Snelgrove v Roskell
[2006] FMCA 503
•6 June 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SNELGROVE v ROSKELL | [2006] FMCA 503 |
| BANKRUPTCY – Contested creditor’s petition – debtor disputing judgment debt – defects in bankruptcy notice supporting the creditor’s petition – incorrect provision under which interest claimed – whether the defect is irremediable considered – judgment certificate stating no interest payable – whether the bankruptcy notice is confusing considered. |
| Bankruptcy Act 1966 (Cth), ss.41, 306 Local Court (Civil Claims) Act 1970 (NSW), s.39 Legal Profession Act 1987 (NSW), s.208E |
| Adams v Lambert [2006] HCA 10 Re Williams; ex parte Alberton Electrical Services Pty Ltd (1982) 43 ALR 552 |
| Applicant: | JOHN ANTHONY SNELGROVE |
| Respondent: | DAVID ROSKELL |
| File Number: | SYG1043 of 2005 |
| Judgment of: | Driver FM |
| Hearing date: | 12 August 2005 |
| Date of Last Submission: | 26 April 2006 |
| Delivered at: | Sydney |
| Delivered on: | 6 June 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr B DeBuse |
| Solicitors for the Applicant: | Curwoods Lawyers |
| The Respondent appeared in person |
ORDERS
The creditor’s petition filed on 26 April 2005 is dismissed.
The Court declares that bankruptcy notice NN3366 of 2004 is invalid.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1043 of 2005
| JOHN ANTHONY SNELGROVE |
Applicant
And
| DAVID ROSKELL |
Respondent
REASONS FOR JUDGMENT
Introduction and background
By a creditor’s petition filed on 26 April 2005 Mr Snelgrove seeks a sequestration order against Mr Roskell. Mr Snelgrove verifies the contents of the petition by affidavit. He also relies upon affidavits of search and debt and affidavits of service of the bankruptcy notice relied upon[1]. On 15 June 2005 Registrar Tesoriero made orders for substituted service of the creditor’s petition upon Mr Roskell. Mr Roskell was served with the petition in accordance with that order[2]. A further affidavit of Rachel Therese Menassa filed on 5 July 2005 verifies service of the petition, together with its supporting affidavits and the affidavit of service of the bankruptcy notice.
[1] bankruptcy notice NN3366/04
[2] see the affidavit of Mark Adam Stephenson filed on 5 July 2005
Mr Roskell filed a notice of appearance on 28 July 2005 and on the same day filed a notice of intention to oppose the petition, essentially upon the basis that he asserts that the debt claimed is not owed by him. Mr Roskell asserts that the debt is for legal services provided to a company called R&G Deli Holdings Pty Ltd and that, although he was the managing director of the company, he is not personally liable for its debts.
In a lengthy affidavit filed on 27 July 2005, Mr Snelgrove deposes as to the facts and circumstances leading to the creditor’s petition. Mr Snelgrove deposes to further facts and circumstances in a further lengthy affidavit with exhibits filed on 3 August 2005. In addition, in a further affidavit filed on 12 August 2005 Mr Snelgrove deposes as to his efforts to locate his original file relating to matters concerning the proceedings leading ultimately to the debt the subject of the creditor’s petition. Mr Snelgrove also provided updated affidavits of search and debt on 12 August 2005.
The debt claimed by Mr Snelgrove arose out of an agreement to provide legal services. Mr Snelgrove is a solicitor. The evidence discloses that Mr Roskell entered into a costs agreement for the provision of legal services to himself and R&G Deli Holdings, of which he was a shareholder and director. The legal services related to proceedings in which Mr Roskell’s company was a plaintiff. The company was a franchisee and leased certain property which was the subject of a dispute leading to the legal proceedings. In addition, the evidence discloses that in the course of the legal proceedings, Mr Roskell agreed to become personally liable for the costs of the proceedings pursuant to a deed of indemnity which he entered into with another party, Cut Price Deli Pty Ltd. Mr Roskell’s company was unsuccessful in the litigation. Subsequently, Mr Snelgrove ceased to act for Mr Roskell and his company and rendered a bill of costs. R&G Deli Holdings went into voluntary administration and later liquidation. Mr Roskell was dissatisfied with the standard of representation provided by Mr Snelgrove and complained to the Legal Services Commission. That complaint was dismissed. However, Mr Roskell denied liability for the costs due to Mr Snelgrove and Mr Snelgrove commenced proceedings against him on 7 October 1999. There was an assessment and determination of costs on 15 May 2000. It is the certificate issued on 15 May 2000 which supports two bankruptcy notices subsequently issued, the second of which in turn supports the creditor’s petition.
At the trial of this matter on 12 August 2005 I satisfied myself that Mr Roskell’s objection to the creditor’s petition had no substance. However, two issues were raised by me during the course of the trial concerning the validity of the bankruptcy notice. Mr Roskell was happy to adopt them. The first was that the certificate supporting the bankruptcy notice stated that interest was not payable on the amount of costs assessed[3] but the bankruptcy notice claims interest in the sum of $16,509.96. Secondly, the bankruptcy notice as originally issued stated that interest was claimed pursuant to s.39 of the District Court (Civil Claims) Act 1970 (NSW). The bankruptcy notice was amended to read:
Interest is claimed pursuant to section 85 of the District Court Act 1973 (NSW).
[3] There is a reference to s.203E of the Legal Profession Act 1987 (NSW) which appears to have been intended to be a reference to s.208E.
Mr DeBuse, for Mr Snelgrove, submitted that there was no issue in relation to the statement on the certificate that no interest was payable because that related only to the period up to judgment and interest was payable upon the judgment. Mr DeBuse conceded that interest was payable not under s.85 of the District Court Act 1973 (NSW) (“the District Court Act”) but rather under s.39 of the Local Court (Civil Claims) Act 1970 (NSW) (“the Local Court Act”). I put to Mr DeBuse that the bankruptcy notice was invalid because the wrong source of the liability to claim interest had been identified on the bankruptcy notice[4]. Mr DeBuse asked me to adjourn proceedings because the issue was before the High Court in another matter[5]. I agreed.
[4] Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33
[5] Adams v Lambert [2006] HCA 10
Following the decision of the High Court in Adams v Lambert I gave further directions in this matter. I called for written submissions by the parties by 26 April 2006 on the question of the validity of the bankruptcy notice in the light of the decision of the High Court and also in the light of the other issue raised by me concerning the costs certificate. I also called for updated affidavits of search and debt by the same date. I otherwise reserved judgment. Updated affidavits of search and debt were filed on 26 April 2006. Mr Snelgrove also filed written submissions on 26 April 2006.
Submissions
Mr DeBuse makes the following submissions on behalf of Mr Snelgrove:
The Creditor issued a bankruptcy notice which has a defect or error in that the provision under which interest is sought is said to be section 85 of the District Court Act. There is no case advanced nor could there be any actual injustice.
Paragraph 1 of the calculation records the fact that judgment was entered against the debtor on 22 June 2000 in the Local Court for the sum of $33 967.62 .
The error concerned is one which is in fact indistinguishable in purport or effect from that which concerned the Full Federal Court in Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 (Lewis). In Lewis the Court was concerned with a bankruptcy notice under which the interest was being claimed was stated to be s 101 of the Supreme Court Act 1986 (Vic) whereas it should have been s 100(7) of the Magistrates Court Act 1989 (Vic).
The High Court in Adams v Lambert [2006] HCA 10 has now specifically overruled Lewis and approved the judgments of Gyles J and Lee J in dissent. It follows that the error as to the provision under which interest is claimed is one to which Section 306 applies.
In so far as the question of confusion arises in respect of the reference to S 203 E of the Legal Profession Act 1987 in the costs certificate attached to the bankruptcy notice or indeed the wider question of confusion created by the claiming of interest the Creditor relies on the following passages from in Adams v Lambert.
“27 If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity. Any error is capable of misleading somebody about something. When the respondent saw the bankruptcy notice in this case he may well have concluded that s 83A was the section of the District Court Act dealing with post-judgment interest. In that respect, he would have been misled. When Mr Crowl read the bankruptcy notice in his case, he might have been given the temporary satisfaction of believing that his debt was $23,000 less than was in fact owing. In that respect, he would have been misled. (A debtor who receives a notice involving an overstatement of a kind expressly relieved against by s 41(5) of the Act might receive a very unpleasant surprise). What this Court regarded as relevant to s 306, however, was misleading a debtor about what is necessary to comply with the notice. That kind of misleading, the Court said, takes an error outside the concept of a formal defect or irregularity. However, that is not the full extent of the exclusion.”
The fact that the debtor may have been misled as to believing the debt was less than that claimed is insufficient to take it outside the ambit of S306. The High Court approved the following passages in dissent from Gyles and Lee J.
“32 In Lewis, Gyles J accurately identified the question as whether correct completion of the form prescribed by the regulations in every respect is a requirement made essential by the Act. Bearing in mind that, in the present case, the error could not have misled the respondent as to what it was necessary to do in order to comply with the requirements of the notice, it is difficult to understand how, consistently with Kleinwort Benson Australia Ltd v Crowl, the respondent could succeed without an affirmative answer to that question. In their dissenting reasons in Lewis, Lee J and Gyles J both gave a detailed account of the 1996 amendments to the Act and Regulations. It is unnecessary to repeat what they said in that respect. Lee J concluded:
"Properly construed, the Act and Regulations do not express an intention to create a new regime of strict compliance imposed on a judgment creditor issuing a bankruptcy notice. The tenor of the Act and Regulations is not consistent with that conclusion. An attempt has been made to recast the process of issue of a bankruptcy notice in terms more understandable to a judgment debtor, but the essential requirements of a bankruptcy notice remain as they have been stated by bankruptcy legislation over many years."
33 Lee J also said:
"It cannot be correct that amendments to the Act that left undisturbed s 41(5) and (6) which state that a notice that demands payment of a sum that is unjustified or excessive is only invalid if a debtor gives notice within a prescribed period, introduced a new regime in respect of bankruptcy notices under which a judgment debtor could have such a notice set aside where the amount claimed is due in fact and there is no prospect that the debtor could be misled as to the steps to be taken to comply with the notice. The amending Act could not have contemplated that a mistaken citation of the source of entitlement to claim interest would be a substantive defect or irregularity in the notice so as to exclude the operation of s 306 of the Act.” [endnotes deleted]
However, even if the debtor was misled it would be his ignorance of the law that misled him not the form of the notice the certificate comes with a statement which if read in the statutory context in which it is placed makes it clear that the claim for interest is a claim up to the time of the assessment. It does not speak to the event that after service of the costs certificate the debtor will not pay and as a registered judgment the debtor will be liable to pay interest pursuant to provisions of the law dealing with unpaid judgments. He however wouldn’t have been misled if he went on to read the note at the bottom of the page as to the effect of 208J(3).
The purpose of the section being presumably to allow compensation in appropriate case for delay in payment between the time bill’s were rendered and the time of the assessment. See Lang v Kirkness – Harrison M unreported : 22/10/1997 (A copy of which is attached).
208E Interest on amount outstanding
(1)A costs assessor may, in an assessment, determine that interest is not payable on the amount of costs assessed or on any part of that amount and determine the rate of interest (not exceeding the rate referred to in section 190 (4)).
(2)This section applies despite any costs agreement or section 190.
(3)This section does not authorise the giving of interest on interest.
(4)This section does not apply to or in respect of the assessment of costs referred to in Subdivision 3 (party/party costs).
However the fact is that 208J(3) makes it clear that interest is payable once a judgment s registered.
208J Certificate as to determination
(3)In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed.
These sections have now been repealed and replaced in the Legal Profession Act 2004.
The fact that a person is capable of misinterpreting the law is not a reason to set aside the notice.
In any event even if it was incorrect to claim interest which it is submitted it was not then the mere overstatement of the amount payable is not a defect or irregularity. So much is already established by S41 (5) and S41 (6) of the Bankruptcy Act.
No submissions were received from Mr Roskell.
Reasoning
Section 306(1) of the Bankruptcy Act provides as follows:
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.
The learned authors of McDonald, Henry and Meek’s Bankruptcy Law and Practice deal with this section in the context of bankruptcy notices at pages 9432 and 9432/1 of that service. The learned authors state that the rules relating to the issue of a bankruptcy notice against a debtor have been required to be strictly complied with as the commission of an act of bankruptcy involves consequences of what has been called a penal nature. In some instances the Court will not treat an “informality” as a mere formal defect and allow it to be amended[6].
I agree with the proposition that creditors who wish to avail themselves of a bankruptcy notice as a means of enforcing debts must be prepared to adhere to the requirements of the Bankruptcy Act and the relevant regulations and rules[7]. The learned authors note that where there is a defect or irregularity in a bankruptcy notice which is merely one of form and not of substance and which could not mislead or embarrass the debtor, such defect or irregularity will not invalidate the bankruptcy notice[8] but a notice that could reasonably mislead him or her even if in fact he or she is not mislead is invalid: Pillai v Comptroller of Income Tax [1970] AC 1124; followed in Re Gray; ex parte Person to Person Financial Services Pty Ltd (1980) 48 FLR 379. In that case the creditor was misnamed both in the judgment and in the bankruptcy notice.
[6] Re Collier; ex parte Dan Rylands Ltd (1891) 8 Mor 80 and the other cases referred to
[7] see Re Williams; ex parte Alberton Electrical Services Pty Ltd (1982) 43 ALR 552 at 558
[8] see Ex parte Johnson; Re Johnson (1883) 25 ChD 112 and the later cases referred to
The learned authors note that a distinction has been drawn between a defect in a bankruptcy notice which “may mislead the debtor” and one which “if a debtor were to observe it, might possibly lead him to think that a technical legal point could have been taken, to avoid the necessity of compliance, but would not mislead him as to what he is required to do – required that is, unless he is prepared to take the risk of assuming that no compliance at all is necessary”[9]. The learned authors also note that the failure to include or comply with “a requirement made essential by the Act”, however, will invalidate the bankruptcy notice (and be unable to be cured under s.306(1)) whether it is misleading or not: Kleinwort Benson Ltd v Crowl (1988) 165 CLR 71 and the later cases referred to.
[9] see Re McCormac; ex parte Taylor (1985) 10 FCR 162 at 165
Following the decision of the Full Federal Court in Australian Steel Company v Lewis it was thought that the misdescription of the provision under which interest is claimed in a bankruptcy notice is an irremediable defect which cannot be cured under s.306. The High Court in Adams v Lambert has corrected that misunderstanding. Following the decision of the High Court, the position now is that a misdescription in a bankruptcy notice of the provision under which interest is claimed is not a breach of a requirement made essential by the Bankruptcy Act and it can be cured pursuant to s.306 unless the error is one which could mislead or embarrass the debtor or, in terms of s.306, substantial and irremediable injustice has been caused by the defect.
In Adams v Lambert the High Court made pertinent and important observations concerning the interpretation of s.306 at paragraphs [23]-[34] of the judgment, part of which is reproduced in the quoted submissions by Mr DeBuse set out above. Their Honours noted that the misdescription of the relevant provision of the District Court Act in issue in that case was not capable of misleading the debtor in the sense that he was not left in any doubt as to what he had to do to comply with the bankruptcy notice. That was not a matter of dispute. The question which the High Court had to determine was whether the misdescription involved a failure to meet a requirement made essential by the Bankruptcy Act. The High Court answered that question emphatically in the negative. It is left to me in this case to determine whether the misdescription (or misdescriptions) in the bankruptcy notice concerning the claim of interest render the bankruptcy notice confusing, in terms of what the debtor understood he was required to do in order to comply with it, or otherwise was an error of substance which could not be cured by resort to s.306.
At paragraph [31] of the judgment in Adams v Lambert the High Court said:
Section 306, in its application to bankruptcy notices, makes it plain that some instances of non-compliance with the requirements as to the form of a notice will not invalidate the notice. The practical significance of an error or deficiency could vary according to the circumstances of each particular case. Errors or deficiencies in compliance with requirements as to form may involve questions of degree as well as of kind. At the same time, the decision in Kleinwort Benson Australia Ltd v Crowl shows that an error may be covered by s 306 even though it involves a substantial misstatement of an amount of money. It was essential that the bankruptcy notice state the amount claimed. Was it essential that the amount be correct? Section 41(5) made 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 resulted in invalidity. In the present case, overstatement or understatement of the amount of post-judgment interest owing would not necessarily have invalidated the notice. That is part of the context in which legislative purpose is to be considered in deciding whether the reference to s 83A rather than s 85 was fatal.
The present bankruptcy notice and the certificate of judgment attached to it are scrappy. There are several errors relevant to the interest claim. First, the certificate as to the determination of costs payable under the Legal Profession Act at note 4 states that interest is not payable on the amount of costs assessed. There is then an incorrect reference to s.203E of the Legal Profession Act. I accept Mr DeBuse’s submission that the statement that interest is not payable was a reference to interest up to judgment. If the correct section (s.208E) had been identified, although the legislation is not particularly clear, the debtor could probably have worked that out. However, the correct section was not identified. Secondly, the bankruptcy notice as issued by the Official Receiver claimed interest pursuant to s.39 of the District Court (Civil Claims) Act 1970 of New South Wales. That is a non existent piece of legislation. The bankruptcy notice was subsequently amended, apparently by an officer of the Official Receiver in an attempt to correct the statement. The purported correction reads:
Interest is claimed pursuant to section 85 of the District Court Act 1973.
That was also incorrect. The provision under which interest should have been claimed was s.39 of the Local Court (Civil Claims) Act 1970 (since repealed).
The problems are compounded by the fact that this is the second bankruptcy notice issued by Mr Snelgrove in relation to the costs assessment. Bankruptcy notice 5249 of 2000 was issued by the Official Receiver on 28 June 2000 and was served on Mr Roskell on 2 August 2000. That bankruptcy notice claimed no interest and also annexed to it was the same costs certificate containing the same note that interest was not payable. Although Mr Roskell failed to comply with that notice (no doubt consistent with his mistaken belief that he was not truly indebted) no creditor’s petition was issued.
Mr Roskell was then confronted with a second bankruptcy notice which claimed a smaller principal sum than the first bankruptcy notice[10] but which included a claim of interest in the sum of $16,509.96 making a total of $50,477.58. In my opinion, a debtor in the position of Mr Roskell would have been left hopelessly confused. Interest was initially not claimed and then claimed. The certificate of judgment annexed to both bankruptcy notices appeared to indicate that no interest was payable[11]. It would have been next to impossible for him to check his liability because both the certificate of judgment and the bankruptcy notice referred to incorrect statutory provisions.
[10] $33,967.62 as opposed to $34,021.62
[11] There may be a further issue (which was not raised and which I did not deal with) whether the costs assessment certificate annexed to the bankruptcy notices satisfied the description of a certificate of judgment. Judgment was entered in the Local Court on 22 June 2000 but there is no evidence other than a backsheet bearing an illegible stamp that any record of that judgment was annexed to the bankruptcy notice. There is evidence in the form of a letter from Mr Snelgrove’s firm to Mr Roskell’s then solicitor dated 31 January 2005 that, after service of the bankruptcy notice, Mr Roskell sought from the creditor a record of the judgment upon the basis that it had not been received with the bankruptcy notice.
It is true that Mr Roskell could have disputed the claim of interest on the second bankruptcy notice by giving notice pursuant to s.41(5). He did not do so. However, in my view, the bankruptcy notice, coupled with the costs certificate and the earlier bankruptcy notice was so confusing as to have left Mr Roskell in no position to determine whether he was entitled to make such a claim. Notice pursuant to s.41(5) must be given before the time for compliance with the bankruptcy notice expires. It is now too late for such a notice to be given. In my view, the confusion created by the errors in the second bankruptcy notice and its attached certificate gave rise to confusion resulting in injustice which is now irremediable. It follows that the defects are substantive and not formal and cannot be corrected pursuant to s.306 of the Bankruptcy Act.
I will dismiss the creditor’s petition and issue a declaration as to the invalidity of the bankruptcy notice.
I will hear the parties as to costs.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 6 June 2006
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