453 CATCHHORDS BANKRUPTCY - Order for substituted service of bankruptcy notice not precisely complied with - Whether formal defect or irregularity or whether service of bankruptcy notice nullified - Whether substantial and irremediable injustice caused - Defect raising possible technical defence not necessarily misleading within section 306 - Defect of procedure not adversely affecting debtor - Section 306 applied. Bankruptcy Act 1966 s.306(1) Pillai v. Comptroller of Income Tax [19703 AC 1124 Re Long (1975) 6 ALR 338 Re Florance; Ex parte Turimetta Properties Pty. Ltd. (1979) 36 FLR 256 RE: McCORMAC; EX PARTE: TAYLOR No. P. 690 of 1985 Burchett J. Sydney 13 September 1985 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISTON BANKRUPTCY DISTRICT OF THE STATE No. P.690 of 1985 OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: LEIGH McCORMAC EX PARTE: HERBERT ALBERT FREDERICK CHARLES TAYLOR MINUTE OF ORDER OF THE COURT Judge Making Order: Burchett J. Date of Order: 13 September, 1985 Where made: Sydney THE COURT ORDERS THAT: (1) (2) (3) (4) (5) I find the debtor has committed the act of bankruptcy alleged in the petition. Iam satisfied of proof of the other matters of which the Act requires proof. I note that Richard John Grellman, a registered trustee, has consented to act as the trustee of the estate of the debtor. I make a sequestration order against the estate of the debtor. I order that costs (including reserved costs) be taxed and paid according to the Act. JA 2. (6) I direct that a draft of this Order be delivered to the Registrar within seven days in accordance with Rule 124(2). NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. P.690 of 1985 BANKRUPTCY DISTRICT OF NEW SOUTH WALES AND THE AUSTRALTAN CAPITAL TERRITORY RE: LEIGH McCORMAC EX PARTE: HERBERT ALBERT FREDERICK CHARLES TAYLOR REASONS FOR JUDGMENT BURCHETT J. This is a creditor's petition brought upon the ground of non-compliance with a bankruptcy notice. fhe bankruptcy notice was not served personally. An order for substituted service was made by the Registrar on 19 February 1985°1n the following terms: "Le Personal service of Bankruptcy Notice No. B344 of 1984 be dispensed with. 2. A true copy of the Bankruptcy Notice signed and stamped by the Deputy Registrar in Bankruptcy together with a sealed copy of the Orders made by a Deputy Registrar on 16th July 1984 and on 15th January 1985 extending time for service of the Bankruptcy Notice together with a sealed copy of this Order be served on or before 2nd March 1985 as follows:- (a) By pre-paid registered post addressed to the judgment debtor at 2 Llandillo Avenue, Strathfield in the State of New South Wales; and (b) By pre-paid registered post addressed to Mr. Edward McCormac, 2 Llandillo Avenue, Strathfield in the State of New South Wales; and (c) By personal service on any person apparently over the age of sixteen years at 2 Llandillo Avenue, Strathfield in the State of New South Wales. 3. A Notice be published on or before 2nd March 1985 once in a Sydney daily newspaper in form Bl at P. 861 of the Australian Bankruptcy Law & Practice varied to meet the requirements of this Order. 4. Service in accordance with this Order shall be deemed good and sufficient service of the Bankruptcy Notice upon the debtor. 5. The Bankruptcy Notice shall be deemed to be served on the debtor on 2nd March 1985." The bankruptcy notice the subject of this order recited a final judgment in the Supreme Court of New South Wales in sum of $41,689-31 and certain interest thereon and continued: "THEREFORE TAKE NOTICE that within twenty-one (21) days after the 2nd day of March 1985 you are required..." (the notice specified the usual requirements. ) the The solicitors acting for the judgment creditor arranged for the steps referred to inthe order to be taken. The requisite documents were sent by pre-paid registered post addressed to the judgment debtor and to Mr. Edward McCormac as required. These registered letters were sent on 25 February 1985 and have never been returned unclaimed. The required notice appeared in the Sydney Morning Herald on 2 March 1985. However the remaining requirement of personal service on a person apparently over the age of 16 years at 2 Llandillo Avenue, Strathfield, was not, despite a number of attempts, able to be fulfilled until 3 March 1985, that is one day after the date specified in the order. I am asked to hold that this is an irregularity within 5.306 of the Bankruptcy Act, 1966 which has not caused substantial injustice. S.306(1) reads as follows: "(1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court. " As was pointed out by the Privy Council in Pillai v. Comptroller of Income Tax £1970] AC 1124 at 1135: "It 1s implicit in the section (the reference is to a section in all material respects corresponding to s.306(1)) that proceedings in bankruptcy may be so defective as to render them a nullity notwithstanding that no substantial and irremedial (sic - scil. irremediable) 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 (sic) injustice has been caused." (See also Van Reesema v. Official Receiver (1983) 50 ALR 253 at 262 and 268, and James v. Federal Commissioner of Taxation (1955) 93 CLR 631 at 644 where "breaches of important provisions" of the requirements for a valid bankruptcy notice were held to be "defects (which) cannot be regarded as formal defects or irregularities".) An example of the distinction between those defects which can, and those which cannot, be regarded as formal defects or irregularities, seems to be provided by the requirement that, unless an order for substituted service be made, a bankruptcy notice must be served personally (see Re Long (1975) 6 ALR 338). At p.343 Walters J. said: "T have come to the conclusion that the failure of the petitioner to prove personal service of the bankruptcy notice on the debtor 1s not a formal defect, or an irregularity, which can be corrected by bringing it 'within the umbrella' of s.306 of the Act. In this context, I think I may suitably apply the words of Bowen Ld in Re Howes; Ex parte Hughes [£18921 2 QB 628 at 632: 'IT do not regard this as a mere technical matter, for bankruptcy proceedings are of a peculiar character. They involve quasi-penal consequences to the debtor, and it is essential that all those forms, the object of which is to prevent injustice, should be strictly followed.' It is my opinion that the want of personal service of the bankruptcy notice on the debtor makes the petition founded on it a nullity, despite the debtor's subsequently acquired knowledge of the existence of the notice, and even though there 1s no proof 'of substantial injustice having been done to him by the defect in service." In Re Long, supra, the bankruptcy notice did not come to the attention of the debtor for some eight to ten days after the occasion when it was delivered to his home, but not personally served on him. However the judgment expressly indicates dissent from the obiter dictum of Philp J. in Re Goldberger £19581 QWN 41 to the effect that a failure to serve personally a bankruptcy notice, if it had been handed to the debtor's wife and had in fact come to the attention of the debtor on the same day, would not have invalidated the bankruptcy notice. Doubt about that decision had been previously expressed by the learned authors of McDonald, Henry and Meek, Australian Bankruptcy Law & Practice (4th Edition, page 85). The current edition of the Australian Bankruptcy Law & Practice (the 5th Edition) at para.218 continues to assert the same doubt, which was also expressed in Re Fairlie; Ex parte Armco Australia Pty. Ltd. (1969) 14 FLR 65 at 67. That case emphasised, as I respectfully think rightly, the pivotal role of a bankruptcy notice, and its quasi-penal consequences, as pointing to the need to insist that its essential requirements are not mere matters of form - a proposition also recently stressed by Morling 7. in Re Greenhill; Ex parte Myer (NSW) Ltd. (1984) 58 ALR 185 at 188. However I think there is a distinction to be drawn between a failure to effect personal service, where personal service is required, and a defect consisting of a failure to comply precisely with the requirements of an order for substituted service. Such an order is made upon the basis' that personal service cannot and will not be effected. It substitutes a procedure which, while not amounting to service upon the judgment debtor, will probably bring the document to his notice. If a defect in the following of that procedure is of a kind which still leaves it probable that the document did come to the judgment debtor's notice, and a fortiori if he probably received notice within the same period that was originally contemplated, I do not think the case will necessarily fall on that side of the line drawn by the Privy Council on which are proceedings so defective as to be rendered a nullity. The Court will have to examine the nature of the particular defect; it may be merely an Lrreguiarity. I think such cases as Re Long, supra, are therefore distinguishable, and that it is necessary in the present matter to consider whether the petitioning creditor's problem can be cured by resort to s.306(1). The issue of a bankruptcy notice is a proceeding in bankruptcy: Pillai ov. Comptroller of Income Tax, supra, at p.1131; Re Long, supra, at p.341; Re Copley; Ex parte Sundell (1964) 20 ABC 229 at 230. The next question is whether the departure from the precise terms of the order for substituted service amounted to an irregularity which did not cause substantial and irremediable injustice. The classical statement of the test is that which the Privy Council in Pillai's case (supra), at p.1135, drew from the judgment of Harman Jd. in In re A Debtor (No. 21 of 1950), Ex parte The Debtor v. Bowmaker Ltd. £1951] Ch. 313. The passage reads: "What, then, is a 'formal defect or arregularity' within the meaning of the section? This was discussed in relation toa bankruptcy notice in In re A Debtor (No. 21 of 1950), Ex parte The Debtor v. Bowmaker Ltd. £19511 Ch. 313, in which 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 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 subsequent 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 whom it is served is a 'formal defect' and validated by the section." In the application of this test, I think there is a distinction between a defect, for example in the information conveyed by the bankruptcy notice, which may mislead the debtor as to what must be done to comply with the notice, and a defect, for example in the procedure followed or the authentication of the notice, which, if the debtor were to observe it, might 8. possibly lead him to think that a technical legal point could be taken, to avoid the necessity of compliance, but would not mislead him as to what he is required to do - required, that is, unless he is prepared to take the risk of assuming that no compliance at all is necessary. In the latter type of case, 1t seems to me that a debtor who elected to stand upon some technical point would be in no sense misled; he would simply be taking the risk that his point might fail (cf. Re Tyre Manufacturers' Agreement 1966 2 All ER 849 at 862). In Pillai's case itself the Privy Council had no difficulty in applying a section corresponding to s.306(1) to a bankruptcy notice which did not comply at all with a requirement of the law of Malaysia that it "shall be expressed to be issued by the Chief Judge of the High Court issuing the same in the name of the Yang di-Pertuan Agong." The notice was simply expressed to be issued "by the Court", that is to say, the High Court, without reference to the Chief Justice or the Yang di-Pertuan Agong. It is true that the defect was conceded to be of a kind which could not reasonably mislead the debtor, but it is also ciear from the Advice of the Privy Council at p.1135 of the report that their Lordships regarded the concession as correctly made. There is no hint in the Advice that the proposition could be sustained that the debtor could claim a substantial injustice on the basis that an improperly authenticated notice might have been ignored as ineffective. It is clear law that I am not concerned to enquire what the actual state of mind of the particular debtor was (James_ v. Federal Commissioner of Taxation, supra; Re Wimborne (1979) 24 ALR 494 at 499, 500). The question is rather to be answered objectively upon a consideration of whether or not the defect could reasonably mislead, though that objective inquiry has reference to the particular debtor to whom the notice is directed (Re Wong, Ex parte Kitson (1979) 38 FLR 207 at 211-2). The present case is concerned, not with a defect of form, but with a defect of procedure, which I think amounted to an irregularity within the meaning of the expression in 83.306(1) "a formal defect or an irregularity". The order for substituted service was complied with in all respects except that, there being no-one who answered the door ona number of occasions, delivery to a person over the age of 16, at the house specified, aid not occur till one day after the date by which delivery was directed to take place. Upon the basis that documénts were posted to the debtor, and also to his father, addressed to the same address, on 25 February 1985, and have never been returned to the sender, I find on the probabilities that he had already received notice prior to 2nd March 1985, in any event. It follows that, even if one day's delay could otherwise have been relevant, the debtor was not in fact adversely affected in the circumstances of this case by any diminution of the period of notice to which he was entitled. He has not, of course, appeared to allege any such consequence. I think where a defect of procedure, as distinct from a defect of form, is under scrutiny, it is legitimate to ask, in addition to the question posed in 10. Pillai's case, ie. whether the debtor could reasonably have been misled, the question whether he could reasonably have been adversely affected in any other way. The test laid down in Pillai's case must be read in the light of the fact that the case concerned the contents of a notice, as did the earlier judgment of Harman Jd. cited in the passage I have quoted. (See also Re Manion (1979) 23 ALR 270; Re Wimborne (supra); Clyne v. Deputy Commissioner of Taxation (No. 4) (1982) 66 FLR 301.) The language of such a test must not be treated as an incantation in a case involving an irregularity of a different kind. It is appropriate, where a defective form contains a misstatement or omission, to ask whether it might mislead; but the corresponding question concerning a defective procedure is whether it might adversely affect a party to the proceeding. In Re Florance;: Ex parte Turimetta Properties Pty. Ltd. (1979) 36 FLR 256 at 264 Lockhart J. said, of a situation involving defective service of a petition upon a debtor: "There is no evidence of prejudice or injustice suffered by him because of the defective service." of course, the ultimate question which any such test aims to assist in resolving, is set by the language of the statute: whether substantial and irremediable injustice has been caused. In the present case, I conclude that the debtor was neither misled nor adversely affected by the defective compliance with the order for substituted service. I hold there was an irregularity within s.306(1), by which no substantial injustice was caused. li. Being of this opinion, I made a sequestration order against the estate of the debtor on 11 September 1985, reserving these reasons, which I now deliver. I certify that this and the ten (10) preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Burchett. Ck. Ainehast _ _—_—_ > Associate Dated: 13 September, 1985.