Shephard v Chiquita Brands (South Pacific) Ltd - [2001] FMCA 78

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SHEPHARD v CHIQUITA BRANDS [2001] FMCA 78

BANKRUPTCY – application to set aside bankruptcy notice and for an extension of time – defects in bankruptcy notice – address of creditor and calculation of interest – alleged cross claim against creditor – issue estoppel

Bankruptcy Act 1966 (Cth), ss.30, 33(1)(c), 41(2), 41(5), 41(6A), 41(7), 306

A-Pak Plastics Pty Ltd v Merhone Pty Ltd (1995) 120 FLR 277
Ramsay v Pigram (1967-8) 118 CLR 271
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Re Barnes; ex parte Barnes v Makhoul (1994) 53 FCR 169
Re E J Brown (1923) 40 WN (NSW) 73
Re Nugent; ex parte Nugent (1985) 5 FCR 161
Re Wilhemsen; ex parte Gould (1986) 11 FCR 107
Shephard v Blueberry Farms of Australia (Corindi) Limited [2001] FMCA 2
Van Reesema (judgment debtor); Australian Growth Corporation Pty Ltd (Receivers and Managers appointed) (1987) 75 ALR 311

Applicant:

DEREK GEORGE SHEPHARD

Respondent:

CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED

File No:

SZ 233 of 2001

Delivered on:

12 September 2001

Delivered at:

Coffs Harbour

Hearing Dates:

11 and 12 September 2001

Judgment of:

Driver FM

REPRESENTATION

Applicant in person

Counsel for the Respondent:

Mr R Newlinds

Solicitors for the Respondent:

Fishburn Watson O’Brien

ORDERS

The application is dismissed.
The applicant is to pay the respondent’s costs of the proceedings, including any reserved costs, in accordance with Rule 21.10 and schedule 1 to the Federal Magistrates Court Rules.
Settlement and entry of these orders may be effected pursuant to order 36 of the Federal Court Rules.
Orders 1 and 2 are stayed until 26 September 2001.
Pursuant to section 41(6A) of the Bankruptcy Act 1966 (Cth), time for compliance with the bankruptcy notice is extended until 26 September 2001.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT COFFS HARBOUR

SZ 233 of 2001

DEREK GEORGE SHEPHARD

Applicant

And

CHIQUITA BRANDS (SOUTH PACIFIC) LIMITED

Respondent

REASONS FOR JUDGMENT

Introduction

I have before me an application by DEREK GEORGE SHEPHARD to set aside a bankruptcy notice pursuant to ss. 30, 41(6A) and 41(7) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). The respondent opposes the application. Both the applicant and the respondent also seek costs. The proceedings were instituted in the Federal Court of Australia on 18 April 2001 and transferred to this Court pursuant to orders by her Honour Branson J on 9 May 2001.
It appears that the bankruptcy notice in issue (number NN317 of 2001) was served on the applicant on 28 March 2001. Pursuant to orders made on 18 April 2001 by Deputy District Registrar Segal, and by myself on 12 June 2001 the time for compliance with the bankruptcy notice was extended until 12 September 2001. In any event, it seems that in the circumstances of this case s.41(7) of the Bankruptcy Act operates to automatically extend time for compliance with a bankruptcy notice until the Court has determined whether it is satisfied that the applicant debtor has a counterclaim, set off or cross demand alleged by him in his application.
The application alleges first, that the bankruptcy notice is defective in that the address of the respondent is not correctly stated in paragraph 1 of the notice. Secondly, the applicant alleges that he has a counterclaim, set off or cross demand equal to or exceeding the amount in the bankruptcy notice which he could not have set up in the original proceedings supporting the bankruptcy notice.
The applicant relies upon his affidavits dated 12 April 2001 and 12 July 2001. I struck out parts of those affidavits but allowed the applicant to give additional oral evidence in support of his application. The applicant was briefly cross-examined on his affidavits.
The respondent filed but did not read an affidavit of Garry William Wright, dated 10 August 2001.
On 10 September 2001 (the day before the hearing commenced) the applicant notified the Court by e-mail that he wished to dispute the amount claimed in the bankruptcy notice, alleging a miscalculation of interest which raised the amount claimed in the bankruptcy notice above the amount actually due. When this matter came on for hearing it transpired that no notice had been given pursuant to s.41(5) of the Bankruptcy Act, notifying the respondent that the applicant alleged that the amount due under the bankruptcy notice exceeds the amount in fact due. Section 41(5) provides relevantly that:
“A bankruptcy notice is not invalidated by reason only that the sum specified in the notice is the amount due to the creditor exceeds the amount in fact due, unless the creditor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.”
There is nothing in s.41(5) in my view which restricts the time for giving notice to the original period specified in the bankruptcy notice for payment of the debt. That time has been increased by the operation of s.41(7) (and by decisions made under s.41(6A) and accordingly has not expired. In addition, the Court has jurisdiction pursuant to s.33(1)(c) to extend the time provided in s.41(5) for giving notice irrespective of whether or not the time for compliance with the bankruptcy notice has been extended: Re Wilhelmsen; ex parte Gould (1986) 11 FCR 107. I decided that the interests of justice required that Mr Shephard should be permitted to give notice at this very late stage of the proceedings, given that he is unrepresented and that the issue raised is a simple issue of arithmetical calculation. There is either a miscalculation of interest or there is not and it is important, in my view, that all matters that could be raised in opposition to the bankruptcy notice are dealt with. Accordingly, I gave leave to Mr Shephard to give the requisite notice before 2.00pm on 11 September 2001.
In the result, the notice was not required. The respondent creditor conceded that there was an error in the calculation of interest, but submitted that the error resulted in an understatement, rather than an overstatement of interest. The parties accepted, and I independently found, that the respondent was correct. There was an understatement of the number of days on which interest accrued although the calculation of interest was, except in minor detail, correct. The amount claimed was in total $2.71 less than the amount that could have been claimed. Annexed to this judgment is a copy of the bankruptcy notice with the various errors in calculation noted in handwriting.
The bankruptcy notice in issue in these proceedings was issued in consequence of my decision in earlier proceedings between the parties in which I set aside an earlier bankruptcy notice issued by the respondent to the applicant: Shephard v Blueberry Farms of Australia (Corindi) Limited [2001] FMCA 2 (“the Blueberry Farms proceedings”). The background to these proceedings is set out in detail in the judgment in those proceedings, at paragraphs 5 – 17.

Consideration of the issues

The bankruptcy notice in these proceedings specifies that the respondent creditor’s address is Range Road, Corindi Beach, NSW, 2456. Section 41(2) of the Bankruptcy Act requires that a bankruptcy notice must be in accordance with the form prescribed by the regulations. The relevant regulation is 4.02. The relevant form incorporated by the regulation is bankruptcy form 1. The form provides for the insertion of the name and address of the creditor. The applicant bears the onus of adducing evidence which establishes that the address utilised by the creditor is not one at which, during the relevant period, it is reasonably practicable to make payment to offer to secure or compound: Re Barnes; ex parte Barnes v Makhoul (1994) 53 FCR 169 at 174; Re Nugent; ex parte Nugent (1985) 5 FCR 161 at 163 (approved on appeal).
On the issue of the validity of the bankruptcy notice I accept the submissions by the respondent that the applicant’s challenge to validity based upon the incorporation of the address of the respondent creditor fails because the applicant has not adduced evidence to satisfy the Court in accordance with the relevant test noted above. On the contrary, the respondent has provided evidence that the creditor has always conducted business at the address nominated in the bankruptcy notice. The address nominated is clear enough to enable a debtor to locate the creditor, even though the lot number on the road is not specified. There is no requirement that the bankruptcy notice must specify the registered office of a corporate creditor.
As to the counterclaim, set off or cross demand relied upon by the applicant, it is necessary to refer to my judgment in the earlier Blueberry Farms proceedings. Mr Shephard relied upon a large number of claims in those proceedings which he said constituted a counterclaim, set off or cross demand of equal or greater value than the amount claimed in the earlier bankruptcy notice, which he said at that time he could not have set up in the proceedings supporting the bankruptcy notice. The allegations currently relied upon by the applicant are to a very large extent the same as those he relied upon in the earlier proceedings. In those earlier Blueberry Farms proceedings I rejected the applicant’s claims on the basis either that there was no substance to the alleged counterclaim, set off or cross demand or that those claims could have been set up in the original proceedings supporting the bankruptcy notice or that the amount that could be recovered was far smaller than the amount due under the bankruptcy notice. It was abundantly clear from my judgment in the Blueberry Farms proceedings that I took the trouble to deal with all of the alleged claims by the applicant, even though I granted the application to set aside the bankruptcy notice on a technical issue of validity. I did so with a view to ensuring that as far as was practicable possible future proceedings between the parties based on a fresh bankruptcy notice should not require all of those issues to be relitigated.
The respondent submits that my judgment in the earlier Blueberry Farms proceedings creates an issue estoppel in that it binds the parties to that decision in respect of the issues of fact and law dealt with in that judgment: Ramsay v Pigram (1967-8) 118 CLR 271 at 276. I agree with and accept that submission. That was the approach taken by the New South Wales Court of Appeal in A-Pak Plastics Pty Ltd v Merhone Pty Ltd (1995) 120 FLR 277. That was a case concerning an application to set aside a statutory demand under the Corporations Law. I do not think that there is any material difference in the case of an application to set aside a bankruptcy notice. The decision in the Blueberry Farms case was final in that there was an appeal as of right from it. I do not think that it matters that Mr Shephard was the successful applicant in those proceedings and hence had no interest in an appeal. I find that the applicant is estopped from now raising again the same allegations of a counterclaim, set off or cross demand as were raised and dealt with in the Blueberry Farms proceedings.
The applicant relies in part on a statement of claim commenced in the District Court of New South Wales at Coffs Harbour on 12 February 2001. A copy of that statement of claim is annexed to the applicant’s affidavit of 12 April 2001. The respondent submits that none of those claims (considered in isolation or in combination with one another) satisfy the requirements of s.40(1)(g) of the Bankruptcy Act to the extent that they were not raised in the Blueberry Farms proceedings. I think there is much force in that submission. To the extent that the District Court statement of claim traverses matters not already dealt with in the earlier Blueberry Farms proceedings it deals with matters which could have been set up in the original proceedings between the parties which led to the bankruptcy notice and, in addition, the prospects of success in the claim in the District Court appear dubious, especially for the reasons set out in my judgment in the earlier Blueberry Farms proceedings, at paragraphs 56 to 61.
In addition, in my view, the claim in the District Court relied upon by the applicant lacks mutuality with the amount due under the bankruptcy notice. The bankruptcy notice is in respect of a judgment debt owed to a sole judgment creditor. The District Court proceedings have been instituted by the applicant against a large number of defendants. The principle of mutuality requires that the cross claim relied upon must be against the judgment creditor only: Re E J Brown (1923) 40 WN (NSW) 73; Van Reesema (judgment debtor); Australian Growth Corporation Pty Ltd (Receivers and Managers appointed) (1987) 75 ALR 311. I note that the decision in Van Reesema was affirmed on appeal.
In response to questions from me, the applicant conceded that the main claims that he currently relies on, which were not raised in the Blueberry Farms proceedings, are my own costs decision in his favour (which was an award for costs fixed at $500), a series of unlawful imprisonment claims based upon two incidents on 30 August 2000 and 6 September 2000, and a claim of $5,000 for loss of amenity due to an alleged blocking of a right of way. The costs award speaks for itself and is uncontested. The unlawful imprisonment claims are based upon facts which I dealt with in the Blueberry Farms proceedings and the attempt by the applicant to use the same facts to support a different cause of action is frankly spurious. I am not satisfied that there is any substance to the claim of loss of a right of way. A further claim of a loss of amenity is unquantified and is probably unquantifiable. A claim for loss of blueberry production was abandoned and a claim for loss of fodder production is based upon facts which I dealt with in the Blueberry Farms proceedings.
The applicant has asserted that he intends adding further claims for damages against the respondent for trespass. However, the applicant has not put before me evidence which is reliable and which would satisfy me that:
a)these claims are bona fide and establish a prima facie case at least;
b)there is mutuality as between the debtor and creditor;
c)the claims could not have been set up in the original proceedings; and
d)the claims exceed in value the amount due under the bankruptcy notice.
To the extent that the applicant has any claims of substance against the respondent, those claims could not exceed in value $2000. Accordingly, I conclude that the applicant has failed to establish that he has a counterclaim, set off or cross demand of equal or greater value than the amount due under the bankruptcy notice that he could not have set up in the original proceedings.
The late amendment of the applicant’s claim to add a claim that the amount claimed under the bankruptcy notice is greater than the amount actually due is a simple matter of calculation. As I have already noted, the error is one of understatement not overstatement. There is no serious dispute that the respondent’s re-calculations are correct, and it follows that the amount of interest claimed under the bankruptcy notice is below the correct amount by $2.71. The question then is whether the understatement invalidates the bankruptcy notice.
It is well settled that, in contrast to a situation where there is an overstatement of the amount due on a bankruptcy notice, a notice issued for a sum less than the real amount due is good so long as the notice makes it clear that nothing more is claimed in respect of the judgment than the amount specified in the notice. In particular, a bankruptcy notice which understates the amount of interest due is not a nullity provided that the error is not one which is apt to mislead or confuse a debtor: Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71. In that case it was held by the High Court that while the amount for interest had been understated in the bankruptcy notice, in the circumstances of that case, it could not be regarded as capable of misleading and accordingly could not be said to be a nullity. The mistake constituted a formal defect or irregularity which could be cured under s.306(1) of the Bankruptcy Act. In this case the respondent creditor has formally sought leave to amend the bankruptcy notice to correct the understatement errors pursuant to s.306(1). These are the amendments shown in handwriting in the copy of the bankruptcy notice annexed to this judgment.
The overall difference between the amount claimed under the bankruptcy notice and the amount due is very small but the applicant submits that the errors of calculation are apt to confuse a debtor, especially if the debtor checked (as Mr Shephard did) the calculation of interest. In the course of that checking, Mr Shephard believed that there had been an overstatement of interest and that misunderstanding was not corrected until the respondent pointed out the error in the listing of the number of days on which interest accrued.
Against that, Mr Newlinds, for the respondent, submitted that the amount claimed under the bankruptcy notice was clear on its face. A debtor reading the bankruptcy notice was left in no doubt as to the amount he or she had to pay in order to discharge his or her liability. Mr Newlinds further submitted that if a debtor chose to check the calculation of interest, the debtor should be obliged to do all of the necessary calculations, including checking the number of days on which interest accrued. A debtor in the position of the applicant could not go part of the way in checking those calculations and then claim confusion on the basis that the calculations did not add up properly. I accept that submission. It is not and should not be necessary for a debtor to check the creditor’s calculation of interest. Provided that the bankruptcy notice is clear on its face in specifying the amount claimed all the debtor has to do is to pay that amount. If the creditor claims less than the amount due and the bankruptcy notice is clear on its face what amount is claimed then that is the creditor’s loss. A debtor in the position of the applicant in these proceedings is not entitled to have the bankruptcy notice set aside by embarking upon a process of checking the calculation of interest and then claiming confusion because minor errors in that calculation have been identified. It would be an entirely different matter if errors in the calculation of interest resulted in an overstatement being identified. That would, in my view, be sufficient in itself to invalidate the bankruptcy notice. Where, as here, there is overall an understatement of interest and there is no confusion on the face of the notice, errors in calculation can be cured. I do not accept that the bankruptcy notice was on its face apt to mislead or confuse a debtor in the position of the applicant and I conclude that the respondent is entitled to the formal amendments of the bankruptcy notice sought pursuant to s.306(1).
In all the circumstances, therefore, I conclude that I should dismiss the application.
I have heard the parties on costs. The applicant sought his costs should he be successful but did not submit that he should not have to pay the respondent’s costs if he were unsuccessful. The respondent sought costs if successful in accordance with the Rules of this Court, being the fixed event based costs regime set out in those Rules. In accordance with normal principles, I conclude that costs should follow the event and that the applicant should pay the respondent’s costs. Those costs are payable in accordance with Rule 21.10 and schedule 1 of the Federal Magistrates Court Rules and, for the purposes of Rule 21.15 I certify that it was reasonable for the respondent to employ an advocate for the hearing on 11 September 2001. I note that the respondent will be entitled to stage 1 costs, stage 5 costs being preparation for a final hearing of one day (notwithstanding that the matter was listed for two days), stage 6 costs and the advocacy loading plus disbursements.

I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 12 September 2001