Case: Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255 ; (1999) 87 FCR 120
Outcome: applied
At [7] of his reasons, his Honour observed that there was no issue that the s 41(5) Notice did not meet the requirements of s 41(5), cf., Seovic Civil Engineering Pty Ltd v Groeneveld [1999] FCA 255 ; (1999) 87 FCR 120 at [36] , and then proceeded to deal with the crux of the appeal to this Court, namely, whether the Act allows amendment of a 'bankruptcy notice' in respect of which a s 41(5) notice has been given. At [7], his Honour said: It cannot be said that the mere giving of notice under s.41(5) invalidates a bankruptcy notice without more, because that would not allow for a situation in which the recipient of the notice could challenge the alleged overstatement. Clearly, a recipient can do this. This means that a declaration of invalidity is something to be done by the court. Why, then, is it not possible for the giver of a notice [a bankruptcy notice] to request the court to allow an amendment thereof before the court has made the declaration? Provided there is no other detriment to the applicant debtor by, for example, giving him a further period of 21 days to comply with the notice, I cannot see that anything would stand in the way of granting leave. In this particular paragraph, his Honour made no reference to s 33(1)(b) of the Act (although he had earlier at [6] of his reasons) but proceeded on the basis that a s 41(5) notice did not work any invalidity on a bankruptcy notice until a court declared it to be so, and prior to that the bankruptcy notice could be amended to cure the over-claim the subject of a s 41(5) notice. I shall return to his Honour's reasoning process below. 21 The legislative history of s 41(5) of the Act is set out in the judgment of the Full Court in Seovic 87 FCR at [41] [48] and I can do no better than repeat what the Full Court there said: [41] So far we have addressed the construction issue independently of the legislative history of s 41(5) of the Bankruptcy Act . That history is, at the least, consistent with the views we have expressed and, on balance, supports the conclusion we have expressed. [42] The antecedents of s 41(5) of the Bankruptcy Act are to be found in s 16(2) of the Bankruptcy and Deeds of Arrangement Act 1913 (UK) (the 1913 Act). This subsection provided that a bankruptcy notice issued in respect of a judgment debt under s 4(1)(g) of the Bankruptcy Act 1883 (UK) (the predecessor of s 40(1)(g) of the Bankruptcy Act) was not to be invalidated in certain circumstances. Section 16(2) was in the following terms: "(2) Notwithstanding anything in the said paragraph (g): ... (ii) a bankruptcy notice shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually 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 such misstatement, but, if the debtor does not give such notice, he shall be deemed to have complied with the bankruptcy notice if within the time allowed he takes such steps as would have constituted a compliance with the notice had the actual amount due been correctly specified therein." [43] It has been accepted that s 16(2) of the 1913 Act and its Australian counterparts were enacted to overcome the decision by the Court of Appeal in Re a Debtor [1908] 2 KB 692; Re Prossimo; Ex parte De Marco (1952) 16 ABC 86 (Clyne J) at 88; Olivieri v Stafford at 415, per Sweeney ACJ, dissenting (but whose dissent does not affect this question). In Re a Debtor, the bankruptcy notice, which claimed payment of [sterling]984 7s 1d, overstated the interest component by [sterling]1 5s 4d. Cozens-Hardy MR rejected (at 687) the proposition that the overstatement was a mere "formal defect" that fell within s 143(1) of the Bankruptcy Act 1883 (UK) (the forerunner of s 306(1) of the Bankruptcy Act). In his view, to claim payment of a sum that was never due was a substantial defect, regardless of the precise amount of the mistake. Farwell LJ expressed a similar opinion, observing that the statute had to be "strictly followed". He said this (at 689-690): "I cannot think it is a mere formal defect to include in a bankruptcy notice not only the amount payable under the judgment, but also a sum which is not due and owing at all, and which the debtor has no means of seeing on the face of the notice is not due and owing." [44] As Sweeney ACJ observed in Olivieri v Stafford at 416, the language employed in s 16(2) of the 1913 Act was not limited to the situation which arose in that case (and in the present case), where the bankruptcy notice required the debtor to pay a judgment debt which was due and a further statement of interest, a portion of which was not due. The expression used "the sum specified in the notice as the amount due exceeds the amount actually due" -- was apt to cover any factual situation which produced an overstatement of the amount due. [45] Section 16(2) of the 1913 Act was reproduced as proviso (ii) to s 2(1) of the Bankruptcy Act 1914 (UK). It was, in turn, adopted as proviso (ii) to s 53 of the 1924 Act referred to earlier. Section 53 of the 1924 Act stated that a bankruptcy notice was to be in the prescribed form and was to require the debtor to pay the judgment debt or the sum ordered to be paid in accordance with the terms of the judgment or order. In Re Prossimo, Clyne J described (at 89) proviso (ii) as in part creating an exception to the general rule that the bankruptcy notice should require the debtor to pay the judgment debt according to the terms of the judgment. The reference to the "amount actually due" in proviso (ii) was intended to qualify the general rule and to require the bankruptcy notice to state the actual amount due. The second part of the proviso was intended to prevent, under certain conditions, a bankruptcy notice being invalid by reason of an overstatement of the amount actually due. But where the bankruptcy notice overstated the amount actually due and the debtor gave a notice in accordance with the proviso, the bankruptcy notice was invalid. In other words, the law as stated in Re a Debtor did not apply unless the debtor gave the creditor a notice complying with proviso (ii) to s 53 of the 1924 Act. [46] Section 41(5) of the Bankruptcy Act follows the form recommended by the Report of the Committee Appointed by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth (1962), chaired by Clyne J and including among its members the Commonwealth Parliamentary Draftsman (Mr J Q Ewens). The Committee made the following observations on cl 41 of the draft Bill: "69. The provisions contained in section 53 dealing with the form, contents and service of a bankruptcy notice are considered by the Committee to be generally satisfactory, although the Committee believes that the precise requirements as to such a notice will appear more clearly from the redraft of that section contained in the Bill." Section 41(5) of the Bankruptcy Act reproduces the substance of the first part of proviso (ii) to s 53 of the 1924 Act; while s 41(6) reproduces the substance of the second part of proviso (ii). [47] Section 41(5) of the Bankruptcy Act incorporates the drafting changes suggested by the Clyne Committee and differs from the first part of proviso (ii) to s 53 in several respects. These are as follows: &#8226; Section 41(5) is not expressed as a proviso to any other section. However, s 41(2) of the Bankruptcy Act , as originally enacted, was similar to the first part of s 53 of the 1924 Act to which par (ii) was a proviso. (Section 41(2), in its original form, was repealed in 1996 and replaced with a provision which merely requires the bankruptcy notice to be in accordance with the prescribed form). &#8226; The subsection uses the expression "the amount in fact due" to replace "the amount actually due" in proviso (ii). &#8226; The expression "the misstatement" is substituted for the phrase "such misstatement", which was used in proviso (ii). [48] None of these changes is in our view significant for present purposes. There is nothing to indicate that the Clyne Committee intended that the substitution of the definite article for the word "such" in the concluding phrase should bring about any change in the scope and application of s 41(5) compared with its predecessor. We of course appreciate that Clyne J had expressed the view in Re Charles Murray that a debtor's notice under proviso (ii) to s 53 of the 1924 Act did not have to set out the amount of the excess. It may be that his Honour intended to say no more than that a debtor's notice may be capable of complying with the proviso even if it does not specify precisely the excess improperly claimed in the bankruptcy notice. If Clyne J meant to go further, in our respectful opinion, the language of the proviso and of s 41(5) does not warrant such a step being taken. The general comments in par 69 of the Clyne Committee Report cannot be read as a specific endorsement of the decision in Re Charles Murray. 22 In Seovic 87 FCR, the Full Court ultimately held that the letter of 25 May 1998 from the debtor's solicitors to the creditor's solicitors did not constitute a notice within the meaning of s 41(5) of the Act. Nevertheless, they considered the effect of a debtor's notice under s 41(5) of the Act and made the following observations: [49] We have observed that s 41(5) of the Bankruptcy Act appears to be drafted on the assumption that a bankruptcy notice is liable to be "invalidated" if the sum specified in the notice exceeds the amount in fact due to the creditor. In Re Walsh [(1982) 47 ALR 751] , Lockhart J challenged this assumption, by holding that under the Bankruptcy Act, an over-statement of the amount due by the debtor does not necessarily vitiate the bankruptcy notice. His Honour considered ... that the bankruptcy notice would be avoided only if the over-statement could reasonably mislead the debtor. He said he would decline to follow Re a Debtor and Re Prossimo if they stood in the way of this conclusion. [50] In Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 5 FCR 84 , Morling J declined to follow Re Walsh and held that an over-statement in a bankruptcy of the amount actually due renders the notice invalid, whether or not the over-statement could reasonably mislead the debtor. Morling J considered that observations by the High Court in Walsh v Deputy Commissioner of Taxation [1984] HCA 33 ; [(1984) 156 CLR 337] ... were inconsistent with Lockhart J's analysis. A similar view was subsequently taken by Pincus J in Re Emerson; Ex parte Wreckair Pty Ltd (1991) 101 ALR 315 at 318-319 (affirmed on other grounds: Emerson v Wreckair Pty Ltd [1992] FCA 16 ; (1992) 33 FCR 581 (FC)). [51] We have acted on the assumption, not challenged by either party, that Re Greenhill and Re Emerson correctly state the law. However, our view would not be changed if Lockhart J's decision in Re Walsh were ultimately found to be correct (as to which we express no view). 23 As indicated at [51] of its reasons in Seovic , the Full Court was prepared to act on the assumption that Re Greenhill and Re Emerson correctly state the law, that is, that an overstatement in a bankruptcy notice of the amount in fact due renders the notice invalid, whether or not the overstatement could reasonably mislead the debtor, if a notice complying with the requirements of s 41(5) has been duly given. I am prepared to proceed on the same assumption. 26 Of course the foregoing assumes that the notice given by the debtor complies with the requirements of s 41(5) , cf., Seovic 87 FCR, and that the debtor's notice cannot be challenged on some other ground such as that the bankruptcy notice does not overstate the amount actually due. It would be open to a creditor, in an appropriate case, to challenge a purported s 41(5) notice on either basis, but there is no foundation for a challenge on either basis in the present case. 27 It follows from the foregoing, that I am unable, with respect, to agree with his Honour's reasoning at [7] of his reasons extracted at [16] above. First, his Honour's premise that the mere giving of notice under s 41(5) cannot invalidate a bankruptcy notice without more could only be correct where there is no overstatement in the bankruptcy notice. They are not the facts here. Second, his reason for coming to that conclusion because that would not allow for a situation in which the recipient of the notice could challenge the alleged overstatement does not provide any support because it would always be open to the creditor, in an appropriate case, to challenge a purported s 41(5) notice on either of the bases referred to in [26] above. Third, the invalidity of a bankruptcy notice that has its source of invalidity in its overstatement of the amount in fact due and the timely giving by the debtor to the creditor of a notice that complies with the requirements of s 41(5) is not dependant upon some declaration by a court. In these circumstances, declaration of invalidity by a court is merely declaratory of the operation of the Act to those facts. 28 I am of the view that it would be open to a court to amend, pursuant to s 33(1)(b) of the Act, a bankruptcy notice that overstated the amount due prior to the debtor giving notice to the creditor pursuant to s 41(5) of the Act. If the overstatement is due to clerical error and is one that could not reasonably mislead the debtor, then it may not even be necessary to rely on s 33(1)(b) at all; s 306(1) of the Act may, in those circumstances, save the proceeding. The more difficult question is whether a court is empowered, in reliance on s 33(1)(b) of the Act, to amend a bankruptcy notice once it has been visited with invalidity in the circumstances of the present case.