Re Stolpe, Virginia & Anor Ex Parte Helnor Trading Co Pty Ltd (t/as Gosford Business Machines)

[1996] FCA 920

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )    NN 478 of 1996
BANKRUPTCY DISTRICT OF NEW SOUTH WALES)   

RE:

VIRGINIA and OWEN STOLPE
  Debtors

EX PARTE:

HELNOR TRADING CO PTY LIMITED

(trading as GOSFORD BUSINESS MACHINES)

Creditor

CORAM:    SACKVILLE J.
PLACE:    SYDNEY
DATE:     10 SEPTEMBER 1996

REASONS FOR DECISION
This is an application under s.31A(6) of the Bankruptcy Act 1966 (Cth) ("the Act") to review an order made by a Registrar of this court on 19 July 1996. The Registrar dismissed an application by one of the debtors, the present applicant, Mr Stolpe, to set aside a bankruptcy notice issued against him on 19 February 1996 by Helnor Trading Company Pty Ltd, trading as Gosford Business Machines ("Helnor"). Section 31A(6) and (7) of the Act provides as follows:

"(6)      A party to a proceeding in which a Registrar has exercised any of the powers of the Court under subsection (1) may, within the time prescribed by the rules, or within any further time allowed in accordance with the rules, apply to the Court to review that exercise of power.

(7)The Court may, on application under subsection (6) or of its own motion, review an exercise of
power by a Registrar pursuant to this section and may make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised."

An application brought pursuant to s.31A(6) is by way of rehearing, based on the evidence before the Registrar supplemented by such evidence as the parties choose to adduce in the proceedings before this Court: Re Kwiatek and Kwiatek; Ex parte BIG J Ltd v Pattison (1989) 21 FCR 374 (FCA/Northrop J), at 381. On this application, the applicant, who represented himself, relied upon one additional affidavit beyond the affidavit read on his behalf before the Registrar. The applicant was also cross-examined by Mr Andrews, who appeared for the creditor.

The sequence of events is admirably set out in the judgment of the Registrar who made the order on 19 July 1996.  I take the sequence of events in substance from the Registrar's reasons for decision. 

On 20 October 1993 Helnor commenced proceedings against Virginia Stolpe in the Local Court at Redfern.  Mrs Stolpe is also a debtor in the present proceedings and is the wife of the applicant.  In these proceedings Helnor claimed the amount of $5659.36 as moneys owing by Mrs Stolpe to Helnor in relation to the purchase of a photocopier and facsimile machine on 23 June 1993.

Mrs Stolpe filed a defence to the proceedings on 22 December 1993.  By a change of venue order made on 21 January 1994 the proceedings were transferred from the Local Court at Redfern to the Local Court at Gosford.  The matter was then referred for hearing to an arbitrator pursuant to the Arbitration (Civil Actions) Act 1983 (NSW). On 7 November 1994, the arbitrator determined the proceedings in favour of Helnor, holding that there was a contract between Helnor and Mrs Stolpe for the purchase of the machinery.

The arbitrator entered an award in favour of Helnor against Mrs Stolpe in a sum totalling $6457.60.  At the hearing before the arbitrator, Helnor was represented by a firm of solicitors.  Mrs Stolpe herself did not appear.  The Registrar records that the applicant appeared for her as a witness.  (In the witness box the applicant today indicated that he had actually conducted the case on Mrs Stolpe's behalf.)  On 24 November 1994, following the entering of the award, the applicant filed on behalf of his wife an application for rehearing of the arbitrated action. 

It appears that the matter was listed for rehearing on or about 30 May 1995 at the Gosford Local Court.  At that time a handwritten document bearing an endorsement appropriate to local court proceedings and headed "Terms of Settlement" was executed on behalf of Helnor and by both Mrs Stolpe and the applicant.  The document, as the applicant acknowledged in the witness box, bears his signature.  The terms of settlement were as follows:

1. By consent, Statement of Claim herein be amended by the addition of Owen Stolpe of 117 Karalta Road, Erina as second defendant.

1. By consent, verdict and judgment for the plaintiff against the second defendant in the sum of $4,0000.00 payable in full by 5 pm, Friday 9 June 1995.

1. Provided the said sum of $4,000.00 is paid in full by 5 pm, Friday 9 June 1995, the plaintiff will forthwith discontinue against the first defendant.

1. The first defendant agrees that if the said sum of $4,000.00 is not paid, in full, by 5 pm Friday 9 June 1995, a verdict for the plaintiff and judgment for $4,000.00 will immediately be entered against the first defendant.

1. The parties acknowledge that in these terms the sum of $500.00 has been agreed as the proper value of goods, being fax machine and answering phone, sold by the plaintiff on behalf of the defendants and that the said sum of $500.00 retained by the plaintiff, has been credited to the defendants.

The Registrar found that Helnor was represented by a firm of solicitors at the proceedings on 30 May 1995.  The applicant was, of course, present as he acknowledged in the witness box today, and, as I have mentioned, his signature appears on the terms of settlement.

The evidence shows that the applicant was indeed added as a defendant in the Local Court proceedings.  His name appears as the judgment debtor in a number of subsequent documents, including the certificate of judgment issued by the registrar of the Local Court which was admitted into evidence.  No payment was made in respect of the judgment entered against Mrs Stolpe and the applicant.

On 5 September 1995, Helnor applied to the Local Court at Gosford for the issue of a Writ of Execution in relation to the judgment debt.  Pursuant to that writ certain property was seized from Mrs Stolpe and the applicant by the sheriff and was subsequently sold at auction apparently for a total sum of $230. 

On 19 February 1996, a bankruptcy notice was issued against Mrs Stolpe and the applicant at the request of Helnor.  The notice was served on the applicant on 19 March 1996.  At the time the proceedings were determined by the Registrar, Mrs Stolpe had not yet been served.  The applicant informed me today that Mrs Stolpe had been very recently served with a notice.  However, nothing turns upon this for present purposes.

The bankruptcy notice was in the following terms:

"To: VIRGINIA STOLPE and OWEN STOLPE,

both of 117 Caralta Road

ERINANSW   2250

WHEREAS HELNOR TRADING CO. PTY LTD T/AS GOSFORD BUSINESS MACHINES (ACN 001 007 870) a company duly incorporated and having its registered office at 176 The Entrance Road, Erina NSW 2250 (hereinafter referred to as "the judgment creditor") has claimed that the balance of $3,770 together with interest on the following amounts at the rate of 12 per cent per annum:

(a)on the sum of $4000 from 31 May 1995 to 24 January 1996 inclusive which amounts to $314.30; and

(b)on the sum of $3770 from 25 January 1996 to 15 February 1996 inclusive which amounts to $27.26

together with a judgment creditor's costs incurred in attempting to enforce the judgment in the sum of $155 making a total of $4266.56 and no more is due by you to it under a final judgment obtained by it against you in the Local Court at Redfern on the 30th day of May 1995, being a judgment the execution of which is not being stayed".

It will be noted that the bankruptcy notice referred to a judgment obtained against Mrs Stolpe and the applicant in the Local Court at Redfern instead of Gosford where, of course, the judgment had in fact been obtained.  The notice was served on the applicant on 19 March 1996.  On that day the applicant sent a facsimile to the firm of Marshall Marks Kennedy, solicitors.  In that facsimile, the applicant confirmed a phone conversation that he had had with Mr Brand of that firm and stated:

"We will pay the judgment of $4266.56 within 21 days direct to your office".

The facsimile then reiterated as follows:

"1.We consented to judgment of $4000, also your client had an initially [sic] judgment of $6500 which was reduced upon Appeal Notice (by Agreement)."

In his cross-examination today the applicant acknowledged that he had had a telephone conversation with Mr Brand which followed immediately upon service of the bankruptcy notice.  He acknowledged also that he had sent the facsimile. 

The next day, 20 March 1996, the applicant sent a further facsimile to the same firm of solicitors.  In that facsimile, which again the applicant acknowledged that he had sent, he stated that a judgment had been obtained in the sum of $4,000.  The facsimile letter complained that the creditor had enforced the judgment in an inappropriate manner.

Subsequently the applicant filed an affidavit pursuant to s.41(7) of the Bankruptcy Act, alleging that he had a cross-claim against Helnor.  This was filed on 9 April 1996.  On 29 April 1996 the applicant and Mr Andrews, as Helnor's legal representative, entered into an agreement whereby the debtor, in consideration of Helnor taking no action before 15 May 1996, undertook to pay the sum of $4616.56 on or before 14 May 1996.  That payment has not been made.

There are in substance two points, as I followed them, raised by the applicant in submissions, although he did not elaborate upon these at any length.  The first, as I followed it, was a contention that he had never been a party to the proceedings in the Local Court ultimately determined by judgment in the Gosford Local Court.  The debtor's affidavit asserted as follows:

"I have not been subject to any claim by the judgment creditor, nor have I taken part as defendant in any proceedings in the Local Court of New South Wales in this matter."

I find that the debtor did become a party to the proceedings in the Local Court.  This is clearly established by the documentary evidence. 

The applicant acknowledged that he had signed the terms of settlement and that he had read them before signing them.  Those terms of settlement make it abundantly clear that he was to be joined as a second defendant in the proceedings.  Other documentary evidence makes it clear that that is exactly what happened.  There is therefore no substance in the contention put forward by the debtor on that issue. 

The second point raised by the debtor, again as I followed it, is that the bankruptcy notice was invalidated by the erroneous reference to "the Local Court at Redfern" instead of what would have been the correct reference to "the Local Court at Gosford". 

Mr Andrews acknowledges that the bankruptcy notice was in error in this respect. He has repeated the arguments accepted by the Registrar, that the misdescription of the location of the Local Court was a formal defect, capable of being cured by the application of s.306(1) of the Bankruptcy Act.  That sub-section states as follows:

"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."

Mr Andrews submitted that the defect was a formal defect and was not substantial in the sense that it could not reasonably have misled the applicant. 

The Registrar referred to the relevant authorities bearing on this question, including Re Winbourne; Ex parte The Debtor, (1979) 24 ALR 494. The Registrar pointed out, correctly, that the test to be applied is not whether the debtor was, in fact, misled. It is sufficient for a defect to be substantial that the debtor could have been misled by the defect in the bankruptcy notice.  The Registrar cited for this proposition James v Federal Commissioner of Taxation (1955) 93 CLR 631.

In Re Winbourne, Lockhart J stated (at 499):

"It is well established that to determine whether the debtor was served with a bankruptcy notice could be misled the court may look at facts extraneous to the notice itself."

Lockhart J also said (at 500) that it was clear from the authorities that, although

"the courts draw definite distinction between the possibility of the debtor being misled and the question whether he was misled in fact, the latter being an impermissible field of inquiry, it is the capacity of the bankruptcy notice to mislead the debtor to whom the notice is directed that matters, not some hypothetical debtor.  Hence the relevance of the fact relating to the conduct of the proceedings in the Supreme Court of New South Wales and High Court as gleaned from the orders of those courts and forming part of the evidence in the application."

Looking at the facts of the present case, it is clear that the applicant was present at the time the terms of settlement were executed.  It was in consequence of these terms of settlement that judgment was entered.  The applicant was, therefore, perfectly well aware of what had transpired at the Local Court at Gosford.  The documentary evidence demonstrates that upon receipt of the bankruptcy notice the debtor was aware of the nature of the debt and the circumstances in which it had been created.

Accepting that it is impermissible to inquire whether the applicant was actually misled, the objective circumstances, make inevitable the conclusion that the error in the bankruptcy notice was not one that was capable of misleading this applicant. 

In these circumstances, it seems to me that the Registrar was entirely correct in the order that was made.  There is no basis for setting aside this bankruptcy notice.  Accordingly, the application for review of the Registrar's decision is dismissed.  I order that the applicant pay the costs of the respondent creditor, including any reserved costs as agreed or taxed.

I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.

Associate:

Dated:

Heard:10 September, 1996

Place:            Sydney

Decision:10 September, 1996

Appearances:      Mr O. Stolpe represented himself.

Mr W.H. Andrews, solicitor, of Marshall Marks Kennedy, appeared for the respondent creditor.