Bankruptcy appeal allowed where demand was inaccurate due to uncredited interest and credits.

The Supreme Court

[S.C. No. 191 of 2011]

McKechnie J.

McMenamin J.

Dunne J.

In the Matter of Patrick Murphy of 18 Falcon Hill, Lover’s Walk, Tivoli, Cork, a Bankrupt

Between

Patrick Murphy

Appellant/Bankrupt

And

The Governor And Company of the Bank of Ireland

Petitioning Creditor/Respondent

And

The Official Assignee in Bankruptcy

Notice Party

Judgment delivered the 7th day of March, 2014 by Mr. Justice William M. McKechnie.

The Issue:

The issue in this appeal is whether the adjudication of the appellant as a bankrupt should be annulled, on the basis that the sum

specified in both the Particulars of Demand and Notice Requiring Payment and in the Bankruptcy Summons is, by overstatement,

inaccurate and incorrect, and thus at the time, was not due and owing. Accordingly it is said that despite further monies also being

due, the failure to comply with the payment demands cannot be regarded, as having been an act of bankruptcy upon which a valid

adjudication could be based. No authority has been identified by either party which directly reflects the circumstances of this case

and therefore the point must ultimately be dealt with, largely in accordance with principle.

Process of Bankruptcy:

The process of bankruptcy as material to this case involves, the taking of several steps which are set out in the Bankruptcy Act

1988, as amended, in the version applying at the relevant time (“the 1988 Act” or “the Act”). Subsequent amendments, such as

those made by the Civil Law (Miscellaneous Provisions) Act 2011, the Personal Insolvency Act 2012 and the Courts and Civil Law

(Miscellaneous Provisions) Act 2013, all post-dated the relevant period and thus do not have any baring on this case..

This process involves: the making of a demand, in a document titled “Particulars of Demand and Notice Requiring Payment” (the

“Notice of Demand” or “Demand”), by the petitioning creditor for payment of the sum specified; followed by the service of a

Bankruptcy Summons (or “the Summons”) in respect of which, if default in payment is made, an act of bankruptcy is committed,

which thereby allows the creditor to petition on that ground, to have the debtor adjudged a bankrupt. Verifying Affidavits are required

for the issue of the Summons and the Petition. A debtor has a statutory opportunity of responding in a number of ways, including

moving to have the Summons dismissed within a prescribed time after service, and in addition, irrespective of whether that step has

been taken, to “show cause” against the validity of the adjudication. Again Affidavits are required from or on behalf of the debtor in

support of either or both applications. In this case the real contest arose when Mr. Murphy invoked the latter step, thereby giving rise

to the High Court decision which is the subject matter of this appeal and this judgment.

Statutory Provisions and Rules of Court:

The statutory provisions upon which the above steps are based, show:

that a Bankruptcy Summons may issue if the Court is satisfied that: “(a) a debt of €1,900 or more is due … by the person

against whom the Summons is sought, (b) the debt is a liquidated sum, and (c) a notice [(“Notice of Demand”)] in the

prescribed form, requiring payment of the debt, has been served on the debtor” (s. 8(1) of the 1988 Act):

By the Bankruptcy Act 1988 (Alteration of Monetary Limits) Order 2001 (S.I. No. 595 of 2001), art. 2, schedule ref. 1 and ref. 3,

the amount of €1,900 was substituted for the sum of £1,500.

that the Notice of Demand shall set out the particulars of the debt due and require payment within four days from the date of

service (s. 8(3) of the 1988 Act);

that the debtor may apply to have the Summons dismissed, within 14 days from the date of service (O. 76, R. 13(2)), and that

the Court must accede to that application if satisfied that an issue would arise for trial (s. 8(5) and (6) of the Act);

that the debtor commits an act of bankruptcy if, having been served with a Bankruptcy Summons “… he does not within

fourteen days after service … pay the sum referred to in the [S]ummons or secure or compound for it to the satisfaction of the

creditor” (s. 7(1)(g) of the Act);

that an application for adjudication “shall be by petition verified by the [A]ffidavit [of Debt] of the petitioner” (s. 10 of the

Act);

that such a petition may be presented, if: (a) there is a debt of €1,900 or more due; (b) the debt is a liquidated sum; and (c)

“the act of bankruptcy on which the petition is founded has occurred within three months before the presentation of the

petition” (s. 11(1) of the Act); and finally

that the bankrupt may show cause against the validity of any such adjudication by moving the Court to that effect: on such

application “… the Court shall, if … the bankrupt shows to its satisfaction that any of the requirements of [s.] 11(1) have not

been complied with, annul the adjudication and may, in any other case, dismiss the application or adjourn it on such conditions

as the Court thinks fit ...” (s. 16(2) of the Act).

Order 76 of the Rules of the Superior Courts 1986, in the version applying at the relevant time (“R.S.C.”), facilitates this regime, inter

alia, by specifying the appropriate forms by which many of the aforementioned steps are to be implemented. For example, the Notice

of Demand shall be in Form No. 4, the Affidavit grounding the Bankruptcy Summons, which must verify the truth of the debt, shall be

in Form No. 5, and the Petition shall be in Form No. 11; each of these Forms are set out in Appendix O to that Order.

As appears from its terms, O. 76 R.S.C. also provides that certain matters must be specified in the Bankruptcy Summons – an example

of which is a requirement to state that, if the debt specified and therein demanded is not paid or otherwise secured or compounded

for within 14 days from the date of service, the debtor shall have committed an act of bankruptcy (r. 10). Such an act is of course

the foundation of and a pre-condition to any subsequent adjudication. Furthermore, mention should also be made of r. 12(4) which,

having required that detailed particulars of demand should be endorsed upon or annexed to the Summons, goes on to provide that:

“[n]o objection shall be allowed to the particulars unless the Court considers that the debtor has been misled by them.” Whilst there

are several other requirements set out in the Order, none touch on the issues in this appeal.

The Factual Background – in General Terms:

The following is a brief summary of the most salient events which gave rise to this case and which of course give rise to this appeal:

On the 17th May, 2010, Bank of Ireland, hereinafter also called “the Bank”, obtained a judgment, by consent, for the sum of

€9,025,720.70 (inclusive of interest up to that date) against the appellant, Mr. Patrick Murphy, together with six days’ cost as

taxed and ascertained.

The Bank, on the 21st October, 2010, served on the appellant a Notice of Demand as a prelude to the issue of a Bankruptcy

Summons. This Notice demanded payment of a figure of €9,025,880.70, which comprised the aforementioned amount, together

with a token sum of €160 to represent the Cost Order as obtained. No objection has ever been taken to the addition of this

small amount. The total sum of €9,025,880.70 thus resulting, can be treated as being, and is referred to in this decision as, “the

judgment amount”, or “the judgment debt”.

As no such payment was ever received, a Bankruptcy Summons was duly applied for and obtained on the 29th November, 2010.

It was based on the affidavit of Ms. Janet Seacy who styled herself as a Senior Business Manager with the Bank. The Summons

was in standard form and stated that unless the judgment amount was paid or was otherwise secured or compounded to the

Bank’s satisfaction within a specified time, “… you [(Mr. Murphy)] will have committed an act of bankruptcy in respect of which

you may be adjudged a bankrupt …”.

On the 24th December, 2010, a Notice of Motion returnable for the 24th of January, 2011 issued, in which the Bankruptcy Court

was requested to adjudicate the appellant a bankrupt; this was on foot of a Petition seeking that relief, which also issued on

the same day.

An Affidavit of Debt sworn by Ms. Helen Nolan on the 24th December, 2010, supporting the Petition Application was filed on the

same day on behalf of the Bank.

On both the 22nd and the 23rd January, 2011, Mr. Murphy swore Affidavits, apparently in furtherance of an application under s.

8(5) and (6) of the 1988 Act, seeking to have the Bankruptcy Summons dismissed. It is quite unclear what happened to this

application: it seems never to have been formally moved or determined.

In any event, following an unsuccessful application for an adjournment, the High Court heard and determined the Petition on the

24th January, 2011 and made an Order adjudging the appellant a bankrupt on that day. It refused a stay, but on the 31st

January, 2011, time was extended for the bankrupt to show cause against the validity of the adjudication.

Mr. Murphy did so, as provided for under s. 16 of the Act and set out the grounds being relied upon in a Notice in writing dated

the 1st February, 2011. This Motion was heard on the 6th April, and on the 12th April, 2011, McGovern J., dismissed the

application.

It is against that decision and the resulting Order which the instant judgment deals with.

The Foundation of the Dispute:

Whilst the above general facts in this case are not in dispute, their appreciation at a more particular or refined level, as in most

cases, is a matter of some importance so as to understand how the legal issue arises.

The Notice of Demand, in particularising the debt, sought payment from Mr. Murphy of the judgment amount, and stated that “…

[such sum (€9,025,880.70)] amounts to your total indebtedness to [the Bank]”. It went on to describe how this sum was “made up”,

referring to:

“[the] High Court Commercial Order obtained against you on the 17th day of May, 2010 In The Matter Entitled …

[w]hich judgment was obtained against you in the sum of … €9,025,720.70 … besides the sum of … €160.00 … for six days

costs which sum remains outstanding together [sic] all of which together amount to a total of … €9,025,880.70 … which total

amount remains outstanding.”

Payment of this sum was demanded within four days from the date of service, which was effected on the same day by ordinary pre-

paid post. No such payment was made.

The Bankruptcy Summons also sought payment of the above sum which it described as “being the sum claimed of you by [the Bank]

according to the particulars hereunto annexed or endorsed hereon …”. Those particulars specified how this sum was calculated. They

did so in the same way as in the Notice of Demand; that is, by reference solely to its two component elements; namely the sum of

€9,025,720.70 as specified in the High Court Order, to which was added €160 in respect of costs, in all amounting, in total, to the

sum of the judgment debt.

The Affidavit of Ms. Janet Seacy, sworn on the 2nd November, 2010, which grounded the issue of the Summons, averred in one place

that the sum of €9,025,880.70 represents “the total” due, and separately in another place that such sum is “the grand total of the

amount outstanding on foot of a judgment obtained …”, pursuant to the Order of the 17th May, 2010. In the Affidavit of Debt

grounding the Petition it is claimed that the bankrupt, as of the 24th December, 2010, was still “justly and truly indebted”, to the

Bank, in the amount herein mentioned which again was stated to arise from the said High Court Order.

In the Affidavits sworn by Mr. Murphy on the 22nd and 23rd of January, 2011, respectively, it is asserted that the judgment amount

was not due to the Bank either as of the 21st October, 2010 (Notice of Demand) or as of the 29th November, 2010 (Bankruptcy

Summons), because the Bank had received a number of small sums in the intervening period, in respect of which he was entitled to

credit on the loan account, upon which the judgment was based. It is not disputed but that he is correct in this regard.

The circumstances relating to this assertion were subsequently clarified by Ms. Seacy in a replying Affidavit of the 29th January,

2011, which disclosed that between the 17th May, 2010 and the 21st October, 2010, the Bank had received, through a series of

payments, a total of €3,025, and that by the 29th November, 2011 it had received a further €1,000; in all the amount of €4,025.

These sums, as appears from a copy of the bankrupt’s loan account, were credited to this account as and when received. A further

sum was offset on the 30th November, 2011, but this can be discounted, as it was subsequent to the issue of the Summons.

Accordingly, it is claimed by the appellant that had these amounts been deducted from the judgment debt as they should have been,

the subsequent demands at both critical dates would consequently have been overstated, and therefore his failure to satisfy such

demands ought not to be regarded as an act of bankruptcy.

The Bank of course could not dispute these figures, as it had supplied them. In fact, as stated, it confirmed that each such payment

when received can be regarded as having been credited against the sum of €9,025,880.70 – the judgment debt. It went on however

to resist Mr. Murphy’s assertion as to consequence, by claiming that as and from the date of the judgment, interest at the then rate

of 8% accrued automatically on the judgment debt by virtue of s. 26 of the Debtors (Ireland) Act 1840, as later amended inter alia by

ss. 19 and 20 of the Courts Act 1981 (“Courts Act interest” or “statutory interest”).

The calculations to reflect such interest show that even when each credit is accounted for, the bankrupt’s true indebtedness at all

times far exceeded the amount of the judgment debt. For example, by the 2nd November, 2010, the excess sum was over €300,000;

by the 29th November, 2010 it had increased to more than €385,000; and by the date of the adjudication, it had risen to almost

€500,000. These figures, as figures, were not disputed and neither was the operation of the statutory provision. On this basis, the

Bank’s simple answer to the appellant’s submission is that there was never a question of it seeking more than what was actually due.

In fact the contrary was the position. Therefore, there is no basis either in fact or in law for the assertion that the demands as made

could be regarded as excessive.

The respective positions of the parties are more fully reflected in their submissions to this Court which are set out later in this

judgment.

The Notice to Show Cause:

The grounds upon which cause was shown were:

“1. The sums claimed in the [D]emand and in the Bankruptcy Summons were inaccurate and accordingly the failure to pay all or

part of the sums so demanded could not, and did not, amount to an act of bankruptcy.

2. Accordingly there was no act of bankruptcy on which to ground a valid [O]rder of [A]djudication of bankruptcy.

3. In particular no act of bankruptcy had occurred within three months before the presentation of the Petition.

4. The debt was not a liquidated sum by reason of the failure to properly account for partial repayments of the same.

5. The Bankruptcy Summons, if granted prior to the swearing of a valid verifying [A]ffidavit (and it appearing that the [A]ffidavit

was sworn some two days after the issue of the Bankruptcy Summons) could not be a valid [B]ankruptcy [S]ummons”.

When the fifth ground so stated is disregarded, as it can be in that it was not pursued either at the original hearing or on this appeal,

it can be seen that in essence there is but one issue raised, and that relates to whether, in the above circumstances, the appellant’s

failure to meet the demands made of him could be held to constitute a valid act of bankruptcy.

The High Court Judgment:

Having set out what was asserted on behalf of the bankrupt, and what resulted when interest was calculated on the judgment

amount, the trial judge concluded that the sum demanded for legal purposes, in both the Notice of Demand and in the Bankruptcy

Summons actually understated, rather than overstated, what the full indebtedness of the appellant was. In this regard he said “that

even allowing for the credits due to the applicant, his debt to the Bank considerably exceeds the sum demanded of him, both at the

date of the Demand and the date of the Bankruptcy Summons”. Being of that view, authorities such as In the Matter of a debtor And

in the Matter of the Bankruptcy Acts. Michael B. O'Maoileoin v. The Official Assignee [1989] I.R. 647 (“In re O’Maoileoin”) and In the

matter of Gerard Sherlock, a Bankrupt [1995] 2 I.L.R.M. 493 (“In re Sherlock”) were not on point as these cases related to excessive

demands. That was not the situation which the trial judge was facing; rather the contrary was the position in light of the accrued

interest. Accordingly, neither case could be considered authority for the proposition that by claiming a sum which was less than that

actually due, such could give rise to a valid “cause shown” on an application under s. 16 of the 1988 Act. In these circumstances and

for this principal reason, the learned trial judge, who also rejected the claim that by the nature of its demands the Bank had waived

its right to interest, dismissed the application and affirmed the Order of Adjudication.

The Appellant’s Submissions:

The submission advanced at appeal level is identical to that opened before the High Court, save with some added focus on how it is

said that the judgment of McGovern J. was wrong in law.

As regards the appropriate legal principles by which the provisions of the Bankruptcy Code should be interpreted, much reliance is

placed on the well known case of In re Sherlock, which in turn draws heavily on the decision of In re O’Maoileoin and/or on the cases

therein referred to. More recent cases such as In the matter of an application pursuant to s. 8 of the Bankruptcy Act 1988 and in

the matter of The Minister for Communications, Energy and Natural Resources and M. O'C. v. M. W. and R. W. [2010] 3 I.R. 1 (“M.

W. and R. W.”); In the Matter of P. F. v. K. D. & Ors. [2010] I.E.H.C. 63 (“In re P. F.”); and Allied Irish Banks Plc. v. Yates [2012]

I.E.H.C. 360 (“Yates”) were also mentioned, but apart from adopting the same interpretive approach, these do not add to the

jurisprudence otherwise established by such cases.

In short, it is submitted that these cases establish that a demand for a sum not then wholly due and immediately payable, cannot

ground an act of bankruptcy, no matter how marginal the excess might be. Furthermore, the statutory provisions must be interpreted

strictly and all requirements fully satisfied.

So based, the first argument is that, by the date of the Notice of Demand and by the later date of the Bankruptcy Summons, the

judgment debt should have been reduced by the credits above mentioned. The failure to do so resulted in both seeking excessive

sums and accordingly, the bankrupt’s failure to discharge the demanded amount could not ground a lawful act of bankruptcy.

The appellant argues that the question of interest played no part in this process and was not even mentioned until Ms. Seacy’s

Affidavit of the 29th January, 2011, which post-dates the Order of Adjudication. The argument goes further in that, given the

repeated assertions by the Bank in, for example, the Notice of Demand, the Bankruptcy Summons and the Affidavit of Debt, to the

effect that the judgment amount was the total amount outstanding, it must follow that the Bank waived its right to interest, or at

least must be regarded as having expressly disavowed any reliance on it, for the purposes of adjudication. Furthermore, when the

Bank did address this question in Ms. Seacy’s Affidavit, it clearly confirmed that the amounts in question were credited not as against

interest, but as against principal. Accordingly in these circumstances, the Bank should not now be allowed to make the case, as it is

attempting to do, that the credits can be offset against statutory interest; in so finding, the learned trial judge was in error both in

fact and in law.

On a more general level it is pointed out that the effect of permitting the Bank to rely on statutory interest, led the trial judge to

conclude that above all just credits, the amount claimed by the Bank in this process was in fact an understatement of the debtor’s

liability and accordingly, the cases pertinent to excessive demands were not relevant. On the particular question of interest, Counsel

on Mr. Murphy’s behalf referred to the Australian case of Kleinwort Benson Australia Ltd. v. Crowl (1988) 165 C.L.R. 71 (“Kleinwort

Benson”). Under the provisions of the Bankruptcy Act 1966, an overstatement of the amount due, would not by reason of that fact

alone, necessarily be fatal to a Bankruptcy Notice “unless the debtor … gives notice to the creditor that he disputes the validity of

the [N]otice on the ground of mis-statement” (s. 41(5)). In relation to an understatement of the debt, the same can be cured under

the general provision of s. 306(1) of the Act, if it constitutes only a formal defect or irregularity unless, by so doing, a substantial

injustice is caused to the debtor, being one which cannot be remedied by court order.

Paragraphs 9 and 10 of the judgment were then quoted and read as follow:

“9. Interest due on a judgment debt may, but need not, be included in a [B]ankruptcy [N]otice: … 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’ …. In Re Manion … [1979] F.C.A. 1 … Lockhart J.

expressed the view (at p. 273) that ‘(a)lthough interest is necessarily and inexplicably 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 [B]ankruptcy [N]otice has long been accepted.

10. If interest is included in a [B]ankruptcy [N]otice it must be calculated: … 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.”

For these reasons, it is contended by the bankrupt that the approach adopted by the learned High Court judge to bring into

consideration the question of interest, where the Bank had limited its claim to the principal sum plus €160 for costs was in error, or in

the alternative, at least raised an issue which should be determined at a separate trial (In the Matter of Bankruptcy Summons by St.

Kevin's Company (Petitioning Creditor) Against Richard Flynn (Debtor) (Unreported, Supreme Court, 27th January, 1995)). Either way,

the correct manner of resolving this issue should have led the High Court to annul the adjudication pursuant to the “cause shown”.

Finally, it is also submitted that the sum in question is not a “liquidated sum” as required by s. 11(1)(b) of the 1988 Act and on that

basis itself, the adjudication is invalid. This point was not separately pursued but rather formed part of the overall argument.

The Respondent’s Submissions:

The Bank firstly complains of the appellant’s failure to put in issue, in early course, the question of credits; as even a cursory

examination of either the Notice of Demand or the Bankruptcy Summons will show, there is no mention of such credits in either

document. In the same vein, the appellant is also criticised for his failure to bring an application under s. 8(5) and (6) of the 1988 Act

so as to have the Bankruptcy Summons dismissed.

The creditor acknowledges that the relevant case law requires strict adherence to the Bankruptcy Code but points out that the

instant case differs from the circumstances of many others, including In re Sherlock, because at no time was Mr. Murphy asked to

pay an amount in excess of that which he legally owes the Bank. It is quite common for a petitioner not to claim the full amount due

and there is no requirement in law to the contrary. It is claimed that an inadvertent omission of credits should not result in the

Summons being held invalid where, in an overall context the amount actually sought is owed by the debtor, even when due allowance

is made for such credits.

The Bank strongly asserts that at no time did it waive its claim for interest and that such a conclusion cannot be deduced from the

manner in which it calculated the amount sought in the Summons.

In relation to the argument put forward by the appellant that, where an issue arises in relation to the amount sought it must be

addressed at a hearing external to the bankruptcy proceedings, the Bank submits that the authorities upon which this proposition is

based (paras. 21 and 27 supra) relate to circumstances very different indeed to the instant case. Firstly, all of these cases involved

applications made under s. 8 of the 1988 Act and not, as here, an application to show cause under s. 16 of that Act. Secondly, in M.

W. and R. W., the High Court held that there was a serious issue to be tried, namely whether the amount claimed in the Summons was

overstated, and likewise in In re P. F where the issue was whether there was a debt owed at all. Yates also related to circumstances

where the amount claimed exceeded the amount actually owed. Accordingly, it is said that none of these cases have any relevance

to the instant circumstances.

In concluding the Bank expresses serious doubts about the motivation of Mr. Murphy in bringing this application, given the purported

transfer of substantial property to his wife. It is said that such property, should rightly be available in part discharge of the debt owed

to the petitioning creditor. In all of the above circumstances the application should thus be dismissed.

Decision:

The adjudication of a person as a bankrupt is, in light of the consequences of such an Order to that effect, a very serious matter for

that person, his immediate dependants and wider family, and for the future direction of his life. Immediately on becoming operative, all

of his assets automatically vest in the Official Assignee, all subsequently acquired property, under pain of criminal sanction, must be

notified to the Official Assignee who can then claim it and any salary or income earned or received thereafter, is liable to be attached

for the benefit of the creditors. Whilst there are some exceptions to these consequences, they have little effect on the grave impact

of such an Order. Further, a bankrupt is disqualified from acting as a Director or from being involved in the management of a company

without leave of the Court and he/she cannot continue to serve or otherwise hold, elected representative office. In addition, this

virtually complete loss of control over one’s affairs can last for a very considerable time, at least as the law stood in 2010 (s. 85 of

the 1988 Act). And finally, bankruptcy is regarded, historically at least, as reflecting badly on one’s character and reputation: it

carries a stigma and an odium which continues even well beyond one’s discharge from that status. It is as if, once a bankrupt, a

bankrupt forever.

The law for those and other reasons has therefore always regarded the statutory code by which such an outcome could be achieved,

as being one which requires strict compliance. Bacon C.J., in Ex Parte Coates, In re Skelton (1877) 5 Ch. D. 979 (“In re Skelton”)

gave as a reason that (p. 980):

“[i]t 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.”

Some years later Cave J. in In re Collier, Ex p. Dan Rylands Ltd. (1891) 64 L.T. 742 at p. 743 put the matter thus:

“Very soon after the [Bankruptcy] Act of 1883 came into operation several cases were brought … [where] the members of the

Court of Appeal expressed the opinion that, since the commission of an act of bankruptcy was a serious matter, and involved

consequences of what has been called a penal nature, it was important to see that the necessary preliminaries were complied

with.”

In In re O.C.S. (A Debtor) [1904] 2 K.B. 161 the Court of Appeal also explained the extreme importance of great strictness in dealing

with Bankruptcy Notices. Much the same view was expressed in several other cases including in In re A Debtor, (Cozens-Hardy M.R.

at p. 686 to 689) – a decision further referred to later in this judgment. This approach in the neighbouring jurisdiction and the

consequences of non-compliance with the statutory provisions (save in respect of mere formal defects per s. 143 of the 1883 Act),

have largely held firm to this day.

The references in this judgment to the Bankruptcy Act 1883 (“the 1883 Act”), result simply from the fact that the English case law

which the Court is referred to, is based on that Act. No later statutory provisions are relied upon by the parties as being relevant nor

is any further case law mentioned, other than that as cited herein.

In this jurisdiction a modern authority of some note is the case of In re O’Maoileoin where the general approach above outlined was

very much followed. At p. 654 of the report ([1989] I.R. 647), Hamilton P., having reviewed a number of other cases – including some

of those previously mentioned – stated:

“These cases clearly establish that the bankruptcy code, having 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 a 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.”

See also the judgment of Murphy J., in In re Sherlock, which expressly endorsed these principles and by their application, directed

that the adjudication in that case, be set aside (paras. 47 and 48 infra).

The reference in the passage quoted from In re O’Maoileoin as to what the situation is where a creditor is relying upon a judgment

debt, is derived from English authority, which in turn is based on a particular provision of the 1883 Act. Under that Act, a person

could commit an act of bankruptcy in a number of ways, including that set out in s. 4(1)(g), which provided that if a debtor, against

whom a final judgment had been obtained, failed to “pay the judgment debt in accordance with the terms of the judgment”, he would,

by reason thereof, have committed such an act. However, the requirement made of the debtor in the summons had to be strictly in

accordance with “the terms of the judgment”, as otherwise such summons would be regarded as being statutorily defective and as a

result could not provide a basis for adjudication.

A good illustration of this point is to be found in In re H.B. [1904] 1 K.B. 94 (“In re H.B.”). In that case following negotiations, the

debtor and creditor agreed that the debt should stand at a certain sum. As security for the due performance of the agreement, the

debtor consented to judgment being signed against him in the full amount. Default was soon made in respect of three instalments. A

Bankruptcy Notice (in fact the second) then issued seeking payment, not of the whole judgment debt but of the overdue amount less

some credits; the sum demanded however was described as the “amount due on the final judgment”. The Court of Appeal struck

down the Notice as it failed to come within the provisions of s. 4(1)(g) of the 1883 Act. This because the Notice demanded payment

of a sum which was not due “in accordance with the terms of the judgment”, but rather was due under the collateral agreement made

between the parties. Therefore it did not comply with the wording of the particular provision and thus was invalid.

Notwithstanding the specific facts of that decision, it can hardly be doubted but that the following statement of Romer L.J. applies

across the board: at p. 103 he stated:

“Clearly, in a [B]ankruptcy [N]otice the debtor is entitled to see from the [N]otice exactly what is claimed to be due on the

judgment debt”.

The making of that observation, I am satisfied, was well justified for the reasons which I give later in this judgment. In addition, the

learned judge acknowledged what is rather obvious; which is that a sum might be claimed in a Summons which is less than the

judgment debt, resulting for example from some payment on account. He appears however to have added the proviso that for the

Notice to remain valid in such circumstances, it must be made clear that the excess is being waived by the judgment creditor. If this

is to be read as saying that the creditor could not rely on the balance of the debt for the purposes of adjudication, then I would

agree. If however it was intended to convey that such balance could not be proved post-adjudication, it should in my view be

considered as applying only to that particular act of bankruptcy as specified in the sub-section. Even then its correctness may

possibly be doubted, as the High Court in Kleinwort Benson did in relation to an identical provision of the Bankruptcy Act 1966 (s.

41(2)(a)(i)). In any event the act in question in this case is not the failure to pay in accordance with a judgment, but rather a failure

to comply with a Bankruptcy Summons. Accordingly, I cannot see, at the level of principle, any justification why part of a debt

admittedly due, but not claimed in the adjudication, could not be proved thereafter. Whilst some argument may of course be possible

at the particular level, for example if circumstances existed giving rise to a waiver, an estoppel or such like, in general and excluding

such, I would regard all just debts as being capable of proof before the Official Assignee.

Even leaving aside the debate about the proviso, it has been suggested otherwise that this decision should perhaps be considered as

being quite narrow and as being restricted to its own facts, as the Court seems to have focussed very specifically on the statutory

provision in question. Even if technically that is the case, which I am not at all convinced of, the same cannot be said of In re A

Debtor [1908] 2 K.B. 684 (“In re A Debtor”) even though the same subsection of the 1883 Act was relied upon, as constituting the

act of bankruptcy in that case. This, because the language of the Court was evidently of a general nature and clearly was intended

to have a wide signification and a broad dimension to it.

The facts of In re A Debtor disclose that the amount claimed in the Bankruptcy Notice was overstated as a result of an inadvertent

error in the interest calculation. Although the excess was only between one and two pounds, the mistake was considered substantial,

as distinct from merely formal, and therefore did not fall to be amended under s. 143(1) of the 1883 Act. As such, the Court held that

the debtor’s failure to comply with the Notice could not be regarded as having constituted a valid act of bankruptcy.

In a well-known passage from that judgment, Cozens-Hardy M.R. said (p. 687):

“The amount claimed in the [B]ankruptcy [N]otice 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 [B]ankruptcy [N]otice 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 made bankrupt.’ It is said [that] that is a formal defect which can

be set right under s. 143, sub-s. 1, of the Bankruptcy Act, 1883 … On principle I am not prepared to accede to that argument.

I cannot regard it as a mere formal defect that you claim payment from a man of that which never was due from him.”

The Master of the Rolls ended his judgment by concluding that (p. 689):

“[b]oth on principle and on authority it seems to me that when you find a [N]otice including in the claim for payment a sum

which is not due from the debtor at all, that is not a mere formal defect within …. The appeal must therefore be allowed.”

Farwell L.J., in a concurring opinion, made two observations which have a relevance to the instant appeal. At pp. 689 to 690, the

learned judge said:

“I cannot think [that] it is a mere formal defect to include in a [B]ankruptcy [N]otice not only the amount payable under the

judgment, but also a sum which is not due and owing at all, and which the debtor has no means of seeing on the face of the

[N]otice is not due and owing” (emphasis added).

This last reference related to a case In re Johnson (1883) 25 Ch. D. 112 where the Court treated a clerical error as a formal defect,

when its nature was readily discoverable from the document as a whole and when to do so would not result in any injustice to the

bankrupt. However, that was not the case which the Court was dealing with in In re A Debtor, and accordingly the learned Lord

Justice would also treat the Notice as invalid.

Based on the application of the same principles, it is also noteworthy to recall the general tenor of what James L.J. said In re Skelton

((1877) 5 Ch. D. 979):

“The Act says [that] you must tell the debtor what the act of bankruptcy is which you allege against him, so that he may have

an opportunity of contesting it in the first instance” (p. 982).

It is quite evident that the Court in In re O’Maoileoin considered the above approach to be part of Irish law and was prepared to apply

the rationale underpinning it. The issue which Hamilton P. had to consider was whether the appointment of a Receiver, by way of

equitable execution over a portion of the demanded debt which the creditor himself owed to a third party, had the effect of reducing

by such amount the sum due by the debtor. If it had, a demand for an excessive sum had been made. Following In re Bond, Ex p.

Capital and Counties Bank Ltd. [1911] 2 K.B. 988, the learned President held that such an appointment by itself did not so operate

and accordingly did not alter – by reduction or otherwise – the specified amount: in such circumstances the appointment had no

effect on the act of bankruptcy.

The issue of an excess demand once again arose, in the following way in In re Sherlock. The act of bankruptcy upon which Mr.

Sherlock was adjudged, was his failure to pay or to secure or compound the sum of £182,669.73, as demanded in the debtor’s

Summons. By reason of certain events, the details of which are not relevant, Mr. Sherlock was entitled to an off-set of about £1,000

against that sum. The failure on the creditor’s part to give such credit was purely due to an oversight. Furthermore, as is quite

evident from the figures, the amount due even with such a credit, far exceeded the minimum sum specified in legislation for its

application.

On behalf of the bankrupt it was argued that if the sums demanded and specified in the Bankruptcy Summons “… were inaccurate

then the failure to pay the sums so demanded could not and did not amount to an act of bankruptcy and accordingly that there was

no such act on which to ground a valid [O]rder of [A]djudication” (p. 494). Murphy J. readily accepted, as a matter of principle, the

correctness of this submission. Given the undisputed facts of the case, this inevitably lead to the conclusion that as the sum

demanded of the debtor exceeded the amount due, cause shown was allowed and the adjudication was set aside.

To get an overview of the situation, it is important to note that the acts of bankruptcy in the cases above cited, differed. For

example: it was a departure by a trader from his dwelling house with intent to defeat or delay his creditors in In re Skelton; it was a

failure to pay a judgment debt in accordance with the terms of a final judgment in In re H.B. and also in In re A Debtor; and it was a

failure to comply with a Debtor’s/Bankruptcy Summons, in In re O’Maoileoin and In re Sherlock respectively. Thus, it can be taken that

the principles deducible from these cases, have general application to the Code in question and are not dependent, at that level, on

the particular act of bankruptcy relied upon.

Staying at the level of generality and as a direct consequence of applying a strict interpretation to the 1988 Act, it appears to me

that a debtor must be informed, in specific and accurate terms, by way of the particulars served on him and certainly from those

endorsed on or annexed to the Bankruptcy Summons, of the precise demand being made, so that he can know what act of

bankruptcy he is facing and what steps he has to take to avoid committing that act; which of course, is the crucial default step in

the procedure. It is an essential requirement of the statutory scheme that the Summons speak to the debtor in such a way that he

can readily, immediately and clearly see what is required of him so as to terminate the process, and thereby avoid the drastic effects

of adjudication. This view is I feel entirely supported from what the Summons, by express requirement, must contain. As pointed out

at para. 6 supra, the Summons, having outlined the demand, must tell the debtor how he can avoid adjudication, so as to comply

with s. 8(4) of the 1988 Act and O. 76 r. 10 R.S.C.: he is informed that this is achievable if he pays or secures or compounds the sum

demanded. Quite obviously that sum can only be the sum specified, calculated in accordance with the details as given. Section 7(1)

(g) of the 1988 Act commands the debtor to pay the sum “referred to in the Summons”: the sum thus available for adjudication is

that particular sum and it cannot extend or relate to any other debt, even one otherwise due and owing by the debtor at the time. If

a creditor wants to include, as part of the specific amount, a sum which is also due e.g. by separate debt or upon a different

judgment, or resulting from a different calculation or arrived at in another way, he, as the driver of the process can do so: it is he

who is in command and who makes that decision, but once arrived at, he is bound by it.

The opposite equally applies: the creditor in this case could have picked any part of the judgment debt, above the statutory

minimum, and could have operated the process on that basis. That was the Bank’s choice. It had entire control over what it did. But

as I have said, once a particular course is decided upon, it must be implemented and must be followed through with. Otherwise the

debtor will not know precisely what he must do to avoid adjudication: if adjudication could follow otherwise than indicated, then the

requirement of strict compliance with the statute would be entirely stood down and utterly disregarded.

Accordingly, I am satisfied that the above principles correctly represent the law in this jurisdiction and dictate what approach should

be adopted by the Court when considering an issue such as that presently arising.

Before summarising therefore what I believe to be the correct principles, could I mention the Kleinwort Benson case on which the

appellant relies – in particular by reference to paras. 9 and 10 of that judgment (see paras. 25 and 26 supra). Whilst undoubtedly of

interest, I am satisfied that even a generous consideration of it, would not add further to the jurisprudence which emerges from the

more pertinent case law identified elsewhere in this judgment. However my remarks, at para. 38 of Lofinmakin (a minor) & Ors. v.

Minister for Justice, Equality and Law Reform & Ors. [2013] I.E.S.C. 49, when referring to a Canadian decision are also apposite in the

present context. I stated:

“There can be no doubting the relevance of the Borowski decision to this aspect of law, but like all decisions from other

jurisdictions, it is important to retain a measure of reserve in its application, as a full understanding of the principles and policies

upon which such judgments are based may not always be readily apparent from the text of the decision itself. This is

particularly so in the area of discretion, as the margin afforded to the decision maker may be heavily influenced by matters such

as rules of court, domestic precedent, prevailing practices, and/or developing trends. Murray C.J., as he then was, highlighted

in O’Brien (at p. 333) the importance of exercising restraint in this regard when making reference to the practice in the United

States of vacating a decision later found to be moot and of dismissing the complaint (City of Mesquite v. Aladdin’s Castle, Inc.

455 U.S. 283 (1982)). Therefore, whilst such decisions are instructive, the learned Chief Justice warned that ‘one must be

cautious in applying too literally the principles as expressed or applied in other countries.’ I respectfully agree with these

observations.”

Apart therefore from noting Kleinwort Benson, I do not propose to base any part of my judgment on it.

In summary therefore insofar as this appeal is concerned, the legal position, in my view, is as follows:

The Bankruptcy Code must be strictly construed and its essential provisions rigidly applied: particular vigilance is to be displayed

regarding acts, steps and requirements which are central to the statutory regime and which give rise to the penal

consequences above described.

Whether there exists any legal basis upon which an irregularity may possibly be excused has not been explored in this case: the

de minimus principle has not been raised and neither has the possibility of correcting errors, even those which are patently

obvious and evidently observable from, for example, the Bankruptcy Summons, or those which truly could be described as trivial,

peripheral or insubstantial. Therefore, further debate on this must await another occasion.

Where an act of bankruptcy is founded on a Bankruptcy Summons, the requirements of s. 8 of the 1988 Act must be strictly

satisfied, as must s. 11 regarding the follow on Petition: in both instances, this includes compliance with the relevant rules of

court.

This means in the context of a Summons, that the creditor must decide on and then specify what sum he demands payment of:

having done so, it is by reference to that sum only by which any possible default is to be judged. No further indebtedness, even

if acknowledged as due, can form any part of this assessment. Once a creditor makes this decision he is bound by it for this

purpose.

The sum in question must be due and owing and immediately payable: evidently, it must allow for any and all just credits and

allowances which are properly to be offset against that particular sum at that time: it is only the net amount which can be said

to be legally due and which can be enforced by the process.

It follows that any demand for a sum greater than that last described or arrived at, is an excessive demand unjustified in law;

subject to any possible argument along the lines mentioned in sub-para. (ii) supra, the margin of excess is not relevant.

The fact that the excessive demand is solely due to inadvertence, oversight or other entirely understandable reason, is likewise

not relevant.

The amount which may appear in the Bankruptcy Summons need not necessarily and frequently will not be, the same as that

nominated in the Notice of Demand. Updating the figures for interest is an obvious example as to how this may arise. Provided

that there is no inconsistency in approach, this will not affect the validity of either Form.

A creditor is not obliged to bring into the process the full amount of the indebtedness due, whether that be based on a

judgment debt or otherwise. Frequently for reasons of expedience and convenience, he will not in fact do so. Once the sum

claimed is above €1,900, the statutory requirement in monetary terms is met. There is no obligation to go further.

As stated above, the sum claimed is the relevant sum for adjudication purposes. There is no obligation, so as to ensure the

integrity of the Summons, to expressly waive any balance which is left standing – subject to the qualification that evidently,

argument to that effect at the particular level, may of course be open to the debtor.

The point last mentioned applies with equal force to the question of interest on a judgment debt, and for that matter also to

the question of costs. The fact that interest applies automatically, that is by operation of law, as distinct from contract, is

irrelevant: the point at issue is not the accretion of interest, but rather the creditor’s reliance on it for the purposes of the

Summons and thus for default purposes. He makes that decision. He can either claim it or not: if he does, it is part of the

demanded sum, whereas if he does not, it must be disregarded.

In saying that a sum not relied upon must be disregarded, I am specifically referring to the process of adjudication as distinct

from what may happen at proof of debt stage (see para. 40 supra).

If interest is included in the Bankruptcy Summons, the same must be accurately calculated and the accumulative sum must be

specified.

Finally, in addition to the specific matters above mentioned, the particulars given in the context of the Summons must be such

as to demonstrate in specific and accurate terms, the precise requirement demanded of the debtor, which if satisfied will

thereby avoid him committing an act of bankruptcy.

Before outlining my conclusion on this appeal, it is convenient at this juncture to dispose of a number of individual points which the

parties have raised, but which for the reasons given, have no real baring on the crucial issue. These are as follow:

It has been suggested that the Bank, by its decision not to include statutory interest as part of the adjudication process, must

be regarded as having waived its entitlement to such interest for all purposes. It seems to me that resolution of this matter is

best left to be determined at the proof of debt stage – if these proceedings should continue that far. It is sufficient, for the

purposes of this appeal, to proceed as I do, on the assumption that such waiver does not apply, without however so holding or

otherwise deciding.

The Bank has pointed out in its submissions that provision is made in s. 8(5) and (6) of the 1988 Act whereby a debtor can

challenge, within a certain period, the validity of the Summons served on him. It complains that Mr. Murphy did not avail of this

procedure, an assertion which in any event may factually be incorrect (para. 7, indent six supra). Even however if that is so, it

is not suggested that such a move is mandatory or that by his failure to adopt it, he is now either precluded or restricted from

moving this application under s. 16 of the 1988 Act. Accordingly, it does not appear that this point can have any impact on the

outcome of this appeal.

Reference has been made to O. 76 r. 12(4) which is quoted at para. 6 of this judgment. It will be recalled that the rule states

that “[n]o objection shall be allowed to the [P]articulars [as given in or annexed to the Summons] unless the Court considers

that the debtor has been misled by them.” Apart from this rule, no other basis has been suggested which might render the

question of prejudice relevant: as the rule has not been relied upon I will express no view on its scope or application.

The appellant has asserted in a general way that in light of the dispute about interest, the creditor has failed to prove that the

amount claimed is a “liquidated sum” for the purposes of both s. 8(1)(b) and s. 11(1)(b) of the 1988 Act. Given the view which

I have taken in this case, this point does not arise.

The Court has not been referred to any statutory provision akin to s. 143 of the 1883 Act, whereby errors, termed formal

defects, can be overlooked or corrected where to do so would not cause any substantial injustice to the debtor. Therefore,

apart from the observation made at para. 54(ii) supra, no further consideration has been given to any possible power which the

Court might have in this regard.

The Bank has questioned the motivation of the bankrupt in seeking to set aside the adjudication, by pointing out that on the

17th February, 2009, he transferred a total of 16 properties to his wife, for natural love and affection. The petitioning creditor

values these properties in excess of €5 million and seriously disputes the validity of this transfer. Neither the motivation behind

the transfer nor its ultimate validity are germane to the issue which the Court must decide in the instant appeal. These matters,

if needs be, can be dealt with under the provisions of s. 59 of the 1988 Act at the appropriate time.

The essential facts in this case, as outlined above, are not in dispute and can be and have been stated with some definite clarity.

These include the fact that the monetary threshold for invoking the bankruptcy process has at all stages been met and that the sum

demanded can be regarded, as a liquidated sum for the purposes of both ss. 8 and 11 of the 1988 Act. Furthermore, it is not disputed

but that statutory interest automatically accrues on the judgment debt from the date of the perfected Order (14th April, 2011). In

this case that debt comprises the principal sum and the token amount of €160 nominated by the Bank to represent the Cost Order.

Further, at both of the relevant dates, namely the 21st October, 2010 when the Notice of Demand was served, and the 29th

November, 2010 when the Bankruptcy Summons was issued, the appellant was indebted to the Bank in a sum far in excess of what

was demanded of him in both of those documents. This resulted from the continuing accrual of Courts Act interest and is quite

unaffected by any or all credits which the bankrupt is entitled to from the Bank. These credits came about, not in any underhand or

devious way, but rather, when a tenant of Mr. Murphy paid her rent to his current account which the Bank, as it was entitled to do,

then credited to his loan account. In fact, the evidence shows that Mr. Murphy was not aware of the making of such payments until

quite a late stage in this process. It is also undisputed that by the 21st October, 2010 these credits amounted to €3,025 and that by

the 29th of November, 2010 they had reached a total sum of €4,025.

It is also important to understand how the Bank treated these credits. This appears from the Affidavit of Ms. Seacy, sworn on the

29th January, 2011. Therein she exhibits a copy of the account upon which the judgment debt was obtained. That account shows

that when received, each credit was offset against the principal on the account and not otherwise. In fact, apart from an interest

posting on the 24th May, 2010, no further interest debits appear on the account. It is therefore apparent, and confirmed by the

Bank, that the sums so received were to be credited against the principal sum; at no point or stage did the Bank seek to or in fact

credit such sums against interest. It must therefore be taken that when such sums were posted to the account, the principal was

thereby reduced by such amounts.

Because the Bank posted a sum of €154,384.90 for interest on the 24th May, 2010, the account is not immediately reconcilable with

the judgment debt given some seven days earlier. Evidently that interest sum covers a certain period prior to the date of its entry,

which period is not identifiable from the account. However, this is but a complication which all parties agree can be ignored. In effect,

the principal sum can be considered as the judgment debt (para. 7, indent 2 supra) for the purposes of the offsets which I have

mentioned.

There is no doubt but that the Bank made a decision, as confirmed in its affidavit evidence, to move the bankruptcy process without

relying on its entitlement to include within it, any statutory interest. This was a deliberate decision and was not in any way due to

mistake, inadvertence or otherwise. This is self-evident from the sum specified in both the Notice of Demand and in the particulars

endorsed in the Bankruptcy Summons. That choice was its own to make. Equally so with the question of costs. It could have awaited

completion of the taxation process and then including the certified sum in the demands made. It decided not to. Having acted as it

did it appears to follow that when the credits were posted, they had to, as a matter of fact, reduce the principal debt by an

equivalent amount. I cannot see any other analysis or evaluation of what occurred which could lead to a different conclusion. In the

absence of further debits, the sum standing in the account had to be correspondingly less than what it was, before the credits. That

being so, the demands were overstated by the amounts in question.

This conclusion is, I feel, not disputed by either the Bank or indeed by the learned trial judge. No attempt has been made by the Bank

to say, that the sums should then have been or even now be, credited against the interest. That is not the case factually and is not

the basis of the High Court’s decision. It appears from paras. 25 and 30 of his judgment that McGovern J. dismissed the application on

the basis that at all times the actual indebtedness between banker and customer exceeded the demanded sums. That in his view was

sufficient to avoid the relevance of and having to apply the jurisprudence set out in In re O’Maoileoin, In re Sherlock, and in the other

cases above mentioned. In adopting the approach which he did, the learned trial judge conflated debt with demand, instead of

differentiating between both.

As is clear therefore, the essence of the judgment is based on an indebtedness which was, by deliberate choice, left standing outside

the bankruptcy. The appellant was never in danger of becoming bankrupt by reason of interest. It appears nowhere in the

documentation and in particular it is not mentioned in the critical demand made in the Bankruptcy Summons. In fact the judgment

debt was expressly stated in the Notice of Demand and in the Affidavit of Ms. Seacy (paras. 9 and 11 supra, respectively) to be and

to represent Mr. Murphy’s total indebtedness to the Bank. Disregarding any question of waiver or the like, the Bank was in effect

saying to the appellant “pay us the sum of €9,025,880.70 and you will not commit an act of bankruptcy”. The process was invoked

and continued to adjudication on that basis, effectively in a manner as if statutory interest was never payable. On the logic of the

Bank’s position, there would have been nothing in principle preventing it, from also relying on the Cost Order if such costs had been

taxed by the hearing date of the Show of Cause Application. And one may ask why stop there? If for example a further judgment had

of been obtained in the intervening period, what in logic would have prevented the Bank from also relying on that? Evidently, such an

approach would render the entire proceedings meaningless and would deny to the bankrupt well-established protections.

I therefore cannot agree with the creditor’s position or that the law permits of such an approach. In accordance with the principles

above outlined, it appears to me that bankruptcy is a form of execution of choice and that nothing automatically happens until it is

caused to happen. This method of execution must be both set in train and founded upon a basis justified in law. That basis must

comply with the provisions above outlined. Given the Bank’s decision not to include interest as part of the process, its entitlement to

rely upon it must stand outside the adjudication procedure. It follows that when the question of interest is disregarded, and when the

credits are accounted for, the demand made in both the Particulars of Demand and Notice Requiring Payment and more essentially in

the Bankruptcy Summons was excessive.

Consequently, in accordance with well established principles I would allow this appeal.