Re Williams; Ex parte Alberton Electrical Service Pty Ltd

[1982] FCA 177

Re: MR. LES WILLIAMS
Ex parte: ALBERTON ELECTRICAL SERVICE PTY. LIMITED
No. 360 of 1982
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
Fisher J.

CATCHWORDS

Bankruptcy - bankruptcy notice - validity - amount actually due less than amount of final judgment - excessive amount claimed in notice - final judgment including costs - no notice of taxed costs to debtor - stay of execution.

BANKRUPTCY ACT 1966 -s.41(5)

LOCAL AND DISTRICT CRIMINAL COURTS ACT 1926 (S.A.) - s.153(2)

COMMERCIAL AND PRIVATE AGENTS ACT 1972 (S.A.) - s.30(1)

HEARING

ADELAIDE

#DATE 19:8:1982

ORDER

1. The bankruptcy notice served on the debtor is invalid.

2. The creditor pay to the debtor his costs of these proceedings.

JUDGE1

By application filed on 11 June 1982 the debtor sought an order that the bankruptcy notice was invalid or alternatively that it be set aside. In an affidavit sworn in support of his application the debtor stated that the amount claimed by the creditor in the proceedings in the Local Court for which judgment was obtained included an amount of $98 alleged to be owing for "collection expenses". Such an amount, he contended, could not be due to the creditor in the absence of "any contractual arrangement with the judgment creditor in regard to my payment of 'collection expenses'". The debtor further stated that he had not since the date of entry of judgment been in any way informed of the amount of taxed costs. In consequence he contended that the creditor was "statute barred from enforcing payment of such costs" and thus the amount stated in the bankruptcy notice was not due and owing by him to the creditor.

The creditor through its solicitor filed an answering affidavit the essential portions of which are as follows:

"4. Under the original contract between the Creditor and Debtor the sum of $1,307.00 was due and payable by the debtor to the creditor for work and labour done during August 1981. The debtor was in breach of the said contract whereby the creditor suffered damages. The creditor engaged the services of a collection agency namely Kemps Mercantile Agency duly licensed under the Commercial & Private Agents Act 1972 (as amended) to recover the amound (sic) due of $1,307.00. The creditor incurred expenses to the Collection Agency of $98.00; as no payment of the claim and collection expenses were received from the debtor legal action was taken out of the Local Court of Adelaide.

5. All of the Local Court Fees and solicitor's fees claimed against the debtor are shown on the summons totalling $1,531.60. The summons was personally served on the defendant on the 20th. March 1982.

6. After the Local Court summons had been personally served on the debtor the plaintiff instructed Kemps Mercantile Agency to write by letter to the defendant requesting payment of $1,531.60 by the 26th. March 1982. A copy of the said letter is attached marked 'A'. As no payment was made I was instructed to sign judgment in the Local Court, obtain a copy of the Local Court Record and proceed with the issue of a bankruptcy notice."

It was agreed between the parties that I should proceed on the matters stated in the affidavits without cross-examination thereon or any additional oral evidence. The crucial facts for the purpose of my decision are thus that there was no agreement by virtue of which the creditor was entitled to claim from the debtor the collection fees which it incurred in attempting to obtain payment of its debt. In respect of the amount of costs I find that there was no notice given by the creditor to the debtor subsequent to entry of judgment, the letter exhibited by paragraph 6 supra of the creditor's affidavit having been sent prior to entry of judgment

This lack of notice of the amount of judgment and taxed costs is of significance because of the provisions of s.153(2) of the Local and District Criminal Courts Act 1926 ("the Local Courts Act") It provides:

"(1). Subject to subsection (2) of this section, judgments and orders of any local court, Judge or special magistrate for the payment of money -

(a) may be enforced in case of default or failure of payment thereof forthwith, or at the time or times thereby directed, in the manner hereinafter set out; and

(b) shall carry interest on the amount thereof for the time being remaining unpaid at the rate prescribed by rules of court from the date thereof until payment.

(2). A judgment or order of a local court, Judge or special magistrate, in so far as it provides for the payment of costs, shall not be enforced -

(a) unless a letter setting forth the amount of the taxed costs has been served personally on the defendant; or

(b) unless a letter setting forth the amount of the taxed costs has been sent by post to the last address of the defendant of which the plaintiff has had notice and the letter would, in the ordinary course of the post, have reached that address."

The consequence of non-compliance with this requirement for notice to be given to the debtor was, it was said, that at least the amount of costs, and probably the judgment as a whole, could not be enforced until the notice was given. Therefore the statement made by the creditor in applying for the issue of a bankruptcy notice to the effect that "execution of the final judgment has not been stayed at the time of the making of this application" was not correct. Execution of the judgment for costs was stayed until the requisite notice was given in accordance with s.153(2) supra.

Counsel for the debtor argued that the bankruptcy notice should be set aside as invalid on the ground that it claimed an excessive amount, namely the collection fees, and that his client had given the requisite notice under s.41(5). He also contended that because no letter or other notice had been served on or sent to the debtor, the judgment, so far as it provided for the payment of costs was, pursuant to s.153(2) abovementioned, not enforceable. It followed that because the judgment, at least to this extent, was not enforceable the bankruptcy notice was invalid as it was issued for a sum which exceeded the amount for which execution might as a matter of law be levied.

It is my opinion that each of these contentions is correct. On the undisputed facts I must find that the debtor was under no contractual obligation to pay the collection fees and therefore judgment was on this score improperly entered. Counsel for the creditor relied upon s.30(1) of the Commercial and Private Agents Act 1972 as imposing a statutory obligation on the debtor to pay the collection fees. This section is as follows:

"(1). A commercial agent, or a commercial sub-agent acting on his behalf, shall not ask or demand (whether directly or indirectly) from any debtor any payment in addition to the amount of the debt other than the fee, or part of the fee, that the commercial agent has charged or agreed to charge, the creditor in respect of the commercial agent's services in recovering or attempting to recover the debt. Penalty: Five hundred dollars.

(2). . . . "

In my opinion this provision does not impose any obligation on the debtor to pay these collection fees. It merely acknowledges that the commercial agent is entitled to demand such a fee but no more without being accused of "extortion" and provides for a penalty if the agent contravenes the section.

Counsel for the creditor also argued that his client was entitled to the collection fee as damages for breach of contract. However it has not made a claim for damages nor has it a judgment to this effect, which would, in the case of a default judgment, have required assessment of damages pursuant to s.108 of the Local Courts Act supra. The judgment which the creditor has had entered in the action was a judgment for a liquidated demand in accordance with the provisions of s.107 of that Act.

It follows that on the evidence the creditor has been unable to establish that he is entitled to recover the amount of collection fees from the debtor. The judgment is therefore $98 in excess of the amount actually due by the debtor. As there has in the bankruptcy notice been an overstatement of the amount actually due and the debtor has given the requisite notice under s.41(5) to the creditor, the bankruptcy notice is invalid. This conclusion accords with the reasoning of Clyne J. in Re Prossimo, Ex Parte Re Marco (1952) 16 A.B.C. 86 and in Re John Charles Murray and Another (1956) 18 A.B.C. 153. On this ground the debtor is entitled to an order declaring the bankruptcy notice invalid.

Though in the circumstances it is unnecessary for me to do so, I turn to the alternative contention of the debtor, namely that because he has not received a notice in accordance with s.153(2) advising him of the amount of the taxed costs, the bankruptcy notice is invalid. I do so because such a problem frequently arises in practice, and perhaps equally frequently passes unnoticed. It was considered by Judge Rogerson in Re L. Williams Ex Parte Claude Neon Limited an unreported decision handed down on 12 August 1981 and with respect I agree with his reasoning and his conclusion. I can not do better than set out in full his reasoning on this score, which appears on the second page of the printed copy of his reasons. He said:

"There are two further matters which in my view also make the amount claimed in the bankruptcy notice excessive. First, costs, under Section 295 of the last-mentioned Act, are taxed by the clerk of the court. The process, in a default judgment, is a purely mechanical one done by reference to schedules made under the rules, but the process is nevertheless in my view one of taxing costs. To 'tax', according to the Shorter Oxford English Dictionary, is 'to determine the amount of; to assess'. Now, Section 153 (2) of that Act provides that a judgment or order, in so far as it provides for the payment of costs, shall not be enforced unless the defendant has been either personally served with, or been sent by post, a letter setting forth the amount of the taxed costs. This is an entirely reasonable provision, for a defendant against whom a default judgment has been given, will not know, until told, what total sum he has to pay. The summons will, of course, have told him the amount claimed in a liquidated claim, and will have specified certain of the costs of the action, but not all of them. A defendant cannot comply with his obligation to pay until he knows how much he is obliged to pay, and he must be given the opportunity voluntarily to discharge his obligation before enforcement procedures are resorted to. Now, no such letter was served on or sent to the applicant, and the judgment, so far as it provides for the payment of the costs of $210.65, appears to me not to be enforceable against the applicant to that extent. I can see nothing in the Act to restrict the operation of Section 153(2) to contested actions. It is not possible, of course, for a bankruptcy notice to be issued for a sum which exceeds that for which execution might lawfully be levied."

The only gloss which I would add to these words is the comment that sometimes the summons for a liquidated claim will, as in the present matter, have specified all of the costs of the action.

Applying this reasoning to the present facts, the judgment which was entered in default of appearance by the debtor included an amount of $126.60 for costs. As it happens this was the amount of costs specified on the summons and thus no positive act of taxation was in fact required. This was the amount of the taxed costs for the purposes of s.153 (2) and the necessity then arose for notification of the debtor.

Counsel for the creditor, in contending to the contrary did not only argue that s.153(2) applied only when costs additional to those claimed on the summons were provided in the judgment. His primary submission was that s.153(2) was restricted so as to require a notice only when the creditor attempted to enforce in accordance with the provisions of Part V111 of the Local Courts Act. He based this argument on the presence of the words "in the manner hereinafter set out" in s.153(1)(a) supra. However s.153(1)(a) is expressly made subject to s.153(2) and the latter subsection refers to enforcement generally. Moreover a bankruptcy notice is not validly issued if execution on the amount claimed has been stayed and prima facie it has in the present instance been stayed in respect of the amount of costs.

Counsel further referred to s.134 of the Local Courts Act as entitling him to levy execution forthwith. It is as follows:

"134. Any party to any action in any local court in whose favour any judgment has been given, unless the court otherwise orders, may cause execution to be issued thereon forthwith after the judgment has been pronounced and entered into the record book."

It is my opinion that s.153(2) applies to restrict the operatic of s.134 only in respect of costs. Execution may be issued "forthwith" in respect of the amount of the judgment, but in respect of costs only after compliance with s.153(2). Counsel also drew my attention to the forms of special summons, which the present summons was, prescribed in the rules. In each instance, unless the plaintiff claims damages, they provide that upon signing of judgment, "execution (may be) issued against you immediately and without any further summons". In my view the same comment applies, namely such is the case except in respect of costs when compliance with s.153(2) is obligatory.

Counsel for the creditor contended that by the Rules of Court and forms of summons comprised in such Rules the provisions of s.153(2) had been modified. Such modification he contended was pursuant to the right of the Senior Judge under s.28(2) to make Rules "modifying to any extent that may be necessary or expedient, any provisions in respect of the abovementioned matters contained in this or any other Act". Such a submission is completely without foundation. Rules of Court are specifically to be made under s.28(1) for carrying into effect the provisions of the Local Courts Act and in particular "regulating the pleading, practice and procedure in local courts". The requirement that execution can not issue for recovery of costs without prior notice to the debtor is not a matter of pleading, practice or procedure but a matter of substantive law, and is not capable of being modified or effected in its operation by Rules of Court.

Counsel also submitted that a judgment in default is not, in the words of s.153(2) "a judgment or order of a local court, Judge or special magistrate, and thus the obligation to give notice of the amount of taxed costs has no application when judgment is entered in default. This contention also has no substance, the judgment is a judgment of a local court specifically provided for under the Act. Moreover a judgment in default above all others requires notice to the debtor of the total amount payable by him prior to the issue of execution.

On this ground I am of opinion that the bankruptcy notice is invalid in that it is issued for a sum which exceeds that for which execution might lawfully be levied. (Ex parte Ide (1886) 17 Q.B.D. 755, Re Richards (1947) 14 A.B.C. 112). I am happy to follow and apply the reasoning of my predecessor in this jurisdiction which I have set out in full earlier in these reasons. The comment can fairly be made that I am setting aside the bankruptcy notice on two grounds, both of which are highly technical, and in circumstance where there is no evidence that the debtor was in fact misled. However, the practice of the Courts exercising jurisdiction in bankruptcy is, for good reason, to construe bankruptcy notices strictly and to require strict compliance with the provisions of the relevant Acts and Rules of Court. A more strict compliance is required in the case of a bankruptcy notice than of a petition for a sequestration order, The consequences of non-compliance with a bankruptcy notice are penal or quasi-penal in nature (Re a Debtor (1951) Ch 313 at 318 and In Re a Judgment Debtor (1908) 2 K.B. 474 at 478 and 481) and creditors who avail themselves of proceedings of this nature to enforce payment of debts must be prepared to adhere to the requirements of the Acts and Rules, however technical they may appear to be (Re Wimborne (1979) 24 A.L.R. 494 at 498).

The bankruptcy notice served on the debtor was invalid and I order that the creditor pay to the debtor his costs of these proceedings.