Roufos, John v Andrea, Nick

[1981] FCA 237

Re: JOHN ROUFOS
And: NICK ANDREA (1981) 57 FLR 10
No. G37 of 1981
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
Deane(1), Fisher(1) and Fitzgerald(1) JJ.

CATCHWORDS

Bankruptcy - Application to set aside bankruptcy notice issued by creditor - whether agreement to pay by instalments and no bankruptcy proceedings taken - whether the notice was defective as a second notice served prior to expiry of the time for compliance with the first notice - regard to external circumstances.

Bankruptcy Act, 1966 s.41(5)

Bankruptcy - Appeal - Application to set aside bankruptcy notice - Alleged agreement to pay by instalments on basis that no bankruptcy proceedings would be taken - Concurrent bankruptcy notices - Service of second notice prior to expiry of time for compliance with first notice - Invalidity of first notice - Invalidity of first notice brought to attention of debtor at time of service of second notice - External circumstances - Bankruptcy Act 1966 (Cth), s. 41 (5).

HEADNOTE

On 30th April, 1980, the respondent Andrea (the creditor) obtained judgment against the appellant Roufos (the debtor) in the sum of $20,000 and costs of $500. Execution was stayed as to the sum of $10,000 until 31st July, 1980, and as to the balance of $10,000 until 1st October, 1980; no stay was imposed in respect of the costs. On 2nd September, 1980, the creditor caused a bankruptcy notice to be issued in the sum of $10,012 allegedly due pursuant to the judgment. On 24th September, 1980, by leave, the notice was altered to the sum of $6,012. On 3rd October, 1980, a second bankruptcy notice was caused to be issued in the sum of $16,512 then allegedly due. On 3rd February, 1981, both notices were separately served on the debtor.

The debtor had made payments to the creditor in respect of the judgment debt. The first payment of $4,000 resulted in the amendment to the first bankruptcy notice on 24th September, 1980. Subsequent payments totalling $2,900 were made after the issue of, but prior to the service of, the second bankruptcy notice. Therefore the second bankruptcy notice overstated the amount of the indebtedness by $2,900. On 3rd March, 1981, the debtor issued two applications seeking to set aside each of the bankruptcy notices. There was no opposition to the application to set aside the first bankruptcy notice.

The debtor advanced three grounds in support of his application to show that the second bankruptcy notice was invalid. He alleged an express agreement between himself and the creditor that the creditor would accept instalment payments and not issue bankruptcy proceedings; he alleged that the amount claimed in the bankruptcy notice was excessive and that he had given the requisite notice pursuant to s. 41 (5) of the Bankruptcy Act 1966 (the Act); and he finally maintained that in view of the service of the first bankruptcy notice on the same day, service of a second notice was invalid, ineffective and an abuse of process. The trial judge rejected the contention that there was an agreement whereby the creditor agreed not to issue bankruptcy proceedings; he found that no notice had been served in accordance with s. 41 (5) of the Act; and he held that the creditor was entitled to issue a second bankruptcy notice which in the circumstances of its service did not cause substantial injustice to the debtor and was therefore valid.

On appeal, relying only upon the first and third of the grounds raised in the court below,

Held: (1) There were no grounds for interfering with the conclusions of the trial judge as to the evidence in relation to the alleged agreement between the parties.

(2) (a) The alleged defect in the second bankruptcy notice was not a defect of form or content; any incorrect statement therein as to the amount allegedly due was irrelevant, as the provisions of s. 41 (5) of the Act had not been followed by the debtor. (b) Albeit that the test of the validity of a bankruptcy notice is an objective one, once reference is made to the fact of the service of the first bankruptcy notice and to its contents in support of the contention that the second bankruptcy notice was invalid and defective, evidence as to the circumstances surrounding the service of the second bankruptcy notice was admissible and could be taken into account in determining whether the debtor was told at the time of the service that the first bankruptcy notice was incorrect and should be disregarded. In such circumstances there was no real possibility of a person in the situation of the debtor being misled or deceived by the service of the two bankruptcy notices on the same day. (c) Service of an invalid bankruptcy notice does not prevent the service within the time for compliance with the first invalid notice of a second and valid notice.

Appeal dismissed.

HEARING

Adelaide, 1981, December 10. #DATE 10:12:1981

APPEAL.

Appeal against the decision of the Court of Insolvency of the State of South Australia, exercising federal jurisdiction in bankruptcy (Judge Rogerson) whereby the court dismissed an application by the debtor to set aside a bankruptcy notice issued on 3rd October, 1980.

The facts are set out below.

T. C. Garood, for the appellant debtor.

A. Martin, for the respondent creditor.

Solicitors for the appellant debtor: Wilkinson Townsend & Co.

Solicitors for the respondent creditor: Manos Paior & West.

D. LEVIN

ORDER

1. The appeal be dismissed with costs.

JUDGE1

We have reached a clear view in relation to the questions involved in this appeal. That being the case, we propose to give judgment forthwith.

This is an appeal against the decision of Judge Rogerson, sitting as the Court of Insolvency of the State of South Australia exercising Federal Jurisdiction in Bankruptcy, whereby he dismissed an application of the appellant John Roufos ("the debtor") to set aside a bankruptcy notice issued on the application of the respondent Nick Andrea ("the creditor").

On 2 September, 1980, the creditor caused to be issued a bankruptcy notice numbered 1108 of 1980 directed to the debtor in respect of the sum of $10,012 allegedly due under a final judgment obtained by consent by the creditor against the debtor in the Local Court of Adelaide on 30 April, 1980. Subsequently, on 24 September, 1980, and prior to service of the bankruptcy notice, the notice was, by leave of the Registrar of the Court of Insolvency, altered by changing the amount claimed by the creditor to $6,012. It is common ground that the judgment was in respect of the sum of $20,000 and $500 costs and that execution on the judgment had been stayed as to $10,000 thereof until 31 July, 1980, and as to the balance of $10,000 until 1 October, 1980. There appears to have been no stay in respect of the order for costs.

On 3 October, 1980, a further bankruptcy notice directed to the debtor and numbered 1324 of 1980 was issued on the application of the creditor in respect of the sum of $16,512 being the amount then alleged to be due under the abovementioned judgment.

The creditor had considerable difficulty in effecting service of the bankruptcy notices. Eventually, service of both bankruptcy notices was effected, at different times, on 3 February, 1981. We shall subsequently refer to the circumstances surrounding the service of the second notice. Prior to 3 February, 1981, a number of payments in respect of the judgment debt had been made by the debtor. Credit for the first of these payments, in the amount of $4,000, was given by way of the amendment to the first bankruptcy notice and in the calculation of the amount of $16,512 (which included the $500 costs) which was claimed to be due in the second bankruptcy notice. The further payments, totalling $2,900, were made subsequent to the issue, but prior to service, of the second bankruptcy notice. In the result, the second bankruptcy notice overstated the amount due under the judgment debt at the time of service by $2,900. No further payment was made by the debtor after 3 February, 1981.

By application dated 3 March, 1981, the debtor sought an order that the bankruptcy notice issued on 2 September, 1980, be set aside. On the same day he filed a like application in respect of the bankruptcy notice issued on 3 October, 1980. Before the trial judge, there was no opposition to the application to set aside the first bankruptcy notice which was admitted to have been irremediably invalid, at the time of service, by reason of failure to state that no more was claimed than the sum stated in the notice. An appropriate order was made. The dispute was confined to the question of the validity of the second bankruptcy notice.

Before the trial judge, the debtor pressed the following three distinct alleged grounds of invalidity:

(i) that the issue of the bankruptcy notice was invalid in that an agreement had been made between the parties that the creditor would accept payment by instalments and refrain from issuing a bankruptcy notice. This ground was rejected by his Honour who found that the debtor failed to prove any agreement to refrain from issuing a bankruptcy notice;

(ii) that the amount claimed in the notice was excessive and that the debtor gave notice as required by s.41(5) of the Bankruptcy Act, 1966 ("the Act"). Judge Rogerson decided this issue against the debtor on the ground that no notice in accordance with s.41(5) of the Act was given by the debtor;

(iii) that, in view of the prior service, on the same day, of the first bankruptcy notice, the second bankruptcy notice was invalid and defective and its service constituted an abuse of the process of the Court of Insolvency. The trial judge decided this issue against the debtor on the ground that the creditor was entitled to serve the second notice prior to expiry of the time for compliance with the first notice and that the circumstances of service did not cause substantial injustice.

On the appeal to this Court, the creditor has relied only on the first and third of these three grounds.

As regards ground (i) above, the debtor relied, inter alia, upon an undated document which was written out by him and signed by the creditor on 5 September, 1980. It was in the following terms:

"I.N. Andreas Received from J. Roufos the some of four thousand Dollars the Balance of 6,000 thousand to be paid within two weeks and $10,000 By the end of October".

According to an affidavit of the debtor, the payment of $4000 referred to in that document was made in the following circumstances:

"I went to see the respondent at his shop in Bank Street Adelaide and we discussed the position. I said that I could pay him $4,000 then, $6,000 within two weeks and $10,000 by the end of October as I intended to go to the United States of America to collect our profit on the 22nd day of October 1980 and return within a week. He agreed to that proposal and said to me that his solicitors had advised him to bankrupt me but he had told them not to do that. He then signed an acknowledgment of our agreement".

In his oral evidence the debtor, when asked whether the creditor had agreed not to do anything further about collecting outstanding money, answered: "no". For his part, the creditor, while not denying the terms of the conversation set out above, denied that he had ever agreed not to take bankruptcy proceedings against the debtor. The creditor swore that he was anxious to be paid what he was owed because the mortgagee of his home was threatening to sell. His evidence was plainly to the effect that there was no agreement between the debtor and himself in the terms or to the effect alleged by the debtor. It is common ground that the debtor failed to make the payment of $6,000 within the period of two weeks in which he promised to make it.

In his reasons for judgment in the Court of Insolvency, Judge Rogerson expressed the view that the creditor was a more credible witness than the debtor. His Honour considered that the debtor's memory appeared to be better when he was being questioned about matters potentially favourable to him than matters potentially adverse and that the evidence of the debtor as to the alleged agreement would have been unconvincing even if it had not been contradicted by that of the creditor. His Honour concluded that the creditor did not make a contract with the debtor that if the debtor paid in full by the end of October, the creditor would not take bankruptcy proceedings. It followed that in the view of the trial judge there was no impediment to the issue of the second bankruptcy notice arising out of the existence of a contract. The appellant contends that in making this finding the trial judge erred in fact and in law.

Even if the evidence of the debtor had stood alone, we would have found it impossible to extract from it a contract between the creditor and the debtor that the creditor would not institute bankruptcy proceedings against the debtor regardless of whether the debtor fulfilled his promise to make the payment of $6,000 within two weeks. Be this as it may, the effect of Judge Rogerson's preference of the creditor and his evidence was to render inevitable his conclusion that the debtor had failed to establish the making of the alleged contract between the creditor and himself. There are no grounds for interfering with his Honour's conclusion to that effect. In these circumstances, it is unnecessary to consider whether any promise by the creditor would, in any event, have been unenforceable by reason of lack of consideration (cf. D. & C. Builders Ltd. v. Rees (1966) 2 Q.B. 617).

To understand the other ground upon which the debtor has relied on the appeal (ground (iii) supra), it is necessary to refer to the circumstances surrounding the service of the second bankruptcy notice. As already stated, bankruptcy notice 1108 of 1980 was served on 3 February, 1981 when the creditor's solicitors learned that the debtor was in Adelaide. The debtor went to his solicitor who telephoned the solicitor for the creditor and asked him not to proceed with bankruptcy proceedings. No arrangement to this effect was made but the existence of the second bankruptcy notice, No. 1324 of 1980, was alluded to, and the debtor's solicitor told the creditor's solicitor that it could be served on the debtor at the debtor's solicitor's office. Service of the second notice was then effected that day by Mr. Marriott who was a solicitor in the employ of the creditor's solicitor. Mr. Marriott gave evidence, which Judge Rogerson accepted, of the following conversation between the debtor and himself:

"I apologised to Mr. Roufos for having served the first one and I pointed out to him that it was incorrect, that the amount thereon was incorrect, and this notice I was now serving him was the correct one. He looked at the notice and said something to the effect that he had already paid Nick Andrea a sum of money which I cannot recall. I then said "Look, John, I have only been asked to serve the notice. I do not know anything about the actual matter". He said, "I understand", thanked me and I left.

The statement by Mr. Marriott that the notice which he was then serving was correct was, itself, incorrect. As has been mentioned, the second bankruptcy notice overstated the amount due by the debtor by $2,900.

Mr. Garood, who appears for the debtor, has submitted that, in these circumstances, the question of the validity of the second bankruptcy notice must be determined by reference only to the contents of the two bankruptcy notices and the fact that they were both served on the same day. In support of this submission, he relies upon a number of cases relating to the question whether, when a defect in the actual form of a bankruptcy notice is involved, the court is entitled to look to external circumstances to determine whether the debtor has in fact been misled or deceived. In such a case, it has been established by the authorities that the test of whether the bankruptcy notice is defective is an objective one. The relevant question is whether the defect in the notice is such that it could reasonably mislead a debtor, not whether the debtor upon whom it was served was in fact misled (see James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631 at p. 644).

In the present case however, the alleged defect in the second bankruptcy notice was not in the form or contents of the actual notice. There was, as has been mentioned, a defect in the contents of the notice in that it incorrectly stated the amount due under the judgment debt. It is, however, no longer disputed by the debtor that the bankruptcy notice was saved from invalidity by reason of that defect by the provisions of s.41(5) of the Act. The alleged defect relied on in the present case arises from the external circumstance that the first invalid bankruptcy notice had already been served upon the debtor. In these circumstances, we consider that a court is not constrained to take account of the external circumstances of the service upon a debtor of the first invalid bankruptcy notice but to disregard the related and equally important circumstance that the debtor was, in effect, told, at the time of service of the second notice, that the first invalid notice was incorrect and was to be disregarded. In our view, Judge Rogerson was entitled to take into account the conversation between the debtor and Mr. Marriott at the time of service of the second bankruptcy notice.

Once the conclusion is reached that regard can properly be had to the conversation between the debtor and Mr. Marriott, it is, in our view, apparent that there was no real possibility of a person in the situation of the debtor being misled or deceived by the service of the two bankruptcy notices on the same day. As Judge Rogerson found, the statement made to the debtor by Mr. Marriott at the time of service of the second notice, made it sufficiently clear that of the two notices the second notice was the operative one. Nor do we agree with either of Mr. Garood's more general submissions that the previous service of the first invalid notice made it impossible that a further valid notice could be properly and effectively served within the time limited for compliance by the first invalid notice and that the service of the second notice constituted an abuse of process. In these regards, in the light of the fact that the first bankruptcy notice was invalid, we agree with the following comments of Judge Rogerson in the Court of Insolvency:

"It has repeatedly been held that the test of whether a Bankruptcy Notice is defective is an objective one. . . . . In the present case I do not think that the debtor could reasonably have been in any doubt when he received the second Notice that it was that Notice, and that Notice alone, that he was required to comply with. . . . . It is unfortunate that the first Notice was served, but it must be open to a creditor who realises that he cannot proceed on such a Notice to serve a further Notice on which he is entitled to proceed. He must, it is obvious, take sufficient steps to ensure that the debtor could not reasonably be misled by the receipt of the later Notice. However, I know of no authority, and of no principle, which requires a creditor to abstain from serving his second Notice until the time fixed for compliance with the first Notice has elapsed . . . ".

In the result and notwithstanding the care and skill with which Mr. Garood has argued the appellant's case, the appellant has failed to make good the attack on the validity of the second bankruptcy notice. The appeal should be dismissed with costs.