Re Andrew George Clubb Ex Parte: Andrew George Clubb v Westpac Banking Corporation [1990] FCA 4 (16 January 1990)

FEDERAL COURT OF AUSTRALIA

Re: ANDREW GEORGE CLUBB
Ex parte: ANDREW GEORGE CLUBB
And: WESTPAC BANKING CORPORATION
No. N B3510 of 1989
FED No. 33
Bankruptcy - Practice - Time

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
BANKRUPTCY DIVISION
Burchett J.(1)

CATCHWORDS

Bankruptcy - amount claimed - bankruptcy notice excessive - power to extend time to give notice under s.41(5) - discretion where failure to give notice was a solicitor's error - calculation of interest for broken portion of leap year by daily rate assuming year of 365 days - bankruptcy notice set aside.

Practice - interest on judgment under supreme court act 1970 (NSW) - interest at a "yearly" rate apportioned for period in a leap year but on basis there are 365 days in a year - excessive interest.

Time - leap year - effect in law.

Bankruptcy Act 1966 (Cth) s.41(5)

De Anno et Die Bissextili 1236 (1256)(England)

The Calendar (New Style) Act 1750 (UK) ss.1,2,3

Imperial Acts Application Act 1969 (NSW) ss.5, 16, sched.1

Supreme Court Act 1970 (NSW), s.95(1)

Supreme Court Rules (NSW) Part 40, r.7(2)

HEARING

SYDNEY
16:1:1990

Counsel for the Applicant: Mr M. R. Aldridge

Solicitors for the Applicant: Messrs Gordon & Johnstone

Counsel for the Respondent: Mr F.C. Corsaro

Solicitors for the Respondent: Minter Ellison

ORDER

The time for the giving of notice under s.41(5) of the Bankruptcy Act 1966 that the debtor disputes the validity of the bankruptcy notice the subject of this application on the ground that the sum specified in the bankruptcy notice as the amount due to the creditor exceeds the amount in fact due be extended to and including 9 November 1989.

The bankruptcy notice be set aside.

The respondent pay the applicant's costs of the application to set aside the bankruptcy notice, but such costs shall not include any costs involved in the application for extension of time or in the obtaining of any relief consequential only upon the need to obtain an extension of time, and the applicant pay any costs incurred by the respondent by reason of the application for extension of time or as a result of any application by the applicant necessitated only by the requirement to obtain an extension of time.

NOTE: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

DECISION

When Julius Caesar decreed that from the year now known as 45 BC onwards there should be adopted the Julian calendar, with its provision for recurring bissextile or leap years, he not only set the scene for a well known Gilbertian jest; he also set the scene for the problem posed by the present case. For the basic question is whether, in calculating a proportionate amount, for a part of a year, of interest due at a yearly rate, the year in question being a leap year, it is permissible to convert the yearly sum to a daily rate by dividing by 365, or whether it is essential to include the intercalary day, thus making the divisor 366. This question has arisen in respect of a bankruptcy notice served on behalf of Westpac Banking Corporation upon the applicant.

2. The bankruptcy notice claims the sum of $427,938.29, being the balance of a final judgment of the Supreme Court of New South Wales obtained on 3 May 1985,
"together with interest on the balance of the

said judgment outstanding from time to time
calculated at the rates prescribed in the
Supreme Court Rules (ie the Rules of the
Supreme Court of New South Wales) ... from 4
May 1985 and which at 10 August 1989 amounts
to $311,039.39 making a total of $738,977.68".

The period mentioned included a leap year, the year 1988. The amounts of interest claimed by the notice, and set out in a schedule to it, included the following:

$ $
"Period Balance Days Amount
Interest at the rate of 19.5 per centum per annum from 1 July
1986 up to and including 1 November 1987
. . .
21.04.87 - 01.11.87 427,938.29 195 44,581.79
Interest at the rate of 18.0 per centum per annum from 2 November
1987 up to and including 1 March 1988
02.11.87 - 01.03.88 427,938.29 121 25,535.61
Interest at the rate of 15.0 per centum per annum from 2 March
1988 up to and including 28 February 1989
02.03.88 - 28.02.89 427,938.29 364 64,014.88
. . ."

3. It was not disputed that the day of the first date shown in respect of each of the periods specified, as well as the day of the last date, was included in the calculation of the number of days involved, and that the period of 121 days covering the month of February 1988 included the day 29 February. But each of the calculations of amounts of interest, set out above, derives an amount of interest, proportionate to the annual rate specified, by dividing the interest for a year by 365 and multiplying by the stated number of days. As a consequence, interest for the year from 3 May 1987, which I will call a judgment year because the judgment was obtained on 3 May 1985, has in effect been calculated by multiplying the appropriate rate (it happens that this rate has varied during the year more than once) by the balance of the judgment outstanding by a fraction of which the numerator is 366 and the denominator 365. The true position would perhaps be more readily apparent if the rate had not changed during the year, and a single calculation of that kind had actually been made. The result of such a calculation is of course to add to the nominal rate a further sum of one 365th of it.

4. Counsel for the applicant calculated (and counsel for the bank did not dispute his figures) that the amount of $25,535.61, interest claimed for the period 2 November 1987 to 1 March 1988, exceeded by $69.77 the amount which would have been calculated had the denominator of the fraction representing the proportion of the year in question, as well as its numerator, included the extra day, 29 February 1988. He did not provide calculations for the other portions of the judgment year, but I have calculated that, on the same basis, the sum of $44,581.79 includes in respect of the 182 days of the judgment year up to 1 November 1987 an excess of $113.69, and that the sum of $64,014.88 includes in respect of the period of 63 days following 1 March 1988 up to 3 May 1988 an excess of $30.27. If, therefore, it is erroneous to calculate interest, for periods of days included in a year of 366 days, by a calculation which assumes a year of 365 days, the total error in the present case is an excess of $213.73.

5. The authorities confirm that "a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s. 41(5) of the Bankruptcy Act 1966 (Cth), as amended, that he disputes the validity of the notice on that ground": Walsh v. The Deputy Commissioner of Taxation of the Commonwealth of Australia [1984] HCA 33; (1984) 156 CLR 337 at 339; Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 5 FCR 84 at 86; Re Serafino; Ex parte Classic Manufacturing Pty Ltd (1989) 86 ALR 283 at 285. But s.41(5) of the Bankruptcy Act is in the following terms:

"A bankruptcy notice is not invalidated by
reason only that the sum specified in the
notice as the amount due to the creditor
exceeds the amount in fact due, unless the
debtor, within the time allowed for payment,
gives notice to the creditor that he disputes
the validity of the notice on the ground of
the mis-statement."

6. In the present case, the required notice was not given on 6 November 1989, which was the last day for it to be given, but on 9 November. The evidence, which I accept, shows that the reason was an oversight on the part of the applicant's solicitor, who had been instructed within time and, being aware of the requirements of the Act, had intended to serve a notice within time. In those circumstances, I am asked to make an order extending the time by three days. The bank disputes the court's power to extend the time specified in s.41(5); it also argues that, if I have a discretion, I should exercise it against the applicant.

7. As regards the power to extend time, the applicant relies on the decision of Pincus J. in Re Wilhelmsen; Ex parte Gould (1986) 11 FCR 107, which is directly in point and affirms the court's power. I respectfully agree with that decision.

8. As regards the discretionary considerations, the bank relies on the issue and setting aside of several prior bankruptcy notices; but it does not seem to me that I should give significant weight, as a consideration adverse to the applicant, to the fact that he has previously exercised his legal entitlement to object to bankruptcy notices which admittedly did not comply with the Act. A more important question is the effect of the solicitor's error. In Jess v. Scott (1986) 12 FCR 187 at 190, the full court asserted: "the modern view is that 'a failure by a solicitor to take the proper steps could itself be regarded as establishing sufficient cause for an extension of time': Martin v. The Nominal Defendant (1954) 74 WN(NSW) 121 at 125 per Walsh J. ... ." In this case, I take into account the shortness of the time involved, the promptness with which the matter was attended to when the error was realized, the absence of any prejudice which cannot be cured by an appropriate costs order (to which the applicant offers to submit), the nature of the overstatement alleged, the promptness with which the applicant himself acted, and the other circumstances to which counsel for the parties directed my attention. I have concluded that it is an appropriate case in which to grant an extension of time. The time will therefore be extended.

9. The first matter to be examined, in considering the question whether the claim for interest in the bankruptcy notice is excessive, is the nature of the obligation to pay interest in respect of a judgment of the Supreme Court of New South Wales. Section 95(1) of the Supreme Court Act 1970 (NSW) provides:

"Where judgment is given or an order is made
for the payment of money, interest shall,
unless the Court otherwise orders, be payable
at the prescribed rate from the date when the
judgment or order takes effect on so much of
the money as is from time to time unpaid."

By Part 40 rule 7(2) of the Supreme Court Rules it is provided:

"The prescribed rate of interest for the
purposes of section 95 of the Act ... is -
. . .
(g) after 1 July, 1986, and on or before 1
November, 1987 - 19.5 per cent yearly;
(h) after 1 November 1987 and on or before
1 March 1988 - 18 per cent yearly;
(i) after 1 March 1988 and on or before 28
February 1989 - 15 per cent yearly;
. . . ."

It will be seen that the effect of the Act and the Rule is to impose an obligation to pay interest on a judgment at rates, which vary during the relevant period, each of which is stated as a percentage "yearly".

10. (I should note here that the rate applicable at the time of entry of the judgment, that is, on 3 May 1985, was 13.5% yearly. An argument was advanced on behalf of the applicant that the subsequent variations of the rate could not be applicable, as counsel put it, retroactively, in respect of this judgment; but it was conceded that the submission was in the teeth of the decision of Hunt J. in Kelly v. John Fairfax & Sons Ltd (1987) 9 NSWLR 369. There was no attempt in argument to analyse the reasons for that decision (which counsel accepted I would follow), and in the circumstances I do not think I should undertake an independent examination of the issues discussed in it.)

11. The real question is that which arises from the bank's calculation of its claim for interest by breaking a bissextile year of 366 days into groups of days which add up to 366 and then calculating amounts of interest, proportionate to the appropriate yearly rates, on a basis which assumes a year of 365 days only. For the applicant, it was contended that this plainly involved claiming more than the amount of interest fixed under the statute in respect of the year. For the bank, it was contended that the word "yearly" in Part 40 rule 7 of the Supreme Court Rules has reference to a common year of 365 days. Counsel cited Halsbury 4th edition volume 45 para.1102, where the expression "common year" is used as referring to a year which consists of 365 days. But the same passage proceeds, with respect to leap years, to state:

"In any period of a year in which the month of
February has twenty-nine days there must be
366 days. Any child born on 29th February or
on any previous day in a year in which
February has twenty-nine days must live 366
days to complete his anniversary."

12. The bank's submission echoes an ancient remedy for problems created by the insertion of the extra day into the bissextile year. In the statute 21 Henry III De Anno et Die Bissextili 1236, provision was made (at least for certain purposes) for the intercalary day to count as one with the preceding day, 28th February. In the words of the statute, "that Day, and the Day next going before, shall be accounted for one Day". (Some references to this Act assign to it the year 1256 A.D. and the regnal year 40 Henry III; as "40 Hen 3 (Stat Bissex)", it was repealed in England by the Civil Procedure Acts Repeal Act 1879 - see Halsbury ubi cit. supra, footnote 3.)

13. In the New Zealand case Sunnyvale Services B O P Ltd v. Bhana (1986) 1 NZLR 314 at 318, Gallen J. assumed the ancient statute of Henry III had created a convention "that for the purposes of calculation of fixed periods of time a half year was deemed to consist of 182 days". That, in an instrument, the expression "half year" may be construed as referring to a period of 182 days is supported by In re Brewis; Brewis v. Brewis (1946) VLR 199. But the suggested convention would not, of course, determine the issue in the present case, which is not concerned with calculating any fixed period by reference to a half year. If, however, the statute were to be applied directly to the present problem, I do not think it would help the bank. For the bankruptcy notice does not treat the day 29 February 1988 as an intercalary day to be reckoned as one with the preceding day; it claims interest for that day, excluding it only for the purpose of converting the statutory yearly rate to a daily rate.

14. In the United States, the authorities keep referring back to the early decision in Helphenstine v. Vincennes National Bank (1879) 32 Am Rep 86. There, the ancient English statute was cited, but treated as irrelevant to the 19th century legal problems of Indiana. At page 91 of the report the Supreme Court of Indiana concluded:

"Each of the 28th and 29th days of February, in
the leap-year, is a day of twenty-four hours'
duration; and where these two days occur in
any period of days less than one year, we are
clearly of the opinion, that under the law of
this State, they ought to be and must be
regarded and computed as two days, and not as
one day, for any purpose."

In the later case Sanguinetti v. Sanguinetti (1937) 111 ALR 342, the Supreme Court of California, sitting in banc, held at 345 that a modern re-enactment of the statute "applies to periods measured in years, half years, or quarter years. ... It does not apply where the period is measured in days." The same view was taken in Walker v. Hazen (1937) 90 F (2d) 502 at 503, where authority was cited which dismissed the statute 21 Henry III as "passed in a barbarous age to produce uniformity of time".

15. Whether or not the New South Wales legislature regarded De Anno et Die Bissextili as "barbarous", it appears to have repealed that enactment, so far as it may have been in force in New South Wales, by s.8 of the Imperial Acts Application Act 1969 (NSW). By ss. 5 and 16 and the first schedule of the same Act there were substituted for ss. 1, 2 and 3 of The Calendar (New Style) Act 1750, in their application to New South Wales, the provisions of s.16 of the New South Wales Act. It is still necessary, in construing s.16, to have regard to the context of the English Act (see s.5(5)). The Calendar (New Style) Act 1750 was passed in order to bring the English calendar into line with that in use in other countries, in particular in taking each new year as having its beginning on 1 January, instead of 25 March as formerly, and in adopting the revision of the Julian calendar known as the Gregorian calendar. To avoid the problem of future accumulation of the very slight error involved in making each fourth year a leap year, s.2 provided that the years 1800, 1900, 2100, 2200, 2300

"or any other hundredth years of our Lord,
which shall happen in time to come, except
only every fourth hundredth year of our Lord,
whereof the year of our Lord two thousand
shall be the first, shall not be esteemed or
taken to be bissextile or leap years, but
shall be taken to be common years, consisting
of three hundred and sixty-five days, and no
more; and that the years of our Lord, two
thousand, two thousand four hundred, two
thousand eight hundred and every other fourth
hundred year of our Lord, from the said year
of our Lord two thousand inclusive, and also
all other years of our Lord, which by the
present supputation are esteemed to be
bissextile or leap years, shall for the
future, and in all times to come, be esteemed
and taken to be bissextile or leap years,
consisting of three hundred and sixty-six
days, in the same sort and manner as is now
used with respect to every fourth year of our Lord."

Section 16(2) of the Imperial Acts Application Act, 1969 (NSW) simply repeats this provision in modified language; what should be noted for present purposes is that it refers to "common years consisting of three hundred and sixty-five days, and no more", and to "leap years, consisting of three hundred and sixty-six days, (reckoned) in the same manner as was before the ... first day of January, one thousand seven hundred and fifty-two used with respect to every fourth year."

16. In The King v. The Inhabitants of Roxley (1829) 5 Man & Ry KB 40, the question was whether a year of service had been completed by service for 365 days where the period included the February of a leap year. Lord Tenterden C.J. is reported as contenting himself with saying: "When a leap year occurs, a year must be understood to mean 366 days". But Bayley J. relied on the statute law to justify the same conclusion. He said: "The statute 24 Geo I, c.23, s.2, speaks of bissextile, or leap year, consisting of 366 days." The reference to George I must be a mistake for George II, as is indicated (though still not accurately) by another report of this case sub nom. The King v. The Inhabitants of Roxby [1829] EngR 737; (1829) 10 B & C 51; 109 ER 370. There are other verbal, but not substantial, differences between the reports. The point made by Bayley J. remains true in respect of s.16(2) of the Imperial Acts Application Act 1969 (NSW). A footnote has been inserted in the report of The King v. The Inhabitants of Roxley, perhaps by the reporter, which carries to my mind the force of common sense: "There appears to be no more reason for designating as a year a period of 365 days, which falls short of a complete revolution of the earth in its orbit, than a period of 366 days, which exceeds it." To like effect is the decision of the majority in the somewhat earlier case The King v. The Inhabitants of Worminghall [1817] EngR 544; (1817) 6 M & S 350; 105 ER 1274, where virtually the same question had arisen. Lord Ellenborough C.J. said: "In those years which consist of 366 days, a hiring and service for a year must be for that same number of days; in like manner as when the year has 365 days, it must have continuance during that number." Bayley J. said: "One day was wanting to complete the year; for in leap-year, the statute (24 G 2, c 23) enacts that the year shall consist of 366 days." But the third member of the court, Holroyd J., referred to the ancient statute of Henry III, saying: "The statute for regulating the bissextile year ordains, that in leap-year the intercalary day with the day preceding it shall be accounted as one day."

17. The Roxley and Worminghall cases support the applicant. The courts declined to treat 365 days as a standard or conventional year when a leap year was involved. The position is a fortiori in respect of a shorter period of days falling within a leap year. There is nothing nominal about 29th February; it takes its place in the succession of days of the week as a Sunday or other designated day - there are not two Sundays (allowing the added day to be nominal) because one is an intercalary day. It is the year which is conventional, its length being adjusted artificially to correct an error of approximation in the calendar. Some support for the applicant is also to be found in the United States decision American Timber & Trading Company v. First National Bank of Oregon [1975] USCA9 183; (1974) 511 F 2d 980, which was concerned with a bank's method of calculating a daily interest rate by assuming twelve months consisting of thirty days each and dividing the annual interest sum by 360. Statutory interest rates expressed as percentages per annum were involved. The court at 983 held that the interest claimed by the bank was "usurious" because "computation of interest on the 360 day year would result in a borrower paying more in one year than at the maximum legal rate when computed on a calendar year." At 984 the court added: "Any claim by the banking industry that ease of calculation is justification for exacting higher interest is of dubious validity in this age of computer technology." Although I have placed no weight on this consideration, it is notorious that apportionment tables do make provision for leap years, so that the point made by the United States court is equally applicable to the present case. An example is Coote's Apportionment Tables (1966), published by The Law Book Company Limited.

18. The method pursued by the bank in the present case, as indicated earlier in these reasons, produces in respect of a leap year a total charge for interest exceeding that which the Supreme Court Act imposes. It would also produce the curious anomaly, if applied to a portion of a leap year consisting of 365 days, that the interest for that portion of the leap year would be identical with the interest which could lawfully be exacted for the full year.

19. For these reasons, I have concluded that the bankruptcy notice is invalid and must be set aside.