Re Williams, Louis K. Ex Parte McCourt, Robert John

[1983] FCA 281

Re: LOUIS K. WILLIAMS
Ex parte: ROBERT JOHN McCOURT AND WILLIAM GEOFFREY HALLIDAY (1983) 76 FLR 133
No. P816 of 1983
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont J.

CATCHWORDS

Bankruptcy - Bankruptcy notice - Application for dismissal of creditors' petition - dismissal by consent - Application for costs - Whether notice which incorrectly states name of court to whom debtor may apply to set aside notice if he has counter claim fundamentally defective - Validity of notice - Whether defect could reasonably have misled the debtor.

Bankruptcy Act, 1966 ss.41(1), 306

Bankruptcy - Dispute over costs - Creditors' application to have petition dismissed - Dismissal by consent - Application for costs - Allegation by debtor that bankruptcy notice fundamentally defective - Name of court stated incorrectly in notice - Whether defect could reasonably have misled the debtor - Bankruptcy Act 1966 (Cth), ss 5(1), 41(1), 41(7), 306.

HEADNOTE

The debtor paid to the petitioning creditors the debt owed to them. Accordingly, the petitioning creditors sought the dismissal of the petition and an order that the debtor paid their costs. The debtor argued that the petition be dismissed but sought to avoid the payment of the creditors' costs on the basis that the bankruptcy notice that grounded the petition was bad. The court referred to in the bankruptcy notice, requiring the debtor to secure the payment of the debt to it or satisfy it that the debtor had a valid counterclaim, set-off or cross demand, was incorrectly stated.

Held: (1) Strict compliance with the statutory requisites of a bankruptcy notice is essential to its validity.

James v. Federal Commissioner of Taxation (1955) 93 CLR 631, followed.

(2) The test to be applied in determining whether a defect in a bankruptcy notice constitutes a formal defect or an irregularity within the meaning of s. 306 of the Bankruptcy Act 1966 (Cth) is that if the defect in the notice is of such a kind as could reasonably mislead a debtor upon whom it is served, it invalidates the notice notwithstanding that the particular debtor upon whom it was served was not in fact misled.

Pillai v. Comptroller of Income Tax (1970) AC 1124; Re A Debtor; Ex parte A Debtor v. Bowmaker Ltd (1951) Ch 313; Re Wong (1979) 38 FLR 207; Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494, followed.

(3) The bankruptcy notice was defective and could not be cured pursuant to s. 306 of the Bankruptcy Act 1966 (Cth).

HEARING

Sydney, 1983, October 4, 18. #DATE 18:10:1983

APPLICATION.

F.P. Riley (solicitor), for the petitioning creditor.

A. Gooch (solicitor), for the supporting creditor.

The debtor appeared in person.

Cur. adv. vult.

Solicitors for the petitioning creditor: R.J. McCourt & Co.

Solicitors for the supporting creditor: Minter Simpson & Co.

J.J.I.

ORDER

1. That the petition be dismissed.

2. That there be no order as to costs save for the order made by McGregor, J. on 8 August, 1983.

Orders accordingly.

JUDGE1

The debt of the petitioning creditors in this matter has now been paid. The petitioners thus seek the dismissal of the petition and an order that the debtor pay their costs. The debtor claims that the bankruptcy notice grounding the petition is bad and whilst he urges the dismissal of the petition, he contests any liability for costs. Another creditor has foreshadowed an application to be substituted as petitioner in the event that the bankruptcy notice is not defective.

The bankruptcy notice here required the debtor to secure the payment of the debt to the satisfaction of the Court of Petty Sessions and to satisfy the Court of Petty Sessions that he had a counter-claim, set-off or cross demand instead of referring to this Court in this connection. The references to the wrong court is said to render the bankruptcy notice invalid.

Section 41(1)(a) of the Bankruptcy Act, 1966 ("the Act") provides that a bankruptcy notice shall be in accordance with the prescribed form which shall be such that the notice requires the debtor named in it to pay the judgment debt in accordance with the judgment or secure the payment of the debt to the satisfaction of "the Court" or the judgment creditor or compound the sum to the satisfaction of the creditor. Likewise, s.41(7), in dealing with a counter-claim, set-off or cross demand, speaks of the satisfaction of "the Court" in this respect. By s.5(1) "the Court" means a court having jurisdiction in bankruptcy under the Act.

The relevant portion of the prescribed form is in these terms:

" . . . you are required:

. . .

(b) to secure the payment of the sum referred to in paragraph (a) to the satisfaction of the (name of the Court) or the judgment creditor or compound the sum so specified to the satisfaction of the judgment creditor. . . .

AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the abovementioned requirements in this notice or to satisfy the (here insert the name of the Court) that you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a), being a cross claim, set-off or demand that you could not have set up in the action in which the judgment was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you . . . "

It is clear that strict compliance with the statutory requisites of a bankruptcy notice is essential to its validity and, in this respect, a bankruptcy notice is strictly construed: (see James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631 at 644). However, the petitioning creditor argues that the particular defect in the bankruptcy notice is merely one of form and not of substance so that by the operation of s.306 of the Act, the defect does not invalidate the notice.

The test to be applied in determining whether a defect in a bankruptcy notice constitutes a formal defect or an irregularity within the meaning of s.306 is that if the defect in the notice is of such a kind as could reasonably mislead a debtor upon whom it is served, it invalidates the notice notwithstanding that the particular debtor upon whom it was served was not in fact misled (see Pillai v. Comptroller of Income Tax (1970) A.C. 1124 at p.1135; Re a Debtor (No.21 of 1950): In Re a Debtor; Ex parte Debtor v. Bowmaker Ltd. (1951) Ch.313; Re Wong (1979) 27 A.L.R. 405 at p.409).

In Re Wimborne; Ex parte the Debtor (1979) 24 A.L.R. 494 at p.499, Lockhart, J. stated that the test is not whether the debtor was in fact misled by the defect. It is sufficient that he could be misled. He said (at p.500):

"It is clear from the cases to which I have referred that although the courts drew a 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."

This view was also taken by Sheppard, J. in Re Preston; Ex parte The Commercial Bank of Australia Limited (13 October, 1982, unreported).

In Re a Debtor (No. 21 of 1950); Ex parte The Debtor v. Bowmaker Ltd. (1951) Ch. 313 the copy of the bankruptcy notice served on the debtor was headed in the name of a county court from which it was not issued, namely "Redhill County Court" though bearing the seal of the court from which it was in fact issued, namely "Windsor County Court". It was held that this was a defect which could have misled the debtor and thus was not curable by s.147 of the Bankruptcy Act, 1914 and that the notice was invalid. Harman, J. said (at p.320):

"I am to ask myself, therefore, not whether this is a mistake which has misled the debtor, but whether it could mislead him. The bankruptcy notice is in the common form, and it tells the debtor that he must pay a certain sum to Bowmaker Ld., or their solicitors, or that he must secure or compound for the said sum to their satisfaction, or to the satisfaction of their said agent, or to the satisfaction of this court, or that he must satisfy this court that he had a counterclaim, set-off or cross-demand against them. The debtor has three days in which to do that. He is told 'this court'. When he looks at the notice, he may take his choice, whether it is the Redhill court or the Windsor court. Suppose that he chose the wrong court and went to Redhill at the end of the third day with, say, an affidavit to prove that he had a good set-off. He might find that he had gone to the wrong place and could not get to Windsor that day, so that when he arrived at Windsor, he would be told that he was too late because the three days had expired. It cannot be said that the debtor is not embarrassed by this notice. According to the authorities, therefore, I feel myself constrained to hold that this is not an irregularity which we can overlook."

In my opinion, this reasoning should be applied in the present case. In the result, the bankruptcy notice is defective and cannot be cured by s.306.

The petition should be dismissed. Since the debtor appeared in person, there should be no order as to costs.