The Owners - Strata Plan No 14120 v McCarthy - [2016] FCCA 1583

FEDERAL CIRCUIT COURT OF AUSTRALIA

THE OWNERS - STRATA PLAN NO 14120 v MCCARTHY

[2016] FCCA 1583

Catchwords:
BANKRUPTCY – Creditors petition – asserted invalidity of bankruptcy notice for overstatement of amount owing by $51.29 – law of appropriation of payments – principles relating to “benevolent construction” of an instrument – validity of s.41(5) notice under the Bankruptcy Act 1966 (Cth).

Legislation:

Bankruptcy Act 1966, ss.30, 41(5)

Civil Procedure Act NSW 2005 (NSW), s.107(2)
Federal Circuit Court Rules 2001 (Cth)

Cases cited:

APX Projects Pty Limited v Owners Strata Plan No. 64025 (2015) 108 ACSR 515
Caltabiano v Electoral Commission of Queensland (No. 1) [2010] 1 Qd R 100
Caltex Australia Petroleum Pty Ltd v Federal Commissioner of Taxation (2008) 173 FCR 359
Croker v Commissioner of Taxation (2005) 145 FCR 150
Hussain v King Investment Solutions (2006) 153 FCR 428

Khouzame v All Seasons Air Pty Ltd [2014] FCA 1319

Knysh v CorralesPty Ltd (1989) 15 ACLR 629
Re Serafino (1989) 86 ALR 283
Re Walsh; Ex Parte Deputy Commissioner of Taxation (1982) 42 ALR 727
Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120
Skouloudis v St George Bank Ltd (2008) 173 FCR 236
Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354
Walsh v Deputy Commissioner of Taxation (Cth) (1984) 156 CLR 337

Applicant:

THE OWNERS - STRATA PLAN NO 14120

Respondent:

CATHERINE ESTELLE MCCARTHY

File Number:

SYG 2555 of 2015

Judgment of:

Judge Dowdy

Hearing date:

23 March 2016

Date of Last Submissions:

11 April 2016

Delivered at:

Sydney

Delivered on:

5 July 2016

REPRESENTATION

Counsel for the Applicant:

Ms A Smith.

Solicitors for the Applicant:

Grace Lawyers.

Counsel for the Respondent:

Mr David Robinson SC.

Solicitors for the Respondent:

Legal Aid NSW.

ORDERS

The Court orders, pursuant to Rule 17.02 and Rule 17.03 of the Federal Circuit Court Rules 2001 (Cth), that the following questions argued at the hearing on Wednesday 23 March 2016 be decided separately from any other questions:
i.Whether the amount specified as the amount due to the petitioning creditor in bankruptcy notice BN 180646 issued on 28 April 2015 exceeds by the amount of $51.29 the amount in fact due to the petitioning creditor by the respondent debtor as at 28 April 2015.
ii.In the event that the answer to question (i) is in the affirmative, whether the respondent debtor in the circumstances gave to the creditor notice which complies with s.41(5) of the Bankruptcy Act 1966 (Cth) of the misstatement.

ANSWER

The Court answers both above questions 1(i) and (ii):
Yes.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2555 of 2015

THE OWNERS - STRATA PLAN NO 14120

Applicant

And

CATHERINE ESTELLE MCCARTHY

Respondent

REASONS FOR JUDGMENT

By a Creditor’s Petition presented on 16 September 2015 The Owners – Strata Plan No 14120 as judgment creditor (the creditor) in the amount of $9,560.37 seek a sequestration ordered against the estate of the respondent Catherine Estelle McCarthy (the respondent).
The act…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] FCCA 1583
Decision Date: 5 July 2016

CaseChat Overview and Summary

The Owners - Strata Plan No 14120 (the creditor) sought to have a bankruptcy notice upheld against the respondent, Mr McCarthy. The dispute centred on the validity of the bankruptcy notice, which claimed a total debt of $11,201.03. The respondent argued that the notice overstated the debt due to the creditor's failure to properly credit payments made by him. The matter came before Judge Dowdy in the Local Court.

The primary legal issue before the Court was whether the bankruptcy notice was invalid due to an alleged overstatement of the debt. This overstatement arose from two grounds: first, a failure to credit a sum of $720 in payments, with the notice only accounting for $668.71, resulting in a discrepancy of $51.29; and second, a failure to credit 24 electronic payments made to a DEFT account, which the respondent contended were discharged liabilities as they were made to the creditor's appointed agent. The Court was asked to determine if these alleged misstatements rendered the bankruptcy notice invalid, thereby justifying its setting aside.

Judge Dowdy considered the first ground of attack, which concerned the $51.29 discrepancy. The Court noted that while the Bankruptcy Act 1966 (Cth) does not expressly grant a power to set aside a bankruptcy notice, such a power is implied and falls within the Court's general powers under s 30(1) of the Act. The Court decided to address this first ground separately from the more complex DEFT account issue, given the agreement of the parties. The Court's reasoning on this first ground, and consequently the final orders, are not detailed in the provided text.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

On 13 April 2015 the creditor obtained judgment in this third Local Court proceeding for $7,429.38 (the third judgment debt). Thereafter, on 12 May 2015 the bankruptcy notice was served on the respondent claiming $11,201.03 based on the total of the second judgment debt and the third judgment debt comprising a stated total (and of which no complaint is made by Mr Robinson SC) of $11,477.27 and interest thereupon, in the amount of $392.47 (again, a figure of which Mr Robinson SC makes no complaint), giving a sub-total of $11,869.74. From that sub-total the bankruptcy notice then deducts $668.71 for credit payments made by the respondent resulting in an asserted total debt claimed to be owed by the respondent of $11,201.03. It is on this credit of $668.71 that Mr Robinson SC focuses his first attack on the validity of the bankruptcy notice. He submits, in short, that in truth and in fact an allowance should have been made for credit payments made by the respondent and received by the creditor of $720 rather than $668.71 because of the three payments of $240, totalling $720, received by the creditor, as recounted in paragraph 17 above. Accordingly, so then the argument runs, because there has been a failure to credit $51.29 (i.e. $720 - $668.71 = $51.29) (being less than 0.5% of the total judgment debt amount) against the balance of the amount claimed there has been an overstatement in the bankruptcy notice such that the sum specified therein as due to the creditor exceeds the amount in fact due, and the respondent gave notice of this for the purposes of s.41(5) of the Bankruptcy Act 1966 (Cth) (the Act) by disputing the validity of the bankruptcy notice on the ground of the misstatement within the 21 day period after service allowed for payment. Accordingly the bankruptcy notice should be set aside by the Court as invalid and the Creditor’s Petition dismissed. I interpolate at this point that whilst there is no express power in the Act to set aside a bankruptcy notice, such a power rises by necessary implication and is within the general powers of the Court conferred by s.30(1) of the Act: see generally the decision of Flick J in Khouzame v All Seasons Air Pty Ltd [2014] FCA 1319. The second attack made on the validity of the bankruptcy notice is that it fails to give credit to the respondent for 24 payments made via electronic means to the DEFT account. The creditor answers this by saying that these 24 payments were not made to the correct DEFT account reference number and the total of the 24 payments was never actually received from the Macquarie Bank by the creditor until June 2015. The respondent counters this by responding that the Macquarie Bank was the appointed agent for the creditor and the 24 payments made to the Macquarie Bank constituted, as between the respondent and the creditor, a pro tanto discharge of her liability (the DEFT account issue). At the conclusion of the argument at the hearing on the first basis of the respondent’s attack on the validity of bankruptcy notice, Mr Robinson SC raised the possibility of the Court determining the first attack separately from the attack based on the DEFT account issue. Ms Smith did not object to that course and having regard to the apparent complexity of the DEFT issue there seemed to me to be advantages in deciding first and separately whether Mr Robinson SC’s attack based on his first argument succeeded and thereafter, dependent upon the result, to then consider if necessary the DEFT account issue.

Ratio Decidendi

Legal Principle Established

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