Malek v Macquarie Leasing Pty Limited [2007] FCAFC 14 (22 February 2007)

Last Updated: 22 February 2007

FEDERAL COURT OF AUSTRALIA

Malek v Macquarie Leasing Pty Limited [2007] FCAFC 14

BANKRUPTCY – whether a bankruptcy notice served on the appellant invalid due to a defect – bankruptcy notice not in the form prescribed by the Bankruptcy Regulations 1996 in that it omitted a note to paragraph 7 – whether s 306 of the Bankruptcy Act 1966 (Cth) operated to validate the notice – whether the defect was a "formal defect or irregularity" within the meaning of s 306 – whether the notice in the form served on the appellant was capable of confusing or misleading a debtor – whether the Bankruptcy Act or regulations disclose an intention that the inclusion of the note to par 7 is a requirement of a valid bankruptcy notice – Held: the defect in the notice was a formal defect or irregularity


Acts Interpretation Act 1901 (Cth) ss 25C, 46(1)
Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(2), 306


Bankruptcy Regulations 1996 (Cth) reg 4.02


Adams v Lambert  [2006] HCA 10; (2006) 225 ALR 396 applied
Boylan v Farthing [2000] FCA 875 applied















SHIRIN MALEK v MACQUARIE LEASING PTY LIMITED ACN 002 674 982
NSD 1241 OF 2006

BRANSON, CONTI AND SIOPIS JJ
22 FEBRUARY 2007
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1241 OF 2006

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	SHIRIN MALEK Appellant
AND:	MACQUARIE LEASING PTY LIMITED ACN 002 674 982 Respondent

JUDGES:	BRANSON, CONTI AND SIOPIS JJ
DATE OF ORDER:	22 FEBRUARY 2007
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed.
2. The respondent’s costs to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1241 OF 2006

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:	SHIRIN MALEK Appellant
AND:	MACQUARIE LEASING PTY LIMITED ACN 002 674 982 Respondent

JUDGES:	BRANSON, CONTI AND SIOPIS JJ
DATE:	22 FEBRUARY 2007
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT

INTRODUCTION

1 Macquarie Leasing Pty Limited served a bankruptcy notice on Shirin Malek on 12 June 2005. The bankruptcy notice required Ms Malek to pay a judgment debt of $50 846.09. Ms Malek did not comply with the requirements of the notice. On 2 August 2005 Macquarie Leasing presented a creditor’s petition in the Federal Magistrates Court seeking a sequestration order against Ms Malek’s estate. The act of bankruptcy upon which the creditor’s petition relied was Ms Malek’s failure to comply with the bankruptcy notice. Ms Malek opposed the creditor’s petition on the basis that the bankruptcy notice was invalid because it failed to comply with an essential requirement of the Bankruptcy Act 1966 (Cth) ("the Act") or, alternatively, because it was capable of confusing or misleading the debtor. Each of these grounds of opposition relied on a defect in the bankruptcy notice served on Ms Malek; it omitted a note to paragraph 7 (see [6] below).

2 The learned Federal Magistrate who heard the creditor’s petition was attracted by the argument that the omitted note was essential to a valid bankruptcy notice and that its absence might mislead a debtor. However, his Honour noted that in Boylan v Farthing [2000] FCA 875 Finn J had upheld the validity of a relevantly indistinguishable bankruptcy notice and considered that he should do the same.

3 The appellant contends that this Court should accept the arguments which the Federal Magistrate found attractive and conclude that the bankruptcy notice served on Ms Malek was invalid. For the reasons set out below we reject the appellant’s contention.

STATUTORY REGIME AND FORM OF NOTICE

4 Section 40(1)(g) of the Act provides that a judgment debtor under a final judgment the execution of which has not been stayed commits an act of bankruptcy if, having been served with a bankruptcy notice under the Act, he or she does not –

(a) comply with the notice within the time specified by it; or
(b) within that time satisfy a court having bankruptcy jurisdiction that he or she has a counter-claim, set-off or cross demand equal to or exceeding the judgment that he or she could not have set up in the proceeding in which the judgment was obtained.

5 Section 41(2) of the Act requires a bankruptcy notice to be in the form prescribed by the regulations. Regulation 4.02 of the Bankruptcy Regulations 1996 provides as follows:

(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.

(2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).

(3) Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901.

Note   Under section 25C of the Acts Interpretation Act 1901, where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient; see also paragraph 46(1)(a) of that Act for the application of that Act to legislative instruments other than Acts.

6 Form 1 appears in Schedule 1 of the Bankruptcy Regulations. Paragraphs 1-4 of Form 1 provide for the identification of the creditor, the judgment debt and the time and place for payment. It is not necessary to reproduce those paragraphs here. However, it is appropriate to set out in full the remaining paragraphs, namely pars 5-9:

5. Bankruptcy proceedings may be taken against you if, within the time stated in paragraph 3, above:

(a) you do not comply with the requirements of either paragraph 3 (a) or paragraph 3 (b) above; and

(b) the Court (that is, the Federal Court of Australia or the Federal Magistrates Court) does not extend, or is not deemed to have extended, the time for compliance with this Bankruptcy Notice (see paragraph 6, below).

6. The Court may extend the time for compliance with this Bankruptcy Notice if, within the time stated in paragraph 3 above, you apply to the Court on one or both of the following grounds:

(a) that you have instituted proceedings to set aside the judgments or orders in respect of which this Bankruptcy Notice has been issued;

(b) that you have filed with the Court an application (on one or more grounds, apart from the grounds mentioned in paragraph 7, below) to set aside this Bankruptcy Notice.

7. In addition, within the time specified in paragraph 3 above, you may file an application to the Court for an order to set aside this Bankruptcy Notice on the specific grounds that:

(a) you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in this Bankruptcy Notice as owing to the creditor; and

(b) in the action or proceeding in which the judgments or orders mentioned in paragraph 2 of this Bankruptcy Notice was obtained, you could not have set up that counter-claim, set-off or cross demand*.

*   This means that, because of a legal obstacle, you could not have raised that counter-claim, set-off or cross demand in defence of the creditor’s court action against you. It is not enough if, for example, you simply neglected or overlooked the matter.

8. You should note the following points carefully:

(a) If you file, at the Court, an application mentioned in paragraph 6 (a) or (b), you must still comply with this Bankruptcy Notice within the time stated in paragraph 3 above unless the Court extends the time for you to comply.

(b) If you file, at the Court, an application mentioned in paragraph 7 (a), you need not comply with this Bankruptcy Notice until the Court decides whether you have grounds for a counter-claim, set-off or cross demand. Whether you will have to comply at that stage will depend on the Court’s decision.

WARNING

9. The information in paragraphs 6, 7 and 8 is based on provisions of section 41 of the Act. The information is a summary only, and not a complete statement of the relevant law. It might be unwise to rely solely on this summary. If you need a more detailed explanation, you should seek legal advice.

7 As mentioned above, the bankruptcy notice served on Ms Malek omitted the note to paragraph 7. It included, however, the star symbol at the end of subparagraph 7(b).

8 Section 25C of the Acts Interpretation Act 1901 (Cth), which s 46(1) of that Act renders applicable to Form 1, provides:

Where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient.

9 Section 306 of the Act provides:

(1) Proceedings under this Act are not invalidated by a formal defect or an 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.

(2) A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.

CONSIDERATION

10 As noted above, s 41(2) of the Act requires a bankruptcy notice to be in the form prescribed by the regulations. The form prescribed by the regulations is Form 1 (reg 4.02(1)). The bankruptcy notice served on Ms Malek did not comply with Form 1 because the note to par 7 of Form 1 was wholly omitted.

11 Understandably, neither party contended that a bankruptcy notice which wholly omits the note to par 7 nonetheless substantially complied with Form 1 within the meaning of s 25C of the Acts Interpretation Act (see Adams v Lambert  [2006] HCA 10; (2006) 225 ALR 396 at [22]). For this reason the critical issue to be determined on this appeal is whether s 306 of the Act operates to validate the bankruptcy notice served on Ms Malek.

12 It is plain that the bankruptcy notice served on Ms Malek suffered from a defect or irregularity; a note forming part of the prescribed form was omitted. It is therefore necessary to determine whether that defect or irregularity was "a formal defect or an irregularity" within the meaning of s 306 of the Act.

13 In Adams v Lambert 225 ALR at [26]-[27] the High Court observed:

The question of construction raised by the words "a formal defect or an irregularity" is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authority it was said: "A better test ... is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid ... In determining the question of purpose, regard must be had to ‘the language of the relevant provision and the scope and object of the whole statute’".

If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity. (Citation omitted)

14 As mentioned above, in Boylan v Farthing Finn J gave consideration to a bankruptcy notice which was relevantly indistinguishable from the bankruptcy notice served on Ms Malek. His Honour had regard to the following factors in deciding that the bankruptcy notice was saved by s 306 of the Act. First, his Honour (at [17]) placed weight on par 9 of the bankruptcy notice which explicitly warns the debtor of possible limitations in the information in par 7. Secondly, his Honour (at [18]) observed that the omitted information purported to elaborate and to exemplify what is contained in par 7(b) and was thus of a subsidiary or secondary character to that subparagraph and not essential in its own right. Thirdly, his Honour (at [19]) concluded that the information contained in the note was not of such a character that its omission could reasonably mislead a debtor as to what was necessary to be done to comply with, to extend, or to contest the notice.

15 The appellant did not contend that the High Court decision in Adams v Lambert suggests that the decision of Finn J in Boylan v Farthing should now be seen to be affected by an error of principle. Rather the appellant argued that this Court, after considering the purpose of the Act and evaluating the significance of the omission of the note in the circumstances of this case, should reach the opposite conclusion to that reached by Finn J.

16 The appellant advanced the following submissions:

16. Paragraph 7 requires the debtor to make a crucial choice between complying with the bankruptcy notice or not complying by way of an application under s 41(7). The choice is critical for the debtor because as stated above if her application is unsuccessful there is no power to extend time for compliance and the debtor will have committed an act of bankruptcy.

17. The notes to Paragraph 7(b) in the prescribed form significantly lessen the risk for a debtor.

18. A debtor who neglected or overlooked a counter-claim, set off or cross demand at trial may on reading the relevant notes decide not to make the application to the Court referred to in paragraph 7 and may otherwise comply with the bankruptcy notice.

19. A debtor who neglected or overlooked a counter-claim, set off or cross demand at the trial but without the benefit of the relevant notes may proceed to make a futile application to the Court referred to in paragraph 7 and thereby commit an act of bankruptcy.

17 Whether the admitted defect in the bankruptcy notice served on Ms Malek was "a formal defect or an irregularity" within the meaning of s 306 of the Act depends upon whether the Act discloses an intention that a bankruptcy notice which omits the prescribed note to par 7 should be invalid. This question is to be determined by reference to the language and purpose of the relevant provisions of the Act and the scope and object of the Act as a whole.

18 Plainly the legislature intended that a creditor who seeks to place reliance on an act of bankruptcy under s 40(1)(g) should serve on the debtor a bankruptcy notice in the prescribed form. However, it is not contentious that s 306 has an operation in respect of bankruptcy notices. Some defect in a bankruptcy notice will therefore be compatible with the validity of the notice. Where, as in this case, it is not contended that any injustice has been caused by the defect, a defect compatible with validity is a defect which, having regard to the intention of the legislature and the significance of the defect seen in the context of the notice read as a whole, is appropriately characterised as "a formal defect or an irregularity". A defect will not be characterised as "a formal defect or an irregularity" if it could reasonably mislead a debtor as to what is necessary to avoid the commission of an act of bankruptcy. Nor will it be appropriately so characterised if, for any other reason, the Act is to be understood to render the inclusion of the note an essential requirement of a valid bankruptcy notice.

19 In reaching a judgment as to whether a bankruptcy notice in the form of the notice served on Ms Malek was capable of misleading a debtor about what it was necessary for him or her to do to avoid an act of bankruptcy, it is necessary to identify the nature and significance of the information of which the debtor was deprived by reason of the omission of the note to par 7. Paragraph 7 of the bankruptcy notice itself advises a debtor that the debtor can file an application for an order to set aside the notice on the specific grounds that he or she had a counter-claim, set-off or cross demand in an amount equal to or exceeding the amount specified in the notice that he or she "could not have set up" in the proceeding in which the relevant judgment was obtained. It is of significance that par 7(b) uses the language of s 40(1)(g) of the Act. That language is neither technical nor arcane. The prescribed note to par 7 advises the debtor that a counter-claim, set-off or cross demand that "could not have [been] set up" in the relevant proceeding is one that could not have been raised in the proceeding because of a "legal obstacle". This advice adds little, if anything, of value to the information conveyed by par 7. Similarly, the note advises a debtor that if the debtor "simply neglected or overlooked the matter" he or she will not be able to show that he or she "could not have set up" the counter-claim, set-off or cross demand. This advice similarly adds little of value to the information contained in par 7. The statutory expression "could not have set up" is itself inconsistent with mere failure to set up.

20 Moreover, as Finn J observed in Boylan v Farthing, par 9 of the bankruptcy notice explicitly warns a debtor that the information in par 7 is a summary only, and not a complete statement of the relevant law. The word "warning" in capital letters and large, bold type face immediately above par 9 renders it unlikely that a debtor would pay attention to par 7 but overlook par 9. Additionally, in the bankruptcy notice served on Ms Malek, the unexplained star symbol at the end of subpar 7(b) might be expected to have reinforced the message of par 9 that it might be unwise to rely on the information conveyed by the subparagraph. We do not accept that the unexplained star symbol could, of itself, reasonably have misled a debtor about what it was necessary for him or her to do to avoid an act of bankruptcy.

21 We conclude that the omission of the note to par 7 in the bankruptcy notice served on Ms Malek did not have the consequence that the notice could reasonably have misled a debtor as to what was necessary to avoid the commission of an act of bankruptcy. We turn to consider whether, nonetheless, the Act or regulations disclose an intention that the inclusion of the note is a requirement of a valid bankruptcy notice.

22 It seems to us that the format of Form 1 suggests against a legislative intention that inclusion of the note is critical to the validity of a bankruptcy notice. Form 1 requires the note to be in a smaller typeface than the body of the notice and without emphasis of any kind; that is, presented without the use of bold or italic typeface and without underlining (see reg 4.02(2)). This format is consistent with legislative recognition of the subordinate significance of the note when compared with the substantive paragraphs of Form 1. Moreover, as discussed above, we are not satisfied that the note to par 7 is calculated to convey significant information to a debtor that is not conveyed by par 7 itself.

23 We conclude that the defect in the bankruptcy notice served on Ms Malek was a formal defect or irregularity within the meaning of s 306 of the Act. The Federal Magistrate therefore correctly dismissed Ms Malek’s opposition to the creditor’s petition. The orders appropriate to be made are as follows:

1. The appeal be dismissed.
2. The creditor’s costs to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Branson, Conti and Siopis.

Associate:

Dated: 22 February 2007

Counsel for the Appellant:	Mr B Skinner
Solicitor for the Appellant:	Bowles Lawyers
Counsel for the Respondent:	Ms E Glover
Solicitor for the Respondent:	Douros Lawyers
Date of Hearing:	13 February 2007
Date of Judgment:	22 February 2007