Downie v Australia and New Zealand Banking Group Ltd
[2015] FCCA 879
•17 April 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DOWNIE v AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD | [2015] FCCA 879 |
| Catchwords: BANKRUPTCY – Validity of Bankruptcy Notice – order for substituted service of bankruptcy notice made by Court – Court ordered amendment to date for compliance with bankruptcy notice – Bankruptcy Notice not amended in accordance with the orders of Court – whether garnishee order issued in respect of same debt as claimed in bankruptcy notice served before amendment of bankruptcy notice should have been reflected in the amount claimed in amended bankruptcy notice – whether issue of garnishee order conferred a preference on creditor – whether there was an overstatement in bankruptcy notice – Bankruptcy Notice set aside. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.41(1), 41(2), 41(5), 306(1) Cheques Act 1986 (Cth), s.10 |
| Adams v Lambert (2006) 228 CLR 409 Australia and New Zealand Banking Group Ltd v S & Co [2014] NSWSC 1094 Brennan v McGuire [2015] FCCA 665 Catalano & Ors v Managing Australian Destinations Pty Ltd (No. 3) (2013) 306 ALR 449 Clyne v Deputy Commissioner of Taxation (Cth) (No. 4) (1982) 42 ALR 703 Coshott v Learoyd [2001] FCA 88 Curtis v Singtel Optus Pty Ltd [2014] FCAFC 144 Curtis v Singtel Optus Pty Ltd & Anor (2014) 268 FLR 96 Despot v Registrar General of NSW [2014] NSWSC 1303 Fitzgerald v Masters (1956) 95 CLR 420 Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 ML Ubase Holdings Co Ltd v Trigem Computer Inc (2007) 69 NSWLR 577 National Australia Bank Ltd v Nguyen [2014] NSWSC 1114 Perpetual Trustee Company Ltd v Papantoniou (No. 4) [2014] NSWSC 1607 Re Pender; Ex parte Sullivan [1988] FCA 130 Vincent v State Bank of New South Wales (1995) 60 FCR 290 Webb v Stenton (1883) 11 QBD 518 Westwood v Nelson (2004) 183 FLR 346 Wickstead & Ors v Browne (1992) 30 NSWLR 1 Workcover Authority of New South Wales v Varga (2008) 220 FLR 288 Wright v Australia & New Zealand Banking Group Ltd [2001] FCA 386 |
| Applicant: | Malcolm Downie |
| Respondent: | Australia And New Zealand Banking Group LTD Acn 005 357 522 |
| File Number: | SYG 2361 of 2014 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing date: | 13 November 2014 |
| Delivered at: | Sydney |
| Delivered on: | 17 April 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr B Skinner |
| Solicitors for the Applicant: | Bowles Lawyers |
| Counsel for the Respondent: | Mr P Newton |
| Solicitors for the Respondent: | Gadens |
ORDERS
Bankruptcy Notice No. BN 170366, issued on 31 March 2014 and amended on 14 July 2014, be set aside.
The respondent is to pay the applicant’s costs as agreed or taxed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT Sydney |
SYG 2361 of 2014
| Malcolm Downie |
Applicant
And
| Australia And New Zealand Banking Group LTD Acn 005 357 522 |
Respondent
REASONS FOR JUDGMENT
Introduction
Before the Court is an application by Malcolm Downie (“Downie”) seeking to set aside a bankruptcy notice issued by the respondent, Australia and New Zealand Banking Group Ltd ACN 005 357 522 (“ANZ”). The bankruptcy notice no. BN 170366 was originally issued on 31 March 2014 (the “Bankruptcy Notice”) and, pursuant to orders of a registrar of this Court made on 9 July 2014, was amended by the Official Receiver in Sydney (which is addressed below) (the “Amended Bankruptcy Notice”). Downie presses his application to set the Amended Bankruptcy Notice aside on two bases, namely:
a)The notice is a nullity because the Bankruptcy Notice was not amended as required by the orders made by Registrar Segal on 9 July 2014; and
b)The Bankruptcy Notice is a nullity because it overstated the debt owing by the sum of $100,000.
Evidence
Downie relied upon:
a)The Affidavit of Malcolm Downie, sworn 21 August 2014, filed on 22 August 2014 (the “Downie Affidavit”) (objections to the Downie Affidavit were raised by ANZ); and
b)Exhibit “A1” – Notice of Misstatement under s.41(5) of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”).
ANZ relied upon:
a)The Affidavit of Emma Louise Davies, sworn and filed on 5 September 2014, containing annexure Exhibit “ELD-1” (the “Davis Affidavit”).
Background
In the District Court of New South Wales judgment was entered in favour of the ANZ (the plaintiff on the application) against Downie (the defendant) on 23 November 2011 in the sum of $729,062.94, together with the interest in the amount of $82,104.49 (the “Judgment Debt”). Pursuant to the Judgment Debt, the Bankruptcy Notice was issued by the Official Receiver on 31 March 2014.
During the period between April 2012 and March 2014 Gadens, acting for ANZ, and Sally Nash & Co (“S & Co”), acting for Downie, engaged in negotiations in relation to the terms of a deed of settlement and release. During these negotiations, S & Co provided to Gadens a trust cheque for $100,000 (the “Cheque”) expressly provided on “the basis of a quistclose trust” and “if settlement does not apply the money will need to be returned”. In accordance with its obligations, Gadens deposited the Cheque into its trust account (the “Quistclose Letter”). The Quistclose Letter required Gadens to:
a)First, hold the money in its trust account pending settlement; and
b)Second, “if settlement does not apply”, return the money.
The parties were not able to agree on the terms. Accordingly, there was no settlement of the Judgment Debt. On 31 March 2014 Bankruptcy Notice No. BN 170366 addressed to Downie was issued in relation to the Judgment Debt (the Bankruptcy Notice). ANZ was unable to effect personal service of the Bankruptcy Notice on Downie.
On 7 May 2014 ANZ, obtained a garnishee order in the District Court of New South Wales addressed to S & Co (the “Garnishee Order”).
On 14 May 2014 the solicitors for ANZ served the Garnishee Order and forwarded, at the same time, a cheque in the sum of $100,000 to S & Co. The Garnishee Order was valid and enforceable: see Australia and New Zealand Banking Group Ltd v S & Co [2014] NSWSC 1094.
By summons filed in the Supreme Court of NSW on 12 June 2012, ANZ commenced proceedings against S & Co. The summons sought, amongst other things:
a)A declaration that S & Co held the Cheque on trust for Downie;
b)A declaration that the Cheque held on trust for Downie attached to the Garnishee Order; and
c)An order that S & Co deliver the Cheque to Gadens within three days;
The issue in that case was whether the Garnishee Order was attached to the cheque.
On 9 July 2014, Registrar Segal made orders for substituted service of the Bankruptcy Notice. The orders provided that service may be effected by the substituted means occurring on or before 21 July 2014. The orders also provided that:
3. The Bankruptcy Notice shall be deemed to be served on the Respondent on 4 August 2014.
4. The Bankruptcy Notice be amended by deleting the following words in paragraph 1 on page 2 of the notice ‘after service on you of the Bankruptcy Notice’ and substituting ‘after 4 August 2014’.
5. The Applicant lodge an appropriate application with the Official Receiver to make the amendments to the Bankruptcy Notice required by order 4.
On 14 July 2014 the Amended Bankruptcy Notice was authorised by the Official Receiver. Paragraph [1] (p.2) of the Amended Bankruptcy Notice states:
That is, the Amended Bankruptcy Notice deleted the word “days” after the number 21 in paragraph 1.
There is no dispute that the service of the Amended Bankruptcy Notice and the Court’s Orders were effected by substituted means on or before 21 July 2014 (Davis Affidavit).
On 8 August 2014 his Honour Darke J delivered judgment in proceedings commenced by ANZ against S & Co: Australia and New Zealand Banking Group Ltd v S & Co (supra). Darke J made a declaration that at the time the Garnishee Order was served, there was a present debt to $100,000 owed by the garnishee (S & Co) to the judgment debtor (Downie) and the Garnishee Order attached to the Cheque. His Honour granted liberty to Gadens to obtain the cheque. Gadens obtained the Cheque on 8 August 2014.
As a consequence of the judgment of Darke J and Gadens obtaining the Cheque, ANZ received payment of $100,000 on or around 8 August 2014.
Agreed Chronology
The applicant, on 13 November 2014, provided the Court with an agreed chronology (the “Chronology”) which sets out the events that occurred before the hearing of the matter in this Court. The Chronology states as follows:
23 November 2011
Judgment obtained in District Court proceedings 2010/261428 in favour of ANZ for a total of $811,167.43.
23 August 2012
Sally Nash & Co forward a trust cheque in the amount of $100,000 to Gadens as a sign of good faith pending settlement. The cheque for $100,000 is banked into Gaden’s trust account.
31 March 2014
ANZ applies for issue of Bankruptcy Notice BN 170366 in the amount of $811,167.43
3 April 2014
ANZ applies for issue of Garnishee Order to Sally Nash & Co
7 May 2014
Garnishee Order made in District Court
14 May 2014
Garnishee Order served. Trust cheque returned to S & Co.
9 July 2014
Substituted service orders made in respect to service of the Bankruptcy Notice
14 July 2014
Bankruptcy Notice amended
4 August 2014
Deemed service of the Bankruptcy Notice
20 August 2014
$100,000 paid to ANZ under Garnishee Notice
22 August 2014
Application filed to set aside the Bankruptcy Notice and extend time for compliance
8 September 2014
Directions Hearing before Registrar Wall adjourned to 29 September 2014 for hearing date
29 September 2014
Hearing date set down for 13 November 2014
Submissions
Applicant’s Submissions
On 9 July 2014 ANZ obtained orders from Registrar Segal of this Court for the substituted service of the Bankruptcy Notice and for the amendment of the Bankruptcy Notice to be performed by the Official Receiver. The Official Receiver purportedly amended the Bankruptcy Notice on 14 July 2014. The amendment failed to comply with the orders of Registrar Segal, which provided in order for the deletion of the words “after service on you of the Bankruptcy Notice” with the substitution of the words “after 4 August 2014”.
Downie argues the words “days” immediately preceding the words to be deleted was also deleted. The effect of the deletion of “days” had the effect of rendering the sense of the paragraph meaningless.
Reference to the orders made by Registrar Segal, which were required to be served with the Amended Bankruptcy Notice, included in Order 3 an order to the effect that service shall be deemed to have occurred on 4 August 2014. The absence of the words “days” is not clarified by Order 3.
It is Downie’s submission that the Bankruptcy Notice was required to be lodged with the Official Receiver to make the amendments specified by Registrar Segal. All that was done was the affixing of a stamp dated 14 July 2014. There was no reference to the orders of Registrar Segal and there was no annotation to paragraph [1] to record the deletion and insertion of words in accordance with Registrar Segal’s orders. The applicant argues that one would have expected at the very least the placing of an official stamp with initials adjacent to the changes bearing the date and reference to the orders. Moreover, the date of issue of the Bankruptcy Notice ought to have been altered to 14 July 2014 in lieu of 31 March 2014.
In short, the applicant submits the Amended Bankruptcy Notice fell short of what was intended and ordered by the Court. Federal Magistrate Barnes (as she was then) dealt with the same type of deficiency in Workcover Authority of New South Wales v Varga (2008) 220 FLR 288. A bankruptcy notice was not amended as required by the orders made by a registrar of this Court. Her Honour referred to the observations of Einfeld J in Re Pender; Ex parte Sullivan [1988] FCA 130 that the question of perplexity and confusion must be tested “not on the basis of whether the particular debtor was in fact misled but whether the defects were of a kind that could have misled”.His Honour Einfeld J suggested that a debtor “is not required to manipulate a track through a bankruptcy notice to resolve questions of doubt or ambiguity” Einfeld J also stated in Re Pender (supra) that he would not, in any event, have held such “corrections” to be formal and therefore curable by s.306(1) of the Bankruptcy Act.
The conclusion of her Honour Judge Barnes in Varga (supra) was expressed in the following terms at [26]:
26. I am not persuaded that the “defect” resulting from the failure to amend the bankruptcy notice in accordance with the orders made on 27 September 2008 is a mere formal defect or irregularity that can be rectified under s 306 of the Act, notwithstanding the approach to be taken to that section in light of Adams v Lambert. While the applicant contended that it would suffer significant prejudice if the Court did not make the sequestration order sought and notwithstanding that the respondent debtor did not apply to set aside the bankruptcy notice and has not appeared in these proceedings I am of the view that the nature of the defect in this case is such that it could reasonably mislead a debtor upon whom the bankruptcy notice was served, even taking into account the accompanying court order. Hence it is such as to invalidate the bankruptcy notice. Therefore the creditor’s petition must be dismissed.
Downie submits that in addition to the foregoing argument, is the issue of overstatement of the amount claimed in the Amended Bankruptcy Notice. The applicant contends that no amendment was or made to the amount claimed in the Bankruptcy Notice applied for on 31 March 2014 and amended on 14 July 2014. The significance of what occurred on 14 May 2014 (supra) was simply overlooked or ignored. The amended notice failed to take into account of the Garnishee Order served on S & Co.
The applicant submits that in order to understand the repercussion of serving a garnishee order, it is necessary to set out the legislation and to consider relevant authorities.
Section 117 of the Civil Procedure Act 2005 (NSW) (the “Civil Procedure Act”) 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.
Rule 39.36 of the Uniform Civil Procedures Rules 2005 (NSW) (the “UCPR”) states:
39.36 Form of garnishee order for debts
(cf SCR Part 46, rule 3; Act No 9 1973, section 97; Act No 11 1970, section 47)
(1) A garnishee order for debts must direct the garnishee to pay to the judgment creditor, to the extent of the amount outstanding under the judgment, all money:
(a) held by the garnishee for or on behalf of the judgment debtor, or
(b) owed by the garnishee to the judgment debtor.
(2) The amount outstanding under the judgment must be specified in the order.
The applicant submits that there is no issue that the Cheque paid to S & Co by Gadens was the property the subject of the Garnishee Order. This is because S & Co held the Cheque forwarded by Gadens as trustee for Downie.
In Wickstead & Ors v Browne (1992) 30 NSWLR 1 at 14, it was observed by Handley JA and Cripps JA as follows:
However the authorities establish that the amount which a defaulting trustee is bound to pay to make good a breach of trust is an equitable debt. In Ex Parte Adamson; Re Collie (1878) 8 Ch D 807 at 819, James LJ and Baggallay JJ said:
“… The Court of Chancery never entertained a suit for damages … for breach of trust. The suit was always for an equitable debt or liability in the nature of debt. It was a suit for the restitution of the actual money or thing, or value of the thing, …”
Similarly, in Webb v Stenton (1883) 11 QBD 518 at 530, Fry LJ said:
“… A trustee is not … 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 money to his cestui que trust by reason of some breach of trust or default in the performance of his duties as trustee.”
See also Adey v Arnold (1852) 2 De GM and G 432 at 438; 42 ER 940 at 942; Wynch v Grant (1854) 2 Drew 312; 61 ER 739; Isaacson v Harwood (1868) LR 3 Ch App 225; Holland v Holland (1869) LR 4 Ch App 449 and Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399 at 404-406; [1966] 2 NSWR 211 at 214-216.
The applicant submits that issue relating to garnishee orders was also considered by Wilcox J in Coshott v Learoyd [2001] FCA 88 at 30. His Honour dealt with the issue of trust cheques at [30], [39] where he stated:
30. It may be true that solicitors are obliged to debit their trust account ledger immediately upon the drawing of a trust account cheque. However, this does not derogate from application of the rule that, when a payment is made by cheque, the amount will be treated as paid on the date the cheque is given, provided the cheque is met on presentation. The mere drawing of a cheque does not effect payment; delivery is the critical act. The principle was stated in a unanimous judgment of the High Court of Australia in National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668 at 676:
“Generally speaking, when a cheque is given in payment of a debt, it operates as a conditional payment. The payment is subject to a condition that the cheque be paid on presentation. If it is dishonoured the debt revives. Although it is sometimes said that the remedy for the primary debt is suspended, the suspension is no more than a consequence of the conditional nature of the payment ... The condition is a condition subsequent so that, if the cheque is met, it ranks as an actual payment from the time it was given. Subject to non-fulfilment of the condition subsequent, the payment is complete at the time when the cheque is accepted by the creditor ..."
…
39. The concluding words of subr5(1) support this approach. This subrule specifies the effect of service of a garnishment notice. It is to “operate to attach in the hands of the garnishee, to the extent of the amount specified in the notice, all debts which are due and accruing from the garnishee to the judgment debtor at the time of service of the notice (whether or not they were due and accruing at the time when leave was granted under r3(1))." [Emphasis added] It will be noted, first, that service of the garnishment order affects only debts due or accruing at the time of service but, second, that it does not matter whether or not those debts were due or accruing at the time the leave was granted.
(emphasis added)
Two matters emerge and are made clear by the foregoing:
a)First, as Wilcox J concluded, 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 monies; and
b)Second, there can no dispute that at the time of service of the Garnishee Order, the debt in the form of the Cheque was attached. The UCPR make clear the correctness of the conclusion.
The decision of Darke J in Australia and New Zealand Banking Group Ltd v S & Co (supra) makes clear the foregoing proposition. His Honour concluded, when the garnishee order was served on S & Co, there was a present debt owed by S & Co to the judgment debtor in the sum of $100,000. His Honour observed:
…when the garnishee order was served upon S & Co, I consider that S & Co was obliged to pay the amount of $100,000 to the plaintiff.
The correctness of the foregoing analysis was also the subject of recent consideration by McCallum J in National Australia Bank Ltd v Nguyen [2014] NSWC 1114 wherein her Honour held that a garnishee order issued on 29 May 2014 and served 2 June 2014 had the effect that the amount in question was a debt capable of enforcement as at the date of service.
The delivery of the Cheque by S & Co to Gadens following the decision of Darke J on 8 August 2014 is of no relevance to the operation of the Garnishee Order. The critical factor is the fact of attachment upon service of the Amended Bankruptcy Notice. It is not to the point that the solicitors for the judgment creditor delayed the commencement of the proceedings ultimately determined by Darke J or that the money was returned to Gadens after his Honour’s decision.
The applicant argues that there is no rational basis for ANZ’s failure to reduce the quantum of the debt in the Amended Bankruptcy Notice by the attached sum of $100,000. There is, thus, a clear and unequivocal overstatement in the Amended Bankruptcy Notice. Nothing can cure the overstatement and the Amended Bankruptcy Notice should be set aside.
Respondent’s Submissions
Ground One - The Bankruptcy Notice was not amended as required by the orders made by Registrar Segal on 9 July 2014
ANZ submits paragraph 1 on page 2 of the Amended Bankruptcy Notice deleted and, therefore, omitted the word “days” after 21. Paragraph 9 of Downie’s outline of submissions contends that: “the effect of the deletion of ‘days’ had the effect of rendering the sense of the paragraph meaningless”. ANZ submits that the initial issue to be determined by the Court is whether the Amended Bankruptcy Notice is defective. If it is, it is necessary to determine whether it is a defect capable of being cured under s.306 of the Bankruptcy Act.
Is the Bankruptcy Notice Defective
37.Section 41 of the Bankruptcy Act empowers the Official Receiver to issue a bankruptcy notice (s. 41(1)). Subsection 41(2) provides:
(2) The notice must be in accordance with the form prescribed by the regulations.
The relevant regulation is reg.4.02 of the Bankruptcy Regulations1996 (Cth) (the “Bankruptcy Regulations”). It provides:
(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.
(2) A bankruptcy notice must follow Form 1 in respect of its format (for example, bold or italic typeface, underlining and notes).
(3) Subregulation (2) is not to be taken as expressing an intention contrary to section 25C of the Acts Interpretation Act 1901.
Note Under section 25C of the Acts Interpretation Act 1901, where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient; see also paragraph 46(1)(a) of that Act for the application of that Act to legislative instruments other than Acts.
Form 1 (that is, the form of a bankruptcy notice) appears at Schedule 1 to the Bankruptcy Regulations. It makes provision for the number of days to be inserted in the box contained in paragraph 1 of a bankruptcy notice.
ANZ argues that accordingly, the deletion of the word “days” from the Amended Bankruptcy Notice is a defect. As the Amended Bankruptcy Notice is defective, it is necessary to determine whether it is a defect capable of being cured under s.306 of the Bankruptcy Act.
Is the defect capable of being cured under s.306 of the Bankruptcy Act?
The issue of whether the omission of the word “days” after 21 is a defect capable of being cured under s.306 of the Bankruptcy Act must be resolved on the determination of whether the Amended Bankruptcy Notice could reasonably mislead a debtor as to what is necessary to comply with the notice: Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71; Adams v Lambert (2006) 228 CLR 409. ANZ contends that:
a)the deletion and omission of the word “days” from the Amended Bankruptcy Notice was a formal defect or an irregularity that can be remedied by an order of the court under s.306(1) of the Bankruptcy Act; and
b)On the proper construction of the Amended Bankruptcy Notice and the accompanying Order, Mr Downie could not reasonably have been misled and would understand that the Amended Bankruptcy Notice required compliance in accordance with paragraph 1 within 21 days after 4 August 2014.
42.Section 306(1) of the Bankruptcy Act provides relevantly as follows:
(1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
It is well settled that a bankruptcy notice is a proceeding under the Bankruptcy Act: Adams v Lambert (supra) at [17].
A defect will be characterised as a formal defect or an irregularity if, in the case of a bankruptcy notice, it could reasonably mislead a debtor as to what is necessary to comply with the notice: Kleinwort Benson Australia Ltd v Crowl (supra); Adams v Lambert (supra) at [27]. If the defect is a formal defect or irregularity, s.306 can be applied to rectify the defective bankruptcy notice (see Adams v Lambert (supra) at [17] and Kleinwort Benson Australia Ltd v Crowl (supra)).
The determination of the issue of whether Downie could have been reasonably misled is not confined to an examination of paragraph 1 of the Amended Bankruptcy Notice. It is necessary to examine the whole of the Amended Bankruptcy Notice and the accompanying Orders.
In Wright v Australia & New Zealand Banking Group Ltd [2001] FCA 386 Beaumont J referred to Adams v Lambert at [21] and pointed out that it is a well settled principle of construction that a written instrument must be construed as a whole, and that, as Dixon CJ and Fullagar J said in Fitzgerald v Masters(1956) 95 CLR 420, “[w]ords may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency”.
In this regard, paragraphs 3-6 of the Amended Bankruptcy Notice refer the debtor to the “time stated in paragraph 1”. These references make it clear that the time stated in paragraph 1 is “21”. Upon reading the accompanying Order, it is clear that the time stated in paragraph 1 of the Amended Bankruptcy Notice is 21 days.
In Clyne v Deputy Commissioner of Taxation (Cth) (No. 4) (1982) 42 ALR 703, a bankruptcy notice was served by the petitioning creditor in accordance with orders for substituted service. The orders for substituted service obtained by the creditor included an order that allowed amendment of the bankruptcy notice by replacing therein 28 days with 14 days as the time required for compliance with the bankruptcy notice.
However, the bankruptcy notice served on the debtor in Clyne (supra), while bearing a handwritten addition in red ink of the word “twenty-eight” immediately above the word “fourteen” (together with an asterisk referring the reader’s attention to another asterisk where reference was made to the amendment pursuant to the court order and the Registrar’s initials) did not show the word “fourteen” struck out in the paragraph that was the equivalent of paragraph one of the Amended Bankruptcy Notice in this case. The respondent debtor applied to set aside the bankruptcy notice on the basis that it was a nullity as it did not clearly specify a time within which compliance was required.
The basis of any relevant confusion in Clyne was the failure by the petitioning creditor to comply with the Court’s order to delete or strike out the word “fourteen”. However, in Clyne (as in this case), a copy of the order for substituted service had been served with the bankruptcy notice. Lockhart J held that if the bankruptcy notice had been served without the order for substituted service it would be misleading and fundamentally defective (at 706), however, it was permissible to consider the notice in light of matters extraneous to the notice itself, in particular the copy of the Court’s order. Thus the order could be examined to determine whether the debtor could have been reasonably misled. On that basis it was said to be clear that “twenty-eight” must be treated as having been substituted for “fourteen” and the applicant could not reasonably have been misled (at 707 in Clyne).
Thus, as stated in Clyne, it is permissible to consider a bankruptcy notice in light of matters extraneous to it, including the orders of the court, which in the current case were also served on the debtor.
ANZ contends, having regard to the contents of the Amended Bankruptcy Notice and the accompanying Orders, that:
a)The deletion and omission of the word “days” from the Amended Bankruptcy Notice was a formal defect or an irregularity that can be remedied by an order of the Court under s.306(1) of the Bankruptcy Act; and
b)On the proper construction of the Amended Bankruptcy Notice and the accompanying Orders, Mr Downie could not reasonably have been misled and would understand that the Amended Bankruptcy Notice required compliance in accordance with paragraph 1 within 21 days after 4 August 2014.
Ground Two – The Amended Bankruptcy Notice overstated the debt owing by the sum of $100,000
At the time of deemed service of the Amended Bankruptcy Notice on 4 August 2014 (authorised by the Official Receiver on 14 July 2014) no amount had been paid by or on behalf of Downie and no amount had been received by ANZ in relation to the Judgment Debt. That is clear from the declarations and orders made by Darke J. Accordingly, there was not an overstatement of the Judgment Debt.
The applicant contends that payment of $100,000 was made to ANZ on 14 May 2014 when the Garnishee Order was served. This submission is misconceived. Whilst service of the Garnishee Order attached to the Cheque it did not effect payment to ANZ.
In determining the second ground for seeking to set aside the Amended Bankruptcy Notice, it is necessary to consider the Civil Procedure Act and UCPR relating to garnishee orders, the Legal Profession Act 2004 (NSW) (the “Legal Profession Act”), and the judgment of Darke J.
Relevantly:
a)Rule 39.34 of the UCPR provides:
39.34 Application for garnishee order
(1) An application for a garnishee order in respect of a judgment is to be made by way of notice of motion.
(2) Unless the court orders otherwise, a notice of motion under this rule:
(a) may be dealt with in the absence of the parties, and
(b) need not be served on the judgment debtor or the proposed garnishee.
(3) The application must indicate the extent (if any) to which the judgment debt has been satisfied under any writ of execution, garnishee order or charging order issued by the court.
b)Rule 39.35 of the UCPR provides:
39.35 Affidavit in support of application for garnishee order
(1) Unless the court orders otherwise, an applicant for a garnishee order must file an affidavit in support of the application, being an affidavit sworn not more than 14 days before the date of filing.
(2) The affidavit in support:
(a) must identify the garnishee, and any debts that appear to be owed by the garnishee to the judgment debtor, and
(b) must state the amount payable under the judgment, together with any costs and interest payable in relation to the judgment, as at the date of swearing of the affidavit, and
…
c)Rule 39.36 of the UCPR provides:
39.36 Form of garnishee order for debts
(1) A garnishee order for debts must direct the garnishee to pay to the judgment creditor, to the extent of the amount outstanding under the judgment, all money:
(a) held by the garnishee for or on behalf of the judgment debtor, or
(b) owed by the garnishee to the judgment debtor.
(2) The amount outstanding under the judgment must be specified in the order.
d)Section 117 of the Civil Procedure Act provides:
Operation of garnishee order in relation to debts
117 (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.
(2) For the purposes of this Division, any amount standing to the credit of the judgment debtor in a financial institution is taken to be a debt owed to the judgment debtor by that institution.
e)Rule 39.39 of the UCPR provides:
39.39 When garnishee order takes effect
A garnishee order takes effect when it is served on the garnishee.
On 7 May 2014, the District Court of New South Wales issued a Garnishee Order for Debts (pp.119-121 of Exhibit “ELD1”). The name of the Garnishee is S & Co. The Garnishee Order states:
1. 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.
2. You are ordered to pay any amount so attached to the judgment creditor within 14 days after the date on which the order is served on the garnishee or, if the debt attached is a debt that falls due after the date, within 14 days after the date on which the debt becomes due.
Under cover of separate letters dated 12 May 2014:
a)Gadens delivered to S & Co a trust account cheque payable to Sally Nash & Co Law Practice Trust Account in the amount of $100,000 (the Cheque) (pp.122-123 of Exhibit “ELD1”); and
b)Gadens served the Garnishee Order on S & Co (p.124 of Exhibit “ELD1”).
S & Co have acknowledged receipt of the Cheque and the Garnishee Order on 14 May 2014. S & Co did not deposit the Cheque into its trust account. The Cheque was exhibited to an affidavit of Laila Hachem.
Section 254 of the Legal Profession Act provides:
254 Certain trust money to be deposited in general trust account
(1) Subject to section 258A, as soon as practicable after receiving trust money, a law practice must deposit the money in a general trust account of the practice unless:
(a) the practice has a written direction by an appropriate person to deal with it otherwise than by depositing it in the account, or
(b) the money is controlled money, or
(c) the money is transit money, or
(d) the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person.
(2) Subject to section 258A, a law practice that has received money that is the subject of a written direction mentioned in subsection (1) (a) must deal with the money in accordance with the direction:
(a) within the period (if any) specified in the direction, or
(b) subject to paragraph (a), as soon as practicable after it is received.
(3) The law practice must keep a written direction mentioned in subsection (1) (a) for the period prescribed by the regulations.
Section 255 of the Legal Profession Act provides:
255 Holding, disbursing and accounting for trust money
(1) A law practice must:
(a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and
(b) disburse the trust money only in accordance with a direction given by the person.
In accordance with the first direction contained in the Quistclose Letter and s.254 of the Legal Profession Act, Gadens deposited the money into its trust account.
As settlement was not effected, in accordance with the second direction contained in the Quistclose Letter and s.255 of the Legal Profession Act, Gadens forwarded or effectively “returned” the trust money to S & Co.
There is no dispute that the Cheque was received by S & Co on 14 May 2014. The Cheque is an order to pay or negotiable instrument. This contention is supported by the definition of cheque in s.10 of the Cheques Act1986 (Cth).
As stated, the money or Cheque was sent to S & Co in accordance with the direction given in the Quistclose Letter. Section 248 of the Legal Profession Act provides:
248 When money is received
(1) For the purposes of this Act, a law practice receives money when:
(a) the practice obtains possession or control of it directly, or
(b) the practice obtains possession or control of it indirectly as a result of its delivery to an associate of the practice, or
(c) the practice, or an associate of the practice (otherwise than in a private and personal capacity), is given a power to deal with the money for or on behalf of another person.
(2) For the purposes of this Act, a law practice or associate is taken to have received money if the money is available to the practice or associate by means of an instrument or other way of authorising an ADI to credit or debit an amount to an account with the ADI, including, for example, an electronic funds transfer, credit card transaction or telegraphic transfer.
Whilst the Cheque has not been presented for payment, by reason of s.248 of the Legal Profession Act, S & Co is deemed to have received the “money” on 14 May 2014. Since that time and until or about 8 August 2014 (when Gadens obtained the Cheque), the money or the Cheque in the sum of $100,000 was held by S & Co on trust for Downie. Further support for this contention can be derived from s.243 of the Legal Profession Act which defines trust money to mean:
“trust money” means money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice, and includes:
(a) money received by the practice on account of legal costs in advance of providing the services, and
(b) controlled money received by the practice, and
(c) transit money received by the practice, and
(d) money received by the practice, that is the subject of a power, exercisable by the practice or an associate of the practice, to deal with the money for or on behalf of another person.
The letter from S & Co dated 19 May 2014 (p.128 of Exhibit “ELD1”) notes the following commentary in Ritchie’s Uniform Civil Procedure Practice NSW:
“Section 117.10 . . . A Trustee is not a debtor to his cestuis que trust until he holds the money which he ought to pay over, or until he has by some default made himself personally liable. Webb v Stenton (1883) 11 QBD 518.”
The entitlement of the judgment debtor/beneficiary in Webb v Stenton (1883) 11 QBD 518 is distinguishable from the entitlement of Mr Downie in the current proceeding. In Webb v Stenton (supra), the question for the Court was whether the interest to which the judgment debtor became entitled under a will payable half yearly was attachable to the garnishee order sought for. The Master of the Rolls stated at 522 in Webb v Stenton (supra):
If there is a debt payable in presenti, of course an order may be made to attach that debt. If there is not a debt payable in presenti, but there is a debt in existence, debitum in presenti, but payable in future, it seems to me such an order could be made with regard to that debt, although it be the only debt and there is no debt payable in presenti, because such third person is indebted to the judgment debtor, and that would satisfy the words.
...
“Quoting with approval Crompton J in Jones v Thompson E.B: ‘. . . I have always acted on the principle that it is not enough to shew that it is very probably that there soon will be a debt, but that it must be shown that there is a debt, though it need not be yet due.’
…
The law has always recognised as a debt two kinds of debt, a debt payable at the time, and a debt payable in the future. . . .
Therefore it seems to me that the meaning of ‘accruing debt’ in Order XLV., rule 2, is debitum in presenti, solvendum in futuro, that it goes no further, and that it does not comprise anything which may be a debt however probable and however soon it may be a debt. That is the construction which I put upon this rule.
. . .
There is a sum of money which is to be payable out of the proceeds of property when it comes to the hands of the trustees. Nobody can say that until then it is in any legal or equitable sense a debt which is debitum in pre-senti. The money may never come to these trustees without any fault of their own, for they may die or cease to be trustees before anything can become due. Therefore there are contingencies upon which no debt may ever arise . . .
At the time of issuing of the Garnishee Order there was a debt due by S & Co to Downie. That is so because at all times Gadens held the money on trust for S & Co (who in turn were liable to Downie). As no contract between ANZ and Downie was finalised, the money always remained a debt due by S & Co to Downie. If a contract between ANZ and Downie had been entered into, S & Co and Downie would cease to have any interest in the money and it would become due to ANZ.
The Cheque was held by S & Co on trust for Downie and may only be disbursed (as required by s.255(1)(b) of the Legal Profession Act) in accordance with a direction given by Downie. 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: Coshott (supra) per Wilcox J at [42].
On this analysis, S & Co became a debtor of Downie on 14 May 2014 when it received the Cheque. At that time, ANZ had not been paid.
In his judgment in Australia and New Zealand Banking Group Ltd v S & Co (supra), Darke J held at [12] - [14]:
12. 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.
13. 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.
14. 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.
Gadens received the Cheque for $100,000 on 8 August 2014. Accordingly, ANZ was paid the sum of $100,000 in part payment of the Judgment Debt on or about 8 August 2014 and ANZ submits the Amended Bankruptcy Notice did not overstate the Judgment Debt.
Consideration
In the Background and in the respective submissions reproduced above, the general circumstances of this matter are addressed, however, for the avoidance of doubt as to any aspect of this matter I have been referred in oral submissions to the documents contained at Exhibit “ELD1” of the Davis Affidavit to place this application in context. Before taking that step, I note that there is no longer a dispute that no settlement was reached between ANZ and Downie and the documents that address that issue have been put to one side.
In the District Court of New South Wales proceedings No. 2010/261428 between ANZ (plaintiff), Downie (first defendant) and Biseja Pty Ltd (receiver, manger and controllers appointed (second defendant)), judgment was handed down on 22 November 2011 and entered on 23 November 2011 against the first and second defendant in the sum of $729,062.94, plus interest calculated pursuant to s.100 of the Civil Procedure Act in the sum of $82,104.49 (Exhibit “ELD1”, p.4). This is the Judgment Debt of $811,167.43 which forms the amount claimed in the Bankruptcy Notice.
At the time the judgment in the District Court was obtained S & Co were the firm of solicitors that acted for Downie, and Gadens, at all material times, were the firm of solicitors acting for ANZ. There were unsuccessful negotiations in relation to the settlement of the Judgment Debt and, consequently, the Bankruptcy Notice was issued in relation to that debt. By way of explanation for ANZ’s issue of the Bankruptcy Notice the following occurred. Negotiations began on 3 August 2012. A copy of the letter from S & Co to Gadens is found at Exhibit “ELD1”, E7 where S & Co indicated they agreed to the terms proposed in the letter from Gadens of 20 April 2012 and requested a deed be prepared for their consideration. The position was that from 3 August 2012 there was a settlement, subject to the terms being agreed, and the parties thereafter engaged in negotiations in relation to the terms of that deed. Consequently, there was no valid or enforceable settlement.
On 23 August 2012 S & Co wrote to Gadens enclosing the Cheque for $100,000 to be held by Gadens on the terms contained in that letter. The terms therein stated:
We enclose trust account cheque in the amount of $100,000.00 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 trust specifically for the purpose of the settlement of the matter 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.
(Exhibit “EDL1”, p.12)
On 23 August 2012 a letter was sent by Gadens to S & Co which stated:
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.
(Exhibit “EDL1”, p.14)
The Cheque was deposited into Gadens’ trust account and the trust account ledger evidenced that the money was deposited on 24 August 2012 (Exhibit “ELD1”, p.15).
On 31 January 2013, a letter sent from Gadens to S & Co attached the first version of the draft deed of settlement and release (Exhibit “ELD1”, pp.24-45). Over a fairly extended period there were negotiations about the deed, but those negations never resulted in any agreement being reached. The negotiations effectively concluded during March 2014.
On 21 March 2014 S & Co forwarded a “without prejudice” letter to Gadens which constituted a final offer made on behalf of Downie to ANZ. The first paragraph notes that the previous offer made on 10 March 2014 expired and that S & Co stated that they were instructed to make an offer, the detail of which is not relevant to these proceedings. In the last paragraph, it states that the offer as open to be accepted by 5:00pm on 28 March 2014 (Exhibit, “ELD 1”, p.113-114). That offer was not accepted.
On 12 May 2014, Gadens wrote to S & Co a “without prejudice letter” which stated:
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 to 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.
(Exhibit “ELD1”, p.122)
In a second letter sent on the same day and in the same envelope, Gadens on behalf of ANZ served the Garnishee Order on S & Co which stated:
We enclose by way of service a Garnishee Order for debts made on 7 May 2014.
(Exhibit “ELD1”, p.124)
Within the same envelope was a cheque made out to S & Co from the Gadens trust account in the sum of $100,000.
It is acknowledged by the parties and referred to in the written submissions prepared by Mr Newton at [30] above that the judgment in Coshott (supra) has held that payment, when made by cheque, is made conditionally when the cheque is delivered for the payment of a debt and the cheque is met on presentation, the debt is then extinguished. However, if the cheque is not met on presentation, the debt is revived.
Consequently, as at 14 May 2014, S & Co had been repaid $100,000 and was the holder of a cheque for that amount, but S & Co did not deposit that trust account cheque into their trust account. The position is that S & Co would be regarded as having been paid on 14 May 2014. The fact that, for whatever reason, the cheque was not deposited into S & Co’s trust account does not change the position that S & Co was effectively paid on 14 May 2014 and that they held a negotiable instrument drawn from a trust account for $100,000.
As indicated above, the second event to occur on 14 May 2014 was the service of the Garnishee Order, under the cover of the letter of 12 May 2014. The Garnishee Order bears a stamp dated 3 April 2014, which is the date that the application was made on behalf of ANZ to the District Court for the issue of the Garnishee Order. The Order was made and issued on 7 May 2014 and issued by the District Court to S & Co. The name of the Garnishee is S & Co, the judgment debtor is Malcolm Downie and the orders state:
1. It is ordered that all debts that are due or accrued from the Garnishee to the judgment debtor at the time of the service of this order are attached to the extent of $989,207.57 to answer a judgment in these proceedings.
2. You are ordered to pay any amount so attached to the judgment creditor within 14 days after the date on which the order is served on the Garnishee or, if the debt attached is a debt that falls due after that date, then 14 days after the date in which the debt becomes due.
In the Garnishee Order under the heading “Important Information for the Garnishee” it states:
…
The order requires you (the garnishee) to pay money you are holding on behalf of or owe to the judgment debtor to the judgment creditor in satisfaction of the judgment debt.
The garnishee order takes effect from when it is served on you.
…
Payment must be made to the judgment creditor within 14 days after the date of service of this order or, if the order attaches a debt that falls due after the date, within 14 days after the date on which the debt falls due.
(Exhibit “ELD1”, p.127)
The order is consistent with the provisions of the Civil Procedure Act and the UCPR which are set out in the written submissions prepared by Mr Newton and extracted at [56] above.
A dispute was raised by S & Co on behalf of Downie as to whether or not the Garnishee Order was effective and that led to an application on behalf of Downie that the Garnishee Order be set aside. A notice of motion filed in the District Court of NSW on 20 June 2014, in Case No. 2010/261428, sought the following orders:
1. Pursuant to Part 36 Rule 15 that the Garnishee Order dated 3 April 2014 be set aside.
2. Alternatively, that pursuant to Part 36 Rule 16 the Garnishee Order dated 3 April 2014 be set aside.
3. Alternatively, that the Court given directions by way of interpleader.
…
(Exhibit “ELD1”, p.136-137)
The application was subsequently dismissed by consent with the following orders being made:
1. The Notice of Motion filed by Sally Susan Nash, trading as Sally Nash & Co on 20 June 2014 be dismissed.
2. Sally Susan Nash is to pay Australia and New Zealand Banking Corporation Limited costs of the Notice of Motion filed on 20 June 2014, including the hearing of the motion on 18 July 2014 as agreed as assessed.
(Exhibit “ELD1”, p.141-142)
On 23 July 2014 a (notice of ceasing to act) was filed in the District Court of NSW indicating S & Co had ceased to act as Downie’s legal representative. A letter dated 21 August 2014 from Bowles Lawyers indicated they had commenced acting for Downie.
On 12 June 2014 a summons was filed in the Supreme Court of NSW by ANZ against S & Co seeking the following relief:
1. In the event of the defendant has presented the Cheque for payment and his proceeds are held in a trust account of the defendant:
(a) a declaration that the defendant holds the sum of $100, 000.00 in her trust account, on trust for Malcolm Downie;
(b) a declaration that the sum of $100,000.00 held by the defendant on trust from Malcolm Downie attaches to the Garnishee Order; and
(c) an order that the defendant to pay to the plaintiff the sum of $100,000.00 attached to the Garnishee Order, within 3 working days from the date of this order.
2. In the event that the defendant has not presented the Cheque for payment;
(a) declaration that the defendant holds the Cheque on trust for Malcolm Downie;
(b) a declaration that the Cheque held on trust for Malcolm Downie attaches to the Garnishee Order;
(c) an order that the defendant deliver the Cheque to Gadens within 3 working days of the date of this order; and
(d) an order that upon receipt of the Cheque Gadens cancel the Cheque and account directly to the plaintiff for the sum of $100,000.00 attached under the Garnishee Order.
(Exhibit “ELD1”, p.144-147)
That application was ultimately determined in favour of ANZ (Australia and New Zealand Banking Group Ltd v S & Co (supra) per Darke J).
Prior to the finalisation of the proceedings in the Supreme Court Bankruptcy Notice BN 170366 was issued on 31 March 2014 to Downie, but not served due to the inability of ANZ to locate Downie. The inability of ANZ to serve the Bankruptcy Notice led ANZ to make an application for substituted service. Substituted service orders were made by Registrar Segal on 9 July 2014 in the following form:
1. Service of the Bankruptcy Notice No. BN 170366 of 2014 issued on 31 March 2014 and addressed to Malcom Downie (the Respondent) together with a sealed copy of this order (and any extension of the Bankruptcy Notice) may be effected by the following means occurring on or before 21 July 2014:
(a) By sending by pre-paid ordinary post addressed to the Respondent at Sally Nash & Co
3/72 Pitt Street
SYDNEY NSW 2000
and at
GPO Box 6139
GOROKAN NSW 2263; and
(b) By placing them in a sealed envelope addressed to:
Mr Malcom Downie
The Orana Hotel
20 Pacific Highway
BLACKSMITHS NSW
and by delivering the envelope to any person apparently over the age of 18 years employed at The Orana Hotel, 20 Pacific Highway, BLACKSMITHS NSW.
2. Service in accordance with this order shall be deemed good and sufficient service of the Bankruptcy Notice on the Respondent.
3. The Bankruptcy Notice shall be deemed to be served on the Respondent on 4 August 2014.
4. The Bankruptcy Notice be amended by deleting the following words in paragraph 1 on page 2 of the notice “after service on you of the Bankruptcy Notice” and substituting “after 4 August 2014”.
5. The Applicant lodge an appropriate application with the Official Receiver to make the amendments to the Bankruptcy Notice required by Order 4.
6. A copy of the amended Bankruptcy Notice issued by the Official Receiver pursuant to Order 5 and served pursuant to Order 1 is to be annexed to any affidavit proving that service.
7. Costs of this application be reserved for purposes of any creditor’s petition based on this Bankruptcy Notice.
(Exhibit “ELD1”, p.194-195)
The Bankruptcy Notice was returned to the Official Receiver for amendment in accordance with the Court’s orders and the Amended Bankruptcy Notice was issued on 14 July 2014. The significant issue in these proceedings concerns the details of those amendments and I will return to them below. There is no dispute between the parties in respect to the actual amendments which I will now briefly describe. A copy of the Amended Bankruptcy Notice is found in various pieces of evidence: Downie Affidavit as Annexure “A” and in Exhibit “ELD1” at p.179.
At p.1 of the Amended Bankruptcy Notice, at the top right hand corner of the document, it has been stamped and that stamp reads:
For Official Use Only
This amendment was authorised by the Official Receiver
Dated this 14th day of July 2014
M A Kershaw
On behalf of the Official Receiver
Appearing at p.2 of the Amended Bankruptcy Notice is the only visible amendment thereto, which is made by hand and states:
after 4 August 2014
You are required within [21]* days after service of the Bankruptcy Notice, to either:
The argument advanced is that there is a defect that arises from this amendment and that the deletion of the word “days”.
I now turn to Ground 1 of the Application.
Prior to the Bankruptcy Legislation Amendment Act 1996 (Cth) coming into effect on 25 October 1996, amendments to bankruptcy notices were performed by an officer of the Federal Court, adopting a process that clearly identified the amendment and review process. This is described in the decision of Vincent v State Bank of New South Wales (1995) 60 FCR 290 per Foster J. The headnote of that decision states:
A bankruptcy notice was issued on 20 June 1995 claiming a sum of $2,619,661.71 due to the State Bank of New South Wales (the bank) under a final judgment obtained by it against the debtor the Supreme Court of New South Wales. After extensive unsuccessful attempts to serve the notice on the debtor, the bank sought an order for substituted service. On 12 July 1995, a Registrar made an order for substituted service, together with an order deeming service of the notice on the debtor to be effected on 3 August 1995. In addition, an order was made for amendment of the notice by deleting the words “service of this notice on you. Excluding the day on which this notice is served on you” and substituted “3 August 1995, excluding that day”.
The amendment order by the Registrar was made by hand on the original bankruptcy notice and also on the photocopies of the original. The top right hand corner of the first page of the original bankruptcy notice and each copy was then stamped with a red amendment stamp by an officer of the Federal Court. Each amendment was signed by a solicitor for the bank. When completed, each stamp read “amended the 14th day of July 1995 in pursuant to an order of the Registrar dated the 12th day of July 1995 (signed) S Charaneka solicitor”. The amendment to the notice ordered by the Registrar was made by drawing two ink lines one blue and one red through the words required to be deleted. The form of words were hand written above the crossed out words. Three new Court seals were placed on the photocopies of the original notice which had been amended. One was placed over the red amendment stamp on the first page, another next to the original seal on the second page and the other next to the original seal at the end of the notice on the third page. Only the seal on the second page had been over signed.
In 1995, when his Honour Foster J handed down his decision in Vincent (supra), the method of amending a bankruptcy notice involved the use of asterisk initialling, over stamping and coloured pens. This system was abandoned when the Official Receiver took over the role of issuing (and amending) bankruptcy notices. Currently, amendments sought to be made to bankruptcy notices are submitted to the Official Receiver for processing. The present system also raises the question in respect of what is proper practice when amending a bankruptcy notice, as a notice that contains an amendment may not have that amendment clearly identified. Such defects have been noted in a number of decisions of this Court.
In Westwood v Nelson (2004) 183 FLR 346 per Raphael FM (as he was then), his Honour stated at [10]:
10. …I think there is a case for suggesting to the Official Receiver that holograph amendments made to documents filed with him should be noted with a little seal to prevent there being any possible confusion. See Vincent v State Bank of NSW (1995) 60 FCR 290 for the practice when notices were issued by the Court.
In these proceedings, Registrar Segal made, in precise terms, orders for substituted service on 9 July 2014 in the form set out at [91] above. The effect of the order of Registrar Segal was to amend the Bankruptcy Notice by deleting the words in paragraph 1 on page 2, commencing with “after service on you of the bankruptcy notice”, and substituting the words “after 4 August 2014”. The orders then continue in regular form to say that the applicant lodge an appropriate application with the Official Receiver to make the amendments. The stamp imprinted on the Amended Bankruptcy Notice by the Official Receiver is reproduced at [90] above. The question arises as to what is meant by the words “this amendment” as there is no reference to what the amendment is. However, the amendment appears on page 2 of the Amended Bankruptcy Notice where the words “days after service on you of the bankruptcy notice” have been crossed out. The effect of the crossing out of the word “days” means that the sentence then reads:
You are required, within 21 after 4 August 2014, to either …
That amendment creates an incomprehensible sentence, however, more importantly for the purposes of this application, it was a failure to comply with the Court’s orders. The argument advanced on behalf of the applicant is that failure alone renders the Amended Bankruptcy Notice a nullity, and thereby entitles the Court to make an order setting it aside. I note that in addition to amending the Bankruptcy Notice, there was a requirement that the order of Registrar Segal be served along with the Amended Bankruptcy Notice. The evidence before the Court is that this order was complied with. Counsel for Downie concedes that if the Amended Bankruptcy Notice was read in conjunction with the orders of Registrar Segal, one might establish that the word “days” ought not to have been omitted, however, on the material before the Court, this is a situation where the Court made an order, it was not complied with and there is nothing on the face of the amendment to indicate that it was official or authorised.
In Varga (supra) per Barnes FM, a bankruptcy notice was not amended as required by orders made by Registrar Segal. Her Honour referred to the observations of Einfeld J in Re Pender (supra). At [24] in Varga Barnes FM stated:
24. … As Einfeld J pointed out at [17] the question of perplexity and confusion must be tested “not on the basis of whether the particular debtor was in fact misled but whether the defects were of a kind that could have misled”. His Honour suggested that a debtor “is not required to manipulate a track through a bankruptcy notice to resolve questions of doubt or ambiguity”…
At [26] in Varga her Honour continued:
26. I am not persuaded that the “defect” resulting from the failure to amend the bankruptcy notice in accordance with the orders made on 27 September 2008 is a mere formal defect or irregularity that can be rectified under s.306 of the Act, notwithstanding the approach to be taken to that section in light of Adams v Lambert. While the applicant contended that it would suffer significant prejudice if the Court did not make the sequestration order sought and notwithstanding that the respondent debtor did not apply to set aside the bankruptcy notice and has not appeared in these proceedings I am of the view that the nature of the defect in this case is such that it could reasonably mislead a debtor upon whom the bankruptcy notice was served, even taking into account the accompanying court order. Hence it is such as to invalidate the bankruptcy notice. Therefore the creditor’s petition must be dismissed.
In Curtis v Singtel Optus Pty Ltd & Anor (2014) 268 FLR 96, I addressed the issue of the validity of bankruptcy notices issued by the Official Receiver electronically. That judgment relies upon the evidence contained in the Affidavit of Danny Roland Klopovic affirmed 12 May 2014. His evidence states that he is employed by the Australian Financial Security Authority (“AFSA”) as the assistant director of the national registry and exercises powers delegated by the Official Receiver under the Bankruptcy Act. In Curtis v Singtel Optus & Anor (supra), I stated therein at [11]-[12]:
11. The Klopovic Affidavit indicates at [3]-[6]:
3. I am delegated to perform the powers and functions of the Official Receiver under s.15(4) of the Bankruptcy Act 1966 (the Act and Bankruptcy Regulations 1996 (the Regulations). I have oversight of the Registry teams based in Melbourne and in Sydney who conduct the process of Notices.
4. The Official Receiver has issued approximately 9,800 Bankruptcy Notices in the past year.
5. There are two ways in which a Creditor can apply to have a Bankruptcy Notice issued by the Official Receiver. The first is by sending a completed approved form by post to an office of the AFSA. The second is by completed an online application using the online services contained on the AFSA website: The online system has operated since 11 February 2013. In the past year about 95 per cent of the Bankruptcy Notices issued are applied for online using the website of AFSA.
12. The Klopovic Affidavit then outlines the procedures involved the in issuing of a bankruptcy notice where an application is made online at [9]-[14] where he states:
9. If a creditor wishes to use the online service they must register their details with AFSA through its website.
10. Once registered, a creditor can use the online service to submit a bankruptcy notice for approval. The online service requires the creditor or their agent to complete a number of on screen ‘fields’ which correspond with the details required to complete a prescribed Bankruptcy Notice as set out in Form 1 of Schedule 1 to the Regulations. The first screen requires a creditor to complete details of the judgment or order of a Court upon which they rely for the issuing of the notice. A required step for the completion of the online form is fir the creditor to upload a copy of the sealed or certified judgment or order of a Court evidencing the debt owed to the creditor by the debtor.
...
11. Prior to the creditor being able to submit the applicant online, the online service asks the creditor to review the details entered. The review screen allows for proof reading and editing of the online form. The service also allows the user to view a draft copy of the Bankruptcy Notice prior to submission. Payment of the prescribed fee must also be made.
12. Upon receipt of an electronic application a delegate of the official Receiver will review the online application. The delegate will ensure that all requirements under the Act and Regulations for the issuing the notice have been met and, if the form appears to comply with those requirements, the notice is approved and endorsed by6 the delegate of the Official Receiver. If any errors are detected by the delegate, the application is not processed and the creditor is notified by email of the errors and advised to revise and resubmit their application.
13. Upon approval by the delegate, the system automatically generates a covering letter to the creditor and a bankruptcy notice in the prescribed form containing the details as entered into the online fields by the creditor and the signature of the Official Receiver. The system then automatically creates and sends an email to the address supplied by the creditor with their application. Attached to the email is the covering letter, the endorsed bankruptcy notice and the judgment or order which the creditor uploaded with their application for a bankruptcy notice as documents in .pdf format. The system inserts into the endorsed bankruptcy notice a unique Bankruptcy Notice number, issued date and signature of the Official Receiver in the ‘Office use only” field.
14. Each bankruptcy notice has its own online file which acts as a correspondence history for that application. The online file contains several ‘folios’. The ‘folios’ mark a correspondence events such as an application being received, assessed, approved, and any file notices. Any supporting documentation received are also attached to the appropriate folio.
On appeal in Curtis v Singtel Optus Pty Ltd [2014] FCAFC 144, the primary decision was upheld.
In circumstances where the Official Receiver since 11 February 2013, has held an electronic copy of all bankruptcy notices issued by that body, which includes the (Amended) Bankruptcy Notice in these proceedings, any reason why the practice of manually amending bankruptcy notices persists, given the possibility of inherent errors and consequences flowing therefrom, seems at the least fraught odd.
I agree with the argument advanced by on behalf of the applicant that the deletion of the word “days” rendered the sense of paragraph 1 on page 2 of the Amended Bankruptcy Notice meaningless and that the accompanying orders do not rectify it because there is no requirement that the debtor carry out the exercise within any discernible time frame, as would normally be the case when being served with a bankruptcy notice. In any event, it would be expected at the very least that the placing of an official stamp with initials adjacent to the changes bearing the date in reference to the orders would occur. If that course had been adopted, someone issuing the notice would have no doubt picked up the error, either by the person initialling the amendment or the supervisor releasing the notice as described by Mr Klopovic set out above at [103].
Accordingly, for the reasons stated above, I find that the error in the Amended Bankruptcy Notice is an error of the nature that could have misled Downie as to what was required and was not a formal error that could be cured by s.306(1) of the Bankruptcy Act. Further, the fact that Registrar Segal’s Orders were served with the Amended Bankruptcy Notice did not obviate any requirements for the Amended Bankruptcy Notice to be in the correct amended form. These findings individually render the Amended Bankruptcy Notice invalid, however, consideration should still be given to the second ground of the application.
I now move to Ground 2. This ground raises an issue which has not yet been resolved by reference to authority. This concerns the effect of the issue of the Garnishee Order and the (Amended) Bankruptcy Notice by the ANZ’s solicitors, together with the principle of attachment. On a primary point, the effect of a garnishee order is well recognised, and it is that the notice attached to the amount outstanding under the judgment debts that are due or accruing to the judgment debtor. What happened in the matter before this Court is that there were settlement negations between the parties which were unsuccessful, however, as part of the process the Cheque was made out and paid to the solicitors representing ANZ. As a consequence of breakdown in negotiations, a cheque in the same amount as the Cheque was returned to Downie’s then solicitors, S & Co on 14 May 2014. Prior to the return of that cheque the District Court of NSW ordered the issue of the Garnishee Order which was delivered in the same envelope as the cheque. What this Court is being asked to consider is what the effect of the service of the Garnishee Order was.
A garnishee order operates at the time of the service of an order, so that it operates at the time that the return cheque and the Garnishee Order were served. There is no doubt of the application of the expression of the garnishee notice operates from the time of service, because the expression is taken from r.39.39 of the UCPR. The first authoritative example of that application is in Coshott [2001] FCA 88 per Wilcox J at [30] where his Honour stated:
30. It may be true that solicitors are obliged to debit their trust account ledger immediately upon the drawing of a trust account cheque. However, this does not derogate from application of the rule that, when a payment is made by cheque, the amount will be treated as paid on the date the cheque is given, provided the cheque is met on presentation. The mere drawing of a cheque does not effect payment; delivery is the critical act. The principle was stated in a unanimous judgment of the High Court of Australia in National Australia Bank Limited v KDS Construction Services Proprietary Limited [1987] HCA 65; (1987) 163 CLR 668 at 676:
Generally speaking, when a cheque is given in payment of a debt, it operates as a conditional payment. The payment is subject to a condition that the cheque be paid on presentation. If it is dishonoured the debt revives. Although it is sometimes said that the remedy for the primary debt is suspended, the suspension is no more than a consequence of the conditional nature of the payment ... The condition is a condition subsequent so that, if the cheque is met, it ranks as an actual payment from the time it was given. Subject to non-fulfilment of the condition subsequent, the payment is complete at the time when the cheque is accepted by the creditor ...
The question of whether the holding of a cheque gave rise to a debt is addressed in Wickstead v Browne (1992) 30 NSWLR 1 per Handley and Cripps JJA at 14, where their Honours stated:
However the authorities establish that the amount which a defaulting trustee is bound to pay to make good a breach of trust is an equitable debt. In Ex Parte Adamson (1878) 8 Ch D 807 at 819 James and Baggallay LJJ said:
The Court of Chancery never entertained a suit for damages … for breach of trust. The suit was always for an equitable debt or liability in the nature of debt. It was a suit for the restitution of the actual money or thing, or value of the thing, …
Similarly in Webb v Stenton (1883) 11 QBD 518 at 530 Fry LJ said:
A trustee is not … 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 money to his cestui que trust by reason of some breach of trust or default in the performance of his duties as trustee. See also Adey v Arnold (1852) 2 De G M & G 432 at 438 (42 ER 940 at 942), Wynch v Grant (1854) 2 Drew 312 (61 ER 739), Isaacson v Harwood (1868) LR 3 Ch Ap 225, Holland v Holland (1869) LR 4 Ch Ap 449 and Re Dawson (1966) 84 WN (NSW) (Pt 1) 399 at 404–406.
Turning to his Honour Wilcox J’s analysis in Coshott (supra) at [30], all of which applies in the matter before this Court. Specific attention is drawn to the passage therein where his Honour stated:
30. …The mere drawing of a cheque does not effect payment; delivery is the critical act…
His Honour Wilcox J then stated in Coshott (supra) at [39]:
39. The concluding words of subrule 5(1) support this approach. This subrule specifies the effect of service of a garnishment notice. It is to “operate to attach in the hands of the garnishee, to the extent of the amount specified in the notice, all debts which are due and accruing from the garnishee to the judgment debtor at the time of serviceof the notice (whether or not they were due and accruing at the time when leave was granted under rule 3(1)).” [Emphasis added] It will be noted, first, that service of the garnishment order affects only debts due or accruing at the time of service but, second, that it does not matter whether or not those debts were due or accruing at the time the leave was granted.
The sub-rule at the time of the judgment referred to above is contained in the Supreme Court Rules 1970 (NSW), Part 46, Rule 5(1), which stated (since repealed):
5(1) A garnishment notice shall take effect upon it being served on the garnishee and upon it being so served shall operate to attach in the hands of the garnishee to the extent of the amount specified in the notice, all debts which are due or accruing from the garnishee to the judgment debtor at the time of service of the notice (whether or not they were so due or accruing at the time when leave was granted under rule 3(1)).
The Federal Court Rules 2011(Cth) are reflected in the Civil Procedure Act which govern this matter and the relevant UCPR rules. The Civil Procedure Act at s.117 reflects the Federal Court Rules and states:
117 Operation of garnishee order in relation to debts
(cf Act No 9 1973, section 97)
(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.
In summary, there was delivery of the return cheque at the same time as service of the Garnishee Order on 14 May 2014. Based on the analysis of his Honour Wilcox J in Coshott (supra), as a consequence of the various statements about cheques which were made in Coshott, the position in the current matter is that the Garnishee Order was a valid notice and was served with the cheque at the same time. The return cheque was attached as far as the operation of the UCPR are concerned. The raises the issue of the meaning of the word “attach” or “attachment”. Mr Skinner referred the Court to an article in the Australian Law Journal entitled “Orders of Court and Garnishee Process” (1948, 21 ALJ 346) by AG Saddington, about the meaning of the term “execution”. Summarising that article, attachment under a garnishee order is part of the process of satisfying a judgment out of the property of a judgment debtor. It is different from the execution under a writ of fieri facias whereby property is seized. The effect of a present garnishee order, the words attach means to secure a sum of money as if it were a form of execution.
The Court was referred to the decision in Australia and New Zealand Banking Group Ltd v S & Co (supra) per Darke J where his Honour referred to the decisions in Coshott (supra) and Wickstead & Ors v Browne (supra). The ex tempore judgment of Darke J records the following background material at [1]-[4]:
1. 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".
2. 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.
3. 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.
4. 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.
Darke J in Australia and New Zealand Banking Group Ltd v S & Co (supra) at [6]-[7] then stated:
6. 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."
7. Uniform Civil Procedure Rules rule 39.39 provides:
“A garnishee order takes effect when it is served on the garnishee."
Darke J in Australia and New Zealand Banking Group Ltd v S & Co (supra) then stated [9]-[11]:
9. 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."
10. 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.
11. 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."
His Honour’s finding in Australia and New Zealand Banking Group Ltd v S & Co (supra) is set out at [12] where he stated:
12. 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.
I note that the parties are in agreement as to the correctness of the decision of Darke J. Further, it has not been the subject of an appeal. Consequently, in the circumstances of the matter before this Court, the Garnishee Order attached the sum of $100,000 when it was served on S & Co on 14 May 2014.
The argument advanced on behalf of the applicant in the matter before this Court relates to the question of what effect that attachment on 14 May 2014 had on the issue of the Amended Bankruptcy Notice. The applicant contends that, as a consequence of the attachment, ANZ ought to have given credit for the $100,000 on the issue of the Amended Bankruptcy Notice, which did not occur. Registrar Segal’s orders for the amendments to the Bankruptcy Notice were made on 9 July 2014. The amendments made by the Official Receiver were made on 14 July 2014. The applicant’s argument is that it was incumbent upon ANZ to have given credit for the $100,000 as a consequence of the attachment which occurred on 14 May 2014 (two months prior), and that would have been a simple exercise at that time, but did not happen.
The Court notes that if a garnishee order is issued after a creditor’s petition is lodged (which is different from the matter before the Court as it is only at the stage of a bankruptcy notice), there is authority as to the practice of the Supreme Court of NSW that has been applied the effect that such a notice would be set aside because it gives rise to a preference (see ML Ubase Holdings Co Ltd v Trigem Computer Inc (2007) 69 NSWLR 577; Catalano & Ors v Managing Australian Destinations Pty Ltd (No. 3) (2013) 306 ALR 449; Perpetual Trustee Company Ltd v Papantoniou (No. 4) [2014] NSWSC 1607; Despot v Registrar General of NSW [2014] NSWSC 1303 per Stevenson J, delivered on 18 December 2014). The relevant passages are found at [6]-[7] and [10] of Despot v Registrar General of NSW (supra) where Stevenson J stated:
6. It is common ground that there is pending in the Federal Court of Australia a creditor's petition under the Bankruptcy Act 1966 (Cth) against Mr Despot. The petitioning creditor is a Mr Mate Kosovich. Mr Dlakic is a supporting creditor.
7. The bankruptcy petition is defended and has been listed for hearing in the Federal Court on 8 October 2014.
…
10. Evidently through oversight, Mr Conomos did not draw Campbell J's attention to authorities the effect of which is that, first, the making of a garnishee order is a discretionary matter; and, second, where the effect of making a garnishee order would be to confer a preference on a creditor, the garnishee order would not normally be made: see ML Ubase Holdings Co Pty Limited v Trigem Computer Inc [2007] NSWSC 859; (2007) 69 NSWLR 577 at [56] and the cases cited therein per Brereton J.
A more recent decision relating to the enforcement of a garnishee order was addressed in National Australia Bank Ltd v Nguyen [2014] NSWSC 1114 per McCallum J which does not relate to the facts of the matter before this Court, however, does address the issues in respect of the effect. A garnishee order was served on 2 June 2014 and her Honour quotes from s.117 about the operation of the time of service of the garnishee order, which raises the argument about money held in trust which is not necessarily a debt. At [33] therein, McCallum J stated:
33. …I am satisfied that, as at 2 June 2014, the amount by which the payout figure had been understated by the bank was a debt due or accruing from Dibs Solicitors to Tien Nguyen within the meaning of s 124 of the Civil Procedure Act.
Mr Skinner informed the Court that the authorities, set out above, were the highest that he had been able to ascertain to indicate that where there is a petition on foot and a garnishee order is sought, it will not be made, but he could not say that there were any authorities in support of his argument relating to the bankruptcy notice stage, which form the circumstances of the current application. Significantly, the matter before this Court is currently only at the stage of the issue and service of a bankruptcy notice and nothing has been put before the Court that a preference would be created. Consequently, the refusal of the issue of a garnishee order does not arise. This view is consistent with the findings of his Honour Darke J.
The basis of the applicant’s challenge emanates from s.41(5) of the Bankruptcy Act, which states:
(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.
The relevant statement is that because of the attachment which occurred to the sum of $100,000 before the issue of the Amended Bankruptcy Notice, that amount ought to have been taken into account. The Bankruptcy Notice should have been amended to reduce the amount claimed by $100,000. Counsel for the applicant acknowledges that an order to make good that proposition, the Court has to accept the effect of the rules of service of the Garnishee Order and the return cheque on 14 May 2014, and that such an attachment gives rise to a present right on the part of ANZ in respect of that sum of money which ought to have been disclosed.
In the written submissions of counsel for ANZ contended that at the time of the deemed service of the Amended Bankruptcy Notice (authorised by the Official Receiver on 14 July 2014) on 4 August 2014, no amount had been paid by or on behalf of Downie and no amount had been received by ANZ in relation to the Judgment Debt. That is clear from the declaration and orders made by his Honour Darke J and, accordingly, there was not an overstatement of the Judgment Debt. Mr Newton supports that position in his written submissions, set out above at [53]-[73].
I believe that the correct analysis based on the authorities referred to above is that Gadens, representing ANZ, served the Garnishee Order on S & Co, representing Downie, on 14 May 2014, which is the date of attachment as considered above. The substituted service of the Amended Bankruptcy Notice was deemed to have taken place on 4 August 2014. Putting to one side the issues in respect of the error on the face of the Amended Bankruptcy Notice considered above, Downie was required within 21 days (after 4 August 2014) to satisfy either of the options set out in the notice. The extension of that requirement indicates that the required action was to be carried out by 25 August 2014. Bowles Lawyers now representing Downie on 21 August 2014 forwarded to Gadens a notice of misstatement under s.41(5) of the Bankruptcy Act. The basis on which that notice was issued incorrectly states:
We are instructed that Bankruptcy notice fails to credit our client with the amount of $100,000 which was initially paid to your client on or about 23 August 2012 by the way of a trust account and cheque, drawn on the Trust account of our client’s previous solicitor Sally Susan Nash of Sally Nash & Co.
(Exhibit “A1”)
The overstatement in the Amended Bankruptcy Notice has been notified in accordance with s.41(5) of the Bankruptcy Act and the Amended Bankruptcy Notice contains an overstatement (see Brennan v McGuire [2015] FCCA 665 at [92] per Judge Neville).
Although that statement is factually correct the issue relevant to this matter is the date of attachment brought about by the service of the Garnishee Order on 14 May 2014. In this respect, I prefer the applicant’s submissions noted above at [24]-[35] read in conjunction with the findings directly above.
Accordingly, in my view, this finding operates to invalidate the Amended Bankruptcy Notice or Bankruptcy Notice from the time of its issue.
Conclusion
For the reasons stated above, Ground 1 of the Application succeeds. Ground 2 also succeeds for the reasons stated above. Individually or cumulatively, these findings render the Amended Bankruptcy Notice invalid. Accordingly, the Amended Bankruptcy Notice should be set aside and ANZ ordered to pay Downie’s costs.
I certify that the preceding one hundred and twenty-eight (128) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 17 April 2015
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