Australia and New Zealand Banking Group Limited v S and Co
[2014] NSWSC 1094
•08 August 2014
Supreme Court
New South Wales
Medium Neutral Citation: Australia and New Zealand Banking Group Limited v S & Co [2014] NSWSC 1094 Hearing dates: 8 August 2014 Decision date: 08 August 2014 Jurisdiction: Equity Division Before: Darke J Decision: Declaration that at the time the garnishee order was served, there was a present debt of $100,000 owed by the garnishee to the judgment debtor.
Catchwords: PROCEDURE - judgments and orders - enforcement of garnishee order - cheque returned to solicitors for judgment debtor when settlement did not proceed - garnishee order served upon solicitors - whether solicitors were an equitable debtor of judgment debtor when garnishee order was served - whether a debt was "due or accruing" from the garnishee to the judgment debtor at the time of service of the garnishee order - Civil Procedure Act 2005 (NSW) s 117(1) Legislation Cited: Civil Procedure Act 2005 (NSW) s 117(1)
Legal Profession Act 2004 (NSW) ss 248, 254 and 255
Uniform Civil Procedure Rules r 39.39Cases Cited: Coshott v Learoyd [2001] FCA 88
Webb v Stenton (1883) 11 QBD 518
Wickstead v Browne (1992) 30 NSWLR 1Category: Principal judgment Parties: Australia and New Zealand Banking Group Limited (plaintiff)
S & Co (defendant)Representation: Counsel: P Newton (plaintiff)
J T Johnson (defendant)
Solicitors: Gadens (plaintiff)
Merewether & Co (defendant)
File Number(s): 2014/175660 Publication restriction: Nil.
Judgment - EX TEMPORE
By a Summons filed on 12 June 2014 the plaintiff, for whom Mr P Newton of Counsel appears, seeks relief in connection with a garnishee order made on 7 May 2014 by the District Court. The plaintiff is a judgment creditor of Mr Malcolm Downie for a considerable sum as a result of proceedings brought by the plaintiff against him in that Court. The garnishee named in the order is the defendant to these proceedings, referred to as "S & Co".
The defendant is a solicitor who acted for Mr Downie in the District Court proceedings and has continued, until recent times, to act for him. S & Co appeared in these proceedings but has indicated that it would submit to any orders save as to costs.
Mr J T Johnson of Counsel appeared for S & Co today. He returned to the Court the affidavit of Laila Hachem sworn on 19 June 2014 which has annexed to it the original cheque which is at the centre of this dispute. That cheque is a cheque drawn by the plaintiff's lawyers, Gadens, in favour of S & Co in the sum of $100,000. In brief, the plaintiff claims that the cheque should be returned to Gadens (as agent for the plaintiff) on the basis that when the garnishee order was served on S & Co there was a debt of $100,000 due and accruing from S & Co to Mr Downie.
Mr Downie has not been made a party to these proceedings. It is clear, however, that he has had ample notice of them, including of the hearing date today. Mr Johnson informed the Court this morning that Mr Downie had indicated to Mr Johnson's instructing solicitors that there were health issues which preclude his attendance today. Nevertheless, there is no suggestion that Mr Downie has taken any step to take any active role in the proceedings. I do not consider that his absence as a party precludes the hearing of the matter, nor the granting of relief.
The salient facts appear to be as follows:
(1) On 23 November 2011 the plaintiff obtained judgment against Mr Downie in the District Court in the sum of $729,062.94 plus interest.
(2) Subsequently, settlement negotiations were held. In the course of those discussions S & Co wrote to Gadens on 3 August 2012 stating:
"We are instructed to make the further offer:
1. Our client can agree to the terms proposed in your letter of 20 April 2012.
2. Any creditor's petition be dismissed.
Please remit a Deed for our client's consideration.
In the meantime our client holds $100,000 unless you request it to be paid to your client now as a sign of good faith."
(3) On 7 August 2012 Gadens replied stating that their client accepted the offer to settle on the terms of the 20 April 2012 letter. The Gadens letter further stated:
"Please continue to hold the $100,000 in trust."
(4) On 23 August 2012 S & Co wrote to Gadens. It was stated:
"We enclose trust account cheque in the amount of $100,000 provided in good faith to your client to be held in your trust account pending settlement documents being drawn by your firm.
The fund has been provided on the basis of a quist close [sic Quistclose] trust specifically for the purpose of the settlement of the matters between the parties. If settlement does not apply the money will need to be returned and in this instance please retain in your trust account pending finalisation of all matters."
That letter may be referred to as the "Quistclose letter".
(5) The enclosed cheque was drawn on S & Co's Law Practice Trust Account in favour of Gadens in the sum of $100,000.
(6) On 23 August 2012 Gadens acknowledged receipt. They stated, relevantly:
"We also acknowledge receipt of your trust cheque and confirm that it will be held in escrow pending settlement of the matter and will be returned should the settlement not proceed in the manner agreed."
(7) Further discussions were then held during which no further reference was made to the $100,000. Further offers were made on 10 March 2014 and 21 March 2014, but none was accepted and it seems that the last of such offers may have lapsed by 28 March 2014.
(8) On 3 April 2014 the plaintiff applied to the District Court for a garnishee order, in respect of Mr Downie as judgment debtor, naming S & Co as garnishee.
(9) A garnishee order was made by the District Court on 7 May 2014. Paragraph 1 of the order is in these terms:
"It is ordered that all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of this order are attached to the extent of $989,207.57 to answer a judgment in these proceedings."
(10) On 12 May 2014 Gadens sent two letters to S & Co. One was in these terms:
"We refer to your facsimile transmissions dated 10 March 2014 and 21 March 2014.
We are instructed as follows:
1. to reject the offer extended by your client in your letter dated 10 March 2014,
2. to reject the offer extended by your client in your letter dated 21 March 2014; and
3. to return to you Mr Downie's $100,000 being the amount that was held in our trust account pending the settlement that has not occurred; and
4. to proceed with enforcement action."
A cheque drawn on Gadens' trust account in favour of S & Co Law Practice Trust Account in the sum of $100,000 was enclosed. The other letter sent on 12 May 2014 was in these terms:
"We refer to the above matter.
We enclose by way of service a Garnishee Order for Debts made on 7 May 2014."
The garnishee order referred to earlier was enclosed with that letter.
(11) The letters were sent in the same envelope and were received by S & Co on 14 May 2014.
Section 117(1) of the Civil Procedure Act 2005 provides:
"(1) Subject to the uniform rules, a garnishee order operates to attach, to the extent of the amount outstanding under the judgment, all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of the order."
Uniform Civil Procedure Rules rule 39.39 provides:
"A garnishee order takes effect when it is served on the garnishee."
The Court has received written and oral submissions from Mr Newton and was referred to a number of authorities. The submissions were comprehensive but may be summarised as follows:
(1) Gadens received and held the $100,000 in its trust account in accordance with the terms of the Quistclose letter.
(2) Neither it, nor the plaintiff, had any interest in the moneys in circumstances where a settlement was not concluded. It was open to Mr Downie, or S & Co acting on his behalf, to call for the return of the moneys at any time if no settlement had been concluded and, moreover, it was open to Gadens in those circumstances to at any time return the moneys to S & Co.
(3) By the end of March 2014 no settlement had been concluded and Gadens returned the moneys by its cheque to S & Co.
(4) S & Co received the cheque as Mr Downie's solicitor and owed trust obligations to Mr Downie in respect of it. Reference was made to the relevant provisions of the Legal Profession Act 2004 (NSW), in particular sections 254 and 255. Reference was also made to section 248 which makes provision as to when a law practice is taken to have received money.
(5) On 14 May 2014, when the cheque was received by S & Co and when the garnishee order was served upon it, S & Co was under an obligation to pay the money to or at the direction of Mr Downie and was thus indebted to him. In particular, it was submitted that there was a debt "due or accruing" from S & Co to Mr Downie within the meaning of the garnishee order and within the meaning of section 117(1) of the Civil Procedure Act.
The authorities in the area of garnishee enforcement to which I was referred establish that a debt that is a present debt, albeit one that may only be payable in the future, falls within the notion of a debt that is "due or accruing". I was referred in particular to the decision of the English Court of Appeal in Webb v Stenton (1883) 11 QBD 518 and in particular to the judgments of the Master of the Rolls at 522 to 523, Lord Justice Lindley at 527 and Lord Justice Fry at 530. Lord Justice Fry there stated:
"A trustee is not, in my opinion, an equitable debtor to the cestui que trust until there is money in his hands which he ought to pay to his cestui que trust, or until he has made himself personally liable to pay moneys to his cestui que trust by reason of some breach of trust or default in the performance of his duties as trustee."
That part of Lord Justice Fry's judgment was cited with approval by Handley and Cripps JJA in Wickstead v Browne (1992) 30 NSWLR 1 at 14.
I was also referred to the decision of Wilcox J in the Federal Court of Australia in Coshott v Learoyd [2001] FCA 88. I was referred to paragraphs 29 to 31 of that decision for the proposition that payment by cheque is made when the cheque is delivered to (or at least accepted by) the creditor, and I was referred to paragraph 42 in which his Honour stated:
"I do not doubt that a mortgagee's obligation is an obligation enforceable in equity (see Meagher, Gummow and Lehane, Equity: Doctrines and Remedies 3rd edition, 1992, paragraph 115.) However, that is not inconsistent with it also been a 'debt' within the meaning of Order 46 rule 5(1). [That rule concerns debts due or accruing to a judgment debtor from a garnishee.] A debt and a trust obligation are not mutually exclusive concepts. Where a trustee comes under a present obligation to pay money to a beneficiary, the trustee also becomes a debtor of the beneficiary in respect of those moneys."
I accept the thrust of Mr Newton's submissions. In my view, when S & Co received the cheque on 14 May 2014 it received the cheque (and received money for the purposes of the Legal Profession Act) in circumstances where it was obliged as a trustee to pay its proceeds to, or at the direction of, Mr Downie. In these circumstances, I think it is right to regard S & Co as an equitable debtor to Mr Downie. As there was thus a present debt of $100,000 in existence at the time when the garnishee order was served upon S & Co, I consider that the garnishee order attached to it. In these circumstances, it seems to me that S & Co was obliged to pay the amount of $100,000 to the plaintiff.
S & Co did not present the cheque for payment. Indeed, as alluded to earlier, S & Co retained possession of the cheque and it later became an annexure to an affidavit which is now on the Court file. It seems to me that in the particular circumstances of this case the appropriate order is simply that the cheque be delivered to Gadens at the plaintiff's agent. No orders for costs are sought.
Accordingly:
(1) I make a declaration that at the time when the garnishee order was served upon S & Co there was a present debt owed by S & Co to the judgment debtor in the sum of $100,000;
(2) Grant liberty to Gadens to uplift the affidavit of Laila Hachem sworn 19 June 2014 for the purpose of obtaining possession of the cheque for $100,000 which is annexed to that affidavit;
(3) I direct that once the cheque has been so obtained, that the affidavit be secured and returned to the Court; and
(4) The Court makes no orders as to the costs of the proceedings.
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Decision last updated: 13 August 2014
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