Case: Re Greenhill; ex parte Myer (NSW) Limited (1984) 5 FCR 84
Outcome: distinguished
It was common ground that, if such an overstatement had occurred, the bankruptcy notices were invalid: cf Re Greenhill; ex parte Myer (NSW) Limited (1984) 5 FCR 84 at 86. It was also accepted by all parties that the notices given by Mrs Perovich and Mr Spencer on 20 March 2007 were both timely and effective for the purposes of s 41(5) of the Act . 18 The appellants submit that the 17 May letter (together with the email which subsequently varied the date for payment of the $10,000) constituted a simple written contract which provided, unambiguously, that the $10,000 payment, when made, would be treated as a payment on account of the debt owed to the respondent. They complain that the Federal Magistrate erred by treating the written document as being ambiguous on this point, by relying on the solicitor's file note to assist in resolving the ambiguity and by having regard to the conduct of the parties in relation to the subsequent payment of $15,000. 19 The respondent contends that there is authority which binds me to hold that no overstatement has occurred because the bankruptcy notices correctly identified the amounts owing under the consent judgment made by the District Court. In any event, the respondent submits that the contractual terms, recorded in the 17 May letter, do not require that the $10,000 should be credited against the amount owing; rather it is to be treated as consideration for the indulgence, granted by the respondent, to forebear seeking judgment for the debt. 20 Section 41(5) of the Act provides: "(5) 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 or she disputes the validity of the notice on the ground of the misstatement." This provision was considered by Morling J Greenhill . In that case final judgment had been entered against the debtor for a particular sum. It was common ground between the parties that, prior to the entry of the judgment, the debtor had paid $200 to the creditor as a part payment of the money due and that, accordingly, the judgment was wrongly entered because it had failed to take into account the $200 payment. It overstated the amount owing by that sum. This overstatement was held to render the notice invalid. 21 In Re Wilson v Official Trustee in Bankruptcy [1999] FCA 1760 the applicants sought an annulment of their bankruptcies under s 153B of the Act . Sequestration orders had been made on the basis of a judgment debt obtained from the New South Wales District Court. The applicants claimed that the creditor was not entitled to judgment in the full amount of the debt because of certain payments earlier made. Emmett J dismissed the applications. He declined to follow Greenhill and held that s 41(5) "is concerned with a claim of a bankruptcy notice for an amount greater than is, in fact, [owed] under a judgment " (emphasis in original). His Honour explained his reasons for differing from Morling J as follows: "[39] A bankruptcy notice must require the debtor to pay the judgment debt, in accordance with the judgment. The pre-existing obligation, which the judgment is intended to enforce, will have merged in the new obligation created by the judgment see Corney v Brien [1951] HCA 31 ; (1951) 84 CLR 343 at 353-354. It may well be that there would be good grounds for setting aside a judgment which was entered for an excessive amount. Further, it may be that this Court, as a Court of Bankruptcy would go behind a judgement in order to determine whether there was, in fact, anything due. Following the entry of a judgment, however, the amount due by the judgment debtor to the judgment creditor, and the amount for which execution might issue, is the sum stated in the judgment. Where a bankruptcy notice claims that amount, it cannot be said that it claims an amount that exceeds the amount in fact due. By reason of the judgment itself, the amount of the judgment is due. [40] Upon an application to a court exercising jurisdiction in bankruptcy to set aside a bankruptcy notice, the court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced, and would not support a finding that there was, in truth, no debt at all see Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 589. That decision of a Full Court of this Court is binding upon me and, it appears to me, that it would preclude a Judge, on hearing a bankruptcy petition, to go behind the judgment if the only purpose for doing so would be to show that the amount of the judgment should be reduced, not to show that no amount was owing. It may be relevant, if the amount of the judgment should be reduced to an amount below the minimum amount that supports a petition. However, that is not the case here." 24 I do not consider that Greenhill compels a different conclusion. In that case, unlike this, there was agreement between the parties in this Court that the judgment on which the bankruptcy notice was founded had mistakenly been entered for a sum greater than that which was, in fact, owing. In any event, I respectfully agree with Emmett J's reasons for holding that Greenhill should not be followed. 25 Although it is not strictly necessary to do so, I should say something about the issue of whether the contract, evidenced by the 17 May letter, provided for the $10,000 to be credited against the sum owed by the appellants. Nowhere in the terms contained in the letter is there an express term that the $10,000 was to be credited against the principal sum. Paragraphs (f) and (g), when read together, may be understood as suggesting that the $10,000 and the "further moneys" necessary to satisfy the $201,754.44 debt were to be payable on or before 20 July 2006. This suggests, so the appellants contend, that the $10,000, if paid, would, together with the balance needed to meet the debt, be deductible from the principal sum. That may be so if timely payment of the whole of the principal sum were made. The difficulty with the appellants' argument is that the appellants agreed to execute a consent judgment in the sum claimed of $201,754.44. They agreed that if they failed to make any payment due on or before 20 July 2006 (or within the agreed extended period) the respondent would file the consent judgment for the agreed sum. This would occur whether or not there had been partial payment in the intervening period. It is also to be noted that the appellants agreed to pay interest on the principal sum, not the principal sum as reduced by any payments made prior to the due date. 26 Even if it be assumed, in the appellants favour, that there is no ambiguity in the agreement, as recorded in the 17 May letter, rendering it unnecessary to have regard to parol evidence, I do not consider that a literal reading of the terms supports the construction contended for by the appellants. It follows, in my opinion, that the Federal Magistrate came to the correct conclusion.