Re Thomson, David Graeme Ex parte Associated Midland Corporation Ltd

[1981] FCA 30

Re: DAVID GRAEME THOMSON
Ex parte: ASSOCIATED MIDLAND CORPORATION LIMITED (1981) 53 FLR 97
No. B76 of 1981
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Bankruptcy - bankruptcy notice - notice issued claiming part of judgment debt - at time of issue stay of part of judgment in force - at time of service stay had ceased to operate - whether notice makes it clear exactly what is claimed to be due on judgment debt.

Bankruptcy Act, 1966 (Cth.) s. 41

Bankruptcy - Bankruptcy notice - Bankruptcy notice issued claiming part of judgment debt - At date of issue, execution on part of judgment debt stayed - At date of service, stay on judgment had ceased to operate - Notice unclear whether creditor claimed more than appeared in bankruptcy notice pursuant to judgment - Validity of bankruptcy notice - Debtor capable of being misled - Bankruptcy Act 1966 (Cth), ss. 41, 306.

HEADNOTE

In 1973 Associated Midland Corporation Ltd. (the respondent) loaned $45,000 to each of two companies, which loans were guaranteed by the debtor. After default, the guarantee was called up but not honoured. The respondent sued the debtor in the sum of $83,134.29 and in October 1980 the Master directed the entry of judgment in the sum of $80,001.59. The debtor appealed and in the course of the hearing his counsel conceded an indebtedness in the sum of $50,000 to $55,000 but no more. On 18th December, 1980, Carmichael J. dismissed the appeal but ordered a stay of proceedings in respect of the sum of $30,000 on certain terms.

On 6th February, 1981, the debtor filed a notice of appeal from the judgment of Carmichael J. On the same day the respondent obtained the issue of a bankruptcy notice, the terms whereof are set out in full in the judgment below. Inter alia the notice stated that the respondent claimed "that the balance sum of $50,000 together with interest on the outstanding balance from time to time at the rate of ten per cent per annum from 10th October, 1980, which at the date of the issue of this notice amounts to $1,027.40 making a total of $51,027.40 is due by you to it under a final judgment obtained by it against you . . . being a judgment the execution of which has not been stayed". At the date of the issue of the bankruptcy notice the stay imposed by Carmichael J. was still in force, but it ceased to operate by 24th February, 1981, when the debtor was served with the bankruptcy notice.

In an application by the debtor to set aside the bankruptcy notice,

Held: The bankruptcy notice should be set aside because: (1) It was unclear as to whether, if the debtor paid the sum of $50,000 together with interest, the judgment would thereby be satisfied or would still subsist in part.

(2) It did not comply with the requirements of s. 41 of the Bankruptcy Act 1966 in that it did not make clear that nothing more was claimed to be due under the judgment debt.

Re Schierholter; Ex parte Geis (1978), 32 FLR 22, followed.

(3) As at the date of the issue of the bankruptcy notice the judgment was not one "the execution of which has not been stayed".

Re Richards: Ex parte Sommers (1947), 14 ABC 112, referred to.

(4) As at the date of service of the bankruptcy notice the words "the balance sum of $50,000 . . . due by you . . . under a final judgment . . . being a judgment the execution of which has not been stayed" were wrong in that as at 24th February, 1981, the amount payable by the debtor under the judgment was the sum of $80,001.59.

(5) The test as to whether a defect in a bankruptcy notice is fatal or merely an irregularity which can be corrected pursuant to s. 306 of the Bankruptcy Act 1966 is an objective and not a subjective one.

Pillai v. Comptroller of Income Tax, (1970) AC 1124; Re A Debtor; Ex parte Debtor v. Bowmaker Ltd., (1951) Ch 313; James v. Federal Commissioner of Taxation (1955), 93 CLR 631; Re Manion; Ex parte Deputy Commissioner of Taxation (1979), 37 FLR 78; Re Wimborne; Ex parte The Debtor (1979), 24 ALR 494, referred to with approval.

J. Sharpe, for the debtor.

R. McDougall, for the respondent.

HEARING

Sydney, 1981, March 18, 23. #DATE 23:3:1981

Cur. adv. vult.

Solicitors for the debtor: Landerer & Co.

Solicitors for the respondent: Currie & Currie.

D. LEVIN

ORDER

1. Bankruptcy notice No. B76 of 1981 be set aside

2. The respondent pay the applicant's costs including reserved costs. Order accordingly.

JUDGE1

This is an application to set aside a bankruptcy notice issued by a Deputy Registrar in Bankruptcy on 6 January 1981 at the request of Associated Midland Corporated Limited ("the creditor") and addressed to David Graeme Thomson ("the debtor"). It is common ground that the bankruptcy notice was served on the debtor on 24 February 1981.

The debtor attacks the validity of the bankruptcy notice on various grounds. Before turning to them I will state the relevant facts.

The creditor lent $45,000.00 to two companies in July 1973, repayment of which was guaranteed by the debtor.

The companies defaulted in their payments to the creditor who requested payment from the debtor. He did not pay the creditor. The creditor sued the debtor in the Supreme Court of New South Wales to recover the sum of $83,134.29 plus interest.

Subsequently the creditor moved the Court for summary judgment. On 10 October 1980 Master Sharpe directed entry of judgment for the creditor in the sum of $80,001.59.

The debtor appealed from the Master's decision to the Supreme Court. The appeal was heard by Carmichael J. who, on 18 December 1980, dismissed the appeal and confirmed the Master's order. His Honour ordered that there be a stay of proceedings in respect of the sum of $30,000.00 on certain terms.

The debtor filed a notice of appeal on 6 February 1981 to the Court of Appeal of New South Wales against Carmichael J.'s order.

During the course of the hearing before Carmichael J., counsel for the debtor conceded that the debtor owed the creditor $50,000.00 or $55,000.00; but asserted that he disputed the balance. After his Honour gave judgment on 18 December, a statement to the same effect was made by the solicitor for the debtor to his Honour before the stay was granted as to the sum of $30,000.00.

It is common ground that at the time the bankruptcy notice issued, namely 6 January 1981, the stay was still operative; but had ceased to operate when the bankruptcy notice was served on the debtor namely, on 24 February 1981, as the debtor had not complied with the terms of the stay.

I will set out the relevant terms of the bankruptcy notice:-

BANKRUPTCY NOTICE

Bankruptcy Act 1966

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND No. B76 of 1981.

THE AUSTRALIAN CAPITAL TERRITORY

RE: DAVID GRAEME THOMSON

TO: DAVID GRAEME THOMSON of 1st Floor, 109 Pitt Street, Sydney in the State of New South Wales.

WHEREAS: of ASSOCIATED MIDLAND CORPORATION LIMITED of 10th Floor, Cnr. King & Clarence Streets, Sydney in the said State (hereinafter referred to as "the judgment creditor") has claimed that the balance sum of $50,000.00 together with interest on the outstanding Balance from time to time at the rate of Ten per centum per annum from 10th October 1980 which at the date of the issue of this notice amounts to $1027.40 making a total of $51,027.40 is due by you to it under a final judgment obtained by it against you in the Supreme Court of New South Wales at Sydney on the 10th day of October 1980, being a judgment the execution of which has not been stayed: 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 $51,027.40 so claimed by the judgment creditor to the judgment creditor; or

(b) to secure the payment of the sum referred to in the last preceding paragraph to the satisfaction of the Federal Court of Australia or the judgment creditor (or its agent whose name and address are Messrs. Currie & Currie, solicitors, 20 King Street, Sydney, N.S.W. 2000 (D.X. 238)) or compound the sum so specified to the satisfaction of the judgment creditor (or its agent):

The principal attack on the validity of the bankruptcy notice was that it claims only part of the judgment debt, leaving any balance that may be due to be subsequently claimed; and that it does not make it clear that nothing more is claimed to be due on the judgment beyond the amount specified in the notice.

At the time the bankruptcy notice was issued the stay ordered by the Supreme Court was in force, but only as to $30,000.00 of the $80,001.59 due under the judgment. The creditor was free to enforce the judgment as to $50,001.59. If the stay ceased to operate the creditor would be free to enforce it as to the whole amount of the judgment. The statement in the bankruptcy notice "being a judgment the execution of which has not been stayed:" is inaccurate. Execution of the judgment had been stayed as to $30,000.00; but that is only part of the difficulty created by the form the notice took.

It is well established that a bankruptcy notice must require payment of a judgment debt in accordance with the judgment. In Re H. B. 1904 1 K.B. 94, Lord Justice Romer said at p. 103:-
"Now I think it is clear that, when you have a judgment in the form that we have here, a bankruptcy notice under the Act must require payment of a sum alleged to be due according to the terms of the judgment - that is to say, it must state the amount that is claimed as remaining unpaid on the judgment debt. Clearly, in a bankruptcy notice the debtor is entitled to see from the notice exactly what is claimed to be due on the judgment debt."
This is the vice of the present notice. The debtor may think, upon seeing the notice that, if he obeys its command and pays the sum of $51,027.40 to the judgment creditor, that will put an end to the whole of his liability under the judgment. On the other hand, he may suppose that, by paying the sum of $51,027.40, he will still remain liable to pay the balance. Again, and this is more likely, he may not know what to think and be in a state of uncertainty as to what his remaining liability will be if he obeys the notice. If the notice made it clear that nothing more was claimed to be due on the judgment than the sum of $51,027.40 the position would be different; but this the notice does not do.

In Re. H. B. (supra) Romer L. J. went on to say at p. 103:-
". . . No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment beyond the amount specified in the notice. But a notice to pay part of a judgment debt, leaving any balance that may be due to be subsequently claimed is, to my mind, clearly bad."

It was held by the Full Court of this Court in Re Schierholter; ex parte Geis (1978) 19 A.L.R. 113 that a bankruptcy notice does not comply with the requirements of s. 41 of the Bankruptcy Act 1966 if it specifies a lesser sum than the judgment debt, unless the notice makes it clear that nothing more is claimed to be due under the judgment debt. Their Honours applied the principles enunciated in Re H.B. (supra); by Clyne J. in Nirens v. Fowler Asphalt Pty. Limited (1966) 9 F.L.R. 255 at p. 256 and by Manning J. in Re Jack; ex parte C. V. Holland (Holdings) Limited (1959) 19 A.B.C. 268. See also Re Munson; ex parte Deputy Commissioner of Taxation (1977) 29 F.L.R. 479 - a decision of Riley J. and my own decision in Re Manion; ex parte Deputy Commissioner of Taxation (1979) 23 A.L.R. 270.

Thus far, I have examined the question of the validity of the bankruptcy notice at the date of issue of the bankruptcy notice. It is necessary that a creditor seeking to have a bankruptcy notice issued is in a position to execute on the judgment at the time he applies for the issue of the notice: s.41 (3) (b) of the Act; Re Richards; ex parte Sommers (1947) 14 A.B.C. 112. The requirement that the execution of the judgment has not been stayed must be satisfied also at the time of service of the bankruptcy notice: Re Moss; ex parte Tour Finance Limited (1968) 13 F.L.R. 101; Re Broomham; ex parte Brown, an unreported decision of Deane J. delivered on 22 November 1979.

The words in the present bankruptcy notice:-
"the balance sum of $50,000.00 . . . due by you . . . under a final judgment obtained . . . against you in the Supreme Court of New South Wales at Sydney on the 10th day of October 1980, being a judgment the execution of which has not been stayed:"
are wrong as the amount payable by the debtor under the judgment at the time of service of the bankruptcy notice was $80,001.59. The notice does not make it clear that nothing more is claimed to be due on the judgment beyond the sum of $50,000.00.

Whether a defect in a bankruptcy notice is fatal or a formal defect or irregularity under s. 306 of the Act, depends on whether the defect is of such a kind as could reasonably mislead the debtor upon whom it was served. The test is not whether the debtor was in fact misled. It is sufficient that he could be misled: see Pillai v. Comptroller of Income Tax 1970 A.C. 1124 at p. 1135; In re a Debtor (No. 21 of 1950) ex parte the Debtor v. Bowmaker Limited 1951 Ch. 313; James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631 at p. 644; Re Manion (supra) and Re Wimborne; ex parte The Debtor (1979) 24 A.L.R. 494.

Plainly the bankruptcy notice is bad.

I need not consider the other grounds advanced by the debtor as to the invalidity of the bankruptcy notice including the following:-

. whether the description of the amount claimed under the judgment was uncertain;

. the effect on the validity of the notice of the erroneous calculation of interest in the notice itself - it being agreed that, even if the sum of $50,000.00 is the correct base from which to measure interest, there is an understatement of interest by $178.09;

. the effect on the validity of the notice of the statement "the balance sum of $50,000.00" whereas, if one assumes the operation of the stay the correct figure was $50,001.59.

I order that the bankruptcy notice be set aside and that the respondent pay the applicant's costs, including reserved costs.