In re Costas Louca (1987) JSC 477

[*477] 1986 March 27

(KALLIS, D.J.)

IN THE DISTRICT COURT OF NICOSIA

In re: Costas Louca,

Applicant-Debtor.

(Bankruptcy Notice No. 260/85).

Bankruptcy notice - Application to set it aside - Whether a provision of a law not referred to in the application can be invoked - Question determined in the negative - The Bankruptcy Rules, Rule 16.

Bankruptcy notice - Creditor resident abroad - Non compliance with section 35(3) of the Exchange Control Law, Cap. 199 - Whether proceedings a nullity - Question determined in the negative, because the defect is not fundamental.

Bankruptcy notice - Amount of debt - Material date - It is the date when the request for the issue of the notice was filed.

Bankruptcy notice - Payment of debt, allegation as to, by debtor - Burden of proof - Rests on the debtor.

Moneylenders Law, Cap. 142 and Moneylenders Law, 1962 (law 72/ 62) - Neither the one nor the other has as yet been put into operation.

G. Korfiotis, for Applicant-Debtor.

A. Poetis, for Respondent-Creditor.

JUDGMENT

The following judgment was delivered by:-

KALLIS. D.J.:-On September 28, 1985 Paraskevoula Clason ("the creditor"), through her authorised Attorney - Panayiota Kalli - ("the Attorney") filed a request for the issue of a Bankruptcy notice to the applicant-debtor ("the debtor"). The notice was issued on the [*478] same day and was served on the debtor on the 3rd October, 1985. There followed an affidavit by the debtor, under r. 40(2) of the Bankruptcy Rules, for the setting aside of the Notice; and an application by summons of the same date which aimed at the same purpose but on grounds other than those in the affidavit. The application was opposed and both counsel gave notice for cross- examination of the respective affiants. On the date of hearing counsel agreed to adopt, for the purpose of these proceedings, the evidence of the two affiants which was given in Bankruptcy Petition 134/85 as such evidence will be evaluated by the Court.

The application for the setting aside of the Bankruptcy Notice was based - as appearing in the body of the application - on rules 16, 17, 18, 38, 39, 40 and 41 of the Bankruptcy Rules, on rules 3, 5,6, 7 of the Exchange Control Rules, on sections 3, 12, 13, 14, 16 and 17 of the Money-Lenders Law, Cap. 142 and on the inherent powers of the Court.

Though in the affidavit in support of the application and in the affidavit for the setting aside of the bankruptcy notice several grounds were put forward, learned counsel for the debtor, in his address before this Court based his argument on the following grounds only and so he is deemed to have abandoned the grounds not argued by him:

(a) That the bankruptcy notice is irregular because it is contrary to the Exchange Control Law, Cap. 199, section 35 - in particular sub-section (3) thereof - and the Exchange Control Rules;

(b) That the creditor is a money-lender within the meaning of section 2 of the Money-lenders Law, Cap. 142 and she failed to comply with the provisions of this Law before resorting to the present proceedings;

Learned counsel for the creditor, in reply to the above[*479] contentions, submitted that as in the application it is not stated that it is based on section 35 of Cap. 199, the debtor cannot, in view of the mandatory provisions of rules 16 and 18 of the Bankruptcy Rules, rely on section 35. He, also, submitted that Cap. 142 was repealed by s. 26 of Law 72/62 and that this affiant stated in her affidavit that creditor is not a money-lender and she was not cross-examined.

Regarding the question whether section 35(3) of the Exchange Control Law, Cap. 199 can be invoked, relying on the wording of rule 16 of the Bankruptcy Rules, which states that every application to the Court "shall set out the Law or rules on which it is based" and on authority, I hold that it cannot be invoked. In Cyprian Seaways Agencies Ltd. v. Chaldeos Shipping Co. Ltd. and Another (1977) 1 C.L.R. 165 the plaintiffs obtained an interim order upon an ex parte application which was solely based on section 30 of Law 45/63. The defendants opposed the order and the plaintiffs submitted that the application for the order "should be considered as based not only on section 30 of Law 45/63 but on section 32 of the Courts of Justice Law, 1960, Law 14/60". Malachtos J. turned down the submission by holding as follows at p. 170:

"The short answer to this submission of counsel for applicants is that since there is nothing in the body of the application indicating that it was based also on section 32 of Law 14/60, it could not at such a late stage be considered under that section".

Further in Kouppa v. Vassiliades (1981) 1 J.S.C. 120 at pp. 124-125 Pikis, P.D.C. - as he then was - after holding that the specification of the rules relied upon in interlocutory proceedings is not a matter of mere formality but a substantive procedural provision that should be strictly adhered to declined to grant the remedy sought because it was not provided for by the rules relied upon in support of the application. I humbly agree with and fully adopt the dicta at pp. 124-125 of the relevant report and in so doing I make it clear that I do not consider myself bound by them [*480] for such a course is not permitted by the doctrine of judicial precedent: There is nothing, however, preventing a District Court Judge from adopting dicta of another District Court Judge, once his judgment is reported and is, thus, available and once such dicta are applicable to the issues under consideration. Moreover such an approach is the more appropriate for it enables disclosure of the paternity of the dicta.

Notwithstanding my above conclusion I shall proceed to pronounce on the effect of non-compliance with section 35(3) of Cap. 199 the more so because the application was based on rules 3, 5, 6, 7 of the Exchange Control Rules whose aim is akin to the one of s. 35(3); and because it is desirable as a matter of proper practice that a trial Judge should pronounce on all issues raised.

Now section 35(3) of Cap. 199 provides "that the provisions of the Fourth Schedule shall have effect with respect to legal proceedings and bankruptcy proceedings". Section 1 of the Fourth Schedule to Cap. 199 provides that the provisions of Part II of the Law - which forbid payments to persons resident outside the scheduled territories without the permission of the Central Bank - shall apply to sums required to be paid by any judgment or order of any Court. Section 2 of the same schedule provides that "nothing in this Law shall be construed as preventing the payment by any person of any sum into any Court in the Republic ..."; and section 3 provides that Rules of Court may be made "enabling any person who is required by any judgment, order or award to pay any sum, if he apprehends that the payment of that sum is unlawful under this Law except with the permission of the Central Bank, to pay that sum into Court; and declaring that payment of a sum into Court shall, to the extent of the payment, be a good discharge to the person making the payment and the proviso to section 3 of the Fourth Schedule runs as follows:

"Provided that –

(i) the form of any bankruptcy notice shall be such as may [*481] be prescribed by the Financial Secretary (now the Central Bank )".

Finally section 6 provides that a "debt for the payment of which the permission of the CentralBank is required under this Law shall be allowed to be a good petitioning creditor's debt, notwithstanding the said requirement, if and to the extent that the debt can be satisfied either by a payment into Court or by a payment to a blocked account".

Regarding the aforesaid proviso to reg. 3, I have looked into the matter but as far as my research could take me, no form of bankruptcy notice has as yet been prescribed as envisaged in the said proviso.

Now regarding the Rules of Court envisaged by the aforesaid provisions of the Fourth Schedule to Cap. 199 indeed such Rules exist - see the Exchange Control Rules - and by virtue of rule 5(1) thereof "where any person is directed by any judgment, order or award to pay any money to or for the benefit of any person who is resident outside the scheduled territories .... he shall unless the permission of the Central Bank has been given unconditionally, or upon conditions which have been complied with, pay the amount thereof into Court"; and by virtue of r. 5(2) such payment into Court "shall, to the extent of the payment, be a good discharge to the person making the payment, and thereupon no steps may be taken to enforce the judgment Finally rule 11makes applicable the Civil Procedure Rules to all matters arising "out of the application of these Rules" - the Exchange Control Rules - and "the forms therein prescribed shall apply, mutatis mutandis, to all payments into and out of Court under these Rules".

In Spyropoullos v. Transavia Holland (1979) 1 C.L.R. 421 the defendants contended that the issue of the writ and all subsequent proceedings were bad in law and a nullity because the writ was issued in contravention of rule 3 of the Exchange Control Rules, which were applicable for the reason that the plaintiff is resident outside the Scheduled Territories as defined by the Exchange [*482] Control Law, Cap. 199. A. Loizou, J., delivering the judgment of the Court of Appeal, said the following at pp. 430, 432:

"As far as the Fourth Schedule is concerned, 1t is made clear that in any proceedings a claim for the recovery of any debt shall not be defeated by reason only of the debt not being payable without the permission of the Central Bank of Cyprus and of that permission not having been given or having been revoked.

In other words, the eventual compliance with the requirements of the Law for the purpose of obtaining the necessary consent or permission from the appropriate organ under the Law for the due compliance with its provisions is not excluded and the non-reference to the prerequisite of a permission does not render the transaction ipso facto illegal or that it is illegal in anticipation of illegally performing the contract that the non-compliance with rule 3 does not constitute a fundamental defect which made the whole proceedings a nullity and which could not be waived by the subsequent appearance and the taking of steps by the appellants as defendants in the action. There is no inherent illegality in omitting to refer to the possibility of paying into Court the liquidated demand instead of paying same to the plaintiff or his advocate. We are not prepared to treat such a defect as so fundamental as to be a nullity and we feel that it is an irregularity that brings the matter within the ambit of 0.64 as being a mere non-compliance with the Rules".

In addition to the above it should also be born in mind that under s.87 of the Bankruptcy Law, Cap. 5 the Bankruptcy jurisdiction is exercised by the District Courts which in the exercise of their jurisdiction have all the powers conferred on the ordinary District Courts as in a trial of a civil action. Rule 188 of our Bankruptcy Rules provides that "where no provision is made in these rules in regard to any matter arising out of bankruptcy [*483] proceedings, the rules of Court governing civil proceedings shall in so far as they are not repugnant to these rules, apply to such matter". Questions of irregularity in civil proceedings are governed by 0.64 rules 1-4 of the Civil Procedure Rules and in Bankruptcy proceedings by ss. 93(3) and 102 of Cap. 5.

Section 93(3) provides:

"The Court may at any time amend any written process or proceeding under this law upon such terms if any, as 1t may, think fit to impose;" and section 102(1) provides:

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

In these proceedings it is undisputed that the creditor is resident outside the Scheduled Territories; and it is, also, undisputed that the permission of the Central Bank has not been obtained as provided by the Exchange Control Law. Relying, however, on the Spyropoullos case, supra, on section 102(1) of Cap. 5 and on 0.64 of our Civil Procedure Rules, I hold that the nonobtaining of the permission of the Central Bank does not constitute a fundamental defect "which made the whole proceedings a nullity". The debtor could, by virtue of the provisions of the Fourth Schedule and the Exchange Control Rules, deposit the judgment debt into Court and such depositing would have not only constituted a valid discharge of the debt but she would have not been committing any illegality. It should, also, not be forgotten that no form of Bankruptcy notice has as yet been prescribed to cover instances such as the present one and the creditor used the form prescribed by the Rules in force. It is true that in England there is provided a special form in similar instances but this form is the product of a statute - The Exchange Control (Bankruptcy Notices) Order, 1949 [*484] - and has no application in this country.

Regarding the contention that the debtor is a money-lender within the meaning of section 2 of Cap. 142, let me say that on November 1, 1962 there was enacted the Money-Lenders Law, 1962 (Law 72/62); and by virtue of section 21 of the latter Law such Law will take effect on a date to be prescribed by the Council of Ministers and as from such date Cap. 142 will be erased from the Statute-book. As far as my research could lead me, however, Cap. 142 has never been put into operation and Law 72/62 has not as yet been put into operation (see, inter alia, Index to the Laws of Cyprus issued by the Revision and Consolidation of the Cyprus Legislation Service). Having said this I would stress that it is expected from counsel to act more responsibly.

Now regarding the existence of the debt the evidence of the debtor was to the effect that 6-7 months ago he was told by his co-defendant - Vassiliades - that the judgment debt had been paid by him; but that when put to him that for the purpose of these and other proceedings he had sworn several affidavits and he has not included such an assertion, he could not give an explanation. On the other hand the evidence on behalf of the creditor which was given by her Attorney, Panayiota Kalli, was that she came into contact with the creditor after 7.10.85 - which is a date subsequent to the filing of these proceedings - and she was told that the debt had not been settled by 7.10.85.

Having closely followed both witnesses in the course of their testimony, I must say that the debtor has impressed me most poorly as a witness whilst the witness for the creditor impressed me favourably as a witness of truth. The evidence of the debtor will, therefore, be rejected and that adduced by the creditor will be accepted.

Regarding the amount of the debt the material date is the date of the filing of the request for the issue of the Bankruptcy notice; and in this respect I accept the evidence adduced by the [*485] creditor and I find that the amount of the debt is a stated on the bankruptcy notice. Once the creditor names a sum in the bankruptcy notice as being the debt due by the debtor and the debtor alleges that it has been paid off or that it is less than the one stated in the notice the burden is on him to prove his assertions by satisfactory evidence and not merely allege that It has been paid off by his co-defendant without producing any receipts. My conclusion that the burden is on the debtor to prove payment of the debt is based on the wording of the bankruptcy notice by means of which the debtor is given notice that he "must pay" the sum named therein; and to the wording of section 3(1)(g) of the Bankruptcy Law, Cap. 5 by virtue of which the debtor either has to comply with the requirements of the bankruptcy notice, i.e. to pay the sum stated therein, or to satisfy the Court that he has a Counterclaim etc. Since payment of the sum stated in the notice amounts to compliance with the notice and since the debtor in these proceedings alleges payment the burden is on him to satisfy the Court that he has complied with the notice but he has failed to do so. Having rejected all the three contentions of counsel for the debtor, his application - and affidavit - for the setting aside of the bankruptcy notice must be dismissed; and though he has not argued in favour of his remaining grounds in support of the application and the affidavit, a course which leads to the inference that he is deemed to have abandoned them I have, nevetheless, considered all these grounds and having done so, I arrived at the conclusion that they are all unfounded and they cannot sustain the application.

In the result both the application - and the affidavit - for the setting aside of the Bankruptcy Notice are dismissed with costs to be assessed by the Registrar.

Application dismissed with costs.