| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : CENTRAL WEST CORPORATE PTY LTD -v- REALTECH ENTERPRISES PTY LTD [2003] WADC 83 CORAM : JENKINS DCJ HEARD : 2 APRIL 2003 DELIVERED : Delivered Extemporaneously on 2 APRIL 2003 typed from tape and edited by Trial Judge FILE NO/S : CIVO 282 of 2002 BETWEEN : CENTRAL WEST CORPORATE PTY LTD Appellant
AND
REALTECH ENTERPRISES PTY LTD
Respondent
Catchwords: Appeal - Local Court - Examination of judgment debtor - Meaning of phrase "what other property or means of satisfying the judgment"
Legislation: District Court Rules, O 8, r 2
Local Court Act 1904
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Result:
Appeal allowed
Remitted to the learned Magistrate to be heard according to law Representation:
Counsel:
Appellant : Mr T O Coyle
Respondent : Mr T Galic
Solicitors:
Appellant : Phillips Fox
Respondent : Galic & Co
Case(s) referred to in judgment(s):
McCormack v National Australia Bank Ltd (1992) 106 ALR 647
Watkins v Ross (1893) 68 LT 423
Case(s) also cited:
Coates v McInerney & Anor (1992) 10 ACLC 616
Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd (In Liq) [2002] NSWCA 29
J W Broomhead (Vic) Pty Ltd (In Liq) v J W Broomhead [1985] VR 891
Kemtron Industries Pty Ltd v Commissioner of Stamp Duties (Qld) [1984] 1 Qd R 576
Octavo Investments Proprietary Limited v Knight & Anor (1979) 144 CLR 360
Ron Kingham Real Estate Pty Ltd v Edgar [1997] 2 Qd R 439
Vacuum Oil Company Proprietary Limited v Wiltshire (1945) 72 CLR 319
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1 JENKINS DCJ: These reasons for decision are delivered extempore and will be subject to final revision by myself.
2 This is an appeal from a decision of a learned Magistrate sitting in the Local Court. The decision was made on 11 November 2002. The appellant sought and obtained leave to appeal from that decision as it was not a final decision of the Court. 3 An appeal from the Local Court to the District Court is a hearing de novo pursuant to O 8, r 2 of the District Court Rules. The decision appealed from was made in the course of an examination in aid of execution of a judgment or order of the Local Court and it involves the extent of the examination that is permitted by the judgment creditor of the judgment debtor pursuant to s 144(1) of the Local Court Act 1904. 4 The issue is the extent of examination of a director of the judgment debtor permitted in relation to the affairs of the trust of which the respondent, was the trustee. The questions that the learned Magistrate deemed were not permitted to be asked were those questions related to an examination of the respondent as to details about the trust including its former or present assets and if it is not currently the trustee the details of the current trustee. 5 The learned Magistrate in delivering his reasons for decision said that he had read the cases in the submissions and he had found the issue a very difficult area to try and resolve. The parties agree that as there does not appear to be any authority directly on point this is a difficult issue. 6 The learned Magistrate said that he would not allow such an examination because in his view such questions do not go to debts, property or means of the judgment debtor. That in turn was a reference to the wording of the summons which is in form 185 of the Local Court Rules. The summons requires the person summonsed to appear and to be orally examined as to "whether any and what debts are owing to the judgment debtor and whether the judgment debtor has any and what other property or means of satisfying the judgment". 7 The parties before me agree that the words that require interpretation are "what other property or means of satisfying the judgment debt". It is relevant to note that s 144 of the Local Court Act 1904 itself does not use those words, but rather uses a more limited phrase which appears to refer only to debts. However, the parties do not take issue with the validity of the summons and I will determine this appeal on the basis that the summons is valid and that the law does require the person summonsed to
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be orally examined with respect to "what other property or means of satisfying the judgment debt" the judgment debtor has. 8 The meaning of those words is not set out in the Local Court Act 1904 and there is no authority binding in this state on their meaning, at least so far as I or the parties have been able to ascertain. There is the decision of the full Federal Court of McCormack v National Australia Bank Ltd (1992) 106 ALR 647 which interprets part of that phrase being "Means of satisfying the judgment" as it appears in the equivalent provision of the ACT Supreme Court Rules. 9 Consequently that decision, although not binding upon me, is authoritative and of great persuasion in this court. That decision involved a question as to whether in an examination in aid the judgment creditor was permitted to ask questions relating to a maintenance agreement that the judgment debtor had entered into with his ex-wife. At p 648 of the judgment the Full Court refers to the questions that the judgment creditor's counsel wished to ask concerning the filing of the maintenance agreement and the transfer of property afterwards and whether those transactions were with a view to defeating creditors. 10 Further, counsel wished to ask whether the ex-wife had any entitlement to maintenance and whether any application could be brought under the Family Law Act to vary the maintenance agreement with the intent that the Family Court of Australia might order the retransfer of one or both of the properties or perhaps other assets from the ex-wife to the judgment debtor. 11 Those were properties and assets which had been transferred under the maintenance agreement. The Federal Court made the point that the Master who was deciding the issue would have understood that counsel wished to undertake a wide-ranging examination to obtain information which might assist the judgment creditor to take steps to recover assets which could be used for the satisfaction of the judgment debt. 12 In ruling that the Master was correct not to allow such questions to be asked the Court had the following to say in relation to the phrase, "Means of satisfying the judgment" at p 649 commencing at line 25 the Court said: "We read O 43, r 31 as meaning what it says. It does not provide for an unlimited examination of a debtor in respect of his financial affairs, nor is the term "means" limited by some technical concept which arises out of the context of O 43. The
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term "means" refers to the pecuniary resources which may be available for satisfaction of the judgment debt." 13 The Court then cited Watkins v Ross (1893) 68 LT 423 in-which Linley LJ said at p 424: "The object of this rule is plain enough. It is to make a judgment debt tell what assets he has got to satisfy the judgment." 14 It then quoted Kaye LJ in the same case at p 425 to like affect. They then made the point that in that case their Lordships had refused to order that a debtor be examined as to the circumstances relating to a debenture bond the validity of which was subject of legal proceedings because that went beyond the limit of the rule. The Federal Court said: "We would not read the term 'means' as limited to pecuniary resources presently in the sense of instantly or currently available. Order 43, r 31 uses no such description. The term 'means' of its very nature denotes not only existing property or assets but also resources or sources whereby assets or property may become available for satisfaction of the judgment debt. Nevertheless the rule allows only an examination as to property and means which the judgment debtor has to satisfy the judgment." 15 Further on p 649 at line 47 the Court said: "The purpose of the examination is to ascertain from what sources the debtor may satisfy the judgment debt. The term "means" does not denote other possible methods by which the judgment creditor may obtain satisfaction of the debt. It is the means of the debtor which are the subject of the examination." 16 On p 50 the Court said: "The processes of the Supreme Court ought not to be used as a form of pre-trial discover to aid a judgment creditor to institute proceedings under the Family Law Act or the Bankruptcy Act." 17 As I have said, the Court then allowed the appeal and reinstated the Master's order. The Court, however, went on to say that had counsel for the judgment creditor proposed to ask a more limited series of questions
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directed to an end which appeared to fall within the ambit of O 43, r 31 no doubt the Master would have allowed the questions. It said: "The property which was transferred to the ex-wife contrary to the maintenance agreement may well have been suitable subject for examination had counsel proposed a basis upon which that particular property or an interest therein provided a means by which the judgment debtor could satisfy the judgment debt." 18 It is interesting to note that the Court went on after referring to an issue under the Property Law Act to say: "Nor was it suggested that the ex-wife was a trustee of the property for the judgment debtor." 19 The Court finally referred to authorities to the effect that the power under s 81 of the Bankruptcy Act which was they said a wider power was an extraordinary power of an inquisitorial nature and one in respect of which the examining officer must be astute to prevent any oppressive, vexatious or unfair use of this extraordinary process. The Court said that it agreed with those comments, albeit they were made in the context of s 81 of the Bankruptcy Act. 20 With respect I approach the interpretation of the relevant phrase in the subject summons in the light of the dicta from the Federal Court. The appellant here argues that it is not necessary to go to the issue of what are the "means" of satisfying the judgment because in fact the questions that were proposed to be asked related to the judgment debtor's "property". This the appellant says is because the law provides that the assets of the trust and the assets of the beneficiaries of the trust are the respondent's property available to meet the judgment debt. 21 I will not resolve the question of whether or not there is any distinction between the words "property" or "means" for the purposes of this appeal. Suffice to say the word "means" is the broader term and the word "means" would encompass in reality the property of the judgment debtor. The appellant relies upon the general law in this regard and has cited in its authorities an excerpt from the Law Book Company's Laws of Australia in respect to the rights of trustees. 22 The respondent does not take issue with the general principles concerning trustees' rights of indemnity and exoneration as relied upon by the appellant. Those general principles provide that a trustee's personal assets are available to meet the liabilities of the trust. The law provides
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that the trustee is permitted to have recourse to trust property for the purpose of satisfying debts incurred on the trust's behalf. In this case there is no issue between the parties that this judgment debt was incurred by the trustees on behalf of the trust. 23 Further, it is said as a matter of law and it is not disputed, that the trustee has a right of indemnity and a right to be reimbursed out of trust property in relation to debts that are incurred on the trust's behalf. It is said as a matter of law that for the purposes of enforcing the indemnity the trustee possesses a charge or a right of lien over trust assets which is in the nature of a beneficial interest in the trust assets. That proposition is not disputed either. 24 It is further said that in respect of the trust property from which the trustee is entitled to be indemnified the trustee holds not merely legal ownership but also beneficial ownership in that property to the extent of the amount the subject of the indemnity. In other words, a trustee who has yet to be indemnified holds complete beneficial ownership in trust property to the extent of the amount the subject of the indemnity. That is a quote from the relevant paragraph of Laws of Australia and again the respondent does not take issue with that proposition. 25 The text then goes on to say, "Strictly speaking then this property is no longer trust property." I accept that recitation of the law for the purposes of this appeal and I apply that then to the issue before me and I apply it to the dicta in the case of McCormack (supra). It seems, therefore, to me that insofar as the purpose of the examination is to ascertain from what sources the debtor may satisfy the judgment debt and the term "means" does not denote other possible methods by which the judgment creditor may obtain satisfaction of the debt, but rather the pecuniary means of the debtor, that those principles of law which I have just outlined indicate that indeed the trust property is part of the pecuniary means that the judgment debtor has to satisfy a judgment debt that has been incurred as a consequence of its role as trustee. 26 Therefore the learned Magistrate, with respect, interpreted the wording of the summons too narrowly when he held that the judgment creditor was only permitted to ask whether the debtor had exercised his right of indemnity which had resulted in it receiving property or assets which had then become property or assets of the judgment debtor. The principles which I have alluded to indicate that it is not necessary for the indemnity to be exercised in order for the trust property to become the means of the judgment debt. The words of the learned Magistrate
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indicates that that is what he envisaged, that is, that the indemnity had to be exercised before it could be said that the trust property became part of the means of the judgment debtor. 27 The respondent in this case argued that it is necessary to place some limitation on the meaning of the phrase "property or means of satisfying the judgment." The respondent says that that is necessary in order to give effect to the decision in the case of McCormack (supra) which states that the examination should not be allowed as a form of pre-trial discovery to aid a judgment creditor to institute proceedings under some other law. 28 The respondent also argued that a limit was necessary so as to ensure that there was not a far-reaching examination of all of the judgment creditor's financial transactions. 29 In the end it is a matter of discretion of the presiding Magistrate as to what point a judgment creditor should be allowed to go to in an examination of a judgment debtor. It is correct that at the point where the presiding Magistrate believes that the examination is merely being used as a form of pre-trial discovery or is otherwise becoming oppressive, vexatious or unfair then clearly the presiding Magistrate should in the exercise of their discretion limit or stop the examination. 30 However, in this particular case the learned Magistrate erred in stopping the examination too soon and by limiting it to the question of whether or not the debtor had exercised its right of indemnity. Further, I do not accept the respondent's submissions that as soon as the question put in examination require more than simple enforcement proceedings then it was impermissible. I agree with the appellant's submission that questions assuming the existence of the indemnity should be allowed to be asked. 31 However, once it becomes clear that there is a legal issue with respect to whether the indemnity exists or the right of indemnity exists then it is not appropriate for the examination to proceed further. I say that relying upon what the Federal Court said in the case of McCormack(supra) about the decision of Watkins v Ross (supra). The Federal Court appears to have approved that decision insofar as it indicated that it was not appropriate that a judgment debtor be examined as to the circumstances relating to a debenture bond if the validity of that bond was subject to legal proceedings. 32 However, there is nothing at the moment before either the Local Court or this court to call into question the trustee's right of indemnity. If there was such material then the examination should not be allowed to
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proceed further. In this case the appellant says as a matter of law the right of indemnity cannot be excluded or restricted but in my view if the terms of the trust attempted to do that that would raise a sufficient query as to the trustee's right of indemnity to warrant the learned Magistrate from not proceeding to allow the questions as to the trust property. 33 I therefore propose to allow the appeal and remit the matter to the learned Magistrate to be heard according to law. In doing so there are some further points that I wish to make in respect to the Magistrate's ruling and the questions asked to be sought by the appellant. The appellant seeks to be able to ask questions relating to the details of the trust. In my view that is too wide-ranging and the appellant's questions in relation to the details of the trust should only be so far as those details relate to "the means of satisfying the judgment." This would involve details about the trust relating to the indemnity. 34 My decision may involve further issues as to what should be allowed and what shouldn't be allowed in the examination but it does not seem to me that I am in a position to be able to know at this stage how far the examination should go as I have not been a party to the examination so far or seen the trust deed. The appellant also seeks to be able to ask details of any new trustee and quite clearly that is too wide a proposition as the details of any new trustee must similarly be limited to the question as to only so far as those details relate to the means of the trustee to satisfy the judgment. 35 I should say that I accept for these purposes the appellant's proposition of law that the trust property can be traced, as it were, through any new trustee and that is why the details of the new trustee, to a very limited extent, may well be relevant to the examination. I would also say in relation to the question of the details of former trust assets that they would seem to me only to be relevant if they were held by the trust on or after the date the debt was incurred.
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