Davidson v Official Receiver & Anor

[2021] HCATrans 208

[2021] HCATrans 208

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M40 of 2021

B e t w e e n -

SAM DAVIDSON

Applicant

and

OFFICIAL RECEIVER

First Respondent

PHILIP NEWMAN AS TRUSTEE OF THE BANKRUPT ESTATE OF WILLIAM STEPHEN VLAHOS

Second Respondent

Application for special leave to appeal

GORDON J
STEWARD J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION TO MELBOURNE

ON FRIDAY, 3 DECEMBER 2021, AT 12.26 PM

Copyright in the High Court of Australia

GORDON J:   In accordance with the remote hearing protocol, I will announce the appearance of the parties.

MR M.G.R. GRONOW, QC appears with MR P.F. AGARDY for the applicant.  (instructed by Comlaw Barristers and Solicitors)

MS B.E. SLOCUM appears for the first respondent.  (instructed by Colin Biggers & Paisley)

MR M.J. GALVIN, QC appears with MR C.M. FENWICK for the second respondent.  (instructed by Nicholas O’Donohue & Co).

GORDON J:   Yes, Mr Gronow.

MR GRONOW:   Thank you, your Honour.  I should, before I go further, correct a mistake in our footnote 19, paragraph 11 of the application, the quote is actually from paragraph 44 of the Full Court’s reasons, not paragraph 7.  I apologise for that error, I have only just spotted it myself.

GORDON J:   That is fine, Mr Gronow.

MR GRONOW:   Thank you, your Honour.  We have two grounds of appeal.  The first one is that we say that the notice under section 139ZQ is statute barred because, even though it was issued prior to the six‑year time limit expiring, the time for complying with it, and setting it aside, and enforcing it was outside that time.  We say that, in order to be valid due to the words of section 139ZQ, there must be a subsisting claim, in this case under section 120 of the Bankruptcy Act, in order to actuate the notice.

The notice does not give rise to a new claim, rather it provides an administrative shortcut for a trustee, with the assistance of the Official Receiver, to enforce a claim that would otherwise exist under section 120, and is designed to be quicker and cheaper than bringing proceedings under section 120.

GORDON J:   Can I just ask two questions about that?  I had understood by reading 139ZQ that there is an ability to challenge the underlying premise of the notice, consistent with its shortcut.  Do you accept that?

MR GRONOW:   Yes, your Honour.

GORDON J:   So, that would seem to suggest – I wonder whether actually you do need to have a subsisting claim under 120 in that sense – there is no doubt that section 120 is the premise.  And then the second is the impact of section 139ZQ(8) and its interaction with 120(7) giving rise to a different kind of action.  So, under 127(3) the limitation period is very different from that in relation to the one under 139ZQ(8).

MR GRONOW:   I accept that there could be differences in some case and, indeed, I have given the example of where the period of bankruptcy has extended, but to answer the first question, I say that under section 139ZQ(1)(c) – sorry I will withdraw that.

It is essential for the notice that the transaction is void and I say that, as the Full Court said at paragraph 44, the expiry of the limitation period bars the right, not just to remedy, and that is because of extensive authority in this country and overseas that “void” actually means “voidable”.  In my submission, once the six‑year period has expired, the transaction is valid for all purposes.  So, a trustee has got six years to commence the proceeding, but after that the trustee is barred from doing so because it bars the remedy as well as the right.

In respect of subsection (8), I say that an application under subsection (8) of section 139ZQ, is a proceeding under section 120 which is barred by section 127(3) because if you do not have a claim against section 120 then, in my submission, you do not have anything to enforce.  So, I say certainly the notice must be issued within the six‑year period but it must also fall for compliance or be enforced.  Of course, if a claim under subsection (8) were commenced within the six years, that would be sufficient because I accept that if the trustee commences a section 120 proceeding the day before the time limit expires, that is enough and the proceeding is then on foot.

STEWARD J:   Mr Gronow, may I ask you a question?  It appears to me that the key to this case is the phrase, “that is void against the trustee” in section 139ZQ(1).

MR GRONOW:   Yes, your Honour, I accept that is correct.

STEWARD J:   So, that is doing all the work here.  Then, the question becomes, why can that phrase not be satisfied if, as an historical objective fact, the integers of section 121 are made out and are described in the notice that is received?

MR GRONOW:   So, your Honour, as I understand it, this is a claim under section 120.

STEWARD J:   Yes.

MR GRONOW:   But, under any case, you would have to have some sort of subsisting claim under Division 3, whether it is section ‑ ‑ ‑

STEWARD J:   Why?  In other words, is it sufficient that you can just simply say it is an historical fact – whether a claim has been made or not – that 120 has been engaged?  Or, what is it about this language in 139ZQ that requires there to be, in addition, a claim that has been validly made within the time limits set out in 127?

MR GRONOW:   Because it is in the present tense.  It says, “that is void against the trustee”.  For the reasons I have given, I say it ceases to be void in the sense of voidable once the six‑year time limit is up unless the trustee has commenced a proceeding under 120 or, I would say, under 139ZQ(8) because I say that is also a proceeding under section 120.  The trustee has got to have commenced some sort of proceeding within the limit because it is current and it depends upon the fact that “void” means “voidable”.  So, it is not the case that if the provisions of section 120 are satisfied factually, it is automatically void.  It is only void when the – it is voidable at the instigation of the trustee by bringing a proceeding.

GORDON J:   You maintain that, Mr Gronow, notwithstanding that the language is different.  Section 127(3) you must then say has application to a debt action.  Is that the way you put it?

MR GRONOW:   Yes.  I say otherwise there is no time limit to bring in a notice under 139ZQ.  The Full Court just said well, since the notice was issued within the six years, it does not matter.  In my submission, that is unsatisfactory.  There is no specific time limit in 139ZQ.  In my submission, there must have been intended some sort of limit and the answer is ‑ ‑ ‑

GORDON J:   There may be some limits provided by the other provisions in the Act, for example, that the trustee in bankruptcy has formed the view that the administration has been concluded.  In other words, it is a mechanism which has its own internal time limits within the Act built in.

MR GRONOW:   That could be so, your Honour.  To go back to Justice Steward’s question, he talked about section 121, which is not relevant here.  I do not think I understood his question properly.  The answer is because of section 127(4) the trustee could bring the action at any time and that is because the Parliament has said that you have six years to sue under section 120 but you can bring an action at any time under section 121.

In my submission, in the absence of an express limitation period in section 139ZQ, the use of the expression “a transaction that is void against the trustee” means you should look at whether there is a subsisting claim to avoid it and that is subject to section 127, which tells you when the trustee can make those claims.

GORDON J:   Do you accept that a trustee of a bankrupt continues beyond discharge of a bankrupt?

MR GRONOW:    When the legislation makes it ‑ that actually comes to my second ground.  There are some cases in which the trustee’s rights and duties plainly extend beyond discharge and some where they do not.  For example, an action under section 120 could be commenced after discharge because of the wording of section 120.  But as I have said in relation to my second ground, that is not the case here and that is why in other provisions which do similar jobs to section 139ZQ, the Parliament has said that it includes former bankrupts.

In my submission, it depends upon the legislative context whether particular rights and liabilities survive discharge.  For example, after acquired property vests in the trustee but it could not do so after discharge.  I do not think anyone would suggest that if the bankrupt wins Tattslotto or inherits money from a wealthy relative the day after he or she is discharged that the trustee would get it.  So, in my submission, it depends on the context.

GORDON J:   That is because you accept that the bankruptcy regime has different purposes and objects for the different participants or stakeholders – I hate that word – in the Act, i.e. the bankrupt, the trustee in bankruptcy, the creditors and the like.

MR GRONOW:   Yes, your Honour, the Act balances out – that is why you have got to look at the context.  The general rule on the basis of the authority we have cited is that reference to a bank, doctor, or trustee includes a current banker not a discharged one, but I accept that there are numerous parts of the Act, including section 120, which were intended by the legislature to survive discharge. 

STEWARD J:   Mr Gronow, may I ask, just as a point of clarification.  If the claim had been made within the time limit required, would your client would have had a defence here?  Was that explored below? 

MR GRONOW:   We say we do, your Honour.  This was run as a preliminary point. 

STEWARD J:   Thank you. 

MR GRONOW:   If you are in our favour, then we get rid of the notice and we do not have to spend large sums of money fighting about it.  My client says he has other defences, but they are not relevant to you.  This was effectively done as a summary judgment application before his Honour Judge Riethmuller, and then before the Full Court.  They rejected it for the reasons they have given.  If I lose then we will go back to – I think it is Judge Riethmuller has been moved on – but we will go back to a judge in the Federal Circuit Court, and we will have to run the substantive merits of the application.  Sorry, have I answered both of your Honours questions?  Thank you.

Now, secondly, we say that the notice is not conclusive and the whole point is that it can be set aside within the 60‑day time limit.  And, if it is done so, that would involve the same factual and legal inquiries as a section 120 application.  That is to say, is the transaction voidable under section 120 for these factual and legal reasons.  That is why it has been said by both judges and commentators that it is wise – I think is the word used – for the trustee, in response to an application to set a notice aside, to seek a declaration that section 120 applies. 

Whether it is compulsory is a different matter, but, in my submission, it is appropriate because it is the same enquiry.  The issue for the Court to determine is can this transaction be set aside under section 120 and, further, it seems from extensive authority that once the recipient of the notice applies to set it aside the onus is on the trustee to prove the transaction is voidable.  So, my client, you know – and that is why the trustee is often commencing application for a declaration that the section 120 applies and the transaction is voidable under that section which could, of course, then be enforced by orders if required.  This is intended to be an administrative shortcut, as I said earlier.  Its purpose is to save time and money.  It does not create new rights.

So, we say, because “void” means “voidable”, once it is no longer possible for the trustee to bring a proceeding under section 120 – because of section 127(3) – then, it cannot be impugned and the transaction is valid for all purposes.  In particular, the recipient of property can validly retain ownership of it even though had an action been commenced within time the trustee would have won and got the transaction set aside. 

Your Honours, there is no general definition of “action” in the Act.  Section 127 refers to an action but, we say, it means a civil proceeding in a court and we have given the reasons for that.  We say that is the general understanding of the word.  It is also consistent with other definitions of “action” in other parts of the Bankruptcy Act, for example, section 60.  We also say that, by reason of sections 79 and 80 of the Judiciary Act, you can have a look at the State Act and the Victorian State Act says the same thing, that an action is any proceeding in a court of law.

We say the notice is not a proceeding, it is an administrative action but enforcing it is.  So, for example, if the trustee makes an application under subsection (8) of section 139ZQ, then, we say, that is an action and it is an action under section 120, which is barred by section 127 if it is out of time.  In my submission, that is the only way you can give effect – or sensible effect – to section 139ZQ and section 127, which is plainly intended to give recipients of property the comfort of knowing they cannot be sued more than six years after commencement of bankruptcy.

Now, again, the Full Court thought it was unnecessary to deal with that but, in my submission, that is unsatisfactory.  One advantage of the Court granting special leave is that those matters can be clarified to everyone’s benefit because, in my submission, they are not clear at the moment.  Also, particularly because it is a penal provision – it is an offence not to comply with the notice – in my submission, the operation of the section needs to be made clear so that people can know, with clarity, whether they are likely to have committed an offence or not.

In my submission, the advantage of looking at the matter in the way that we have set out in our application is that the clarity is provided to everyone and there is a clear delineation of when a notice can and cannot be validly issued and, also, when it can and cannot be validly enforced.

GORDON J:   Have you dealt with both your grounds, Mr Gronow, or do you want to say something about ground 2?

MR GRONOW:   I wanted to come to ground 2, but if your Honour has got a question, obviously that will take priority.

GORDON J:   I think you should address ground 2, given the time.

MR GRONOW:   Yes, your Honour, I will do that.  We say simply the trustee of a bankrupt in section 139ZQ does not include trustee of a discharged bankrupt or a former bankrupt.  We accept that various rights survive discharge, but others do not.  The Parliament has felt the need to include the definition in section 139ZJ and section 139L of the Act for exactly that reason.  And we say, particularly because it is a penal provision, it needs to be clear and should only include a former or discharged bankrupt if the legislature has made that plain, which, in my submission, it has not.  I am sorry, was there anything else your Honour wanted me to respond to?

GORDON J:   No, have you completed – is that all you wish to say, Mr Gronow?

MR GRONOW:   Yes, your Honour.

GORDON J:   Thank you very much.  The Court will adjourn for a moment to consider its position.

AT 12.45 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.47 PM:

GORDON J:   Ms Slocum and Mr Gavin, we do not need to hear from you.

There is no reason to doubt the correctness of the conclusion of the Full Court of the Federal Court of Australia.  A grant of special leave to appeal is refused, with costs. 

Will you adjourn the Court, please.

AT 12.47 PM THE MATTER WAS CONCLUDED