Re Kevin McNamara and Son Pty Ltd
[2014] VSC 337
•18 July 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
No. S CI 1084 of 2014
IN THE MATTER OF
KEVIN McNAMARA & SON PTY LTD
(ACN 072 144 579)
BETWEEN:
KEVIN McNAMARA & SON PY LTD
| (ACN 072 144 579) | Plaintiff |
| v | |
| JOANNE VLAHOS | Defendant |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 April 2014 | |
DATE OF JUDGMENT | 18 July 2014 | |
CASE MAY BE CITED AS: | Re Kevin McNamara & Son Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 337 | |
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CORPORATIONS – Winding up - Statutory notice – Application to set aside – Debt jointly due to husband and wife – Husband subsequently became an undischarged bankrupt – Notice for full amount of debt and signed by the wife alone – Whether statutory notice invalid – Whether wife able to give notice in respect of full amount – Effect of bankruptcy on joint debt – Whether s 62 of Bankruptcy Act 1966 (Cth) applies to a statutory notice – Notice valid – Application dismissed – Bankruptcy Act 1966 (Cth), s 62.
- - -
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | P J Marzella | Ferraro & Company Pty Ltd |
| For the Defendant | C Ballantyne (as solicitor) | Madgwicks |
Cases referred to
115 Constitution Road Pty Ltd v Downey as trustee for NBD Systems (2008) 68 ACSR 118
Altarama Ltd v Camp (1980) 5 ACLR 513
Anvic Holdings Pty Ltd v Constable [2002] NSWSC 424
Clarke & Walker Pty Ltd v Thew (1967) 116 CLR 465
Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ASCR 602
Ellis v Fisher [2011] VSC 621
Euphoric Pty Limited v Magar (aka Kamir Azir Magar) [2011] NSWSC 469
Federal Commissioner of Taxation v Everett (1980) 143 CLR 440
In the matter of theEstate of Nickolaos Zikos (Unreported, Supreme Court of Victoria, Nathan J, 31 March 1987)
McIntyre v Gye (1994) 51 FCR 472
Macks (trustee of the estate of Weber), Re Weber (bankrupt) (2006) 233 ALR 50, [24]
Manzo v 555/255 Pitt St Pty Ltd (1990) 21 NSWLR 1
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290
Miller v Shea [1999] NSWSC 40
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9
Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968
Page v McKensey [2008] NSWSC 147
Peldan (as trustee of the bankrupt estate of R K Pinna) v Anderson (as executor of the estate of the late D R Pinna) (2006) 227 CLR 471
Randall Pty Ltd v Chepan Pty Ltd [2009] NSWSC 783
Re A & K Holdings Pty Ltd [1964] VR 257
Re Australia Seiwa Pty Ltd [2012] NSWSC 1334
Re Francis; Ex parte Official Trustee in Bankruptcy (1988) 19 FCR 149
Re Oswald and Oswald; Ex parte The Official Trustee in Bankruptcy (1985) 11 FCR 276,
Roberts v Wayne Roberts Concrete Constructions Pty Ltd [2004] NSWSC 734
Rookharp Pty Ltd v Webb (2011) 254 FLR 410
Schweitzer v Kronen Verwaltungs GmbH [1998] VSC 190
Sharvine Pty Ltd v Bridge and Marine Engineering Pty Ltd [2001] NSWSC 833
Singh v Kaur Bal (No 2) [2014] WASCA 88
Trustees of the property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278
Wright v Gibbons (1949) 78 CLR 313
TABLE OF CONTENTS
Introduction...................................................................................................................................... 1
Plaintiff’s arguments........................................................................................................................ 3
Defendant’s arguments................................................................................................................... 4
Plaintiff’s arguments in reply......................................................................................................... 6
Relevant legislation......................................................................................................................... 6
Alleged defects in wording statutory notice and affidavit in support.................................... 8
Was Mrs Vlahos able to issue the statutory demand for the full amount of the arbitral award? 9
Does bankruptcy sever the joint tenancy between Mr and Mrs Vlahos?.............................. 10
The effect of a bankruptcy on joint ownership of property..................................................... 12
After bankruptcy, what are the legal and equitable interests in the arbitral award amount of the trustee and Mr and Mrs Vlahos?............................................................................................................... 14
Meaning of s 62 of the Bankruptcy Act and application in winding up proceedings........ 18
Authorities on s 62 of the Bankruptcy Act................................................................................. 18
Is issuing a statutory demand suing or being sued?................................................................ 21
Who must sign the statutory demand - authorities.................................................................. 23
Who must sign the statutory demand - analysis....................................................................... 31
Conclusion...................................................................................................................................... 33
HIS HONOUR:
Introduction
By originating process filed on 12 March 2014 pursuant to s 459G of the Corporations Act 2001 (Cth) (the Act), the plaintiff, Kevin McNamara & Son Pty Ltd, seeks to set aside a statutory demand dated 20 February 2014 served on it by the defendant, Joanne Vlahos. The defendant relies on s 459J of the Act to set aside the statutory demand. The plaintiff alternatively seeks an order under sub-s 459H(4) of the Act:
(a)varying the amount claimed in the demand to $37,798.25;[1]
(b)declaring the demand to have effect as so varied from 21 February 2014.
[1]This sum is half the arbitral award of $75,596.50.
The plaintiff is a builder and built a pool for Mr and Mrs Vlahos at their home at Anglesea. A dispute arose between the parties over the construction. The dispute went to arbitration. On 7 November 2013, the final arbitral award was given, which awarded the defendant and her husband $75,596.50 for their legal costs in the arbitration, the costs of the arbitration and interest on damages (the damages had already been paid by the plaintiff). I will refer to the $75,596.50 as the arbitral award amount.
As a result of the award, the plaintiff concedes that it was indebted to Mr and Mrs Vlahos for that sum. On 16 December 2013, Mr Vlahos, the defendant’s husband, became an undischarged bankrupt. On 21 February 2014, the defendant served on the plaintiff the statutory demand.
In March 2014, the solicitors for the defendant requested the plaintiff to pay the arbitral award amount into court so that the dispute could then be confined to the defendant and the trustee. The plaintiff has not paid the arbitral award amount, or any part of it, into court, or to the defendant, or to the trustee. The defendant has not made any applications with a view to having funds paid into court.
The plaintiff seeks to set aside the statutory demand or have it amended on the grounds that:
(a)The defendant was not entitled to claim the whole of the arbitral award amount;
(b)There is a dispute between the defendant and the trustee as to entitlement to the arbitral award amount;
(c)The statutory demand has defects; and/or
(d)The plaintiff is only entitled to half the arbitral award amount.
For the reasons given below, I have come to the following conclusions. Before bankruptcy, Mr and Mrs Vlahos held the arbitral award amount, a debt as conceded by the parties, as joint creditors. Upon bankruptcy, the joint tenancy severed at equity. The trustee in bankruptcy and the defendant now hold the debt at equity as tenants in common in equal shares. At law, Mr and Mrs Vlahos continue to hold the debt as joint tenants. Accordingly, at law, Mrs Vlahos is entitled to claim the entire arbitral award amount in the statutory demand. There is no occasion to amend the statutory demand to claim only half the arbitral award amount.
Alone, s 62 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) does not permit the defendant to issue the statutory demand without the trustee signing it or authorising the defendant to issue it on his behalf. Section 62 applies to suing on a contract, but not to issuing a statutory demand.
The general law of who must sign a statutory demand, coupled with s 62 of the Bankruptcy Act, has the effect that the defendant can issue the statutory demand without the trustee joining in or signing the statutory demand.
The statutory demand is therefore valid. If the plaintiff pays the arbitral award amount to the defendant, she will hold half the amount on trust for the trustee in bankruptcy.
There is no dispute between the plaintiff and the defendant as to the amount or existence of the debt. Any dispute as to ownership is between the defendant and the trustee in bankruptcy only.
In the result, I find that the statutory demand, as served, is valid. Accordingly, I dismiss the application.
Plaintiff’s arguments
The plaintiff argues as follows. The defendant was not entitled to serve on the plaintiff a statutory demand relating to the whole of the arbitral award amount. The defendant and her husband were jointly entitled to the arbitral award amount. They were joint creditors. Upon bankruptcy, the joint ownership of the debt severed. The trustee in bankruptcy and the defendant then owned the debt as tenants in common in equal shares. So, the defendant is only entitled to claim one half of the arbitral award amount. Further, where a debt is owned by tenants in common, all owners must sign the statutory demand and pursue the debt together.
The plaintiff submits that pursuant to s 459J(1)(b), the Court has a general discretion to set aside a statutory demand if it is satisfied that there is ‘some other reason’ why the demand should be set aside. The plaintiff relies on a dispute between the defendant and the trustee in bankruptcy of Mr Vlahos’s estate as to entitlement to the arbitral award amount. Due to this dispute, the plaintiff faces claims from the trustee and from the defendant, and is therefore in an invidious position. The plaintiff could be placed in a position where it pays the defendant and is then still pursued by the trustee in bankruptcy.
The plaintiff further says that the statutory demand and the affidavit in support have defects of a substantive nature. Those defects are:
(a)The legislation and forms in respect of statutory demands differ according to whether the amount claimed is a single amount or multiple amounts. The statutory demand at issue uses the language of single amount and multiple amounts. Counsel for the plaintiff ultimately abandoned this point.
(b)Identity of the creditor: is it the defendant, or the defendant and Mr Vlahos (or the trustee in bankruptcy)? The statutory demand at times says ‘creditor’ and at other times says ‘creditors’.
(c)In the affidavit in support, the defendant is defined as ’the Creditor’. At the start of the affidavit the defendant states that she is ‘authorised by law to make this affidavit on behalf of the Creditor’. That is language appropriate for a deponent who is not also the creditor. By using that language in the affidavit, the defendant creates further uncertainty as to the identity of the creditor.
The plaintiff submits that based on any of the above grounds, the statutory demand should be set aside under s 459J of the Act.
The plaintiff submits that in the event the Court does not find the statutory demand defective and does not set it aside, the Court should amend the statutory demand. The Court has the power to amend the statutory demand under s 459H(4) of the Act. The plaintiff’s fall-back position is that the statutory demand should be amended so that the amount claimed is only half the arbitral award amount. The plaintiff concedes that it owes the defendant half the arbitral award amount.
The plaintiff asserts that the arbitral award created a debt. When asked whether the Commercial Arbitration Act 2011 (Vic) says that a debt is created when an arbitral award is given, counsel for the plaintiff said that there would be a debt if the arbitral award were enforced in court and became a judgment debt. The plaintiff also contends that when the arbitrator made the award, a debt was created immediately. That debt was owed to the defendant and her husband jointly.
Defendant’s arguments
The defendant submits that the plaintiff conceded that prior to the bankruptcy of Mr Vlahos, the debt owed by the plaintiff was a ‘joint debt’. By this, the defendant meant the defendant and her husband owned the debt as joint creditors.
The defendant relies on s 62 of the Bankruptcy Act, which deals with joint contracts to which the bankrupt is a party to, and allows joint contractors to sue on a contract without the trustee in bankruptcy being joined as a party. The defendant submits that s 62 has the effect that a joint creditor can sue on the contract and sue for the whole amount. The defendant did not provide the Court with any authorities considering s 62.
The defendant submits that this section applies because the debt arose under a contract. The debt comprises the legal costs and interest set out in the arbitral award, but it was by the contract that the parties agreed to have their disputes settled by arbitration. The defendant relies on Anvic Holdings Pty Ltd v Constable,[2] in which it was said that there is a contractual basis in relation to an arbitration agreement to enforce an award made by an arbitrator.
[2][2002] NSWSC 424.
When asked about the trustee in bankruptcy’s entitlement to a proportion of the debt, the defendant said that would have to be the subject of a separate proceeding. That would not be a dispute between the plaintiff and the defendant. If the defendant successfully sued to enforce the contract, and the debtor paid the debt to the defendant, the debt would be satisfied and the trustee would not be able to claim anything from the debtor. The debt would be discharged. This is so, it was submitted, in the case of debts generally, and in the context of statutory demands.
The defendant submits that she is entitled to enforce the whole debt, which has arisen under a joint contract.
As to the signing requirement for statutory demands, the defendant says that it is not settled whether all joint creditors must sign; there are conflicting authorities. In this regard the defendant relied on Randall Pty Ltd v Chepan Pty Ltd.[3]
[3][2009] NSWSC 783.
The defendant conceded that without s 62 of the Bankruptcy Act, the position would be unsettled as to whether the trustee in bankruptcy would need to be party to the statutory demand. Given s 62, the defendant argued that the issue of who needed to sign the statutory demand did not arise.
As to joint creditors’ ability, unilaterally, to sue for debt, the defendant said Roberts v Wayne Roberts Concrete Constructions Pty Ltd[4] was authority for a joint creditor being able to sue for the whole debt. That case says that payment of the debt to one joint creditor discharges the debt. This may imply that one joint creditor may sue for the whole debt. The defendant did not provide any authorities on this point.
[4][2004] NSWSC 734 (Roberts).
Plaintiff’s arguments in reply
The plaintiff submits that s 62 of the Bankruptcy Act is not broad enough to cover joint creditors issuing statutory demands. Instead, it deals with suing or being sued on a contract. The defendant says that the words ‘may sue’ means bringing a proceeding, and no proceeding has been brought at this stage. In order for s 62 to be used, the defendant must bring a proceeding in the court.
Further, while the plaintiff accepts that an arbitration agreement represents a contract, it argues that the statutory demand is not really in respect of a contract within the meaning of s 62, as the statutory demand is part of a winding up process.
The plaintiff contends that given the serious consequences to a company, of a statutory demand, it is important that all judgment creditors sign the statutory demand.
Relevant legislation
Sections 459G-459J of the Act provide as follows:
459G Company may apply
(1)A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2)An application may only be made within 21 days after the demand is so served.
(3)An application is made in accordance with this section only if, within those 21 days:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
459H Determination of application where there is a dispute or offsetting claim
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
where:
admitted total means:
(a) the admitted amount of the debt; or
(b) the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
offsetting total means:
(a)if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c)otherwise—a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a)varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5)In this section:
admitted amount, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise—the amount of the debt.
offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set off or cross demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
respondent means the person who served the demand on the company.
(6)This section has effect subject to section 459J.
459J Setting aside demand on other grounds
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
(2)Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.
Section 62 of the Bankruptcy Act provides:
Actions on joint contracts
Where a bankrupt is a contractor in respect of a contract jointly with another person or other persons, that person or those persons may sue or be sued in respect of the contract without the joinder of the bankrupt.
Alleged defects in wording statutory notice and affidavit in support
The plaintiff submits that the statutory demand is defective in paragraph 3, where it states:
The Creditor requires the Company within 21 days after service on the Company of the demand;
(a)to pay to the Creditors the total amount of the amount the amounts of the debt;
or
(b)to secure or compound for the total amounts of the debts to the Creditor’ reasonable satisfaction.
In paragraph 1 of the notice Mrs Vlahos is defined as ’the Creditor.’
In my view, the reference to ’the Creditors’ is merely a typographical error, that was intended to state ’the Creditor.’ If the reference to ’the Creditors’ in paragraph 3 does constitute a defect in the demand, then the Act provides that I may, by order, set aside the demand if I am satisfied that because of the defect in the demand, substantial injustice will be caused, unless the demand is set aside or there is some other reason why the demand should be set aside. I am not satisfied that substantial injustice will be caused unless the demand is set aside or that there is some other reason why the demand should be set aside. I therefore refuse to set aside the demand on this ground.
I turn to the complaint about the affidavit and the defendant stating that she is authorised to make this affidavit on behalf of ’the Creditor.’ In my view there is no substance to this point. In any event, I do not consider that substantial injustice will be caused unless the demand is set aside by reason of this statement. As discussed below, the full amount may be paid to Mrs Vlahos. I therefore refuse to set aside the demand on this ground.
Was Mrs Vlahos able to issue the statutory demand for the full amount of the arbitral award?
The plaintiff’s submissions put into question Mrs Vlahos’s ability to issue the statutory demand at all, and in the alternative, her ability to issue the statutory demand for the full arbitral award amount.
The following issues arise for determination. What are the legal and equitable interests in the arbitral award amount held by Mrs Vlahos, Mr Vlahos, and the trustee in bankruptcy, at the time of the statutory demand being issued? Secondly, what is the scope of s 62 of the Bankruptcy Act? Thirdly, who must sign the statutory demand issued by Mrs Vlahos?
Does bankruptcy sever the joint tenancy between Mr and Mrs Vlahos?
The plaintiff primarily relies on Roberts. There, the plaintiff and her husband were joint creditors in respect of a company. The company was their alter ego. They had made a loan to the company. In April 2001, the plaintiff became bankrupt on her own petition. The trustee in bankruptcy claimed 50 per cent of the amount of the loan as an asset of the plaintiff’s estate. On 1 May 2004, the plaintiff was discharged from bankruptcy. On 18 May 2004, the plaintiff served a statutory demand on the company, claiming payment of 50 per cent of the loan. In June 2004, when the company did not comply with the statutory demand, the plaintiff applied to have the company wound up. In July 2004, the plaintiff’s bankruptcy was annulled. The company challenged the winding up application as an abuse of process. The company also argued that the plaintiff was not a creditor of the company at the relevant time because her interest in the loan had vested in the trustee in bankruptcy.
The Court found that ss 459G(2) and 459S of the Act had the effect that in the application opposing winding up, the company could not argue the plaintiff was not a creditor; such argument was properly made in an application to set aside the statutory demand. Barrett J nevertheless dismissed the winding up application, as it was an abuse of process. The winding up application concerned matrimonial property that was the subject of pending Family Court proceedings.
Barrett J held that the proprietary consequences of the bankruptcy, discharge and annulment were as follows:
(a)The plaintiff and her husband’s joint interest in the loan was severed upon the plaintiff’s bankruptcy;
(b)At equity, the plaintiff’s husband and her trustee in bankruptcy became entitled to the loan as tenants in common in equal shares;
(c)When the bankruptcy was discharged, the plaintiff no longer had the title of ‘bankrupt’. The plaintiff’s interest in the loan remained vested in the trustee;
(d)Upon the bankruptcy being annulled, property still vested in the trustee ceased to be so vested, and vested in the former bankrupt; and
(e)Upon the annulment, an undivided half share in the loan vested in the plaintiff, and she and her husband were entitled to the loan as tenants in common in equal shares.[5]
[5]Roberts, [8]-[9], [50]-[53].
Barrett J said:
At common law, co-obligees are thus treated as having a joint interest in the debt with the incident of survivorship. The joint entitlement is susceptible to severance (at least in equity) by destruction of the unity of title, time and interest, as in a case where one of the co-obligees alienates his or her interest. Vesting in the Official Trustee in Bankruptcy by operation of s 58 of the Bankruptcy Act effects such a severance: Re Francis; Ex parte Offıcial Trustee; Sistrom v Urh (cases concerning land but equally applicable, in my opinion, to personal property). The effect of severance in a case where two persons hold jointly is to cause the property to be held by them as tenants in common in equal shares. It may be that this is the position in equity only, given the opinion expressed by Joyce J in Re McKerrell that, apart from the Judicature Act 1873 (UK), “it is clear that there could not have been a tenancy in common of a legal chose in action”.
It must follow that, on the bankruptcy of the plaintiff, the Official Trustee came to be regarded in equity as holding an undivided one half share in the debt owed by the defendant to the plaintiff and WJ Roberts, assuming the correctness of the proposition that the debt was originally one to which the plaintiff and WJ Roberts were jointly entitled. But there was, in no sense, a partition of the jointly owned debt. In the eyes of the common law, such partition is impossible since a purported assignment of part of a debt is ineffective to enable the assignee to sue for the part assigned (Re Steel Wing Co Ltd), although the character of a debt as a chose in action and therefore a chattel personal (Co Litt 118b) may mean that the court can order division of it under s 36A of the Conveyancing Act 1919 (NSW). After the plaintiff’s bankruptcy, the Official Trustee and WJ Roberts were, in equity, together entitled to the whole debt as tenants in common in equal shares. The concurrence of both was then necessary to constitute an acquittance: see Steeds v Steeds where Huddeston B and Wills J observed that joint lenders upon mortgage are, in equity, prima facie regarded as tenants in common. Huddeston B and Wills J continued:
Where a mortgage debt has been paid to one of the mortgagees, accordingly, it was held that the land was not discharged, and that the concurrence of the other mortgagees was necessary to make a good title: Matson v Dennis. This is on the ground that the debt is held by the two in common and not jointly, and the principle seems to us equally applicable whether the debt is secured by a mortgage or is merely the subject of a personal contract.
(Where a debt is held jointly, by contrast, payment to one of the joint creditors does constitute discharge: Manzo v 555/255 Pitt Street Pty Ltd.) [6]
[6]Ibid, [24[-[25] (citations omitted).
The defendant sought to distinguish Roberts on the basis that the bankrupt served the statutory demand, not the bankrupt’s co-owner. In my view, in terms of the consequences of bankruptcy for joint tenancy and statutory demands, Roberts is of general application. I observe that Barrett J did no decide the legal ownership of the debt during the period of bankruptcy; his Honour only decided on the equitable ownership.
Roberts has been cited in subsequent cases dealing with the common law presumption of joint tenancy, and cases considering abuses of process in the context of winding up applications. The subsequent cases referring to Roberts have not, however, considered the principle of bankruptcy severing joint tenancies in debt ownership.
The effect of a bankruptcy on joint ownership of property
The plaintiff in the current proceeding has not argued that the defendant’s reliance on the statutory demand procedure is an abuse of process as was raised in Roberts.[7]
[7]There will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers — such as the application of pressure to compel payment of the disputed debt: Createc Pty Ltd v Design Signs Pty Ltd (2009) 71 ASCR 602, [47]-[50].
The effect of a bankruptcy on joint ownership of property has been considered elsewhere, but mostly in the context of real property.
In Re Francis; Ex parte Official Trustee in Bankruptcy,[8] the Full Court of the Federal Court held that the characteristics of joint tenancy are the right of survivorship and unity of possession, interest, title and time. When one joint tenant became bankrupt, the joint tenancy was destroyed. Forster, Woodward and Spender JJ said:
When the estate of the male bankrupt in the land in question became vested in the Official Trustee, the unity of title was immediately destroyed, in that the respective interests of the Official Trustee and the female coowner in the land did not derive from the same act or document. Nor is there any unity of time between the two estates. The unity of interest also does not exist because the interest of the Official Trustee is impressed with his responsibilities under the Bankruptcy Act and may, and very likely will, be of less duration than that of his co-owner.[9]
[8](1988) 19 FCR 149 (Re Francis).
[9]Ibid, 153.
Their Honours also said that the original joint tenancy was not resurrected by the subsequent bankruptcy of the other joint tenant, and her interest being vested in the same trustee in bankruptcy.
In Trustees of the property of Cummins (a bankrupt) v Cummins,[10] Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ considered the effect of bankruptcy on a joint tenancy in Torrens land. Their Honours accepted the trial judge’s finding that the bankruptcy of one joint tenant severed the joint tenancy.[11]
[10](2006) 227 CLR 278 (Cummins).
[11]Ibid, [14].
In Peldan (as trustee of the bankrupt estate of R K Pinna) v Anderson (as executor of the estate of the late D R Pinna),[12] the High Court said that bankruptcy severs joint tenancy. Gummow ACJ, Kirby, Hayne, Callinan and Crennan JJ, in considering a joint tenancy in Torrens land, said:
As was accepted by this court in Cummins, it is established that the onset of bankruptcy works a severance of a joint tenancy. Upon sequestration, unity of title is destroyed. On this basis, all that fell into the bankrupt’s estate was an interest as tenant in common in the Carindale property.[13]
[12](2006) 227 CLR 471 (Peldan).
[13]Ibid, [48] (citations omitted).
In Page v McKensey,[14] Windeyer J held that the bankrupt had released his interest in a judgment debt and claim for costs before he became bankrupt on his own petition. His Honour then considered the situation if the bankrupt had not released his interest:
Mr Nelson became bankrupt on his own petition on 19 September 2000 and obtained an automatic discharge on 20 September 2003. If the release were ineffective and ownership did not pass, at least in equity, as a result of the severance agreement then the bankruptcy brought about a severance of the joint tenancy but only so far as the interest of Nelson was concerned: see discussion of Latham CJ in Wright v Gibbons (1949) 78 CLR 313 at 323; Butt P, Land Law, 5th Ed (2006), para 1463. From bankruptcy therefore title to a one fifth share of the joint assets would be held by the trustee in bankruptcy, as tenant in common with the other four creditors, who would continue to hold their interests as joint tenants.[15]
[14][2008] NSWSC 147.
[15]Ibid, [30].
On appeal, the New South Wales Court of Appeal did not express an opinion on the point, as it agreed with Windeyer J that the release prior to bankruptcy was effective.[16] The situation as to severance is more complicated where joint tenants who are joint debtors are made bankrupt at the same time.[17] That is not, however, the situation that currently arises.
After bankruptcy, what are the legal and equitable interests in the arbitral award amount of the trustee and Mr and Mrs Vlahos?
[16]Page v McKensey [2009] NSWCA 127, [65]-[66].
[17]See Re Oswald and Oswald; Ex parte The Official Trustee in Bankruptcy (1985) 11 FCR 276, 278; Macks (trustee of the estate of Weber), Re Weber (bankrupt) (2006) 233 ALR 50, [24]; and Official Trustee in Bankruptcy, in the matter of Shaw [1999] FCA 968, [5]. In these situations s 110 of the Bankruptcy Act applies.
The position at equity is the most straightforward. It is clear from the cases referred to that upon bankruptcy, joint tenancies are severed. This means that the defendant in this case is not entitled, at equity, to the whole of the arbitral award amount. At equity, she and the trustee in bankruptcy are tenants in common in equal shares.
The position at law is more difficult. It is common ground that the arbitral award amount is a debt. Upon bankruptcy, Mr Vlahos’s property vests in the trustee in bankruptcy. The vesting of property upon bankruptcy is an involuntary alienation.[18] An involuntary alienation is a type of assignment. Assignments of debt are governed by s 134 of the Property Law Act 1958 (Vic) (Property Law Act), which says:
[18]Singh v Kaur Bal (No 2) [2014] WASCA 88, [43].
Legal assignments of things in action
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, shall be and shall be deemed to have been effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—
(a) the legal right to such debt or thing in action;
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of the assignor:
Provided that, if the debtor, trustee or other person liable in respect of such debt or thing in action has notice—
(a) that the assignment is disputed by the assignor or any person claiming under him; or
(b) of any other opposing or conflicting claims to such debt or thing in action—he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the Trustee Act 1958 .
Section 58(1) of the Bankruptcy Act is the vesting provision that effects the involuntary transfer. It is this section that causes the severance of the joint tenancy. Section 58(2) provides that where the law of a State or Territory requires the transmission of property to be registered and enables the trustee to be registered as the owner of the bankrupt’s property, the property vests in the trustee in equity, but not in law until those registration requirements are met.
It seems, therefore, that if there are no requirements for registration of the transmission of property, s 58(1) immediately effects vesting at law and at equity. If there are registration requirements, as in the case of Torrens land, s 58(1) effects vesting immediately at equity, and only at law once the registration requirements have been met.
There are no registration requirements for the assignment of a debt. The only requirements for the assignment of a debt at law are those in s 134 of the Property Law Act. Accordingly, it appears to follow that upon bankruptcy, Mr Vlahos’s legal interest in the debt immediately vested in the trustee at law and at equity.
So, in terms of entitlement to the arbitral award amount, what is the position at law after Mr Vlahos’s bankruptcy?
The trustee and Mrs Vlahos do not hold the debt as tenants in common at law. At law, there is no tenancy in common in respect of a chose in action: ‘[a] creditor cannot recover a debt piecemeal in a court of law’, nor can a creditor assign part of a debt at law.[19] At common law, a debt could not be assigned. It could only be assigned at equity. Section 134 of the Property Law Act alleviated the rigours of the common law by allowing assignments at law of choses in action, provided certain conditions are met. One condition is that the assignment be absolute. This means the assignment must be unconditional and of the entire debt.[20] The debt cannot be broken into parts. At law, the debt is indivisible. There cannot be a partial assignment so as to create a tenancy in common. The debt may only be held jointly, or by one person alone.
[19]Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, 29.
[20]Federal Commissioner of Taxation v Everett (1980) 143 CLR 440, 447.
The trustee and Mrs Vlahos do not hold the debt as joint tenants at law. A joint tenancy requires the four unities and the right of survivorship. As set out above in Re Francis, bankruptcy severs a joint tenancy because it destroys the unity of title, time, and interest. The trustee cannot, by virtue of s 58(1), become a joint tenant at law with Mrs Vlahos.
The trustee was not vested with the entire legal interest in the debt, and Mrs Vlahos was not left only with an equitable interest. For an effective assignment of a debt at law, joint creditors must both sign the writing. Joint tenants each own the whole of the interest, but no one joint tenant can deal with the interest so as to bind the other joint tenants.[21] Further, for an effective assignment at law of a debt, notice of the assignment must be given to the ‘debtor…from whom the assignor would have been entitled to claim such debt’. Mr Vlahos, alone, would not have been able to claim the debt from the debtor because if the Court’s aid were required, Mr Vlahos would be required by the Rules to join Mrs Vlahos as a plaintiff or a defendant. An assignment under s 134 only works if the joint creditors both assign in writing, and give notice to the debtor (from whom the joint creditors, together, could claim the debt).
[21]Bradbrook, MacCallum and Moore, Australian Real Property Law (Lawbook Co, 4th ed, 2007), 426. This talks about real property, but the principles of joint tenancy are also applicable to personal property.
If Mr Vlahos could not unilaterally assign the entire legal interest in the debt to a third party (leaving Mrs Vlahos without any legal interest), then s 58(1), which effects an involuntary assignment, is equally unable to effect an assignment of the entire legal interest in the debt. Section 58(1) cannot effect an alienation at law that the bankrupt himself could not have effected.
In my opinion, it is likely that Mr and Mrs Vlahos continue to hold the legal interest in the debt as joint tenants, but in equity the trustee and Mrs Vlahos hold the legal interest in the debt as tenants in common in equal shares. Section 58(1) cannot effect an assignment at law to the trustee in bankruptcy. This means that Mr and Mrs Vlahos continue to hold the debt as joint tenants at law. At equity, the joint tenancy has been severed, and Mr Vlahos’s half share vested in the trustee pursuant to s 58(1).
Accordingly, at law, the defendant is entitled to the full amount of the debt. The trustee in bankruptcy only has an equitable interest in half the arbitral award amount.
As a result, the plaintiff’s fall-back position, amending the amount of the statutory demand under s 459H(4), fails. As the defendant is entitled to the full amount of the debt at law, there is no issue with the amount of the statutory demand.
Meaning of s 62 of the Bankruptcy Act and application in winding up proceedings
Rule 9.03(1) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) provides that where a plaintiff claims relief to which another person is jointly entitled, that other person must be joined as a party to the proceeding. Under r 9.03, where a debt is being sued on by joint creditors, all joint creditors must be party to the action. Rule 9.03 is expressed to be subject to orders of the Court and other legislation. This includes s 62 of the Bankruptcy Act.
Authorities on s 62 of the Bankruptcy Act
In Ellis v Fisher,[22] the plaintiffs were joint mortgagees. They entered into a priority agreement with subsequent mortgagees, the defendants. The plaintiffs sued the defendants for damages for breach of the priority agreement. The defendants argue that the proceeding was a nullity because one of the plaintiffs had become a bankrupt. Randall AsJ held that pursuant to s 62 of the Bankruptcy Act, one of the two plaintiffs was entitled to prosecute the proceeding, and it was not necessary or appropriate for the bankrupt plaintiff to be joined as a party. The proceeding would have been a nullity had the bankrupt plaintiff initiated the proceeding alone. The bankrupt plaintiff was removed as a party and the proceeding continued.
[22][2011] VSC 621.
There is some inconsistency in the reasons for allowing the proceeding to continue. After suggesting that s 62 saved the proceeding, his Honour then said that ‘the position has now been remedied’ by the trustee in bankruptcy assigning his interest in the debt to the non-bankrupt plaintiff. His Honour did not say whether s 62 would have saved the proceeding if the trustee had not assigned his interest to the non-bankrupt plaintiff.
In Schweitzer v Kronen Verwaltungs GmbH,[23] McDonald J accepted for the purposes of argument, but did not determine the point, that a plaintiff could rely on s 62 to bring a quantum meruit claim when the claim was held jointly by the plaintiff and a bankrupt, and the bankrupt was not joined as a party to the proceeding.[24]
[23][1998] VSC 190.
[24]Ibid, [71].
Section 62 was cited again in In the matter of the Estate of Nickolaos Zikos,[25] which involved a joint and several guarantee. The plaintiff sought leave to enforce the guarantee. One of the guarantors was bankrupt. It was held that the plaintiff need not join the bankrupt guarantor. In this case, however, the plaintiff sued the solvent guarantor in its several and distinct capacity, not its joint capacity.
[25](Unreported, Supreme Court of Victoria, Nathan J, 31 March 1987).
In Miller v Shea,[26] James J ultimately did not need to apply s 62 because the contractual promise was made only to the bankrupt, not the bankrupt and the plaintiff jointly. The proceedings were dismissed on this basis. His Honour said that even if the promise to transfer the shares to the bankrupt was a promise made jointly to the bankrupt and the plaintiff, the plaintiff could not rely on s 62 because, had the promise been performed, the bankrupt would have received the shares. James J said:
If, contrary to the conclusion I have just reached, the promise to transfer shares in Ladycare Services to Mrs Miller was made to Mr Miller and Mrs Miller jointly, the question would arise whether Mr Miller could enforce such a promise and obtain a substantive award of damages for breach of such a promise, without Mrs Miller having being joined as a party to the proceedings.
Pt8 r3 of the Supreme Court Rules provides in part that where a plaintiff claims relief to which any other person is entitled jointly with him, all persons so entitled shall be parties to the action. The rule is expressed to be subject to s 62 of the Bankruptcy Act, which provides that where a bankrupt is a contractor in respect of a contract jointly with another person or other persons, that person or those persons may sue or be sued in respect of the contract without the joinder of the bankrupt. Counsel for the plaintiff sought to rely on s 62 of the Bankruptcy Act as justifying the non-joinder of Mrs Miller.
I was not referred to any authority on s 62 of the Bankruptcy Act and the extent of its operation is not clear. For example, it is unclear whether it applies to a contract entered into by a person before he or she became a bankrupt and whether it continues to apply after a person has ceased to be a bankrupt.
However, whatever the extent of the operation of s 62 of the Bankruptcy Act and notwithstanding the provision in the Supreme Court Rules (Pt8 r7) that proceedings shall not be defeated by reason of the non-joinder of any person as a party, I do not consider that, even if the promise to transfer the shares was made to the plaintiff and Mrs Miller jointly, the plaintiff can enforce the promise and obtain substantive damages for breach of the promise, where he is not the person who under the agreement would have received the benefit of the promise if it had been performed, and the person who under the agreement would have received the benefit of the promise, if it had been performed, has subsequently become bankrupt, with the consequence that that person's claim to enforce the promise became and has remained vested in her trustee in bankruptcy.
I am accordingly of the opinion that whether the promise to transfer 40 per cent of the shares in Ladycare Services was made to Mrs Miller solely or to Mr Miller and Mrs Miller jointly, the present proceedings brought by Mr Miller alone must fail.[27]
[26][1999] NSWSC 40.
[27]Ibid, [129]-[133].
In Euphoric Pty Limited v Magar (aka Kamir Azir Magar),[28] the plaintiff mortgagee sued all but one of the joint mortgagors. The mortgagor, who was not sued, was bankrupt. Einstein J said that s 62 allowed the plaintiff to sue the defendant mortgagors without joining the bankrupt mortgagor as a party.[29]
[28][2011] NSWSC 469.
[29]Ibid, [5].
As stated above, upon bankruptcy, joint creditors’ interest under a contract will sever. Section 62 says that where one joint contractor is bankrupt, the other may sue or be sued upon without joining the bankrupt to the proceeding. So, despite the severance at equity, the solvent joint contractor can sue/be sued alone.
This means that s 62 allows a contractor to sue without joining the bankrupt, even though the suing contractor is, at equity, only entitled to half the benefit of the contract. It should be noted that s 62 is a procedural rule; it does not alter the substantive rules of equity or property law.
Does s 62 allow a joint contractor/joint creditor to issue a statutory demand without joining the trustee in bankruptcy? To answer this, it must be asked whether issuing a statutory demand is ‘suing or being sued on a contract’ within the meaning of s 62.
Is issuing a statutory demand suing or being sued?
Assaf says that statutory demands create a statutory presumption of insolvency; they are not a ‘proceeding’, curial or non-curial.[30] Service of a statutory demand is also not a proceeding.
[30]Farid Assaf, Statutory Demands Law and Practice (LexisNexis Butterworths, 2nd ed, 2012) 1.3.
In Clarke & Walker Pty Ltd v Thew,[31] Barwick CJ, Taylor, Windeyer and Owen JJ considered the nature of a statutory demand and of proceedings. The respondent had given the appellant a guarantee in consideration for the appellant undertaking not to sue or issue proceedings against the debtor company. The appellant served a statutory demand on the debtor company. After the demand was not complied with, the appellant brought proceedings against the respondent. The respondent alleged the appellant had breached its undertaking. Their honours said:
In the circumstances the question is whether service of such a demand constitutes the taking of "proceedings" within the meaning of that expression as it is used in the guarantee. We are firmly of the opinion that it does not.
A multitude of cases may be cited to show that, when used in a context such as the present, the expression " proceedings" denotes, primarily, curial proceedings though no doubt if in the instant case the debt was a secured debt, it would be wide enough to include the exercise of a right given by the security to take extra curial action for the recovery of the debt. So seizure and sale of goods or the appointing of a receiver under powers conferred upon the creditor by the security might, in such a context, be properly regarded as the taking of proceedings. But a mere written demand for payment and a threat to present a winding-up petition at some future time has none of the characteristics of curial proceedings or of the exercise of rights given to a creditor by his security. Section 222 (2) (a) does not authorize, and does not purport to authorize, a creditor to make a demand for payment upon his debtor; a creditor needs no statutory authority for this. All that s. 222 (2) (a) does is to provide a convenient method of proof, if a debtor company for three weeks after service of a demand neglects to pay the sum due or to secure or compound for it to the reasonable satisfaction of the creditor, that a company is unable to pay its debts which, by virtue of the earlier sub-section is a ground for winding up.[32]
[31](1967) 116 CLR 465.
[32]Ibid, 467.
In Mibor Investments Pty Ltd v Commonwealth Bank of Australia,[33] Hayne J said:
…the only significance that the statutory demand has is that if there is failure to comply with it then the company is deemed to be insolvent.
Thus the demand is no more than a precursor to an application for winding-up in insolvency.
…
If the demand stands, the consequences are serious but there is no final determination of any right.
[33][1994] 2 VR 290, 294-295, 296. See also Altarama Ltd v Camp (1980) 5 ACLR 513, 521, where McLelland J said the ‘service of a [statutory] demand is in no sense equivalent to the institution of proceedings in the court’.
Given the above comments on the nature of statutory demands, issuing a statutory demand does not amount to suing. The Macquarie Dictionary defines ‘sue’ as:
(a)To institute process in law against, or bring a civil action against.
(b)To make petition or appeal to.
(c)To institute legal proceedings, or bring suit.
(d)To make petition or appeal.
A statutory demand is a mechanism to obtain a forensic advantage in a winding up proceeding. If the statutory demand is not met, the debtor is presumed insolvent in subsequent winding up proceedings. Another forensic tool preliminary to proceedings is the offer of compromise. A creditor may send a debtor an offer of compromise before filing and serving a writ to sue on the contract. The offer may benefit the creditor in terms of costs orders. But the statutory demand and the offer of compromise do not, in themselves, amount to suing. They are forensic tools used before commencing proceedings.
If, following the debtor’s failure to comply with the statutory demand, the creditor brings winding up proceedings, then the creditor has brought proceedings, and is ‘suing’. If, on the other hand, the creditor does nothing following the debtor’s failure to comply with the statutory demand, the court’s processes are not engaged.
I need not decide whether bringing winding up proceedings is suing ‘in respect of a contract’ within the meaning of s 62. It is clear that merely issuing a statutory demand is not suing in respect of a contract of s 62. That is enough to conclude that s 62 does not justify Mrs Vlahos issuing the statutory demand without the trustee joining in or signing the demand. Given this finding, it is unnecessary to deal with the defendant’s submission that the arbitral award amount is a debt arising from contract because the contract provided for arbitration.
For these reasons, I find that s 62 does not extend to issuing a statutory demand. This is not to say that s 62 is irrelevant in this case. As is seen below, s 62 in conjunction with the general law on statutory demands has the effect that Mrs Vlahos may issue the statutory demand without the trustee joining in or signing the demand.
Who must sign the statutory demand - authorities
Creditors at law and creditors at equity both have standing to issue a statutory demand. It remains unclear whether a statutory demand can be issued by one of multiple joint creditors. In 115 Constitution Road Pty Ltd v Downey as trustee for NBD Systems,[34] Rein J conducted a review of the authorities on who must give a statutory demand. His Honour set aside a statutory demand because only one of the two creditors had signed it, and the affidavit in support was silent as to whether the signing creditor had authority to sign on behalf of the other creditor. This meant the demand was defective within the meaning of s 459J(1)(a) of the Act. The loan agreement was also silent as to each creditor’s ability to issue a statutory demand on behalf of the other.
[34](2008) 68 ACSR 118.
Rein J held that a statutory demand must be given by all joint creditors, or at least on behalf of all joint creditors:
In Australian Workers Union v Bowen (Bowen), Latham CJ, Rich, Dixon and Williams JJ held that a bankruptcy notice cannot be authorised by some only of the judgment creditors, and that the petition, being founded on an invalid bankruptcy notice, was “irregular”.
In Manzo v 555/255 Pitt St Pty Ltd (Manzo), Hodgson J noted, obiter, that the common law rule is that payment to one of a number of joint debtors discharges a joint debt and on the basis of that principle, it could be argued that it must be open to one joint creditor to demand payment of a joint debt. His Honour drew a distinction between a debt that is both a debt at common law and in equity, and where there is a debt based on equitable principles only, he held the s 364 notice (an earlier form of statutory demand) had to be signed by all creditors. His Honour noted, again obiter, that another reason why a joint creditor could not sign a statutory demand alone is Bowen, saying:
That case turned on the rights of joint judgment creditors in relation to execution of a judgment, so it is not directly applicable to s 364 notices; although it can be said that there is some analogy between bankruptcy notices and s 364 notices.
In Bentham Management Pty Ltd v Union Finance Pty Ltd (Bentham). Debelle J, (with whom Doyle J and Perry J agreed), obiter touched on Manzo and the question of whether a statutory demand could be issued by one of two joint creditors, saying:
I respectfully suggest that there is a real question whether that is the correct view. The principle that a payment to one of a number of joint creditors discharged the debt jointly due to all of them does not necessarily lead to the conclusion that one joint creditor can demand payment of the whole of the joint debt without the consent of the other lenders. The other lender or lenders might not consent to the demand. They might, say, have reasons which justify giving the debtor time to pay. That might apply a fortiori in the case of a statutory demand upon a company which is capable of leading to the winding up of that company. The lenders may prefer to give the borrower time to pay rather than liquidate the company. The question whether both lenders must execute the statutory demand is an issue for later determination. In any event, even if both lenders had to sign the statutory demand, it would be necessary to consider whether the failure to do so caused substantial injustice and so required the statutory demand to be set aside: see s 469J of the Corporations Act.
In Catalyst Securities Pty Ltd v Pegg (Catalyst), McMurdo J set aside demands by each of nine creditors who had loaned money to the company, because there was only one loan, and none of the demands were made by all of the creditors (although as he noted in aggregate there were statutory demands by all creditors). His Honour noted that it was conceded “that while a debt is owed to two or more creditors, that a statutory demand for that debt must be one which is given by all creditors that is, they all must join in the same notice. See, for example, Re A & K Holdings Pty Ltd (A & K Holdings) and Manzo”.
I do not think that Manzo is authority for the proposition that all creditors must join in the demand, rather that they must do so where the debt is on based on equitable principles. A & K Holdings, offers support for the proposition in one sense, but not in another, as Sholl J held that as a matter of interpretation of the deed, any one of the creditors under a scheme of arrangement could call for repayment of all of the unsecured debts, but that the demand had not been in that form as the creditor had, purportedly pursuant to the deed of arrangement, issued a demand for payment of only the debt owed to it.
In Indaba Pty Ltd v Home Building Society Ltd (Indaba), Sanderson M had to consider the effect of a second statutory demand issued shortly after an earlier demand which earlier demand had not been signed by the creditor to the setting aside of the first notice and was ordered to pay the debtor’s costs. The second demand was signed and otherwise valid. Sanderson M held that the fact that there had been an earlier defective notice did not make it appropriate under s 459J(1)(b) to set aside the second otherwise valid notice. The creditor had agreed to the setting aside of the first notice and was ordered to pay debtor’s costs.
In Thomson’s Corporations Legislation, in the notes to s 459J, under the heading “No insubstantial injustice: examples”, is the following note before reference to Indaba: “a failure to sign demand”. I accept Mr Friedgut’s submission that Indaba is not authority for the proposition that absence of signature will not lead to setting aside of a demand. The unsigned demand was set aside by consent and it was the signed and otherwise valid second demand that the court was then concerned with. I do not accept, however, that the case is authority for the proposition that absence of a signature will lead to the demand being set aside — that was not the subject of the master’s decision but rather was the subject of an earlier concession by the creditor.
I do not regard Hodgson J as having expressed the view that a statutory demand could, in the case of a simple debt, be signed by one of two creditors, only that the point was arguable, and that Bowen would need to be considered in that context. I think there is a further complication, which is that a distinction might be drawn between a demand signed by only one creditor with no reference made to the other creditor(s) and one signed by one creditor, but expressed to be on the authority of both (or all) creditors. The affidavit verifying could in the latter situation then explain the basis of that authority. In my view, a statutory demand is analogous to a bankruptcy notice, and the principle in Bowen is applicable and leads to the result that notice must be given by all creditors or at least on behalf of all joint creditors, and I would respectfully agree with Debelle J’s obiter dictum in Bentham, which incidentally assumes, as I shall do, the correctness of the proposition that the common law treats payment to a joint creditor as payment to all.[35]
[35]Ibid, [14]-[21], (citations omitted).
Rein J concluded:
If the matter rested solely on the failure of the demand to be signed by both creditors (that is both trustees), I think that there would be no substantial injustice in permitting the creditors to proceed on the demand, but the absence of any power given to Downey in the trust deed to act alone, and the absence of any evidence of authorisation, either prospective or retrospective, coupled with allied defects in the affidavit, leading to at least uncertainty about whether the demand was made with Patrick’s authority and the importance of affidavits in the scheme of the statutory demand lead me to conclude that it is appropriate to set aside the demand, even though it can be inferred that the debt is owing and remains unpaid. I will hear the parties on the issue of costs.[36]
[36]Ibid, [40].
Rein J referred to Re A & K Holdings Pty Ltd.[37] It is not necessary, however, to consider this case as the signing requirements were determined by reference to a particular scheme of company arrangement; not the general company law.
[37][1964] VR 257.
In Sharvine Pty Ltd v Bridge and Marine Engineering Pty Ltd,[38] Acting Master Berecry set aside a statutory demand on the basis that there was a genuine dispute as to the amount of the debt, and accordingly, there was no need to decide on the plaintiff’s argument that all joint creditors must join in and sign a statutory demand. His Honour said:
It would seem to me that it is arguable that failing to join a joint creditor and to have the demand signed by or on behalf of that joint creditor is a matter that could not be categorised as a mere defect and therefore the demand does not comply with the requirements of Pt5.4 of the Corporations Act. However, that may be arguable and in my view there is no need for me to make a determination in relation to those submissions.[39]
[38][2001] NSWSC 833.
[39]Ibid, [23].
In Randall Pty Ltd v Chepan Pty Ltd,[40] White J held that the failure of all joint creditors to sign a statutory demand was not a defect. The statutory demand was issued on the basis of a judgment debt owed jointly to two creditors; a company and a natural person. The natural person died after judgment, and probate was granted to three executors. The company and one executor had signed the statutory demand. The signing executor had the permission and authority of the other two to issue the demand on behalf of the estate. The other two executors did not join in or sign the statutory demand. White J said:
I turn then to the second ground of challenge to the demand. The question whether all creditors must join in signing a statutory demand for a debt owed to them jointly is unsettled (Farid Assaf, Statutory Demands: Law and Practice at [2.14]; Manzo v 555/255 Pitt Street Pty Ltd; Bentham Management Pty Ltd v Union Finance Pty Ltd). Each joint owner of property held on a joint tenancy has title to the whole of the property. Payment of a joint debt to one creditor discharges the debt. On the other hand, all joint creditors were required to be joined in an action at law to recover a joint debt. But, one joint creditor could compel the others to lend their names to the action on being indemnified against liability for costs; and they could be joined as defendants (Australian Workers’ Union v Bowen). Proceedings are not defeated merely because of the non-joinder of a person as a party (Uniform Civil Procedure Rules (2005), r 16.23).
In Manzo v 555/255 Pitt Street Pty Ltd , Hodgson J (as his Honour then was) said that because payment to one of a number of joint creditors discharges a joint debt “it could be argued that it must be open to one joint creditor to demand payment of a joint debt”. His Honour said if the debt were not a joint debt in equity as well as at law, all creditors should join in the demand (at 8).[41]
[40][2009] NSWSC 783 (Randall).
[41]Ibid, [22]-[23], (citations omitted).
On the relationship between statutory demands and bankruptcy notices, White J said:
I do not think that Australian Workers’ Union v Bowen dictates the outcome of the present issue. That is so for a number of reasons. First, in this case all of the executors did authorise Mrs Kallinicos to sign the statutory demand. Secondly, in serving the statutory demand, the defendants were not executing the judgment. Thirdly, as the Court of Appeal observed in Quitstar Pty Ltd v Cooline Pacific Pty Ltd, cases on bankruptcy notices cannot be simply transcribed to the law on statutory demands.[42]
[42]Ibid, [27] (citations omitted).
Ultimately, White J held that the failure of the two executors to join in and sign the demand was not a defect:
In Bentham Management Pty Ltd v Union Finance Pty Ltd, Debelle J said that the principle that a payment to one of a number of joint creditors discharges a debt jointly due to all of them does not “necessarily lead to the conclusion” that one joint creditor can demand payment of the whole of the joint debt without the consent of the other lenders. However, in the case of a debt owed to a testator which becomes owed to executors of an estate, I think it clear that one co-executor can demand payment of the debt and that the demand will bind the estate. Subject to contrary provision made by statute (see Conveyancing Act 1919 (NSW), s 153) each executor has the entire control of the testator’s estate and can release or demand payment of a debt owed to the estate or pay a debt owed by the estate, without the concurrence of the other executors (Jacomb v Harwood; Union Bank of Australia v Harrison, Jones & Devlin Ltd; Exception Holdings Pty Ltd (in liq) v Albarran; and Johnson v Trotterat).
In my view Mrs Kallinicos, by virtue of her office as one of the executors, was entitled to act so as to bind the estate with the consequences of service of the demand. She did not need the concurrence of her co-executors to the demand and therefore the absence of their signatures on the demand was not a defect. Even if that conclusion be wrong, and Mrs Kallinicos did not have the right to sign the demand without the concurrence of her co-executors, she had their concurrence and authority to do so. If, which I do not accept, there were a defect by reason of the other executors not signing the demand, it is not a defect which would occasion substantial injustice. Nor would it provide some other reason for setting aside the demand. For these reasons the second ground of challenge to the demand also fails.[43]
[43]Ibid, [28], [30] (citations omitted).
In Re Australia Seiwa Pty Ltd,[44] Black J considered applications to set aside statutory demands on the basis that they were not signed by all joint creditors. The statutory demands sought payment of judgment debts, and therefore affidavits in support were not required. The demands referred to both joint creditors together as the ‘creditor’, but they were only signed by one of the joint creditors. The demands were served under cover of letter stating ‘Please find attached statutory demand from Malcolm James Beard and Gregory Charles Ralph in relation to the judgment order…’ Only Mr Ralph signed the demands and the covering letter. The plaintiff argued it was unclear whether the demands were issued with Mr Beard’s authority. Black J found that Mr Beard had authorised Mr Ralph to issue the demands, and also that the judgment debt was partnership property and as partners, Mr Ralph had authority to issue the demands in any event. His Honour said:
The question whether a statutory demand can be issued by one of a number of joint creditors is unclear, with some conflict in the authorities: Manzo v 555/255 Pitt Street Pty Ltd (expressing a tentative view that it could be argued that it must be open to one joint creditor to demand payment of a joint debt); Bentham Management Pty Ltd v Union Finance Pty Ltd (questioning that view); Randall Pty Ltd v Chepan Pty Ltd; F Assaf, Statutory Demands and Winding Up in Insolvency, 2nd ed, LexisNexis Butterworths, 2012 at [2.21].
In the context of bankruptcy, the majority of the High Court held that all joint debtors are required to authorise the service of a bankruptcy notice founded on a judgment debt to which joint judgment creditors are entitled: Australian Workers’ Union v Bowen. However, that decision is not determinative of the present case, which is distinguishable because (as I will find below) Mr Beard in fact authorised Mr Ralph to serve (and implicitly to sign) the Demands; the service of those Demands did not amount to execution of a judgment; and, in any event, cases on bankruptcy notices are not necessarily applicable in respect of statutory demands; compare Randall Pty Ltd v Chepan Pty Ltd.
The question whether a statutory demand was signed by one of two creditors, being one of two trustees of a superannuation fund, was considered by Rein J in 115 Constitution Road Pty Ltd v Downey. His Honour there found that there was a defect in that statutory demand where it was signed by only one of the two trustees, but would not have set it aside on that basis alone where there would be no substantial injustice in permitting the creditors to proceed on the statutory demand. His Honour set aside the statutory demand in that case on the basis that the signatory of the statutory demand did not have actual authority to act alone, since that authority was not conferred by the relevant trust deed and there was no evidence of either prospective or retrospective authorisation of the statutory demand by the other trustee. That second feature is absent in this case, as I will find below. In Randall Pty Ltd v Chepan Pty Ltd, White J declined to set aside a statutory demand that had been signed by only one of two joint creditors, where the debt was due to joint creditors in their capacity as executors of a deceased estate and a single executor could bind an estate without the need for concurrence by other executors.
In the present case, Mr Beard’s evidence is that he in fact had authorised Mr Ralph to issue the Demands. That authorisation necessarily implied authority to take steps to sign the Demands; compare, in respect of solicitors’ authority to sign statutory demands, Dennis Hanger Pty Ltd v Kanambra Pty Ltd; Hawkins Construction (Australia) Pty Ltd v Mac’s Industrial Pipework Pty Ltd. The Plaintiffs contend that there was “no evidence at the time the Demands were received” of such authority; however, the question for the purposes of s 459E(2)(f) is not whether there was evidence provided to the Companies of such authority at that time, but whether such authority existed, so that the Demands were in fact signed on behalf of the creditor.
…
In my view, the requirements of s 459E(2)(f) of the Corporations Act were therefore satisfied since the Demands were signed by Mr Ralph on behalf of the creditor, and with Mr Beard’s authority, whether the creditor is characterised as Mr Ralph and Mr Beard jointly or as the Partnership of which they are partners. The Plaintiffs’ claim relying on s 459E(2)(f) of the Corporations Act therefore does not succeed. The Plaintiffs also accepted in submissions that, if there were no more than a defect in the Demands by reason of a failure by Mr Beard to sign them, that defect would fall within s 459J(1)(a) of the Corporations Act and they would need to show substantial injustice in order to set aside the Demands. There is, in my view, no evidence in this case which would support a finding of substantial injustice.[45]
[44][2012] NSWSC 1334 (Seiwa).
[45]Ibid, [6]-[9], [12] (citations omitted).
The position in relation to bankruptcy notices was explained at length in Rookharp Pty Ltd v Webb[46] where Barnes FM set out the High Court and Federal Court authorities then held that a bankruptcy notice must be issued by all joint creditors.[47]
[46](2011) 254 FLR 410.
[47]Ibid, [81]-[82].
Bankruptcy notices were again at issue in McIntyre v Gye.[48] There, Davies, Burchett and Gummow JJ considered a case involving joint creditors and a bankrupt debtor. The facts of this case are not similar to the case at hand, however, the case sets out some useful principles.
[48](1994) 51 FCR 472 (Gye).
Two creditors jointly owned a debt comprising costs orders in their favour. The creditors voluntarily severed their joint tenancy, and later issued a bankruptcy notice demanding payment to them. The severance meant the creditors became trustees jointly for themselves as beneficial owners of distinct portions of those debts. The bankruptcy notice did not mention the agreement by which the joint creditors severed the joint tenancy. In the appeal before the Full Court, the debtor challenged the validity of the bankruptcy notice.
Davies, Burchett and Gummow JJ held that ‘the bankruptcy notice was a nullity because it could reasonably mislead the debtor as to what was necessary to comply with it’.[49] The notice could have misled the debtor in relation to what would be sufficient to effect payment of the debt. It did not matter that the debtor had notice of the severance; the debtor need not actually be misled.[50] The fact that the bankruptcy notice effectively ignored the severance meant that the bankruptcy notice was misleading.
[49]Ibid, 485.
[50]Ibid, 484.
The Court also set out some general principles, as follows:
(a)Payment to one of multiple joint creditors discharges a debt owed to them jointly at law;
(b)Notice need not be given to the debtor in order for an equitable assignment of a presently existing legal chose in action to be valid. If the debtor pays the assignor before notice of the assignment is received, the debtor is discharged from liability. In that case, the assignee only has a remedy against the assignor;
(c)Once the debtor has notice of the assignment, he/she cannot ignore it. If the debtor pays the assignor, and assignee may require the debtor to pay again; and
(d)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. The Court said that this principle meant that the joint creditors would have to be party to each other’s actions to recover 50% of the costs orders.[51]
[51]Ibid, 479-480.
The primary judge said that a judgment creditor can only issue a bankruptcy notice if he/she is in a position to issue execution, and he/she would only be able to issue execution jointly with the other joint creditors. The primary judge held that there was no issue in this regard, because both joint creditors were party to the bankruptcy notice.[52] The Full Court did not decide the case on the basis of the availability of execution, but it did refer to the principle that when the bankruptcy notice is served, the creditor must be able to receive payment such that if the debtor pays, no further claim can be made against the debtor for the debt.[53]
[52]Ibid, 483.
[53]Ibid, 484-485.
Who must sign the statutory demand - analysis
Assaf says the position is unsettled, but the better view is that all joint creditors must sign the statutory demand.[54] This is consistent with the position for bankruptcy notices.
[54]Assaf, above n 30, 2.19.
The weight of opinion is that a statutory demand must be signed by all joint creditors, or with the authority of all joint creditors. If the demand is not signed by all joint creditors, and the supporting affidavit does not say that the signing creditor has authority to sign on behalf of the other joint creditors, the demand is defective and there is substantial injustice. There will be no substantial injustice, however, if at the setting aside hearing the signing creditor establishes with evidence that he/she did in fact have authority. In that situation, the demand cannot be set aside under s 459J(1)(a) of the Act.
The rationale for this rule requiring all joint creditors to sign the statutory demand is that, at law, a joint creditor cannot sue for the entire debt without the consent of the other joint creditors. This is so despite the fact that payment to one joint creditor discharges the debt. If a single joint creditor cannot sue for the debt, he/she should not be able to issue a statutory demand in respect of the debt.
However, in circumstances where a joint creditor can sue without the consent of the joint creditors, the rationale for the rule falls away. Accordingly, in those circumstances, the failure of all joint creditors to sign will not be a defect within the meaning of s 459J(1)(a). This is the broad position. The narrow position would be that in those circumstances, the failure of all joint creditors to sign will be a defect, but there will be no substantial injustice.
Examples of such circumstances are:
(a)Where the joint creditors are partners. One partner, as agent, can bind the other partners. No express authority is needed. Further, a note on the form for statutory demands prescribed by the Act says that the demand may be signed by a partner on behalf of a partnership (Seiwa).
(b)Where the joint creditors are co-executors. One executor can bind the others without an express authority (Randall).
In my opinion, there may be added to that list one more circumstance: where one of the joint creditors is bankrupt. As discussed above, s 62 of the Bankruptcy Act refers to suing or being sued on a contract. It does not cover issuing a statutory demand. But the rule about joint creditors each signing the statutory demand stems from joint creditors’ ability to sue on the debt. Section 62 allows a joint creditor to sue on a contract without joining the trustee in bankruptcy as a party.[55] It follows that where there are two joint creditors, and one is bankrupt, the non-bankrupt joint creditor may issue a statutory demand without the trustee in bankruptcy joining in or signing the demand.
[55]I note s 60 of the Bankruptcy Act, which allows the court to stay legal proceedings. This section, however, has no application to a joint creditor suing on a contract without joining the trustee. The court does not have power under s 60 to stay such an action. So, the position remains that the joint creditor can sue to recover a debt without the trustee being joined to the action.
Accordingly, in the present case, the trustee in bankruptcy need not sign the statutory demand. The demand is not, therefore, defective by reason of Mrs Vlahos alone signing the statutory demand.
This may appear contrary to Gye and Manzo v 555/255 Pitt St Pty Ltd,[56] which suggest that where property is held by tenants in common at equity, all tenants must consent to the bringing of proceedings. This procedural position is overridden by s 62 of the Bankruptcy Act. So despite Gye and Manzo, s 62 situations may be added to the above list with partnerships and executors.
[56](1990) 21 NSWLR 1 (Manzo).
For these reasons, I conclude that the statutory notice is not defective as it was signed by Mrs Vlahos alone and for the full amount of the award.
Conclusion
In conclusion, I have rejected the ground relying on Mrs Vlahos signing the statutory notice alone and for the full amount of the award and I have also rejected the challenges to the wording of the statutory notice and the affidavit in support. Accordingly, I dismiss the plaintiff’s application.
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