Re Bond, A Ex parte HongKong Bank of Australia Limited

Re: ALAN BOND
And: HONGKONG BANK OF AUSTRALIA LIMITED
No. G113 of 1992
FED No. 127
Bankruptcy
(1992) 106 ALR 273
(1992) 34 FCR 453

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart(1), Gummow(1), and Foster(1) JJ.

CATCHWORDS

Bankruptcy - judgment debt in foreign currency - bankruptcy notice required to give debtor choice to pay in Australian or foreign currency - method of calculating the specified amount of Australian dollars - whether creditor obliged by s. 41 of the Bankruptcy Act 1966 to average spot rates at which three authorised foreign exchange dealers would have purchased Australian dollars in that particular amount of foreign currency - whether validity of bankruptcy notice may be impugned by inquiry as to accuracy of rate quoted by each dealer to creditor.

Bankruptcy Act 1966

Statute Law (Miscellaneous Provisions) Act (No. 2) 1985

Re Ikin; Ex parte Same and Lamborghini Tractors of Australia Pty Ltd (1985) 4 FCR 582

Miliangos v George Frank (Textiles) Ltd (1976) AC 443

Re Walsh; Ex parte The Flying Tiger Line Inc. (1985) 62 ALR 318

HEARING

SYDNEY

#DATE 20:3:1992

Counsel and solicitors Mr M.H. Tobias QC, Mr D.P. Robinson and
for the appellant: Mr C.R.C. Newlinds instructed by Neil Lawson and Co

Counsel and solicitors Mr F.M. Douglas QC, Mr S.M.P. Reeves
for the respondent: instructed by Mallesons Stephen Jacques

ORDER

The appeal be dismissed, with costs.

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

JUDGE1

This is an appeal against the orders of a Judge of this Court (Morling J.) dismissing an application to set aside a bankruptcy notice issued on 23 December 1991 in relation to the appellant. The application was heard by his Honour on 2 March 1992 and judgment given on 5 March 1992.

The bankruptcy notice recited that the respondent claimed the sum of U.S.$194,644,443.97 to be due to it by the appellant under a final judgment obtained in the Supreme Court of New South Wales on 23 September 1991. The bankruptcy notice also contained the following recital:

"AND WHEREAS the sum of Australian Dollars

251,738,804.93 is an amount that is the

equivalent in Australian Dollars of the said sum of United States Dollars 194,644,443.97

calculated at the exchange rate of $U.S. 0.7732 to $A1 as at 19 December 1991, being the second business day before 23 December 1991 the day on which application was made for the issue of this notice . . ."

The bankruptcy notice continued:

"THEREFORE TAKE NOTICE that within 28 days after service of this notice on you, excluding the day on which this notice is served on you, you are required -

(a) to pay the sum of either:

(i) United States Dollars 194,644,443.97; or

(ii) Australian Dollars 251,738,804.93; so claimed by the judgment creditor to the judgment creditor . . ."

There were two principal grounds of appeal against the decision of the learned primary Judge. The first concerned questions of statutory construction, the second certain findings of fact. We turn first to the issues of law.
His Honour rejected the submission, renewed before us, that the bankruptcy notice was invalid because it failed to state, in accordance with the relevant provisions of the Bankruptcy Act 1966 ("the Act"), the equivalent in Australian dollars of the sum in United States dollars for which judgment had been entered in the State Court. The submission turned upon the correct construction of those provisions.
The provisions in question, sub-ss. (2A), (2B) and (2C) of s. 41 were introduced, with effect from 16 December 1985, by the Statute Law (Miscellaneous Provisions) Act (No. 2) 1985. The evident purpose of this legislation was to deal with apparent defects in the Act as revealed in two decisions of this Court delivered earlier in 1985.
In the first of these, Re Ikin; Ex parte Same and Lamborghini Tractors of Australia Pty Ltd (1985) 4 FCR 582, the Court set aside a bankruptcy notice requiring payment in United States dollars of a judgment recovered in that currency in the Supreme Court of Queensland. The Court pointed out that, whilst when the Act was passed in 1966 it could not have been within the contemplation of the legislation that judgment in an Australian Court might be recovered in a foreign currency, that was no longer the case. The change here had followed the shift in English law effected by the decision in Miliangos v George Frank (Textiles) Ltd (1976) AC 443.
In the second case, Re Walsh; Ex parte The Flying Tiger Line Inc. (1985) 62 ALR 318, the Court dismissed a creditor's petition founded on the failure of the debtor to comply with a bankruptcy notice which required payment in Australian dollars and was based on a judgment of the New South Wales Supreme Court expressed in United States dollars. The bankruptcy notice showed the conversion, as at the date of the judgment, of the United States dollar amount into Australian dollars. The Court held that the conversion should have been carried out at the date of the issue of the bankruptcy notice.
The relevant provisions of s. 41 of the Act, as it stands after the 1985 amendments, are as follows:

"41 (1) A bankruptcy notice -

(a) shall be in accordance with the prescribed form; and

(b) shall be issued by the Registrar.

(2) The prescribed form of bankruptcy notice shall be such that the notice -

(a) requires the debtor named in it, within a specified time (being the time referred to in subparagraph 40 (1) (g) (i) or (ii), whichever is appropriate) to -

(i) Pay the judgment debt or sum ordered to be paid in accordance with the judgment or order; or

(ii) secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and

(b) states the consequences of non-compliance with the requirements of the notice.

(2A) Where the judgment debt or sum ordered to be paid in accordance with the judgment or order is expressed by the judgment or order as an amount in the currency of a foreign country (in this subsection referred to as the 'amount of foreign currency'), the bankruptcy notice shall state that payment is to be made in either -

(a) the amount of foreign currency; or

(b) a specified amount of Australian dollars, being an amount that is the equivalent in Australian dollars of the amount of foreign currency on the second business day before the day on which application was made for the issue of the bankruptcy notice.

(2B) The rate for ascertaining on a particular day for the purposes of paragraph (2A) (b) the equivalent in Australian dollars of an amount of foreign currency is the average of the rates at which Australian dollars may be bought in that foreign currency at -

(a) 11 o'clock in the morning; or

(b) if another time is prescribed for the purposes of this subsection - that other time, on that day from 3 authorised foreign exchange dealers selected by the creditor who applied for the issue of the bankruptcy notice.

(2C) In this section -

'authorised foreign exchange dealer' means a person authorised by a general authority issued by the Reserve Bank of Australia under regulation 38A of the Banking (Foreign Exchange) Regulations to buy and sell foreign currency;

'business day', in relation to an application for the issue of a bankruptcy notice, means a day that is not a Saturday, a Sunday or a public holiday or bank holiday in the place where the application is made.

(3) A bankruptcy notice shall not be issued in relation to a debtor -

(a) except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40

(1) (g) or a person who, by virtue of paragraph 40 (3) (d), is to be deemed to be such a creditor;

(b) if, at the time of the application for its issue, execution of the judgment or order to which it relates has been stayed; or

(c) in respect of a judgment or order for the payment of money made by the Court in the exercise of the jurisdiction conferred on it by this Act if -

(i) a period of more than 6 years has elapsed since the judgment was given or the order was made; or

(ii) the operation of the judgment or order is suspended under section 37. . . ."

It is common ground that no other time has been prescribed pursuant to para. 41 (2B) (b).

On 20 December 1991, the last business day before the issue of the bankruptcy notice, Mr J.D. Lane, a solicitor employed by the firm of solicitors acting for the respondent, made inquiries of three authorised foreign exchange dealers as to the exchange rate for selling United States dollars and purchasing Australian dollars at 11 a.m. on the previous day, 19 December 1991. The three authorised foreign exchange dealers were Barclays Bank Australia Limited ("Barclays"), CHASE AMP Bank Limited ("CHASE AMP") and Standard Chartered Bank Australia Limited ("Standard Chartered"). Mr Lane was quoted a rate of 0.7735 by Barclays, and a rate of 0.7730 by each of the other dealers. The average of those rates was 0.7732. This was used to calculate the sum of $251,738,804.93 in Australian currency, as referred to in the bankruptcy notice.
The primary Judge held that these exchange rates might well have been marginally affected if a rate had been obtained at 11 a.m. on 19 December 1991 for the sale of a parcel of approximately U.S.$194 m. His Honour found that the extent of that variation was a matter of opinion. According to the representatives of CHASE AMP (which had quoted a rate of 0.7730) the rate for the large parcel would have been between 0.7745 and 0.7750. The evidence for Standard Chartered (which had furnished the same exchange rate as CHASE AMP) was that it was a bit hard to judge, but that the range would probably have been about 20 points on either side of 0.7730.
The primary Judge rejected the submission, also made to us, that for the issue of a valid bankruptcy notice, the legislation obliged the creditor to obtain the average of the spot rates which the three dealers would have provided for a dealing in a parcel of U.S.$194,644,443.97.
In considering that submission, it is appropriate to turn first to a brief consideration of some fundamental propositions concerning the statutory scheme provided by s. 41.
A bankruptcy notice is issued by the Registrar (sub-s. 41 (1)). It is not the document of the creditor, although it is issued on the application of a creditor answering the requisite description in sub-s. (3). When filing the application, the applicant must furnish to the Registrar, for signature and stamping by the Registrar, so many copies of a form of bankruptcy notice as are required for service and for annexure to any affidavits of service, together with one additional copy of that form for filing (Rule 7 (2) (b)). The Registrar is required to issue the bankruptcy notice only when satisfied that the application has been duly made, and that the copies of the form furnished in accordance with para. 2 (b) are in order for signature (Rule 7 (5)). Thus, in the ordinary course, it is to be expected that there will be intervals of time between each of the entry of any judgment upon which the notice is based, the making of the application for issue of the notice, and the issue of the notice. In the present case, although these intervals of time occurred, the bankruptcy notice issued expeditiously. The bankruptcy notice required payment within 28 days after service. Service is of no force and effect unless effected within a period of 6 months after the day on which the bankruptcy notice is issued or within such extended period as is allowed by the Court or Registrar (Rule 9).
The result is that, in any given case, in the period between the entry of judgment founding the issue of the bankruptcy notice and the expiry of the time for compliance with the bankruptcy notice, there may have been various fluctuations in the relative values of the currency in which the judgment was recovered and the currency of this country.
The evident purpose of the 1985 amendments was to give to the judgment debtor an election between payment of the amount of foreign currency (for this purpose a fixed amount or quantity) and of an amount in Australian dollars specified in the bankruptcy notice and quantified, relative to the foreign currency, in the manner provided for in sub-ss. (2A), (2B) and (2C).
If one takes the hypothesis of a judgment debtor who will, within the time fixed for compliance, pay the judgment debt, there is inherent in the statutory scheme the possibility of a variation between the amount of Australian dollars specified in the bankruptcy notice and the amount in Australian currency that would be required immediately before the time fixed for compliance with the bankruptcy notice, in order to obtain the amount of foreign currency. The debtor has the advantage of being able to select, at the time he effects payment, that which then is the more favourable course. The legislation supplies a yardstick for the making of that election by providing for the amount in the election of Australian dollars to be fixed before issue of the notice and by reference to events two days before the making of the application for the issue of the bankruptcy notice. Other times might have been chosen by the legislature, as is illustrated by the result under the previous law in Re Walsh, supra.
Sub-section (2A) provides for the indication in the bankruptcy notice of the availability to the debtor of this election by requiring the statement that payment is to be made in either (a) the amount of foreign currency expressed in the judgment or order, or (b) "a specified amount of Australian dollars . . .". That latter expression is given content by the remainder of para. (b) of sub-s. (2A) (which is introduced by the phrase "being an amount that . . ."), and by sub-s. (2B) and sub-s. (2C). Counsel for the appellant submitted that the second and third of these subsections are subordinate to or governed or controlled by the first. In our view, the provisions are to be read together as a coherent unity or whole. In particular, the construction of sub-s. (2B) does not depend upon some subordination of it to sub-s. (2A). We do not agree that the term "equivalent" in sub-s. (2A) controls the meaning of "the rate" in sub-s. (2B), such that the rate applicable in each case must be one quoted for a transaction in the very sum in question. The significance of this will become apparent from what follows.
The balance of para. (b) of sub-s. (2A) directs attention to the ascertainment of the Australian dollar amount on the second business day before the day of the application for issue of the bankruptcy notice. The past tense is used in the expression "application was made" because the object of the endeavour is the formulation of a prescribed form of bankruptcy notice to be issued after the making of the necessary application. (For the same reason, in sub-s. (2B), the past tense is used in the expression "the creditor who applied for the issue of the bankruptcy notice".)
The procedure upon which one is embarked by sub-s. (2A) requires the ascertainment of an amount in Australian dollars which, on the second business day in question, reflects the amount of the foreign currency in which the judgment is expressed. This concept of equality of worth or value is conveyed in the legislation by the use of the expression "an amount that is the equivalent in Australian dollars of the amount of foreign currency". Further definition is then necessary to give content to that expression. This is found in sub-s. (2B). It is appropriate to look somewhat closely at the terms in which this provision is expressed.
Counsel for the appellant initially submitted that the rates to which reference is made in sub-s. (2B) must be ascertained by the creditor on the second business day before the making of the application for the issue of the bankruptcy notice. The acceptance of that submission would mean that it would not suffice for the creditor thereafter (but, of course, before making the application) to obtain an "historical" rate. The phrase in sub-s. (2B) "the rates at which Australian dollars may be (not, we interpose, "might have been") bought in that foreign currency" was said to support that construction. But sub-s. (2B) must be read with sub-s. (2A), which refers to the second business day before the day of the application, for the evident purpose of enabling the creditor to use the interval to make inquiries and take other steps so as to have the application in proper form at the end of that period. The rates referred to in sub-s. (2B) may be identified after the date in question, but with reference to the state of affairs on that day. The phrase "may be bought" is to be read in that sense. In the end, we understood counsel for the appellant not to urge the contrary.
Sub-section (2B) postulates that the equivalent in Australian dollars of any amount of foreign currency for which an equal value is required for the formulation of a bankruptcy notice to comply with sub-s. (2A), will be ascertained by use of a "rate", that is to say, by adopting a particular basis for calculation so as to express one currency in terms of another. This rate is not expressed as any one rate in actual use in any particular transaction, nor as the rate which would or might have obtained in a hypothetical transaction. As counsel for the respondent rightly emphasised, the sub-section directs attention to the general, rather than to the particular, by speaking of "the average of the rates at which Australian dollars may be bought in that foreign currency . . .". Further, the sub-section takes into account that rates in the market may vary. It seeks to avoid the possibility of unusual results by providing for the striking of the average of three rates each obtained by the creditor from a different authorised foreign exchange dealer.
We accept the submission of the respondent that speculation by three authorised foreign exchange dealers as to what the rate might have been at 11 a.m. upon a hypothetical transaction two business days before the application for issue of the bankruptcy notice is not a statement of the rate at which Australian dollars might be bought at that time on that day. It is, at best, an opinion as to the rate at which Australian dollars might have been bought on the basis of certain assumptions, including a view as to the influence which the hypothetical transaction would have had upon the market. We agree with the conclusion reached by the primary Judge that it is unlikely that the legislature would have intended that creditors would be presented by the 1985 amendments with the task of obtaining from dealers such opinions. Further, as we have indicated, the terms of the amendments themselves point to a construction contrary to that urged by the appellant.
In construing s. 41 of the Act and the relevant Rules, it is also to be kept in mind that their provisions are directed to the one end, namely the issue of a bankruptcy notice by the Registrar. Thus, Rule 7 (4A) specially provides for cases such as the present by stating:

"An applicant filing an application based on a judgment or order for an amount expressed in a foreign currency shall, together with the

application, file a statutory declaration

deposing to the applicable rate of exchange, ascertained in accordance with subsection 41

(2B) of the Act, in respect of that amount."

The legislation looks to the making of applications for and the issue of bankruptcy notices with the maximum degree of certainty as to what is required of creditors seeking to utilise that procedure, making due allowance for the proper interests of judgment debtors against whom the creditor seeks to invoke the bankruptcy laws.

There is one further issue of law which emerged on the hearing of the appeal.

As we have said, sub-s. (2B) requires the selection by the creditor of three authorised foreign exchange dealers, and the supply by them to the creditor of rates from which the average referred to in the sub-section will be struck. Counsel for the appellant submitted that, in taking the steps spelled out in s. 41 and in the Regulations, for the preparation and issue of a valid bankruptcy notice, the creditor could not rest upon information communicated to the creditor by the relevant exchange dealers as to the Australian dollar exchange rates. He submitted that the bankruptcy notice would be subject to attack if it later transpired that, for example, the particular officer of a dealer with whom the creditor had dealt had inaccurately stated what in fact was the rate applicable by that dealer at the relevant time. Counsel submitted that it was always open to impugn the validity of the notice by an inquiry as to the true facts to establish whether they proved to be at variance to the information conveyed to the creditor.
This submission should not be accepted. The procedure for which sub-s. (2B) provides is encapsulated in the concept of selection by the creditor of three authorised foreign exchange dealers and the striking of an average of the rates supplied by them. It carries with it the notion that the subject of the striking of the average consists of the three rates actually notified to the creditor in performance of the selection process. Further, in our view, when Rule 7 (4A) requires the filing of a statutory declaration with the Registrar, it requires that the declaration do no more than depose to the three rates of exchange ascertained in accordance with the subsection, and state the average. The Rule does not require the statutory declaration to depose to the primary materials from which the applicable rate of exchange has been so ascertained.
In the present case, the statutory declaration made by Mr Lane on 23 December 1991, went into some detail. Paragraphs 2, 3 and 4 thereof stated:

"2. On 20 December 1991 at approximately 5.05 p.m. I telephoned the Barclays Bank Australia Limited Foreign Exchange Dealing Room and asked what the exchange rate was for selling United States Dollars and purchasing Australian Dollars at 11 a.m. on 19 December 1991. I was quoted a figure of 0.7735.

3. On 20 December 1991 at approximately 5.10 p.m. I telephoned the CHASE AMP Bank Limited Foreign Exchange Dealing Room and asked what the exchange rate was for selling United States Dollars and purchasing Australian Dollars at 11 a.m. on 19 December 1991. I was quoted a figure of 0.7730.

4. On 20 December 1991 at approximately 6.00 p.m. I telephoned the Standard Chartered Bank Australia Limited Foreign Exchange Dealing Room and asked what the exchange rate was for selling United States Dollars and purchasing Australian Dollars at 11 a.m. on 19 December 1991. I was quoted a figure of 0.7730."

This degree of particularity went beyond what was necessary for compliance with the Rule, though, of course, the presence of the additional material did not mean that there was default in compliance with the Rules.

We do not accept the submissions for the appellant upon the issues of law on the appeal.
The other point in the appeal depends primarily upon a challenge to factual findings by the primary Judge. It was submitted to his Honour that the evidence did not establish that the officer of Barclays who spoke to Mr Lane gave him the rate at which Australian dollars might have been bought with United States dollars from Barclays itself. It was contended that all she did was to quote a figure obtained from a financial information service, the Teletrac Service. There is a number of 24 hour world-wide exchange rate services, known collectively as Telerates. Teletrac is one of them. They are subscription services, not restricted to foreign exchange dealers. His Honour rejected the appellant's submission and found that on a fair reading of the evidence (which included the transcript of the conversation between these two persons on the afternoon of 20 December 1991) the rate of 0.7735 given to Mr Lane was Barclays' rate at the relevant time.
There are two steps in the appellant's argument. The first is addressed to the question of whether what was told to Mr Lane was conveyed to him as being the Barclays' rate. The second is whether, even if it were so conveyed, the rate specified was, contrary to what was asserted, not the Barclays' rate but that of Teletrac.
It follows from what we have said as to the proper construction of the legislation that it is sufficient for the respondent to sustain an affirmative finding as to the first of these questions.
In our view, the transcript of the conversation in question shows plainly that Mr Lane was told that between 10 a.m. and 3 p.m. on 19 December 1991, Barclays would sell United States dollars and purchase Australian dollars at a rate of 0.7735. It is true that at the beginning of the conversation the officer of Barclays said to Mr Lane that she would "just get a telerate". But it is plain from the later passages in the conversation that when she then said "we would be buying US dollars off you at 7735", it is Barclays that was being referred to.
This is sufficient to dispose of the matter. But for completeness we should refer also to the second branch of the appellant's argument on this part of the case. The relevant officer of Barclays gave oral evidence before the primary Judge. After a somewhat inconclusive cross-examination, she was re-examined. There were no trades on 19 December of U.S.$194 m. Mr Lane was given an "indicative" rate, not the "spot" rate, for an "actual" transaction which, ex hypothesi, had never taken place. In hindsight it would be impossible to say what would have happened in such a transaction. It is the practice of Barclays when answering an historical rate inquiry to take an indicative rate from one of the Telerate services and add a margin. This is the best that can be done. The following passage occurs in the cross-examination:

"So what you did, as I understand it, was to take the Teletrac information which existed for 11 a.m. on 19 December 1991 and you added five points to give an offer rate and you said to Mr Lane, well, that's the offer we would have made on that day effectively? - Yes."

This evidence would support, if it were necessary to do so, a finding adverse to the appellant upon the remaining issue.
The appeal will be dismissed with costs.

[1992] FCA 127

20 MARCH 1992