CATCHWORDS Bankruptcy - application to have bankruptcy notice set aside - effect of a bankruptcy notice claiming an amount 1n excess of sum owed - s. 53(ii) Bankruptcy Act. 1966 - misleading to debtor test - strict construction of bankruptcy notices - bankruptcy notice invalid - should be set aside. Bankruptcy Act, 1966 s.53(ii) Re: RONALD DAVID GREENHILL ex parte: MYER (NSW) LIMITED No. B 4056 of 1984 Morlinag J. 6 December 1984 Sydney. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT ) ) ) ) OF THE STATE OF NEW SOUTH WALES ) No. B4056 of 1984 ) AND THE AUSTRALIAN CAPITAL ) ) ) TERRITORY RE: RONALD DAVID GREENHILL Ex parte: MYER (NSW) LIMITED ORDER JUDGE MAKING ORDER : Morling J. DATE OF ORDER : 6 December 1984 WHERE MADE : Sydney THE COURT ORDERS AS FOLLOWS: 1. Bankruptcy notice set aside. 2. Respondent to pay applicant's costs. IN THE FEDERAL COURT OF AUSTRALTA GENERAL DIVISTON BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES No. B4056 of 1984 AND THE AUSTRALIAN CAPITAL wee wD TERRITORY RE: RONALD DAVID GREENHTLE Ex parte: MYER (NSW) LIMITED CORAM: Morling, Jd. DATED: 6 December 1984 REASONS FOR JUDGMENT This case raises a nice question as to the validity of a bankruptcy notice. On 4 September 1984 Myer (NSW) Limited (the judgment creditor) served a bankruptcy notice on Ronald David Greenhill (the judgment debtor) requiring him to pay the sum of $4,587.84 within twenty-one days of service of the notice. This sum was expressed to be due under a final judgment for $4,426.50 recovered against the judgment debtor in the Court of Petty Sessions at Castlereagh Street Sydney, together with interest on the judgment. It is common ground between the parties that prior to the entry of the judgment the debtor had paid the sum of $200 2. to the judgment creditor in respect of his indebtedness and that accordingly judgment was wrongly entered for the sum of $4,426.50. The amount for which the judgment should have been entered was $4,226.50. The debtor made an application to the Court of Petty Sessions to set aside the judgment upon which the bankruptcy notice was founded. However, the debtor was not represented when the application was called on for hearing and the application was refused. After the bankruptcy notice was served upon the debtor he applied to the Court for an extension of time to comply with its requirements, and that application was granted. The debtor gave notice pursuant to s. 41(5) of the Bankruptcy Act 1966, as amended, that he disputed the validity of the notice on the ground that the judgment was for an incorrect amount. Sub-section 41(5) provides that a bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed, gives notice to the creditor that he disputes the validity of the notice on the ground of the mis-statement. On these facts the debtor claims that the bankruptcy notice is invalid and should be set aside because it claimed an excessive amount. Section 41(5) of the Bankruptcy Act 1966 is, 3. for relevant purposes, in the same terms as the second proviso to 5.53 of the Bankruptcy Act 1924-1950. As Clyne J. pointed out in Re Prossimo; Ex parte De Marco (1952) 16 A.B.C. 86, at 88, the proviso was enacted to overcome the decision in In re A Debtor (No. 478 of 1908) (1908) 2 K.B. 684. In that case a bankruptcy notice required the debtor to pay the amount of the judgment debt due to a creditor and in addition a further small sum not due by the debtor to the creditor. The court held that this was not a formal defect and that the notice was invalid. In Re Prossimo Clyne J. said (at pp. 89, 90): "The effect of these words in the proviso contained in cl.(ii) 1s to prevent under certain conditions a notice from being invalid by reason of an overstatement of the amount actually due. But, in my opinion if there is in the bankruptcy notice an overstatement of the amount actually due and the notice under s.53(ii) is given by the debtor to the creditor, then the bankruptcy notice is invalid." In Re Murray (1959) 18 A.B.C. 152 Clyne J. held that a bankruptcy notice issued for any amount larger than that for which the judgment creditor is entitled to issue execution, namely the sum actually due under the judgment, is invalid. The reasoning in that case is consonant with the reasoning which led his Honour to hold in Prossimo's Case that the bankruptcy notice was invalid. 4. In Re Williams; Ex parte Alberton Electrical Service Pty. Limited (1982) 43 A.L.R. 552 a judgment was obtained in the Local Court of Adelaide by default of appearance of the debtor for $1405 as claimed in the summons and $126.60 for costs. The amount of $1405 comprised $1307 due to the judgment creditor for work and labour provided to the debtor and $98 collection expenses. A bankruptcy notice was issued for the total of $1531.60. The debtor gave notice pursuant to s.41(5) of the Bankruptcy Act disputing the validity of the notice on the ground that the amount due was over-stated and made application to the court for an order that the bankruptcy notice was invalid. Fisher J. upheld the debtor's submission. He held that as the debtor was under no obligation to pay the collection fees, the judgment in respect of that amount was improperly entered. The judgment was therefore $98 in excess of the amount actually due by the debtor and the bankruptcy notice, by reason of the over-statement was invalid. In reaching his decision his Honour followed the decisions in Re Prossimo and Re Murray. In Re Walsh (1982) 47 A.UL.R. 751 Lockhart J. considered whether an over-statement in a bankruptcy notice of the amount due necessarily avoids the notice. He was of the opinion that it had this consequence if the over-statement could reasonably mislead the debtor on whom it is served, but not otherwise. He was of the view that cases such as Re Prossimo and Re a Debtor (1908) 2 K.B. 684) were not 5. inconsistent with this view but that, if they were, he would decline to follotwz them. The facts in Walsh's Case were quite different from the facts in the present case. The bankruptcy notice issued in that case correctly stated the amount due by the debtor to the judgment creditor at the time when the notice was issued, but some payments were made to the judgment creditor on behalf of the debtor between the date of issue and the date of service of the bankrutpcy notice. The question which arose for decision in that case was, therefore, whether a bankruptcy notice is valid if it requires the judgment debtor to pay a sum which is in fact due at the date of issue of the notice, when the amount due under the judgment has been reduced by payments made thereafter but before the date of service. Lockhart J. was of the view that to say that a bankruptcy notice is necessarily bad because it over-states the amount which is, 1n fact, due by the debtor by no matter how small a sum is too wide a proposition. He thought that generally such a notice would be bad, but that there may be circumstances which in a particular case would save the notice from invalidity. One such circumstance would be if the over-statement could not reasonably mislead the debtor on whom the notice is served. Counsel for the judament creditor in the present case sought to rely upon these observations of Lockhart J. because the evidence in the present case shows that the judgment creditor wrote to the debtor prior to service of the bankruptcy notice pointing out that the amount owed by the debtor was $200 less than the amount shown in the judgment. It was contended that the debtor was not misled in any way and that therefore I should not follow Re Prossimo, Re Murray and Re Williams. Notwithstanding the observations of Lockhart J. in Re Walsh, I think I should follow the above cases. The decision of Lockhart J. in Re Walsh was carried on appeal, first to the Full Court and then to the High Court. In the Full Court, Re a Debtor, Re Prossimo and Re Williams were all referred to but were not discussed since it was said they did not touch upon the point under appeal. (See 47 A.L.R. 616 at 620). But in the High Court, Gibbs C.J., Mason, Brennan, Deane and Dawson Jd. said: "There is no doubt that a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s.41(5) of the Bankruptcy Act 1966 (Cth), as amended, that he disputes the validity of the notice on that ground." See Walsh v Deputy Commissioner of Taxation (1984) 58 A.L.J.R. 368. It is true that this dictum of the High Court was strictly obiter, but nevertheless it is precisely in point and it 15 strongly confirmatory of the correctness of the decisions in Re Prossimo, Re Murray and Re Williams. ween See 7. Consistent with the above authority I think that I should hold that the bankruptcy notice served upon the debtor 1s invalid. In a sense this is an unfortunate resuit, since the ground of invalidity can fairly be said to be technical. However, as Fisher J. observed in Re Williams, the practice of the courts exercising jurisdiction in bankruptcy is to construe bankruptcy notices strictly and to require strict compliance with the provisions of the Act. The consequences of non-compliance with a bankruptcy notice are serious and there is the highest authority that strict compliance with the requisites of a bankruptcy notice is essential to its validity. See James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631 at 644. For these reasons I find that the bankruptcy notice is invalid and should be set aside. The respondent must pay the costs of the application.