Case: Adams v Lambert [2006] HCA 10 ; (2006) 225 ALR 396
Outcome: followed
In order to determine the issues in this appeal, it is useful to refer to the recent decision of Snelgrove v Roskell (2007) 157 FCR 313. In that case, Jacobson J considered whether an incorrect reference to the legislation, which was the statutory source of post-judgment interest claimed in the bankruptcy notice, resulted in the bankruptcy notice being invalid. In determining the correct principles to apply, his Honour held (at [29]-[31]): The High Court said in Adams [ v Lambert (2006)] [2006] HCA 10 ; 225 ALR 396 at [18] that if there is a failure to comply with a provision of the Act or the Bankruptcy Regulations 1996 Cth (the Regulations), the first question which must be asked is whether the defect or irregularity is a formal one within the purview of s 306. If it is, it is then necessary to ask whether substantial injustice has been caused by the defect or irregularity and whether the injustice cannot be remedied by an order of the Court. It must be borne in mind that these are separate and distinct questions. The first question, that is, whether the defect or irregularity is formal, involves two levels of enquiry. These were stated by an earlier decision of the High Court in Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34 ; (1988) 165 CLR 71, and applied in Adams [2006] HCA 10 ; 225 ALR 396 at [25] ff. The relevant enquiry is: does the bankruptcy notice fail to meet a requirement made essential by the Act or the Regulations; or could it reasonably mislead a debtor as to what is necessary to comply with the notice; see Kleinwort Benson 165 CLR at 79; Adams 225 ALR 396 at [25]. 25 In determining what is an essential requirement one is guided by the High Court in Adams v Lambert [2006] HCA 10 ; (2006) 225 ALR 396 at [25] - [26] : In some cases the answer to that question may be easy. In others, a difficult question of judgment may be involved. The matter for judgment was identified by this court in Kleinwort Benson [165 CLR 71] at 79-81. In that case, the majority contrasted the concept of a formal defect or irregularity with a defect or irregularity that renders a bankruptcy notice a nullity that cannot be saved by s 306. To describe a defect as merely formal, or to describe a notice as a nullity, is, of course, to state a conclusion, rather than the reason for reaching that conclusion. Even so, it is necessary to identify the question that arises for judgment. The majority, referring to James [ v FCT [1955] HCA 75 ; (1955) 93 CLR 631] at 644 , and Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135 , summarised the exclusionary aspect of the meaning of "a formal defect or an irregularity" by saying [at 79] : The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice. 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 [(1998) [1998] HCA 28 ; 194 CLR 355 at 390-391] 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. " 26 The High Court then considered whether the defect constituted a breach of an essential requirement of the Act (at [28]-[30]) (footnotes omitted): The other exclusionary aspect of the expression "a formal defect or an irregularity" in s 306 was said to consist in a failure to meet a requirement made essential by the Act. Here again, the word "essential", in its application in a particular case, involves a conclusion. If a requirement is made essential by the Act, then a failure to meet that requirement is not a formal defect or an irregularity within the meaning of s 306. Whether a requirement is made essential is to be decided by a process of statutory construction undertaken in the manner described above. The majority in Lewis [109 FCR 33] regarded the error in that case as involving a failure to meet a requirement made essential by the Act. To describe an error or a deficiency in a bankruptcy notice as involving a failure to meet a requirement made essential by the Act is to state a conclusion reached after a consideration of the legislative purpose and an evaluation of the significance or importance of the error or deficiency in the circumstances of the case. That question is not answered by observing that there has been a failure to meet a requirement. In this respect, the majority in Lewis placed undue emphasis on the imperative terms of the Act and Regulations. If there were no failure to meet a requirement, there would be no defect or irregularity. Furthermore, as noted earlier, the fact that the requirement is expressed by the use of the term "must" is not conclusive. How otherwise might a requirement as to form be expressed? The misdescription of the relevant section of the District Court Act was not capable of misleading the respondent as to what he had to do to comply with the notice. This is not a matter of dispute. The question is whether the misdescription involved a failure to meet a requirement made essential by the Act. On the true construction of the Act, is it essential that there be no misdescription of the relevant section? Is it the purpose of the legislation that any slip, such as giving a reference to the statutory provision governing pre-judgment interest when what is intended is a reference to the provision governing post-judgment interest, should invalidate the notice? Is this so no matter how clear it might be from other parts of the notice that the claim is for post-judgment interest? 27 The High Court then decided that the defect fell within the scope of s 306 of the Act (at [31]): Section 306, in its application to bankruptcy notices, makes it plain that some instances of non-compliance with the requirements as to the form of a notice will not invalidate the notice. The practical significance of an error or deficiency could vary according to the circumstances of each particular case. Errors or deficiencies in compliance with requirements as to form may involve questions of degree as well as of kind. At the same time, the decision in Kleinwort Benson shows that an error may be covered by s 306 even though it involves a substantial misstatement of an amount of money. It was essential that the bankruptcy notice state the amount claimed. Was it essential that the amount be correct? Section 41(5) made it clear that an overstatement, even a large overstatement, would not necessarily invalidate the notice. This court concluded that it was not the legislative purpose that a substantial understatement should necessarily invalidate the notice. That is to say, accurately stating the amount of interest owing was not a matter of such importance that error necessarily resulted in invalidity. In the present case, overstatement or understatement of the amount of post-judgment interest owing would not necessarily have invalidated the notice. That is part of the context in which legislative purpose is to be considered in deciding whether the reference to s 83A rather than s 85 was fatal. 29 Before me, the appellant contended that the calculation of interest requirement is made essential by the Act because: &#8226; the purpose of the requirement is to enable the debtor to verify that the amount claimed is in fact due; &#8226; the information required to be provided (namely an interest calculation) is of far greater importance than the requirement under consideration in Adams [2006] HCA 10 ; 225 ALR 396 (to give a precise identification of the provision under which interest is claimed); &#8226; in the usual case, the omission has the potential to "reasonably mislead a debtor as to what is necessary to comply with the notice" in the event of an overstatement, the debtor is entitled to pay the actual amount of the debt and not the overstated amount; &#8226; in the usual case the omission has the potential to prejudice the debtor's ability to exercise rights under s 41(5) in the event of an overstatement, a notice of overstatement must give sufficient information for the creditor to identify what is said to be alleged misstatement. 30 Each of the above submissions is presented in the abstract and without consideration of the basis of the claim for interest in the Notice. I do not consider it helpful to compare and contrast different types of information that may be included in a notice, and attribute to them lessor or greater importance. The task I have is to consider the legislative purpose of the Act and make "an evaluation of the significance or importance of the error or deficiency in the circumstances of the case". Assuming that the Notice does not comply (substantially or otherwise) with the requirement to give details of the calculation of the amount of interest, or fails to specify the actual interest rates over the relevant period, in my view it is not an essential requirement of the Act that such details be provided having regard to the following particular circumstances of this case: &#8226; there is and can be no dispute about the amount of interest claimed, &#8226; an order of the Supreme Court of Victoria binding on the debtor has determined (and calculated) the amount of interest claimed, &#8226; the Notice accurately sets out the basis of the claim for interest, namely pursuant to the Supreme Court Act , and has been determined (and calculated) by the Supreme Court of Victoria in the 2006 Orders, and &#8226; there is (and can be) no suggestion that any interest is claimed in the Notice itself otherwise than as set out therein. 31 I cannot envisage that the legislative purpose of the Act would be served by concluding that the failure to adhere to the form in the way alleged by the appellant would lead to the Notice being a nullity. It would be a classic situation of preferring form over substance to conclude that the Notice was a nullity. The whole purpose of the essential requirements of the Act is to inform the debtor clearly and simply of the basis of the debt said to be owed, and this has been achieved. 32 In any event, in my view, the calculation of interest in itself is not necessarily an essential requirement of the Act, irrespective of the circumstances of this case. 35 The High Court of Australia in Adams [2006] HCA 10 ; 225 ALR 396 considered all judgments of the court in Lewis [2000] FCA 1915 ; 109 FCR 33. After considering the minority decisions of Gyles and Lee JJ, the court approved their approach and applied the legislative purpose test applied by Gyles and Lee JJ (at [33] to [34]). I do not conclude, however, that the High Court necessarily approved the comments of Lee J concerning Re Bankruptcy Act 1966 ; Ex parte Commercial Banking Co of Sydney Ltd (1979) 23 ALR 522. Further, his comments in this regard were made concerning the old notice prescribed pursuant to s 41(2) of the Act as it was prior to the amendments made in 1996 where there was no requirement in the same terms as note 2 of the new form of the bankruptcy notice, although reflections were made by his Honour on the new notice which impacts upon his views as to what would be expected by the new notice. 37 In light then of the approach to the legislative purpose adopted by Lee and Gyles JJ, as approved by the High Court, in my view nothing in the Act indicates that now the calculation itself must be included in the Notice. In fact, if it were not a requirement prior to the 1996 amendment, the tendency would be towards the view that providing such information is not now a statutory requirement in the Kleinwort Benson [1988] HCA 34 ; 165 CLR 71 or Adams [2006] HCA 10 ; 225 ALR 396 sense, if one adopts the approach of Gyles J as referred to above. 42 Justice North did not have the advantage of the reasoning in the subsequent cases referred to in this judgment, particularly Adams [2006] HCA 10 ; 225 ALR 396; Lewis [2000] FCA 1915 ; 109 FCR 33 and Snelgrove 157 FCR 313. With the benefit of the reasoning in these decisions, North J would have needed to have undertaken an analysis of the failure to comply with note 2 of the Schedule to the form in the context of the Act to determine whether it was an essential requirement. Merely equating such a failure to a failure to attach a copy of the judgment to the bankruptcy notice without the further analysis now required, would not be sufficient. In the circumstances, I do not regard the decision of North J as one I should follow. In any event, the circumstances of the case before me are quite different from those confronting his Honour, for he did not have a binding determination of the Supreme Court of Victoria declaring the amount of interest payable which was the basis of the interest claimed in the bankruptcy notice.