Re Balas, Barbara Ex Parte Challenge Bank Ltd [1995] FCA 956

IN THE FEDERAL COURT OF AUSTRALIA ) BANKRUPTCY DISTRICT ) No. VP509 of 1995 OF THE STATE OF VICTORIA ) RE: BARBARA BALAS Judgment Debtor EX PARTE: CHALLENGE BANK LIMITED Judgment Creditor CORAM: Jenkinson J. PLACE; Melbourne DATE: 24 November, 1995 REASONS FOR JUDGMENT

Hearing of a bankruptcy petition. On a summons for judgment filed 10 November 1993 in a proceeding in the Supreme Court of Victoria it was ordered on 3 February 1994 that the debtor pay the petitioning creditor "the sum of $1,000,010.66 together with interest in the sum of $78,116.40". A bankruptcy notice issued on 31 January 1995 and was served on the debtor on 18 April 1995. The notice recited that the judgment creditor, which is the petitioning creditor, "has claimed that the sum of $625,372.68 is the amount due by you to it under a final judgment obtained by the Judgment Creditor against you in the Supreme Court of Victoria at Melbourne 3 February 1994, being a final judgment the execution of which has not been stayed". The notice required the debtor "(a) to pay the sum of $625,372.68 and no more so claimed by the Judgment Creditor to the Judgment Creditor or (b) to secure the payment of the sum referred to in the last preceding paragraph and no more ...". There was evidence, which I accept, that at the date of judgment substantially less was owing by the debtor than the amounts of principal and interest for which judgment was entered. In the calculation of those amounts credit had not been given for the proceeds of the sale of land by which payment of the money lent had been secured. In the latter months of 1993 and the first months of 1994 the debtor had been ill. Although she had engaged a solicitor to act for her during that period, she had not paid him the costs he required and the copy of the judgment shows that there was no appearance by or on behalf of the debtor on 3 February 1994. The amount specified in the bankruptcy notice was less than the balance due under the judgment. After judgment another parcel of land had been sold which was security for the payment of the money lent. In the calculation of the amount specified in the bankruptcy notice credit had been given for the proceeds of both sales, which aggregated $521,532.01. On the date of judgment $783,810.39 was the amount owing, and for which judgment should have been entered. A credit in respect of the proceeds of the second sale of land was allowable on 25 May 1994. Interest on the amount from time to time payable under a judgment debt for $783,810. 39 in the Supreme Court of Victoria would have brought the amount payable in accordance with such a judgment on 31 January 1995, when the bankruptcy notice issued, to more than $632,000. It was submitted for the debtor that the contents of the notice would confuse and perplex the debtor. The debtor gave oral evidence, the admissibility of which was not challenged by counsel for the creditor, that she knew the price agreed to be paid for one of the two parcels of land, but not the price agreed to be paid for the other parcel, that she did not know what interest had accrued since she was told - by her solicitor, she thought - that the amount owing was more than a million dollars, nor what deductions had been made from the selling prices in respect of the expenses of the sales, that she had thought that the parcel of land sold after judgment would sell for much less than the price for which it was in fact sold, and that she could not understand why the amount specified in the bankruptcy notice was not a greater amount. In Kleinwort Benson Australia Ltd. (1988) 165 C.L.R. 71 at 79-81 Mason C.J., Wilson, Brennan and Gaudron JJ. observed: "The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v. Federal Commissioner of Taxation (1955) 93 C.L.R. 631, at p.644; Pillai [1970] A.C., at p.1135. In such cases the notice is a nullity whether or not the debtor in fact is misled: In re A Judgment Debtor, 530 of 1908 [1908] 2 K.B. 474, at p.481. If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s.41(2)(a)(i) - the only requirements presently relevant - are met. Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice. It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice. ............................................... There could thus be no uncertainty as to what would constitute compliance with the notice. The notice cannot be regarded as capable of misleading and accordingly cannot be said to be a nullity. The understatement thus constituted a formal defect or irregularity which attracts the operation of s.306(1) of the Act. Section 306(1) operates automatically unless `the court ... 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'. In the present case no evidence was presented and no claim was made of actual injustice. There was thus no basis upon which an opinion could be formed to deny the operation of s.306(1)." In this case the notice cannot in my opinion be regarded as capable of producing uncertainty as to what would constitute compliance with its requirements. In James v. Federal Commissioner of Taxation (1955) 93 C.L.R. at 644 the High Court observed : "The court cannot inquire whether the debtor has been misled". If such an inquiry were permissible, there is nothing in her testimony or in the circumstances to justify a conclusion that the debtor was misled by this notice, however it may have perplexed her. No evidence was adduced that the irregularity in the notice had caused the debtor injustice. She was not at any material time, the evidence suggests, in a position to pay or secure payment of the debt or to make any realistic offer to compromise the debt. I hold the bankruptcy notice to be valid. The hearing of the petition will proceed. I certify that this and the 4 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.