McCormack v National Australia Bank Ltd

[1992] FCA 221

Re: COLIN KENNEDY McCORMACK
And: NATIONAL AUSTRALIA BANK LTD
No ACT G65 of 1991
FED No. 221
Practice and Procedure
(1992) 106 ALR 647

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Davies(1), Neaves(1) and Miles(1) JJ.

CATCHWORDS

Practice and Procedure - examination of a judgment debtor by a judgment creditor under the Rules of the Supreme Court of the Australian Capital Territory - whether examination may extend to grounds for setting aside transfers of property under a maintenance agreement filed under the Family Law Act 1975 (Cth) - "means of satisfying the judgment".

Supreme Court Rules (ACT) O.43 r.31

Watkins v. Ross (1893) 68 LT 423

HEARING

CANBERRA

#DATE 1:5:1992

Counsel for the Appellant: Mr I.W. Nash

Solicitor for the Appellant: Blake Dawson Waldron

Counsel for the Respondent: Mr G.J.D. Richardson

Solicitor for the Respondent: Abbott Tout Russell Kennedy

ORDER

1. Leave to appeal be granted.

2. The appeal be allowed.

3. The orders of Higgins J. be set aside and in lieu therefor

it be ordered that the appeal from the ruling of Master Hogan be dismissed.

4. The Respondent pay the costs of the appeal to the heard by

Higgins J. and of this appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an application for leave to appeal from an order made by a judge of the Supreme Court of the Australian Capital Territory (Higgins J.). The Court heard argument on the appeal should leave be granted.

1. Higgins J. allowed an appeal from a ruling by Master Hogan given in the course of an examination under O.43 r.31 of the Rules of the Supreme Court of the Australian Capital Territory, which provides inter alia for the oral examination of a judgment debtor by a judgment creditor on the following questions:-
   

"(c) whether any, and if so, what debts are owing to the judgment debtor; and

(d) whether the judgment debtor has any, and, if so, what other property or means of satisfying the judgment or order".

1. The respondent, National Australia Bank Limited ("the Bank"), had judgment against the applicant, Colin Kennedy McCormack, for $2.6m. In the course of the examination before Master Hogan under O.43 r.31, Mr G.J.D. Richardson, counsel for the Bank, foreshadowed a line of questions to which Mr I.J. Nicol, counsel for Mr McCormack, objected.

2. Mr Richardson indicated to the Master that he proposed to ask questions respecting a maintenance agreement, as defined in s.4(1) of the Family Law Act 1975 (Cth), between Mr McCormack and his wife which had been filed with the Family Court of Australia under s.86 of the Family Law Act. That agreement apparently provided inter alia for the transfer of a property at Red Hill in the Australian Capital Territory to Mrs McCormack and of a property at Mt Lawley, Western Australia, to Mr McCormack. Subsequently, both properties were transferred to Mrs McCormack, the consideration being expressed by reference to the maintenance agreement.
   

3. Mr Richardson informed the Master:-
   

"Now, the questions which I propose to ask are by nature of cross-examination to ascertain whether the transactions, that is the filing of the maintenance agreement and the transfer of property afterwards, were in fact transactions with a view to defeating creditors."

This was apparently a reference to provisions such as s.89 of the Property Law Act 1969 (WA) which are concerned with transactions entered into in fraud of creditors. It may be noted, however, that such provisions would have no application to a completed maintenance agreement filed under s.86 (as to which see s.86(3)) of the Family Law Act.

1. Mr Richardson went on to indicate that he wished to ask questions related to a possible application to the Family Court. Mr Richardson desired to ascertain whether Mrs McCormack had had any entitlement to maintenance under s.72 of the Family Law Act and whether any application could be brought under s.83 of the Family Law Act to vary the maintenance agreement, with the intent that the Family Court of Australia might order the retransfer of one or both of the properties or perhaps other assets from Mrs McCormack to Mr McCormack.

2. Mr Richardson wished to enquire in general whether there was any ground on which the transfer of property and assets to Mrs McCormack could be set aside or avoided. The Master would have understood that Mr Richardson wished to undertake a wide ranging examination of Mr McCormack to obtain information which might assist the Bank to take steps to recover assets which could be used for the satisfaction of the judgment debt.

3. The Master ruled:-
   

"The purpose of the questions, as I apprehend it, is to investigate whether an application to set aside that deed and the transactions that were carried out pursuant to it could be set aside. If they were set aside, it is said, property would then be available in the hands of the debtor which would then be available to satisfy the judgment debt.

It is put that those questions fairly relate to the question referred to in the rules so far as is relevant, namely in rule 31(1)(d), whether the judgment debtor has any, and if so what, means other than debts owing to him of satisfying the judgment debt. If the deed were set aside the judgment debtor would then have means. That seems to be not the same thing as to say that he now has means of satisfying the judgment debt or that that nascent possibility of those sort of proceedings mean that he has means within the meaning, as I understand it, of that word contrasted with the word `property'. I think that questions can only go to some method presently available to him to satisfy the judgment debt to be the subject of examination. I would therefore disallow the questions."

(the emphasis is ours)

1. The Master's reference to "presently available" reflected submissions put by Mr Nicol that O.43 r.31 was to be read in its context, that of execution, particularly by reference to O.43 r.3, and therefore questions would be irrelevant if they were not directed to the ascertainment of available assets against which execution could be levied.

2. The Bank appealed from this ruling. Higgins J. allowed the appeal and ordered that "The matter be remitted to the Master for completion of the examination." In the course of his reasons for judgment, Higgins J. indicated that it was his view that O.43 r.31 authorised a wide ranging examination. The crux of his Honour's view was stated as follows:-
   

"It seems to me that not only the availability but the non-availability of enforcement remedies may be enquired into and, further, the availability of other possible means for making available property which may then become available for seizure. I think the term is wide enough, for example, to enable the creditor to determine whether the alternative process of bankruptcy is worth taking or not. This course of enquiry would be subject to a discretion to limit the scope of that enquiry where it seemed to be going into so much detail as to be a `public examination' rather than an enquiry to ascertain means for satisfaction in due course and by due process of a judgment debt."

1. We read O.43 r.31 as meaning what it says. It does not provide for an unlimited examination of a debtor in respect of his financial affairs. Nor is the term "means" limited by some technical concept which arises out of the context of O.43.

2. The term "means" refers to the pecuniary resources which may be available for satisfaction of the judgment debt. See e.g. Watkins v. Ross (1893) 68 LT 423 in which Lindley L.J. said at 424:-
   

"The object of this rule is plain enough; it is to make a judgment debtor tell what assets he has got to satisfy the judgment."

At 425, Kay L.J. commented to like effect. In Watkins v. Ross, their Lordships therefore refused to order that a debtor be examined as to the circumstances relating to a debenture bond, the validity of which was the subject of legal proceedings. Their Lordships considered that such an examination went "beyond the limit of the rule", per Lord Esher M.R. at 424.

1. We would not read the term "means" as limited to pecuniary resources presently, in the sense of instantly or currently, available. Order 43, r.31 uses no such description. The term "means" of its very nature denotes not only existing property or assets but also resources or sources whereby assets or property may become available for satisfaction of the judgment debt. But nevertheless, the rule allows only an examination as to the property and means which the judgment debtor has to satisfy the judgment.

2. Order 43 r.31 does not, as does s.81 of the Bankruptcy Act 1966 (Cth), allow for a general, wide-ranging inquiry into the financial transactions of the debtor. The purpose of the examination is to ascertain from what sources the debtor may satisfy the judgment debt. The term "means" does not denote other possible methods by which the judgment creditor may obtain satisfaction of the debt. It is the means of the debtor which are the subject of the examination. Therefore, we would not agree with Higgins J. that "the term is wide enough ... to enable the creditor to determine whether the alternative process of bankruptcy is worth taking or not."

3. The process of the Supreme Court ought not to be used as a form of pre-trial discovery to aid a judgment creditor to institute proceedings under the Family Law Act or under the Bankruptcy Act.

4. It follows that the Master correctly rejected the line of questioning sought to be put by Mr Richardson.

5. The Master has a discretion to control the proceedings before him to ensure that the questions asked are directed to a relevant and useful end. See e.g. Watkins v. Ross at 424-5. Had Mr Richardson proposed to ask a more limited series of questions directed to an end which appeared to fall within the ambit of O.43 r.31, no doubt the Master would have allowed the questions. Thus, the property which was transferred to Mrs McCormack contrary to the terms of the maintenance agreement may well have been a suitable subject for examination had Mr Richardson proposed a basis upon which that particular property or an interest therein provided a means by which Mr McCormack could satisfy the judgment debt. However, no such limited questioning was proposed. Section 89(1) of the Property Law Act refers to voidability "at the instance of any person thereby prejudiced." It was not suggested that Mr McCormack was such a person. Nor was it suggested that Mrs McCormack was a trustee of the property for Mr McCormack.

6. In these circumstances, Higgins J. ought not to have ordered that the Master continue with the examination.

7. In our view, the issue is of sufficient general importance and the detriment to Mr McCormack if the examination proceeds along the lines propounded by Mr Richardson is of such substance that leave to appeal should be granted. We respectfully agree with the comments of Lockhart J. in Re Abrahams; ex parte Thomas (1985) 9 FCR 232 at 238-9, when his Honour, speaking of an examination under s.81 of the Bankruptcy Act referred to the power as "an extraordinary power of inquisitorial nature" (Re North Australian Territory Company (1890) 45 Ch 87 at 93) and one in respect of which the examining officer must "be astute to prevent any oppressive, vexatious or unfair use of this extraordinary process" (Re Csidei; ex parte Andrew (1980) 39 FLR 387 at 392).

8. Leave to appeal should be granted and the appeal should be allowed. The orders of Higgins J. should be set aside and in lieu therefor it should be ordered that the appeal from the ruling of Master Hogan be dismissed. The Bank should pay the costs of the appeal heard by Higgins J. and the costs of this appeal.