James v Federal Commissioner of Taxation

(1955) 93 CLR 631
29 ALJ 587
17 ABC 214

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(Judgment by: Williams J, Kitto J, Taylor J)

Between: James
And: Federal Commissioner of Taxation

Court:

Judges:
Williams J
Kitto J
Taylor J

Subject References:
Bankruptcy

Judgment date: 22 December 1955

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Judgment by:
Williams J
Kitto J
Taylor J

The appellant is a debtor against whom a sequestration order was made by the Supreme Court of Queensland (Matthews J.) sitting in bankruptcy on 24th November 1955. The petitioner was the Deputy Commissioner of Taxation for the State of Queensland. The act of bankruptcy alleged in the petition was the failure of the appellant to comply with a bankruptcy notice issued on 15th September 1955. The notice was issued in respect of a final order made by a Justice of this Court on 20th June 1955 in an action in which the appellant was the plaintiff and the above-mentioned Deputy Commissioner of Taxation, Qantas Empire Airways Ltd. and the Commonwealth of Australia were defendants. By this order the writ of summons was struck out and it was ordered that the appellant should pay to the defendants the costs of the action limited to one day. These costs were taxed and allowed at 292 pounds 2s. 11d. and it was in respect of this sum that the bankruptcy notice was issued. The bankruptcy notice, omitting formal parts and the indorsement, is in the following terms:

"TO: FRANK JAMES of 102 Grey Street, South Brisbane in the State of Queensland.

TAKE NOTICE: that within seven days after service of this notice on you, excluding the day of such service, you must pay to the Deputy Commissioner of Taxation, Qantas Empire Airways Limited and the Commonwealth of Australia at the office of their agent, the Deputy Crown Solicitor for the Commonwealth, Fourth Floor, T. & G. Building 135 Queen Street, Brisbane aforesaid, the sum of Two hundred and ninety-two pounds two shillings and eleven pence (292 pounds 2s. 11d.) claimed by them as being the amount due on a final order obtained by them against you in the High Court of Australia (Queensland Registry) on the twentieth day of June, 1955, whereon execution has not been stayed, or you must secure or compound for the said sum to the satisfaction of the said Deputy Crown Solicitor, the agent for the abovenamed creditors, or the satisfaction of the Bankruptcy Court; or you must satisfy the Bankruptcy Court that you have a counter-claim, set-off or cross-demand against the above-named creditors which equals or exceeds the sum claimed by them, and which you could not set up in the action in which the order was obtained".

Several grounds were argued in support of the appeal but it is only necessary to refer to certain objections that were raised to the validity of this notice. It will be seen that the bankruptcy notice requires the debtor to pay the debt to the creditors at a particular address it being the address of their agent, the Deputy Crown Solicitor of the Commonwealth, or alternatively to secure or compound for the debt to the satisfaction of this agent or the Court, or alternatively to satisfy the Bankruptcy Court that the debtor has a counter-claim, set-off or cross-demand against the creditors which equals or exceeds the sum claimed by them and which he could not set up in the action in which the order was obtained. It was contended

(1)

that the notice was invalid because it directed that the debt must be paid to the creditors at a particular address whereas it should only have directed the debtor to pay the creditors or any of them, giving an address or addresses at which they could be found but not excluding the right of the debtor to pay them or any of them wherever he could find them and adding, if the creditors wished it, the name of an agent to whom payment could be made on their behalf at an address somewhere in Austr alia;

(2)

that the notice should have directed the debtor in the alternative to secure or compound for the debt to the satisfaction of the creditors or any of them or the court, adding, if the creditors wished it, that it would suffice if the debtor secured or compounded for the debt to the satisfaction of a named agent on their behalf;

(3)

that the notice should have informed the debtor that as another alternative he must satisfy the Court that he had a counter-claim etc., against the three-creditors or each of them which equalled or exceeded the sum claimed by them and which he could not set up in the action in which the order was obtained. (at p637)

The validity of these objections depends upon the proper construction to be placed upon certain provisions of the Bankruptcy Act 1924-1954 and particularly upon those of s. 53. The relevant provisions of the Act are: s. 7 (1) which provides that:

"No proceeding under this Act shall be invalidated by any formal defect or by any irregularity, unless the court before which the objection is made is of opinion that substantial injustice has been caused thereby, and that the injustice cannot be remedied by an order of that court";

s. 52 which provides that:

"A debtor commits an act of bankruptcy ...

(j)

If a creditor has obtained a final judgment or final order against him for any amount, and execution thereon not having been stayed, has served on him in Australia or, by leave of the court, elsewhere, a bankruptcy notice under this Act,

and the debtor does not, within seven days or such time as is prescribed after service of the notice in Australia, or within the time limited in that behalf by the order giving leave to effect the service elsewhere, either comply with the requirements of the notice, or satisfy the court that he has a counter-claim, set-off, or cross demand which equals or exceeds the amount of the judgment debt, and which he could not set up in the action or proceeding in which the judgment or order was obtained";

s. 53 which provides that:

"A bankruptcy notice under this Act shall be in the prescribed form, and shall require the debtor to pay the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order, or to secure or compound for it to the satisfaction of the creditor or the court, and shall state the consequences of non-compliance therewith, and shall be served in the prescribed manner ...

Provided that a bankruptcy notice -

(i)

may specify an agent to act on behalf of the creditor in respect of any payment or other thing required by the notice to be made to, or done to the satisfaction of, the creditor";

Rule 6 which provides that:

"The forms in the schedules to these Rules, where applicable, and where they are not applicable forms of the like character, with such variations as circumstances require, shall be used".

Rule 144 which provides that:

"A bankruptcy notice issued by the Court shall be in accordance with Form 5".

Form 5 in the schedule the text of which, omitting the formal parts and the indorsement, is as follows -

... TO A.B. (or A.B. & Co.)

TAKE NOTICE THAT WITHIN days after service of this notice on you, excluding the day of such service, you must pay to C.D., of, the sum of pounds claimed by him as being the amount due on a final judgment (or final order) obtained by him against you in the Court, dated, whereon execution has not been stayed, or you must secure or compound for the said sum to (his) satisfaction or the satisfaction of the Court; or you must satisfy the Court that you have a counter-claim, set-off, or crossdemand against C.D. which equals or exceeds the sum claimed by him, and which you could not set up in the action in which the judgment (or order) was obtained.

Dated this day of 19 By the Court, REGISTRAR."

Section 53 provides that a bankruptcy notice shall be in the prescribed form. The prescribed form is that contained in Form 5 but rule 6 provides that this form may be varied to meet the particular circumstances. Section 53 also provides that the notice shall require the debtor to pay the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order. We are here concerned with an order that the plaintiff shall pay the costs to the defendants. It does not provide that the plaintiff must pay the costs to the defendants at any particular place as the bankruptcy notice does. But the prescribed form simply directs the debtor to pay the debt to the creditor "of". Unless the judgment or order does so the notice should not require the debtor to pay the creditor at a particular place. It is the duty of a debtor to seek out the judgment creditor and pay the judgment debt to the creditor if he is in Australia. The debtor has the correlative right to pay the creditor wherever he can find him so that a debtor could be seriously prejudiced if he was led to believe that he was bound to pay the creditor at one particular place. The objection is not a trifling one particularly in a large geographical area like Australia. It is one of substance. If a judgment creditor can direct payment at one place exclusively it means that, although he and the debtor reside or carry on business in the same vicinity, the creditor can require the debtor to seek him or his agent out in some remote part of the realm. The defect in the present bankruptcy notice is that it directs the debtor that he must pay the creditors at a certain address. Such a direction could only be in accordance with a judgment or order if the judgment or order directed payment at that particular address.

The creditors, in order to comply with the form in the schedule, varied so as to apply to joint creditors, would have to give an address or addresses where they or one of them, or some agent authorized on their behalf, could be found during th e secen days, where the creditor could be paid or where by agreement the debt could be secured or compounded, and this is so whether the address is the residence or the place of business of the creditor: Re Beauchamp [1904] 1 KB 572 , at pp 583, 584. The proviso authorizes a creditor to specify in the notice an agent to receive payment on his behalf and an address at which the agent could be found at reasonable hours during the seven days would have to be given. The prescribed form is carefully drawn by describing the creditor as "of" so that the notice will require the debtor to pay the creditor in accordance with the terms of a judgment or order which simply directs the debtor to pay the creditor and will not require the debtor to pay the creditor at a particular address. The notice merely gives an address at which the debtor may, at his option, seek out the creditor and pay him. Section 53 also provides that the notice shall require the debtor either to pay the judgment debt or sum ordered to be paid or to secure or compound for it to the satisfaction of the creditor or the court. This requirement is carefully reproduced in Form 5. But the present notice notifies the debtor alternatively that he must compound for the debt to the satisfaction of the Deputy Crown Solicitor, "the agent for the abovenamed Creditors, or the satisfaction of the Bankruptcy Court." It does not follow the prescribed form varied to meet the circumstances. It fails to notify the debtor that he may secure or compound for the debt to the satisfaction of the creditors themselves.

The proviso to s. 53 does not authorize the specification of an agent in substitution for the creditor himself; its terms are appropriate only to authorize the specification of an agent to act on behalf of a creditor in respect of any payment or other thing required by the notice to be made to or done to the satisfaction of th e creditor. (at p640)

Mr. Wanstall contended that a bankruptcy notice was sufficient which directed the debtor that he must pay the creditor at a particular address provided there was an authorized agent there to receive payment. He relied on the dicta in the judgments of the Court of Appeal in Re a Debtor [1912] 1 KB 53 . The actual decision is not in point. It was a case where a French firm of two persons carrying on business in Paris had obtained in the King's Bench Division against an English defendant a judgment adjudging that the plaintiffs recover against the defendant the sum of 202 pounds 9s. 7d. and 10 pounds 15s. 0d. costs. The plaintiffs issued a bankruptcy notice directing the defendant to pay these sums to the two members of the firm (naming them) "of" a Paris address. It was held that the bankruptcy notice was bad for it required the debtor to pay the creditors out of the realm and therefore beyond the jurisdiction of the court and this was not in accordance with the terms of the judgment, for it is the duty of a judgment debtor to find the judgment creditor and pay him the amount of the judgment provided the creditor is in England but he has no obligation to go out of the realm in order to find him. In Pepper v. McNiece (1941) 64 CLR 642 , it was held that in the Commonwealth the realm does not mean the State in which the judgment or order is obtained but Australia generally. But the members of the Court of Appeal proceeded to discuss and explain a previous decision of that Court in Re a Debtor [1911] 2 KB 718 , the effect of which they considered had been misunderstood. There, the judgment creditors and the judgment debtor were both in England and the bankruptcy notice had directed the debtor to pay the judgment debt to the three creditors, Kitchin, Aylard and Craddock, late "of" 5 Copthall Court in the City of London, carrying on business at certain addresses in the City, or to their solicitors Spyer & Sons of 65 London Wall in the City.

It was held that the judgment required payment to the plaintiffs and it was not in accordance with its terms for the notice to require payment to the plaintiffs or their solicitors. Cozens Hardy M.R. said:

"The judgment required payment to the plaintiffs, and it was not in compliance with the Act for the notice to require payment to the plaintiffs, or their solicitors, who certified, without any other proof, that they had authority to receive it. But so far from deciding that a notice to pay the plaintiffs in the action following the form of the judgment would not be sufficient if payment was directed to be at a particular address where there was an authorized agent to receive it, I think the contrary was in terms asserted" (1912) 1 KB, at p 58.

He said:

"It really seems to me it would not be open to us, having regard to the decision in In re Persse (1911) 55 Sol Jo 314, to accept the proposition which has been strenuously argued before us by the respondents to this case, that payment to an agent is not payment to the principal within the meaning of this section. I think, therefore, no difficulty whatever need arise in the case of foreign creditors. They have only to say, in the words of the bankruptcy notice, 'Pay me the proper amount at some address in London', and to have at that address a duly constituted and proper agent duly authorized to receive payment on behalf of the plaintiff" (1912) 1 KB, at p 59.

Fletcher Moulton L.J. said:

"In my opinion that decision did not intend in any way to interfere with what had already been laid down by this Court, namely, that it is sufficient that at the address given there should be an agent properly authorized to receive payment of the money and to give a discharge for the debt...

The decision turned entirely on the special facts of that case, and it was not intended to throw any doubt whatever on the power of the judgment creditor to arrange that the receipt of the debt shall be by a properly authorized agent at the address given" (1912) 1 KB, at pp 61, 62.

Both Fletcher Moulton L.J. (1912) 1 KB, at p 60 and Farwell L.J. (1912) 1 KB, at p 62, referred to the ordinary rule that it is the duty of a judgment debtor to find the judgment creditor and pay to him the amount of the judgment, provided that the judgment creditor is in England. Farwell L.J. said:

"The remedy given to the creditor by s. 4 of the Bankruptcy Act is an additional remedy, and the Courts have construed that with exceeding strictness. It would be, in my view, very harsh to impose upon the debtor the further liability of pursuing his creditor abroad if the creditor did not choose to remain in England where payment could be made...

I can find no foundation for the argument that that was a decision (that is the 1911 case) that a creditor cannot demand payment to his duly authorized agent. The natural course for the foreign creditor to take is to direct the debtor to pay to him at the office of the person who is authorized to receive it, and when the debtor attends there to pay, he will be met by the duly authorized agent of the creditor, who will produce his power of attorney" (1912) 1 KB, at pp 62, 63.

It must be remembered that these dicta must be read secundum subjectam materiam. Their Lordships were discussing two bankruptcy notices one of which gave the address of the creditors as "of" an address in Paris and the other the addresses of the creditors as carrying on business in London. Neither notice required the debtor to pay the creditor at a particular place. The remarks were made with reference to the right of a creditor to describe himself as of an address within the realm and to notify the debtor that he could pay the debt there. They held that a foreign creditor would be within the realm for the purpose of the notice, even if he was not there in person during the seven days, provided he had an agent at the address given during this period duly authorized to receive payment.

They were not discussing the question whether a judgment creditor could appoint an exclusive place for payment within the realm and refuse a tender of payment elsewhere. There is nothing in the judgments to suggest that a debtor would not comply with a bankruptcy notice issued on behalf of a creditor abroad who appoints an agent within the jurisdiction to receive the debt if the debtor preferred to go to the creditor at his foreign address and pay him there. (at p642)

It was contended by Mr. Wanstall that it would be difficult to describe the Commonwealth as being "of" any particular address. But when it is remembered that the address may be any address where there is an agent authorized to receive payment or where the debt can be secured or compounded the difficulty disappears. It should be easy for the Commonwealth to give a multiplicity of such addresses. The same may be said of Qantas Empire Airways Ltd. Any address anywhere this company carries on business in Australia would suffice. No such difficulty would be experienced in the case of the Deputy Commissioner of Taxation who is as accessible as any other individual. A debtor might have difficulty in seeking out the Commonwealth or a corporation and paying them otherwise than at the address given. But it is for him to solve this difficulty and it does not supply a reason for placing him in a different position qua a creditor like the Commonwealth from the position he would be in qua an individual creditor. He can always pay at the address given whether the creditor be animate or inanimate. (at p643)

As appears from the statement of the objections Dr. Louat contended that where there is more than one creditor the bankruptcy notice must refer to the creditors or either of them if there are two or the creditors or any of them if there are more than two. Accordingly in the present case, there being three creditors, he contended that the present bankruptcy notice should have directed payment of the debt to the creditors or any of them, that it should have notified the debtor that he could secure or compound the debt to the satisfaction of the creditors or any of them, and that it should have notified him that he could apply to the Court if he had a counter-claim etc. against the creditors or each of them.

This contention should be rejected. It is based on Re a Judgment Debtor [1908] 2 KB 474 , but this case if correctly decided is distinguishable. There the judgment in the action was for a partnership debt and the bankruptcy notice required payment to be made to the two partners as individuals and for this reason the majority of the Court thought that it did not follow the terms of the judgment. It is a case depending on its own special facts. Here the order is an order that the plaintiff pay the costs of the action to the defendants. In order that the bankruptcy notice should be in accordance with this judgment it should direct the plaintiff to pay the three defendants named in the action. In the same way it should notify the debtor that he may secure or compound the debt to their satisfaction. In the same way it should notify the debtor that he may apply to the court to set aside the notice if he has a counter-claim etc. against the three creditors which equals or exceeds the amount claimed by them. The bankruptcy notice therefore properly notified the appellant of the last alternative and the third objection to the sufficiency of the notice fails.

But the other two objections prevail, not because the notice fails to include the words "or any of them", but because it wrongly seeks to restrict the debtor to paying the debt to the creditors at one particular place and because it does not notify him that he may in the alternative secure or compound the debt to their satisfaction. In the first respect it is not in accordance with the terms of the order and in the second it is capable of misleading the debtor as to the manner in which he may secure or compound for the debt. The court cannot inquire whether the debtor has in fact been misled or not. In this case it is probable that he was not misled. It is sufficient that he could be misled. But strict compliance with the requisites of a bankruptcy notice is essential to its validity and in these two respects the bankruptcy notice does not comply with these requisites. The defects cannot be regarded as formal defects or irregularities. They are breaches of important provisions of s. 53: see Re Collier: Ex parte Dan Rylands Ltd. (1891) 8 Morr 80; Re a Debtor; Ex parte The Debtor v. Bowmaker Ltd. (1951) 1 Ch 313; Re a Debtor; Ex parte The Debtor v. Hunter (Liquidator of Marvel Paper Products Ltd.) (1952) 1 Ch 192, at pp 196, 197. (at p644)

There remains the question of costs. The objections to the bankruptcy notice that have been upheld were not taken in the Bankruptcy Court where the appellant appeared in person. They were not specifically taken in the notice of appeal to this Court although they are covered by the grounds. It was contended that because these objections were taken at such a late stage there should be no order as to costs. But on the whole we see no sufficient reason for depriving the appellant of his costs. (at p644)

The appeal should be allowed with costs (including the reserved costs referred to in the order of 2nd December 1955). The sequestration order of 24th November 1955 should be set aside and the petition of 23rd September 1955 be dismissed with costs. (at p644)