Skouloudis v St George Bank Ltd
[2008] FMCA 114
•22 January 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SKOULOUDIS v ST GEORGE BANK LTD | [2008] FMCA 114 |
| BANKRUPTCY – Bankruptcy notice – service. BANKRUPTCY – Bankruptcy notice – validity – overstatement of amount – where notice under s.41(5) Bankruptcy Act 1966 given – whether s.33(1)(b) Bankruptcy Act 1966 permits amendment where there is an overstatement – where fresh bankruptcy notice could not be issued – whether amendment would prejudice debtor or creditor. |
| Bankruptcy Act 1966, ss.33(1)(b), 41, 306 |
| Adams v Lambert (2006) 228 CLR 409 Roberts v Bower [1994] 48 FCR 350 Croker v Commissioner of Taxation [2005] FCA 127 Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255 In re a Debtor [1908] 2 KB 604 Re Prossimo; Ex parte Marco (1952) 16 ABC 86 Olivieri v Stafford (1989) 24 FCR 413 MacDonald v Official Trustee in Bankruptcy [2001] FCA 140 Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 Australia and New Zealand Banking Group Ltd v Coutts (2003) 201 ALR 728 McGee v Yeomans [1977] 1 NSWLR 273 Brisbane South Regional Health Authority v Taylor (1996) 139 ALR 1 Ross Gordon v Norweigan Capricorn Line (Australia) Pty Ltd [2007] VSC 517 |
| Applicant: | KATERINA SKOULOUDIS |
| Respondent: | ST GEORGE BANK LTD |
| File Number: | SYG 3568 of 2007 |
| Judgment of: | Raphael FM |
| Hearing date: | 22 January 2008 |
| Date of Last Submission: | 22 January 2008 |
| Delivered at: | Sydney |
| Delivered on: | 22 January 2008 |
REPRESENTATION
| Solicitor for the Applicant: | Mr D Knaggs |
| Counsel for the Respondent: | Mr S Docker |
| Solicitors for the Respondent: | Kemp Strang |
ORDERS
The court allows bankruptcy notice No. NN 2759 of 2007 to be amended in the following respects:
(a)to delete the amount “$2,176,026.95” in paragraph 1 and replace it with the amount “$1,084,614.46”;
(b)to delete the date “31 October 2007” and replace it with the words “after service on you of this Bankruptcy Notice”;
(c)to delete the letters “N/A” in Column 2 of Item 3 of the Schedule and replace them with the amount “$782,476.61”;
(d)to delete the amount “$2,176,026.95” in Column 2 of Item 4 of the Schedule and replace it with the amount “$2,958,503.56”;
(e)to delete the letters “N/A” in Column 2 of Item 5 of the Schedule and replace them with the amount “$1,873,889.10”;
(f)to delete the amount $2,176,026.95” and replace it with the amount “$1,084,614.46”; and
(g)to attach to the bankruptcy notice a document entitled “Details of calculation and interest in bankruptcy notice” which calculates the interest claimed by St George Bank Ltd for the purpose of the bankruptcy notice.
Service of bankruptcy notice No. NN 2759 of 2007, addressed to Katerina Skouloudis and amended in accordance with Order 1, may be effected by delivery of the bankruptcy notice, as amended, together with a sealed copy of these orders to the office of Bruce Hocking Solicitor at Level 4, 23 O’Connell Street, Sydney in the State of New South Wales on or before 12 February 2008.
Service in accordance with the court’s orders shall be deemed good and sufficient service of the bankruptcy notice, as amended by Order 1, on Katerina Skouloudis.
The bankruptcy notice, as amended by Order 1, shall be deemed to be served on Katerina Skouloudis on 12 February 2008.
A copy of the bankruptcy notice, as amended by Order 1, to be served pursuant to Order 2 is to be annexed to any affidavit proving that service.
The bankruptcy notice to be served and the copy of the bankruptcy notice for proof of service shall be amended in accordance with Order 1.
A copy of the court’s orders is to be given to the Official Receiver in Sydney.
Each party to pay its own costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3568 of 2007
| KATERINA SKOULOUDIS |
Applicant
And
| ST GEORGE BANK LTD |
Respondent
REASONS FOR JUDGMENT
These proceedings came before me by way of two applications, the first in time being one filed on behalf of the debtor on 16 November 2007 seeking that the bankruptcy notice be set aside. The ground for setting aside the notice, contained in paragraph A of the affidavit of the debtor which was filed with the application, stated:
“The bankruptcy notice served on me with copy order dated 3 October 2007 by substituted service on 31 October 2007 is only a copy.”
On 4 December 2007 an Amended Application to set aside the bankruptcy notice was filed. In this application the relevant grounds were claimed as:
“C1 Overclaim s41(5)
The amount claimed in the Bankruptcy Notice as due exceeds the amount in fact due in that the Creditor gives in the amount no credits for proceeds of
insurance claim 773,119.13
amount realised on mortgagee sale 1,100,769.97
interest credits 1,347,000.00C1.1 The Debtor gave due notice of this pursuant to s41(5)
“C2 No Bankruptcy Notice served (only a copy)
The Bankruptcy Notice served by substituted service on 31 October 2007 is only a copy.”
On 15 January 2008 the creditor filed an interim application with this court seeking to amend the bankruptcy notice relevantly to reduce the amount claimed from $2,176,026.95 to $1,084,614.46. The application sought a series of consequential orders, including orders relating to the service of the amended notice.
When the matter came before me there was some discussion as to which application should go first. It seemed to me that the application for the amendment should go first because, if I did not agree to the amendment, then as notice had been served under s.41(5) of the Bankruptcy Act 1966 (the “Act”) the bankruptcy notice would be deemed to be invalid. Mr Knaggs, on behalf of the debtor, argued that the s.41(5) notice having been served, the bankruptcy notice was already invalid and I was unable to amend it. During the course of argument the question of whether or not the amendment was being sought before or after service appeared to take on some importance. At this stage counsel for the creditor sought to concede that no service had taken place whereas Mr Knaggs, for the debtor, sought to withdraw non-service as a ground of his application. When the inconsistency between denying service and filing a notice under s.41(5) was pointed out to him Mr Knaggs said that the notice was given out of an abundance of caution, but having given it he was entitled to rely on it if he withdrew the claims about the service. Counsel for the creditor pointed to the affidavits that were part of the application including the affidavit of Mr Knaggs of 23 December 2007 arguing that the evidence indicated that sealed copies of the document had not been served, only photocopies, and therefore the order for substituted service had not been complied with. The creditor argued that even if it conceded that the document had not been properly served in accordance with the orders it was still appropriate for it to make the application for amendment because it would assume that, unless the notice was amended, after valid service a s.41(5) notice would be issued and therefore costs and expenses would be saved if an order allowing an amendment of the bankruptcy notice was made now.
The court has been placed on the horns of a dilemma. The applicant has withdrawn the claim that the process was not served, but the respondent is prepared to concede that it was not. Which of the two positions does the court act upon? It seems to me that the argument about service was highly technical at best. The applicant debtor received the notices and became aware of their import. She was at all times advised by a solicitor. I have little doubt that a court of bankruptcy applying the law as laid down by the High Court in Adams v Lambert (2006) 228 CLR 409 would apply s.306 of the Act or rule 1.06 of the Federal Magistrates Court Rules 2001 and decline to hold the bankruptcy notice invalid for this reason. In those circumstances and given the service of the notice under s.41(5) the action of the applicant in withdrawing the service ground was appropriate and the matter should proceed as if substituted service was effected.
The bankruptcy notice was served on 31 October 2006. On 16 November 2007 the time for compliance by the applicant with the requirements of the notice was extended to 27 November 2007 by order of Registrar Lackenby. On 23 November 2007 the notice under s.41(5) was served upon the creditor through its solicitors and was thus in time.
Section 41(5) is in the following form:
“(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, 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.”
The power to amend a proceeding in bankruptcy is contained in s.33 of the Act:
“33(1) The Court may:
(b) at any time allow the amendment of any written process, proceeding or notice under this Act; or…”
A bankruptcy notice is a proceeding under the Act: Adams v Lambert at [414]. The creditor argues that there is no limitation in s.33(1)(b) on what amendments the court may or may not make to a written process and therefore there is no reason to impose a limitation on the kind of amendments it authorises the court to make. The creditor points to the views expressed by Einfeld J in Roberts v Bower [1994] 48 FCR 350 at 356 where at [31] his Honour stated:
“Contrary to the debtor’s submissions no limitations are placed on this power by the parliament, which must have envisaged that bankruptcy notices could be amended by a Registrar in circumstances other than by overlooking or otherwise overcoming the mere “formal defects” provided for in section 306. This view is in my opinion strengthened by the concession by the debtor’s solicitor that there is no authority for this submission. As a matter of commonsense the submission seems highly unlikely to be correct.”
An attempt was made to amend a bankruptcy notice to reduce the amount of the judgment relied upon in Croker v Commissioner of Taxation [2005] FCA 127 where at [17] and [18] Hely J, referring to Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255 opined:
“17Mr Melrose put an alternative submission that leave to amend the bankruptcy notice to correct any errors which it was found to contain should be granted. He relied upon s 33(1)(b) of the Bankruptcy Act as the source of power, but was unable to refer me to any decided case in which leave had been granted to correct an error in a bankruptcy notice as to the amount of the judgment debt.
18 Seovic indicates that the object of a notice under s 41(5) is to provide the creditor the opportunity of considering, for example, whether the bankruptcy notice should be withdrawn, and a fresh notice correcting the misstatement issued, thereby avoiding unnecessary and wasteful litigation. The Commissioner chose not to adopt that course here, and no reason has been shown why leave to amend the bankruptcy notice should be given after that litigation. Any amendment of the amount claimed in the bankruptcy notice might be productive of unfairness to Mr Croker unless there was also an amendment of the date for compliance, but no offer to amend the notice in that respect was proffered. It is open to the Commissioner to issue a fresh notice, and it has not been shown that justice to the Commissioner requires that the existing notice be amended by the correction of the amount claimed.”
There do not appear to be any other references in reported cases to such an application for amendment. This may well be because once a notice under s.41(5) is given, a creditor would find it cheaper and more convenient just to issue a new bankruptcy notice rather than make a formal application to the court to amend. In the instant case the creditor is unable to take such a step because it is more than six years since the date of the judgment (s.41(3)(c)(i) of the Act). The creditor argues that Croker does not deny the ability of s.33(1)(b) to permit of an amendment to reduce the amount claimed. It argues that the decision made by Hely J not to do so in that particular case was based upon discretionary grounds and the mere non-existence of authority is not itself conclusive of a view that the remit of the subsection falls short of such an amendment. On the other hand the debtor argues that the terms of s.41(5) are clear. Once a notice under the subsection is served, the notice is invalid and nothing can bring it back to life. The debtor disputed the creditor’s argument that invalidity could only be determined by order of the court. There is reference to s.41(5) in Adams v Lambert where at [31] the court indicates:
“Section 41(5) makes it clear that an overstatement, even a large overstatement, would not necessarily invalidate the notice. This court concluded that it was not the legislative purpose that a substantial understatement should necessarily invalidate the notice. That is to say, accurately stating the amount of interest owing was not a matter of such importance that error necessarily results in invalidity.”
I believe that when their Honours refer to an overstatement as “not necessarily invalidating the notice” they mean that it will only invalidate the notice if a s.41(5) notice is given. We await further elucidation as to whether, even if such a notice is given, a respondent to an application to dismiss the bankruptcy notice can put up an argument on some discretionary ground that the court should ignore the misstatement. Certainly I am unaware of any authority to that effect.
In Seovic at [37], the court outlined that the purpose of notice under s.41(5) is to inform the creditor that the debtor disputes the bankruptcy notice on the basis of a mis-statement, and
“ … to draw the creditor’s attention to the mis-statement, thereby giving the creditor the opportunity to consider, for example, whether the bankruptcy notice should be withdrawn and a fresh notice, correcting the mis-statement, issued”.
The court came to the conclusion that:
“… s.41(5) of the Bankruptcy Act appears to be drafted on the assumption that a bankruptcy notice is liable to be ‘invalidated’ if the sum specified in the notice exceeds the amount in fact due to the creditor”. (emphasis added)
These views were expressed to be consistent with the legislative history of the provision, which the court also discussed at length at [41]-[48]. The court at [43] acknowledged that the predecessor to s.41(5) (s.16(2) of the Bankruptcy & Deeds of Arrangement Act (UK)) was enacted to overcome the case of In re a Debtor [1908] 2 KB 604; see also Re Prossimo; Ex parte Marco (1952) 16 ABC 86 and Olivieri v Stafford (1989) 24 FCR 413. In In re a Debtor, the court concluded that the claiming of payment of a sum that was never due was a substantial defect, regardless of the precise amount of the mistake. In Seovic their Honours acknowledged that:
“ … where the bankruptcy notice overstated the amount actually due and the debtor gave a notice in accordance with the proviso, the bankruptcy notice was invalid. In other words, the law as stated in In re a Debtor did not apply unless the debtor gave the creditor a notice”.
Further, in Seovic the Full Court at [36] also outlined what is necessary for such notice to comply with the requirements of s.41(5):
“While it is not strictly necessary for us to decide, we think that the better view is that a notice by the debtor which simply asserts, without more, that the amount specified in the bankruptcy notice exceeds the amount actually due, does not comply with the requirements of s.41(5) of the Bankruptcy Act. The expression ‘the mis-statement’ strongly suggests that the debtor must do more than merely assert that there is a mis-statement in the bankruptcy notice. The sub-section requires the debtor to provide sufficient information in the notice to enable the creditor to identify what is said to be the alleged mis-statement. Only then does the debtor’s notice displace the general rule established by s.451(5), that the bankruptcy notice is not invalidated only by reason that the sum specified therein as the amount due to the creditor exceeds the amount in fact due” (emphasis in original).
There was no submission put in this case that the notice given under s.41(5) failed to meet these requirements.
It cannot be said that the mere giving of notice under s.41(5) invalidates a bankruptcy notice without more, because that would not allow for a situation in which the recipient of the notice could challenge the alleged overstatement. Clearly, a recipient can do this. This means that a declaration of invalidity is something to be done by the court. Why, then, is it not possible for the giver of a notice to request the court to allow an amendment thereof before the court has made the declaration? Provided there is no other detriment to the applicant debtor by, for example, giving him a further period of 21 days to comply with the notice, I cannot see that anything would stand in the way of granting leave. This interpretation seems to me to be consistent with the views expressed by Hely J in Croker v Commissioner of Taxation [2005] FCA 127.
It remains to be considered whether such an amendment would prejudice the debtor. In MacDonald v Official Trustee in Bankruptcy [2001] FCA 140 the Full Court determined that s.33(1)(b) allowed for a broad discretion to make amendments, the discussion being in the context of whether that section would allow the amendment of creditor’s petitions. Their Honours stated at [24]:
“In terms, s33(1)(b) expressly permits amendment, at the discretion of the Court, of “any written process, proceeding or notice under this Act”. This phrase, in its ordinary meaning, is well capable of including creditor’s petitions. The appellant relies on the isolated dictum in Re Abrahamson directed to s306 the Bankruptcy Act as justifying a construction of s33(1)(b) so as to imply into the otherwise unqualified words of that provision a limitation that would deny power to amend process, including petitions, to remedy defects, at least if they could be said to be of fundamental substance. No other basis upon which it would be permissible to restrict the wide words of this provision was identified. To read s33(1)(b) down in the way suggested is inconsistent with the object of Parliament in conferring on the Court an unqualified discretion to amend process in bankruptcy, a discretion exercisable in all cases according to the circumstances of the particular case and, in particular, whether the exercise of the discretion would inflict justice on or avoid injustice to any person.” (emphasis added)
Such an unqualified discretion to amend is to be exercised in the interests of justice: Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146; see also Australia and New Zealand Banking Group Ltd v Coutts (2003) 201 ALR 728 at [22] per Conti J.
By way of analogy to the present factual situation, applications for amendments are often made in the context of amending statements of claim to include a new cause of action outside the limitation period. Such amendments, if allowed, would necessarily involve an extension of the limitation period, and would deprive the other party of the benefit of that limitation period.
In McGee v Yeomans [1977] 1 NSWLR 273, where such an amendment was made under the Supreme Court Rules, Glass JA at 280 said that there was a “general discretion to allow an amendment, notwithstanding that it raises a barred cause of action, whenever justice so requires”, and that in exercising such discretion the Court should have regard to the hardship of the party if the amendment is refused, as well as the prejudice to the other party if the amendment is granted.
The leading case in this area is Brisbane South Regional Health Authority v Taylor (1996) 139 ALR 1, where the following principles were established (per McHugh J (with whom Dawson J agreed)):
·First, that “once the legislature has selected a limitation period, to allow the commencement of an action outside that period is prima facie prejudicial to the defendant who would otherwise have the benefit of the limitation”: per Dawson J (who agreed with McHugh J) at ALR 2.
·Second, that the party who requests the extension of time has the burden of demonstrating that the justice of the case requires that extension (at ALR 10 per McHugh J).
This presumptive prejudice is to be taken into account, but may not, of itself, disentitle the party from having the amendment allowed: Ross Gordon v Norweigan Capricorn Line (Australia) Pty Ltd [2007] VSC 517 at [78] per Forrest J. At ALR 11 of Brisbane South Regional Health Authority v Taylor, McHugh J commented:
“To subject a defendant once again to a potential liability that has expired may often be a lesser evil than to deprive the plaintiff of the right to reinstate the lost action. This will often be the case where the plaintiff is without fault and no actual prejudice to the defendant is readily apparent.”
In this case, if no amendment was allowed the creditor would lose its opportunity to sequestrate the applicant relying upon non-compliance with the notice as the act of bankruptcy. If the amendment was permitted the debtor would lose the benefit of the time bar. There is no other prejudice that would be suffered by the debtor as the period for compliance would also be extended. As indicated above, both presumptive and actual prejudice are to be considered, and it is not the case that the fact that a party would be deprived of the benefit of a time bar is the only, or the determinative, consideration when establishing whether such an amendment is to be allowed. I am sensible of the fact that pursuant to s.40 there are many other acts of bankruptcy than failure to comply with a notice; the return of a writ unsatisfied is one. There is no current bar upon issuing a writ to enforce this judgment. In my view the necessity of requiring the creditor to resort to another means of achieving the same object is an additional disadvantage which swings the balance of convenience in favour of the creditor. The benefit obtained by the debtor in my disallowing the application may well have the qualities of Alice’s Cheshire cat. I would grant the amendment. I would order that service upon the debtor’s solicitor be deemed good service upon the debtor and would further order that the time for compliance with the amended notice be extended until 21 days after service.
In regard to costs the position is unusual. The bankruptcy notice is accepted as being incorrect. Leave of the court to amend the notice was required. The debtor opposed such leave being granted and was unsuccessful, but I do not think that she should be required to pay the costs of the creditor in bringing the application. She should also be compensated for her costs in preparing and serving the notice under s.41(5). Perhaps the simplest and most appropriate order is that each party should pay its own costs. I will so order.
I certify that the preceding ten (10) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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