Tyndall v Matthews
[2010] FMCA 976
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TYNDALL v MATTHEWS & ANOR | [2010] FMCA 976 |
| BANKRUPTCY – Application setting aside bankruptcy notice – application for extension of time for compliance with bankruptcy notice – alleged defect in bankruptcy notice by understatement of interest – interest calculation by reference to regulation – not likely to mislead – allegation of abuse of power in issue of bankruptcy notice. |
| Acts Interpretation Act 1901 Bankruptcy Act 1966 Civil Procedure Act 2005 |
| Anthony Hordern& Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 Re Gualtieri; Ex parte Martin & Savage Pty Ltd (1995) 58 FCR 55 Re HB [1904] 1 KB 94 Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 37 FLR 78 Re Munson; Ex parte Deputy Commissioner of Taxation (1977) 29 FLR 479 Re Preston Ex parte Commercial Banking Company of Australia Ltd B8200394 Re Schierholter; Ex parte Geis (1978) 32 FLR 22 Re Sterling; Ex parte Esanda Limited (1980) 44 FLR 125 Sandell v Porter (1966) 115 CLR 666 Slack v Bottoms English Solicitors(A. Partnership) [2002] FCA 1445 Spottiswood v Equititrust Limited [2010] FMCA 819 |
| Applicant: | JONATHAN BALCHIN DE VERE TYNDALL |
| Respondent: | JOHN JOSEPH MATTHEWS AND ANOR |
| File Number: | BRG 1105 of 2010 |
| Judgment of: | Burnett FM |
| Hearing date: | 23 November 2010 |
| Date of Last Submission: | 23 November 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 24 November 2010 |
REPRESENTATION
| The Applicant appeared on his own behalf |
| Counsel for the Respondent: | Mr Simpson |
| Solicitors for the Respondent: | Somerville Laundry Lomax Solicitors |
ORDERS
That the application filed 1 November 2010 be dismissed.
That the applicant pay the respondents’ costs of and incidental to the application to be assessed on a standard basis.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 1105 of 2010
| JOHNATHAN BALCHIN DE VERE TYNDALL |
Applicant
And
| JOHN JOSEPH MATTHEWS AND ANOR |
Respondents
REASONS FOR JUDGMENT
(Revised from transcript)
The applicant debtor seeks orders setting aside bankruptcy notice NN4206 of 2010, and for an extension of time for compliance with that notice. Although the debtor seeks relief in that regard, pursuant to sections 30(1) and section 33(1)(c) respectively, he has also applied for such relief pursuant to section 41(6A).
It is well settled that such an application is one grounded in section 41, and more specifically in the present instance, in terms of section 41(6A), and I proceed to determine the application on that basis; see generally Anthony Hordern& Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1, as applied in Spottiswood v Equititrust Limited [2010] FMCA 819.
In this case, the bankruptcy notice was issued consequent upon a judgment entered by the respondent creditor, against the debtor in the District Court of New South Wales, on 19 May 2010, for a sum of $79,038.82 plus costs. The judgment made no express reference to interest.
On 29 September 2010, the Official Receiver issued the bankruptcy notice. I will come to the detail of the notice with some particularity in a short time. The notice was served upon the debtor on 10 October 2010. The debtor made this application on 1 November 2010, that is to say, it was made before the expiration of the time fixed for compliance with the bankruptcy notice.
In the application before me, the debtor identified three grounds in support of his application:
i)The bankruptcy notice is defective in that it misstated the sum due by understating the sum due. It was contended that the misstatement caused the debtor to be misled.
ii)The judgment, the subject of the bankruptcy notice, was subject to an express stay, and accordingly, no bankruptcy notice could issue by reason of section 41(3(b).
iii)That the issue of the bankruptcy notice constituted an abuse of process.
The defective notice
The bankruptcy notice itself complied with the regulations and, in the form, accorded with the statutory form. On the first page of the form, the notice identified in a box headed “Claims” that:
“You owe the following debt.”
In six individual subboxes, were the following; first box:
“The amount as per the attached final judgments or final orders (note A) a sum of $79,038.82.”
Then box 3:
“Interest accrued since the date of judgment or orders (note C).”
In that instance the sum of $2494.60.
Box 4 was completed and contained the total of boxes 1, 2 and 3, noting that there was no sum noted in box 2. That subtotal was $81,533.42.
Box 5, which allowed for a credit of payments was blank, leaving box 6 to identify the total debt due at $81,533.42.
As I have earlier noted, the particulars contained in boxes 1 and 3 were expanded upon, where required, by notes in the notice itself.
A copy of the judgment was attached to the bankruptcy notice and from an examination of it it can be seen that the final judgment sum claimed in box 1, was correctly stated at $79,038.82. Although the judgment allowed for costs, the costs were not assessed and were not claimed in the bankruptcy notice.
Interest was expanded upon in the schedule of post-judgment interest calculation, which was the third page of the bankruptcy notice. It correctly identified the judgment order number as 53/09, the judgment date – being 19 May 2010 – and presumably the date upon which the bankruptcy notice was prepared, as 24 September 2010. A note appears in the box of 128 days. There is some argument about that matter.
The second heading along, but the third box in the table, dealt with statutory provisions under which a post-judgment interest was being claimed. That box identified interest as being claimed pursuant to section 101 of the Civil Procedure Act 2005. Again, in the box headed “Principal,” the correct amount awarded under the judgment was identified; that being $79,038.82. In the box headed “Rate of interest,” a sum of nine per cent was handwritten in.
A calculation follows in the final box. That sum identified is $2,494.60. There is no issue concerning the quantum of the calculation, however, issues arise in relation to the number of days over which the rate was computed, together with the rate applied.
There is no argument between the parties that interest calculations are governed by the Civil Procedure Act 2005, given that the Court made no express orders in respect of interest in the judgment. Furthermore, there is no argument about the fact that the rates set under the Civil Procedure Act are set, and vary from time to time. The rates are set by regulation and are, in effect, available to all parties.
The difficulties that arise in respect of the interest in this instance are twofold. The first, are the number of days over which interest is claimed, and second, the rate itself. The dates for calculation of interest claimed are set by the Acts Interpretation Act, which afford rules for computation of starting and finishing dates.
On the debtor’s case, the interest calculation overstates interest by one day, for on the debtor’s submission, interest should have been calculated on 127 days, not 128 days. On the debtor’s case, interest is also underclaimed, because the rate which has been applied, that being nine per cent, in fact varied through the course of the relevant calculation period between nine and ten and a half per cent.
The net result is, as is deposed to by the debtor in his affidavit, that allowing for one less day, and applying the correct interest rate as it applied from time to time, the actual interest due was $2754.45; being a difference of $259.85 from that claimed. That is to say, that the sum for interest in the notice underclaimed by $259.85.
It was because of this, the debtor says, that he did not know what amount he had to pay. He says he was concerned that if he paid a sum less than the amount stated in the bankruptcy notice, he may have committed an act of bankruptcy, and therefore, in his submission, the bankruptcy notice was misleading.
The situation where there is an overclaim in the bankruptcy notice is settled by section 41(5) of the Act. However, the debtor contended that where there is an understatement, the authorities indicate a less permissive approach.
The debtor relied particularly upon the observations of the High Court in Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71, and in particular, the remarks of the majority to be found at page 77 where they observed:
“It may be accepted that a bankruptcy notice which misstates the amount due to the creditor, is defective or irregular.”
In that instance, the High Court was examining a case similar to this. That is, a case where the interest claimed was less than the actual interest due on the judgment debt. To the time of the decision in Kleinwort, there had been a difference of approach in dealing with such mis-statements between Australian Courts. On one hand, as exemplified in Re Munson; Ex parte Deputy Commissioner of Taxation (1977) 29 FLR 479; Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 37 FLR 78; and Re Preston; Ex parte Commercial Banking Company of Australia Ltd BC8200394, the view was taken that an understatement of interest could be a formal defect or irregularity, attracting the operation of section 306(1); on the other hand an opposing view was taken following the English Courts, as exemplified in Re HB [1904] 1 KB 94 and some Australian Courts adopting that line of authority such as in Re Schierholter; Ex parte Geis (1978) 32 FLR 22.
Their Honours distinguished the English decision in Re HB, noting the Act:
“…speaks of a requirement that the debtor pay “the judgment debt…in accordance with the judgment.””[1]
and accepting the comments of Lockhart J in Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 37 FLR 78 at 82 that:
“…[a]lthough interest is necessarily and inextricably attached to the judgment debt…it does not itself answer the description of the sum due by the debtor to the petitioning creditor under the final judgment.”
[1] At p 79.
The court expressly overruled the Full Federal Court in Re Schierholter, on the basis that there was no basis for its determination that an understatement in a bankruptcy notice of the judgment debt would invalidate it, unless it was clear that the excess was waived by the judgment creditor.[2]
[2] At p 79.
At pages 79–80, the majority summarised the position, which now applies. Their Honours stated:
“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.
If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of section 41(2)(a)(i)-the only requirements presently relevant-are met. Understatement of the amount due, whether it be understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.
It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice.”
(Relevant authorities and citations omitted)
The effect of the majority observations at page 80 as exemplified by the facts in Re Manion (being facts almost identical to those here) led to Lockhart J concluding at page 278:
“That the understatement of the amount of the statutory interest did not vitiate the bankruptcy notice, particularly when the bankruptcy notice was read as a whole.”
It should be noted that ultimately Lockhart J did find that the notice before him was invalid, but that was on other grounds. Likewise, for reasoning provided by Riley J in Re Munson, at page 482, where the error in the notice related to the calculation of the number of days, his Honour there indicated that that would not vitiate the bankruptcy notice. In that regard, it is significant to note that until more recent times, this was clearly a common problem; that is, the matter of interest calculation. It generally arose because of delays which occurred between the filing of the notice for the issue of the bankruptcy notice and its subsequent issue, giving rise on occasions to an erroneous interest calculation.
That, of course, is somewhat different to the circumstances before me, where the computation difference has arisen by simple error, rather than by reason of error contained in the process in the court registry. However, despite the different basis for error, the outcome, in my view, is the same, for there appears to be no logical basis to distinguish between the origin of error in both instances.
Concerning the bankruptcy notice before me, as I have earlier noted, on the first page, the notice claims of the debtor, the sum claimed by the creditor as the debt owing, and identifies it as the total debt amount by reason of its constituent elements.
On page 2 of the notice, the notice directs to the debtor that he is required within 21 days after service of the notice upon him, to either (a) pay to the creditor the amount of the debt claimed, or (b) make arrangements to the creditor’s satisfaction for settlement of the debt.
In paragraph 3, the notice continues:
“Bankruptcy proceedings may be taken against you, if within the time stated in paragraph 1 above, you do not comply with either paragraph( 1)(a) or (1)(b) and the court does not extend time for compliance with this bankruptcy notice.”
It can be seen by reference to the use of the words “Debt” where the word appears in paragraph 1 and paragraph 3 of the notice, that they relate back to the debt as appears, identified on page 1 under the heading “Claim” in respect of the following “Debt.” In my view, it is quite plain that the demand contained in paragraphs 1 and 3 relates back to the debt which is identified on page 1.
The debt itself has its genesis in the judgment, which is attached to the bankruptcy notice, the quantum of the judgment debt is not in issue, and difficulties pertain only to the calculation in respect of interest. As the interest calculation in this instance is statutory interest, arguably no question can arise as to its quantification as part of the total judgment debt. That is, the sum contained in the order of the court, together with the statutory calculation, which is measured by reference to both the Civil Procedure Act, and the Acts Interpretation Act can provide only one outcome in respect of which there can be no debate.
It is a matter which would have been readily within the power of the debtor to calculate, and in fact, he did. It is to be noted that the understatement is small, which, in my view, evidences the fact that the underlying substantive claim was relatively plain and uncomplicated.
In my view, the understatement would not have perplexed or embarrassed a reasonable debtor, such as to confuse him as to his indebtedness, and the nature of the creditor’s demand, which have been made upon him and contained in the bankruptcy notice.
I do not consider that the notice, in so far as it was defective, was misleading, and in so far as the defects to exist, consider that they ought be waived; they not being defects, which to my mind, would have occasioned the debtor any confusion or caused any substantial injustice.
Stayed judgment
The next ground advanced on the part of the debtor is that the notice was one issued when subject to stay. Section 41(3) of the Act provides that:
“(3) A bankruptcy notice shall not be issued in relation to a debtor:
…
(b) if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed;”
In this instance, evidence was submitted that there had been an application made for a stay. The evidence demonstrates that a notice of motion was filed in the District Court of New South Wales, seeking an order for stay.
Although the matter appears to have been dealt with initially on 9 August, the matter came back before the court on 19 August, and orders were made, revoking orders made that day. In particular, orders of 19 August noted that there was to be a grant of a stay of execution for 22 days, expiring 4 pm on Friday 17 September 2010, and, that should the judgment not be paid by that time, leave be granted to the judgment creditor to issue writs of execution.
As I have earlier noted, the bankruptcy notice itself issued on 29 September 2010; that is, after the guillotine order of the 19 August 2010 have come into effect. As at 17 September 2010 the judgment debt had not been paid, and accordingly, the stay on execution of judgment had lifted.
The debtor relied particularly upon observations made by the High court in Re Gualtieri; Ex parte Martin & Savage Pty Ltd (1995) 58 FCR 55, and in particular the remarks at paragraph 19, where the court noted:
“In the present case, the principal issue is whether the judgment of the Local Court in respect to which the bankruptcy notice was issued, has been stayed, so that it cannot be said to have been immediately enforceable at the time the notice of issue was served. The focal point of this inquiry is the enforceability of the judgment of the Local Court, not whether the notice can be described as process or enforcement within the meaning of the Local Court Rules.”
The difficulty that the debtor faces in this instance is the evidence that the judgment sum had not been paid by 17 September 2010, and that by operation of the order of 19 August, the stay was automatically lifted. It follows that there was no stay in place at the time of the issue of the bankruptcy notice, and the judgment was then “immediately enforceable”. Accordingly the notice was properly issued by the Official Receiver.
An additional ground also initially advance was that there was a “practical stay”. However, that point was abandoned by the debtor in the course of submissions.
Abuse of process
The third ground advanced is that the invoking of the bankruptcy process constituted an abuse of process. It is undoubted that the court has an implied jurisdiction to set aside a bankruptcy notice if its issue constitutes an abuse of process: Re Sterling; Ex parte Esanda Limited (1980) 44 FLR 125. The court’s jurisdiction in that regard will only arise if it is apparent that the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt, rather than to invoke the court’s jurisdiction in relation to insolvency. Upon that basis, it could be said that the issue of the bankruptcy notice constitutes an abuse of process.
That assessment is undertaken at the time of the issue of the bankruptcy notice. It is, of course, not an abuse of process if a creditor genuinely intends to pursue the matter if there is default in complying with the notice, and there is no evidence of collateral purpose or undue pressure: Slack v Bottoms English Solicitors(A. Partnership) [2002] FCA 1445.
In this case, the evidence is at a fairly early stage. However, as is evident from the affidavit of Mr Tyndall, which was filed in support of his application that whilst he is solvent his personal circumstances demonstrate that it is, at this time, perhaps a close run thing. The evidence which is placed by Mr Tyndall before the court and contained particularly in a financial statement at page 20 of his affidavit, suggests that he has net equity of something approaching $300,000.00, that is assuming that the valuations, particularly in respect of his residence, hold good. However there is no evidence before the court to indicate whether or not his valuations are realistic, and indeed, whether he would be able to realise the assets within a reasonable time. That is an important consideration in assessing overall solvency: Sandell v Porter (1966) 115 CLR 666.
In these circumstances, and particularly when one has regard to the quantum of the judgment debt, when measured against the debtor’s own assertions as to his net equity position, I do not consider that the creditor is seeking to pursue this process in order to simply recover its debt. I accept that on the facts as they stand, the creditor is adopting an appropriate process, having regard to the debtor’s indebtedness and the background facts. It follows that I do not accept that the creditor in this instance has by the issue of the bankruptcy notice, engaged in an abuse of process.
Sumary
In summary, I do not accept that the bankruptcy notice is invalid by reason of it being misleading. I do not find that the bankruptcy notice was issued at a time when the Official Receiver could not issue the bankruptcy notice, and I do not accept that the prosecution of these bankruptcy proceedings by the creditor, constitute an abuse of process. It follows the application is dismissed.
Costs
The applicant has been unsuccessful in the prosecution of his application. The respondent seeks costs on a standard basis. The applicant contends that he ought not suffer a costs order, because there was an error in the bankruptcy notice. The fact remains, on my assessment, the notice was valid, and in those circumstances, the application has been wholly unsuccessful, and there is no reason why the applicant ought not pay the costs of the respondent.
Orders
That the application be dismissed.
That the applicant pay the respondents’ costs of and incidental to the application to be assessed on a standard basis.
I certify that the preceding fifty-two (52) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 16 December 2010
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