Court adjourns bankruptcy notice setting aside application due to procedural error, allowing debtor to correct form.

[*365] 1985 Febr. 23

(P. KALLIS, D.J.)

IN THE DISTRICT COURT OF NICOSIA

Re: Costas Louca,

(Application No. 144/84).

Bankruptcy Notice - May be set aside on grounds other than those set out in Rule 40 of the Bankruptcy Rules - But in such a case the proper procedure is by an application and not by affidavit - Notwithstanding that in this case the debtor followed the wrong procedure (i.e. he simply filed an affidavit), the Court decided that justice requires in the circumstances adjournment of the proceedings to enable the debtor to take the proper procedural steps.

G. Korfiotis, for the Applicant-Debtor.

P. Kalli (Miss), for the Respondent-Creditor.

RULING

The following ruling was delivered by:-

P. KALLIS, D.J.:- On the 16th June, 1984, the respondent-creditor in these proceedings - Paraskevoulla Klason - filed with the Registrar a request under rule 39 of the Bankruptcy Rules for the issue of a bankruptcy notice against the debtor Costas Louca - applicant in these proceedings; and attached thereto a photo-copy of a drawn-up judgment in Action No. 2631/76 of the District Court of Nicosia wherein it appeared that applicant was jointly and severally adjudged with two other co-defendants to pay to the respondent the sum of £3,500 plus £47.350 mils costs. She, also, attached the [*366] bankruptcy notice which was drafted in the form prescribed by rule 40 of the B.R. - Form 4 – save with the omission of the words “By the Court, (Sgd) ... Registrar”; and the omission of giving the address of the applicant “within the town in which the Court is situated” as prescribed by paragraph 3 of the “Indorsement on Notice”. A sealed copy of the notice together with the request for its issue were served personally on the applicant on the 16th July, 1984, and though the request was signed by an officer of the Court Registry on behalf of the Registrar, the notice was not signed as ordained by the above Form 4.

On the 18.7.1984 the applicant (debtor) swore an affidavit for the setting aside of the bankruptcy notice, under r. 40(2) of the Bankruptcy Rules; but the affidavit did not follow the form prescribed by such rule - Form 5 - which limits the grounds for setting aside to satisfaction of the debt, counterclaim or set-off or cross-demand.

In the above affidavit the applicant (debtor) mainly contended: (a) that no judgment was given in Action No. 2631/75 against him, as alleged in the Bankruptcy Notice, and should it be found that the Bankruptcy notice refers to the judgment in Action No. 2631/75, then the said judgment could not be executed because the prior leave of the Court for its execution had not been obtained; (b) that he had a counterclaim against the respondent (creditor); (c) that the amount mentioned in the Bankruptcy notice was wrong; (d) that the execution [*367] of the judgment was stayed by means of the Debtors Relief Legislation because defendant 1 was a displaced and/or stricken debtor and (e) that, without prejudice to all the above, the above request and/or notice was irregular and/or bad in form and/or contrary to the provisions of r. 40 of the Bankruptcy Rules.

As by virtue of rule 41 of the Bankruptcy Rules the filing of an affidavit “operates as an application to set aside the bankruptcy notice” upon the application of the parties, written addresses were directed to be filed in support of their respective contentions.

Regarding contention (e) of the affidavit - irregularities - learned counsel for the applicant submitted that the Bankruptcy notice should be set aside for the following reasons:

(i) Contrary to rule 40(1) it does not contain an address for service;

(ii) It was not accompanied by an office copy of the judgment as provided by rule 39;

(iii) It was not signed by the Registrar as provided by rule 40 - Form 4;

(iv) The action number on which the notice is based is wrong and/or it does not tally with the photocopy of the judgment accompanying the request.

(v) The amount of the judgment is wrong.[*368]

In addition to the above, he further submitted that as more than six years have elapsed since the issue of the judgment leave of the Court was required, by virtue of Order 40, rule 8 of the Civil Procedure Rules, and in the absence of such leave the judgment could not be executed.

It is clear from the above submissions that none of them refers to the grounds for setting aside a Bankruptcy Notice as envisaged by rule 40(2), namely, counterclaim, set-off or cross-demand.

Learned counsel for the respondent, on the other hand, mainly submitted:

(i) That under rule 1 of Order 64 of the Civil Procedure Rules, which are applicable by virtue of rule 188 of the Bankruptcy Rules “non-compliance with any of these rules, or with any rule of practice shall not render the proceeding void”;

(ii) That no ground of substantial justice has been put forward by the other side justifying the setting aside of the proceedings.

(iii) That for the proceedings to be set aside there should have been filed an application wherein the nature of the prayer and all facts relied in support should have been stated (see 0.48, r.1 and 0.64, rr. 1 and 2) ;

(iv) That the filing of an affidavit under r.40(2) of the Bankruptcy Rules operates as an application for setting aside of the Bankruptcy Notice only [*369] in the instances where the debtor has a counterclaim, cross-demand or set-off, and

(v) That no leave of the Court was required under 0.40, r.8 of the Civil Procedure Rules for the issue of the Bankruptcy notice even though more than six years have elapsed since the issue of the judgment.

At the clarification stage learned counsel for the respondent stated that the amount of the judgment debt referred to in the Notice was less by £425.- than the judgment debt, because the debtor had paid an amount of £425.- towards the judgment debt.

In view of the relevant facts, as summarised above, and of the respective contentions of counsel, the following issues arise for consideration:

(a) Whether, in view of the fact that the setting aside of the Bankruptcy notice is sought on grounds other than those envisaged by rule 40(2) of the Bankruptcy Rules, the applicant could apply for such setting aside by means of an affidavit, as he did, or by means of an application;

(b) Whether the Bankruptcy Notice is invalid in view of the irregularities alleged.

Our r.40 of the Bankruptcy Rules is almost similarly worded to the corresponding English Bankruptcy r.139 and so we can seek recourse to the English Bankruptcy Practice for guidance.[*370]

In Williams and Muir Hunter “The Law and Practice in Bankruptcy”, 19th ed., under the heading “Setting aside bankruptcy notice on grounds other than set-off” we read the following at p.38:

“The debtor may apply by motion (e.g. not by the summary affidavit procedure of B.R. 1391) to set aside the notice on other grounds, e.g. irregularity, bad service, payment (or quaere legal tender) of the debt, etc.”.

Relevant is, also, the case of In Re a Debtor (No.30 of 1956, ex parte The Debtor v. Harman, (1957) 2 ALL E.R. 216, where at p.217 the following were said:

“Counsel for the debtor has referred us to a number of cases in which quite plainly bankruptcy notices have been set aside on motion on grounds other than those which are mentioned in r.137 as it at present stands. Such cases are Re Howes, (1892) 2 Q.B. 628, Re H.B. (2) (1904) 1 K.B. 94 …”.

And at p.218 the following were stated:

“I think that the authorities make it quite plain that this Court will in proper cases set aside bankruptcy notices on grounds other than those set out in s.1(1)(g) of the Bankruptcy Act, 1914, namely, a counterclaim, set-off or cross-demand. The whole question, therefore, is whether the application to set aside the notice has to be given within the three days mentioned in r.138”. [*371]

In view of the above authorities I hold that a debtor is entitled to apply for the setting aside of a bankruptcy notice on grounds other than those set out in r.40(2) of the Bankruptcy Rules, but in such a case he has to apply by means of an application and not by means of an affidavit. In this connection, think, r.16 of the Bankruptcy Rules is the rule applicable.

Now what is the effect of the failure of the applicant to proceed by application? In the Harman case (supra) it was held that:

“In a proper case the Court will set aside a bankruptcy notice for reasons other than those mentioned in the Bankruptcy Act, 1914, s.1 (1)(g), and the Bankruptcy Rules 1952, r. 137, and in such a case the time limit specified in r. 138 (within which the application to set aside the notice must be made) does not apply.

Where, therefore, the debtor gives notice of motion to set aside a bankruptcy notice on the ground that the judgment debt on which the bankruptcy notice was founded had been satisfied, the application is not out of time by reason only of its not being made within the time specified in r. 138 (i.e. within three days of the service of the bankruptcy notice)”. [*372]

Under s.87 of the Bankruptcy Law, Cap. 5, the Bankruptcy jurisdiction is exercised by the District Courts which in the exercise of their jurisdiction have all the powers conferred on the ordinary District Courts as in a trial of a civil action. Rule 188 of our Bankruptcy Rules provides that “where no provision is made in these rules in regard to any matter arising out of bankruptcy proceedings, the Rules of Court governing civil proceedings shall in so far as they are not repugnant to these rules, apply to such matter”. Questions of irregularity in civil proceedings are governed by 0.64, rr. 1-4 of the Civil Procedure Rules and in Bankruptcy proceedings by ss. 93(3) and 102 of Cap. 5.

Section 93(3) provides:

“The Court may, at any time, amend any written processs or proceeding under this law upon such terms, if any, as it may, think fit to impose”;

And section 102(1) provides:

“No proceeding in bankruptcy shall be invalidated by any formal defect or by any irregularity, unless the Court before which an objection is made to the proceedings is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of that Court”.

Rule 2 of 0.64 of the Civil Procedure Rules provides:[*373]

“No application to set aside any proceedings for irregularity shall be allowed unless made within reasonable time, nor if the party applying has taken any fresh step after knowledge of the irregularity”.

Having, already, held that applicant should have proceeded to set aside the Bankruptcy notice by means of an application instead of by affidavit, I am bound to conclude that the “objection to the proceedings” in the sense of the aforequoted section 102(1) of Cap. 105 is not properly before me and I cannot take cognizance of it. In view, however, of what has been held in the Harman case (supra) regarding the time limits for making an application to set aside the bankruptcy proceedings, of the fact that there is power by virtue of r.189 of the Bankruptcy Rules for extention or abridgment of time, of the fact that a Bankruptcy notice is a very serious matter indeed, for it creates many disabilities, of the fact that applicant applied - albeit by invoking the wrong procedure - within the prescribed by the Rules time to have the Bankruptcy Notice set aside and of the fact that his affidavit raises very serious and important issues, I am not prepared to dismiss his application and, thus, leave the Bankruptcy Notice in full effect, but I will, instead, give him an opportunity to apply to have the Bankruptcy Notice set aside by the employment of the prescribed procedure. Therefore, these proceedings are adjourned to the 30th March, 1985, so as in the meantime the applicant will take the [*374] proper procedural steps for the setting aside of the notice. If he fails to do so by then, the application for the setting aside of the notice will be deemed as dismissed.

Though in view of my above conclusion I should not have expressed any view on the merits of the alleged irregularities, I think it is useful to do so for it will help the parties to formulate their future course of action - I mention though that I keep an entirely open mind until the very end of the proceedings - and I hereby draw attention to the mandatory language of section 3(3) of Cap. 5 to the effect that “a bankruptcy notice …… shall be in the prescribed form”, to the mandatory language of r.39 of the Bankruptcy Rules regarding the production of an office copy of the judgment and to the following passage from Williams (supra) at p.39:

“The section of the Act specifying acts of bankruptcy must be strictly interpreted and all requirements of form with respect to a bankruptcy notice must be complied with”.

And finally to what is stated in para. 522 of Halsbury’s Laws of England, 3rd ed., p.280, namely:

“As a general rule an amendment of a bankruptcy notice will not be allowed, except in the case of a merely formal defect”.

In the result, the proceedings are adjourned to 30.3.1985. Costs reserved.

Order for adjournment of proceedings.