Express law No. 36

18 April 2006

Substance over form

In a joint decision the High Court (7-0) has found
that a bankruptcy notice is not invalidated by a minor
error in identifying the particular provision under which
interest is claimed.

In doing so the Court confirmed that failure to comply
with a statutory requirement will not necessarily render
an action (such as incorrectly filling out a form) invalid,
even where the relevant provision uses the term 'must'.
Regard needs to be had to the context and purpose of
the provision to decide whether a failure to comply with
a statutory requirement leads to invalidity.

Adams v Lambert

High
Court of Australia, 4 April 2006 [2006] HCA 10

In the case before the High Court, the amount of post-judgment
interest on the judgment upon which the bankruptcy notice
was based was correctly calculated, but the bankruptcy
notice mistakenly cited former section 83A of the District
Court Act 1973 (NSW) which dealt with interest prior
to judgment, instead of former section 85 which allowed
interest post-judgment. The prescribed form of bankruptcy
notice said that the notice must state the provisions under
which interest is being claimed.

The High Court found that the majority decision of the
Full Court of the Federal Court (3-2) in Australian
Steel Company (Operations) v Lewis that such an error
rendered the notice invalid because there was a failure
to meet a requirement made essential by the Act, had been
wrongly decided. The High Court said that section 306 of
the Bankruptcy Act 1966 could be applied in such
cases. That section allows a court to excuse a 'formal
defect or an irregularity', unless substantial injustice
has been caused.

The High Court emphasised, at [26], that section 306 needed
to be read 'in the context of the whole Act, informed
by the general purpose of the legislation, and the particular
purpose of the provisions relating to bankruptcy notices'.
Hence, an error or a deficiency in a bankruptcy notice
should be assessed only after a consideration of the legislative
purpose of the Act and an evaluation of the significance
or importance of the error or deficiency in the circumstances
of the case.

The High Court said that '... the fact that the
requirement is expressed by the use of the term "must" is
not conclusive'. The Court said at [34] that 'the
effect of the majority view in Lewis is to attribute
to the legislature an overwhelming preference for form
over substance. That should not be done'. The Court
has remitted the proceedings to the Federal Court for further
hearing.

Apart from issues concerning bankruptcy law, the case
raises important issues of general statutory interpretation.

  • In interpreting the notice itself, the Court stated
    at [21] that 'it is a well settled principle of
    construction that a written instrument must be construed
    as a whole, and that, as Dixon CJ and Fullagar J said
    in Fitzgerald v Masters, "[w]ords may generally
    be supplied, omitted or corrected, in an instrument,
    where it is clearly necessary in order to avoid absurdity
    or inconsistency". A striking example of the application
    of a cognate principle of statutory construction is to
    be found in Cooper Brookes (Wollongong) Pty Ltd v
    Federal Commissioner of Taxation'. The Court
    used this principle to decide that it was clear that
    the claim in the notice was for post-judgment interest.
  • As to the word 'must', the statutory form
    of bankruptcy notice (Note 2 to the Schedule of the Act
    in Form 1) provides that a document attached to the notice must state
    the provisions under which interest is being claimed.
    But the Court said at [14] that the 'use of the
    word "must" is significant, but it should be
    kept in perspective. A prescription as to a form to be
    followed will normally be expressed in language of obligation
    rather than of permission. That is the idea of a form.
    Such a prescription raises the question to be considered
    in the present case; it does not answer it'.
  • The Court noted at [26] that the question whether
    the mistake was a formal defect or an irregularity 'is
    similar to the question that, in former times, would
    be explained by asking whether a statutory requirement
    was mandatory or directory. In Project Blue Sky Inc
    v Australian Broadcasting Authority it was said: "A
    better test ... is to ask whether it was a purpose of
    the legislation that an act done in breach of [a] provision
    should be invalid ... In determining the question of
    purpose, regard must be had to 'the language of the relevant
    provision and the scope and object of the whole statute"'.

These important principles of statutory interpretation
are relevant across Commonwealth legislation.

Text of the decision is available at: http://www.austlii.edu.au/au/cases/cth/high_ct/2006/10.html

For further information on the issues concerning bankruptcy
law please contact:

Michael Murray
Senior Executive Lawyer
Australian Government Solicitor
T 02 9581 7798 F 02 9581 7528
michael.murray@ags.gov.au

For further information on the general statutory interpretation
issues please contact:

Peter Lahy
Senior General Counsel
Australian Government Solicitor
T 02 6253 7085 F 02 6253 7304
peter.lahy@ags.gov.au

Important: The material in Express law is provided
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only, and further analysis on the matter may be prepared
by AGS. The material should not be relied upon for
the purpose of a particular matter. Please contact
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