CATCHVORDS Bankruptcy - bankruptcy notice - incorrect date of ! judgment specified in notice - whether notice vitiated - whether debtor could be misied - application of s. 306. Bankruptcy ~ bankruptcy notice - judgment founded upon District Court action - whether interest forms part of "the judgment debt" such that a failure to claim interest vitiates the notice, Bankruptcy - bankruptcy notice - failure to include the word "or" between paragraphs (a) and (b) of the bankruptcy notice - paragraphs (a) and (0) being aiternatives are to be vead disjunctively - whether defect renders notice a nullity ~ whether debtor could reasonably be misled - notice vitiated. Bankruptcy -—- application to go behind the judgment which founded the bankruptcy notice - circumstauces in which a court of bankruptcy will go behind a judginent - whether a court will examine the question of liability immeciately or hear an application to determine if the inquiry should be émbarked upon. RE: ANDREW WONG EX PARTE: BARBARA ANN KITSON NO. P 179 of 1979 LOCKHART J. SYDNEY : 22 OCTOBER 1979 CATCHWORDS Bankruptcy - bankruptcy notice - incorrect date of judgment specified in notice -~ whether notice vitiated ~ whether debtor could be misled - application of s. 306, Bankruptcy - bankruptcy notice - judgment founded upon District Court action -— whether interest forms part of "the judgment debt" such that a failure to claim interest vitiates the notice. Bankruptcy - bankruptcy notice - failure to include the word "or" between paragraphs (a) and (b) of the bankruptcy notice ~ paragraphs (a) and (vb) being alternatives are to be read disjunctively - whether defect renders notice a nullity - whether debtor could reasonably be misled - notice vitiated. Bankruptcy - application to go behind the judgment which founded the bankruptcy notice - circumstances in which a court of bankruptcy will go behind a judgment - whether a court will examine the question of liability immediately or hear an application to determine if the inquiry should be embarked upon. RE: ANDREW WONG EX PARTE: BARBARA ANN KITSON NO. P 179 of 1979 LOCKHART J. SYDNEY : 22 OCTOBER 1979 SATCHWORDS Bankruptcy - bankruptcy notice = incorrect date of judgment specified in notice ~ whether notice vitiated - whether debtor could be misled - application of s. 306. Bankruptcy - bankruptcy notice - judgment founded upon District Court action - whether interest forms part of "the judgment debt" such that a failure to claim interest vitiates the notice. . Bankruptcy - bankruptcy notice = failure to include the word "or" between paragraphs (a) and (b) of the bankruptcy notice - paragraphs (a) and (b) being alternatives are to be read disjunctively - whether defect renders notice a nullity - whether debtor could reasonably be misled - notice vitiated. Bankruptcy - application to go behind the judgment which founded the bankruptcy notice = circumstances in which a court of bankruptcy will go behind a judgment ~ whether a court will examine the question of liability immediately or hear an application to determine if the inquiry should be embarked upon, . RE: ANDREW WONG EX PARTE: BARBARA ANN KITSON NO. P 179 of 1979 LOCKHART J. SYDNEY . 22 OCTOBER 1979 IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATS OF NEW SOUTH WALES AND THE No. P 179 of 1979 eee eee AUSTRALIAN CAPITAL TERRITORY RE: ANDREW WONG EX PARTE: BARBARA ANN KITSON ORDER JUDGE MAKING ORDER: LOCKHART J. WHERE MADE: SYDNEY DATE_OF_ORDER: 22 OCTOBER 1979 THE COURT ORDERS THAT: 1. The petition be dismissed. 2. The petitioning creditor pay one-half of the debtor's costs including the costs of all proceedings before me and reserved costs. 3. The District Court file in matter No. 2775 of 1974 and the file of D. A. Caneron Gillingham & Co. relating to the District Court litigation between the parties may be handed out. IN THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE NO. P 179 OF 1979 AUSTRALIAN CAPITAL TERRITORY RE: ANDREW WONG EX PARTE: BARBARA ANN f KITSON t . REASONS FOR JUDGMENT LOCKEART J. 22 OCTOBER 1979 This is a petition for sequestration of the esiate of Andrew Wong. The act of bankruptcy on which the petition is based is the failure by the debtor to comply with the requirements of a bankruptcy notice dated 15 June 1978 and served on the debtor on 26 July 1978. The debtor opposes the petition on the following grounds:- 1. That the bankruptcy notice is a nullity for the following reasons:- -2- (a) It makes no claim for interest on the judgment upon which it is based, the interest being part of the very judgment debt itself, and does not abandon or waive the interest; (b) It refers to the date cf the final judgment as 10 May 1977 whereas in fact no judgment was signed against the debtor by the petitioning creditor that day; and (c) The word "or" does net appear betwéen paragraphs (a) and (b) in the body of the notice with the consequence that it is confusing or perplexing and liable to mislead the debtor. That, notwithstanding the judgment against him, the debtor is in truth not liable to the petitioning creditor and he seeks to go behind or, as it is sometimes expressed in the cases, go round the judgment: see In Re Fraser; Ex arte Central Bank of London 1892 2 Q.B. 633 per Lord Esher M.R. at p. 636. The facts are in a narrow compass. The petitioning creditor was injured on 19 July 1973 when a chandelier fell on her head whilst she was present at an establishment in Sydney known as Bonaparte's Theatre Restaurant. She suffered injuries to her head and neck. The petitioning creditor sued the debtor in the District Court of New South Wales, alleging in her statement of claim that he was the occupier of the premises in which the restaurant business was conducted and that he conducted the business. The debtor filed a notice of grounds of defence on 7 May 1974 denying these allegations and issued a third party notice to a company known as Sydney Discotheque Pty. Limited claiming contribution or indemnity on the grounds that he was engaged by the third party to conduct the business of a public restaurant on its behalf and that, if he was the occupier of the restaurant premises, he waS so on behalf of the third party. The petitioning creditor's case was heard on Monday 16 May 1977 by his Honour Judge Goran of the District Court who found a verdict for the petitioning creditor in her case against the debtor (No. 2775 of 1974) in the sum of $3,129.00 ~4- and judgment was entered accordingly. The debtor has sworn an affidavit in the proceedings in support of his oppostion to the petition in which he says as follows:- "3.00 I was not personally served with the / Statement of Claim but I was informed that a i document had been left for me at my place of employment at 154 William Street, Sydney. 4. At the time of the allegations referred to in the said Statement of Claim and at the time of the issue and alleged service of the said process I was employed as a Manager of a company called Sydney Discotheque Pty. Limited. This company Operated a restaurant business known as Bonapartes Theatre Restaurant. . 5. I was never a shareholder or director of Sydney Discotheque Pty. Limited but was merely employed as the Manager of the theatre restaurant. I did hold aliquor licence in respect of the sald premises. I received a salary from the afores company but had no other interest in it. I was at no 'time the lessee of the said premises nor did I have any beneficial interest in the premises ir which the matters complained of occurred. Le on ro) 6. ___I was informed by my employers that the Ordinary Statement of Claim had been forwarded to the company's solicitors, Messrs. DBD. A. Cameron, Cillingham & Co. and that they would iook after it and that I need not trouble myself further about it. I had no correspondence at ali from the said solicitors and was not notified at any stage of the hearing of any action brought by the Petitioner against me nor of the result of the hearing of any action. 7. __Some time in July last year I was served with a Bankruptcy Notice. I crave leave to refer to the said Bankruptcy Notice. 8. This was the first indication that I had that a Bankruptcy Notice was to be served on me. 9. __I was subsequently served with a creditor's petition. 10. I consulted Mr. J. kK. Chippindall, my present solicitor, who has acted for me for a number of years in various matters. ll. == I am informed by Mr. Chippindall thet the / records of the District Court of New South Wales / show that a Defence was filed on my behalf in these proceedings and that a third Third Party Notice was filed on 6th May, 1974 claiming indebtedness and contribution from Sydney Discotheque Pty. Limited. I am further informed that applications were made to the court that the action and several others be held together, that a further application was made to strike out the Third Party Notice and that the matter was called over and fixed for hearing on 16th May, 1377 when a verdict was given against ihe. 12. I was unaware of any of these proceedings. 13. _I have been further informed that a Notice of Solicitor no Longer Acting was riled and dated 16th may, 1977. 14, I believe that at all material times I a good defence to the proceedings in the Distri Court in that I was not the occupier of th premises in which the petitioning creditor's injuries occurred and that I was not guilty cf any negligence or other breach of duty." I shall turn first to the questions relating to the validity of the bankruptcy notice. It was submitted by Mr. Coles, who appeared for the t i debtor, that the date of judgment is erroneously described in the bankruptcy notice as 10 May 1977, not 16 May 1977 and that in the result, the bankruptcy notice is a nullity. Mr. Cowan, who appeared for the petitioning creditor, did not dispute that the evidence before me established that 16 May is the correct date of the judgment. "Relying pn the certificate of judgment signed by an assistant registrar of the District Court on 7 March 1978 and lodged with the registrar in bankruptcy prior to the signing and issuing of the bankruptcy notice, and the fact that the certificate shows the date on which the petitioning creditor recovered judgment against the debtor as being 10 May 1377, he submitted that rule 7 of the Bankruptcy Rules was complied with and that the only date that could be shown in the bankruptcy notice was 10 May 1977. Hence, there wes no inaccuracy in the notice. It is unfortunate that the certificate cf judgment bears an erroneous date. However, the evidence establishes clearly that it is erroneous and that the correct date is 16 May. Hence, the bankruptcy notice is inaccurate notwithstanding compliance by the petitioning creditor with the relevant rules relating to the issue of bankruptcy notices. Mr. Cowan submitted that the error did not vitiate the notice as it was a formal defect or an irregularity within the meaning of s. 306 of the Bankruptcy Act 1966 ("the Act"). « The test to be applied in determining whether an error in a bankruptcy notice constitutes a formal defect or an irregularity within the meaning of s. 306, has been stated in a number of cases. In Pillai v. Comptroller of Income Tax 1970 A.C. 1124 - a decision of the Privy Council on appeal from the Federal Court of Malaysia - Lord Diplock, who delivered the opinion of the Board, said at p. 1135:- "But there is relevant authority upon the construction of the identical words in s. 147 (1) of the English Bankruptcy Act 1914. It is implicit in the section that proceedings in bankruptcy may be so defective as to render them a nullity notwithstanding that no substantial and irremedial injustice has in fact been caused by the defect. The section draws a distinction between such a defect and a 'formal defect or irregularity'. It is only the latter which are validated by the section, provided that no substantial and irremedial injustice has been caused. "What, then, is a 'formal defect or irregularity' within the meaning of the section? This was discussed in relation to a bankruptcy notice in Re _a Debtor' (No -8- 21 of 1950); Ex parte Debtor v. Bowmaker ' Ltd. 1951 Ch. 313, in whicn the earlier authorities were considered. The test there laid down was whether the defect in the notice was of such a kind as could reasonably mislead a debtor upon whom it was served. If it was, the notice was not validated by the section notwithstanding that the particular debtor upon whom it was served was not in fact misled. If, on the other hand, it could not reasonably mislead the debtor ; it was a formal defect and validated by i the section. Their Lordships are here ' only concerned with the application of the section to a bankruptcy notice. They are not concerned with whether the same test is appropriate to determine the validity of subseguent steps in bankruptcy proceedings. In their view any failure to comply with the statutory provisions as to the form of a bankruptcy notice of a kind which could not reasonably mislead a debtor upon who it is served is a 'formal defect' and validated by the section." " . Section 147 (1) of the English Bankruptcy Act 1914 is equivalent to s. 306 of the Act. Mr. Coles submitted that the error in the present case was not a formal defect or an irregularity as it could reasonably mislead the debtor in that, on reading the notice, he would assume that judgment was recovered on 10 May 1977. In Re Wimbourne; Ex parte The Debtor (1979) 24 A.L.R. 494 I said that the test is not whether the debtor was -9- in fact misled, it is sufficient that he could be misled; but that to determine whether the debtor could be misled, the court may look at facts extraneous to the notice itself and that the debtor whose liability to confusion is relevant is not some hypothetical debtor but the very debtor in question. I need not repeat what I said there or refer to the authorities on which I relied to support that conclusion. " There is no suggestion that there were any proceedings between the parties other than the District Court action which led to the judgment in this case. Io am satisfied that tne error in the bankruptcy notice as to the Gate of judgment is not such as could reasonably mislead the debtor. It is an irreqularity within the meaning of s. 396. It is not suggested that substantial injustice has beer caused by the irregularity. In my opinion this is an appropriate case for the application of s. 306. Mr. Coles submitted that the petitioning creditor was entitled to claim interest on the judgment debt and that by failing te do so, or to waive or abandon the claim, the bankcuptcy notice is invalid. He referred to s. 85 (2) (c) of the District Court Act 1973 to found the argument that interest on a District Court judgment is part of the judgment ~10- debt itself and that, although a sum may be claimed in a bankruptcy notice which is less than the real amount due, it is not fatal to the notice provided it makes it clear that nething more is claimed to be due beyond the amount specified in the notice. He submitted that, as the bankruptcy notice does not waive or abandon the claim for interest, it is bad. In Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co. of Sydney Limited (1972) 23 A.L.R. 522, I considered the nature of interest on a judgment debt at pp. 526 and 527 in these terms:- "At commen law generally a judgment did not carry interest: Gaunt v. Taylor (1834) 3 My & K 302; 40 ER 115. The only way of recovering interest on a i judgment debt was by action on the | judgment. An exception to this general rule was where the effect of the judgment had been impeded by diiatory anda vexatious proceedings on the part of the debtor: Gaunt v. Taylor supra. The defect was remedied in England bv Acts 1 and 2 Vict c 110 s 17, which provided that every judgment debt should carry interest at the rate named in the Act from the time of entering judgment, and that there might be a levy for the recovery of such interest under a writ of execution on the judgment. Since then, many statutes have been passed giving a statutory right to a successful suitor to interest on a judgment: see for example the Supreme Court Act 1970 (NSW) s 95 and the -ll- District Court Act 1973 (NSW) s 85. It is well established that it is permissible, though not obligatory, to include in a bankruptcy notice, a claim for interest on a judgment debt which bears interest. In Re Lehmann; Ex parte Hasluck (1890) 7 Morrell Tél; Re Cooper 1911 2 KB 550; Re O'Keefe (1963) 19 ABC 101; 1964 A.L.R. 561 (a decision of Clyne J); Re Mullavey; Ex parte A.N.Z.Banking Group Ltd. (a decision of C. A. Sweeney J) (1877) 20 A.L.R. 276; Re_ Munson (supra}; and Re Manion; Ex parte Deputy Commissicner of Taxation (a decision or myself) (1979) 23 A.L.R. 270. If a judgment creditor chooses to claim interest on a judgment debt, it is necessary for the calculation of the claim to be accurate, and for the period during which the claim is made to be specified: Re Mullavey (supra); Re Davis; Ex parte Deputy Commissioner of Taxation {1963) 19 A.B.C. 100; 1963 A.L.R. 764, and Re McDonald (1978) i8 A.L.R. 505. Understatement of the amount of statutory interest accrued from the date of judgment to the date of issue of a bankruptcy netice or other date specified in the notice does not necessarily vitiate the bankruptcy notice. Section 306 of the Act may be capable of Operating to validate a bankruptcy notice that otherwise would be invalid. See the decisicn of Riley J. in Re_ Munson (Supra), and my own decision in Re Manion, (supra). Mr. Hely submitted that a judgment creditor is entitled to limit the Guration of time for which he claims interest in his bankruptcy notice. He relied in particular upon the decision of the Court of Appeal in Re HB 1904 1 KB 94, espscially at p. 103, per Romer L.J. -12- where his Lordship said: "No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment beyond the amount specified in the notice." The Full Bench of this court said much the same in Re Schierholter; Ex parte Geis (1978) 19 A.L.R. 113. None of the authorities to which I was « referred by counsel said anything to the contrary." Mr. Coles did not submit anything to the contrary of what I said in Re Wimbourne; but submitted that interest on District Court judgments is fundamentally different from interest on Judgments of other courts such as the Supreme Court of New South Wales (see s. 95 of the Supreme Court Act 1970 (N.S.W.) ) in that it forms part of the judgment Gebt itself. Section 85 of the District Court Act 1973 provides:- "85. (1) Unless the court orders in any particular case that interest be not payable, interest shall, subject to subsection (3), be payable on so much of the amount of a judgment debt as is from -13- time to time unpaid. (2) Interest payable under subsection (1) in respect of a judgment debt shall - (a) subject to subsection (3), he calculated as from the date when the judgment debt came into being or from such later date as the Court in any particular case fixes; (b) be calculated at the rate prescribed for the purposes of section 95 (1) of the Supreme Court Act, 1970; and {c) form part of the judgment debt, but not so as to require the payment of interest upon interest. (3) Notwithstanding subsection (1) or (2), where - (a) the amount of a judgment debt (excluding the amount of costs to be ascertained by taxation or Otherwise) is paid in full within twenty-one days after the judgment debt becomes payable; or (b) the amount of costs ascertained by taxation or otherwise is paid in full within twenty-one days after that amount is so ascertained, interest shall, unless the Court otherwise orders in any particular case, not be payable on the amount so paid." The word "judgment" and the words "judgment debt" are defined by s. 84 (1) of the same Act in these terms:- "84, Interpretation. (1} In this Division, except in so far as the context or subject-matter otherwise indicates or -14- requires - "Judgment" includes any order of the Court for the payment of an amount of money as costs or otherwise; "Sudgment debt" includes - (a) any amount ordered by the Court to be paid as costs or otherwise; and (b) any amount payable under secticn 120 as costs without any order of the court. (2) A reference in this Division to the giving of a judgment includes a reference to the making by the Court of an order for the payment of an amount cf money as costs or otherwise." In Re Mullavev; Ex parte Australia and New Zealand Banking Group Limited (1977) 20 A.L.R. 276, C. A. Sweeney J. dealt with a submission on behalf of the debtor that the debtor did not commit an act of bankruptcy because the bankruptcy notice served on him was irregular, being likely to' perplex the debtor in that it was not made clear whether interest was being claimed on the judgment debt or alternatively whether the interest was in fact abandoned. After referring to various authorities, his Honour said at p. 284:- "Since Re Lehmann, supra, was decided in 18980, a judgment creditor has been free either to refrain from making any reference to interest in a bankruptcy -15- notice or to include in it an accurately | calculated claim for interest up to the date cf the issue of the notice. In a multitude of cases courts have acted upon bankruptcy notices in which no reference has been made to any claim for interest. The parties in the present case were asked at the hearing whether it had ever been decided that a bankruptcy notice, which made no reference to a claim for interest, was bad on that account. They were given a further 14 days in which to make written submissions. No such case hes been cited to me, but, as I have pointed out, Clyne J. clearly held the * view that a bankruptcy notice making no claim for interest was a valid notice." It is true, as Mr. Coles submits, that none of the cases to which his Honour referred, and indeed none of the cases to which I was referred by counsel in the present case, touch the precise point being raised here; but as i said in | Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co. | of Sydney Limited (supra) at pp. 527 and 528:- "T would be loathe to reach a conclusion which required bankruptcy notices to state the amounts outstanding on a judgment debt and interest in different forms depending upon the accident of the particular court which judgment happened to be signed unless such a conclusion was the necessary result of particular statutory requirements. Nothing was said in argument to lead to this conclusion in the present case and I see nothing in the terms of s. 85 of the District Court Act of New South Wales to require it. Also, any other view would compound' the Registrar's problems in the day to day practice of issuing bankruptcy notices." -16- ' The particular point argued by Mr. Coles in the present case was not argued before me in that case. Section 85 is included in Division 4 of Part III of the District Court Act relating to the enforcement of judgments. The definition of the expression "judgment debt" in " - 84 (1) of the District Court Act is an inclusive Gefinition and interest is not one of the matters specifically referred to in the definition as being included. Interest on a judgment debt would not ordinarily be understood as answering the description of a "judgment debt". AS to the approach to be adopted to the constructicn of inclusive definitions see Y,.2. Finance Co. Pty. Limited v. Cummings (1963-1964) 109 C.L.R. 395; Dilworth v. Commissioner of Stamps (1899) A.C. 99. In my opinion, all that s. 85 (2) (c) does is to provide that for purposes of enforcement of the statutory obligation to pay interest on a judgment debt, the interest is to be treated as if it were part of the judgment debt itself; but it does not answer the description of "the ~17- judgment debt" as defined in Division 4 of the Bistrict Court Act. In my opinion, s. 85 (2) (c) does not create an exception to the well established rule referred to by C. A. Sweeney J. in Re Mullavey that a judgment creditor is free either to refrain from making any reference to interest in a4 bankruptcy notice cr to include in it an accurately calculated claim for interest up to the Cate of the issue of the bankruptcy notice. Accordingly, this attack on the bankruptcy notice fails. Mr. Cowan submitted that even if the effect of s. i ' 85 (2) (c) was to require interest 'to be included in the amount claimed in a bankruptcy notice wnere the judgment was obtained in the District Court, the bankruptcy notice in the present case, upon its proper construction, by claiming the sum of $3129.00 as being the amount due under the final judgment, is an accurate statement; and that, upon its proper construction, the petitioning creditor has waived or abandoned the component of interest by not specifying it. In my opinion, this argument fails. I see nothing on the face of the notice which could be saie@ to constitute a -18- waiver or abandonment of any interest compcnent in the sum of $3,129.00. Mr. Cowan submitted that if I were otherwise against the petitioning creditor on this point, it was a proper case for the application of s. 306 because the amount of understatement of the interest would be about 10% of the total due (i.e. $3,129.00 plus interest from judgment to the ° issue cf the notice, namely $338.61 a total of $3,467.61). Understatement of the amount of statutory interest accrued from the date of judgment to the date of issue of a bankruptcy ncetice or other date specified in the notice does not necessarily vitiate the notice, (see Re Munson; Ex parte Be] fp) Deputy Commissioner of Taxation (1977) 29 F.L.R. 479; pole Sure Manion (supra); and Ex parte; Commercial Banking Cc. fe) im Sydney Limited (supra) ). It is not necessary to determine this question in view of the other findings I have made. I turn to the third attack made on the bankruptcy notice by the debtor namely, that the omission of the word "or" between paragraphs (a) and (b)* in the bankruptcy -19- notice, could confuse or perplex the debtor, thus vitiating the notice. Mr. Coles submitted that, although capable of being read. disjunctively, paragraphs (a) and (b) of the bankruptcy notice cught to be read conjunctively. The two paragraphs mean that the debtor required to both pay $3,125.00 to the / ! Registrar of the District Court and to secure payment thereof e to the satisfaction of this court or to compound the said sum te the satisfaction of the petitioning creditor. Mr. Cowan submitted that the only construction that the paragrapis could reasonably bear is that the debtor is required is to pay $3,129.90 to the Registrar or to secure payment thereof to the satisfaction of the court or to compound to the satisfaction of the petiticning creditor, thus requiring the paragraphs to be read disjunctively. He submitted that the requirement in paragraph (a) to pay the Registrar and in paragraph (b) to secure or compound, are inconsistent with each other and mutually exclusive. One cannot at the same time both pay a sum of money and secure its payment or compound it. He submitted that the terms of the last paragraph of the notice (i.e. the -20- paragraph following paragraph (b) ) put beyond doubt that paragraphs (a) and (b) are alternatives. The last paragraph states the consequences of failing to comply with "either of the abovementioned requirements". Mr. Cowan submitted that this must be a reference to the requirements in paragraphs (a) and (b) and that the use of the word "either" means that those paragraphs must be read as alternatives. In my opinion, paragraphs (a) and (b) of the notice, upon their proper construction, offer alternatives to the debtor and are to be read disjunctively. However, that is not an end of the matter. The notice does not follow the prescribed form 1] which has the word "or" between paragraphs (a) and (b). Thu the notice is defective. The question is, whether the defect renders the notice a nullity. Is the defect of a kind which could reasonably mislead the debtor? That is the test: see Pillai v. Comptroller of Income Tax (supra). In my opinion, the defect could reasonably mislead the debtor. A debtor is not required to engage in the task of construing a bankruptcy notice and resolving questions of doubt or ambiguity. A bankruptcy notice ought to be clear -~21- and 'unambiguous. Non-compliance with its requirements constitutes an act of bankruptcy with quasi penal censequences. If it is equivocal, generally the equivocation must be resolved in favour of the debtor. The debtor is not required to ponder whether paragraphs (a) and (b) are alternatives. He may read them and reach the conclusion that they are or, he may reach the opposite conclusicn, or simply, ct oa o and this, is more likely, not know clearly one way or other. He ought not to be faced with this Gilemma especisll of as it arises from a critical part of the bankruptcy notice: see James v. F. C. of T. (1955) 93 C.L.R. 631; Re Boddi =f Ex parte Ambury's Limited 1933 N.Z.L.R. 1012. In my cpinion this defect invalidates the notice. I turn to the second ground of opposition te the petition, namely that the debtor is not liable to the petitioning creditor and that I should go behind the judgment. It is not strictly necessary for me to examine this question as I have found that the bankruptcy notice is invalid and therefore the petition must be dismissed. However, the point was fully argued and, if I do not decide it now, the parties may be placed in the unfortunate position -22- where another bankruptcy notice is issued and served, another petition presented, and the question whether I should go behind the judgment toe see if there is a real liability then dealt with. As both parties wish the point to be determined on the hearing of this petition, it is obviously the sensible course to take and I propose to take it. ! Courts having jurisdiction in bankruptcy do not go ° behind or round judgments unless good reason is shown. It is not done as a matter of course and there are powerful reasons why this is so. The Courts have been reluctant to lay down inflexicle rules as to the circumstances in which the power to go behind a judgment should be exercised. Instances of the exercise of the jurisdiction are where the judgment is obtained by default or where the circumstances tend to show fraud or collusion or miscarriage of justice or where the judgment is obtained by compromise and the compromise and the Surrounding circumstances tend to show that the compromise was not a fair and reasonable one: see In Re Flatau; Ex Parte Scotch Whisky Distillers Limited (1883) 22 Q.B.D. 83; In Re Hawkins; Ex parte Troup (1895) 1 Q.B. 404 especiaily per Lord Esher at p. 409; Corney v. Brien (1951) 84 C.L.R. and 225:- -23- ad Wren v. Mahoney (1971-1972) 126 C.L.R. per Barwick C.J. at pp. 222 and 223. In Wren v. Mahoney Barwick C. J. said at pp. "The judament is never conclusive in bankruptcy. t dces not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may acceot the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judement as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consic€eration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere Matter of its own discretion. Nothing in Corney v. Brien (1951) 84 C.L.R. 343 lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's: debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial 1Q -24- i reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner." Mr. Coles submitted that there were substantial reasons for questioning whether behind the judgment there was in truth a real liability of the debtor to the petitioning creditor. He submitted that the judesent entered in the District Court of New South Wales on 16 May 1977 followed an ex parte hearing before his Honour Judge Goran. It is true that the debtor was not present or represented at the hearing before Judge Goran; but it is necessary to examine the material facts relating to the conduct of the District Court i proceedings to put this point in perspective. Those proceedings were commenced by statement of claim issued on 14 March 1974 where the petitioning creditor claimed $10,000.00 damages from the debtor for the injuries sustained by her on 19 July 1973. Mr. Boyd, a member of the firm of Messrs. D. A. Cameron, Gillingham and Co., solicitors, filed a notice of grounés of defence on behalf of the debtor denying that he was the occupier of the restaurant premises and that he conducted thereon the business of a -25- public restaurant. On i May 1974, D. A. Cameron, Gillingham & Co. wrote to the soliciters for the petitioning creditcr requesting particulars of the petitioning creditor's claim in' the District Court proceedings. On 18 Wovember 1974, the particulars were furnished. On & May 1874 the debtor's solicitor filed a third party notice in the District Court Cirected to Sydney Discotheque Pty. Limited claiming contribution towards cr indemnity for any verdict recovered against the debtor by the petitioning creditor in the action on the ground that: "the defendant is and was at all material times engaged by the third party to conduct the business of a = public restaurant. The defendant has denied that he was the occupier of the certain premises referred to in the plaintiff's statement of claim but in any event if he did, he occupied the same for on behalf of the third party." On 17 November 1976 a notice of motion was filed on behalf of the petitioning creditor seeking an order that the stay of proceedings, which arose as a result of the filing of the third party ncectice filed on behalf of the debtor, be lifted upon the grounds set out in an affidavit of Richard -26- Frederick Buckley sworn 16 November 1976. Mr. Buckley was the solicitor having the carriage of the matter cn behali of the petitioning creditor. In his affidavit he said that he had a telephone conversation on ll November 1976 with Hr. Boyd on behalf of the debtor who told him: "T have no instructions to file an affidavit of service and have not heare from the defendant for quite a while." affidavit of service of the third party notice so as to enable the filing of the praecipe for trial required by the rules of the District Court. The same notice of motion sought an order for the hearing of the action brought by the petitioning crediter against the debtor together with two other proceedings in which the petitioning creditor was the plaintiff against different defendants. An order was made by the court on 26 November 1976 that the three proceedings be heard together and that the stay be removed. The other two actions had nothing to do with the debtor. They arose in unfortunate circumstances. The petitioning creditor suffered whiplash injuries to her neck in a motor vehicle accident which occurred on 16 June 1973 whilst she was a passenger in a -27- motor vehicle. As a result of those injuries she sued one Steven Eyre in the District Court. On 1¢ July 1973 she sustained further injury to her neck when the chandelier fell upon her head whilst she was at the Bonaparte's Theatre Restaurant. On 15 Sept:mber 1973, the petitioning creditcr, whilst a passenger in a motor vehicle, was involved in yet another accident which involved further injury to her neck. On 30 November 1976, the petitioning crecitor's solicitors wrote to D. A. Cameron, Gillingham & Co. pointing out that the notice of metion to which I have referred came before his Honeur Judge Thorley on 26 November 1975 when his Henour ordered that the three cases be heard together and lifted the stay of proceedings and referred to certain other j matters relating to medical examinations. In due course, the action was set down for hearing. A praecipe for trial was filed by the solicitors for the petitioning creditor on 20 January 1977 and served on DB. A. Cameron, Gillingham & Co. By letter dated 5 April 1977, the petitioning creditor's solicitors wrote again to D. A. Cameron, Gillingham & Co. noting that the case against the debter was -28- listed for callover and would be heard, together with the other two matters, and set out up-to-date particulars in : (tT re of the petitioning creditor's claim together with ht wo Cc ical reports and certain other matters. By letter dated fer) me 2Z April 1977, from the petitioning creditor's solicitors to D. A. Cameron, Gillingham & Co. they informed the latter that the case was listed for trial on Monday 15 May 1977 together -with the other two cases. A notice of solicitor no longer acting was filed by D. A. Cameron, Gillingham & Co. dated 16 May 1977. On 16 May 1977, the three cases came on for hearing before Judge Goran. The petitioning creditor and the two other defendants (that is other than the debtor) wers represented by counsel. There was no apyvearanc?: for the Gebtor. Evidence was given on behalf cf the petitioning creditor in support of her case on the issues of liability and damages. His Honour gave judgment that day and said: "There is no question that in each of these matters the plaintiff is entitled to a verdict, liability against the defendants has been established. There can be no question of contributory negligence and really what one must di is to try to establish as best as ons can, using such logic as one has at hand, how to apportion the blame, so to speak,.for -29- what has happened to her." His Honour found in the action against the debtor, a verdict for the petitioning creditor in the sum of $3,129.00, and in the other two actions, sums amounting to $7,060.00, a total of $10,185.00 and entered judgment accordingly. The evidence befere Judge Goran implicating the debtor consisted of a file produced cn subpoena duces tecum from the Licences Keduction Board which esteblisned to his vr e Honour's satisfaction that the debtor was the holder of t in nh relevant liquor licence applicable to the premises at 1 fr + ip) William Street, Sydney known as "Bonaparte's Theat Restaurant". Tne ordinary statement of claim was not served personally on the debtor but "95 served on 26 March 1974 upon a woman, being the manageress of the restaurant at 154 William Street, Sydney who said at the time of service:- "I would rather not take it, but I will give it to him and ask him to send it to the insurance company." Tne debtor said in evidence that, although he was not personally served with the statement of claim, he was -30- | informed that a document had been left for him at his place of employment, 154 William Street, Sydney. He said that at the time of the injuries sustained by the petitioning creditor, he was employed as a ménager of Sydney Discotheque Pty. Limited which operated "Bonaparte's Tneatre Restaurant" and that he heic a liquor licence in respect of the premises and received Salary, but had no other interest in the fed) premises® or the company Sydney Discotheque Pty. Limited. I have already set out tne contents of his affidavit as to those matters. The debtor has sworn that he was employed as nigh manager py che owners of the premises Known eas i, ; "Whisky-A-Go-Go" of which Bonaparte's Theatre Restaurant formed a part and which opened in about 1966 at 154 William Street, Sydney. He had been employed there as night manager since 1971. The general manager of Sydney Discotheque Pty. Limited was a Mr. Eddy Chan. The premises were substantiallly destroyed by fire in 1975, after which the company ceased to carry on business there and the debtor ceasec to be employed there. The company was wound up as a creditor's voluntary winding up on 28 May 1976. In an affidavit sworn by the debtor on 19 September 1979, he said:- "Immediately after the bankruptcy notice -31- in these proceedings was served upon me, I rang Mr. Chan. Mr. Chan told me that the claim made by the petitioning creditor in the District Court had been referred to the solicitors for the company, Messrs. D. A. Cameron, Gillingham & Co. Mr. Chan told me not to worry, that it was not my responsibility, and he would look after it. After speaking to Mr. Chan, I rang Mr. Boyd at the office of Hessrs. D. A. Cameron, Gillingham & Co. He informed me that he was not doing any more legal work . for the company. I then spoke to Mr. Chan, who advised me to contact my own solicitor. At no time did I ever request Messrs. D. A. Cameron, Gillingham & Co. to act on my behalf in the defence of the proceedings in the District Court and I was not aware that they purported to act for me until after the date when I received the . Bankruptcy Notice in the proceedings. I ( have never attended at the offices of D. A. Cameron, Gillingham & Co. to furniss any Statement in relation to the matter and I have received no correspondence from that firm concerning the proceedings." The debtor applied to to the District Court for a new trial of the District Court proceedings. The applicatis: was heard by Judge Collins on 24 August 1979 who refused the application. Eis Honour did .not go' inte the merits of any prospective defence of the debtor to the petitioning creditor's case. His Honour said in his reasons for judgment: -32- "He Was represented on record by solicitors who entered grounds of defence and instituted third party proceedings. Those solicitors apparently dropped out of the scene or .lost interest or failed to take any further active part in it some time before the hearing took place in 1977. The plaintiff recovered damages for personal injurics against the defendant and subsequently a bankruptcy notice was issued against him. I am informed there are proceedings before the Federal Court sitting in its bankruptcy jurisdiction current at the moment." iy His Honour said:- "If he was in fact an empioyee then he had and y still have recourse against his employer or their insurers. If he wes put into this invidious position by reason of somebody purporting to act on his behalf without instructions, allewing the litigation to go to the st age wnere he was Placed in jeopardy, then it seeems to nm quite clear he has remedies eyainst thos persons or their insurers. un Das o ao The effect of what he has asked me to do at this stage is to exercise a discretion which would further postpone the plaintiff's rights or alternatively cause the matter to be relitigated. This indeed, would be a severe burden to impose upon the plaintiff in her position who is entitled to expect that the judgment which was regularly obtained more than two years ago cen be brought to finality and that her declared entitlements be met. That the defendant May not be the person in the front line who is primarily liable to .meer those things is indeed a consideration, but I am afraid too much water has been allowed to flow under the bridge to convince me to exercise any discretion which would have had that result on the deserving plaintiff. . -33- Io am mindful in doing this that it compounds and continues the difficult situation in which the defendant finds himself. I am also mindful that he has, as I perceive it, and on the facts that have been placed before me, a very strong case to be personally indemnified by others. In the circumstances I do not consider this a prover case to set aside the judgment. The application is accordingly dismissed with costs." In the proceedings before me no one was called from the firm of D. A. Cameron, Gillingham, & Co., including Mr. Boyd, te give evidence. Nor was Mr. Chan called to give evidence. Th2 only evidence relied on to corroborate the evidence of the debtor, were certain contents of the file cof D. A. Cameron, Gillingham & Co. which were tendered in evidence, in particular a letter cf 21 January 1977 from that firm to the Gebtor, in which the solicitors stete, emongst ther things:- "Mr. Chan originally spoke to the writer about the matter and cn your behalf we issued a third party notice against Sydney Discotheque Pty. Limited claiming that that company should indemnify you against any verdict recovered by the Plaintiff against you. The Plaintiff did very little for some considerable period of time to bring the matter on for hearing but steps have been taken recently to get the matter moving again. It is now necessary for us to see -34- you in cenference to prepare the matter for hearing and it would be appreciate if you would telepnone the writer to maxe an appointment to call at your earliest convenience." ~ Cn 12 April 1977 a further letter was written by DB. A. Cameron, Gillingham & Co. to the debtor in these terms:- / "We refer to our letter of the 21 Janvary las: and note that we stili not have your further instructions. Th is to confirm that the vlaintiff i proceeding with her District Court cla and has arranged for I listed for call-ever on : a for the purpose of fixing a Gate f: hearing. Please let us have yo instructions as soon aes pessible." Oot 23 fA | It was submitted by Nr. Coles thet, as the restaurant premises at 154 William Street, Sydney nad burnt cown before either of these letters was written, in ail probability, they never reached the debtor, and he has sworn that they did not. The file of the sclicitors indicates nothing to suggest that the letters were returned from the dead letter office or otherwise were unclaimed by the recipient; but I do not know in fact whether they were bs) be e received by the debtor or not. Nor am I satisfied that the centents of the selicitors' file are in evidence because it is clear that certain documents were filed in the District Court by those solicitors, yet copies of them.are not ta be Fg an eee Bee ETE On pete ate een tone ete eee ot oe ~35~ found in the file. until now. fi To affirmatively find that the debtor never communicated with DBD. A. Cameron, Gillingham & Co. would . involve a finding that they purported to act for necessearl ly him, including filing a defence, seekins particulars, filing g the third party notice solicitors in the matter until the filing of a notice of ceasing to act on the very day of the hearing of the action before Judge Goran, all without instructions, a very serious c finding indeed. In the absence of corrobcrative evidences, IT am not prepared to make the finding. Nor did the debtor, who was cross examined imer me as a reliable witness. There may be a certain measure of support to be found for his case in the contents of the letter of 21 January 1977 from D. A. Cameron, Gillingham & Co. to himself and the fact that he may not have received it or the letter of 12 April 1977; but that correspondence is rather ambiguous. Accordingly, 1 approach this case on the } -36- assumption that D. A. Cameron, Gillingham & Co. acted for the debtor on his instructions at all relevant times. Whatever may be the answer to that question, there is nothing to suggest that the petitioning creditor was not entitled to assume that DB. A. Cameron, Gillingham & Co. were acting perfectly normally and properly for the deotor in the District Court proceedings, and that is itself a relevant matter. Mr. Coles submitted that on the evidence pefcre me there was a clear case cf no liability by the debtor to the petitioning creditor. He was an employee of Sydney Discotheque Pty. Limited which was itself the occupier of 'tha relevant restaurant premises, the debtor being merely a night Manager who was on duty on the night wher: the injury was ie} 1 5 by the petitioning creditor. Mr. Cowan submitted sustained is that as the holder of a liquor licence in respect cf the premises in William Street, the debtor must be taken as having been in control of the premises because that is an essential requirement for the holding of a liquor licence. Mr. Coles submitted that the precise nature of the liquor licence under the Liquor Act is not known, but that in any event, control of premises for the purposes of the Liguor Act is not the sane thing as control for the purposes of establishing liability at common law. -37- I have not exenined the question of the liability of the debtor to the petitioning creditor. The purpose of this application is to determine whether I should embark on tht exercise. However, it is relevant to know whether or not the debtor hes reasonable prospects of establisning his case if I were to embark on the enquiry. If it was clear that he had no possisle cass whatever, clearly that would be relevant in determining whether I shouiad embark c ue) fo) o ct ion Li) D i} Q [7 H he Likewise, if it was clear that he hed a very strong prospect of successfully defending the action of the petitioning fa an oO ia) creditor that would be a reason te be balanced in the se the judgment. I am satisfied that there is a reasonably jiefence open to the debtor on the material before me. ft say nothing whatever as to the ultimate prospects of success if the question were to be fully examined. ve This is not an easy question to resolve. Although I do not accept that D. A. Cameron, Gillingham & Co. did not have instructions from the debtor to act for him in the District Court proceedings, indeed I accept that whatever steps they took in those proceedings must he treated as having been taken within the scope of their retainer, the fact is ni ST: smegma ot Saye eee -38- that the debtor has not presented his case to a court. tiowevar he has had an opportunity to Go so. He cculd have done it at the criginal hearing; but this was not done, no doubt because his solicitors filed a notice of no longer acting. Judge Collins did not make findings as to the merits. These are weighty reasons why this court should consider going behind the judgment. On the other hand, the petitioning creditor sustained injury because 2a chandelier fell on her head at th William Street premises on 19 July 1973, more than six years ago. The case against the debtor was heard with two other 'cases involving separate defendants and separate causes of action but all causing injury to her neck. of damage to be reopened at this stage woul be unjust to the petitioning creditor. I aske his client would be prepared, if I should take the view that I should go behind the judgment, to agree that that course should be taken only in respect of liability, so tnat if liability is found against the debtor then the damages wiil m tand assessed as they were by Judge Goran. The debtor o a) Gecitined to accede to this course. TET Further. prejudice would be susteined by the petitioning cra: because more than six years have passed since the accrual o any cause of action she may have, whether it be against the deotor, or Sydney Discothegue Pty. Limited, hence, prima facie, the cause of action would be statute barred under the Limitation of Actions Act 1969 (N.S.W.). Also, although the a D petitioning creditor could have sued Sydney Biscotheque Pry. Limited alternatively to suing the debtor, the fact is thet the third party notice was issued and served by the debtor upon Sydney Discotheque Pty. Limited so that, so-far as the petitioning creditoi was concerned, the question cf liability as between the debtcr and the company would have been ironed out in the District Court proceedings. It was throug no fault of the petitioning creditor that the third party notice proved ineffective. In all the circumstances, although it is not necessary for me to go behind the judgment in view of the fact that I have found the bankruptcy notice to be invalid, in my opinion that is not a case in which I would go behind the judgment. -40- Tho bankruptcy notice is a nullity. As to costs, although the debtor argument on the validity cf the bankruptcy notice, he ha: uy a on the question whether the court should go if judgment. I think the proper order for costs I erder that the petition be dismissed pectitionina creditor pay cne-h including the costs of all cos=s. Tne District Court file of D. A. Cameron Gillingham & Co. rel Distcict Court litigation between the parties ma | certify that this and tha eee fy ket, a pages are a trus cconpy cf ihe Reasons for Jucement herein of his Honour Mr. Justice Leckhart. [oa nner ranean eae tear eer tc tenlteneeretrrearnnenne ~ " at has won c rm ie) Ut we Oo LO} cr behind the is that the costs of the