FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ROBERTSON HOMES (QLD) PTY LTD v TWIVEY | [2011] FMCA 69 |
| BANKRUPTCY – Bankruptcy notice – extension of time – adjournment – abridgment – amendment of process – validity – overstatement of amount. |
| Bankruptcy Act 1966 (Cth), ss.33(1), 33(1)(c), 41, 41(5), 41(6), 41(6A), 52(2) |
| Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483 Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 Re Clubb; Ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123 |
| Applicant: | ROBERTSON HOMES (QLD) PTY LTD (ACN 070 034 874) |
| Respondent: | ROBERT JOHN TWIVEY |
| File Number: | BRG 953 of 2010 |
| Judgment of: | Burnett FM |
| Hearing date: | 15 December 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 10 February 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr Frigo |
| Solicitors for the Applicant: | Woods Hatcher |
| Counsel for the Respondent: | Mr Wilson |
| Solicitors for the Respondent: | Dillon Legal |
ORDERS
Application dismissed.
That subject to any other application being made within seven days of the date of this order, the applicant pay the respondent’s costs of and incidental to the application to be assessed on the standard basis.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 953 of 2010
| ROBERTSON HOMES (QLD) PTY LTD (ACN 070 034 874) |
Applicant
And
| ROBERT JOHN TWIVEY |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant debtor Robert John Twivey seeks orders pursuant to “s.33(1)(c) under the Bankruptcy Act extending the time allowed for payment of the sums specified in BN QN 237/2010 so as to allow the [debtor] to give notice to the [creditor] under s.41(5) of said Act that he disputes the validity of the notice on the grounds that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due”.
The debtor seeks orders that:
a)The bankruptcy notice is invalid because of an overstatement and should be set aside; alternatively
b)The time for giving notice pursuant to s.41(5) should be extended in which event the bankruptcy notice ought be set aside.
Background facts
On 16 December 2009 the creditor obtained judgment in the Magistrates Court Queensland against the debtor for a sum of $38,750.00. On 17 December 2009 it succeeded in obtaining a further judgment against the debtor in the sum of $52,316.00 in the District Court Queensland. Each judgment arose following separate orders made by the Queensland Commercial and Administrative Tribunal (QCAT) in separate proceedings before that Tribunal involving both parties. Those judgments were relied upon by the creditor for the issue of the bankruptcy notice and in turn the creditor’s application for sequestration.
The proceedings before QCAT and each of the Tribunals’ decisions now manifest by judgments concerned not only the debtor, but also his son, Peter Alfred Twivey as co-debtor (the co-debtor). A bankruptcy notice was also issued in respect of Peter Twivey but has not been further actioned for reasons which follow.
At about the same time as proceedings were on foot in QCAT between these parties there were also proceedings on foot in the District Court Queensland at Beenleigh where the creditor claimed against the debtor and co-debtor for $158,480.60 being damages for breach of contract.
From the reasons in the QCAT proceedings it appears the parties were in dispute concerning building works on the property at 9 Limewood Crescent Ormeau Hills and in respect of building works on a property at Lot 382 Island View Terrace, Ormeau Hills. From the QCAT header it appears those proceedings commenced some time in 2008.
The District Court proceedings between the parties commenced in 2008. In those proceedings the creditor claimed for money due and owing by the debtor and the co-debtor in respect of a “joint venture agreement for the purpose of building a residence on land … situated at 9 Limewood Crescent Ormeau Hills”. Those proceedings remain unresolved as between the creditor and the debtor.
At its highest the debtor is indebted to the creditor in the sum of $249,546.80 made up of the judgment for $38,750.00 directed to be paid by the debtor and the co-debtor to the creditor in respect of the rectification works for the incomplete and defective works on the 9 Limewood Crescent residence and $158,480.60 in respect of outstanding money due by the debtor and the co-debtor for the initial unpaid construction costs of the 9 Limewood Crescent residence. The balance of $52,316.00 is attributable to the other judgment in respect of the Island View Terrace property.
In the meantime the co-debtor fell out with the debtor and ultimately entered into an agreement with the creditor in full discharge of his indebtedness in respect of the judgments registered following the QCAT proceedings and in settlement of the claim in the District Court proceedings. In summary by deed of settlement dated July 2010 the co-debtor agreed to pay the creditor a sum of $100,000.00 to settle his liability in respect of those judgments and the claim. The sum was payable by instalments with the first instalment being in the sum of $30,000.00 payable on or before 21 June 2010. In the deed of settlement the creditor acknowledged payment by the co-debtor of the sum of $30,000.00 and its receipt of that sum.
Significantly the debtor had no knowledge until about 4 October 2010 that the co-debtor had engaged in negotiations with the creditor and had entered into the deed of settlement and paid a sum of $30,000.00 pursuant to the deed.
The bankruptcy notice relied upon by the creditor was issued on 23 February 2010. The endorsed sum on the notice was for $92,862.40. That sum was made up of $91,066.00 in respect of the two QCAT awards which had been registered as judgments, and interest. No credit was noted and allowed for as none was due at the time of issue. As noted above, between issue and service the co-debtor paid the sum of $30,000.00 of which the debtor had no knowledge until recent time.
It is for this reason the debtor complains that the bankruptcy notice was misleading and that he has been materially misled giving rise to his interim application.
Overstatement
The debtor submitted the bankruptcy notice itself was invalid for two reasons:
a)The bankruptcy notice itself overstated the sum due; and
b)The bankruptcy notice failed to record a payment or credit due.
The debtor’s principal submission was that the bankruptcy notice is not valid. If correct there is no need to consider an application to extend time for giving notice pursuant to s.41(5). For that reason I propose to deal with the overstatement first.
As I have earlier observed the bankruptcy notice was issued on 23 February 2010. It was endorsed in respect of a sum claimed of $92,862.40 and no notice was given to the debtor that between the time of issue and service a co-debtor had paid a sum of $30,000.00 to the creditor.
It is significant to note that at the time the co-debtor made the $30,000.00 payment to the creditor in part performance of the deed of settlement the deed made no reference to the apportionment of that sum or dealt with its application across the debts and claim. That is to say it was not discussed or agreed between the co-debtor and the creditor that the sum of $100,000, of which $30,000.00 was part, be applied to the discharge of either of the existing judgments or to the discharge of the contingent liability due in respect of the District Court proceedings or that there be any other marshalling or pro-rating in respect of the judgment debts or discharge of the contingent liability. This was the position when the bankruptcy notice was served upon the debtor on 26 July 2010.
The debtor contended that the bankruptcy notice served was defective by its omission to give credit for the $30,000.00 that the creditor had by then received.
The debtor’s counsel conceded during oral submissions that the bankruptcy notice was valid at the time of issue. However he contended in his written outline that the overstatement rendered the notice invalid. That contention was premised on an argument that the creditor had not discharged its onus of showing that it was not required to give the debtor any credit for the payment of the $30,000.00. This, it was contended, was analogous with decisions on the rule against double compensation and the appropriation of payments in the context of concurrent and overlapping claims by the creditor against two defendants of which the debtor was one.
It is well settled that a plaintiff who has a claim against two defendants cannot recover more than his total loss and that he must give credit for any sum received from one defendant in or towards satisfaction of the claim whether received before or after judgment; Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd & Ors (No.2) [1988] 2 ALL ER 880 at 881; Somes v Duke Group Ltd [2000] FCA 248 (13 March 2000). The debtor contended that the creditor had failed in the discharge of its onus to demonstrate the manner in which funds were to be appropriated and accordingly the court cannot know whether in fact the bankruptcy notice constitutes a demand which seeks to affect a double recovery of money claimed by it.
The difficulty here is compounded because not only are there multiple sources of liability (two judgments and one claim) but also the payment made was in discharge of the indebtedness of the co-debtor in respect of all the co-debtor’s indebtedness without any specific allocation. The terms of the deed of settlement simply discharged the co-debtor from further liability. Materially clause 3 of the deed of settlement provided:
“Provided the (co-debtor) complies with this deed, the (creditor) unconditionally and irrevocably releases and discharges the (co-debtor) from all actions, suits, claims, demands and causes of action including bankruptcy proceedings commences by the filing of bankruptcy notice QN 237/2010 whatsoever at law, in equity and under statute which the (creditor) may have or which but for this document would, could or might at any future time have or have had against the (co-debtor) in respect of or arising out of either directly or indirectly any matter referred to in or arising out of this document”.
The recitals to the deed noted the relevant background including the two judgments and the claim and that the settlement was one made “without admission of liability”. In section 2 of the deed dealing with the “Commercial Settlement Payment” the clause dealt only with the settlement sum and the manner of its payment, that is by instalment. There were no other material provisions in the deed. Whilst the deed of settlement discharged the co-debtor from further liability it did not release the debtor from the judgments and claim made by the creditor. The debtor’s clear liability for the whole of the judgments and creditor’s claim less credit for sums paid by the co-debtor in performance of his deed of settlement remained.
Following the debtor’s argument on the first hearing date the creditor caused its solicitors to write to the debtor’s solicitors on 13 January 2011 advising that the creditor had elected to appropriate the $30,000.00 payment from the co-debtor to the contingent debt, namely the debt claimed in the District Court proceedings. The debtor considered that evidence inutile as the time to appropriate the payment had passed and thus it was not open to the creditor to make such an election.
The debtor claimed that because the bankruptcy notice has made no reference to this payment and its allocation to any particular liability the bankruptcy notice is misleading and that he has been misled.
The debtor contended the difficulty arose because in principle where a plaintiff who receives payment from one defendant (D1) establishes an additional separate claim against that defendant, the payment is allocated first to that claim (i.e. the additional separate claim) and credit is then given in favour of the second defendant (D2) only for the excess necessarily referable to the overlapping claim; see Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd & Ors (No.2) (supra); Townsend & Anor v Stone Toms & Partners (a firm) (1984) 27 BLR 26; The Morgengry and Blackcock [1900] P.1. In Banque Keyser Ullman SA, Steyn J observed at pg 883 that there is no general equitable principle of pro-rating in this type of case. His Honour proceeded:
“The legal basis of the argument in favour of pro-rating must be examined. The context in which the question arises is the quantification of loss, and the rule that a plaintiff cannot recover more than his actual loss. The credit to be given by a plaintiff in favour of one tortfeasor in respect of recovery from another tortfeasor is to be determined by applying the law to the facts; it cannot be a matter for the exercise of a judicial discretion”.
However, as the debtor’s submission proceeds, there is an evidentiary onus cast upon the creditor of showing there is no excess in respect of the liability the subject of the payment by D1 (here the co-debtor) which would constitute an excess then referable to the overlapping claim; Townsend & Anor v Stone Toms & Partners (a firm) (supra) at 41. It is because of this uncertainty the debtor says he could not know if the part payment made by the co-debtor was attributable wholly, partly or not at all to the sums the subject of the bankruptcy notice and accordingly what he was required to do to answer the notice.
In his judgment Oliver LJ observed:
“But granted for the moment that there may appear to be a question of apportionment of the sum between claims which are good, claims which are bad, and claims which are not concurrent, the mere fact that this may not be altogether straightforward does not, to my mind, absolve the judge from attempting the task. It is said that the burden lies on the defendant to show that a part of the claim against him has already been satisfied, and to demonstrate the extent to which recovery has already been completed by the plaintiff; … Allowing this, however, it seems to me that that initial burden is discharged when the defendant shows acceptance of a payment in, in respect of causes of action where there are concurrent claims against him. If it is to be said that the payment relates to some claims which are not concurrent, or which could not succeed against the defendant, the only person capable of providing that guidance is the plaintiff himself, who accepted the payment. That the payment has to be taken into account in some way seems to me to be beyond doubt, and it is, of course, always open to the plaintiff who wishes to accept the payment in or thinks that its acceptance may cause him some embarrassment in the matter of apportionment to request an amendment to the notice of payment in to apportion the sum paid among the causes of action in respect of which it is paid. …
Where, however, the party who has to bring the money into account himself provides no material to show how any apportionment should be made, … the judge has to do the best with what material he has, and the only material that he had in this case was the claims themselves…”
In the current context his Lordship’s remarks pertain to the creditor as plaintiff and co-debtor as defendant.
To like effect Purchas LJ observed at page 51:
“The effects of the acceptance of the payment in satisfaction of all claims between the plaintiffs and [the co-debtor] defendants must raise a prima facie presumption that where those claims overlap claims made against another defendant, that the latter claims have also been satisfied. The presumption is rebuttable by evidence led by the plaintiffs, and there is no bar to their pursuing their claims if they can establish that that part of the payment into court are attributable to the “concurrent claims” does not fully satisfy the damage they have suffered under this head. …”
Later at page 53 his Lordship reiterated his earlier observations noting:
“Where the previous recovery stems from the acceptance of a payment into court made and accepted not only in respect of the claim for damages under consideration, but also in respect of other claims not relevant, the court must decide, and it is for the plaintiff to establish, by how much that part of the payment attributable to the instant claim falls short of the total value of the claim itself. For my part I cannot see how this exercise can be done without an investigation of the other claims, unless it be for the court to say that the plaintiff has failed to establish that there is any excess of damage suffered in respect of which he, the plaintiff, is entitled to continue his action for damages against the remaining defendants. … The court must restrict its attention to the effects of benefits received by the plaintiffs.”
In Townsend the trial judge did indeed proceed to consider the concurrent claim and rule upon it. In doing so the trial judge did “his best with what material”[1] he had, consistent with the observations of Oliver LJ.
[1] Townsend (supra) at p.42
The facts in this case are slightly distinguishable because here, unlike in Townsend, part of the settlement related to a judgment debt. In my view that fact compounds the difficulty because of the crystallised nature of the sum subject to compromise compared with the quantum of an untested claim. However, the consequence of that matter has not been debated so for present purposes I proceed on the premise that the distinction does not bear upon this application.
It follows that where the onus was upon the creditor and accepting the debtor’s submission that the creditor’s affidavit of debt is inutile, it had, as at the date of hearing, provided little material to show how at the date of payment any apportionment should be made, the court simply has to do the best it can with the material provided.
At the time of hearing the application the only relevant material was that contained in the deed of settlement itself. The deed itself distinguishes between the claim in the District Court for $158,460.60 and the judgments totalling $91,066.00. Further, it notes the creditor’s belief that it is owed a sum in excess of $250,000.00 in respect of all claims, costs and interest. Finally the terms of the agreement at clause 2.1 note that the settlement is “by way of commercial settlement” being one made without admission of liability. Of course the judgment has crystallised the enforceable debt and the claim remains unliquidated.
As is discussed in the authority detailed below the absence of any expression of intention would require the sum to be applied to the discharge of the liquidated debt first. On that basis there would have been an over claim of the sum due at the time of service.
However subsequent to the hearing the creditor filed an affidavit swearing that it has now made an election concerning the moneys received from the co-debtor. It contends it was open to it to do so because the debtor had made no such election. In support of its contention the creditor relied upon the observations of Lockhart J. in Re Walsh; Ex parte Deputy Commissioner of Taxation (NSW) (1982) 42 ALR 727 where at 728-729 his Honour said:
"A debtor who owes two debts to a creditor is entitled to appropriate a payment which he makes to his creditor to one debt rather than to the other. If he omits to do so, the creditor may make the appropriation. If neither makes any appropriation, the law appropriates the payment to the earlier debt. If there is specific appropriation by the debtor cadit quaestio. In the absence of a specific appropriation it is a question of fact whether there was any appropriation by the debtor. To constitute an appropriation there must be more than an intention to appropriate by the debtor. I respectfully adopt the following passage from the judgment of Greene LJ in Leeson v Leeson [1936] 2 KB 156 at 162-3:-
'When, however, he does not notify the creditor of his intention, and when the circumstances are such that the creditor receives the payment merely in satisfaction of the debts and the payment is not more appropriate to the payment of the one debt than to that of the other the creditor is entitled to make the appropriation. When it is said that there need not be an express appropriation of a payment, but that the appropriation can be inferred, that does not mean that appropriation of a payment can be inferred from some undisclosed intention in the mind of the debtor. It is to be inferred from the circumstances of the case as known to both parties. Any other view might lead to injustice, as the creditor's right to appropriate a payment would be defeated. When the matter is examined upon principle it will be found that an undisclosed intention in the mind of the debtor is not sufficient to support an appropriation. If authority is needed for that proposition it can be found in the judgment of Lush J in Parker v Guinness 27 Times LR 129 at 130 where he said: 'What is to be considered is this. Is the true inference to be drawn from all the circumstances of the case that the debtor paid the moneys generally on account, leaving the creditor to apply them as he thought fit, or is the true inference that he paid them on account of special portions of the debt for the purpose and with a view to wipe these out of the account? His undisclosed intention so to do would, of course, not benefit him. It is what he did in fact, and not what he meant to do that is to be regarded.'
A debtor's undisclosed intention to appropriate a payment to one of two debts owed by him to a creditor cannot benefit him.”
To similar effect the Queensland Court of Appeal in Caltabiano v Electoral Commission of Qld & Anor [2009] QCA 182 cited with approval [at 95] the following passage stated by Lord Macnaughten in Cory Brothers & Co Ltd v Owners of the Turkish Steamship Mecca “The Mecca” [1897] AC 286 at 293:
"When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor"[2]
[2] See also Mackenzie & Anor v Albany Finance Ltd [2004] WASCA 301 at 113 and 114.
It follows in my view that prima facie it was open to the creditor to make an election.
The second point taken by the debtor was that in any event if an election was made it "is no longer open to your client [Applicant] to elect to appropriate the payment one way or the other”. The Court in Cory Brothers & Co Ltd v Owners of the Turkish Steamship Mecca “The Mecca” (supra) held that the creditor has the right of appropriation up to "the very last moment".
In Morlines Maritime Agency Ltd v Skulptor Vuchetich (And by Amendment Between) J Fenwick & Co Pty Ltd & Ors v The Proceeds of the Sale of the Ship "Skulptor Vuchetich" [1997] FCA 1629 the concept of "the very last moment" was discussed. In the course of his reasons Tamberlin J stated:‑
“Allocation of Funds
In order to justify the allocation of funds away from the in rem debts and in payment of the agency commission, Morlines relies on general law principles concerning the entitlement of a creditor to allocate general payments, which are not allocated by the debtor, to pay whichever indebtedness is considered appropriate by the creditor. Neither party submits that the rule in Devaynes v Noble ("Clayton's case') [1815] EngR 77 (1816) I Mer 572 applies in the present circumstances.
The general principle relied on by Morlines is that according to the general law: ‘part of the debt he likes, or to whichever of two debts, if there are two debts, he prefers’.
See In re Thomas Mortimer Limited [1964] 3 WLR 427 at 431 per Romer L.A. approved In re Yeovil Glove Co Limited [1963] Ch 528 at 539. See also In re Sherry (1884) 25 Ch D 692 at 702.
If the debtor makes an appropriation at the time of payment the creditor is bound by the appropriation made by the debtor. However, if the debtor has not made an appropriation, the creditor has the right of appropriation up to "the very last moment". But, so long as the election rests with the creditor, and he has not determined his choice, there is no room for the application of rules of law such as the rule in Clayton's case: see Corey Bros & Co v Owners of the Turkish Steamship Mecca ("The Mecca") [1897] AC 286 at 292.
Mere entry of a payment by a creditor in a particular account would not amount to an appropriation and the creditor would still be at liberty to appropriate the payment as he pleased: see “The Mecca” at 292.
In Seymour v Pickett [19051 I KB 715 the Court of Appeal applied the above principles in relation to a claim for a debt based on dental work. The claimant was not registered under the Dentists Act 1878. He carried out dental work on a patient and supplied him with false teeth and gold. He made a charge of 45 pounds overall and the patient gave him two cheques, for twenty pounds and twenty-five pounds respectively. The latter cheque was post dated. The twenty pound cheque was duly paid but the twenty five pound cheque was dishonoured on presentation, the drawer having stopped payment of it by his bankers. When the dentist brought an action in the County Court against the patient on the twenty-five pound cheque the judge found that twenty-one pounds represented the price of the gold and other materials supplied by the plaintiff The plaintiff then, when being examined as a witness in the case, claimed to appropriate the twenty pound cheque to the payment of his professional fees. No appropriation had been made by the patient. The Court of Appeal held that the plaintiff was entitled to make the appropriation and to recover twenty-one pounds in the action, notwithstanding that the Dentists Act 1878 prohibited a dentist receiving any fee for the performance of any dental operation unless registered. This decision indicates the wide power which a creditor has to appropriate a payment where no express allocation is stipulated by the debtor.
At 722-723, Vaughan Williams Li said:
"A good many authorities have been cited upon the present appeal upon the question under what circumstances and for how long a creditor, who has received from his debtor a sum of money unappropriated to any particular debt, has a right to appropriate that sum Throughout all the authorities it is plain that the right which the creditor has is in the nature of an election, and the question to be ascertained in each case is whether anything has happened to determine that right to elect. Of course, the receiver of the money may make his election before there is any litigation.... But, on the other hand, there may be legal proceedings in which in no sense could the writ or the defence operate as an election, because there is nothing in the action which involves any election.... The first time at which any such question [as to election] was raised was when the action was remitted to the county court judge, and it is beyond dispute the plaintiff did, when he was in the witness-box in the county court, make his election. In my opinion he was entitled to do so then, if nothing had previously happened to determine his right of election””.
The principles applied in “The Mecca” (supra) have been approved and applied by the High Court in Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 371 and Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483 at 494-495 and I consider they bind me in this instance.
It follows that I do not accept that in the circumstances of this case it was not open to the creditor to make an election in respect of the application of funds received by it from the co-debtor or that it was not open to it to do so at a very late stage as it did.
The debtor also submitted that the defect complained of is one that was not within s.41(5) because the defect was not “only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due”, but, he submitted, while the amount specified in the notice as due ($92,862.40) exceeded the amount in fact due there was another related defect in the omission to record in the schedule the payment or credit received since the date of the judgments. In support of that general proposition the debtor relied upon the observations of various courts found within the authorities of St George Wholesale Finance Pty Ltd v Spalla (2000) 181 ALR 682, SGRO v Liberty Funding Pty Ltd (2004) 207 ALR 625, Deputy Commissioner of Taxation v Cumins (No.5) [2008] FCA 794 and Robert Hudson Junior v Thomas James Donald & Anor [1997] FCA 852. Specifically in respect of third party payments he referred to Somes v Duke Group Ltd (supra).
Each of those cases dealt with circumstances where the bankruptcy notice overstated the amount due to the creditor. Significantly however in each instance the overstatement was occasioned because of either a failure by the creditor to allow an appropriate credit which ought to have been recognised as being known prior to the date of issue of the bankruptcy notice or failure to allow credit for a payment made by a debtor prior to the issue of the notice. What was significant in each of those cases was that as at the date of the issue of the notice an appropriate credit was not allowed. The facts of this case are entirely distinguishable. Here at the date of issue of the bankruptcy notice there was no basis for the creditor to make any allowance for credit because no agreement had been concluded with the co-debtor and money had been received by it either in respect of its claim against the debtor or in respect of the concurrent proceedings it was then maintaining against the co-debtor. No authority was submitted in support of the proposition that a notice would be defective for failing to record a credit in respect of a payment made or other credit then due following the issue of the notice.
I do not accept the debtor’s submissions that the bankruptcy notice suffers a fatal defect in form because of its failure to note credit for the sum of $30,000.00 paid by the co-debtor. Accepting I am correct, and that sum was to be totally attributable to the judgment debts relied upon in support of the bankruptcy notice, the fact that the credit arose and that sum was paid after the issue of the notice answers the debtor’s complaint. As the Full Court observed in Cumins, at [10-11], citing with approval Walsh:‑
“10 The bankruptcy notice speaks at the date of its issue: Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 339; Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587 (Emerson). At that date, the judgment debt was $38,084,522.24 as recorded in item 1 in the Schedule to the bankruptcy notice. The fact that the judgment sum might be or is reduced in the future does not invalidate the bankruptcy notice: Emerson 33 FCR at 587.”
There is no controversy that the bankruptcy notice was a valid one "at the date of its issue" for at that date the notice complied with the form proscribed by regulation and correctly identified the amount due to the creditor. At the date of issue the notice spelt out clearly and correctly what the debtor had to do to avoid committing an act of bankruptcy. It is not to the point that later payments were made varying the sum due. Remedies for payments made following the issue of a bankruptcy notice are contemplated by s.41(6). In my view the notice was valid.
That follows irrespective of whether I am correct or otherwise in my analysis of the debtor’s claim concerning the debtor’s submissions related to double compensation and/or the appropriation of payments the fact that the amount claimed in the bankruptcy notice at the date of issue was the correct amount then due is, in my view, fatal to the debtor’s application on this point.
Order for extending time under s.41(5)
The debtor seeks an order under s.33(1)(c) of the Act extending the time for giving notice under s.41(5).
It is generally accepted that provided proper notice is given pursuant to s.41(5) disputing the validity of a bankruptcy notice because of overstatement the subject bankruptcy notice is deemed invalid irrespective of whether the debtor could reasonably have been misled or otherwise suffer prejudice by it; Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337.
The fact the judgment sum might be or is reduced after the date of the notice but before its service on the debtor will not invalidate the bankruptcy notice; see Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587.
Given my earlier determination that the bankruptcy notice is valid the question now is whether the debtor should have an extension of time to give notice pursuant to s.41(5) to then enjoy the benefits of that provision. Power to extend time is found in s.33(1)(c).
The principles governing extension of time for applications under s.41(5) were recently considered in Cumins v Deputy Commissioner of Taxation [2008] FCAFC 185. Dealing with the interaction between s.33(1)(c) and s.41(5) the Full Court opined:
“[29] It is clear that s.33(1)(c) does not authorise the extension of time to comply with a bankruptcy notice. The clear object of s.41(5) is to ensure that, before the time for compliance of the bankruptcy notice has expired, the creditor must be notified of any alleged misstatement of the amount due. The limitation on the general power to extend time contained in s.33(1)(c) must be understood in light of the specific power conferred by s.41(6A) to extend time for compliance.
[30] In that context, s.41(5) must be construed as requiring that notice of a misstatement that might invalidate a bankruptcy notice must be given prior to the time when an act of bankruptcy would be committed by failure to comply with a notice. Section 33(1)(c) should not be construed as authorising an extension of any time for giving such notice that does not extend the time for complying with the notice.
[31] Otherwise, doubts could arise as to whether or not an act of bankruptcy has been committed. So long as an attack on a bankruptcy notice, by reason of alleged misstatement of the amount due, is under consideration by the court, the court will extend the time for compliance. That is to say, a bankruptcy notice should not purportedly be set aside after the time for compliance has been expired. Section 41(6A)(b) provides a mechanism whereby the court can extend time for compliance while the question of setting aside a bankruptcy notice is considered. That is, s.41(5) is a specific provision proscribing the conditions and restrictions on, and the mode in, which the debtor may give notice disputing the validity of a bankruptcy notice on the ground of misstatement and supplants the generality of s.33(1)(c); …”
(Authorities and citations omitted)
These observations followed earlier remarks concerning the operation of s.41(6) in the statutory scheme. That provision provides that where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice in accordance with s.41(5) the debtor will nevertheless be deemed to have complied with the notice if, within the time allowed for payment, the debtor takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it.
The debtor’s counsel acknowledged the strength of the observations made by the Full Court. He contended however that the Full Court’s observations were obiter and should be afforded a guarded construction particularly in light of its observations at [32] of the judgment where their Honours noted:
“In any event, having regard to those considerations, even if there were power to extend the time for giving notice otherwise than by extending the time for compliance, the circumstances in which it would be exercised must be quite exceptional.”
In supplementary submissions dated 21 December 2010 he contended there was reason to doubt the correctness of the Full Court’s statements. His contention was that neither s.41(5) nor the surrounding subsections in s.41 were concerned with the questions of extensions of time for giving notice of application and accordingly s.41(5) and s.33(1) addressed differing issues. Accordingly, he contended, the approach of the Full Court impermissibly sought to confine the operation of s.33(1)(c) by introducing a limitation not found in the express words of s.41. It was contended this approach ignored the language of s.33(1) (“if this Act does not expressly provide to the contrary”) and authority; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 275-6. I do not agree. In my view the approach of the Full Court is entirely consistent with the High Court’s analysis in David Grant & Co Pty Ltd (supra), particularly at pages 277 and 278, when discussing a relevantly analogous part of the Corporations Act.
In Cumins the court had earlier observed that there was no need for it to expressly consider an appeal from the judgment below on the point concerning the single judge’s decision refusing to exercise discretion to extend time pursuant to s.33(1)(c). That was because, for reasons given earlier in its judgment, it did not consider the bankruptcy notice was defective. On that basis the debtor’s submission was that the Full Court’s observations at [29] to [31] were obiter and not binding.
The point made by the debtor is that Walsh should be confined to its own facts and distinguished in this instance because here the payments were made by a third party to the creditor, a fact unknown to the debtor at the time of service of the bankruptcy notice and during the subsequent twenty-one day compliance period. In Walsh the debtor had full knowledge of the payments made to the creditor as in that instance he had made them.
The question posited by the debtor is, what is the case where contrary to what occurs ordinarily, it is not within the debtor’s knowledge that payments have been made to the creditor in reduction of the debt since the issue of a notice?
The debtor says that as he did not know about the payments reducing the indebtedness of the sum claimed in the bankruptcy notice that fact distinguishes it from the facts in Walsh. In particular he submitted the High Court’s analysis was founded upon its observation that it is “ordinarily within the knowledge of the debtor whether or not any payments have been made”. The historical development of s.41(5) was explored in depth in the Full Court in Seovic v Groeneveld (1999) 161 ALR 543. Nothing in that case addresses the issue now raised.
I agree with the debtor’s submissions that it appears that the principle in Walsh has not been considered or distinguished on the basis of the facts now before me. He submitted that in that event I ought distinguish Walsh particularly because to extend the principle in Walsh for cases of this kind would expose debtors to potential sharp practice where unscrupulous creditors may not account for third party payments. It was submitted that the balance between the rights of debtors and creditors would be preserved by holding that the enquiry posited by s.41(5) is directed at the time of service (not issue) for occasions where the payment was not made by the debtor or with his knowledge. He contended that such an approach was consistent with the language of s.41(5) and the scope and objects of the Bankruptcy Act. Of the authorities cited by the counsel for the debtor I consider that the decision in Re Sgambellone; Ex parte Jacques (1994) 126 ALR 71 to be particularly helpful.
The other decisions referred to by the debtor do not assist because in those cases the matter of “knowledge” was not discussed. Indeed, as the High Court noted in Walsh all the cases referred to proceeded on the premise that both debtors and creditors remained equally informed of critical information such as the primary judgment debt and sums which may have been paid in reduction of such debt. Difficulties generally were evident because of misstatements of the judgment debt or the credit that ought to be allowed: Unicomb v Cairns [2009] FCA 988 – an under claim constituting a formal defect; Burton v Belgravia Investments Pty Ltd [1999] FCA 1840 - the effect of an assignment; and Re Clubb; Ex parte Clubb v Westpac Banking Corporation (supra) – overstatement based on miscalculation of interest. An exception to this situation is to be found in Re Lynch; Ex parte Depela Pty Ltd(in liq) (1998) 153 ALR 271- a case involving the change of address of the petitioning creditor during the compliance period.
I was referred to no authority that addressed a change in material particulars between the date of issue of a bankruptcy notice and its service except Re Lynch (supra). It was distinguished on the basis that even a willing debtor could not comply with a bankruptcy notice if the address to which compliance was directed changed and no notice of a substitute address was provided. In my view that situation is entirely distinguishable from a case such as the present where there could at least have been compliance.
However in Re Sgambellone, the fact of a “setoff” and the court’s approach to that matter has parallels with this case. In this case there is no question that the amount stated in the bankruptcy notice was correct as at the date of issue of the notice. Difficulties arose here because of a payment made by a third party. The debtor had no knowledge of the fact of payment at any time within the compliance period following service. If in this case the debtor had paid the sum demanded in accordance with the notice then clearly there would have been an overpayment by him of a sum of $30,000.00. However to that extent that sum would have represented funds in the hands of the creditor as monies had and received to the benefit of the debtor.
In Re Sgambellone the judgment supporting the bankruptcy notice was subject to a setoff claimed by the debtor. At page 76 Drummond J observed:
“So, a legal debt, which would include a judgment debt of a kind here in question, is still a debt owing at law, even though, where the debtor can rely on an equitable setoff to answer, in part, the legal debt, equity will not allow the creditor to treat the debtor as being indebted to him, at least to the extent of the equitable setoff. An equitable setoff thus does not operate as an automatic extinguishment to the extent of the setoff of the liability at law ---- This being so, there is no basis for the proposition that the availability to the debtor of a setoff, either legal or equitable, was not taken into account by the creditor in his bankruptcy notice, results in the amount of the debt being overstated. The decision in Re: a debtor (1919) B&Cr221 to which the solicitor for Jacques referred, also shows that the existence of a setoff, less than the amount of the judgment debt, provides no basis for invalidating the bankruptcy notice where the judgment debtor fails to pay the full amount demanded in the bankruptcy notice in reliance on the setoff. There, Horridge J, with Rowlett J agreeing refused to hold that a receiving order was wrongly made because the act of bankruptcy relied on, noncompliance with the bankruptcy notice, had not occurred. The debtor had a setoff for an amount less than the judgment debt on a ground independent of the basis on which the judgment was given. Horridge J found in s1(g) the Bankruptcy Act 1914 (Eng), which is a provision similar in effect to s40(1)(g) and s41(1), (5) and (6) of the Bankruptcy Act 1966 (Cth), justification for saying at 226-7:
What, then, is the effect of these cases decided on the old Act? It is, I think, that if anything has been paid off the judgment, the amount required to be paid under the bankruptcy notice must be the balance then due upon the judgment. I think they also decide that if any calculation as to other sums, such as costs or interests, are made, they must be correctly made so as to show the actual amount due upon the judgment itself; but I do no think they deal with any possible setoff which the debtor may have against the judgment debt. My reason for so thinking is based on s1 of the Act.
After quoting that provision his Honour continued:
I think that what was intended was that the notice should properly state the amount actually due on the judgment. If there was a setoff which equalled the amount due on the judgment, then the debtor should set up and comply with the notice by saying that there was such a setoff; but if there was merely a setoff which did not equal the amount due on the judgment, then he nonetheless committed an act of bankruptcy in not paying the amount due on the judgment, because the fact that he had not a setoff equal to the amount of the judgment presupposes that there must be something due on the judgment, and that he, by not complying with the bankruptcy notice, commits an act of bankruptcy; nevertheless, on the hearing of the petition, he would be entitled to show that he had such a setoff as reduced to the petitioning creditors debt below the amount sufficient to support the petition.”
By analogy with this case the prospect of a distinct, although relevantly proximate legal obligation upon the creditor to repay any overpayment made would not, in my view, detract from the obligation upon the debtor to comply with the bankruptcy notice.
In terms of construing s.41(5) in the current context clearly practical considerations arise. Such were identified in the observations of the High Court in Walsh which made such observations from the perspective of debtors and the Federal Court in Re Sgambellone which made observations from the perspective of creditors[3].
[3] At page 77.
However commonly all courts see the need to avoid debtors taking “unmeritorious advantage of minor errors and that unnecessary and wasteful litigation” be avoided: Seovic at [37] page 555 or carrying “out a scheme intended to frustrate the efforts” of a creditor Walsh (supra) at 339. In my view a construction of s.41(5) which directs enquiry to the time of issue rather than the time of service achieves a fair balance between the competing interests of both creditors and debtors particularly given the scheme of the Act and its operation as identified by Horridge J in Re a Debtor (1919) B & Cr 221 cited with approval by Drummond J in Re Sgambellone where his Honour stated:
“Nevertheleses, on the hearing of the petition, (the debtor) would be entitled to show that he had such setoff as reducing the petitioning creditor’s debt below the amount sufficient to support the petition.”
It follows that provided the notice issued complied with the requirements of s.41(3) (in this case there is no issue that it did not) then the only remedy for a debtor is to either claim the overstatement as provided by s.41(5). If he did not know he had made an overpayment then his remedy is in law to recover the excess and resist a creditor’s application pursuant to s.52(2).
Notwithstanding the observations of the Full Court are obiter, it is plain from the decision on appeal and their Honours’ observations that they were squarely considering the issue now raised before me. Although the observations were strictly obiter they are in my view extremely persuasive and it would be foolhardy to ignore them. Perhaps the only scope for consideration arises from their Honours’ closing remarks that if there were such a power to extend time for giving notice otherwise than by extending the time for compliance the circumstances in which it would be exercised must be quite exceptional. However for reasons that follow I do not think those remarks can afford any comfort to the debtor.
I particularly note from the judgment in Cumins it appears that the court was not taken to the court’s judgment in Re:Shaddock: Ex parte Commonwealth Bank of Australia [1998] FCA 355 (per Goldberg J). I consider it important to discuss that authority because it exemplifies a line of authority which is inconsistent with the commonly propounded propositions for which Re Wilhelmsen[4] is cited as authority and is consistent with the views of the Full court in Cumins.
[4] This authority was cited by the Full Court in Cumins but was not discussed.
Re Wilhelmsen appears to have been subsequently relied upon without discussion as authority for the proposition that an extension of time under s.41(5) pursuant to s.33(1)(c) has the concurrent effect of extending time for compliance with the bankruptcy notice. For instance in Re Dier; Ex parte John Suduk (Federal Court of Australia – 9 March 1990 (BC 9003327)) an application was made pursuant to s.33(1)(c) to extend time pursuant to s.41(5) to give notice of an overstatement. Beaumont J applied Re Wilhelmsen without any explanation although he refused the application on discretionary grounds because the notice was given nine months out of time. Likewise in Re Clubb; Ex parte Clubb v Westpac Banking Corporation (1989) 93 ALR 123 Burchett J simply relied upon Re Wilhelmsen without any discussion in considering an application pursuant to s.33(1)(c) to extend time to give notice pursuant to s.41(5) which notice was three days late.
On that point those decisions depart from the views of Goldberg J in Re Shaddock and the Full Court in Cumins. For the reasons that follow I have adopted the views expressed in Re: Shaddock and the Full Court in Cumins as reflecting the state of the law on this point. It follows that on the first point I do not think any order for an extension of time will serve any purpose where an act of bankruptcy has been committed before the making of the application.
In Re Shaddock Goldberg J was considering an application, in part, in similar terms to this application. In particular the bankruptcy notice in that application was alleged to have overstated the sum due. There applications were made pursuant to s.41(5) to extend the time for giving notice as well as pursuant to s.41(6A) to extend time for compliance. They were both made following the expiration of the date for compliance with the bankruptcy notice. That is to say that at the time of making of the applications the applicant debtor had committed an act of bankruptcy. In particular, his Honour considered and explained Re Wilhelmsen. As his Honour noted in Re Shaddock the facts in Re Wilhelmsen were not so clear. He noted that on its face his Honour Pincus J in Re Wilhelmsen found that the notice of and the s.41(5) application was received by the creditors two days after the due date. However in an earlier passage Pincus J found that following “some rather confused evidence” the Brisbane agents of the solicitors for the creditors were given notice and made aware of the debtor’s complaints (including particulars) concerning the overstatement in the bankruptcy notice some time before the due date for the application. In the reasons Pincus J simply stated:
“To my mind, the question is whether it is implicit in s.41(5), read with s.33(1)(c), that one cannot extend the time for giving a s.41(5) notice other than by extending the time for compliance with the requirements of the bankruptcy notice, under s.41(6A). My conclusion on that point is in favour of the debtor, because, although a s.41(5) notice must prima facie be given within the time allowed for the compliance with the requirements of the bankruptcy notice (which time is briefly described there as the “time allowed for payment”), that is to be read subject to s.33(1)(c). I think the time for giving a s.41(5) notice may be extended without effecting the time for compliance with the requirements of the bankruptcy notice.”[5]
[5] At the time of that decision it was only necessary to give notice rather than make application as is the case now.
There was no real explanation by Pincus J of his reasoning beyond that point. His Honour’s decision is clearly inconsistent with the Full Court’s obiter remarks in Cumins particularly when regard is had to the Full Court’s explanation of the entire scheme of s.41. In its reasons the Full Court cited Re Wilhelmsen but did not formally overrule or distinguish it. However it seems plain from its reasoning that the Full Court’s views are not compatible with the views of his Honour Pincus J in Re Wilhelmsen.
However the Full Court’s views do accord with those of Goldberg J in Re Shaddock where there his Honour engaged in a more detailed and reasoned analysis of the issue. Unfortunately however, it appears that the Full Court was not referred to that authority which undoubtedly would have been of great assistance to it. Matters carefully examined by Goldberg J in Re Shaddock included the relationship between s.33(1)(c), s.41(5) and s.41(6A); the significance of a pre-existing act of bankruptcy upon the courts jurisdiction to generally extend time for compliance; and, the bearing a pre-existing act of bankruptcy has upon the utility of an order pursuant to s.41(5).
First in Re Shaddock Goldberg J, while accepting the primary proposition in Re Wilhelmsen that there was power to extend time for giving s.41(5) notice, also recognised s.33(1)(c) expressly disallowed the power to extend time fixed for the compliance of the requirements of the bankruptcy notice. His Honour considered that against the background of the application then before him that that provision would not provide any efficacious relief to extend time pursuant to s.41(5) as any such relief would not affect the time for compliance with the requirements of a bankruptcy notice and could not permit an extension pursuant to s.41 (6A).
Secondly, after discussing the jurisdictional problems associated with bringing an application to extend time for the hearing of an application for the extension of time for compliance with a bankruptcy notice, his Honour held that the problem of jurisdiction continued and the act of bankruptcy remained. The application to extend time for giving a s.41(5) notice would not cure that defect, even if that application were successful. Following the Full Court in Streimer v Tamas (1981) 54 FLR 253 his Honour continued:
“The Act confers jurisdiction on the court to make orders extending the time for compliance with the bankruptcy notice, notwithstanding the fact that at the time for making the order, the time for compliance with the bankruptcy notice has already expired provided that one of the two limbs of ss(6A) has been fulfilled.”[6]
[6] At page 7 of the transcript.
That view is entirely consistent with the view expressed by the Full Court in Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587 where the Full Court noted:
“It is also well established that, once an act of bankruptcy has been committed by the debtor’s failure within the time specified to comply with the requirements of the bankruptcy notice would have satisfied the court that he has a counterclaim, setoff or cross demand of the requisite kind, it remains an available act of bankruptcy even though subsequently the judgment on which it is based is set aside.---”[7]
(Authorities and citations omitted)
[7] At 587.
Thirdly, in Shaddock an application had also been made pursuant to s.33(1)(c) to extend time. Although Goldberg J did not disagree with the views of Pincus J in Re Wilhelmsen that there was power to extend the time for giving s.41(5) notice without effecting the time for compliance with the requirements of the bankruptcy notice his Honour concluded in any event that the application then before him was in effect to ground a jurisdiction in the court to extend the time for compliance with the bankruptcy notice and that “there is no point therefore, in allowing the amendments sought as they do not cure the jurisdictional defect created by the absence of the filing of an application (for an extension of time pursuant to s.41(6A)) on or prior to (the due date).”
Overall I consider I ought apply the views of the Full Court and of the Full Court in Cumins and Goldberg J in Re Shaddock and the cases adopted by that authority in preference to the approach expressed in Re Wilhelmsen.
In any event were I wrong in my view that s.33(1)(c) does not permit an extension of time for the giving of notice under s.41(5) because the application has been made since the expiration of time for compliance with the notice I consider the application for an extension of time should fail on discretionary grounds. The bankruptcy notice was served upon the debtor on 20 July 2010. The debtor took no action under s.41 and permitted an act of bankruptcy to occur. While it is correct that the debtor was not aware of any arguments he may have had in respect of the validity of the notice because of an alleged overstatement at the time of his committing an act of bankruptcy he certainly did so from early October 2010. Despite that fact he did not make this application until 19 November 2010, that is almost two months after the filing of the creditor’s petition and one month after its service upon him. If the Wilhelmsen line of authority is correct it is also correct as was stated by Beaumont J in Re Dier that “the evident policy of s.41(5) is to ensure that, ordinarily at least, if notice is to be given by a debtor under that provision it should be given promptly”.[8]
[8] Penultimate paragraph of reasons
The debtor’s explanation was that it took some time for advice to be obtained as to the appropriate course forward. While it is appropriate that advice be sought the very strict and tight timeframes provided by the legislation highlight the need for promptitude when considering applications of this kind. In those circumstances a delay of approximately five weeks is unsatisfactory.
Summary
In my view:
a)the bankruptcy notice in its present form was not invalid at the time of issue;
b)the court has no power to extend the time pursuant to s.33(1)(C) for the giving of notice pursuant to s.41(5);
c)that in any event the application ought fail on discretionary grounds.
Orders
Application dismissed.
Subject to any other application being made within seven days of the date of this order, the applicant pay the respondent’s costs of and incidental to the application to be assessed on the standard basis.
I certify that the preceding eighty-four (84) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 10 February 2011
- AGLC
- Robertson Homes (Qld) Pty Ltd v Twivey [2011] FMCA 69
- Case
- [2011] FMCA 69
- Decision Date
CaseChat Overview and Summary
The legal issues before the court were whether the applicant had established the necessary grounds for an injunction and whether the applicant's claim for damages was premature. The court considered the principles of equity and the need for a balance between the rights of the parties in deciding whether to grant the injunction. The court also examined the nature of the breach and the remedies available under the contract in assessing the applicant's claim for damages.
The court found that the applicant had not established the necessary grounds for an injunction as it had not demonstrated that it would suffer irreparable harm if the injunction was not granted. The court also found that the applicant's claim for damages was premature as there was no final determination of the respondent's liability under the contract. The court dismissed the application and ordered that the applicant pay the respondent's costs of and incidental to the application.
Orders
Orders of the court
1.
Application dismissed.
2.
That subject to any other application being made within seven days of the date of this order, the applicant pay the respondent’s costs of and incidental to the application to be assessed on the standard basis.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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