Re Robert Grahame Douglas-Hill and Elsa Douglas-Hill Ex Parte: Antonio Galluzzo and Elma Rita Galluzzo No: 1018 of 1984 Bankruptcy [1985] FCA 4 (23 January 1985)

FEDERAL COURT OF AUSTRALIA

Re: ROBERT GRAHAME DOUGLAS-HILL and ELSA DOUGLAS-HILL
Ex Parte: ANTONIO GALLUZZO and ELMA RITA GALLUZZO
No: 1018 of 1984
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
Fisher J.

CATCHWORDS

BANKRUPTCY - application to set aside bankruptcy notice - whether "final" judgment obtained against debtors - Certificate of judgment including a guarantee by debtors - manner in which courts should construe final judgment or order.

Bankruptcy Act 1966 s.40(1)(g) s.41(3)

HEARING

ADELAIDE
23:1:1985

ORDER

The bankruptcy notice No. 1018 of 1984 be set aside.

DECISION

On 29 October 1984 the judgment creditors applied to the Registrar for the issue of a bankruptcy notice addressed to the debtors. For reasons which will ultimately become apparent the form of application (Form 3) prescribed by Rule 7(1) of the Rules under the Bankruptcy Act 1966 ("the Act") was necessarily varied. Paragraphs 2 and 3 of Form 3 are as follows:

"2. I produce (here state 'an office copy of the final judgment' or otherwise describe the document to be filed in accordance with sub-rule 7(2)) against the judgment debtor obtained by in the court of on the day of

3. Execution of the final judgment (or order) has not been stayed at the time of the making of this application."

The application filed by the judgment creditors was in respect of relevant paragraphs in the following words:

"2. They produce herewith a Certificate of Judgement (incorporating deed of guarantee) obtained by them against Primary Fertilizers Pty. Ltd. in the District Court of Leeton, New South Wales on the 5th day of September 1984.

3. The judgment and verdict of seventeen thousand five hundred dollars ($17,500.00) together with interest at 14.5% making a total of seventeen thousand eight hundred and fifty four dollars and forty five cents ($17,854.45) remains unpaid by Primary Fertilizers Pty. Ltd. at the date hereof.

4. Execution of the final judgment has not been stayed at the time of making this application."

This departure was obviously necessitated by the terms of the Certificate of Judgment dated 12 October 1984 which must be set out in full. It was as follows:

"IN THE DISTRICT COURT OF NEW SOUTH WALES AT LEETON No. 23 of 1983 BETWEEN ANTONIO GALLUZZO and ELMA RITA GALLUZZO
Plaintiffs
AND ROBERT GRAHAME DOUGLAS- HILL

First Defendant
AND JEANNE ELSA DOUGLAS-HILL

trading as NATURES OWN PRODUCTS

Second Defendant
AND KENNETH ROBERT JONES

and MARILYN FAYE JONES trading as K.R. and M.F. JONES

Third Defendants
CERTIFICATE OF JUDGMENT
I, RONALD THEODORUS JOHANNES FRIESEN, Registrar of the District Court

of New South Wales for LEETON, being the officer having ordinarily the custody of the records, documents, proceedings and minuted of the Court at that place, do hereby certify that:
1. In this action there was judgment for the plaintiff on the 5th day of September, 1984, in accordance with paragraph 2 of the Terms of Settlement handed up in Court.

TERMS OF SETTLEMENT
BY CONSENT and without admissions as to liability. 1. PRIMARY

FERTILIZERS PTY. LIMITED be substituted as Second Defendant in lieu of the present second defendant JEANNE ELSA DOUGLAS-HILL. 2. Verdict and judgment for the Plaintiffs against the substituted Second Defendant PRIMARY FERTILIZERS PTY. LIMITED in the sum of SEVENTEEN THOUSAND FIVE HUNDRED DOLLARS ($17,500.00), inclusive of costs. 3. Verdicts for the First and Third defendants against the Plaintiffs with no order as to costs. 4. The Court notes the undertaking and guarantee by Robert Grahame DOUGLAS-HILL and Jeanne Elsa DOUGLAS-HILL as set out hereunder. 5. These terms not to be disclosed.

UNDERTAKING AND GUARANTEE
DEED OF GUARANTEE
In consideration of the Plaintiffs agreeing to compromise and

settle action number 23 of 1983 brought in the District Court of New South Wales at LEETON and further in consideration of the Plaintiffs agreeing to the substitution of PRIMARY FERTILIZERS PTY. LIMITED as second defendant therein, we ROBERT GRAHAME DOUGLAS-HILL and JEANNE ELSA DOUGLAS-HILL jointly and severally undertake and guarantee to the Plaintiffs to pay to the Plaintiffs the said judgment and verdict of
$17,500.00 in the event that the said verdict should remain unpaid by PRIMARY FERTILIZERS PTY. LIMITED at the expiration of 28 days from the date hereof.
2. I am informed by the judgment creditor that no amount has been paid in respect of the judgment

DATED: 5 September, 1984
(Signed) Registrar."

On 30 October 1984 a bankruptcy notice addressed to the debtors was sealed

and issued. It was a fourteen day notice and with one exception was in accordance with Form 4 prescribed by Rule 8. The exception was contained to the preamble which recited that the final judgment was "obtained by the judgment creditors against Primary Fertilizers Pty. Limited". It made no reference to any final judgment having been obtained against the debtors.

On 14 November 1984 each of the debtors filed in the Court an affidavit in similar terms. The body of each affidavit was as follows:

"2. The said notice was served on me on the 5th day of November 1984.

3. No judgment has been obtained against me in any Court by the alleged Antonio Galluzzo and Elma Rita Galluzzo in excess of the amount claimed to be due to the said Antonio Galluzzo and Elma Rita Galluzzo.

4. I personally have a good and valid claim against the said Antonio Galluzzo and Elma Rita Galluzzo in excess of the amount claimed to be due to the said Antonio Galluzzo and Elma Rita Galluzzo.
5. I seek an order setting aside the said notice or alternatively an order prohibiting the said Antonio Galluzzo and Elma Rita Galluzzo from using a petition in bankruptcy against me pursuant to the said notice and costs."

These affidavits were accepted by the Acting Registrar as an affidavit under paragraph 40(1)(g) of the Act to the effect that each of the debtors had a counter-claim of the kind referred to in that paragraph. There was no application under s.41(6A) to extend the time for compliance with the requirements of the bankruptcy notice. However the affidavit in which an application to set aside was contained was filed within the time stipulated for compliance with the bankruptcy notice (Re Sterling [1980] FCA 61; 44 F.L.R. 125) and the application under 40(1)(g) currently remains on foot. Notwithstanding the fact that there was no formal application such as contemplated by Rule 102 to set aside the bankruptcy notice, counsel for the judgment creditors took no point and expressly agreed that I should consider the validity of the notice as a preliminary point. The debtors were not at any stage represented by solicitors or counsel. At the conclusion of the address of counsel for the judgment creditors I indicated that I could not accept that the bankruptcy notice was based on a final judgment or final order against the debtors. Counsel expressed the wish that I make the order to this effect promptly and agreed that short reasons only were necessary. Understandably the debtors concurred with this course.

The requirements of the Act concerning the form and substance of a bankruptcy notice are to be found in s.41. Section 41(3) provides that a bankruptcy notice shall not issue, inter alia,

"(a) except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or . . ."

Paragraph 40(1)(g) repeats the twin requirements that the creditor must have obtained against the debtor a final judgment or order the execution of which has not been stayed and also that there must be a judgment debt or sum payable under the order. Strict compliance with the requirements of the bankruptcy legislation and rules in relation to bankruptcy notices is essential (See Re Wimborne 24 A.L.R. 494 at 498 per Lockhart J. and the cases there cited).

In Opie v Opie [1951] HCA 47; (1951) 84 C.L.R. 362 the High Court considered the requirements of a final judgment or final order. As Dixon and Williams J.J. said on page 372, a final judgment on which a bankruptcy notice can be founded must be a "final judgment obtained in an action by which a previously existing liability of the defendant to the plaintiff is ascertained or established". They also agreed that a "final order", is such an order obtained in a proceeding rather than an action. McTiernan J. cited the observations of Vaughan Williams L.J. in the matter of In re G.J. (1905) 2 K.B. 678 at 680, namely

"There is a series of cases in which it has been held that in order to support a bankruptcy notice there must be what is properly called a 'final judgment' against the debtor for a sum of money . . ."

The comments of Bowen L.J. in Ex parte Blanchett (1886) 17 Q.B.D.303 at p.307 sum up the situation in terms which are here applicable. He said:

"The right to compel a debtor to pay at the risk of committing an act of bankruptcy, by serving on him a bankruptcy notice, is one given only to a creditor who has prosecuted his claim to judgment, and if execution on the judgment has not been stayed, to a creditor between whom and the full fruition of his claim there stands only a process of the law uncompleted. It is only this kind of creditor who is now entitled to issue a bankruptcy notice."

In this matter the judgment creditors have failed in my opinion to establish the right to issue a bankruptcy notice. They have not a judgment, let alone a final judgment, against the debtors even on the reading of the certificate most favourable to them. The only money judgment certified as having been entered was a judgment for the judgment creditors (as plaintiffs) against Primary Fertilizers Pty. Limited for $17,500.00 inclusive of costs. There is no order against the debtors in the proceedings for a sum of money. The certificate purported to record "Terms of Settlement" but in so doing merely recorded the terms of an agreement between the parties in consequence of which they consented to judgment being entered against Primary Fertilizers Pty. Limited for the sum of money. The Court was recorded as noting the undertaking and guarantee of the debtors, but it made no order and entered no judgment in respect of the terms thereof. $17,500 remaining unpaid by Primary Fertilizers Pty. Limited at the expiration of 28 days from that date. There was no evidence before me that it did so remain unpaid and this at least must be established before judgment can be entered for a sum of money against the debtors. The terms of the "Deed of Guarantee" may have to be construed before the exact nature of the agreement between the parties is determined and judgment entered, if appropriate, in favour of the judgment creditors.

Paragraph 2 of the Certificate of Judgment is confusing. From the form of the document it appears that the Registrar was probably certifying that on 5 September 1984 no amount had been paid, on the information given to him by the judgment creditors, in respect of the judgment. Counsel for the judgment creditors accepted this and did not rely upon the paragraph as attempting to establish the position at the date of the certificate.

All the authorities and particularly those where a bankruptcy notice is under consideration indicate that the approach of the Courts is to construe strictly and technically an alleged final judgment or order. As Riley J. said in Re Pannowitz (1975) 6 A.L.R. 287 at p.290 "those words were strictly construed". Moreover as Taylor J. said in Hall v Nominal Defendant [1966] HCA 36; (1966) 117 C.L.R. 423 at p.439 "the practice of the Courts is to confine themselves to the character of the particular order in question". The certificate in this matter has, as against the debtors, none of the characteristics of a judgment or order, let alone a final judgment or order.

In my opinion the bankruptcy notice was invalid and must be set aside as it is not based on a final judgment or final order against the debtors for a sum of money.

The order of the Court is that Bankruptcy Notice No. 1018 of 1984 be set aside as invalid.