JUDGMENT No. omaO Oy ott. CATCHWORDS BANKRUPTCY - application to set aside bankruptcy notice - reduction in debt since issue of notice - bad faith - substance of other grounds subject of earlier decision Bankruptcy Act 1966 ss 40(1)(g), 306(1) Walsh v Deputy Commissioner of Taxation [1984] 156 CLR 337 Kleinwort Benson Australia v Crowl [1988] 165 CLR 71 hiel nd_anor _v Australia and New Zealan nkin rou Limited Einfeld J unreported 14 July 1994 Shields and anor v Australian and New Zealand Banking Group Limited Full Court of Federal Court (Neaves, Burchett, Hill JJ) unreported 3 March 1994 v4 IELDS and NNIFER MAR' T_ SHIEL! v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED N 3118 of 1993 EINFELD J SYDNEY 22 NOV 1994 FEDERAL COURT OF 11 NOVEMBER 1994 AUSTRALIA PRINCIPAL REGISTRY IN_THE FEDERAL COURT OF AUSTRALIA ) BANKRUPTCY DISTRICT ) No. N 3118 of 1993 TATE OF NEW WALE: ) Re: ISAAC _ JOHN _ MACKAY TEL AND F MARGARET SHIELDS Judgment Debtors Ex parte: AUSTRALIA AND _NEW ZEALAND IN LIMITED Judgment Creditor MI E_OF ORDER: 1. Application to set aside the bankruptcy notice dismissed. 2. Time for compliance with the notice extended to 18 November 1994. 3. In the event that a sequestration order is made on a petition based on this notice, the creditor's costs of this application are to be treated as the petitioning creditor's costs. If no such sequestration order is made, then the debtors are to pay the creditor's costs of the application. Note: Settlement and entry of orders are dealt with in Rule 124 of the Bankruptcy Rules. EINFELD J SYDNEY 11 NOVEMBER 1994 IN_THE FEDERAL COURT OF AUSTRALIA BANKRUPTCY DISTRICT TA' Wi No. N 3118 of 1993 wee Re: ISAAC __ JOHN _ MACKAY SHIELDS AND __ JENNIFER MARGARET SHTELDS Judgment Debtors Ex parte: AUSTRALIA __AND_ __NEW ZEALAND BANKING _GROUP LIMITED Judgment Creditor EINFELD J SYDNEY 1 R_1994 This application by Isaac and Jennifer Shields (the debtors) for the setting aside of a joint bankruptcy notice issued against them on 20 August 1993 was filed on 16 February 1994. The notice claims the sum of $139,829.37 and interest. On 14 July 1994 I dismissed an application by the debtors to have this application heard by a jury: Shields and anor vy Australia and New Zealand Banking Group Limited, as yet unreported. The bankruptcy notice was issued pursuant to a judgment debt created by orders made by consent by Justice Morling. The debtors have since applied without success to another Judge of the Court, and a Full Court, to have Justice Morling's orders set aside. The debtors, who are representing themselves, have filed voluminous written submissions that are both difficult to understand or not relevant to the issues involved in the application. Their most recent submissions, filed on 1 August 1994, run to 17 pages, excluding various attachments. The -2~-~ submissions in a broad sense appear to raise six matters said to justify the setting aside of the notice: (a) that the notice does not detail how the amount on its face was calculated (b) that the debtors have a set-off, cross-claim or cross demand in terms of section 40(1)(g) of the Bankruptcy Act 1966 (the Act) (c) that there was no debt behind the judgment upon which the notice is based {d) that the notice overstates the amount actually owed (e) that the notice is not in the correct form (£) that the notice is an abuse of process The first two grounds may be dealt with quickly. On 9 November 1993 Justice Hill heard an application to set aside this notice which at the time had only been served on Mr Shields. That application was made on three grounds: (a) that the notice did not detail how the $139,829.37 said to be owed was calculated -3- (b) that Mr Shields had a counter-claim, set-off or cross demand of a value at least equal to the amount demanded (c) that there was no debt behind the judgment His Honour rejected Mr Shields' arguments on the first two grounds, and it is inappropriate that they be considered again now. In any event I have read and considered his Honour's reasons on those points and respectfully agree with them. On the issue of whether he could "go behind" the judgment debt, his Honour declined to make a definitive finding either way, although he refused to set aside the notice on that ground. He noted that the debtors had been unsuccessful before Justice Wilcox on 20 July 1993 in having the original orders of Justice Morling set aside, but that the matter was awaiting a hearing before a Full Court. He agreed on that basis to extend the time for compliance with the notice pending the outcome of that appeal. Justice Beazley made similar orders in respect of Mrs Shields on 22 February 1994. Although the present application is made jointly by both debtors, on these points it is in substance identical to the application made by Mr Shields to Justice Hill. Since the hearing before Justice Hill, a Full Court of this Court (Neaves, Burchett and Hill JJ) in ields and New Zealand Banking Group Limited (unreported 3 March 1994) has dismissed the debtors' appeal. The Full Court adopted Justice Wilcox's conclusion that "this is not a case where judgment was entered without consent". In light of that fact, -4- and the approach of Justice Hill, it would be wholly inappropriate for me to go behind the original judgment, which has been affirmed by four Judges of this Court. In any event the debtors have not produced any evidence to raise even the most modest prima facie inference that the debt does not exist. The debtors further contend that the notice is invalid because the amount on its face, $139,829.37, does not take into account the reduction in the debt as a result of the receipt by the creditor of the proceeds of sale of the debtors' house. This sale occurred after the hearing before Justice Hill, and so was not considered by him. In Walsh v Deputy Commissioner of Taxation {1984} 156 CLR 337 the High Court accepted that a bankruptcy notice may be invalid if the amount specified in the notice exceeds the amount actually due to the creditor, but decided at 340, in a judgment delivered by Chief Justice Gibbs, that: In form the notice speaks as at the date which it bears, that is, the date of its issue... This reinforces the view that the amount which must be correctly stated is the amount of the judgment debt owing at the date of issue. I have not been told at exactly what date the house was sold, but it is clear that it had not been sold when the notice was issued. The bankruptcy notice was therefore issued for the correct amount as at the date of issue, and the debtors' argument on this ground must also fail. -5- The debtors also point to the fact that the bankruptcy notice is not exactly in the prescribed form. Specifically the notice uses the word "thereof" instead of "therefore" so that the relevant part of the notice reads: THEREOF TAKE NOTICE that within 21 days after service of this notice on you, excluding the day on which this notice is served on you, you are required... Section 306(1) of the Act provides: Proceedings under this Act are not invalidated by a formal defect or 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. It is authoritively established that the test to be applied is whether such an irregularity could reasonably have misled the debtors: Kleinwort Benson Australia v Crow] [1988] 165 CLR 71 at 82. Clearly the defect complained of by the debtors could not be reasonably misleading and I must therefore decline the application on this ground. The only other remaining ground of even nominal substance which I have been able to discern from the written and oral submissions of the debtors is that the notice is an abuse of process. The argument advanced to support this submission was that the debtors have no remaining assets other than clothing and personal effects, and that there can therefore be no legitimate advantage to the creditor in pursuing the bankruptcy. Accepting it as -6- true, this fact alone would not provide a basis for a finding of mala fides or any other ground for setting aside the bankruptcy notice. I therefore dismiss the application to set aside the bankruptcy notice. I order that the time for compliance with the notice by both debtors be extended to 18 November 1994. I accept the creditor's submission that it is appropriate to order that, in the event that a sequestration order is made on a petition based on this notice, the costs of the creditor of this application are to be treated as the petitioning creditor's costs. If no such sequestration order is made, then the debtors are to pay the ereditor's costs of the application. I certity that this and the AS Prececing pages are a true 'opy of the The debtors appeared in person Counsel and solicitor for G. Blake instructed by the judgment creditor J. Owen of Norton Smith & Co Dates of Hearing 12 May and 14 July 1994 Written submissions 4 August 1994 completed Date of Judgment 11 November 1994