McIntyre, N. v Gye, C.A

[1994] FCA 384

3WJ 9 4

JUDGMENT No. ....."....... ..,,,.-

C A T C H W O R D S

- bankruptcy notice - whether notice could reasonably mislead the debtor - judgment debt for costs recovered by creditors jointly - severance in equity of joint ownership - notice thereof given to debtor - whether bankrupt& notice could reasoh-ly mislead as to payment and securing and compounding the debt.

- jointly owned debt - severance in equity - equitable aseigment by creditors of benefit of debt - whether of present or future property - notice to debtor - payment - composition.

1966, ss. 40, 41.

m v m (1991) 171 C.L.R. 609

(1947) 14 A.B.C. 112

v (1946) 72 C.L.R. 575

v Patton (1990) 169 C.L.R. 540

. .

T n (1965) 113 C.L.R.

shss?kdv-

385

&&b v - q o i t (1987) 164 C.L.R. 159

BEPORE:	MVIES, BURCIIETT, GUHHOW JJ.
pLAcE:	SYDNEY.
MTE :	17 JUNE 1994.

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )	No. NG215 of 1994
GENERAL DIVISION	)

On appeal from a Judge of the Federal Court of Australia

BETWEEN:  lSgVILIg W I ~

Appellant

AND :	CLEHBNT ANTHOWP GYE
RA-  M V I D PERKES

Respondents

BEFORE:	DAVIES, BURCHETT, GUMMOW JJ.
PLACE :	SYDNEY.
DATE :	17 JUNE 1994.

NINUTE OF O R D m

:	-
(1) The appeal be allowed, with costs.
(2) The orders made 11 April 1994 be set aside and, in lieu

thereof, the petition be dismissed, with costs.

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

IN THE FEDERAC COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )	NO. NG215 of 1994
GENERAL DIVISION	1

On appeal from a Judge of the Federal Court of Australia

BETWEEN:  NEVILLE &INTYRE

Appellant

AND :	CLElIENT ANTEONY GYE
RAYHOND MVID PERKES

Respondents

BEFORE:	DAVIES, BURCHETT, GUMMOW JJ.
PLACE :	SYDNEY.
DATE :	17 JUNE 1994.

-

THE COURT: This is an appeal from orders made by a Judge of this Court (Hill J.) on 11 April 1994. His Honour made a sequestration order in respect of the estate of the appellant

("Mr McIntyre") and appointed a Trustee of his estate. The

orders were made upon an amended creditor's petition presented by the respondents on 20 October 1993. All proceedings under the sequestration order have been stayed, pending the outcome of the present appeal.

This appeal -is but -one ehapter -i-n an .ext+nsive saga of litigation in which the appellant and respondents have been among the principal participants.

The respondents, Mr Gye and Mr Perkes, are solicitors. They were members of a syndicate of five persons who, in October 1980, entered into a contract to purchase an hotel freehold at Wilberforce in the state of New South Wales, together with an adjoining property which was the site of a tourist attraction known as the "Australiana Pioneer Village*. The vendor was Mawaons Hotels Pty Limited, a company associated with the wife of the appellant, Mr McIntyre. Mrs McIntyre was also licensee and tenant of the hotel property.

The McIntyres ' accountant was Mr K. J. Carpenter. Mr Gye and

Mr Perkes alleged that they had been induced to purchase by reason of fraudulent representations, as to trading and profit figures, made by the McIntyres and Mr Carpenter. What followed, leading to much litigation in the Supreme Court of

New South Wales ( "the Supreme Court"), and this Court, peaking

members of the High Court in m v pcIntvre (1991) 171 C.L.R.	in the High Court, is described in the joint judgment of all
609 at 613-6.
The High Court was dealing with litigation commenced in this Court which concerned the application of the set-off
provisions of S. 86 of the Bankru~tcv Act 1966 ( "the Act") to
a composition entered into by Mr Gye on 3 April 1985. (The creditors of Mr Perkes accepted a composition on 28 June
1985) . -The--High -Oourt .dismissed -the -appeal from the -Full -Court
of this Court, which had been reported, (1990) 22 F.C.R. 260. The general legal significance of this episode in the litigation is discussed by Dr Rory Derham in his article "Some Aspects of Mutual Credit and Mutual Dealings" (1992) 108
m. 99.
The decision of the High Court established that, as between Mrs McIntyre and Messrs Gye and Perkes, S. 86 operated to produce a balance. The High Court delivered judgment on 1 March 1991. However, the parties did not pursue necessary steps for the taking of an account of the mutual dealings. Some time previously, on 13 October 1989, Mr Perkes had presented petitions for the sequestration of the estates of Mr and Mrs McIntyre. The alleged acts of bankruptcy were failures to comply with bankruptcy notices issued in June 1989. In August 1990 the petitions were dismissed and the Full Court, (Davies, Beaumont and Burchett JJ.) dismissed an appeal by Mr Perkes against the dismissal of the petitions
(m v m, 31 July 1991, unrep. ) . In their reasons
for judgment the members of the Full Court pointed to the continuing failure to take an account to give effect to the High Court decision.
In 1992 Beaumont J. dealt with two applications made in the compositions which had been entered into under Part X of the Act by Mr Gye and by Mr Perkes. The applications sought an account of certain mutual dealings between themselves and
-ohe respondent, 4rs --McIntyre. His - Honour delivered-judgments on 26 May, 8 October and 6 November 1992. He held that the respective set-offs between Mrs McIntyre and Mr Gye, and Mrs McIntyre and Mr Perkes were to be struck by reference to amounts payable as at 3 April and 28 June 1985. On 6 November 1992, his Honour ordered that Mrs McIntyre pay to the trustee of Mr Perkes's composition the sum of $132,507.74. This included a principal sum of $58,339.66. The account did not deal with the position of Mr McIntyre.
On 8 July 1992, Mr Gye and Mr Perkes presented written submissions in accordance with directions which had been given on 29 May 1992 by Beaumont J., in the proceeding before him. In para. 8 thereof they set out details of eight costs orders. Three of the costs orders were in favour of Messrs. Gye and Perkes. Two were in favour of Mr and Mrs McIntyre and three in favour of Mrs McIntyre. One order was against Mrs McIntyre alone. Two orders were against Mr Perkes alone. Four of the costs orders had been made in this Court and one in the High
Court. The remaining three had been made in Supreme Court. In all cases, costs had been taxed and in six instances a
certificate of taxation had issued. In respect of the first two of these, certificates of taxation had issued out of the Supreme Court on 27 June and 7 August 1990. These corresponded to what later in these Reasons are identified as costs certificates (i) and (ii). In each case, the costs were identified as payable to Mr Gye and Mr Perkes by Mr and Mrs McIntyre.

-Of -impor-tance t o r -the issues -which arise -on the --present

Appeal, is the note on p. 6 which is appended at the end of para. 8 to those written submissions. This was as follows:

*NOTE: Eve and Perkes have. bv aareement between
ves. severed their ioint tenancv of alL
for costs made in favour of themselvea

lv. so as to become entitled as tenants in

underauch

Mr McIntyre was one of the parties to the proceedings before Beaumont J. in which these written submissions were presented. It follows that, in July 1992, he received notice that there had been a dealing between Mr Gye and Mr Perkes in respect of their joint tenancy of certain orders for costs made in their joint favour, so that they had become entitled thereto as tenants in common in equal shares. There is a dispute between the parties as to the proper construction of this dealing and of the terms of any notice given to Mr McIntyre. It will be necessary further to refer to this later in these reasons.

Paragraph 40(l)(g) of the Act provides:

"40(1) A debtor commits an act of bankruptcy in each

of the following cases:

(g)

if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and if the debtor does not:

(.i	-where the *notice was served in Australia - within the time fixed by the Registrar by whom the notice was issued; or
(ii)	where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service;

comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off, or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained."

For the purposes of para. 40(l)(g), a person shall be deemed to be a creditor who has obtained a final judgment or final order if that person is "for the time being entitled to enforce" that final judgment or final order: para. 40(3)(d). In Be R i c w ; B Darte Somers (1947) 14 A.B.C. 112, Clyne J. explained that under earlier legislation the only person

who could issue a bankruptcy notice was the judgment creditor himself and that under a provision such as para. 40(3) (d) a	legal assignee of a judgment debt could be deemed a creditor
who had obtained a final judgment. Nevertheless, as his Honour also held, such a legal assignee must be in a position, at the time of the issue of the bankruptcy notice, to issue immediate execution upon the judgment. This conclusion was said to follow from the words now appearing in para. 40(l)(g), "the execution of which has not been stayed". See also
Australian v Union (1946) 72 C.L.R. 575 at 583.
If a t the -t-ime-of--the--application --for &.ts -issue, -exeoution in fact has been stayed, a bankruptcy notice shall not be issued on the application: para. 41(3)(b).
Part 44 Rule 2(1) of the Supreme Court Rules made under the w e m e Court Act 1970 (N.S.W.) ("the Supreme Court Act") provides that in certain circumstances a writ of execution to enforce a judgment shall not be issued without the leave of the Supreme Court. These include the case:

"where any change has taken place, whether by assignment, death or otherwise, in the persons entitled or liable to execution under the judgment."

If a creditor who has taken a judgment debt as a legal assignee has not obtained the requisite leave, a bankruptcy notice cannot be issued at the instance of that assignee:

-; Ex Darte S-m at 115. Furthermore, an assignee who has taken part of the judgment debt under an equitable assignment thereof should not be given leave to

one judgment debt: Forstex v Bakez [l9101 2 K.B. 636;	issue execution; there should be but one execution upon the
It also should be noted that Part 44 Rule 5 of the Supreme Court Rules restates the general power of the Supreme Court, on terms, to stay execution of a judgment or order thereof.

-- .We turn mow--to -the -par.tiouJar -c-ircumstances -giving rise

to this appeal.

By bankruptcy notice issued 19 February 1993, Mr Gye and Mr Perkes claimed $19,251.30, representing $14,161.57 due under a final certificate of taxation issued by the Supreme Court on 21 September 1990, together with interest. On 23 July 1993, after the expiry of the time for compliance with the bankruptcy notice, Mr McIntyre paid to Messrs Gye and Perkes $19,971.51 in satisfaction of the amount claimed therein. However, in their amended petition dated 25 October 1993, Mr Gye and Mr Perkes alleged that Mr McIntyre remained indebted to them in the sum of $88,421.49.

This was identified as costs payable pursuant to five certificates of taxation. The certificates were issued by the Supreme Court on the following dates in respect of the following sums: (i) 27 June 1990, $42,593.77 (date of order, 24 June 1988), (ii) 7 August 1990, $4,241.55 (date of order,

order, 10 July 1987), (iv) 27 September 1990, $3,464.61 (date	31 May 1989), (iii) 21 September 1990, $14,161.57 (date of
of order, 23 December 1988), and (v) 11 February 1993, $1,624.00 (date of order, 17 August 1992), together with, in each case, interest under S. 95 of the Supreme Court Act. Certificate (iii) was for costs on a contempt motion brought by Mr Gye and Mr Perkes against Mr McIntyre. Of the $3,464.61
in certificate (iv), $3,000 had been paid. In the case of all
--except - certif icats -(.v), the oosm order -and oerbif-icate pre-

dated the severance agreement of July 1992.

On the hearing of the petition, the primary Judge had before him a Statement of Alleged Facts by Mr McIntyre's solicitor stating that on or before 8 July 1992, Mr Gye and Mr Perkes had "severed their joint tenancy of costs orders made in their favour" and that this severance applied to certificates (i), (ii), (iii) and (iv).

It will be observed that certificates (i) and (ii) had been included in the written submissions of 8 July 1992, to which had been appended notice of the severance. Further, certificate (iii), dated 21 September 1990 and for costs in the sum of $14,161.57, bears a date and is for an amount that correspond with the date and amount which had been claimed in the bankruptcy notice. It was not explained to us why if that sum, with interest, had been paid on 23 July 1993 the claim for it appeared in the Amended Creditor's Petition dated 25

October 1993. Nevertheless, it will be apparent that on any	footing substantial sums were claimed as still owing at the
time of the petition.
Before parting with the petition, reference should be made to para. 3 thereof. This states:

"3 On or before 8 July 1992 by agreement between ourselves we severed our joint tenancy of all the said Orders for costs made in favour of us jointly so as to become entitled as between our-selves as tenant-8 in common in equal shares to the whole of the moneys payable by the Debtor to us under such Orders."

In their joint affidavit sworn 20 October 1993 ("1992" is an error) in support of this very paragraph 3, Mr Gye and Mr Perkes swore as follows:

"On or about 7 July 1992 we were conversing at our office at Level 1, 10 Barrack Street Sydney, New South Wales, 2000 in relation to the litigation subsisting between (inter alia) the Debtor and us and in the course of such conversation words to the following effect were said:

Gyer "We will split all moneys we get from the McIntyres and Carpenter under the costs orders made in our favour fifty/fifty between us."

Perkee: "Yes, I agree."

They went on in this affidavit to refer to and annex the relevant portion of the written submissions which had been filed in this Court on 8 July 1992 in the proceeding before Beaumont J.

On the other hand, the bankruptcy notice had recited that

Mr Gye and Mr Perkes, defined as "the Judgment Creditors", had

claimed the balance of the sum of $14,161.57 together with interest giving a total of $19,251.30. The notice went on to require the debtor, Mr McIntyre, within fourteen days after service of the notice (a) to pay "to the Judgment Creditor" $19,251.30 "so claimed by the Judgment Creditor" or, (b) to secure payment thereof to the satisfaction of this Court or "the Judgment Creditor" or to compound the sum so specified "to -the ---eatisf.aobion -of -the --Judgment -Creditoru-. The bankruptcy notice continued:

m AND that if, within the period

set out above, you fail either to comply with either of the abovementioned requirements of this Notice or to satisfy the Federal Court of Australia that you have a counter-claim, set-off or cross-demand equal to or exceeding the sum specified in Paragraph (a), being a counter-claim, set-off or cross-demand that you could not have set up in the action in which the Judgment was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you."

On the hearing of the petition the primary Judge had before him an affidavit filed on behalf of Mr McIntyre annexing a portion of the transcript of evidence given by Mr Perkes in a proceeding before Prothonotary Whalan in the Supreme Court on 17 September 1993. Mr Perkes was shown a copy of the written submission to Beaumont J. dated 8 July 1992. His attention was directed to p. 6 and to the passage we have set out earlier in these reasons. Mr Perkes agreed that as at July 1992 there was an agreement to the effect that

he was no longer a joint tenant in relation to the costs order

the subject of certificate (i).

The issues which arise on the appeal are best considered
by having in mind certain propositions of general law. It was

accepted that the State law "picked up" by S. 79 of the

Judiciarv A 1903 was that of New South Wales. The

propositions of general law include the following:
i ) -Payment -to --one -of -a -number of joint -c~editors

discharges a debt owed to them jointly at law; in determining, in the course of administration of deceased estates or corporate liquidations, whether or not a claim for debt had been discharged, equity followed the law as to the sufficiency of payment to one of several joint creditors, save where the joint creditors were trustees: re C. Flower M.P. and thg

tan Board of m (1884) 27 Ch. D. 592;

m v [l9011 2 Ch. 160 at 164; Halsbury's

"Laws of England", 4th ed., vol. 9, para. 623.

(ii) v patton (1990) 169 C.L.R. 540 at 546-7, 565-6, 574, 587, af f inns that a joint tenancy may be severed,

(a) by disposition made by one of the joint owners

amounting at law or in equity to an assignment of the

share of that owner, or (b) by mutual agreement between

the joint owners, which agreement may be express or

implied from a course of conduct; the mere manifestation of a unilateral intention, without more, is insufficient and Buraess v [l9751 Ch. 429

at 439, 447-8, does not represent the law in Australia.

(iii) The debts for costs which were owned by Mr Gye and Mr

Perkes (as creditors) were legal rather than equitable.

(In ~ D O U ~ O ~ v Dlvmwic Airwavs SA (1991) 25

N.S.W.L.R. 75, to which the primary Judge was referred, the Court of Appeal was dealing with a purely equitable

-chose --in act-ion, -namely ,the recovery -by the beneficiaries of mixed trust funds). It was accepted before the primary Judge and before us that insofar as the subject matter of the severance by assignment was presently existing legal rights, namely the debts for costs, they were not dealt with by an "absolute assignment" within the meaning of S. 12 of the c o n v e v u Acf 1919 (N.S.W.). Thus the legal ownerehip could not have been split into separate ownership of distinct debts. It is well settled that an assignment by an assignor of less than all of a presently existing legal chose in action must of necessity fall outside the statute and therefore is

equitable: v Federal Commissioner of Taxation

(1965) 113 C.L.R. 385 at 390-1, 396-7; Be Ward;
Trustee in BBnbEYPfrEY v Dabnas Ptv I&nited
(1984) 3 F.C.R. 112 at 119-122. Accordingly, insofar
as what was severed by Mr Gye and Mr Perkes was jointly

owned presently existing legal debts, the result could

only have been to render them trustees jointly for	themselves as beneficial owners of distinct portions of
those debts. The primary Judge accepted that this was so.

(iv)  The giving of notice to the debtor is not essential to

the validity of an equitable assignment of a presently existing legal chose in action, in contradistinction to the statutory requirement in a. 12 for notice. If,

-before .notice -of -the -assignment 4 s mceiwed, -the ,debtor pays the assignor or obtains a release from the assignor, the debtor is discharged from liability and the only remedy of the assignee is against the

assignor: Stocks v (1853) 4 De G.M. h G 11, 43

E.R. 411; Werner Bros. Records I=. v BpLagreen

[l9761 Q.B. 430 at 442. However, once the debtor has received notice he cannot safely disregard it; if the debtor pays the assignor in disregard of the notice, then the assignee can require the debtor to pay again: ExiGSvBannieter (1878) 3 Q.B.D. 569, mace v y . D . C L w e Limited [l9831 N.Z.L.R. 438 at 441. Further, where there is an equitable assignment of a legal chose in action, the assignor should be a party to an action to recover the debt, either as plaintiff or defendant: Halsbury's Laws of England, 4th ed., vol. 6, para. 69. In the present case, this would have required Mr Gye to be a party to an action by Mr Perkes to recover his 50% and vice versa. Likewise, the giving of security and

any composition would have had to bind each distinct share.

(V) A presently existing legal chose in action may be assigned in equity, as to part, without valuable consideration, provided there is a manifestation by the assignor of an intention to transfer in a manner binding upon him: She~herd at 391, 397. In the present case it was accepted that the dealing in quesbion between -W-Gye -and Mr --ParJces. was .for -valuable consideration in the necessary sense.

There was, however, a debate whether what was done operated upon presently existing or "future" property.

Counsel for Mr Gye and Mr Perkee submitted on the appeal that,

properly construed, what they did was to agree to sever not

presently existing and jointly owned debts, but whatever

moneys were in fact eventually received as a result of the

various costs orders made between the parties i.e. "fruit" not

"tree". Here again, the relevant principles were not in

dispute. They are directed principally to the identification

of the time at which the "future" property is bound in favour

of the aeeignee, and to the effect of any bankruptcy and

discharge of the assignor which takes place in the period

between, on the one hand, the making of the contract and the

receipt of the consideration by the assignor, and, on the

other, the acquisition of the property by the assignor. In

turn, these principles involve the acceptance in Australia of

the decision of the English Court of Appeal of re

[l9151 2 Ch. 345. That decision recently was discussed in this Court (in the context of the operation of S. 218 of the

Income 1936) in a decision referred to by

counsel for Mr McIntyre, peDuty Coassioner of Taxation v

urance Office of New South Walea (1993) 117

A.L.R. 61.

4 n & & g a l - - -of -Taxation -W-qverett, in this

Court, (1978) 38 F.L.R. 26 at 50-51, Deane J., after referring to Sir Frederick Jordan's "Chapters on Equity in New South Wales", 6th ed., pp. 51-2, said:

"The nature of the intended assignee's interest pending acquisition by the intending assignor of future property the subject of a purported immediate assignment for valuable consideration which has been fully satisfied is of some importance in the present matter. Even pending acquisition by the intending assignor, the intended assignee enjoys more than the traditional concept of an equitable right in personam against the assignor. The relevant equitable principle does not depend upon the possibility of a court of equity decreeing specific performance with the consequence that the assignee's beneficial interest could not arise until after acquisition by the assignor. The relevant principle is that equity considers as done that which ought to be done. The consequence is that the beneficial interest in the property the subject of the assignment never vests in the assignor when the property is acquired by him. He holds it immediately in trust for the assignee."

It would follow that the supervening impossibility of the contract by operation of law, would not necessarily defeat	specific performance, by reason, for example, of discharge of
the assignment. The judgment of Deane J. upon this point was referred to with approval by Toohey and Gaudron JJ. in Booth v

oner of Taxation (1987) 164 C.L.R. 159 at 177.

Their Honours also (at 178) referred with approval to what had

. .

been said by Dixon J. in palette Shoes Ptv V K r o h n (1937) 58 C.L.R. 1 at 27. So also, in the same case, did

Mason C.J. (at 165). Dixon J. said in this passage in m:

"Beoause value .has .been -given on -the one side, the conscience of the other party is bound when the subject comes into existence, that is, when, as is generally the case, the legal property vests in him. Because his conscience is bound in respect of a subject of property, equity fastens upon the property itself and makes him a trustee of the legal rights or ownership for the assignee. But, although the matter rests primarily in contract, the prospective right in property which the assignee obtains "is a higher right than the right to have specific performance of a contract", and it may survive the assignor's bankruptcy because it attaches without more go instant& when the property arises and gives the assignee an equitable interest therein (U re LUd; mustrials

ce S - v [l9151 2 Ch. at

364, 365, 366)."

Hence, despite the fatal impact upon the contract of any supervening bankruptcy and discharge of the assignor in advance of the coming into existence of the property, the result is to be rationalised as a very special application of the maxim that equity regards as done that which ought to be done. Equity so regards the matter by reason of the earlier receipt by the assignor of the consideration; see the discussion of the significance of the discharge from

bankruptcy for the reasoning in Re Lind, by Hill J. in peDuty	of Taxation v Government Insurance Office of New
South m	at 73-4.

The primary Judge held that it was unnecessary for him to determine precisely the effect of the transaction between Mr Gye and Mr Perkes. But, as we have indicated, he was prepared to accept that the transaction had the consequence of severing the joint tenancy and operated as an equitable

-assignment f-ra	-one -to the .other -of 50% of -.the .proceeds of .the judgment debts. His Honour said that the real effect of the agreement between Mr Gye and Mr Perkes was to bring about the result that in law they remained the legal owners of the debt but held the debt for themselves as tenants in common in equal shares. It followed that as Mr Gye and Mr Perkes were the persons who had obtained judgment they alone were "legally entitled to enforce it". On the appeal, this characterization of the agreement was challenged.
Mr Gye and Mr Perkes contend that in July 1992 they agreed to sever not presently existing and jointly owned debts, but whatever moneys would eventually be received as a result of the various costs orders. Therefore, they submit, at the time of the issue of the bankruptcy notice on 19 February 1993, they were legally and beneficially jointly entitled to the judgment debt identified therein, this being the subject of costs certificate (iii). It will be recalled that that certificate was issued in respect of the costs order
of New South Wales. If these submissions were accepted the arising out of the contempt application in the Supreme Court
result would be that the bankruptcy notice was not open to attack for failing to meet any essential requirement of the Act or as being such as could reasonably mislead the debtor.
The submission was that the "future assignment" operated in equity upon the "moneys" at the moment when the sums involved reached, or were about to reach, the joint hands
of --W Gye and -Hr 4erkes , -eit.her i.n -money or -i-n money '-a worth.
(However, even if the matter were to be seen in this way, each assignee, pending acquisition of those moneys would have had, as Dixon J. and Deane J. have pointed out in the passages we have set out above, prospective rights which were more than equitable rights j.n Derso-. In view of the conclusion reached below, it is unnecessary to consider what the consequences of that state of affairs would have been for the validity of the bankruptcy notice).
Reliance was placed by Mr Gye and Mr Perkes upon the particular form of words used in their joint affidavit sworn 20 October 1993 in support of para. 3 of the amended petition. In that affidavit they swore that they had used certain words "to the following effect". These were that they would "split all moneys we get ...". Their counsel submitted that this was
indicative of an agreement to operate upon that which was to be got in in the future, rather than upon any presently existing rights of which those receipts might be the product.
The affidavit was sworn more than 15 months after the conversation in question. It fixes upon the relevant date as 7 July 1992. The account of what happened which is closest to the date of the event is that given in para. 8 of the written suinnissions presented on the next day, 8 July 1992. This refers not to the getting in of moneys, but to severance of all orders for costs made in their joint favour. The result is stated to be that they have become entitled as tenants in
connnon in-equal -shares .ta 50% -of -all -moneys -"-payable" -under such orders. One such order in their favour which had been made before 7 July 1992 was that the subject of certificate (iii), the order having been made on 10 July 1987 and the certificate issued on 21 September 1990.
This contemporaneous version of events is also supported by other items of evidence. We refer to para. 3 of the amended petition itself and to cross-examination by Mr Perkes in the Supreme Court on 17 September 1993. There also is much to be said for the view that it was inherently more probable that Mr Gye and Mr Perkes were concerned on 7 July to arrange their affairs in such a fashion as to be able to present a particular picture to this Court when, pursuant to the directions which had been given on 29 May 1992, they presented on 8 July 1992 their written submissions as to set- off calculations. Those set-off calculations were concerned with present rather than future affairs.
Accordingly, we would reject the submissions now put for Mr Gye and Mr Perkes that what happened is to be characterised as a "future" assignment.

Ae we have indicated, the written submissions were

notice to other parties, including Mr McIntyre. It is true that para. 8 of the written submissions does not include in the eight costs orders there detailed the particular costs order and certificate of taxation later used to found the baJankruptcy -notice. -However ,-cectif ioate (Cii) -had .been .issued well before 8 July 1992. Paragraph 8 of the written submissions was directly concerned with orders in favour of or against Mr and Mrs McIntyre or Mrs McIntyre. It was not concerned with orders for or against Mr McIntyre himself. Given the nature of the account being taken by Beaumont J. that is not surprising. The bankruptcy notice was, of course, based upon an order for costs in the contempt proceeding against Mr McIntyre alone.

The agreement between Mr Gye and Mr Perkes on 7 July was in respect of all orders for costs which had been made in favour of themselves jointly. In the context of the history of the litigation involving these parties that is to be understood as referring to costs orders made in favour of themselves jointly and against either or both of Mr and Mrs McIntyre. The note appended to the written submissions is to be understood in this way. Accordingly, in our view, it is to be taken as notice to Mr McIntyre of a severance of orders for

costs, including that later the subject of the bankruptcy	notice.
This is how Mr McIntyre understood the matter. His solicitor conducted his cross-examination of Mr Perkes in the Supreme Court on 17 September 1993 on the basis that there had been a severance of the orders for costs. In the written submissions filed in this Court on 23 September 1993 for Mr McIntyre, his solicitors submitted that the severance of the
-Joint *nancy--of -costs -order9 -extended -to - the - order -made in the contempt proceeding.
Accordingly, we accept that at the date of the issue of the bankruptcy notice the order for costs against Mr McIntyre upon which Mr Gye and Mr Perkes relied as constituting the judgment debt, had been severed in equity in the manner described and that notice thereof had been given to and accepted and understood as such by Mr McIntyre. The question then becomes whether, in these circumstances, the bankruptcy notice was defective, and, if so, the consequences thereof.
The primary Judge had been referred to the decision of the English Court of Appeal Re P ; - Darte
[l8981 1 Q.B. 419. Of this decision, his Honour said:

"In that case a judgment creditor had assigned in equity a judgment debt. The question which arose was whether the judgment creditor was, in these circumstances, entitled to issue a bankruptcy notice based upon the judgment debt.

The Court was unanimously of the [view] that the bankruptcy notice was valid, whether or not	there had been an equitable assignment. This
was so because it was issued at the instance of a person who had obtained a judgment and who was still legally entitled to enforce it. An equitable assignee would not have been entitled to enforce the judgment although the equitable assignee could compel the assignor so to do."

Later in his reasons, the primary Judge concluded:

"There is no doubt that a judgment creditor can only issue a bankruptcy notice if he is in a position to issue execution: Australian Workers'

Unipn v -m (1946) -7-2 C.L.R. 575 at 583.

Unless the judgment or order was in some way altered, no individual judgment creditor where the amount is owing to two or more judgment creditors jointly would be entitled to obtain execution.

It follows, in my view, that the bankruptcy notice in referring to the joint debt of Mr Gye and Mr Perkes was valid and that this ground of opposition to the petition must fail."

It is appropriate to recall what was said by Mason C. J.

Wilson, Brennan and Gaudron JJ. in wort Benson [email protected]

Limited v (1988) 165 C.L.R. 71 at 79-80. Their Honours

referred to the authorities which show that a bankruptcy notice is a nullity, (i) if it fails to meet a requirement made essential by the Act, or (ii) if it could reasonably mislead a debtor as to what is necessary to comply with the notice. In such cases the notice is a nullity whether or not the debtor is in fact misled. Their Honours also emphasised (at 81) that where a notice cannot be regarded as capable of misleading the debtor, and so cannot be said to be a nullity, what is but a formal defect or irregularity will attract the

automatically unless the Court is of an opinion that	operation of sub-S. 306(1) of the Act; this operates
substantial injustice has been caused by the defect or irregularity and that injustice cannot be remedied by an order of the court.
Counsel for Mr McIntyre submitted that the bankruptcy notice was bad in several respects. First, it was said that in view of the severance in equity of the judgment debt and

.the -reaeipt -.of -notioe -thereof-. -by .Mr -McUtyre-bef ore the .date of the bankruptcy notice, he would have been acting at his peril if he had paid the amount demanded to Mr Gye and Mr Perkes jointly, rather than seeing that there was receipt as to half by each of them. Furthermore, one of the alternative requirements of the bankruptcy notice was that Mr McIntyre secure or compound the sum specified therein "to the satisfaction of the Judgment Creditor". However, in the events that had happened, any compounding or giving of security would have to have dealt with each of Mr Gye and Mr Perkes as to his particular one half share. It was, counsel for Mr McIntyre submitted, true that the legal title to the judgment debt remained vested in law in Mr Gye and Mr Perkes jointly. Nevertheless, the severance in equity and the existence of notice thereof produced these consequences for the validity of the notice.

In addition, counsel for the debtor referred to the

evidence indicating the existence as at 19 February 1993, the

date of the bankruptcy notice, of a complex of cross-orders	for costs between Mr Gye and Mr Perkes on the one hand and one
or both of Mr and Mrs McIntyre on the other. An account had been taken by Beaumont J., but that had been in respect of the set-off for the compositions and had the limitations which we have described. It followed, counsel submitted, that there was lacking in respect of the judgment debt upon which the bankruptcy notice was founded, the necessary entitlement to issue immediate execution in the Supreme Court. Whilst, ri-&hin -the -meani,ng -of -Part -44, -.Rule 2-(J) -there -had not been, by virtue of a legal assignment, a change in the persons entitled to execution, such that leave was now necessary, that was not the end of the matter. It would, consistently with what had been said by Burchett J. in v W n t v r e infEB, be unthinkable to permit execution to proceed until an account had been taken and the question clarified whether any outstanding, and if so what, balance was owing.
We were referred also to the judgment of Fletcher Moulton L.J. re a D e b u : Ex Darte the Debtor [l9081 1
K.B. 344 at 351. The issue there concerned, on the hearing of
a petition, the commission of the alleged act of bankruptcy; this was based upon a bankruptcy notice which was said not to
comply with para. 4(l)(g) of the Bankru~tcv Act 1883 (U.K.).
That provision is the ancestor of para. 40(l) (g) of the present Australian statute. What his Lordship said is authority for the proposition that at the date when the bankruptcy notice is served, the creditor must be in a
no further claim could have been made for the debt against position to receive payment, such that, had the debtor paid,
him. This supports the first set of submissions made by Mr WcIntyre.
Further, one example of the application of this reasoning was given by Burchett J. in Perkes v McIntve
m. His Honour considered the law and facts as to set-off
and said:

"At the -time of -the -issue of the -bankruptcy notices, the Isupreme Court], if applied to, would have prevented the issue of execution on the ground that the judgment debtors were entitled to a set off in respect of the sum owed under the prior judgment. Until the question was clarified whether any outstanding balance at all was owing, and if any outstanding balance was owing how much the amount of it was, it would have been unthinkable to permit execution to proceed."

See also re a Debtor. No. 21 of 1950 [No. 21 [l9511 Ch. 612, Joskovitz v Bonnick [l9641 V.R. 654 at 657. On the other hand, the provisions of the Act dealing with bankruptcy notices incorporate a mechanism for the determination by the bankruptcy court of whether it is satisfied that the debtor has a counter-claim, set-off or cross-demand which he could not have set up in the action or proceeding in which there was obtained the judgment or order upon which the notice is based. The time for compliance with the bankruptcy notice shall be deemed to have been extended up till and including the day on which the court determines whether it is so satisfied: sub-S.

Thus the bankruptcy legislation itself provides for the bankruptcy court to enter directly upon the question of set- off rather than leave it to the bankruptcy court to determine whether the court in which the judgment debt had been recovered would, in its own discretion, stay execution pending the settling of accounts to resolve the issue of set-off. However, this provision is not concerned with offsetting

or m, but with ~laims which could not have been

set-up -in the-proceeding that -led.-to -bhe judgment f-oundi-ng the

bankruptcy notice (and, sub S	,	-	have not passed into any
other judgment).

In the present case the primary Judge, on the hearing of the petition, had before him somewhat unsatisfactory evidence as to the state of account between Mr McIntyre and his wife on the one hand, and Mr Gye and Mr Perkes on the other.

We have reached the conclusion that the bankruptcy notice was a nullity because it could reasonably mislead the debtor as to what was necessary to comply with it. However, we prefer not to rest, and do not rest, that conclusion upon any matters going to the availability of execution or the existence of a set-off. What we accept are the submissions of counsel for Mr McIntyre that the notice was bad, in view of the consequences of the severance in equity of the judgment debt upon which it was based and the receipt of notice thereof

particular, the bankruptcy notice could reasonably mislead the

by Wr McIntyre before the date of the bankruptcy notice. In

debtor both as to what would be sufficient to effect payment by him and also as to what was necessary to secure or compound the sum specified therein to the satisfaction of what on the first page of the bankruptcy notice is identified as "the Judgment Creditors" and later therein as "the Judgment Creditor". Any composition would have to have been not, as to the whole sum, with Mr Gye and Mr Perkes jointly, but by

-reason --of --the --notice --of .their distinct -equi~able interests,

with Mr Gye and Mr Perkes each as to his particular one half
share.

Lest it be thought that this represents an overly technical approach to the requirements of the Act in respect of valid bankruptcy notices, it should be noted that these parties for many years have been in litigation which has given rise to numerous costs orders. Whatever the advantages to Mr Gye and Mr Perkes in making their severance agreement in July 1992, that brought with it a need for particular care in framing any bankruptcy notice based upon any of the judgment debts the subject of the agreement, of which notice had been given to the relevant debtor. Any bankruptcy notice had thereafter to comply both with the form of order upon which it might be based and with the new reality created by the agreement. What Mr Gye and Mr Perkes were not at liberty to do was to make an agreement changing the equitable ownership of the joint right created by the order, and then to issue a

bankruptcy notice which ignored the effect of the change: Ef. (1994) 12 A.C.L.C. 88 at 93.

The appeal should be allowed with costs and the orders made on 11 April 1994 should be set aside, and in lieu thereof it should be ordered that the petition be dismissed, with costs.

I certify that this and the preceding

twenty eight (28) pages are a true copy of

the Reasons for Judgment of the Court.

Associate: GC-------

Date :  17 June 1994.

Counsel and solicitors	Mr B.W. Rayment Q.C.
for the appellant:	Mr P. Durack instructed by
Price Brent
Counsel and solicitors	Mr V.R.W. Gray instructed by
for the respondents:	Gye Perkes & Stone
Date of hearing:	25 May 1994
Date of judgment:	17 June 1994