Re: Tarzia; Ex Parte

[1996] FCA 1154

IN THE FEDERAL COURT OF AUSTRALIA     )
NEW SOUTH WALES DISTRICT REGISTRY    )      No. NN 1622 of 1996
BANKRUPTCY DIVISION                 )

Re:FRANCESCO TARZIA  and

MARIA ROSA TARZIA

Debtors (Applicants)

Ex parte:NATIONAL AUSTRALIA BANK LIMITED

ACN 004 044 837

Creditor (Respondent)

REASONS FOR JUDGMENT

EINFELD J   SYDNEY                   26 NOVEMBER 1996

This is an application dated 3 October 1996 and filed on 11 October on behalf of two debtors, Francesco and Maria Rosa Tarzia of Queanbeyan, for a review of an order made by Deputy Registrar Sexton on 10 September 1996 refusing an application to set aside a bankruptcy notice.

The debtors' application was filed one day out of time and they have asked the Court to order that notwithstanding that fact, the application should be permitted to be heard.  I extend the time for the filing of the application such as to enable this to be done.  Although the application to the Deputy Registrar included a request that the time for compliance with the requirements of the bankruptcy notice be extended, I can find no record of any extension beyond 10 September 1996.  However, for the purpose only of this judgment, I shall assume that an act of bankruptcy has not yet been committed.

On a review of an order made by a Deputy Registrar in circumstances such as this, the Court undertakes what is effectively a hearing de novo.  The applicants submitted first that the bankruptcy notice should be set aside on the grounds that it was irregularly served or not served at all.  That related to a purported service in about June of this year.

In this case, however, the creditor, the National Australia Bank Limited (the Bank), respondent to the application, did not rely upon service in June but upon service on 19 September 1996 at 3.30pm.  The affidavits in this regard were tendered by the respondent.  There was no objection to the reading of these affidavits; there was at the time no application to cross-examine the deponent; and there was no contrary evidence.

When confronted with these facts during submissions, the legal representative for the debtors asked for an adjournment so as to permit the process server to be called for cross-examination and to permit him to put on evidence that at least the service on the female debtor did not take place.  He also wished to raise the argument that both debtors did not understand English and the affidavits of service purport to put a question in English as to whether each debtor went by the name referred to and was the person named in the bankruptcy notice to which the reply is reported as being yes in both cases.

I was informed that there was evidence in the original substantive proceedings on which the judgment debt was obtained that these debtors did not understand English fully.  That matter was litigated before the ACT Supreme Court and was again litigated when the matter came on appeal to a Full Court of this Court but it was in the context that the debtors did not understand what would inevitably have been relatively complex explanations by the bank and by an independent solicitor of what was meant by a mortgage and a guarantee.

In this particular case the only English that the respective debtors would have to have understood was their own names.  Thus, even if there was evidence in this particular proceeding, which there is not, that they had defective understanding of English, it would be impossible to imagine that people who had a family including grandchildren born in Australia, and who have themselves lived in this country for a long time, would not be able to understand their own names in English.  The pronunciation might be a little different in English to the language of their birth but the difference would be so slight that it would be impossible to imagine that they could not understand their own names.

In any event, as was pointed out in argument to the applicants' lawyer, the effect of finding that service was defective would mean nothing in terms of this bankruptcy notice because it is still current and it could be served again.  No authority was quoted to me that at the stage of the service of bankruptcy notice, it is permissible to set it aside on the ground of defective service.  At best it would be possible to declare that the service had been invalid, but all that would do would be to permit fresh service.

If the creditor wishes to go ahead on the basis of this service and issue a petition on the ground of the failure of the debtors to comply with the bankruptcy notice alleged to have been served on 19 September, that is a risk which the creditor will have to take.  At the petition stage it will be possible for the debtors to argue that there was no act of bankruptcy because there was no valid service of the bankruptcy notice.  At present there is no evidence of any irregular service.  There was no basis for an adjournment to permit evidence to be elicited now.  Whatever evidence was desired to be led should have been filed with the application.  If the process server was desired for cross examination notice should have been given before this hearing.  In any event the suggested evidence would not in my view be sufficient to set the bankruptcy notice aside.  The Deputy Registrar's decision in this connection was manifestly correct.

The second argument was based on the fact that the contract which was the subject of the original action for the debt declares that the deposit moneys must be held by the bank's solicitor as stakeholder.  It is common ground that when the bank's solicitor received the deposit moneys, they  were placed in the firm's account in the name of the bank as creditor.  It was argued that this effectively transferred these moneys to the credit of the vendor as a consequence of which there has been an overstatement in the bankruptcy notice because the creditor is now claiming those deposit moneys when in fact he is not entitled to do so.

In my view there cannot be any doubt at all that although the moneys were placed in the solicitor's trust account to the credit of the bank, the moneys were in fact held by the solicitor as stakeholder for the respective parties, and that equity if not law would declare that those moneys did not, by virtue of having been placed in a ledger headed with the name of the bank, change the character of their holding.  The bank's solicitor has acknowledged this fact in correspondence in evidence.  Indeed the solicitor would have been in no position to do anything else.  I would not doubt for a moment that those moneys were held as stakeholder for both parties and required the completion of the contract before they could be passed on to the bank's distinct ownership.  I therefore reject the argument that there was an overstatement in the bankruptcy notice to the tune of the $9000 odd paid as deposit.  Again there was no error in the Deputy Registrar's decision on this matter.

The debtors' submissions went on that the bankruptcy notice understated the amount of interest owing on the debt.  This had two aspects:  first, the bankruptcy notice is dated 28 May but interest is calculated only to 24 May;  and second, there was in one of the part years during which interest accrued a leap year which was wrongly taken into account.  I reject both of those submissions.  The question of an understatement has been dealt with by this Court and by the High Court now on a large number of occasions.  It is quite authoritatively settled that an understatement will invalidate a bankruptcy notice only if objectively speaking it misleads or can mislead the debtor.  The lawyer for the debtors argued that this was one such case but in my opinion it is not.  It is true that the bankruptcy notice claims moneys for a period ending four days before its issue and does not contain the words "and no more", a phrase which is sometimes used to give extra clarity to a bankruptcy notice.  However, the bankruptcy notice manifestly makes clear in two places that the amount owing by the debtors is $238,646.78, and quite clearly indicates that nothing else is due or might be due in addition to that sum.

I do not think that any debtor could have been misled by the bankruptcy notice in that regard or that the debtors are in some way liable to receive another bankruptcy notice for an extra four days interest.  If they did, the consequent petition would not be good because it would be for a very small sum, much less than the minimum allowed for a bankruptcy petition.

So far as the leap year argument is concerned, the matter is well covered by Burchett J in Clubb v Westpac Banking Corporation [1990] 93 ALR 123, and this case demonstrates no error in that regard. I therefore reject the argument that there has been an understatement in the bankruptcy notice in respect of interest which could or might mislead the debtors. The application for review of the Deputy Registrar's orders of 10 September 1996 is refused.

[After discussion on an extension of time for compliance within the bankruptcy notice]

The debtors will have until 4 pm on Thursday 28 November to file written submissions for the extension of the time for compliance with the bankruptcy notice, it now having expired.  The creditor will have until not later than 4 pm on Monday 2 December for its submissions.  I shall consider the matter next week on the basis of those submissions.  The matter will be marked part heard until then and then the judgment will be reserved.

[After discussion on costs]

There is something in the argument put forward that some part at least of the application to the Deputy Registrar relating to service has been rendered pointless by the fresh service of the bankruptcy notice.  However, the argument on the other matters which was estimated to take an hour has in fact taken two hours with hardly any time taken up for the service question.  The debtors shall pay 70 per cent of the costs of the creditor, including any reserved costs, as agreed or taxed.