Filler v Haskell [2003] FCA 121 (11 February 2003)

Last Updated: 28 February 2003

FEDERAL COURT OF AUSTRALIA

Filler v Haskell [2003] FCA 121

BANKRUPTCY - Whether bankruptcy notice invalid for failing to claim interest - notice made no reference to costs payable to debtor by creditor - no question of principle.

Bankruptcy Act 1966 - ss 40(1)(g), 41(6A)

Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71 applied

ERWIN WALTER FILLER v RICHARD HASKELL

IN THE MATTER OF ERWIN WALTER FILLER

N 7002 of 2003

WILCOX J

11 FEBRUARY 2003

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N7002 of 2003

BETWEEN:	ERWIN WALTER FILLER APPLICANT
AND:	RICHARD HASKELL RESPONDENT
JUDGE:	WILCOX J
DATE OF ORDER:	11 FEBRUARY 2003
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The application to set aside the bankruptcy notice be dismissed.

2. The applicant on the application, Erwin Walter Filler, pay the costs incurred by the respondent to the application, Richard Haskell, including reserved costs.

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	N7002 of 2003

BETWEEN:	ERWIN WALTER FILLER APPLICANT
AND:	RICHARD HASKELL RESPONDENT

JUDGE:	WILCOX J
DATE:	11 FEBRUARY 2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

WILCOX J:

1 This is an application, pursuant to s 41(6A) of the Bankruptcy Act 1966 ("the Act"), by Erwin Walter Filler to set aside a bankruptcy notice that was served on him, or was deemed to have been served on him, on 20 December 2002. The creditor on behalf of whom the bankruptcy notice was issued was Richard Haskell, the respondent. The contention is that the bankruptcy notice is invalid, on two bases.

2 First, it is said the bankruptcy notice misstates the amount of the judgment debt because it makes no reference to interest that is payable on the judgment debt. In order to put this into context I set out the relevant portions of orders that were made in the Supreme Court of New South Wales on 28 February 2002:

"1. There be verdict and judgment for the Plaintiff against the first and second defendants in the sum of $205,000.00.

2. All prior costs orders in the proceedings be vacated.

3. Judgment not be entered until 28 May 2002.

4. In default of the payment of the judgment sum of $205,000 before 28 May 2002, interest is to run on the judgment sum from 28 February 2002."

Mr Filler was the second defendant.

3 It will be seen the scheme of the orders, which were apparently made by consent, is that there be a verdict and judgment for the plaintiff, that is Mr Haskell, against both defendants "in the sum of $205,000". Pursuant to para 3, judgment was not to be entered until 28 May 2002, three months after the date of the order. The apparent intention was to allow time for payment of the sum of $205,000. However the parties addressed themselves to the situation that would arise if payment was not made and they provided (in para 4) that, if payment was not made before 28 May 2002, then "interest is to run on the judgment sum from 28 February 2002".

4 It is common ground that payment of the sum of $205,000 was not made before 28 May 2002 and indeed has not yet been made. The bankruptcy notice contained a schedule in the following form:

Schedule

Column 1	Column 2
1. Amount of judgment or order	$205,000.00
plus 2. Legal costs if orders to be paid and a specific amount was not included in the judgment or order
plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgment or order
4. Subtotal	$205,000.00
less 5. Payments made and/or credits allowed since date of judgment or order
6. Total debt owing	$205,000.00

5 It will be noted that the "total debt owing" was identified as being $205,000. By reason of the blanks left in the schedule, this amount was wholly ascribed to what is called the "amount of judgment or order".

6 It is apparent that the creditor did not seek to include in the bankruptcy notice any amount for interest, notwithstanding that the creditor would have been entitled to interest, as from 28 February 2002, by reason of the failure of the debtor to make payment of the sum of $205,000 on or before 28 May 2002.

7 The failure of the creditor to include in it a claim for interest is the first vice in the bankruptcy notice, according to the submission of Mr Foley, solicitor for Mr Filler. He argued that, having regard to the form of the order, the interest was "an element in the judgment" and therefore must be claimed in a valid notice. Mr Foley said the omission of the interest meant there was a material understatement of the debt.

8 I asked Mr Foley whether the same submission would be available if no reference had been made in the Supreme Court order to interest, but the order had simply followed the common form of entering the amount of a judgment, leaving the Court's rules to provide for the recovery of interest up to the date of satisfaction of the judgment. Mr Foley said he did not contend that the omission of a reference to interest under those circumstances would be a material defect. The difference, he contended, between that case and the present one was that the order itself made provision for interest.

9 I am unable to accept this submission. It seems to me there is no difference in principle between the two situations.

10 There is a body of authority regarding the insertion of interest amounts in bankruptcy notices. The leading case is the decision of the High Court of Australia in Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71. In that case, the bankruptcy notice issued by the creditor understated the amount of interest that was due. Interest was claimed but, through some oversight or arithmetical error, the amount stated on the bankruptcy notice was significantly less than the amount in fact payable. By majority (Mason CJ, Wilson, Brennan and Gaudron JJ; Deane J dissenting) the High Court held the bankruptcy notice was not invalid. In a joint judgment the majority made the unqualified statement:

`Interest due on a judgment debt may, but need not, be included in a bankruptcy notice ..."

11 Their Honours referred to authority going back almost 100 years for that statement and noted the reason was historical, rather than referable to the terms of the Act.

12 An overstatement of interest has the effect of invalidating a bankruptcy notice. The reason for this is a notice containing an overstatement of interest would require a person to make a payment exceeding the amount for which that person is liable. That is obviously different in principle from a notice that requires a person to make a payment that is less than the amount for which the person is liable.

13 It seems to me, with respect to Mr Foley, who has pressed the point with some enthusiasm, that his first argument cannot be accepted.

14 The second matter was more faintly argued. It seems an earlier bankruptcy notice was issued by Mr Haskell against Mr Filler. Some point was taken about this bankruptcy notice, as a result of which it was withdrawn. An order was made in this Court for the payment by Mr Haskell to Mr Filler of the latter's costs in relation to the proceeding involving that bankruptcy notice. Apparently these costs have not been quantified, either by agreement or by taxation; and therefore have not been paid. It may be speculated the amount would be quite small, but it is not possible to say how much it would be. These costs were incurred after the date of the Supreme Court judgment and, plainly, no claim in respect of them could have been made in the Supreme Court.

15 It seems to me the only relevance of the costs order is that, if the amount payable under that costs order was quantified and it equalled or exceeded the sum claimed in the bankruptcy notice, that is to say $205,000, then Mr Filler could comply with the requirements of the bankruptcy notice by establishing to the satisfaction of the Court that he had a claim for the costs: see s 40(1)(g) of the Act. Mr Filler has not attempted to do this and for obvious reasons.

16 Mr Foley ultimately agreed that the only relevance of the costs order would be as a set-off pursuant to the terms of s 40(1)(g) of the Act. Plainly this avenue is not available in the present case.

17 I see no defect in the bankruptcy notice. I dismiss the application to set it aside. I order that the applicant pay the costs incurred by the respondent, including reserved costs.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Associate:

Dated: 28 February 2003

Solicitor for the Applicant:	Mr Michael Foley of Foleys Solicitors
Counsel for the Respondent:	Mr B Skinner
Solicitor for the Respondent:	Mr Robert Stephen
Date of Hearing:	11 February 2003