Case: Adams v Lambert [2006] HCA 10 ; (2006) 225 ALR 396
Outcome: followed
In Adams v Lambert ('Adams') [2006] HCA 10 ; (2006) 225 ALR 396 the High Court held that a misdescription of the statutory source of an entitlement to claim interest on a judgment debt was a formal defect or irregularity within the purview of s 306 of the Bankruptcy Act 1966 (Cth) ('the Act'). However, in the present proceedings, Federal Magistrate Driver found that a misdescription of the statute under which post-judgment interest was claimed was a substantial defect in the bankruptcy notice which could not be cured by reference to that provision. 2 Thus, the learned Federal Magistrate's decision appears, at first sight, to be at odds with the unanimous judgment of the High Court in Adams. The principal question which arises on this appeal, therefore, is whether his Honour correctly applied the principles stated by the High Court. 3 In deciding that the defect was substantive, Driver FM had regard to the certificate supporting the bankruptcy notice which stated that interest was not payable on the amount claimed whereas the bankruptcy notice claimed interest in the sum of $16,509.96. 4 His Honour accepted that this was a claim for post-judgment interest but he took into account the terms of an earlier bankruptcy notice served on the debtor which made no claim for interest. His Honour concluded that this, coupled with the misdescription of the statute under which post-judgment interest was claimed (and an incorrect reference in the costs certificate to a provision in the Legal Profession Act 1987 (NSW) dealing with pre-judgment interest) would have left the debtor "hopelessly confused" as to what was necessary to comply with the notice. 5 The creditor appeals against his Honour's order dismissing the petition. He seeks an order under s 52(1) of the Act. However, if the appeal is allowed a difficulty arises because the creditor's petition appears to have lapsed under s 52(4) of the Act, in the circumstances referred to below. 6 The appellant, Mr Snelgrove, is a solicitor. In legal proceedings which appear to have a long history dating back to the 1990's, he represented a company of which Mr Roskell was a shareholder and director. The proceedings were unsuccessful, the company went in to liquidation, and Mr Snelgrove claimed his costs from Mr Roskell personally. 7 Driver FM found at [4] that in the course of the proceedings Mr Roskell agreed to become personally liable for the costs, although he later sought to dispute his liability. As a result, Mr Snelgrove brought proceedings against Mr Roskell in the Supreme Court of New South Wales. 8 On 15 May 2000, a costs assessor of that Court issued a certificate as to determination of costs in the amount of $33,967.62. This was the certificate upon which bankruptcy notice NN3366/04 was founded. 16 His Honour heard Mr Snelgrove's creditor's petition against Mr Roskell on 12 August 2005 prior to the decision of the High Court in Adams. The petition was filed on 26 April 2005. 17 The only ground on which Mr Roskell opposed the petition was that he was not personally liable for the debt. His Honour satisfied himself that this objection had no substance but during the hearing he raised two issues concerning the validity of the bankruptcy notice. Mr Roskell was not legally represented and was happy to adopt those points as grounds of opposition to the petition; see at [5]. 18 The first ground was that the certificate stated that interest was not payable on the amount of costs assessed but the bankruptcy notice claimed interest of $16,509.96. 19 The second ground was the incorrect statement of the statutory source of liability for post-judgment interest. 20 Having raised both of these issues, his Honour adjourned the matter pending delivery of the judgment by the High Court in Adams. A fter the decision in Adams was handed down, Driver FM called for written submissions to be delivered by the parties by 26 April 2006 . He then determined the matter, delivering judgment on 6 June 2006. 21 When his Honour handed down judgment he noted, at footnote 11, that there may be a third error in the bankruptcy notice because of the illegible certificate of judgment attached to the notice. He noted that judgment was entered in the Local Court on 22 June 2000 but queried whether the annexure satisfied the description of a certificate of judgment. However, this issue was not raised before Driver FM and his Honour did not deal with it. 22 His Honour described the bankruptcy notice and the certificate of judgment attached to it as "scrappy". 23 It was in this context that he went on to deal with the two errors that he had identified. 24 His Honour seems to have proceeded on the basis that the statement in the costs certificate that interest was not payable was an error. He described it as an error in [16] although he accepted the appellant's submission that it was a reference to pre-judgment interest. It would have followed from this that the statement was perfectly correct, the only error being the incorrect reference to s 203E of the Legal Profession Act . 25 Indeed, his Honour went on to say that if the correct provision of the Legal Profession Act had been identified, Mr Roskell could probably have worked out that the statement in the costs certificate referred only to pre-judgment interest. 26 His Honour then referred to the second error, namely the statement in the interest calculation attached to the bankruptcy notice, that interest was claimed under s 85 of the District Court Act . He referred in this regard to the fact that the reference to the District Court (Civil Claims) Act had been struck out. 27 The learned Federal Magistrate then went on to deal with these errors upon the footing that they were compounded by the fact that this was the second bankruptcy notice served on Mr Roskell; see at [18]. 28 The substance of his Honour's reasons appears in the following two paragraphs as follows: [19] Mr Roskell was then confronted with a second bankruptcy notice which claimed a smaller principal sum than the first bankruptcy notice but which included a claim of interest in the sum of $16,509.96 making a total of $50,477.58. In my opinion, a debtor in the position of Mr Roskell would have been left hopelessly confused. Interest was initially not claimed and then claimed. The certificate of judgment annexed to both bankruptcy notices appeared to indicate that no interest was payable . . It would have been next to impossible for him to check his liability because both the certificate of judgment and the bankruptcy notice referred to incorrect statutory provisions. [20] It is true that Mr Roskell could have disputed the claim of interest on the second bankruptcy notice by giving notice pursuant to s.41(5). He did not do so. However, in my view, the bankruptcy notice, coupled with the costs certificate and the earlier bankruptcy notice was so confusing as to have left Mr Roskell in no position to determine whether he was entitled to make such a claim. Notice pursuant to s.41(5) must be given before the time for compliance with the bankruptcy notice expires. It is now too late for such a notice to be given. In my view, the confusion created by the errors in the second bankruptcy notice and its attached certificate gave rise to confusion resulting in injustice which is now irremediable. It follows that the defects are substantive and not formal and cannot be corrected pursuant to s.306 of the Bankruptcy Act . 29 The High Court said in Adams at [18] that if there is a failure to comply with a provision of the Bankruptcy Act or 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. 30 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 at [25]ff. 31 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 at 79; Adams at [25]. 36 Moreover, consistently with the observation of the Court in Adams , it cannot be said that a mistaken reference to the section of the Legal Profession Act could be said to have been an essential requirement for validity of the notice or to have misled the debtor as to what was necessary to comply with it. 37 Upon the proper construction of the bankruptcy notice as a whole, it was plain that interest was being claimed only post-judgment. The notice stated in express terms that judgment was entered in the Local Court on 22 June 2000 and that interest was claimed for the period from 22 June 2000 to 15 December 2004. This appeared in (b) and (c) of the interest calculation attached to the notice. The summary of interest calculation in (c) set out precisely how the amount of $16,509.96 was calculated for that period. 38 The bankruptcy notice in the present case is therefore indistinguishable from the notice in Adams . That is to say the only defect was the second error identified by Driver FM, namely an incorrect citation of the source of entitlement to post-judgment interest. That was a formal defect within the purview of s 306 of the Act, not a substantive one as found by the Federal Magistrate; see Adams at [32] [34]. 39 There was no suggestion in the present case that post-judgment interest was incorrectly calculated. Indeed the figure seems to have been correct, the rate prescribed under the District Court Act being exactly the same as that prescribed from time to time under the Local Courts (Civil Claims) Act . 40 The learned Federal Magistrate's view that a debtor in Mr Roskell's position would have been hopelessly confused cannot, with respect, be sustained. As I have already said, the bankruptcy notice, considered as a whole, made it plain that interest was only claimed for the period after judgment. 44 Mr Roskell asserted that the errors in the bankruptcy notice, when viewed together, were sufficient to render it invalid. He referred in his written submissions to the citation of the wrong statutory provisions and the fact that interest was claimed notwithstanding the note in the costs certificate that interest was not claimed. These submissions are contrary to the plain construction of the notice and to the observations of the High Court in Adams. 45 Mr Roskell also contended that a certificate of judgment was not annexed to the bankruptcy notice. I will deal with that issue below. 46 Mr Roskell appeared in person on the appeal. He argued, strenuously and with apparent conviction, that he was not personally liable for the costs, or at very least that the amount was overstated. 49 In summary therefore, in my opinion the learned Federal Magistrate failed to correctly apply the principles stated in Adams . The only defect in the bankruptcy notice was a formal one which fell within the purview of s 306. There was no substantial injustice caused by the defect. 50 Mr Roskell did not file a notice of contention in accordance with O 52 r 22(3) of the Federal Court Rules . However, he submitted that "a copy of the record of judgement [sic]" was not attached to the bankruptcy notice. Since he was not legally represented, I took this to be a submission to the effect that the notice was affected by a defect, analogous to the further issue mentioned by the Federal Magistrate and which I set out above at [20]. This was whether the costs certificate satisfied the description of a certificate of judgment. Accordingly, I propose to grant leave to Mr Roskell, nunc pro nunc, to raise this submission without the need to file a notice of contention. 58 Here the petition was presented on 26 April 2005 but, at the creditor's request, the Federal Magistrate adjourned it pending the delivery of judgment in Adams . At the time when the adjournment was granted, no consideration seems to have been given to the question of the lapsing date of the petition. 59 The Federal Magistrate's order dismissing the petition was made on 6 June 2006, more than twelve months after the petition was presented. 60 Nor was any application apparently made before the lapsing date for an extension of time under s 52(5).