Prasad v Wati [1997] FJLawRp 17; [1997] 43 FLR 107 (6 May 1997)

[1997] 43 FLR 107

HIGH COURT OF FIJI ISJI ISLANDS

AMRIT P
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v.

[HIGH COURT, 1997 (Pathik J) 6 May]

Appellate Jurisdiction

Batcy- in amon amount of debt specified in bankruptcy ntcy notice and petition- whether curable bble by amendment- whether petition a nullity-&#/i>Bankruptcy Act (Cap. 4ap. 48) Ses 4 & amp; 101.

Upon the hearing of a petition of bankruptcy the Resident Magistrate allowed the petitioning creditor to amen petition by altering the amount said to be owed. Allowing wing the debtor’s appeal the High Court stressed the importance of strict compliance with the procedural requirements of the Bankruptcy Act and HELD: that on the facnc, including the uncertainty surrounding the amount properly claimable the petition could e amended but was a nullityllity and should have been dismissed.

Cases cited:

rte The Debtor vtor v. Bowmaker Ltd [1951] Ch. 313

James v. Federal Commissioner of Taxation [1955] HCA 75; (1d">(1955) [1955] HCA 75; 93 CLR 631

Kleinwort Benson Australia Ltd v. Jamesrt Crowl [1988] HCA 34; 165 CLR 71

Re Macro Constructions Pty Ltd [1991] HCA 58; (1992) 992) 10 ACLC 1. 7222

Re McDoex paex parte Elder Smith Golsbrough Mort Ltd [1978] FCA 4; (1d">(1978) [1978] FCA 4; 32 FLR 11

V. P./i> fo60;for0;for the Appellant
A. Sen he Respondent
Pathik J:

This is an appeal byal by the Debtor against the Ruling of thened Mrate,sa give given on 4 June 1996 upon the ground that that the “Learned Magistrate has eras erred in law in holding that the Bankruptcy e upon which the petition wion was founded could be amended at the hearing of the Bankruptcy Petition and that the Petition ought properly to have been dismissed.”

Backd
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The fare set out inut in the Ruling but in so far as it is relevant to this Appeal, they are briefly as follows:

(a0; &#160 ҈& The Respondept (the judgmeudgment “creditoror”) on 26 May 1993 obtained judgment against the appellant (the ebtor1;) i sum 500.00 and $50.00 costs.

(b)  t&##10; &#160 Bankruptcyce was issued oned on 29 June 1995 in the sum of $4984.11.

(c) n&#Th0; etition was pras pred ontober.

(d) &;  On ; On 14 November 1995dehe debtor filed an affidavit deposing that the Pen wasbuse e process of the Court and oug be dismissed “since the Petition is for an excessive aive amountmount it i it is nuls null and void and therefore does not form the basis on which a Receiving Order can be made”.

(e) ـټ < The Creditor realizie erro error filed an affidavit praying for an amendment to the Petition by reducing the amount to $4175.31 a redn of 80 fre pre claim.
Forr>For thsons gins given in the Ruling the the LearnLearned Maed Magistrate allowed the amendment by ordering that the Bankruptcy Notice and Petition be amended by deleting the said figure $4984.11 and by substituting therefor the figure $3916.96 (yet another, a third figure). He further ordered that the Notice and Petition should be filed in Court and served on the judgment debtor within 7 days of the date of his order.

It is from this ther that the debtor has appealed.

Appellant&;s subs submission
Mr. Ram for the debtor ator argues that item 3 of thetion (p.31 of Record) has the incorrect amount of $4984.11 4.11 and therefore item 5 cannot be correct when it states that the debtor &#82.failed on or before the 29he 29th day of June, 1995 to comply with the requisition of a bankruptcy Notice duly served on him on the 18th day of July, 1995 ...”. He says that the Affidavit Verifying Petition sworn 26 July 1995 (p.35 of Record) has been sworn to “an incorrect Petition”.

spondent’s su;s submission

Mr. Sen for reditorditor submits that had the Learned Magistrate struck off the Petition, the creditor would have issued fresh Petitionay noe proceeded. He s He said that there was power in the Court under s101(3) of the Bankruptcy Act to allow the amendment sought.

The issue
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The isefore me is very simple, namely, whether the overstatement ment in respect of the amount claimed under the bankruptcy notice (the otice7;) idates ttes the notice in the circumstances of thif this case.

Considonsideration of the issue

Under section 4 of the&#the Bankruptcy Act (Cap t is ded that aruptcy ptcy notice:

“shall be in e in the prescribed form,form, and shall require the debtor to pay the jnt debt or sum ordered to be paid in accordance with the terms of the judgment or order,...r,................

Provthat a bank bankruptcy notice -

(a) ټ&#.60; .........
.

(b)&##1160; < shall n i belidated by reay reason only that the sum specified in thin the notice as the amount due exceeds thunt aly duless the debtor within the allowed for payment gives nves notice to the creditor that he disputesputes thes the vali 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 there.”

In thie the debtor btor disputed the amount on the hearing of the Petition. As stated earlier the amount initially claimed as due was $808.80 in excess of the judgment. I am not sure whether even thnded claim of $3916.96 is c is correct or not. The Formal Decree dated 26 June 1995 at page 13 of Record shows the amounts of “debt $3500.00” and “costs $50.00” making a total of $3550.00. Then at page 53 in Affidavit Verifying it states that there was typing error in the previous notice and “the amended petition should read” $4175.31. This figure included judgment debt $3500.00, deposit of $110.00 paid to Official Receiver, filing of bankruptcy action $34.10 and interest from 26.5.93 to 10.4.96 i.e. $431.21.

It is abuny clear fear from the above affidavit evidence that the whole claim is in a complete mess. It cannot be said with certainty as to what is the actual amount due.

This shows that thitioner has not complied wied with the provisions of section 4 in this regard which requires the debtor to pay the ‘judgment orr’.

The Peter was of thof the view that he could apply to amend tend the petition and he applied to Court to invoke the provisions of s101 (3) of the Act which provides:

“(3) ټ&#The coue court mayt may at any time amend any written process or proceeding under this Act upon such terms, if any, as it may think fit to impose.&#82r>&#1r>Thedment was allowed by the learned Magistagistrate.rate.
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I find this to be a case in which the bankruptcy notice was a nullity because it failed to meet a requirement made essential by the Act (Section 4) and it could reasonably mislead the debt to what is necessary to comply with the notice. In such cach cases the notice is a nullity whether or not the debtor is in fact misled. It was so held in Klrt Benson Australia Liia Limited v. James Albert Crowl [1988] HCA 34; (16">(165 CLR 71 at 72). It was further hhat that “if the amouecified in a bankruptcy notice is in fact due and payment ient is claimed in accordance with the judgment, the essential requirements.41(2)(a)(i) are met”. This requirement is similar toar to our s.4 of the Act. Here the amount alleged to be due was in excess by over eight hundred dollars. This cannot be in accordance with the judgment. The Petitioner therefore swore a false affidavit and tried to shelter behind the excuse that the amount stated was a typographical error. This is hard to believe; this reason was put forward at the eleventh hour, namely, at the time of the hearing of the Petition. Had the debtor not disputed it the Petitioner will have got away with it.

The overstatementhis cais case was not a formal defect or an irregularity to enable the Court to amend under s101(3). There is no doubt that this was a “proceeding” under the Act. Even with the incn of interest in the amendemended petition, the difference in the amount due was substantial. “Interest due in a judgment debt may, but need not, be included in a bankruptcy notice” (Kleinwort at 77,(suprawever, here thee the Formal Decree makes no mention of interest. Where does the interest come from and at what rate is it claimed? This has not been revealed. Isaid in Kleinwort, supra th78 that: “if 0;if interest is included in a bankruptcy notice it must be calculated: (160;(1962) 19C. at p.103.&103.”
Kleinwort, De>, Deane J gave a dissenting jnt. I agree with him when he said at p.81 that:

“It has been been a en a fundamental precept of the law of bankruptat a bankruptcy notice, whi, which is the foundation of a bankruptcy, attended as a bankruptcy is with penal consequences, is a mattewhich great strictness is r is required”:

per Cozerdy M.R., #160;In re A Judgmebtor, 530 of [1908] UKLawRpKQB 101; 1908 2 KB 474 at 476 - 477; see also Ja. Federal Commissionerioner of Taxation [rd">[1955] HCA 75; (1955(1955) [1955] HCA 75; 93 CLR 631 at 644. A defect in kruptcyuptcy notice will inate it “except in the case of a merely formal defect&fect”: per Vaughan Williams L.J., [12 KB 161 at p163, see also&#u>In Re n Re a Debtor,btor, No 21 of 1950; Ex parte The Debtor v. Bowmaker Ltd. [1951] Ch. 313 at 317. If a defect in a bankruptcy notice is other than a formal one, the notice itself is defective and failure to comply with it does not constitute an act of bankruptcy.

ow how important itnt it is to comply with the provisions of the Act I refer to the following statement of Deane J when he said in Kleinwort at 802 that:#160;

&#

&#82 Riley J, a noted Australiaralian authority on bankruptcy law, sometimes pointed out to those appearing before him, the least that thrts c is to insist that a person who seeks to subject ject anothanother to the law of bankruptcy himself strictly observes the requirements of that law.”

Deane J in Kleinwor at 82, fur, further pointed out that subject to two qualifications, that:

To comply the aboveabove rules, a bankruptcy notice must correctly state the amount of the uponh it sed. Ifd. If inte interest is included in the claim under tder the bankruptcy notice, it must be accurately calculated and stated. Otherwise, the bankruptcy notice is invalid:” Re McDonaldparte Elder Sder Smith Golsbrough Mort Ltd [1978] FCA 4; (1978(1978) [1978] FCA 4; 32 F.L.R. 11 at p.13)
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Trst qualiqualification is that if the misstatement is “a mere clerical error - wr - which could not mislead or embarrass tbtor, because he could see on the face of the document ... what the amount which was reallyeally claimed from him” (per Kennedy L.J. In re A Debtor;[1908] UKLawRpKQB 116; [1908] 2 KB 684 at 691 ... the defect wilmebe merely a formal one which may be cured pursuant to s.306 ...” (as in our s.101). The second qualification is similar to our s4 which contain express provisions which may operate to the invalidating consequenequences of an overstatement of the judgment debt. I have already dealt with overstatement hereabove.

Application o1(3101(3)

Thened Magistrate, ate, even after stating “how the figure $4984 was arrived at remains a mystery”, goes on to say in his Ruling that the “defect is formal and curable and not l to cause any injusticeRe” and then he refers to proviso (b) to s.4.

With respediffer with tith the learned Magistrate’s grounds for allowing the amendment to the Petition and uphold Mr. Ram’s submissions.

Teditoitted that that the notice was defective but submits iits in effect that the alleged defects were procedural irregularities whic not caused nor would cause any substantial injustice. This meant that in his opinion and aand also in the opinion of the learned Magistrate, the alleged defects were protected by s101(3) and the proviso to s.4.

Therefore, on the I fi I find that this was not a case of procedural irregularity to enable either the creditor to shelter behind s101(3) and s4 r the learned Magistrate to make the order which he did make.

Concluonclusion

As was said bringtoington J in Re Macro Coctions Pty Ltty Ltd (1992) 192) 10 ACLC 1.7222 (wwas a ws a winding up casp case but the same principles appthat there is abundant auth authority that the courts will require strict compliance by an alleged creditor with the technical formalirements of a notice subjecubject to section 4 the reason being the draconian consequences to the debtor because default of compliance with the notice will render him vulnerable to a receiving order. However, the quality of strictness of compliance will depend on the facts of each case for not every error will attract invalidity, for example, the court will look to see whether on a fair construction of the notice, there is need to invoke the provisions of the proviso to s4 or s101(3).

For the above ns, with with respect, I consider that the learned Magistrate fell into error in interpreting as he did the proviso to s4 and s1 to the facts of this case. The Petition ought to have been dismissed by him.
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(Appeal allowed; bankruptcy petition dismisismissed).