Stergis v Boucher

[1989] FCA 120

Re: DONALD ANDREW BUNN
Ex parte: MARJORIE DALZIEL BUNN
No. P2021 of 1988
FED No. 120
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Neaves J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - Notice requiring payment of judgment debt to petitioning creditor's solicitors - Requirement not "in accordance with the judgment or order" - Validity.

Bankruptcy - Creditor's petition - Debt due under order of Family Court of Australia - Order charging debt on real property and providing for sale of real property upon default in payment - Whether petitioning creditor a secured creditor - Whether petitioning creditor able to surrender security to the trustee in bankruptcy for benefit of creditors generally in event of sequestration.

Bankruptcy Act 1966 (Cth), ss.5(1), 40(1)(g), 41, 44

Family Law Act 1975 (Cth), ss.79, 79A, 80

HEARING

CANBERRA

#DATE 7:4:1989

Counsel for the petitioner :Mr D.B. McGovern

Solicitors for the petitioner:Macphillamy Cummins & Gibson

Counsel for the debtor :Mr B. Meagher

Solicitors for the debtor :Boardman Allport Bell & Finlayson

ORDER

The petition be dismissed.

There be no order as to costs.

Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

JUDGE1

Marjorie Dalziel Bunn ("the petitioner") has petitioned the Court for the sequestration under the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") of the estate of her husband, Donald Andrew Bunn ("the debtor"). The petition is opposed by the debtor on a number of grounds.

1. The petition, which was presented on 6 September 1988, alleges that the debtor is indebted to the petitioner in the sum of $276,450.20. That sum is said to comprise the amount of $212,654.00 ordered to be paid by the debtor to the petitioner by the Family Court of Australia on 4 December 1986, together with interest on that amount at the rate of 15 per centum per annum from 30 August 1986 to 30 August 1988 amounting to $63,796.20. The petition is founded on an act of bankruptcy consisting in the failure of the debtor on or before 8 April 1988 either to comply with the requirements of a bankruptcy notice served on him on 18 March 1988 or to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or exceeding the amount claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment was obtained. (It may be noted, however, that the word "not" has been inadvertently omitted from the statement of the act of bankruptcy in the petition.) The petition further states that the petitioner holds security over part of the property of the debtor for payment of the debt, being a charge created by an order of the Family Court of Australia, but that she is willing to surrender the security for the benefit of the creditors generally in the event of a sequestration order being made against the estate of the debtor.

2. The bankruptcy notice, which was issued on 8 March 1988, recites that the petitioner has claimed that the sum of $212.654.00 together with interest thereon at the rate of 15 per centum per annum from 30 August 1986 to 3 March 1988 amounting to $50,545.20 making a total of $263,199.20 is due by the debtor under a final order obtained by the petitioner in the Full Court of the Family Court of Australia on 4 December 1986 and that execution of that order has not been stayed. The notice continues -
   

"THEREFORE TAKE NOTICE that within 21 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 $263,199.20 so claimed by the judgment creditor to the judgment creditor's Solicitors Messrs Tietyens 558 Kiewa Street Albury NSW 2640 - OR -

(B) to secure the payment of the sum referred to in paragraph (A) to the satisfaction of the Federal Court of Australia or the judgment creditor (or his agent whose name and address are Tietyens 558 Kiewa Street Albury NSW 2640) or compound the sum so specified to the satisfaction of the judgment creditor (or his agent): AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the above-mentioned requirements of this notice or to satisfy the Federal Court of Australia that you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph

(A) of this notice, being a counter-claim, set-off or cross demand that you could not have set up in the action/proceeding in which the judgment/order was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you."

1. The order of the Family Court of Australia referred to in the bankruptcy notice and the petition is an order made by a Full Court of that Court allowing an appeal by the petitioner against an order made by a single Judge of that Court on 30 May 1986. The Full Court ordered, inter alia, that pars 1 to 4 inclusive of that order be set aside and the following paragraphs substituted -
   

"1. That the husband pay to the wife on or before the 31 (sic) day of December, 1986 the sum of $212,654.

2. That the husband pay interest upon the said sum or on so much thereof as shall remain unpaid from time to time calculated as from the 30 August, 1986 at the rate of 15% per annum until payment of the whole of the said sum.

3. That the husband's interest in all the property identified in the Schedule hereto be charged with the payment of the sums required to be paid by him pursuant to paragraphs 1 and 2 hereof.

4. That in the event of the husband failing to comply with paragraph 1 hereof the husband's interest in the property known as Warrawong (described in the said Schedule) shall be sold forthwith per medium of a licensed real estate agent appointed by the wife and the terms and conditions of such sale to be determined by that agent in consultation with the wife and the net proceeds of such sale shall be paid to the wife in part or total satisfaction of all or any moneys outstanding pursuant to paragraphs 1 and 2 hereof.

5. That on or before the 11 day of January, 1987 the wife file an estimate of the costs of and incidental to the proceedings (including details of the disbursements) incurred by the wife up to the date hereof together with any submissions in support of her application for the payment by the husband of the whole or part thereof.

6. That on or before the 11 day of January, 1987 the wife serve on the husband a copy of the said estimate and of the said submissions by forwarding copies thereof by prepaid post to the husband at his usual address.

7. Liberty to apply."

The schedule to the order identified the following property -

"(i) Warrawong, being the land situated in the Shire of Hume Parish of Moorwatha being the land in Certificates of Title Volume 7441 Folios 173 to 177 inclusive.

(ii) Shares in Boxwood Park Pty Ltd.

(iii) Six aircraft, namely VH-ACS, VH-BUF, VH-BKC, VH-HYT, VH-PZA and VH-ATN.

(iv) All machinery, plant, equipment and livestock which are at the date of the making of this order located on any of the properties known as Warrawong, Boxwood Park and Avondale.

(v) Money presently in account No.210833 with the Westpac Banking Corporation, Albury."

1. It may be accepted, no submission to the contrary having been made, that the order of the Family Court of Australia was made in exercise of the powers conferred upon that Court by ss.79 and 80 of the Family Law Act 1975 (Cth). Section 79, a provision of Part VIII of the Act, provides, so far as material, that, in proceedings with respect to the property of the parties to a marriage or either of them, the Court may make such order as it thinks fit altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the Court determines (sub-s.79(1)). Under s.80, the Court, in exercising its powers under Part VIII, may order payment of a lump sum, whether in one amount or by instalments (par.(a)), may order that payment of any sum ordered to be paid be wholly or partly secured in such manner as the Court directs (par.(c)) and may make any other order (whether or not of the same nature as those mentioned in the preceding paragraphs of the section) which it thinks it is necessary to make to do justice (par.(k)).

2. One of the grounds of opposition to the petition is that the order made by the Family Court of Australia on 4 December 1986 is not a final order within the meaning of that expression in s.40(1)(g) of the Bankruptcy Act and is, therefore, not an order upon which a bankruptcy notice may be founded. Counsel for the debtor submitted that, although the first two paragraphs of the order substituted by the Full Court of the Family Court of Australia for that made by a single Judge of that Court on 30 May 1986 would, if standing alone, properly be regarded as amounting to a final order, those paragraphs are deprived of the character of finality by the qualification upon them which, according to the submission, is to be found in the third and fourth pargraphs of that order.

3. In my opinion, this ground of opposition fails. The third and fourth paragraphs of the order are properly characterised as affording to the petitioner a means of securing payment of the sum specified in the first paragraph, viz. $212.654.00, plus interest calculated in accordance with the second paragraph in the event of the failure of the debtor to pay the amount of $212,654.00 by 31 December 1986. So considered, those paragraphs do not detract from the character of the order as a final order. Although the order in this case differs from that considered by a Full Court of this Court in Re Nemeth; Ex parte Nemeth (1987) 15 FCR 155, the reasoning in that case clearly supports the conclusion that the order in this case is a final order for the purposes of s.40(1)(g) of the Bankruptcy Act.

4. A further ground of opposition is raised concerning the statement in the petition that the petitioner holds security over part of the property of the debtor for payment of the judgment debt but that she is willing, in the event of a sequestration order being made, to surrender the security for the benefit of the creditors generally. The ground of opposition is that the petitioner "cannot surrender the security because of the Family Court Orders". The petitioner contests that proposition and argues, in the alternative, that notwithstanding the assertion in the petition that she holds security over part of the property of the debtor, the order of the Full Court of the Family Court of Australia does not operate so as to make her a "secured creditor" within the meaning of that expression in s.5(1) of the Bankruptcy Act.

5. The submissions in relation to the questions thus raised have focussed solely upon the debtor's interest in the real property known as Warrawong. In that connection, the Court has been informed, without objection, that the order of the Family Court of Australia is registered in the register of causes, writs, and orders affecting land established under Division XXIII of the Conveyancing Act, 1919 (NSW). It should be mentioned that there is no evidence before the Court as to the extent of the debtor's interest in that property or, indeed, as to the interest (if any) which he has in any of the other property mentioned in the schedule to the order of the Family Court of Australia.

6. Section 44 of the Bankruptcy Act provides:
   

"(1) A creditor's petition shall not be presented against a debtor unless -

(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $1,500 or 2 or more debts that amount in the aggregate to $1,500, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $1,500;

(b) that debt, or each of those debts, as the case may be -

(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and

(ii) is payable either immediately or at a certain future time; and

(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.

(2) Subject to sub-section (3), a secured creditor shall, for the purposes of paragraph

(1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him exceeds the value of his security.

(3) A secured creditor may present, or join in presenting, a creditor's petition as if he were an unsecured creditor if he includes in the petition a statement that he is willing to surrender his security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.

(4) Where a petitioning creditor is a secured creditor, he shall set out in the petition particulars of his security.

(5) Where a secured creditor has presented, or joined in presenting, a creditor's petition as if he were an unsecured creditor, he shall, upon request in writing by the trustee within the prescribed time after the making of a sequestration order, surrender his security to the trustee for the benefit of the creditors generally.

(6) A secured creditor to whom sub-section

(5) applies who fails to surrender his security when requested to do so by the trustee in accordance with that sub-section is guilty of contempt of court."

The expression "secured creditor" in relation to a debtor is defined in s.5(1) to mean "a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him from the debtor".

1. It is well established that, in the absence of statutory provision, a judgment for the payment of money does not create a charge or lien on the judgment debtor's land so as to constitute the judgment creditor a secured creditor of the debtor: Hall v. Richards (1961) 108 CLR 84 per Kitto J. at pp 93-4 and per Menzies J. at p 103. On the other hand, it is not necessary, in order that a creditor be a secured creditor within the meaning of that expression in s.5(1) of the Bankruptcy Act, that the mortgage, charge or lien on the property be created by the debtor. Thus, in Re Lamprill; Ex parte City of Hobart (1933) 6 ABC 174 at 176, Lukin J., speaking of a definition in identical terms, said:
   

"It will be noted that the words 'person holding a mortgage, charge, etc.' are wider than the words 'a person to whom the bankrupt or debtor has given a mortgage, charge, etc.' The former includes a statutorily created charge - the latter may not."

By analogy, the words are apt to include a charge created by an order of a superior court.

1. In Hall v. Richards (supra), certain creditors of one Homann, who subsequently became a bankrupt, had obtained judgments against him for divers sums of money and had entered caveats under the provisions of the Real Property Acts of the State of Tasmania in respect of certain land of which Homann was the registered proprietor. The entry of the caveats was held not to constitute the creditors secured creditors for the purposes of the Bankruptcy Act 1924-1958 (Cth). In considering what was necessary to constitute a "charge" or "lien" for the purposes of that Act, Kitto J. at pp 91-2 said:
   

"A fi. fa. 'binds' the execution debtor's goods - it did so at common law from the date of the teste and since the Statute of Frauds it binds them (as between the creditor and third parties) from delivery of the writ to the sheriff (see now Sale of Goods Act, 1896 (Tas.), s.31); but this means only that no dealing with any of the goods which belong to the debtor when the writ becomes binding can alter the fact that they are goods which the writ requires the sheriff to seize and sell. It gives the creditor neither property in the goods nor possession of them (and consequently no lien in the sense of the Bankruptcy Acts), and as against an assignee in bankruptcy of the debtor it gives the creditor no right at all with respect to the goods: all the creditor has as against the assignee is his judgment; and it was early enacted, by s.9 of 21 Jac. c. 19, that that, though called a security, should gain him no greater right to get more than a ratable portion of his debt. But seizure by the sheriff under the fi. fa. is different. Though it does not give the execution creditor any property in the goods seized, it places those goods in custodia legis, the sheriff having the special property in them which is necessary for their safe custody and 'to render the execution of his public duty useful to the judgment-creditor',as Tindal C.J. put it in Giles v. Grover (1832) 9 Bing 128, at p 267 (131 ER 563, at p 615). By the seizure the creditor acquires a legal right to have the sheriff's duty performed in respect of the particular goods: that is, a right to have them sold and to be paid out of the proceeds of sale; and a 'binding' effect which goes as far as that is enough to constitute a 'charge' and make the creditor a 'secured creditor' within the definition, so that if it were not for such provisions as those of s.92 of the Australian Act he might realize his security (under s.60(3)) by completion of the execution (McQuarrie v. Jaques (1954) 92 CLR 262, at pp 273, 306). The analogy in the case of a garnishee order is obvious. Such an order, though not working an assignment or giving the judgment creditor any proprietary interest in the debt, yet gives him positive rights with respect to it which a creditor having no more than a judgment does not possess; not merely a negative right to prevent the judgment debtor from accepting payment of the debt or disposing of it, but positive rights for the recovery of what is owing on the judgment, namely a right to give a valid receipt and discharge for the money, and a right in case of non-payment to obtain execution against the garnishee: In re Combined Weighing and Advertising Machine Co. (1889) 43 Ch D 99, at pp 105, 106.

To turn to the case of the appellants is to see the contrast at once. The entry of their caveat gave them no new positive rights. It ensured that they would have time in which to exercise against the land in question the right, which they possessed antecedently, to enforce their judgment by means of a fi. fa.; but that is all. That was a right, incidentally, which by force of s.92 (of the Bankruptcy Act) must come to an end on the bankruptcy of the judgment creditor; and in that fact alone there is a formidable answer to the whole of the appellants' contention in the case. But let that be put aside. The appellants had no other right or remedy for the recovery of their money out of the land than any other judgment creditor had. The legal effect of the caveat, as has often been said of caveats under the ordinary caveat provisions of Torrens legislation, was that of a statutory injunction, serving merely to keep property available in case the judgment creditor should wish to have execution against it; and it is clear on the authorities abovementioned that to apply the term 'lien', or even the term 'charge', to anything which has no greater effect than that is to depart from the terminology of the Bankruptcy Act."

1. The order made by the Full Court of the Family Court of Australia on which the petition is founded clearly purports to confer on the petitioner rights exercisable against identified real property of the debtor as a means of enforcing the obligation to make the payments for which the order provides. The effect of the order is, in terms of s.80(c) of the Family Law Act, to secure the payment of the sums ordered to be paid. The debt is secured not, it is true, by operating to transfer the property to the petitioner but by creating a charge on that property by the enforcement of which the petitioner may obtain payment of the sums ordered to be paid. Reference has already been made to the fact that the order has been registered in the register of causes, writs, and orders affecting land established under Part XXIII of the Conveyancing Act, 1919 (NSW). Section 189 of that Act provides that no judgment is to operate as a charge on land unless and until the writ or order for the purpose of enforcing it is registered in the register. Section 191(1) provides that, in the case of land under the provisions of the Real Property Act, 1900 (NSW), the provisions of Division XXIII extend only to such orders and charges as would be effective against the land without any entry in the register book under that Act. It was not suggested in the present case that s.191(1) would preclude the application of s.189 to the order of the Family Court of Australia.

2. In addition to creating a charge on the property, the order confers a positive right upon the petitioner to sell the debtor's interest in the property. That right was not to arise upon the making of the order but only if default occurred in the payment of the sum of $212.654.00 by 31 December 1986. There was a failure to make that payment by the due date and the matter falls to be considered on the basis that, at the date of the presentation of the petition, the petitioner was possessed of a right to recover the debt due to her by sale of property which belonged to the debtor.

3. By reason of the matters to which I have referred, I am of opinion that the petitioner is, in respect of the debt in question, a secured creditor of the debtor.

4. It can be said that the petitioner, as a secured creditor, has satisfied the requirements of s.44(3) of the Bankruptcy Act by including in the petition a statement that she is willing to surrender her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor. But, it is, I think, implicit in the language of that provision that the petitioner must not only include such a statement in the petition, but must also have the capacity to surrender the security for the benefit of creditors generally if required by the trustee of the bankrupt estate to do so in accordance with s.44(5).

5. In support of his contention that the petitioner could surrender her security, counsel for the petitioner referred to the decision of Long Innes J. in Re Huntingdon; Ex parte Warringah Shire Council (1935) 8 ABC 161. In that case, the council petitioned for the making of a sequestration order against the debtor, the petition being based upon a judgment obtained for arrears of rates on certain allotments of land. The council was held to be a secured creditor in respect of the debt by reason of s.152(1) of the Local Government Act, 1919 - 1930 (NSW) but the petition was dismissed on the ground that the council had failed to state that it was willing to surrender the security for the benefit of the creditors generally in the event of a sequestration order being made. The question whether the council had the capacity to surrender the charge statutorily created was not decided and, so far as the report of the case shows, it was not argued. On the other hand, in Re Cheyne; Ex parte Willoughby Municipal Council (1958) 18 ABC 179, Clyne J. expressed the opinion, without supporting that opinion with reasons, that a local council could not surrender a statutorily created charge over land in respect of unpaid rates.

6. In my opinion, the petitioner lacks the capacity to surrender her security for the benefit of the creditors generally. A number of considerations lead me to that conclusion. One of those considerations is the nature of the power exercised by the Family Court of Australia in making the order creating the security. That power is a power to alter the proprietary interests inter se of the parties to a marriage. Any benefit which an order made under that power may confer on one of the parties to the marriage is clearly intended as a benefit personal to the recipient. It would be quite foreign to the underlying object and purpose of the legislative provisions to treat the recipient of the benefit as having a capacity to surrender that benefit in favour of the creditors of the other party to the marriage. A further consideration is the position in which the trustee would find himself in the event of a sequestration order being made against the debtor. The debtor's interest in the real property would vest in the trustee subject to the charge created by the order of the Family Court of Australia and the power of sale which that order confers. Under the terms of the order, the charge on the debtor's interest in the property remains effective until such time as the amount of $212,654.00 and interest is paid to the petitioner or until the debtor's interest in the property is sold in the manner therein provided. No action on the part of the petitioner could alter that position. The position could only be altered by an order of the Family Court of Australia made in exercise of the power to vary its earlier order conferred upon it by s.79A of the Family Law Act.

7. It follows, in my opinion, that the petitioner was not entitled to present the petition now before the Court.

8. Counsel for the debtor also raised a question in relation to the bankruptcy notice on which the petition is based. He drew attention to the fact that the amount claimed by way of interest was overstated by an amount in excess of $2,000. Although the notice of intention to oppose the petition filed on behalf of the debtor set out as one of the grounds of opposition that the bankruptcy notice was thereby rendered invalid, that ground was not persisted in in view of the circumstance that the debtor had not complied with the requirement of s.41(5) of the Bankruptcy Act by giving notice to the creditor, within the time allowed for payment specified in the notice, that he disputed the validity of the notice on the ground of the mis-statement. Counsel submitted, however, that it is a matter to be taken into account by the Court in exercising its discretion whether to make a sequestration order. In the light of the conclusion to which I have come upon the other questions argued, it is unnecessary to consider this aspect further.

9. During the course of the hearing, the question was raised by the Court whether the bankruptcy notice is invalid in that it requires the debtor to pay the amount claimed not to the petitioner but to the petitioner's solicitors. Subsequently, the debtor included this matter as one of the grounds upon which he opposed the petition.

10. Under s.41 of the Bankruptcy Act, a bankruptcy notice is to be in accordance with the prescribed form (s.41(1)). The prescribed form is to be such that the notice requires the debtor, within a specified time, to pay the judgment debt or sum ordered to be paid "in accordance with the judgment or order" ( s.41(2)).

11. It is submitted on behalf of the petitioner that the bankruptcy notice, on its proper construction, does not require payment of the debt to be made to the firm of solicitors named but rather identifies the solicitors as being the agent of the petitioner authorised to receive payment of, and give a discharge for, the debt. I am unable to accept that this is the true meaning of the bankruptcy notice. It seems to me that the notice can only be read as requiring the debtor to pay the debt to the solicitors at the address stated and as informing him that, unless he does so, or satisfies the alternative requirements of the notice, he will commit an act of bankruptcy. So construed, the bankruptcy notice is clearly invalid as the requirement to pay the debt to the solicitors is not in accordance with the order of the Family Court of Australia on which the notice is founded. That order does not require payment to the petitioner's solicitors: it requires payment to the petitioner. The conclusion that the bankruptcy notice is invalid is supported by the decision of the High Court in James v. Federal Commissioner of Taxation (1955) 93 CLR 631 and the decision of Gibbs J. sitting as the Federal Court of Bankruptcy in Re Martin; Ex parte Government Employees' Finance and Industrial Loan Corporation (1969) 13 FLR 353.

12. For the reasons set out above, the petition is dismissed. In relation to the question of costs, I take into account that the debtor took no steps to set aside the bankruptcy notice and did not initially rely on the ground that the notice was invalid as requiring payment of the amount claimed to be made to the petitioner's solicitors. I also take into account that the substantial part of the hearing was concerned with submissions on other aspects, and that each party has had some measure of success in relation thereto. In all the circumstances, I think it is appropriate to make no order as to costs.