfy her in respect of the rights she claimed under the mortgage she said she had from the debtor. In those circumstances she was content that the balance should be paid to the petitioning creditor. What is not clear is what the debtor's attitude to her claim in respect of the mortgage was. There is no evidence which discloses whether he conceded that such a mortgage had been given and there is no evidence either whether he thought it appropriate that his wife should be paid any part, and if so, what part, of the sum of $194,000.

3. The difficulty is to perceive how, in the absence of any participation by the debtor in the negotiations that took place over the disposition of $194,000, the debtor could be bound by what the other parties did, that is by either the payment of $169,062.99 to the petitioning creditor or the payment of the balance to Mrs. Findlay. Paragraph 1(d) of the deed does not itself recognise any right in the debtor or, for that matter, the petitioning creditor or Mrs. Findlay, to any part of the $194,000. It is really a holding provision and provides that the payment into the bank account is not to constitute any abandonment by Mrs. Findlay of the rights claimed by her under the mortgage. But there is nothing in the provision, particularly if one construes the deed as a whole, to suggest that the debtor had no interest in the sum or that he was content that it should be applied either to the petitioning creditor or to Mrs. Findlay or partly to one and partly to the other.

4. The question is whether the form of the bankruptcy notice could have misled the debtor; not whether it in fact misled him; cf. James v. Federal Commissioner of Taxation (1955) 93 CLR 631 at p 644. All that the debtor was told in the bankruptcy notice was that the amount in receipt of which the notice was served was $741,417.60 and that that was "the balance due by you to it (the petitioning creditor) under a final judgment ..." No particulars of how the balance was arrived at were given. It is common ground that the debtor was not consulted about the apportionment and distribution of the sum of $194,000 and interest referred to in para. 1(d) of the deed. Furthermore, the debtor has, in an affidavit sworn on 19 October 1990, said that he was at that time - over six weeks after the bankruptcy notice was served - unable to say what part of the $194,000 was paid to the petitioning creditor. The debtor was not cross-examined and I accept his evidence in this regard.

5. Those being the facts of the matter I have reached the conclusion that the bankruptcy notice in this case not only could have been, but was in fact, misleading or uncertain in a critical respect, bearing in mind the obligation which it imposed upon the debtor to comply with it. Nothing appears on the face of the notice which could possibly tell the debtor how the amount claimed in it was arrived at. When one adds to this the fact that the debtor was not privy to any agreement between the petitioning creditor and Mrs. Findlay as to how the sum of $194,000 and interest referred to in para. 1(d) of the deed (to which the debtor himself was a party) was arrived at, the only conclusion open is that the bankruptcy notice was misleading and perplexing and not one upon which the petitioning creditor is entitled to rely. The case is quite different from the Manion case upon which counsel for the petitioning creditor relied.

6. It follows that the petition must be dismissed with costs.