CATCHWORODS BANKRUPTCY - creditor's petition - bankruptcy notice - effect of failure to claim interest on the judgment debt - notice valid BANKRUPTCY - bankruptcy notice containing handwritten amendment with no initialling or over-stamping - whether debtor could reasonably have been misled or perplexed by bankruptcy notice BANKRUPTCY ACT 1966 QLD. PET. 1517 of 1987 RE KEITH JOHN McALPINE; EX PARTE AMEV FINANCE LIMITED SPENDER J. on oa BRISBANE, tee 14 December 1987. . , roa \ \\ al ~| a "ft "oe ' fa whe \ . - Lt Fr weet OF J. Vand s rat thy IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD PET 1517 of 1987 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND } RE: KEITH JOHN McALPINE EX PARTE: AMEV_ FINANCE LIMITED MINUTE OF ORDER JUDGE MAKING ORDER: SPENDER J. DATE OF ORDER: 14 December 1987 WHERE MADE: BRISBANE THE COURT OPDERS THAT: 1. The petition be dismissed 2. The debtor have half his taxea costs of the opposition to the petition. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ' QLD PET 1517 of 1987 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: KEITH JOHN McALPINE EX PARTE: AMEV FINANCE LIMITED SPENDER J. BRISBANE 14 DECEMBER 1987 EXTEMPORE REASONS FOP JUDGMENT This is a petition by AME'? Finance Limited tor the sequestration of the estate of Keith John McAlpine. A bankcuptcy notice was sought in respect of a default judgment in the sum of $15,673.52, which wag a judament in the Cistriztt Court at Rockhampton on 18 June 1987. The judament by default recited:- "The first and second Defendants not having filed an Entry of Appearance and Defence herein and the Plaintiff having by order of His Honour Judde Dodds dated the tenth day of April, 1987 obtained leave to proceed to judgment against the First and Second Defendants, it is this day adjudged that the Plaintiff recover against the said First and Second Defendants the sum of FIFTEEN THOUSAND SIX HUNDRED AND SEVENTY-THREE DOLLARS FIFTY-TWO CENTS ($15,673.52) for debt and costs to be taxed." N A bankruptcy notice claiming $15,673.52 was 1ssued, and in material respects 1t provided:- "THEREFORE TAKE NOTICE that within 28 days after service of this Notice on you, excluding the day on which this Notice is served on you, you are required: The "28" earlier referred to is written in biro over a typewritten word "fourteen", which has been "whited out". There 1s no initialling of the correction or change, nor 1s there any stamping to indicate that that change had been made prior to the issue of the bankruptcy notice. A bankruptcy notice in that form was served on the debtor, Keith John McAlpine. nn the return of the petition, Mr. McAlpine opposed the making of ai sequestration order on two grounds. The first was that there vas an alteration or the face of the bankruptcy notice likely to mislead the debtor, namely, as to the number of days after service chat the act of bankruotcy arose. The second was that the bankruptcy notice specified a fixed amount of money due under a final judgment, namely, $15,673.52. Interest is continuing to accrue upon the judgment debt by virtue of the rules of court and/or the agreement upon which that judgment was obtained and the petitioning creditor has not abandoned or otherwise waived the right to recover such moneys. Notwithstanding the terms of the notice of intention to oppose, the contention based on the question of interest was that, pursuant to s.73 of the Common Law Practice Act Amendment Act 1972, statutory interest at the rate of 12 per cent applied to the amount of the judgment "from the date of the judgment or order on so much of the money as 15 from time to time unpaid." Dealing with the question of the non-specification of abandonment of the amount of interest, 1t seems to me clear that there 1s no defect in a bankruptcy notice which claims simply the amount of the judament debt. There is no necessity in such a bankruptcy notice to specify that no claim is made in resrect of statutory interest which accrues. In Crowl Vv. Fleinwort Benson Australia Limited 'unreported judgment of 10 Julvw 1937), Beaumont J. referred te the general principles in respect of statements of interest in bankruptcy notices. He said:- "The general principles in this area were restated by Lockhart J. in Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co. of Sydney Ltd. (1979) 23 A.L.R. 522 at p. 526: 'It 1s well established that it 18 permissible, though not obligatory, to include in a bankruptcy notice, a claim for interest ona judgment debt which bears interest. In Re Lehmann; Ex parte Hasluck (1890) 7 Morrell 181; Re Cooper £19113 2 K.B. 550; Re O'Keefe (1963) 19 ABC 101; C1964] ALR 561 (a decision of Clyne J); Re Mullavey; Ex parte ANZ Banking Group Ltd (a decision of C A Sweeney J) (1977) 20 ALR 276; Re Munson, supra; and Re Manion: Ex parte Deputy Commissioner of Taxation (a decision of myself) (1979) 23 ALR 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 he specified: Re Mullavey, supra; Re Davis; Ex parte Deputy Commissioner of Taxation (1963) 19 ABC 100; C1963] ALR 764, and Re McDonald (1978) 18 ALR 505. Understatement of the amount of statutory interest accrued from the date of judgment to the date of issue of a bankruptcy notice or other date specified in the notice does not necessarily vitiate the bankruptcy notice. Section 306 of the Act may be capable of operating ta validate a bankruptcy notice that otherwise would be invalid. See the decisien of Riley J in Re Munson, supra, and my own decision in Re Manion, supra.' (See also Re Preston; Ex parte Comm zal Bank of Australia Ltd. /1982) 45 A.L.R. 19 er Sheppard J. at p.109; Re Pinkerton; Ex parte B.G. Textiles Pty.Ltd. (Im Liq.) (1984) 4 F.C.R. 654 per Wilcox J. at p.68; Re Schierholter; Ex parte Gers (1978) 19 A.L.R. 113 per Nimmo and Deane JJ. at opp. 120-121)." The relevant inquiry as to whether a bankruptcy notice 1s valid is whether the notice 15 capable of misleading the debtor as to the manner in which he may comply with its requirements. The High Court said in James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631 at p.644:- "The court cannot inquire whether the debtor has in fact been misled or not. In this case it is probable that he was not misled. It is sufficient that he could be misled. But strict compliance with the requisites of a bankruptcy notice 1s essential to its validity and in these two respects the bankruptcy notice does not comply with these requisites. The defects cannot be regarded as formal defects or irregularities. They are breaches of important provisions of s.53: In this particular case, however, as Lockhart J. observed in Re The Bankruptcy Act 1966; Ex parte Commercial Banking Co. of Sydney Ltd. (1979) 23 A.L.R. 522, it is permissible, though not obligatory, to include in a bankruptcy notice a claim for interest on a judgment debt which bears interest. As the judgment in Re Davis; Ex parte The Deputy Commissioner of Taxation (1963) 19 A.B.C. 100 andicates, if a judgment creditor ain a bankruptcy notice demands vayment of interest, he must calculate and specify im the notice the amount required to be paid, and, 1f in doing that task, he either fails, or miscalculates the interest so as to perplex the debtor, then 1t 1s clear that the bankruptcy notice is bad. Crowl v. Kleinwort Benson Australia Limited (supra! was such a case. The bankruptcy notice, having recited the amount of the judgment debt, said:- "WHEREAS KLEINWORT BENSON AUSTRALIA LIMITED a duly incorporated company having a place of business at Level 27, 60 Margaret Street, Sydney (hereinafter referred to as 'the judgment creditor') has claimed that the sum of $1,399,085.81 together with interest thereon at the rate of 19.5 per centum per annum from 3rd July, 1986 which at 30th September, 1986 amounts to $43,352.49 making a total of $1,442,438.30 is due ..." In that case there was a misstatement in the calculation by more than $23,000.00. The Full Court of the Federal Court (Beaumont and Burchett JJ., Wilcox J. dissenting,) agreed that such a notice was bad. Wilcox J., in dissent but not in respect of a matter which affected the judgment, said:- "It is important to note that a notice 1s not rendered ineffective simply because, upon receipt of the notice, the debtor 1s uncertain whether additional monies will later be claimed. It is clear law that a creditor may issue a_ bankruptcy notice requiring payment only of the judgment debt, without any reference to the interest which has accrued upon the judgment." Mr. Justice C.A. Sweeney in Re Mullavey; Ex parte Australia and New Zeaiand Banking Grour Ltd. (1977) 20 A.L.R. 276 at 282 held:- ",..a bankruptcy notice which simply claimed the amount of the judgment, without reference to interest, was not, by reason of the omission of any reference to interest, a bad notice." Lockhart J. in Re Manion; Ex parte Deputy Commissioner of Taxation (1979) 23 A.L.R. 279 at p. 273, referred to the description by Riley J. of interest on a judgment of the Supreme Court of N.S.W. an Re Munson; Ex parte Deputy Commissioner of Taxation (1977) 7 ATR 560 at 562, where he said:- "A bankruptcy notice must require the debtor to pay 'an accordance with the judgment': s.41(2)(a)(i). In the case of a Supreme Court judgment, interest is payable from the date when the judgment takes effect on so much of the money of which the judgment orders payment as from time to time remains unpaid: Supreme Court Act 1970 3s.95(1); and is a debt necessarily and inevitably attached to the judgment debt: Re Clagett; Ex parte Lewis (1888) 36 W.R. 653. To pay the judgment debt 'in accordance with the judgment' is to pay the amount for which judgment was recovered with the legal interest attached to it by statute: Re Cooper £19113 2 K.B. 550 at 554; and there 1s no doubt that a bankruptcy notice may require the payment of statutory interest: 'The creditor is entitled to have the amount of the interest added to the judgment debt so that the debtor may be informed by the notice that he cannot comply with the notice without paying the interest on the debt': Re Lehmann (1890) 7 Morr 181 at 183, per Cave J. But a bankruptcy notice can 'only demand payment of that which the judgment creditor can enforce payment of', and cannot issue for a sum of money for which execution cannot issue: Re _ Follows C1895] 2 Q.B. 521 at 525, per Vaughan Williams J.; cf. Re O'Keefe (1963) 19 A.B.C. 101 at 103-4. It 1s to be inferred from s.41(5) and (6) that a bankruptcy notice must specify a sum as 'the amount due to the creditor'; and if he demands payment of auinterest the creditor must himself calculate, and must specify in the bankruptcy notice, the amount required to be paid: Re Davis (1963) 19 A.B.C. 100; £19633 A.L.R. 754; Re 0'Keefe, supra." In my opinion, a creditor is entitled to issue a bankruptcy notice for the amount of the judgment debt and make no reference in the notice to any question of statutory interest which attaches to that judgment debt. On the first point, however, it was submitted that a debtor served with a notice as previously described would, consistent with the authorities, be perplexed. There 1s no 1nitialling or over-stamping of the correction which appears on the bankruptcy notice, and the position simply is that a person served with such a notice would be unaware whether the changes made in the bankruptcy notice had occurred prior to or after the issue of the bankruptcy notice by the Registrar. The judgment creditor submitted that in the circumstances there had been non-compliance with the notice on its face, and that one could take account of the fact that there had been no attempt to inquire or to comply with either the fourteen or twenty-eight days reference in the notice. It seems to me that such a change in the bankruptcy notice does render 1t bad. In Clyne v. Deputy Commissioner of Taxation (No.4) (1982) 66 F.L.R. 301, the bankruptcy notice in issue in that case appears as a schedule to the judgment of Lockhart J. at 313. It appears that the word "fourteen" had been crossed out, but was still legible. and superimposed over 14 was the word "Twenty-eight" with an asterisk, accompanied by the initial "JH"; the Deputy Registrar who issued the notice being J.P. Hasson. A further asterisk appeared on the notice accompanied by the words "Amended pursuant to Order of Court of 25th May 1982", signed J.P. Hasson, Deputy Registrar. Of these changes, Lockhart J. said at 305: "First the applicant submitted that the notice was misleading in that it stated the period within which compliance was required as being 'fourteen' days in the typed form, yet over the word 'fourteen' there was handwritten in red colour 'twenty-eight' together with the asterisk referring the reader's attention to the other asterisk in the top right-hand corner where reference was made to the amendment pursuant to the court order of 25th May, 1982. The applicant submitted that the debtor would be in a quandary as to the period within which compliance was required. I do not know why the bankruptcy notices served on the applicant and his solicitor pursuant to the court's order did not show the word 'fourteen' struck out and 'twenty-eight' substituted so that it would have been obvious that compliance with the requirements of the notice was required within twenty-eight days after service of the notice on the applicant. The order allowed the bankruptcy notice to be amended by the substituting 'twenty-eight' for 'fourteen'. Plainly this required striking out the reference to 'fourteen' and uiunserting 'twenty-eight', otherwise there could not be the substitution of the latter for the former. However this was not done. If the notice were to be read by itself without reference to the copy of the court's order which accompanied 1t in the post when served on the debtor, in my view it would be misleading and fundamentally defective." Lockhart J. referred to his observations in Re Wong; Ex parte Kitson (1979) 38 F.L.R. 207, where he said at 217:- "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 and unambiguous. Noncompliance with its requirements constitutes an act of bankruptcy with quasi penal consequences. If it is equivocal, generally the equivocation must be resolved in favour of the debtor." This bankruptcy notice was unaccompanied by any document, and the observations of Lockhart J. are apposite to the circumstances here. It may be thought that this defect, as I so regard it, has very little merit, but when one considers that 10. bankruptcy notices are accompanied by quasi penal consequences, it must necessarily follow that an error of this kind which does have the capacity to perplex a person on whom it is served should be visited with the consequence of invalidity. It is also a matter of regret that it seems that this defect existed in the bankruptcy notice when it was issued, and that, in a sense, the Registrar was a party to it. However, in my opinion, the consequence must be that the bankruptcy notice 1s bad, and I therefore dismiss the petition. On the question of costs, there are two issues raised affecting the validity of the bankruptcy proceedings, only one of which was successful. The other seemed to me, while occupying a degree of time in argument, to have no real prospects of success. But, more importantly, 1t seems that the question of the validity of the bankruptcy notice has been raised only at the petition stage, and the court ought not to be seen to encourage a party to lay by and raise objections only at the petition stage which could have been earlier taken. Having regard to these competing considerations, I think that a just order to make by way of costs, and the order that [I do make, is that the debtor have half his taxed costs of the opposition to the petition. I certify that this and the preceding 9 pages are a true copy of the Reasons for Judgment of Justice Spender iu DL aH Associate 14.12.1987 11. Counsel for the Petitioning Creditor: Mr. R. Perry instructed by Hyland & Co. Counsel for the Debtor: Mr. P.E. Hack instructed by Morris Fletcher & Cross Date of hearing: 14 December 1987