Shannon and Middleton v King
[2005] FMCA 1264
•5 September 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SHANNON & MIDDLETON v KING | [2005] FMCA 1264 |
| BANKRUPTCY – Bankruptcy notice – claim that bankruptcy notice invalid – where bankruptcy notice not strictly in accordance with the form prescribed by the Bankruptcy Regulations – where the expression “the creditor(s)” used in place of the expression “the creditor” – whether bankruptcy notice defective or irregular – whether defect or irregularity is substantive or formal – defect or irregularity held to be formal only – whether defect or irregularity has occasioned substantial and/or irremediable injustice – discussion of principles in Kleinwort Benson Australia Ltdv Crowl (1998) 165 CLR 71 and the The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 – Bankruptcy Act 1966 (Cth) ss.40(1)(g), 41(1), 41(2), 306(1) – Bankruptcy Regulations 1996 (Cth) Regulation 4.02. |
| Bankruptcy Act 1966 (Cth) Acts Interpretation Act 1901 (Cth) Supreme Court Act 1986 (Vic) Magistrates Court Act 1989 (Vic) |
| Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 Hanlon v Law Society [1981] AC 124 Marshall v General Motors Acceptance Corporation Australia (2003) 199 ALR 109 Adams v Lambert (2004) FCAFC 322 Wright v Australian and New Zealand Banking Group Limited (2001) FCA 386 Trustees of the Franciscan Missionaries of Mary v Weir (2000) FCA 574 Kyriackou v Shield Mercantile Pty Ltd (2004) 207 ALR 363 Re Hamor; Ex Parte Deamer (1968) 11 FLR 261 McIntyre v Gye (1994) 51 FCR 472 |
| Applicants | NATALIE JANE SHANNON & KAREN CHRISTINE MIDDLETON |
| Respondent: | BARRIE PETER KING |
| File Number: | PEG 63 of 2005 |
| Judgment of: | Walters FM |
| Hearing date: | 30 June 2005 |
| Date of Last Submission: | 30 June 2005 |
| Delivered at: | Melbourne (via video link to Perth) |
| Delivered on: | 5 September 2005 |
REPRESENTATION
| Counsel for the Applicants | Mr Cuerden |
| Solicitors for the Applicants | Dwyer Durack |
| Counsel for the Respondent: | Mr Nalder |
| Solicitors for the Respondent: | Gadens Lawyers |
ORDERS
A sequestration order be made against the estate of Barrie Peter King (“the Respondent Debtor”) of 27 Quincy Loop, Iluka, Western Australia.
The Applicants’ costs of the petition (including any reserved costs) be paid in priority from the assets of the Respondent Debtor as costs of the petition pursuant to s.109 of the Bankruptcy Act (Cth).
The Court notes the date of the Act of Bankruptcy is 25 February 2005
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
PEG 63 OF 2005
| NATALIE JANE SHANNON |
First Applicant
And
| KAREN CHRISTINE MIDDLETON |
Second Applicant
And
| BARRIE PETER KING |
Respondent
REASONS FOR JUDGMENT
Introduction
This court has been asked to determine whether the use of the expression “creditor(s)” instead of the word “creditor” is sufficient to render invalid a bankruptcy notice that is otherwise entirely unexceptionable. Whilst some might fairly consider the resolution of such an issue to be little more than an exercise in pettifoggery, the fact of the matter is that the Court was referred to a total of some 20 decisions of the High Court, the Federal Court (including the Full Court of the Federal Court) and this Court in an attempt to persuade it to rule in one direction or the other. Unfortunately (but perhaps predictably), much of the material to which the Court was referred was of little more than marginal relevance.
Lest it be thought that the reference to a score of cases (and associated argument) might be considered sufficient to assist the Court to answer the question asked of it, it should be recorded that the respondent debtor also sought to rely upon —
a)an affidavit sworn by a Professor of Linguistics at the University of Sydney — whose curriculum vitae was 6½ times longer than his two page report[1]; and
b)a 90-page affidavit[2] by an articled clerk, reflecting over five hours research in two major libraries.
[1] Indeed, an attempt was made to adjourn the proceedings so that the Professor could be presented for cross examination on the contents of his report. For reasons expressed during the hearing, the adjournment was refused.
[2] Including annexures.
These two affidavits were — to be blunt — a complete waste of time and effort.
Not surprisingly, I have concluded that the bankruptcy notice is valid.
Background[3]
[3] Some of the background information is to be found in exhibit WF2 to the Affidavit of William Auguste Foley sworn 16 May 2005.
Mr King is the respondent debtor. The applicant creditors, Ms Shannon and Ms Middleton, are his daughters. Due to a family dispute, they are seeking to bankrupt him.
Ms Shannon and Ms Middleton obtained a judgment against their father for an amount of $234,294.00 in the Supreme Court of Western Australia on 21 May 2004.
The Supreme Court judgment formed the subject of a bankruptcy notice, which was served on Mr King on 4 February 2005. A copy of the bankruptcy notice comprises annexure A to the Affidavit of Maurice Eugene Frichot sworn 7 February 2005.
The bankruptcy notice is reproduced in an annexure to these Reasons.
I shall refer to it as “the Notice”.
Throughout the Notice the expression “the creditor(s)” is used. This differs from the expression “the creditor” which appears in the bankruptcy notice which is prescribed — under s.41(2) of the Bankruptcy Act 1966 (“the Act”) — by regulation 4.02 of the Bankruptcy Regulations (“the Regulations”). The prescribed bankruptcy notice is set out as Form 1 in the Regulations. I shall refer to it as “Form 1”.
Section 41 of the Act deals with bankruptcy notices. Section 41(2) provides that a bankruptcy notice “ … must be in accordance with the form prescribed by the Regulations”.
Mr Nalder, for Mr King, submitted that the Notice is not in accordance with Form 1, and that it is invalid.
Mr Cuerden, for Ms Shannon and Ms Middleton, submitted that the Notice is not invalid.
The alleged invalidity of the Notice was the only ground relied upon by Mr King in answer to the creditor’s petition filed by Ms Shannon and Ms Middleton as applicant creditors in this Court on 17 March 2005. As all the other formal requirements of the creditor’s petition have been complied with, it follows that this Court should make a sequestration order under s.43 of the Act against Mr King’s estate unless it forms the view that the Notice is invalid. The date of the relevant act of bankruptcy (under s.40(1) of the Act) is 25 February 2005 — being 21 days after the date upon which the Notice was served on Mr King.
Statutory Framework
The effect of ss.41(1) and 40(1)(g) of the Act is that an official receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor a final judgment or final order that is for an amount of at least $2,000.00.
Section 41(2) is as follows:
The Notice must be in accordance with the form prescribed by the Regulations.
Regulation 4.02 provides as follows:
1.For the purposes of ss.41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.
2.A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).
3.Subregulation (2) is not to be taken as expressing an intention contrary to s.25C of the Acts Interpretation Act 1901.
Note: Under s.25C of the Acts Interpretation Act 1901, where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient; see also paragraph 46(1)(a) of that Act for the application of that Act to legislative instruments other than Acts.
Section 306(1) of the Act provides:
Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the Court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that Court.
Section 25C of the Acts Interpretation Act 1901 (Commonwealth) is as follows:
Where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient.
Having regard to the specific argument raised on behalf of Mr King, it is also relevant to record that s.23 of the Acts Interpretation Act 1901 (Commonwealth) provides that, in any Act, unless the contrary intention appears “ … words in the singular number include the plural and words in the plural number include the singular”.
Leading Cases
There have been many single instance decisions — in this Court and the Federal Court — dealing with the consequences of non-compliance with Form 1. They are of interest, but are distinguishable on their facts — in that they deal with different forms of variation from the prescribed Form 1. In my opinion, it is necessary to approach the problem in the present proceedings by setting out and applying the principles contained within the two leading cases in this area, namely Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 (“Kleinwort Benson”) and The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 (“Australian Steel”).
Kleinwort Benson is a decision of the High Court, and is described in Australian Steel (a decision of the majority of a specially constituted Full Court of the Federal Court) as “the leading authority on defective bankruptcy notices”. Although it deals with a bankruptcy notice issued under s.41 prior to significant amendments being made to that section in 1996, there can be no doubt that the principles enunciated in the case remain applicable to bankruptcy notices issued since the 1996 amendments (and, relevantly, to the Notice in the present case).[4]
[4] See Australian Steel at [27].
The alleged defect in the bankruptcy notice in Kleinwort Benson was an understatement of the amount of interest accrued. In broad terms, the majority (Mason CJ, Wilson, Brennan and Gaudron JJ), concluded that the understatement of the interest due was no more than a formal defect or irregularity within s. 306(1) of the Act and that, as a result, the bankruptcy notice was valid. Deane J did not agree.
After referring to s.306(1) and observing that the issue of a bankruptcy notice is indeed “a proceeding” under the Act, the majority in Kleinwort Benson said:[5]
Three questions arise as to the validity of the bankruptcy notices in this case: are they defective or irregular; if so, is the defect or irregularity substantive or formal; and if it is formal only, has it occasioned substantial and irremediable injustice?
[5] At page 77.
The Full Court in Australian Steel accepted that the above questions could be restructured as follows:
a)Is the bankruptcy notice defective or irregular?
b)If so, is the defect or irregularity substantive or formal?
c)If it is formal only, has it occasioned substantial and irremediable injustice?
The majority in Kleinwort Benson also said:[6]
The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice … In such cases, the notice is a nullity whether or not the debtor is in fact misled.
[6] At page 79 – 80.
After further discussion, the majority (in Kleinwort Benson) held that the understatement of the amount of interest due comprised no more than a formal defect or irregularity — which attracts the operation of s.306(1).[7] Their Honours then continued:
Section 306(1) operates automatically unless “the court … is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court”. In the present case, no evidence was presented and no claim was made of actual injustice. There was thus no basis upon which an opinion could be formed to deny the operation of s.306(1).
[7] See page 81.
Kleinwort Benson was discussed and analysed in detail by the majority of a specially constituted (five member) Full Court of the Federal Court in Australian Steel. The Full Court heard three creditors’ petitions in the exercise of the original jurisdiction of the Court. The five member Full Court was constituted pursuant to a direction of the Chief Justice in the following circumstances:[8]
In the extensive amendments to the Act and the Regulations in 1996, the form of bankruptcy notice has been made substantially more complex. There have been conflicting Full Court decisions as to the consequence of non-compliance with the new form of notice.
[8] See paragraph [2].
In Australian Steel, the notices all had the same defect they claimed interest on a judgment debt pursuant to s.101 of the Supreme Court Act 1986 (Victoria), when it should have been expressed that the interest was claimed pursuant to s.100(7) of the Magistrates Court Act 1989 (Victoria).
After quoting some of the passages from Kleinwort Benson referred to above, the majority in Australian Steel said:[9]
Thus essentiality of the requirement which the notice fails to meet and capacity of the notice to reasonably mislead a debtor are alternative ways in which a defect or irregularity may be found to be “substantive”. It must logically follow that a notice which fails to meet a requirement made essential by the Act will contain a substantive defect even if the notice could not reasonably mislead a debtor as to what was necessary for compliance.
[9] See paragraph [32].
The majority continued:[10]
It is clear from the majority’s judgment (in Kleinwort Benson) read as a whole that their Honours were not saying that capacity to mislead is the only test as to whether a defect is substantive, as distinct from formal. There is another and separate test, namely whether an essential requirement of the Act has not been met. Each is a subset of issue [ii][11]. On the facts of Kleinwort Benson both tests were held not to have been satisfied. Finally, the majority noted that, there being a formal defect or irregularity, s.306(1) operated automatically. There had been no evidence presented and no claim made of actual injustice. Therefore, their Honours held that there was no basis upon which an opinion could be formed to deny the operation of s.306(1).
[10] See paragraph [38].
[11] See paragraph 24(b)above.
The majority in Australian Steel then discussed the manner in which it might be determined whether a particular requirement has been made essential by the Act (bearing in mind that “essentiality of the requirement which the notice fails to meet and the capacity of the notice to reasonably mislead a debtor are alternative ways in which a defect or irregularity may be found to be ‘substantive’”). Their Honours said:
39.Kleinwort Benson decides that a bankruptcy notice that does not contain a requirement made essential by the Act is not a valid notice. In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391, McHugh, Gummow, Kirby and Hayne JJ, after discarding the elusive distinction between directory and mandatory requirements as a test of validity, said:
A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid … In determining the question of purpose, regard must be had to ‘the language of the relevant provision and the scope and purpose of the whole statute’.
In the light of this passage, it can be seen that a requirement is “made essential” within the Kleinwort Benson principle when the inquiry as to purpose discloses the intention that an act done in breach should be invalid. See also Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 at 383-385; 169 ALR 503 at 512-513.
40.In 1996 Parliament chose to make a form to be prescribed by regulation the sole criterion of whether a bankruptcy notice complied with the Act, with the consequence that an act of bankruptcy would be committed in the case of non-compliance with such a notice. This being the will of Parliament, it is not for a court to treat the terms of the prescribed form as inherently less important than a requirement specified in the Act itself, so as to attract a more lenient view in the case of non-compliance. Valid delegated legislation (and there is no suggestion that the present regulations are otherwise) is binding law because that is what Parliament has willed. As Lindgren J said in Re St Leon; Ex parte National Australia Bank Ltd (1994) 54 FCR 371 at 378 (obviously in relation to a pre-1996 notice): “ … the statutory requirement that a bankruptcy notice be in accordance with the prescribed form is itself a requirement made essential by the Act.”
41.This proposition is a fortiori since the 1996 amendments …. Moreover, this is a case where the 1996 amendments resulted in “a framework built on by contemporaneously prepared regulations”, in which case the latter may be a reliable guide to the meaning of the former: Hanlon v Law Society [1981] AC 124 at 194. The law now is that a bankruptcy notice has to contain substantially more information than it did prior to the 1996 amendments. The law now is not just that a notice shall have certain characteristics stipulated in the Act. The notice “must be in accordance with the form prescribed by the regulations”.
Finally, the majority in Australian Steel said:[12]
If (regulation 4.02(3) is to be taken as a statement that s.25C of the Acts Interpretation Act applies to the content of the form as well as its format … , the failure to comply with a requirement in such a way that the purpose behind the requirement is thereby thwarted, cannot be excused under s25C on the ground that there has been substantial compliance. Essentiality for the purpose of the Kleinwort Benson principle being determined by purpose, a provision as to substantial compliance, assuming it applies at all, cannot make unessential that which purpose reveals as essential. It can hardly be said that there has been substantial compliance with a prescribed form where the form fails to include information made essential by an enactment.
[12] See paragraph (43).
13 See, for example, the decisions of the Full Court of the Federal Court in Marshall v General Motors Acceptance Corporation Australia (2003) 199 ALR 109 and Adams v Lambert (2004) FCAFC 322
I am well aware that certain judges of the Federal Court have expressed discomfort with the conclusion reached by the majority in Australian Steel:[13] For what it is worth, I record that I agree with the following passages from the (dissenting) judgment of Spender J in Marshall v General Motors Acceptance Corporation Australia (2003) 199 ALR 109:[14]
[14] At paragraphs 18 and 19.
… In my respectful opinion, the judgment of the majority in Australian Steel is inconsistent with the determination of the High Court in Kleinwort Benson. It elides the difference between compliance with the form, albeit that the information included in the form is incorrect, with a misstatement or error in what is included in a bankruptcy notice. The judgment of the majority in Australian Steel fails to follow the judgment of the High Court in Kleinwort Benson.
In my respectful opinion, the law is correctly stated in the dissenting judgment of Lee J in Australian Steel, a judgment with which Gyles J (being the judge at first instance) agreed.
I respectfully agree with every word of the judgment of Lee J.
But I accept, of course, that I am bound by the decision of the majority in Australian Steel.
I turn now to consider the questions raised in Kleinwort Benson, as interpreted in Australian Steel[15].
[15] See paragraphs 23 and 24 above.
Is the Bankruptcy Notice Defective or Irregular?
It is clear beyond argument that Form 1 uses the word “creditor”. Mr Cuerden submitted that “ … it is an unstated premise of the respondent’s argument that any deviation from the prescribed form is necessarily a defect or irregularity”. He also submitted, relying on Wright v Australian and New Zealand Banking Group Limited (2001) FCA 386, that such a premise is wrong.
In Wright v Australian and New Zealand Banking Group Limited, Beaumont J said:
It appears that the argument for the judgment creditors in Australian Steel was prepared to accept that any error, however obvious, could amount to a “defect” or “irregularity” in a bankruptcy notice. In my opinion, such a concession ought not to have been made. … Obvious errors should … be corrected by (a) natural and commonsense approach … Any other approach would lead to an absurd, unacceptable result.
His Honour continued:[16]
It is submitted on behalf of the judgment debtors that the notice is invalid because (1) the provision for the name or identity of the person who applied for the notice is left blank; and (2) the requirement that the person signing the notice identifies whether he or she is the creditor or the creditor’s agent, has not be complied with.
In my opinion, neither of these complaints constitutes a “defect” or “irregularity” in the notice (because) … it is necessary to read the notice as a whole and in a natural, commonsense way … .
Once the notice is read as a whole and in an ordinary commonsense way, it appears that there is no “defect” or “irregularity” to deal with.
[16] At paragraphs 34 – 36.
In Trustees of the Franciscan Missionaries of Mary v Weir (2000) FCA 574, the Full Court of the Federal Court — in a decision which predates Australian Steel by some six months — said in relation to Form 1:[17]
Neither the use of the singular number nor the use of the masculine or feminine genders can require the form to be read as excluding, on the one hand, several applicants, and on the other, an inanimate applicant, such as an ordinary corporation … for the summary expression “he or she” must be accommodated to the case of joint creditors and to the case of a corporate creditor, just as much as to the case of an authorised agent. The draftsman plainly did not intend corporations and joint creditors to be excluded; but neither was it intended that differences of number and gender should be ignored by the multiplication, in the issue of bankruptcy notices, of psittacine recapitulations of the very words of the form, whether appropriate or not.
[17] See paragraph 10.
In Kyriackou v Shield Mercantile Pty Ltd (2004) 207 ALR 363, Weinberg J (in a first instance decision which is obviously subsequent to Australian Steel), considered the validity of a bankruptcy notice in which the name of the creditor had been inserted, but the expression “(‘the creditor’)” had been omitted. In other words, the creditor (Shield Mercantile Pty Ltd) had not been defined as “the creditor” in the Notice.
After discussing Australian Steel (and Kleinwort Benson), his Honour said:[18]
It is trite to observe that the appellant could easily have worked out for himself that the first respondent was “the creditor” to which reference was made in paragraph 1 of the bankruptcy notice. However, that is not what the notice actually said. Rather, it named the first respondent as having claimed that the appellant owed “the creditor” (whoever that might be) a (specified) debt. Had the definition “the creditor” appeared below the first respondent’s name, as the form requires, there would have been no doubt whatever about the identify of that party. Alternatively, it would have been sufficient to insert after the words “claims you owe” the word “it”, rather than “the creditor”, in order to avoid any possibility of uncertainty. The failure to identify or define the creditor cannot be regarded as a formal defect or irregularity. It is a matter of substance.
It gives me no satisfaction to arrive at this conclusion. Were it not for Australian Steel I would have said that a bankruptcy notice, like other important documents, should be read sensibly, and not perversely. The notion that there is an area of the law where form takes precedence over substance is not intuitively attractive. Nonetheless, I consider that I am bound by Australian Steel to conclude that this bankruptcy notice failed adequately to identify or define the creditor, a matter made essential by the Act and Regulations.
[18] At paragraphs 42 and 43.
In the present case, the expression “the creditor” has not been omitted — although it has been altered slightly. The passage from Kyriackou v Shield Mercantile Pty Ltd quoted above makes it clear that his Honour had no discomfort with minor changes being made to the wording of Form 1, if such changes are necessary to avoid the possibility of uncertainty. In my opinion, nothing in the majority decision in Australian Steel would indicate that his Honour is incorrect in that regard. After all, Australian Steel clearly affirms and seeks to apply the approach supported in Kleinwort Benson.
The Australian Concise Oxford Dictionary (3rd edition) contains the following definitions:
a)“defective” means (inter alia) “having a defect or defects; incomplete, imperfect, faulty”;
b)“defect” means (inter alia) “lack of something essential or required; imperfection”; “a shortcoming or failing” and “a blemish”;
c)“irregular” means (inter alia) “not regular; unsymmetrical, uneven; varying in form” and “contrary to a rule, moral principle, or custom; abnormal”;
d)“regular” means (inter alia) “conforming to a rule or principle; systematic”, “conforming to a standard of etiquette or procedure; correct; according to convention” and “properly constituted or qualified; not defective or amateur”.
The addition of the bracketed letter “(s)” after the word “creditor” is clearly a departure from Form 1. The “printed” or standard part of the Notice served on Mr King is different from the “blank” prescribed Form 1. To that extent (and to that extent only) I accept that there is an imperfection or blemish in the Notice, and that it does not wholly conform to Form 1. It follows that the Notice is indeed defective or irregular.
Although I have concluded that the Notice is defective or irregular (or perhaps both), that is not to say that the Notice cannot be read as a whole and in a natural, commonsense way. Nor is it to say that it is misleading in any relevant sense. I turn now to consider the next question posed in Kleinwort Benson.
Is the Defect or Irregularity Substantive or Formal?
It is clear from Australian Steel that a defect or irregularity is substantive if —
a)it reflects a failure to meet a requirement made essential by the Act; or
b)it could reasonably mislead a debtor as to what is necessary to comply with the Notice.
If the defect or irregularity is neither of the above, then it is purely formal.
I shall deal first with the question of whether the defect or irregularity has resulted in the failure of the Notice to meet a requirement made essential by the Act.
Does the Existence of the Defect indicate that an Essential Requirement of the Act has not been Met?
According to Australian Steel, “Kleinwort Benson decides that a bankruptcy notice that does not contain a requirement made essential by the Act is not a valid notice”[19]. Further “ … a requirement is ‘made essential’ within the Kleinwort Benson principle when enquiry as to purpose discloses the intention that an Act done in breach should be invalid”.[20]
[19] See paragraph 39.
[20] See paragraph 39.
The genesis of what both Mr Cuerden and Mr Nalder described as “the purposive test” in Australian Steel is a passage from Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355[21], cited in Australian Steel:[22]
A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an Act done in breach of the provision should be invalid … In determining the question of purpose, regard must be had to “the language of the relevant provision and the scope and purpose of the whole statute”.
[21] At 390 – 1.
[22] At paragraph 39.
What then is the purpose of a bankruptcy notice in general, and of the expression or definition “the creditor” in particular?
In Kyriackou v Shield Mercantile, Weinberg J said:
36.The purpose of a bankruptcy notice is to convey to the debtor the amount claimed by the creditor, and to give the debtor the opportunity to pay or secure that amount. It is important that a bankruptcy notice be prepared with great care. The courts require strict compliance with the Act and regulations. The reason for this is that a bankruptcy notice sets in train the entire process leading to bankruptcy, a process that has been described as “quasi-penal”.
37.Formal errors in a bankruptcy notice do not result in its invalidity unless they have caused substantial injustice. However, substantive errors will generally lead to the notice being regarded as invalid and of no effect. If a bankruptcy notice is invalid, any bankruptcy proceedings based upon that notice will be dismissed.
38.One of the purposes that a bankruptcy notice must serve is to identify with clarity both who the creditor is, and who the debtor is. It must also convey to the debtor how the debt that is alleged to be owing is said to have arisen. These are matters of substance, and not matters of form.
I accept that one of the purposes that a bankruptcy notice must serve is to identify the creditor with clarity. Further, the purpose of the expression “the creditor” (under the name of the creditor in Form 1) is to assist in the achievement of that object.
Given the approach adopted in Australian Steel and Kyriackou v Shield Mercantile, I find that the inquiry as to the purpose of the use of the expression “the creditor” (under the name of the actual creditor in a bankruptcy notice) discloses an intention of the part of the legislature that a failure to adequately define a creditor should lead to the relevant bankruptcy notice being held to be invalid. In that sense, the requirement that the creditor be defined as such has been “made essential”.
Having concluded that the clear identification of the creditor is an essential requirement of a valid bankruptcy notice, it falls to be considered whether the expression used by Ms Shannon and Ms Middleton in the Notice directed to their father met that essential requirement. In my opinion, it did.
In Kyriackou v Shield Mercantile, the definition “the creditor” was omitted altogether. In the Notice, it appears, but with the letter “s” in brackets after it. The same formula (as it were) is then repeated throughout the Notice. It is clear that the expression used in the Notice clearly identifies Ms Shannon and Ms Middleton as “the creditor” for the purpose of the Notice. There can be no uncertainty as to what would constitute compliance with the Notice.[23] Thus, although the identification of the creditor is an essential requirement of the Act (and of a bankruptcy notice), the use of the precise expression “the creditor” is not. The former is a matter of substance; the latter is a matter of form.
[23] See Kleinwort Benson at pp 80 – 81 and Australian Steel at paragraph 36.
Mr Nalder submitted that the use of the expression “the creditor(s)” in the Notice could lead to some confusion as to the identity of the creditor or creditors. He submitted that the notation “(s)” is somehow contrary to logic, and is incapable of conveying a clear and unambiguous meaning. I do not agree. Indeed, it seems to me that — reading the Notice as a whole and in a natural, commonsense way — its purpose is crystal clear.
The reality is that there are two creditors, and provided that none of the purposes of the Notice are defeated or rendered inappropriately complex, then it matters not if a minor grammatical (or ungrammatical, for that matter) alteration is made to the prescribed form. Whilst the test in Australian Steel is strict, it is not absolute.
Mr Nalder also submitted that the expression used in the Notice might lead to some confusion as to the identity of the person or persons to whom payment of the debt should be made. There are two responses to this submission:
a)The first is that paragraph 4 of the Notice clearly indicates that payment of the debt can be made to Dwyer Durack, Lawyers (being the solicitors for Ms Shannon and Ms Middleton). No challenge was made to the validity of paragraph 4 of the Notice.
b)The second is to recognise that payment to one of a number of joint creditors discharges a debt owed to them jointly at law.[24] In Re Hamor; Ex Parte Deamer (1968) 11 FLR 261, Gibbs J said:[25]
… the rule of the common law is that payment to one of two joint creditors is a good discharge of the joint debt … I have not been referred to any authority that suggests that this principle is less applicable to the case of a joint judgment debt than to any other joint debt and I can see no valid reason for drawing any such distinction. Therefore, if the debtor had acted in accordance with the terms of the notice, and had paid one or other of the creditors, the judgment debt would have been discharged and the judgment would have been satisfied. If, out of caution or prudence, the debtor wished to pay both creditors, the notice would not prevent him, for in paying both he would comply with the requirement to pay one.
[24] See McIntyre v Gye (1994) 51 FCR 472 at 479.
[25] At page 264.
In all the circumstances, I conclude that the defect or irregularity contained in the Notice does not cause it to fail to meet a requirement made essential by the Act. It follows that the defect or irregularity is not “substantive” on this basis.
The question then arises whether the defect or irregularity can be considered to be “substantive” on the basis that it renders the Notice capable of reasonably misleading a debtor.
Could the Notice in its Present Form Reasonably Mislead a Debtor as to what is Necessary to Comply with it?
It is clear that a bankruptcy notice is invalid if it could reasonably mislead a debtor as to what is necessary to comply with it — whether or not the debtor is in fact misled.[26]
[26] See Kleinwort Benson at pp 77 – 80 and Australian Steel at paragraph 31.
In my opinion, it does not matter whether the Court is obliged to consider whether “a” or “the” debtor might be misled. The fact is that neither Mr King nor any other person could possibly be misled as to what is necessary to comply with the Notice. Put another way, I am unable to see how the Notice could possibly reasonably mislead Mr King (or any other debtor) as to what is necessary to comply with it.
Mr Nalder submitted that the expression “creditor(s)” is a corruption of the English language and has no commonly understood meaning and is therefore misleading. Whilst I am prepared to accept (for the sake of the argument) that the expression might be “a corruption of the English language”, I do not accept that it has “no commonly understood meaning”. In my opinion, its meaning is perfectly clear from its context in the Notice. It conveys that Ms Shannon and Ms Middleton are both “the creditor” for the purpose of the Notice, and that both are Mr King’s “creditors” pursuant to the Supreme Court judgment. Even if the expression is something less than elegant, I am unable to see how it can possibly be characterised as misleading.
Mr Nalder also argued that, if the court concludes that the expression “creditor(s)” is “a permissible formula”, then it still has different meanings. Mr Nalder’s submission in this regard appears on page 3 of his written submissions as follows:
Furthermore, if a creditor has been identified or defined, there is significant doubt as to whether the creditor is
(a)only Natalie;
(b)only Karen;
(c)both Natalie and Karen;
(d)Natalie, and “Natalie and Karen”;
(e)“Karen”, and “Natalie and Karen”;
(f)“Natalie” and “Karen” and “Natalie and Karen”
I am not persuaded by Mr Nalder’s submission in this regard. The passage from Re Hamor that I have reproduced in paragraph 59(b) above seems to provide a comprehensive answer to it.
I find, therefore, that neither the Notice itself, nor the defect or irregularity within it, could reasonably mislead any debtor as to what is necessary to comply with the Notice. It follows that the defect or irregularity cannot be “substantive” in that sense.
It also follows from the discussion set out above that if the defect or irregularity does not fall within either of the alternative ways in which it might be found to be “substantive”, then it must be formal only.
Has the Defect or Irregularity occasioned Substantial and Irremediable Injustice?
The final question posed in Kleinwort Benson is as follows:
If (the defect or irregularity) is formal only, has it occasioned substantial and irremediable injustice?
Mr Nalder conceded that the defect or irregularity cannot be considered to have occasioned either substantial or irremediable injustice. There is certainly no evidence that it did (or could have).
Mr Nalder’s comment in relation to this issue was: “We don’t go there”.
Section 306(1) applies
It follows from Kleinwort Benson and Australian Steel that if the defect or irregularity contained within a bankruptcy notice is formal only, and if it has not occasioned substantial and (or even or) irremediable injustice, then s.306(1) of the Act “applies automatically” to validate the Notice.
I conclude, therefore, that the Notice is valid.
Conclusion
Having found that the Notice is valid, and bearing in mind that no other ground or grounds were relied upon in opposition to the making of a sequestration order pursuant to the creditor’s petition, I propose to make the sequestration order. There will also be an order that the respondent pay the applicants’ costs.
I, Barbara Mendleson, certify that the preceding seventy-four (74) paragraphs are a true copy of the reasons for judgment of Walters FM
Deputy Associate:
Date: 5 September 2005
ANNEXURE 1
Bankruptcy Notice
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