Re Pollard; Ex parte Lensing Management Co Pty Limited

Re: CAROLINE AMY POLLARD and WARWICK WILLIAM POLLARD
Ex parte: LENSING MANAGEMENT CO. PTY LIMITED
Nos. P2658 and 2659 of 1991
FED No. 823
Estoppel - Bankruptcy
(1991) 33 FCR 284

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF NEW SOUTH WALES
Gummow J.(1)

CATCHWORDS

Estoppel - application to set aside bankruptcy notice - dismissal by consent - opposition to creditor's petition based on failure to comply with bankruptcy notice - whether debtor estopped from disputing validity of bankruptcy notice.

Bankruptcy - bankruptcy notice - whether invalid.

Bankruptcy Act 1966

Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 applied.

State of Western Australia v Wardley Australia Limited (1991) 102 ALR 213 followed.

The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 applied.

HEARING

SYDNEY

#DATE 18:12:1991

Solicitor for the Debtors: Mr B. Hearnden of Hunt and Hunt.

Solicitor for the Creditor: Mr A. Vernier of Price Brent.

ORDER

In Matter No. P2658 of 1991

The petition be dismissed.

There be no order as to costs.
In Matter No. P2659 of 1991

The petition be dismissed.

There be no order as to costs.
Note: Settlement and entry orders are dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

These are two creditor's petitions which were heard consecutively. This course was followed because grounds of opposition in the same terms were put in respect of each petition. The petitioning creditor is the same in each matter. The debtors are husband and wife.

I will turn first to the petition seeking a sequestration order against the estate of Mr Pollard, and will then deal with that concerning Mrs Pollard.
The petition in respect of Mr Pollard was presented on 29 July 1991. The act of bankruptcy relied upon in para 4 of the petition is the failure of Mr Pollard, on or before 11 March 1991, either to comply with the requirements of a bankruptcy notice served on him on 6 November 1990, or to satisfy this Court that he had a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in paragraph A of the bankruptcy notice. Mr Pollard contends that there was no act of bankruptcy because the bankruptcy notice was a nullity.
On 3 December 1990, Mr Pollard made an application to the Court for an order that the bankruptcy notice be set aside. On the same day, a Registrar, acting pursuant to sub-s. 41 (6B) of the Bankruptcy Act 1966 ("the Act") extended until 11 February 1991 the time allowed for compliance with the requirements of the notice. The application to set aside the bankruptcy notice came before a Registrar on 11 February 1991 and was adjourned until 11 March 1991; the time for compliance with the requirements of the bankruptcy notice was further extended up to and including 5 p.m. on 11th March. On that day, a Registrar ordered that the application to set aside the bankruptcy notice be dismissed, and that the debtor pay the creditor's costs. The Registrar was acting pursuant to a delegation of the powers of the Court, under s. 31A of the Act, and not otherwise; see Harris v Caladine (1991) 172 CLR 84 at 95, 121-2, 149-50, 164. It appears from the form of short minutes of order which is in the file that those orders were made by consent and without any hearing on the merits. This was conceded before me on the hearing of the petition. The orders made 11 March 1991 have not been taken out.
The solicitor for the creditor submits that the consequence of the orders made on 11 March 1991 is that the debtor is precluded, on the hearing of the petition, from disputing the validity of the bankruptcy notice, his non-compliance with which has provided the act of bankruptcy upon which the petition is founded. This is a question to which I will return later in these reasons.
It is appropriate first to deal with the merits of the challenge to the validity of the bankruptcy notice. A copy of the bankruptcy notice is annexed to these reasons for judgment. It was not drawn by the present solicitors for the creditor.
The solicitor for the debtor complains of three matters. First, in the fifth line on the first page, the moneys due by the debtor are identified as being due "by you to them" whereas, as is readily apparent, there is but one creditor, being a corporation, so that the statement should have read "due by you to it". There is no substance in this point which it must be said, was but faintly pressed. It is quite plain, in my view, that the "them" identified is the creditor claiming payment, a corporation which is clearly identified by name. If the notice is properly construed, it is quite clear to whom the moneys are said to be due.
The second objection is of more substance. Sub-section 41 (2) of the Act specifies certain requirements for the prescribed form of bankruptcy notice. A requirement specified in para (a) (ii) is that the notice require the debtor named in it to "secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice . . ." (Emphasis supplied).
The bankruptcy notice is so drawn that the requirement is expressed in para B as being to secure the payment of the relevant sum simply "to the satisfaction of the Federal Court of Australia". There is no reference to the alternative, to payment being secured to the satisfaction of the creditor. That, in my view, is more than a formal defect or an irregularity such as to attract the operation of s. 306 of the Act.
A bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice, and in such cases the notice is a nullity whether or not the debtor is in fact misled: Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79-80. The bankruptcy notice presently in question fails, contrary to the requirement of sub-s. 41 (2) of the Act, to notify the debtor that he may secure the payment of the debt to the satisfaction of the creditor as an alternative to securing the payment of the debt to the satisfaction of the Court. Such a defect is a matter of substance and cannot be regarded as a formal defect or irregularity; cf James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 643-4; Re Merfield; Ex parte Comalco Aluminium Ltd (1984) 1 FCR 107. Because the defect in the bankruptcy notice is other than a formal one, the notice itself is defective and failure to comply with it did not constitute an act of bankruptcy.
The conclusion I have reached makes it unnecessary to determine the third point taken by the debtor in relation to the terms of the bankruptcy notice. The third point is that the words "and no more", which appear twice on the second page, are calculated to perplex the debtor as to the amount of the counter-claim, set-off or cross-demand which might be set up against the judgment debt specified earlier in the notice.
The creditor has made out a sufficient ground of opposition to the petition, subject only to the point then taken by the creditor as to estoppel.
As I have said, the jurisdiction of the Court was invoked by the application of the debtor for an order setting aside the bankruptcy notice. The sources of the Court's jurisdiction to make such an order were discussed by Lockhart J. in Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125 at 129-131. What is immediately significant is that the making of that application, its dismissal, the presentation of the petition and the opposition to the petition, are elements in the one "matter" in respect of which jurisdiction is conferred by the Parliament upon this Court; see State of Western Australia v Wardley Australia Limited (1991) 102 ALR 213 at 224-6.
Accordingly, it would not be correct to approach the estoppel point on the footing that there have been two sets of proceedings, so that in the second the doctrines of res judicata and issue estoppel apply to the first. Rather, as I understand it, in its submissions, the creditor relies upon that species of waiver described by Mason C.J. in The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 407, as occurring where, in the course of a litigation, a party so conducts himself as to be estopped from raising a particular defence; see also the judgments of Dawson J. (at 452), McHugh J. (at 491) and cf Brennan J. (at 423-4), Toohey J. (at 472) and Gaudron J. (at 481-2). If this submission were accepted, a question would then arise as to whether the detriment suffered in the present case by the creditor could be sufficiently met by a costs order.
Some estoppels operate to further the interests of justice in the particular case, for example by putting restrictions upon what otherwise would be repetitious disputation. But estoppels also may operate to shut out proof of the truth, whether of a matter of fact or law, and in that sense they have been described as odious: Spencer Bower, "The Law Relating to Estoppel by Representation", 3rd Ed., 1977, pp 19-23. In the present case, the truth is that the bankruptcy notice upon which the creditor relies for the act of bankruptcy to found the petition, was a nullity. The creditor seeks to shut out proof of this by reliance upon an estoppel.
The term "estoppel" has been described as a label which covers a complex array of rules spanning various categories: The Commonwealth of Australia v Verwayen supra at 409 per Mason C.J. But what the various species of estoppel have in common is that they are the creatures of the common law or equity (or both) and as such must operate consistently with the terms of any statute which has an impact upon the controversy in the course of which reliance is placed upon an estoppel; Walsh v Commercial Travellers' Association of Victoria (1940) VLR 259 at 268-9, Spencer Bower, supra pp 139-142. Accordingly, it is necessary in the present case to look more closely at the statutory setting which both creates and controls the "matter" in relation to which the creditor takes the estoppel point.
It is well understood that the Court should not render a debtor bankrupt upon an ambiguity, attended as bankruptcy still is with serious consequences as to the status of the bankrupt and bearing also in mind the system of administration which thereby is imposed upon creditors as a class. Wider interests thus are involved than in the ordinary inter partes litigation out of which much of the law of estoppel has grown.
Sub-sections 52 (1), (2) of the Act are in the following terms:

"52. (1) At the hearing of a creditor's petition, the Court shall require proof of -

(a) the matters stated in the petition (for which purpose the Court may accept the affidavit

verifying the petition as sufficient);

(b) service of the petition; and

(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing, and, if it is satisfied with the proof of those

matters, may make a sequestration order against the estate of the debtor.

(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor -

(a) that he is able to pay his debts; or

(b) that for other sufficient cause a sequestration order ought not to be made,

it may dismiss the petition."

The prescribed form for a creditor's petition requires, in para 4, a statement of the nature and date or dates of act or acts of bankruptcy relied upon.

In the present case, the Court is obliged by the mandatory terms of sub-s. 52 (1) to require proof of the matters stated in the petition, although it may accept as sufficient the affidavit verifying the petition. The creditor submits that, contrary to the fact, the Court must proceed as if proof had been given of the commission by the debtor of an available act of bankruptcy, by non-compliance with the bankruptcy notice served on the debtor on 6 November 1990. It is said that the Court is bound to act in this way, despite the terms of the statute, by reason of the estoppel asserted against the debtor. In my view, consistently with the manifest purpose of s. 52, the Court cannot relieve or excuse the creditor of the requirement to prove the matters stated in the petition where the debtor disputes the commission of the act of bankruptcy upon which the petition is founded.
If the application to set aside the bankruptcy notice had been contested and had been determined by the Court against the debtor, and on the hearing of the petition the debtor sought to reagitate the validity of the bankruptcy notice by relying upon the same or indistinguishable arguments, then the Court might well hold that the earlier adverse decision provided sufficient proof of the validity of the bankruptcy notice and thus of the commission of the available act of bankruptcy. But that is not this case.
I should add that even if the estoppel point were a good one, a sufficient proportionality between the detriment suffered by the creditor and the remedy to be given would be provided by an appropriate order as to costs. The point as to validity of the bankruptcy notice should have been taken and pursued before the presentation of the petition. Had this been done, the necessity to consider, at this stage, the objection as to estoppel, would not have arisen.
The petition should be dismissed. But, in the circumstances of the case, the debtor should have no order as to costs.
The facts concerning the petition for a sequestration order against the estate of Mrs Pollard follow a pattern which is relevantly indistinguishable from the facts concerning the position for sequestration of Mr Pollard's estate. The same submissions of law are made and the same result should follow.
Accordingly, the petition seeking a sequestration order against the estate of Mrs Pollard should also be dismissed. Again, in the circumstances of the case, the debtor should have no order as to costs.

[1991] FCA 823

18 DECEMBER 1991