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Judgment
Title:
Murphy -v- Bank of Ireland
Neutral Citation:
[2014] IESC 37
Supreme Court Record Number:
191/11
High Court Record Number:
2010 621 P & Bankruptcy 2378
Date of Delivery:
03/07/2014
Court:
Supreme Court
Composition of Court:
McKechnie J., MacMenamin J., Dunne J.
Judgment by:
Dunne J.
Status:
Approved
Result:
Dismiss
Judgments by
Link to Judgment
Concurring
Dissenting
Dunne J.
MacMenamin J.
McKechnie J.
McKechnie J.



THE SUPREME COURT
[Appeal No. 2011/191]

McKechnie J.
MacMenamin J.
Dunne J.
IN THE MATTER OF PATRICK MURPHY OF

18, FALCON HILL, LOVERS WALK, TIVOLI, CORK, A BANKRUPT


BETWEEN

PATRICK MURPHY
APPLICANT/APPELLANT
AND

THE GOVERNOR AND COMPANY OF BANK OF IRELAND

PETITIONING CREDITOR

/RESPONDENT

AND

THE OFFICIAL ASSIGNEE IN BANKRUPTCY

NOTICE PARTY

Judgment of Ms. Justice Dunne delivered on the 7th day of March, 2014

Introduction
The applicant/appellant (“the Appellant”) herein was adjudicated bankrupt on the 24th January, 2011 by the High Court (McGovern J.). An application for a stay on the order of adjudication was heard and refused on the 26th January, 2011.

On the 31st January, 2011, an application was made to extend time to show cause to the Court against the adjudication, time was extended and the application to show cause was heard on the 6th April, 2011 and in its judgment of the 12th April, 2011, the High Court (McGovern J.) rejected the application to show cause against the validity of the adjudication.

Background
On the 17th May, 2010, the High Court made an order by consent in favour of the petitioning creditors/respondent (“the Bank”) in the sum of €9,025,720.70 inclusive of interest together with six day costs.

Particulars of demand and notice requiring payment (“Particulars of Demand”) dated the 21st October, 2010 was served on the Appellant in which the Bank set out its demand for payment on foot of the Bank’s judgment against the Appellant in the sum of €9,025,880.70 being the amount of the judgment debt referred to above together with €160 for six day costs. The figure of €9,025,880.70 was stated to be the sum which “amounts to your total indebtedness” and that the “total amount remains outstanding”. The Appellant was called upon to pay that sum but did not do so.

A bankruptcy summons was issued on the 29th November, 2010. It called on the Appellant to pay the sum of €9,025,880.70 being the sum claimed by the Bank in the Particulars of Demand.

The issue
The essence of the case made on behalf of the Appellant is that the sum sought by the Bank in the Particulars of Demand is incorrect and that the sum in the bankruptcy summons is also incorrect in that the sum said to be due is in excess of the amount actually owed; on that basis it was contended that the bankruptcy summons was defective and that a failure to pay the amount claimed in the bankruptcy summons did not constitute a valid act of bankruptcy. The Bank has contended that the sum actually owed by the Appellant is far in excess of that claimed in the bankruptcy summons and that consequently any error, if any, in relation to credit for payments made does not invalidate the bankruptcy summons. Thus, this is a very unusual case in that the Appellant contends that the adjudication should be annulled on the grounds that the sum sought in the Bankruptcy Summons is excessive while the Bank maintains that the sum sought is far less than the sum actually due by the Appellant.

The figures
In order to understand the issue raised by the Appellant it is necessary to look at certain figures referred to in the affidavits sworn in the course of the proceedings.

The Appellant, in an affidavit of the 29th January, 2011, grounding the application to show cause against the adjudication made the point that between the 17th May, 2010, when judgment was entered and the 29th November 2010, the date of the bankruptcy summons, the latest date on which the Appellant had received bank statements, sums totalling €4,425 had been lodged to his current account by way of rent from a tenant of one of his properties and that sum had then been debited from his current account by the Bank on foot of its powers of set-off and applied in reduction of the amount due on foot of account No. 72939674. A further sum of €400 paid in on the 30th November, 2010 was treated in the same way by the Bank.

The point made on behalf of the Appellant was that the Bank did not give him credit for the payments made in the sum of €4,425 either in the Particulars of Demand, the bankruptcy summons or the affidavit of Janet Seacy sworn herein on the 2nd November, 2010 in which the Bank sought the issue of the bankruptcy summons. It is the Appellant’s case that the failure to give credit to him for the sum of €4,425 means that the sum set out in the Particulars of Demand and in the bankruptcy summons overstates the amount actually due by him and that consequently, he was not obliged to pay the sum set out in the bankruptcy summons and that the failure to pay that sum did not amount to a valid act of bankruptcy.

The Bank, in a subsequent affidavit of Janet Seacy, acknowledged that since the 17th May, 2010, the date of the judgment, a total of €4,425 had been credited to the loan account of the Appellant, the account which gave rise to the judgment. She noted that simple interest had accrued on the judgment debt inclusive of costs and she set out a calculation of same taking into account the sums credited to the loan account of the Appellant and noted that on the 2nd November, 2010, the date on which her previous affidavit was sworn, the total amount outstanding by the Appellant including interest was €9,359,097.38; on the 29th November, 2010, the date of issue of the bankruptcy summons, the sum outstanding was €9,411,490.49; on the 24th December, 2010, the date when the affidavit of debt was sworn grounding the petition of bankruptcy, the sum outstanding was €9,460,523.12 and on the 24th January, 2011, the date of adjudication, the sum outstanding was €9,521,819.57, some €495,938.87 in excess of that claimed by the Bank in the bankruptcy proceedings. Thus, it was pointed out that at no time has the amount outstanding by the Appellant to the Bank been less than the sum of €9,025,880.70.

Decision of the High Court
McGovern J. in the course of his judgment made a number of observations. He noted that the Bank accepted that the sum of €4,425 had been received on behalf of the Appellant since the date of the judgment. He further noted that it was not disputed that interest post-judgment pursuant to the Courts Acts and more specifically pursuant to s. 26 of the Debtors (Ireland) Act 1840 applied to the judgment. There was an issue before him as to whether the sum due for interest had been waived by the Bank but the argument of the Appellant in that regard was rejected as there was no evidence adduced to that effect. Further, there was no challenge to the computation of interest as set out in the affidavit of Janet Seacy. Therefore, there was no claim made as to a mistake in the figures. In the course of his judgment he referred to a number of relevant authorities and went on to say as follows:

        “21. The Bank argues that the reasoning behind the strict view taken by the court in In Re Sherlock and the other cases referred to therein is that because of the severity of the Bankruptcy regime and the consequences for a debtor, the law insists that he must actually owe the sum claimed of him, and that if the sum sought is in excess of the sum owed (however marginal), the demand must be bad because the debtor cannot be expected or compelled to pay a sum which is more than he owes.

        22. I accept the submission of the Bank on this point.

        23. In the case of In Re Sherlock, the sum sought was IR£1,000 in excess of the sum actually owed. In the case before me, the sum demanded of the applicant was considerably less than he actually owed at that time, when interest was taken into account, notwithstanding any credits given.

        24. In effect, the Notice of Demand and the Bankruptcy Summons understates the actual amount owed by the applicant. It does not do so because of any mistake in the calculations, but simply on the basis that the Bank has confined its claim in the application for the Bankruptcy Summons to the amount of the judgment of 17th May, 2010, and the costs awarded at that time.

        25. Whether the Bank would be entitled to prove a sum in excess of that figure in the Bankruptcy is a matter that can be argued by the parties in due course. But what is clear, beyond any doubt, is that the actual sum owed by the applicant to the Bank is considerably in excess of the sum demanded of him in the Notice of Demand and referred to in the Bankruptcy Summons which issued.

        26. In the course of the hearing, counsel were unable to cite any case which dealt specifically with this point, namely, whether an understatement of the amount actually due brought a debtor within the ambit of In Re Sherlock and the cases referred to therein.

        27. I am satisfied that the jurisprudence established by In Re Sherlock developed in order to protect debtors from the rigours of Bankruptcy following a demand for payment which was excessive, even if the excess was minimal, and arose due to an oversight or innocent mistake.

        28. That judgment is not authority for the proposition that a claim for a liquidated sum, which is less than the sum actually due, gives rise to a ‘cause shown’ against the validity of an adjudication of Bankruptcy under s. 16 of the Act, and where no mistake or carelessness has been shown in the computation of the figures set out in the Notice of Demand or the Bankruptcy Summons.”

It was in those circumstances that the adjudication was not set aside.

Submissions and discussion
A number of authorities were opened to the Court in the course of the submissions. The first of those was the decision of the Court of Appeal in In re HB [1904] 1 KB 94 in which Romer L.J. (at p. 103) stated:

        “Now I think it is clear that, when you have a judgment in the form that we have here, a bankruptcy notice under the Act must require payment of a sum alleged to be due according to the terms of the judgment – that is to say, it must state the amount that is claimed as remaining unpaid on the judgment debt. Clearly, in a bankruptcy notice the debtor is entitled to see from the notice exactly what is claimed to be due on the judgment debt. No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment beyond the amount specified in the notice.”
The judgment of Bacon C.J. in the case of In re Skelton, Ex parte Coates [1877] 5 Ch. D 979 was also opened where it was stated (at p. 980):
        “It is the very gist and essence of the Bankruptcy Act that creditors who claim the benefit of these severe and almost criminal provisions of the law cannot have that benefit unless they strictly comply with the terms of the Act.”
In re a Debtor [1908] 2KB 684 is a judgment which has been cited in a number of Irish decisions. Two passages from the judgment of Cozens-Hardy M.R. (at p. 687) are well known:
        “The amount claimed in the bankruptcy notice was not due. There was a mistake in the calculation of interest. For the present purpose I care not what the precise amount of the mistake was. It was, I believe, between one and two pounds. But putting aside the question of amount, this was a bankruptcy notice which said ‘If you do not pay a judgment debt which is due and also a further sum which is not due you are liable to be made bankrupt’.”
Cozens-Hardy M.R. added (at p. 687):
        “I cannot regard it as a mere formal defect that you claim payment from a man of that which never was due from him. It is not necessary to say that there was any attempt on the part of the petitioning creditors wilfully to exact payment of that which they knew was not due. My judgment does not depend upon that. It seems to me that a defect of this kind is substantial, that it is not formal, and does not fall within the language of s. 143. So much in point of principle.”
As mentioned previously, the judgment of Cozens-Hardy M.R. has been considered in a number of cases in this jurisdiction. In the case of In Re Sherlock, A Bankrupt [1995] 2 ILRM 493, the High Court (Murphy J.) applied the principles to be found in the judgment of Cozens-Hardy M.R. (at pages 686 to 687). It was noted that an earlier decision of the High Court in the case of O’Maoileoin v. Official Assignee [1989] I.R. 647 had also considered the judgment In re A Debtor. Murphy J. at p. 495 of his judgment In re Sherlock commented:
        “Although the decision in O’Maoileoin v. Official Asignee [1989] I.R. 647 was given prior to the enactment of the 1988 Bankruptcy Act and dealt with somewhat exceptional circumstances, it provides considerable assistance in dealing with this issue. What happened in that case was that the creditor obtained a judgment in the High Court against the bankrupt for a sum of £46,429. Subsequently the Bank of Ireland obtained a judgment against the petitioning creditor for a total sum of £5,725. Then, by an order of the Circuit Court made on 12 November 1985 a receiver by way of equitable execution was appointed to collect the said sum of £5,725 from the bankrupt, being portion of the judgment obtained by the petitioning creditor against him. The result was that when the debtor’s summons (as it then was) was presented in the full amount of the judgment obtained against the bankrupt, the creditor was entitled to receive only part thereof and the balance was payable to the receiver appointed on behalf of the Bank. The then President, Hamilton P. held that notwithstanding those facts, the debtor’s summons was in the correct form and that the failure to comply with its terms constituted an act of bankruptcy.”
Murphy J. then, as I have mentioned, cited a number of passages from the judgment of Cozens-Hardy M.R. which were relied on by Hamilton P. in the course of his judgment in O’Maoileoin and Murphy J. observed as follows at page 497 of his judgment:
        “Having quoted as aforesaid and other authorities to a similar effect, the learned Judge went on to express his conclusions (at page 654) in the following terms:
            ‘These cases clearly establish that the bankruptcy code, have regard to the consequences which flow from an adjudication of bankruptcy, is penal in nature and that the requirements of the statutes must be complied with strictly; that the debtor’s summons to be served within the provisions of s. 21 of the Bankruptcy Ireland (Amendment) Act 1872, must be served in the prescribed manner and the amount due in accordance with the judgment, when a judgment is relied upon, must be accurate and that a claim for an amount in excess of the amount due in accordance with such judgment would render the notice defective and a subsequent adjudication void’.
        It seems to me that applying those principles to the present case where I have accepted that the sum demanded of the debtor exceeded the amount due by more £1,000, it follows that the cause shown must be allowed and the adjudication set aside.”
In the case of Minister for Communications, Energy and Natural Resources v. MW and RW [2009] IEHC 413, the High Court (McGovern J.) on an application to dismiss a bankruptcy summons considered a number of authorities including the decision in the case of In re Sherlock and the case of O’Maoileoin. Having referred to a number of passages referred to above, he concluded at page 4 of the judgment:
        “It seems to me that both before the 1988 Act, and since then, the courts have regarded it as necessary to strictly comply with the provisions of the rules and statutory provisions in order to trigger the bankruptcy process because it has such serious consequences for a debtor.”
In the later case of Allied Irish Banks plc v. Ivan Yates [2012] IEHC 36, a decision of the High Court, I considered the same line of authorities and commented at page 12 of the judgment in that case:
        “Thus, I think it is clear beyond any doubt that if the amount claimed on foot of the bankruptcy summons is in excess of that which is actually due, then in those circumstances there is no obligation to pay the amount claimed on foot of the bankruptcy summons and a failure to pay on foot of that summons will not constitute an act of bankruptcy.”
Apart from the Irish authorities referred to above, counsel on behalf of the Appellant referred to an Australian decision in the case of Kleinwort Benson Australia Limited v. Crowl [1988] HCA 34; 1988 165 CLR 71 in which the High Court of Australia on appeal from the Federal Court was considering the provisions of the Australian Bankruptcy Act 1966. Counsel referred in the first instance to paragraphs 9 and 10 of the judgment which state as follows:
        “9. Interest due on a judgment debt may, but need not, be included in a bankruptcy notice: In re Lehmann, Ex parte Hasluck (1890) 7 Morr 181; Re O'Keefe, Debtor; Ex parte Australian Factors Limited, Creditor (1963) 19 ABC 101; Re Mullavey; Ex parte Australia and New Zealand Banking Group Ltd [1977] FCA 17; (1977) 20 ALR 276, at p 283. It would seem that the reason for this is historical, rather than referable to the terms of s.41(2)(a)(i) of the Act which speaks of a requirement that the debtor pay the judgment debt ... in accordance with the judgment" (emphasis added). In Re Manion; Ex parte Deputy Commissioner of Taxation [1979] FCA 1; (1979) 23 ALR 270 Lockhart J. expressed the view (at p 273) that ‘(a)lthough interest is necessarily and inextricably attached to the judgment debt ... it does not itself answer the description of the sum due by the debtor to the petitioning creditor under the final judgment.’ Whether that be so or not, the regularity of including interest in the amount claimed by a bankruptcy notice has long been accepted.

        10. If interest is included in a bankruptcy notice it must be calculated: Re O'Keefe, at p 103. A notice claiming more by way of interest than that in fact due was held to be invalid in In re A Debtor (1908) 2 KB 684, where the mistake was held not to be merely a formal defect or irregularity. That position is now covered by s.41(5) and (6) of the Act, to which reference has already been made.”

It was further said in that case (at paragraph 16 and 17) as follows:
        “16. If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s.41(2)(a)(i) - the only requirements presently relevant - are met. Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.

        17. It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice.”

The latter two passages were relied on by counsel on behalf of the Bank as supporting its position.

In the course of the majority judgment in that case, reference was made to the decision in the case of In re HB [1904] 1 KB 94 where it was stated at paragraph 12:

        “In In re H.B. a creditor and debtor entered into an agreement in writing whereby the debt was fixed at a specified sum, and the debtor consented to judgment being entered against him for that sum which debt was to be paid by agreed instalments. After default in payment of the instalments a bankruptcy notice was issued requiring payment of the overdue instalments. The Court held the bankruptcy notice to be invalid. Vaughan Williams L.J. (at p.102) said that the notice required ‘the debtor to pay a debt in accordance with the terms, not of the judgment, but of an agreement’. Romer L.J. (at p.103) said that the bankruptcy notice
            ‘must state the amount that is claimed as remaining unpaid on the judgment debt. Clearly, in a bankruptcy notice the debtor is entitled to see from the notice exactly what is claimed to be due on the judgment debt. No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment beyond the amount specified in the notice. But a notice to pay part of a judgment debt, leaving any balance that may be due to be subsequently claimed, is, to my mind, clearly bad’.
        Stirling L.J. said (at pp. 104 – 105):
            ‘I do not think that the Act authorizes the issue of a notice in such a form. It appears to me that in reality the creditor is requiring payment of the debt, not simply in accordance with the terms of the judgment, but in accordance with the terms of the judgment as varied by the collateral agreement. I think this is a material departure from the terms of the statute. I do not think that the Legislature meant to make non-compliance with a judgment an act of bankruptcy so long as the terms of the judgment were controlled by an outside agreement which might be more or less difficult of construction. The result is that, in my opinion, the creditor will not be entitled to issue a bankruptcy notice until all the instalments provided for by the agreement have become payable’.”
In Kleinwort, the Court went on to conclude that there could be no uncertainty as to what would constitute compliance with the notice. The notice could not be regarded as being capable of misleading and, accordingly, the Court found that it could not be said to be a nullity. The understatement in that case was said to constitute a formal defect or irregularity which attracted the operation of s. 306(1) of the Australian Bankruptcy Act 1966 which provided that:
        “Unless the court . . . is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”
It was noted that there was no evidence before the Court or claim of actual injustice and therefore s. 306(1) operated automatically. In other words, although there was a formal defect or irregularity, it was not one that caused a substantial injustice and therefore the notice was not invalid.

Relying on the authorities referred to above it is contended on behalf of the Appellant that the amount said to be due in the Particulars of Demand and the bankruptcy summons is wrong in that it does not give credit for the sum of €4,425 which was set off against the amount of the judgment debt. It is contended that there is an overstatement of the amount due, that the Particulars of Demand is defective as is the bankruptcy summons. Therefore, it is contended that the adjudication is void.

Counsel on behalf of the Bank contended simply that at all times the sums claimed by the Bank are due and owing and that, in fact, the sums actually due and owing are well in excess of that claimed. Reference was made specifically to the part of the Particulars of Demand which set out clearly what was required of the Appellant on foot of the Particulars of Demand, namely:

        “Take notice that the said the Governor and Company of the Bank of Ireland the said judgment creditor hereby requires payment of the said sum of nine million, twenty five thousand, eight hundred and eighty euro and seventy cent €9,025,880.70 (in figures €9,025,880.70) within four days of service of this notice upon you at the address given below.”
In other words, that was the amount to be paid and no more. It was submitted that the Appellant accepted the position set out in the affidavit of Janet Seacy sworn on the 29th January, 2011 that:
        “At no time during the entire of the period from the 17th May, 2010 until the date hereof had the amount outstanding by the bankrupt to the Bank been less than €9,025,888.70 after all credits have been made against the amount owing by the bankrupt to the Bank during that period.”
Accordingly, it is contended on behalf of the Bank that the bankruptcy summons is valid and that the adjudication based on the Act of Bankruptcy in not complying with the bankruptcy summons must stand. The final point made on behalf of the Bank was that it was not necessary to have a judgment against a debtor in order to apply for a bankruptcy summons. That was a fundamental difference between proceedings in this jurisdiction and in other jurisdictions. It was noted that the decisions in the case of HB referred to above and in Kleinwort were cases which required a judgment to have been obtained before a debtor’s summons or bankruptcy notice could be issued. Finally, it was submitted on behalf of the Bank that paragraphs 15 to 17 of the Kleinwort judgment, albeit that the bankruptcy framework in that jurisdiction is different to that here, does support the Bank’s case.

Conclusions
Section 8(1) of the Bankruptcy Act 1988 sets out the circumstances in which a bankruptcy summons may be granted, mainly, if the creditor proves that:

        (1) a debt of €1,900 or more is due to him;

        (2) the debt is a liquidated sum; and

        (3) a notice in the prescribed form requiring payment of the debt has been served on the debtor.

Section 8(3) of the Act prescribed that the notice requiring payment of the debt “shall set out the particulars of the debt due . . .”.

Once served, the debtor is entitled to apply to have the bankruptcy summons dismissed and the Court shall dismiss the summons if satisfied that an issue would arise for trial.

In this case, there was an affidavit sworn by the Appellant seeking to have the bankruptcy summons dismissed but no motion was issued on behalf of the Appellant seeking such relief. Events overtook any such application. In the second affidavit sworn on the 23rd January, 2011, the Appellant sought an enlargement of the time prescribed for applying to have the bankruptcy summons dismissed but, as described earlier, he was adjudicated a bankrupt on the following day, the 24th January, 2011. No issue arises on the fact that the Appellant did not, in fact, have an application to dismiss the bankruptcy summons before the Court. It is conceded on behalf of the Bank that if the bankruptcy summons was not valid, then the adjudication cannot stand.

It is clear from the many authorities cited above such as the decision in In re Collier ex parte Dan Rylands Limited [1891] 64 L.T. 742 and reiterated regularly in cases such as O’Maoileoin, In re Sherlock and Minister for Communications v. MW and RW, that the consequences of bankruptcy are serious and penal and for that reason there must be strict compliance with the provisions contained in the statutory code and the Rules of the Superior Courts. The requirement for strict compliance has led to the dismissal of bankruptcy summons in cases such as In re Sherlock where Murphy J. concluded:

        “It seems to me that in applying those principles to the present case where I have accepted that the sum demanded of the debtor exceeded the amount due by more than £1,000, it follows that the cause shown must be allowed and the adjudication set aside.”
In the more recent decision of the High Court in the case of AIB v. Yates referred to above, and applying the same principles I commented at page 12 of the judgment:
        “Thus, I think it is clear beyond doubt that if the amount claimed on foot of the bankruptcy summons is in excess of that which is actually due, then in those circumstances there is no obligation to pay the amount claimed on foot of the bankruptcy summons and a failure to pay on foot of that summons will not constitute an act of bankruptcy.”
In the present case there is no doubt whatsoever that the amount actually due by the Appellant to the Bank is considerably in excess of that sought in the bankruptcy summons to be paid. The Bank chose not to claim the amount due for interest in the bankruptcy summons. That is, obviously, in ease of the Appellant.

In the course of submissions there was some discussion as to whether the Bank could prove in the bankruptcy for the sum due by way of interest up to the date of adjudication, but counsel on behalf of the Appellant did not seek to rely on an argument that the Bank had waived its right to interest. Instead, and relying on the Australian decision in Kleinwort, it was noted that interest on a judgment may or may not be included in a bankruptcy notice (the equivalent of a bankruptcy summons) and that if interest was included, it had to be calculated. It was contended that the trial judge herein erred in taking into account the fact that the amount actually due by the Appellant was greater than that set out in the bankruptcy summons in considering whether or not there was an overstatement of the amount due as a result of the payment of the sum of €4,425.

I find it difficult to place reliance on the decision in Kleinwort given the differences between the statutory framework in Australia as compared to Ireland. There are different statutory requirements in that jurisdiction as to what must appear in a bankruptcy notice which differ from the statutory requirements in this jurisdiction. There is also the statutory provision in that jurisdiction (s. 306.1 of the Bankruptcy Act, 1966) which had a bearing on the outcome in that case which has no equivalent in this jurisdiction.

The theme running through the authorities requiring strict compliance with the bankruptcy code is clear, namely, that the debtor on whom a bankruptcy summons is served should know the amount he/she is required to pay in order to avoid committing an act of bankruptcy and should not be confused or misled as to the requirements being made of him/her. An examination of the decision in O’Maoileoin is illustrative of this point. In that case the applicant had been adjudicated bankrupt on foot of an act of bankruptcy allegedly committed when he failed to pay the amount demanded in a debtor’s summons. (That decision concerned s. 21 of the Bankruptcy (Ireland) Amendment Act 1872 which was then in force). A receiver by way of equitable execution had been appointed over the portion of the amount of the judgment obtained by the petitioner against the debtor. There was no reference in the debtor’s summons to the fact that an appointment had been made over part of the judgment debt. It was argued that the debtor’s summons was defective, in that the amount claimed did not take into account that the petitioning creditor was not entitled to receive the entire amount of the judgment nor to execute for the full amount of the judgment, in view of the appointment of the receiver. Accordingly, it was submitted that this was a defect in the debtor’s summons and that the failure to respond to it did not amount to an act of bankruptcy. It was on that basis that it was sought to have the order adjudicating the applicant a bankrupt annulled. It was common case between the parties in that case that a bankruptcy notice in respect of a judgment debt should only be issued for the judgment debt or that part of the debt on which the creditor can issue execution. The motion in that case to annul the adjudication was unsuccessful.

In the present case, there is no doubt but that the Bank would be entitled to issue execution against the Appellant in the amount of the judgment together with interest thereon pursuant to the provisions of the Debtors (Ireland) Act 1840 and costs. In executing the judgment, credit would have to be given for the sum of €4,425 but clearly the Bank would be entitled to execute for a sum far in excess of that actually claimed in the bankruptcy summons herein. McGovern J. in his concluding remarks observed:

        “26. In the course of the hearing, counsel were unable to cite any case which dealt specifically with this point, namely, whether an understatement of the amount actually due brought a debtor within the ambit of In Re Sherlock and the cases referred to therein.

        27. I am satisfied that the jurisprudence established by In Re Sherlock developed in order to protect debtors from the rigours of Bankruptcy following a demand for payment which was excessive, even if the excess was minimal, and arose due to an oversight or innocent mistake.

        28. That judgment is not authority for the proposition that a claim for a liquidated sum, which is less than the sum actually due, gives rise to a ‘cause shown’ against the validity of an adjudication of Bankruptcy under s. 16 of the Act, and where no mistake or carelessness has been shown in the computation of the figures set out in the Notice of Demand or the Bankruptcy Summons.”

I consider the approach of McGovern J. to be correct. The sum demanded was not in excess of that actually due and there was nothing in the Bankruptcy Summons which could have confused or misled the Appellant as to what he was required to do in order to avoid committing an act of bankruptcy. Had the appellant paid the sum sought on the Bankruptcy Summons, he would not have committed an act of bankruptcy.

Thus, in circumstances where the sum actually due is significantly in excess of that sought on the Bankruptcy Summons, it is difficult to see how the appellant can contend that the amount claimed in the Bankruptcy Summons was excessive by failing to give credit for the sum of €4,425 as against the sum of €495,938.87 which had accrued due for interest as set out above.

It has been noted time and again that the consequences of adjudication in bankruptcy are penal in nature and for that reason strict compliance with the Bankruptcy code is necessary before an individual can be adjudicated a Bankrupt. The requirement of strict compliance is to protect debtors from being adjudicated in respect of a sum that is not due but it is difficult to see how the requirement for strict compliance could be relied on to annul an adjudication in Bankruptcy because of an apparent failure to give credit for a payment made in reduction of the overall sum due when the sum actually due is greater than the sum demanded on the Bankruptcy Summons. As I have said, the purpose of the requirement of strict compliance is to ensure that an individual is not adjudicated bankrupt in respect of a sum which is not due. It is difficult to see how that requirement could be used for the benefit of a debtor and to the detriment of a creditor in circumstances where the debtor was not asked to pay more than was due but, in fact, was asked for less than was due.

In all the circumstances of this case, I am satisfied that the approach of the learned trial judge was correct and I would dismiss the appeal.











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