Re Williams, William Leslie Ex Parte General Credits Ltd

[1983] FCA 35

Re: WILLIAM LESLIE WILLIAMS
And: GENERAL CREDITS LIMITED (1983) 68 FLR 202
No. 1039 of 1982
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
Fisher J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - validity - stay of execution on judgment - understatement of amount of judgment - description of amount due - cure of defect

Bankruptcy Act 1966 s.41(3((5)(6). s.306(1)

Bankruptcy - Bankruptcy notice - Whether bankruptcy notice was invalid - Compromise between judgment creditor and debtor - Bankruptcy notice understated amount of judgment debt - Compromise between judgment creditor and judgment debtor - Effect of compromise - Whether debtor likely to have been misled by bankruptcy notice - Bankruptcy Act 1966 (Cth), ss 40(1)(g), 41(3), 41(5), 41(6), 306.

HEADNOTE

Section 40(1) of the Bankruptcy Act 1966 (Cth), so far as relevant, provides that:

"(1) A debtor commits an act of bankruptcy in each of the

following cases:

. . .(g) if a creditor who has obtained against the debtor a final

judgment or final order, being a judgment or order the execution

of which has not been stayed, has served on the debtor in

Australia . . . a bankruptcy notice under this Act. . .".

Section 41(3) of that Act, so far as relevant, provides:

"(3) A bankruptcy notice shall not be issued in relation to a debtor -

. . .(b) if, at the time of the application for its issue,

execution of the judgment or order to which it relates

has been stayed."

On 21 October 1982, the creditor served the debtor with a bankruptcy notice and on 8 November 1982, the debtor made application to the Federal Court of Australia to set aside the bankruptcy notice on the ground of its invalidity.

The bankruptcy notice claimed, to the extent relevant, that:

"the sum of $10,000 is due by you to the Judgment

Creditor under a final judgment obtained by the Judgment

Creditor against you in the Local Court of Adelaide on

24 January 1980 being a judgment the execution of which

has not been stayed."

However, evidence showed that the certificate of judgment issued by the Local Court on 19 August 1982 stated that the sum of $10,727.96 was due on that date under the judgment.

By his affidavit filed in support of his application to set aside the bankruptcy notice, the debtor deposed that he believed that the amount stated to be owing to the judgment creditor in the bankruptcy notice was an amount less than that for which judgment was signed in the Local Court and that the amount claimed in the Local Court action was the sum of $10,700.96 plus costs.

On 10 February 1983, an affidavit was filed in the court deposing that on 14 May 1982 the creditor was present in the Supreme Court of South Australia when a judgment was entered in a certain action (in which the judgment creditor was plaintiff and the judgment debtor was the defendant) and an order was made with the consent of the judgment debtor that a compromise would be entered into between the parties. The compromise was recorded and made a Rule of Court and provided that the sum recoverable by the plaintiff from the defendant under the judgment entered in the Local Court of Adelaide should be the sum of $10,000.00 which should be paid by the defendant and accepted by the plaintiff in full satisfaction and discharge of the judgment. The compromise further provided that the sum of $10,000 should be paid and satisfied by the payment of $2,000 on 31 May 1982 and the payment of the balance of $8,000 on 30 September 1982.

Held: (1) The creditor, not being entitled to levy execution until the last moment of 30 September 1982, was not entitled to the issue on that day of a bankruptcy notice claiming the sum of $10,000.

Accordingly, the bankruptcy notice which was served on the debtor was invalid and should be set aside.

Re Moss; Ex parte Tour Finance Limited (1969) 13 FLR 101;

Re John Perkins Seers (1955) 17 ABC 11;

Re Smith; Ex parte Durban (1903) 1 KB 33;

Re Williams; Ex parte Albertson Electrical Service Pty Ltd, Fisher J. 19 August 1982, Federal Court of Australia, unreported; referred to.

(2) (Semble) In the light of the Supreme Court proceedings the debtor would not be likely to have been misled by the statement of the amount claimed in the bankruptcy notice.

Re Wimborne; Ex parte the Debtor (1979) 24 ALR 494;

Re Florance; Ex parte Turimetta Properties Pty Ltd (1979) 36 FLR 256; (1979) 28 ALR 403; referred to.

(3) (Per Fisher J.) The meaning to attach to the terms of the compromise of the Supreme Court action in so far as they affected the judgment of the Local Court was that they restricted the creditor's right to enforce that judgment. In consequence of the compromise the creditor, having agreed to accept $10,000 as the sum recoverable by it under the Local Court judgment, was contractually restrained from recovering any greater amount. Accordingly, the creditor was disqualified from pursuing recovery of more than $10,000, of which $8,000 was not payable until 30 September 1982.

The creditor was in the same position as if execution on its judgment, at least to the extent of $8,000, had been stayed by order of the Local Court until 30 September 1982.

HEARING

Adelaide, 1983, February 21; March 11. #DATE 11:3:1983

APPLICATION.

The debtor applied to have a bankruptcy notice set aside on the ground of its invalidity as it understated the amount of the judgment debt.

S.P. McNamara, for the applicant.

M. Barrett, for the respondent.

Solicitors for the applicant: McNamara Boundy.

Solicitors for the respondent: Kelly and Co.

J.D.W.

ORDER

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

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

JUDGE1

In this matter William Leslie Williams ("the debtor") makes application to set aside on the ground of its invalidity bankruptcy notice No. 1039 of 1982. General Credits Limited ("the creditor") served the debtor with the bankruptcy notice on 21 October 1982. On 8 November 1982 the debtor through his solicitors filed in this Court the application to set aside the bankruptcy notice which application together with an affidavit in support was served upon the solicitors for the creditor. To the extent that the debtor was required to comply with the provisions of s.41(5) of the Bankruptcy Act 1966 ("the Act") it was common ground that he had given the necessary notice within the time allowed by the bankruptcy notice for payment.

The bankruptcy notice was in the form prescribed by the Rules under the Act and it claimed to the extent relevant that -

"the sum of $10,000 is due by you to the Judgment Creditor under a final judgment obtained by the Judgment Creditor against you in the Local Court of Adelaide on the 24th day of January 1980 being a judgement (sic) the execution of which has not been stayed."

Evidence subsequently placed before the Court established that the judgment therein referred to was obtained on 24 January 1980 and a certificate of judgment issued on 19 August 1982 stated the amount due on that date under the judgment as $10,727.96.

By his affidavit filed in support of his application to set aside the bankruptcy notice the debtor made the following points:

"3. The Bankruptcy Notice was served on me personally on Monday the 25th day of October, 1982.

4. I wish to dispute the validity of the said Bankruptcy Notice on the ground that it does not comply with the requirements of the Bankruptcy Act.

5. I believe that the amount stated to be owing to the judgment creditor in the Bankruptcy Notice is an amount less than that for which judgment was signed on the 24th day of January, 1980, in Local Court of Adelaide action number 38643 of 1980.

6. The amount claimed in Local Court of Adelaide action number 38643 of 1980 was $10,700.96 plus costs. Now shown to me and marked 'A' is a copy of the Special Summons in Local Court of Adelaide Action number 38643 of 1980.

7. Since the plaintiff signed judgment I have been given a number of credits against the creditor because of other court proceedings. These credits are not set out in the Bankruptcy Notice and further I do not know whether this is the whole of the sum claimed by the creditor.

8. I have at no time prior to being served with the Bankruptcy Notice in this matter been warned or informed by the judgment creditor or agents acting on its behalf that a judgment had been obtained by the judgment creditor against me for the amount of the judgment debt including taxed costs. As a consequence I have not had the opportunity to dispute, question or discharge the amount allegedly due under a judgment obtained by the judgment creditor prior to the present enforcement proceedings being commenced against me.

9. I further say that the creditor is statute barred from enforcing payment of such costs as may have been taxed in the judgment debt as a consequence the amount stated in the Bankruptcy Notice the subject of these proceedings is not due and owing by myself to the creditor.

10. I seek an order from this Honourable Court to declaring (sic) the said Notice invalid or alternatively setting aside the Bankruptcy Notice."

The fact that the debtor disputed the date of service of the bankruptcy notice was not a matter in issue, nor did counsel for the debtor rely upon the matters set out in paragraphs 8 and 9 of the affidavit. The debtor doubtless had in mind setting aside the bankruptcy notice on the ground that he had not been advised of the amount of the taxed costs, as required by s.153(2) of The Local and District Criminal Courts Act 1926, a ground he had successfully taken in an earlier matter of Re Williams in which I delivered judgment on 19 August 1982. However this ground was not on this occasion pressed by his counsel.

Further relevant information was placed before the Court in an affidavit filed on 10 February 1983 on behalf of the creditor. This affidavit disputed that the debtor had made any payments to the creditor in reduction of the judgment debt and no cross-examination was sought on this aspect or any other matters in the affidavit. Paragraphs 3 to 5 thereof are very relevant and are as follows:

"3. On the 14th day of May 1982 I was present in the Supreme Court of South Australia, when a judgment was entered in a certain action wherein the Judgment Creditor was plaintiff and the Judgment Debtor defendant. It was there ordered by His Honour Mr. Justice Walters, and with the consent of counsel for the Judgment Debtor that:

(i) That the plaintiff's action is dismissed without costs.

(ii) The claim by the defendant by counterclaim is dismissed without costs.

(iii) The following compromise entered into between the parties is recorded and made a Rule of Court.

(a) That the sum recoverable by the plaintiff from the defendant under the judgment entered in the Local Court of Adelaide in Action No. 38643 of 1979 shall be the sum of $10,000.00

(b) That the said sum of $10,000.00 shall be paid by the defendant and accepted by the plaintiff in full satisfaction and discharge of the judgment entered for the plaintiff against the defendant in the said action in the Local Court of Adelaide.

(c) That the said sum of $10,000.00 payable by the defendant to the plaintiff shall be paid and satisfied as follows:-

(i) As to $2,000.00 by payment on the 31st day of May 1982.

(ii) As to the balance of $8,000.00 by payment on the 30th day of September 1982.

(iii) If the amounts recited in the preceding paragraphs or either of them be not paid by the time stipulated the plaintiff may be at liberty to proceed in this Court to enforce the compromise in terms of the Rules of Court. AND the parties may be at liberty to apply generally as advised. By consent it is noted that the compromise reached is to have the effect of discharging all claims between the plaintiff of the one part and the defendant, his wife Marilyn Gloria Williams and Jasmar Pty. Ltd. on the other part.

4. I verily believe that at the time of the said judgment being entered in open Court, the Judgment Debtor was present.

5. The $10,000.00 the subject of the within bankruptcy notice filed herein is for the monies outstanding pursuant to the Order made by His Honour Mr. Justice Walters."

On the hearing no cross-examination on any of the affidavits was sought and therefore I proceed on facts as set out in the affidavit filed on behalf of the creditor and those in the affidavit of the debtor except to the extent that they are in conflict with the facts in the creditor's affidavit. The issues before me as ultimately argued, were whether the bankruptcy notice, in so far as it claimed a lesser amount than the judgment debt, was misleading and therefore invalid and the consequence of the fact that the bankruptcy notice was, at the request of the creditor, issued on 30 September 1982, being the last day provided by the terms of compromise recorded by Walters J. for payment of the final instalment of the sum of $10,000. This was a matter raised by the Court during the hearing and espoused by counsel for the debtor.

On the latter of these two issues I must rule against the validity of the bankruptcy notice. Section 40(1)(g) provides, as far as relevant, that a debtor commits an act of bankruptcy:-

"(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia . . . a bankruptcy notice . . ."

Section 41(3)(b) also provides that a bankruptcy notice shall not be issued in relation to a debtor:-

"(b) if, at the time of the application for its issue, execution of the judgment or order to which it relates has been stayed."

The effect of s.41(3)(b) must be as stated by Gibbs J. in Re Moss (1968) 13 F.L.R. 101 at p.103 that

" . . . if at the time of the issue . . . of the bankruptcy notice the execution of the judgment on which the notice is founded has been stayed, and the stay is still in force, so that at that time the creditor is not entitled immediately to issue execution on the judgment, the notice will be bad."

Gibbs J. on page 104 of the judgment referred with approval to the following words of Clyne J. in Re Seers (1955) 17 A.B.C. 11 at p.13.

"It is clearly established that in order to entitle a creditor to issue a bankruptcy notice, he must be in a position to issue execution on his judgment at the time when he issues the bankruptcy notice. See Ex parte Ide; In Re Ide (1886) 17 Q.B.D. 755 at 759."

In the latter decision Fry L.J. on page 760 referred to the words of Lindley L.J. in Ex parte Woodall 13 Q.B.D. 479 at p.483 when he said,

"The words, 'execution thereon not having been stayed' show clearly what sort of a creditor is intended. It must be a creditor who is in a position to issue execution on the judgment."

In the ordinary course a creditor who is of the "sort" who can not issue execution on the judgment is so because of a court order staying execution or some like statutory provision. In the present case the creditor could not issue execution on the Local Court judgment for the amount thereof because of the terms of the compromise. Furthermore it was not, under the terms of the compromise, as I read them, entitled to enforce the terms of the compromise in respect of the full amount of $10,000 unless that amount had not been paid by the times stipulated.

In my opinion the meaning to attach to the terms of the compromise of the Supreme Court action in so far as they affect the Local Court judgment is that they restrict the right of the creditor to enforce the same. In consequence of the compromise the creditor, having agreed to accept $10,000 as the sum recoverable by it under the Local Court judgment, is contractually restrained from recovering any greater amount. Moreover by virtue of the agreed terms of payment of that amount, it is obliged to accept payment by the stated instalments, the last of which fell due on 30 September 1982. Other minds may differ as to the proper construction of all the terms of compromise and all the implications thereof, but one thing is clear, the creditor was disqualified from pursuing recovery of more than $10,000, of which $8,000 was not payable until 30 September 1982.

In its result, the creditor is in the same position as if execution on its judgment, at least to the extent of $8,000, had been stayed by order of the Local Court until 30 September 1982. In my opinion the fact that the stay is by arrangement between the parties and not in consequence of statute or court order is immaterial.

Lord Justice Vaughan Williams considered the consequence of an arrangement between the parties in Re Smith, Ex parte Durban (1903) 1 K.B. 33 at p.37 when he said:

"Looking at the terms of the agreement, I think it is clear that the intention of the parties was that no proceeding whatever should be taken by the creditor - not even the issue of a fresh bankruptcy notice-during the pendency of this security . . . Under these circumstances it was, in my judgment, impossible for the creditor to issue a fresh bankruptcy notice, unless and until there had been some default made by the debtor in respect of the agreement, or until the expiration of the time thereby limited for the payment of the debt, namely, January 28, 1903."

In Re Seers referred to above, Clyne J. said at page 12, in circumstances where the creditor was not entitled to execute without leave because the judgment was "stale",

"The next question is whether by virtue of r.17 there has been a stay of execution. In my opinion there has been such a stay. The words in s.52(j) of the Bankruptcy Act 'and execution thereon not having been stayed' are not, I think, restricted only to cases where there is an express stay by order of the Court."

In my opinion the creditor, not being entitled to levy execution until the last moment of the day of 30 September 1982, was not entitled to the issue on that day of a bankruptcy notice claiming $10,000. On this ground the bankruptcy notice is invalid and must be set aside.

Although not a matter in the circumstances necessary for me to determine, I propose to consider the contentions of counsel for the debtor on the question of the validity of the notice itself. The challenge which he makes to the contents of the bankruptcy notice are in consequence of somewhat exceptional circumstances and in reliance in part upon my earlier decision in Re Williams Ex parte Albertson Electrical Service Pty. Limited supra.

The debtor's contention was that the notice was invalid because it understated the amount of the judgment debt and did so without explanation. However he did not dispute that this was the amount recoverable at the time by the creditor under the judgment and the amount due by the debtor under the judgment as a consequence in each instance of the terms of the compromise of the Supreme Court action.

Counsel sought to support his contention by reference to the decision of the Court of Appeal in Re H.B. (1904) 1 K.B. 94 and a number of decisions of this Court. He relied upon the decision of the Full Court in Re Schierholter, (1978) 19 A.L.R. 113 and the decisions at first instance in Re Munson (1977) 29 F.L.R. 479, Re McDonald 18 A.L.R. 505, Re Manion (1979) 23 A.L.R. 270 and Ex parte Commercial Banking Co of Sydney Ltd (1979) 23 A.L.R. 522.

However in each of these cases, apart from Re H.B. supra, the bankruptcy notice mis-stated the amount owing by the debtor to the creditor, which is a very different situation from that before me. Furthermore as Riley J. said of that decision in Re McDonald supra at page 507: "It may be as well to remark before leaving the case that the principles enunciated by Romer LJ in the passage set out above have been regarded as applicable in cases where no part of the judgment debt has been paid and the bankruptcy notice simply understates the amount remaining unpaid (Re Jack (1959) 19 ABC 268; Nirens v Fowler Asphalt Pty. Ltd. (1966) 9 FLR 255 at 256) but that his Lordship's statement was not directed to the case where, part of the judgment debt having been paid, the bankruptcy notice simply claims, and accurately states, the unpaid balance and does not also identify it as such, or specifically state that nothing more is claimed, or refer to the part payment. If such a case arises for decision, attention will have to be paid to, inter alia, the remarks of Vaughan Williams LJ in Re H.B., supra at 105."

These remarks of Vaughan Williams L.J. were as follows:

"I wish to add one statement that I omitted by mistake from my judgment, and it is this. A bankruptcy notice issued for a smaller sum than the judgment debt by reason of credit being given for amounts already paid is, in my judgment, a notice to pay 'in accordance with the terms of the judgment'."

A crucial requirement is that the bankruptcy notice specify the correct amount due by the debtor to the creditor. This accords with the express provisions of s.41(5) and s.41(6) of the Act. The form of the bankruptcy notice prescribed by the rules emphasizes that what is required is a statement of the amount due by the debtor and not the amount of the judgment debt.

Authorities which in my view are of more assistance are those in relation to bankruptcy notices which correctly state the amount due by the debtor. These bankruptcy notices do not expressly mis-state anything, they may fail expressly to indicate the steps by which the correct amount due is arrived at. No question of overstatement or of abandonment of any excess arises in these cases.

An authority which in my opinion bears more closely on the facts of this case is that of Lockhart J. in Re Wimborne Ex parte The Debtor (1979) 24 A.L.R. 494. In that matter the creditor correctly claimed the amount due by the debtor, stating it however as due under a final order obtained in the High Court. In truth the original judgment was that of the Supreme Court which later was varied by an appeal to the High Court. His Honour found that it was not incorrect to describe the judgment under which the amount claimed was payable as that of the High Court, rather than that of the Supreme Court as varied by the High Court. However he went on to consider what would have been the position if that view was mistaken. In his view the defect was saved by the provisions of s.306 of the Act, which section was applicable because there was no ground for saying that the debtor might be misled. He was of opinion that in deciding this point the Court could look at matters extraneous to the notice known to the debtor. It was, he said at page 500

" . . . the capacity of the bankruptcy notice to mislead the debtor to whom the notice is directed that matters, not some hypothetical debtor . . . The facts as to the proceedings before both the Supreme Court and the High Court, . . . , clearly establish that the judgment debtors must have known that it was the later order of the High Court that established their liability to pay interest. They could not have been misled by the mis-statement in the bankruptcy notice. Accordingly s.306 saves the bankruptcy notice from invalidity."

Re Florance (1979) 36 F.L.R. 256 is a decision to the like effect. Lockhart J. said that he found the amount claimed by the creditor in the bankruptcy notice was correct but that if there was any error in the explanation therein as to how that amount was calculated, it was a proper case for the application of s.306. It is of profit to note that the creditor, in an effort correctly to state the nature and basis of its entitlement, claimed

"The sum of $461,522.73 together with interest thereon at the rate of twenty-two per cent per annum from 15th February, 1978, which at the date of issue of this notice amounts to $93,189.65 making a total $554,712.38 is due by you to it under final judgment obtained by it against you by it in the Supreme Court of New South Wales on 15th February, 1978, as varied by a final order of the Supreme Court of New South Wales Court of Appeal on 14th December, 1978, being a judgment and a final order the execution of both of which have not been stayed."

It is my tentative opinion, though the matter was not fully argued on this basis before me, that there is justification for distinguishing the line of cases cited by counsel for the debtor if the correct amount due by the debtor to the creditor is claimed in the bankruptcy notice. If the debtor takes the point that the bankruptcy notice wrongly stated the nature and basis of the creditor's entitlement to this amount, such an error may well be, as I would find it here, "a formal defect or an irregularity" which can in appropriate circumstances be cured by the application of s.306 of the Act. I would, if necessary, have found that, in the light of his knowledge of the Supreme Court proceedings, the debtor would not be likely to have been misled by the statement of the amount claimed in the bankruptcy notice. The order of the Court must be that the bankruptcy notice served on the debtor was invalid and I order that the creditor pay the debtor his costs of these proceedings.