Re Gray; ex parte Person to Person Financial Services Pty Ltd

[1980] FCA 193

Re: JOHN STUART GRAY
Ex parte: PERSON TO PERSON FINANCIAL SERVICES PTY. LIMITED (1980) 48 FLR 379
No. P1198 of 1980
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Lockhart J.(1)

CATCHWORDS

Bankruptcy - creditor's petition - opposition to petition based on formal defects in bankruptcy notice - description of petitioning creditor different to description of judgment creditor - bankruptcy notice requires debtor to pay or compound for two alternative amounts - whether either or both these matters invalidate bankruptcy notice.

Bankruptcy Act 1966 (Cth.)

Bankruptcy - Creditor's petition - Opposition to petition based on formal defects in bankruptcy notice - Name of petitioning creditor different from name of judgment creditor - Misleading statement in bankruptcy notice - notice requiring debtor to pay or compound two alternative sums - Invalidity of bankruptcy notice - Bankruptcy Act 1966 (Cth), ss. 41, 52 (1), 306 (1).

HEADNOTE

The debtor entered into a loan agreement with the petitioning creditor, Person to Person Financial Services Pty. Ltd. Subsequently proceedings were instituted in the District Court in which the creditor was incorrectly named as "Industrial Acceptance Corporation, Person to Person Pty. Ltd.". It was in this name that a judgment was obtained in about February 1978. On 22nd February, 1980, a bankruptcy notice was issued in the name of "Industrial Acceptance Corporation, Person to Person Pty. Ltd.". At no material time was there any entity bearing this name in existence.

The service of the bankruptcy notice on 5th March, 1980, was the first occasion that the debtor knew of a judgment entered against him. The bankruptcy notice served on him stated: "That the balance sum of $6,677.51 and no more, together with interest or the balance from time to time outstanding . . . is due by you to it . . .". The debtor opposed the petition on the grounds of the invalidity of the bankruptcy notice.

Held: (1) In considering whether a defect in a bankruptcy notice is "a formal defect or irregularity" within s. 306 (1) of the Bankruptcy Act 1966, the court must first consider whether the defect is one which could reasonably mislead the debtor upon whom it was served.

James v. Federal Commissioner of Taxation (1955), 93 CLR 631, applied.
(2) The court cannot, in weighing the probabilities of the debtor being misled, deal too liberally with statutory requirements which have quasi-penal consequences.

Re A Judgment Debtor, (1908) 2 KB 474, referred to with approval.
(3) In the present case the debtor could have been misled or confused by the bankruptcy notice issued in the name of a non-existent company.

Re Wimborne; Ex parte The Debtor (1979), 24 ALR 494, referred to.
(4) A bankruptcy notice with the insertion of the word "or" instead of "of" was misleading and confusing in its introductory provisions; it was not saved by the correctness of the later operative provisions as the same referred the debtor back to the opening words of the document.

Petition dismissed.

HEARING

Sydney, 1980, November 4-5. #DATE 5:11:1980

PETITION.

The petitioner sought a sequestration order relying upon the failure of the debtor to comply with the requirements of a bankruptcy notice. The debtor opposed the petition on the grounds that the bankruptcy notice was invalid.

S. W. Cavanagh, for the petitioning creditor.

The debtor appeared in person.

Solicitors for the petitioning creditor: William Lander & Partners.

D. LEVIN

ORDER

1. The petition be dismissed

2. No order as to costs be made

Petition dismissed.

No order as to costs.

JUDGE1

This is a petition for sequestration of the estate of John Stuart Gray ("the debtor").

Although the questions are not easy, I have reached a firm view as to the answers and propose to give judgment now.

The petitioning creditor is a company called Person to Person Financial Services Pty. Limited. The act of bankruptcy on which the petition is based is the failure of the debtor to comply with the requirements of a bankruptcy notice issued on 22 February 1980 and served on 5 March 1980. The debtor opposes the petition on the ground that the bankruptcy notice is invalid in two respects: first, it requires the debtor to pay or compound for two alternative amounts; and second, the company described in the bankruptcy notice as the judgment creditor is a different company from the company to which he is indebted namely, the petitioning creditor.

The relevant principles are set out in Re Wimborne; (1979) 24 A.L.R. 494 where I said at pp. 498 and 499:-

"The courts have said time and time again that bankruptcy notices must conform strictly to the requirements of the bankruptcy legislation and rules of court; see James v. F. C. of T. (1955) 93 C.L.R. 631, especially per Williams, Kitto and Taylor JJ at 644; Re Howes; Ex parte Hughes 1892 2 Q.B. 628; Re OCS (a debtor); Ex parte the Debtor 1904 2 K.B. 161; Re O'Keefe; Ex parte Australian Factors Ltd. (1963) 19 A.B.C. 101, and Re Mellick (1971) 19 F.L.R. 1.

Section 306 provides so far as relevant: -

'306 (1) 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.'

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 A.C. 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 C.L.R. 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.'

In Re a Judgment Debtor 1908 2 K.B. 474, Kennedy L.J. said at 481:

'In the first place one has not to determine the validity or invalidity of the notice by considering whether the debtor to whom the notice is given has in fact been misled. It is sufficient that there is good ground for saying that the debtor might be misled. That is, I think, settled by authority. Secondly, in judging of the probability of the debtor being misled one is bound not to deal too liberally with the requisites of the notice because of the quasi penal consequences which a bankruptcy involves.'"

In the present case the bankruptcy notice describes the judgment creditor as "Industrial Acceptance Corporation, Person to Person Pty. Limited". Mr. Mercer, the manager of the Loss Recovery Section of the petitioning creditor, has sworn an affidavit, the truth of which is not challenged, in which he says that the judgment against the debtor, which was the foundation of the bankruptcy notice in these proceedings, was obtained as the result of proceedings taken by the petitioning creditor in the District Court at Wollongong; but he says that the petitioning creditor was accidentally misdescribed in those proceedings as "Industrial Acceptance Corporation, Person to Person Pty. Limited". This misdescription pervaded the statement of claim and other documents in the proceedings in the District Court and was carried through to the bankruptcy notice itself.

Mr. Mercer said that the District Court proceedings related to a claim for moneys owing pursuant to a memorandum of contract for loan. I need not recite the details of that document. It is sufficient to say that it records a loan from a company described as "Person to Person Financial Services Pty. Limited" (i.e. the petitioning creditor) to the debtor.

The petitioning creditor contended that the Bankruptcy Rules require that a bankruptcy notice describe the judgment creditor in the same way as he is described in the judgment on which the bankruptcy notice is based. That is so, but all that means, for the purposes of the present case, is that each description is inaccurate. The Rules assume that the description of the judgment creditor in the court where judgment was signed is correct; hence the notice must conform with the description in the judgment.

It is common ground that the debtor did not know that judgment was signed against him until he was served with the bankruptcy notice. The essence of the debtor's submission is that he never was indebted to "Industrial Acceptance Corporation, Person to Person Pty. Limited" and that, if he was indebted at all, it was to "Person to Person Financial Services Pty. Limited". Although it is no doubt true, as the petitioning creditor asserts, that the name of the judgment creditor in both the District Court proceedings and the bankruptcy notice is, in one sense, a misdescription, in my opinion that does not assist the petitioning creditor. The fact is that there is no such entity as "Industrial Acceptance Corporation, Person to Person Pty. Limited", There is a company called "Person to Person Financial Services Pty. Limited", and that is the petitioning creditor. But when one looks at the bankruptcy notice and applies to that the test to which I referred in Re Wimborne, to my mind it is plain that the debtor could have been misled or confused by the description of the judgment creditor in the bankruptcy notice.

Even if this did not invalidate the bankruptcy notice it would provide a ground for dismissing the petition.

It is well established that on the hearing of a petition, in order that the Court be satisfied as required by s. 52 (1) of the Bankruptcy Act 1966, that the debt on which the petitioning creditor relies is still owing, the Court may, and sometimes must, go behind the judgment on which the petition is founded.

In the present case it is clear that the debtor was never indebted to the body described in the District Court proceedings as "Industrial Acceptance Corporation, Person to Person Pty. Limited". If he was indebted at all, it was to "Person to Person Financial Services Pty. Limited." The fact that a mistake occurred on the part of the petitioning creditor is irrelevant.

For these reasons the petition must be dismissed.

There is a further reason why it should be dismissed, and that is the further ground of opposition to the petition relied on by the debtor, namely that he says the bankruptcy notice is confusing and liable to mislead him in that it claims:-

" . . . that the balance sum of $6,677.51 and no more together with interest or the balance from time to time outstanding at the rate of 10 per centum per annum from 15th day of February 1978 (here insert date of judgment) which at the 22nd day of February, 1980 amounts to $1,346.47 making a total of $8,023.98 and no more is due by you to it under a final judgment obtained by it against you in the District Court of New South Wales at Wollongong on the 15th day of February 1978, being a judgment the execution of which has not been stayed."

Curiously enough, the bankruptcy notice in the Court file contains the word "on" not "or", after the reference in the notice to "$6,677.51 and no more, together with interest." Had the document served on the debtor been in that form I do not think this point would have been available to the debtor; but it is common ground that it bore the word "or", not the word "on". Hence, as the notice stands, the relevant part of the recital to which I have referred is either meaningless or so unclear as to render the notice uncertain, confusing and misleading as a whole.

It was submitted on behalf of the petitioning creditor that, even if there is ambiguity in the introductory provisions of the notice itself, the operative part of the notice is clear. The relevant operative provisions of the notice read:-

"THEREFORE TAKE NOTICE that within Fourteen (14) 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 $8,023.98 and no more so claimed by the judgment creditor to The Registrar, District Court of New South Wales, at 47 Market Street, Wollongong; or

(b) to secure the payment of the sum referred to in paragraph (a) and no more to the satisfaction of the Federal Court of Australia or the judgment creditor (or its agent whose name and address are JOHN ALAN HOLMES C/_ WILLIAM LANDER & PARTNERS. 53 MARTIN PLACE, SYDNEY) or compound the sum so specified to the satisfaction of the judgment creditor (or its agent):"

The operative provisions incorporate by reference the introductory provisions that precede them. In order to determine what is meant by the expression "to pay the sum of $8,023.98 and no more so claimed by the judgment creditor" (paragraph (a)) or "to secure the payment of the sum referred to in paragraph (a) and no more" (paragraph (b)) it is necessary to look back to the introductory provisions of the notice itself. The uncertainty and obscurity of the introductory provisions necessarily taint the operative provisions.

In the result, the petition should be dismissed. As the debtor has represented himself and does not seek an order for costs, there will be no order as to costs.

The petition is dismissed with no order as to costs.