Re Mcdonald; Ex Parte Elder Smith Goldsbrough Mort Ltd [1978] FCA 4; (1978) 32 FLR 11 (1 March 1978)

FEDERAL COURT OF AUSTRALIA

Re McDonald; Ex Parte ELDER SMITH GOLDSBROUGH MORT LTD. [1978] FCA 4; (1978) 32 FLR 11
Bankruptcy

COURT

FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
Riley J.(1)

CATCHWORDS

Bankruptcy - Creditor's petition - Bankruptcy notice claiming unpaid balance of judgment debt and statutory interest thereon - Amount of balance and interest wrongly understated - Wrong rate of interest specified in notice - Failure to state that only unpaid balance of judgment debt claimed - Whether notice invalid - Bankruptcy Act 1966, s.306 (1). The creditor's petition for a sequestration order was based on the failure of the debtor to comply with a bankruptcy notice, the creditor having obtained judgment with costs in the Supreme Court of New South Wales against the debtor. The notice claimed a sum as owing under the judgment together with statutory interest calculated in accordance with, and specified in, the notice at a rate of five per cent per annum. The debtor had paid part of the judgment debt before service of the notice. However, the notice wrongly claimed less than the sum still due and unpaid, and was silent as to the difference between the amount paid and the balance. Moreover, the appropriate statutory interest rate was ten per cent and not five per cent as stated in the notice, so that the amount claimed in the notice was further in error. The petition was opposed by the debtor on the ground that the bankruptcy notice was invalid.

Held: (1) Where by statute a judgment debt carries interest the judgment creditor may include in his bankruptcy notice a claim for interest.

Re Mullavey; Ex parte Australia and New Zealand Bank Ltd. [1977] FCA 17; (1977), 32 FLR 1; Re Lehmann; Ex parte Hasluck (1890), 7 Morr 181; Re O'Keefe; Ex parte Australian Factors Ltd. (1963), 19 ABC 101, referred to.

(2) The bankruptcy notice must require payment according to the terms of the judgment and must state the amount that is claimed as remaining unpaid on the judgment debt, and if less than the real amount due is claimed then the notice should clearly state that nothing more is claimed to be due on the judgment than the amount specified in the notice. A notice claiming part only of a judgment debt, leaving any balance due to be subsequently claimed, is clearly bad.

Re H.B., (1904) 1 KB 94, applied.

(3) The understatement of the judgment debt should not attract the operation of s. 306 (1) of the Bankruptcy Act 1966, as the totals of the claims for unpaid debt and for interest were understated by amounts sufficient to prevent its application. A claim for interest on a judgment debt in a bankruptcy notice must be accurately calculated and specified.

Re Davis; Ex parte Deputy Commissioner of Taxation (1963), 19 ABC 100; and Re O'Keefe; Ex parte Australian Factors Ltd. (1963), 19 ABC 101, referred

(4) The bankruptcy notice was invalid and the petition should be dismissed.

Quaere, whether a bankruptcy notice is invalid where there has been part-payment of a judgment debt before the notice and the notice simply claims, and accurately states, the unpaid balance, but does not identify it as such or state that nothing more is claimed, or refer to the part-payment.

Re H.B., (1904) 1 KB 94; Re Jack; Ex parte C.V. Holland (Holdings) Ltd. (1959), 19 ABC 268; and Nirens v. Fowler Asphalt Pty. Ltd. (1966), 9 FLR 255, referred to.

HEARING

Sydney, 1978, March 1. 1:3:1978
CREDITOR'S PETITION.

The material facts appear from the judgment.

A.S. Morrison, for the petitioning creditor.

J.M. Ireland, for the debtor.

Solicitors for the petitioning creditor: Minter Simpson & Co.

Solicitors for the debtor: M. J. Maloney & Associates.

DECISION

MARCH 1.
The following judgment was delivered.
RILEY J. This petition for a sequestration order is based on the debtor's failure to comply with a bankruptcy notice. It is opposed by the debtor on the ground that the bankruptcy notice is invalid. (at p12)

2. Though there is some ambiguity in the wording of the certificate of judgment filed with the application for the issue of the bankruptcy notice, it is not disputed that the petitioning creditor on 17th February, 1975, obtained against the debtor in the Supreme Court of New South Wales a judgment for $10,648.75 for debt and $98 for costs - a total of $10,746.75. By reason of s. 95 (1) of the Supreme Court Act, 1970 (N.S.W.) and Pt 40, r.7 (2) (b) of the Supreme Court Rules, interest at the yearly rate of ten per cent was payable on so much of that sum of $10,746.75 as was from time to time unpaid. (at p12)

3. C.A. Sweeney J. has pointed out in Re Mullavey; Ex parte Australian and New Zealand Bank Ltd. [1977] FCA 17; (1977) 32 FLR 1 that where by statute a judgment debt carries interest the judgment creditor may include in his bankruptcy notice a claim for interest (see Re Lehmann; Ex parte Hasluck (1890) 7 Morr 181, at p183 per Cave J.) but that he need not, and in practice often does not, do so: see Re O'Keefe; Ex parte Australian Factors Ltd. (1963) 19 ABC 101, at p104 where Clyne J. remarked that to amend the bankruptcy notice by striking out an impermissible claim for interest "would be to turn what is a basically invalid notice into a valid notice". (at p12)

4. In the present case the bankruptcy notice did include a claim for interest. It recited that the judgment creditor "has claimed that the sum of $8,213.50 together with interest thereon at the rate of $5 per centum per annum from 17th February, 1975 . . . which at the date of issue of this notice amounts to $1,016.24 making a total of $9,229.74 is due by you to it under a final judgment obtained by it against you in the Supreme Court of New South Wales on 17th February, 1975, being a judgment the execution of which has not been stayed", and then notified the debtor that he was required within a specified time "to pay the sum of $9,229.74 so claimed by the judgment creditor" to the judgment creditor or to adopt one of the usual alternatives. (at p13)

5. In fact the debtor on 12th January, 1976, had paid $2,435.25, so that the unpaid balance of the judgment debt as at 3rd May, 1977, was $8,311.50 (and not $8,213.50); interest ran at the yearly rate of ten per cent (not five per cent) on $10,746.75 from 17th February, 1975, to 12th January, 1976, and on $8,311.50 thereafter until 3rd May, 1977, amounting (accurately enough for present purposes) to $2,049.44 (and not $1,016.24), and the total as at 3rd May, 1977, of unpaid debt plus interest was $10,360.94 (and not $9,229.74). (at p13)

6. Leaving aside for the moment the claim for interest, this case may be described as one in which, part of the judgment debt having been paid, the bankruptcy notice claimed, as being due under the judgment, an amount less than the balance which, after the part-payment, in fact remained due and unpaid; and was silent as to the difference between that amount and that balance. (at p13)

7. That description precisely fits the case of Re H.B. (1904) 1 KB 94, at p103 , in which the bankruptcy notice was held to be invalid, and in which Romer L.J. said: "Now I think it is clear that, when you have a judgment in the form that we have here, a bankruptcy notice under the Act must require payment of a sum alleged to be due according to the terms of the judgment - that is to say, it must state the amount that is claimed as remaining unpaid on the judgment debt. Clearly, in a bankruptcy notice the debtor is entitled to see from the notice exactly what is claimed to be due on the judgment debt. No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment beyond the amount specified in the notice. But a notice to pay part of a judgment debt, leaving any balance that may be due to be subsequently claimed, is, to my mind, clearly bad". (at p13)

8. It is not necessary to consider whether the understatement by $98 of the judgment debt should attract the operation of s.306 (1), because the bankruptcy notice must be looked at as a whole, and it includes a claim for interest. Where a judgment creditor chooses to include such a claim in the bankruptcy notice, he must accurately calculate the amount of the interest and specify it in the notice: Re Davis; Ex parte Deputy Commissioner of Taxation (1963) 19 ABC 100 ; Re O'Keefe; Ex parte Australian Factors Ltd. (1963) 19 ABC 101 . (at p13)

9. Here, the rate of interest was wrongly stated and the amount of interest due was wrongly calculated, with the result that both it and the total of the claims for unpaid debt and for interest were understated by amounts amply sufficient to prevent any application of s. 306 (1). (at p14)

10. In my opinion the bankruptcy notice is invalid. (at p14)

11. It may be as well to remark before leaving the case that the principles enunciated by Romer L.J. in the passage set out above have been regarded as applicable in cases where no part of the judgment debt has been paid and the bankruptcy notice simply understates the amount remaining unpaid: Re Jack; Ex parte C. V. Holland (Holdings) Ltd. (1959) 19 ABC 268 ; Nirens v. Fowler Asphalt Pty. Ltd. (1966) 9 FLR 255, at p 256 ; but that his Lordship's statement was not directed to the case where, part of the judgment debt having been paid, the bankruptcy notice simply claims, and accurately states, the unpaid balance and does not also identify it as such, or specifically state that nothing more is claimed, or refer to the part-payment. If such a case arises for decision, attention will have to be paid to, inter alia, the remarks of Vaughan Williams L.J. in Re H. B. (1904) 1 KB, at p 105 . (at p14)

12. In the present case, having come to the conclusion that the bankruptcy notice is invalid, I dismiss the petition and order the petitioning creditor to pay the debtor's costs, including reserved costs. (at p14)

ORDER

Order accordingly.