Sutherland v Vale
[2007] FMCA 1617
•2 October 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SUTHERLAND v VALE | [2007] FMCA 1617 |
| BANKRUPTCY – Application for possession of land – bankruptcy notice under s.139ZQ of the Bankruptcy Act 1966 (Cth) – valuation of property interest transferred – cross claim seeking to have notice set aside. |
| Bankruptcy Act 1966 (Cth), ss.5, 58, 77C, 115, 120, 139ZQ, 139ZR 139ZS Conveyancing Act 1919 (NSW), s.111(2)(b) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.2 Income Tax Assessment Act 1936 (Cth), s.218 Real Property Act 1900 (Cth), ss.57(2), 60 Stamp Duties Act 1920 (NSW), s.68 Valuers Registration Act 1975 (NSW) Valuers Regulation 2005 (NSW) |
| Corin & Anor v Patton (1990) 169 CLR 540 Jabbour v Official Receiver & Ors [2002] FMCA 28 Lin v Official Trustee in Bankruptcy (No.1) [2001] FMCA 106 Marchesi v Apostoulou [2006] FCA 1122 Milroy v Lord (1862) 4 De GF & J 264 Morrisey & Anor v Bright [1978] 2 NSWLR 1 Perpetual Trustee Co Ltd v Holdsworth [1966] NSWR 7555 Re Aley; Ex parte Sweeney v Aley and Another (1996) 63 FCR 294 Re Kuch; Ex parte Kuch v Official Trustee in Bankruptcy, No VB 2754 of 1992 FED No 955/95 (unreported) Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera and Others (1994) FCR 329 Re McInnes; McInnes v Official Receiver in Bankruptcy, No NB23 of 1999 FED No 882/94 Bankruptcy (unreported) Re McLennon; Ex parte SWF Hoists & Industrial Equipment Pty Ltd v Prebble (1995) 130 ALR 609 The Electricity Commission of New South Wales (trading as Pacific Power) v Arrow – BC9404936 The New South Wales Court of Appeal (unreported) |
| McQuade, Paul and Gronow, Michael, McDonald, Henry & Meek: Australian Bankruptcy Law & Practice, Lawbook Co. |
| Applicant: | RODERICK MACKAY SUTHERLAND |
| Respondent: | MALCOLM GEOFFREY VALE |
| File number: | SYG1140 of 2006 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 16 November 2006 |
| Delivered at: | Sydney |
| Delivered on: | 2 October 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr B Skinner |
| Solicitors for the Applicant: | Sparke Helmore |
| Counsel for the Respondent: | Mr JT Johnson |
| Solicitors for the Respondent: | Watson Mangioni |
ORDERS
The cross claim filed on 29 May 2006 is upheld.
The notice issued pursuant to s.139ZQ of the Bankruptcy Act 1966 (Cth) is set aside.
The application seeking possession of the respondent’s properties is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1140 of 2006
| RODERICK MACKAY SUTHERLAND |
Applicant
And
| MALCOLM GEOFFREY VALE |
Respondent
REASONS FOR JUDGMENT
The Proceedings
This is an application under r.2 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) filed in the Federal Magistrates Court of Australia on 19 April 2006, seeking orders for the possession of the respondent’s properties and judgment for Mr Sutherland, the applicant, against Mr Vale, the respondent, together with interest. A statement of claim was filed at the same time: see [3] below. The respondent filed a cross claim on 29 May 2006 seeking an order that the notice issued by the Applicant under s.139ZQ of the Bankruptcy Act 1996 (Cth) (“the Act”) be set aside.
The following material has been filed in these proceedings and after addressing objections has been admitted into evidence.
a)The affidavit of Roderick Mackay Sutherland sworn on 11 April 2006.
b)The affidavit of Malcolm Geoffrey Vale sworn on 26 May 2006 (“first affidavit of Mr Vale”).
c)The affidavit of Neil Frederick Tolley sworn on 30 June 2006.
d)The affidavit of Malcolm Geoffrey Vale sworn on 16 November 2006 (“second affidavit of Mr Vale”).
e)The applicant's list of documents filed 12 September 2006.
f)The respondent's list of documents filed 8 September 2006.
g)Exhibit “A1”, a sequestration order made by Emmett J on 24 April 2001 against the estate of Linda Ann Vale.
h)Exhibit “R1”, an affidavit of Linda Ann Vale sworn on 16 November 2006.
i)Exhibit “MFI-1”, a statutory declaration of Stuart William Tolley
Application and Statement of Claim
On 19 April 2006, the applicant filed an application together with a statement of claim and supporting affidavit sworn by Roderick Mackay Sutherland on 11 April 2006. The statement of claim states that the applicant relies on the following facts and assertions:
1.At all material times the applicant [Roderick Mackay Sutherland] is the trustee for the estate of Linda Anne Vale [the Bankrupt].
2.The respondent[Malcolm Geoffrey Vale] has, since 24 April 1999, been the sole registered proprietor of land comprised in the following certificates of title folio identifier:
(a) 18/249220 (known as Lot 18 Springwood Park Road, Gulgong)
(b) 23/754334, 66/754334, 67/754334, 75/754334, 76/754334 (known as “Wattle Vale”, Tucklan); and
(c) 61/251603 (known as Lot 61 Ridge Road, Cooks Gap, Mudgee) (the properties); and
is the matrimonial spouse of the Bankrupt.
3.On or about 28 September 1998, the respondent and the Bankrupt obtained a valuation of the properties from First National Real Estate. The market value at that time was $540,000.
4.On 23 April 1999, the Bankrupt effected a transfer of her interest as joint tenant in the properties to the respondent pursuant to two registered transfer dealings.
5.The respondent paid the Bankrupt consideration for the transfer of the bankrupt's interests in the properties in the sum of $1.00 for each of the registered transfer dealings.
Particulars
Registered transfer dealings numbered 5885928V and 5886349H.
6.On the 24 April 2001, a Sequestration Order was made against the estate of the Bankrupt and the applicant was appointed trustee of the Bankrupt's estate.
7.On or about 28 May 2002, a Notice pursuant to section 139ZQ of the Act was served upon the respondent at Lot 18 Springwood Park Road, Gulgong, NSW 2852, by registered post (the Notice).
8.The Notice claimed payment of the bankrupt's half share in the properties to the value of $270,000.
9.The respondent failed to pay the demand or challenge the validity of the Notice within 28 days of service of the Notice.
10.On 31 July 2002, the Official Receiver served a certificate pursuant to section 139ZR(4) of the Bankruptcy Act on the Land Titles Office.
11.As a result of this certificate, a charge in the sum of $270,000.00 in favour of the applicant was created over the properties.
12.The applicant has made demand upon the respondent for repayment of the principal sum and interest but no payment has been made and the respondent has either neglected and/or refused to pay the money to the applicant.
13.The respondent is in occupation of the properties.
14.Pursuant to the provisions of the Real Property Act 1990 and the Bankruptcy Act the applicant is entitled to enter into and take possession of the properties if the respondent has made any default in the payment of the principal or interest thereby secured.
15.The applicant claims:
(a) Possession of the land comprised in certificate of title folio identifier 18/249220;
(b) Possession of the land comprised in certificate of title folio identifier 23/754334;
(c) Possession of the land comprised in certificate of title folio identifier 66/754334;
(d) Possession of the land comprised in certificate of title folio identifier 67/754334;
(e) Possession of the land comprised in certificate of title folio identifier 75/754334;
(f) Possession of the land comprised in certificate of title folio identifier 76/754334;
(g) Possession of the land comprised in certificate of title folio identifier 61/251603;
(h) Judgment for the applicant against the respondent in the sum of $270,000.00 together with interest;
(i) Costs.
Cross claim
On 29 May 2006, the respondent filed a cross claim seeking:
1.An order that the notice purporting to be under s139ZQ of the Bankruptcy Act 1966 issued by the Official Receiver for the Bankruptcy District of the State of New South Wales addressed to the Respondent/Cross Claimant, purportedly served on the Respondent/Cross Claimant on 28 May 2002, be set aside.
Background
The relevant background facts in these proceedings are set out in a chronology prepared on behalf of the applicant and I adopt extracts from that chronology for the purposes of this judgment. I have omitted a number of entries from the original chronology because of successful objections raised when affidavits containing the source material were sought to be admitted. Alternatively, the chronology relates to correspondence which is not significant in establishing the background to this matter.
a)In 1981, Mr Vale met his current (second) wife, Linda Ann Vale (nee Linacre) (“Mrs Vale”). They commenced living at 117 Herbert Street, Gulgong and have lived there ever since (first affidavit of Mr Vale, paragraphs 9 and 15).
b)On 7 December 1983, Mr and Mrs Vale purchased Lot 18, Springwood Park Road, Gulgong for $13,000. The transfer was to Mr Vale and Linda Linacre (affidavit of Mr Sutherland, paragraph 11).
c)In 1984, Mr Vale's mother died. Mr Vale's mother and father were the registered proprietors of the property at 117 Herbert Street, Gulgong. Mr Vale inherited his mother's share of the property and his father gave him his share of the property (first affidavit of Mr Vale, paragraph 19).
d)Mr Vale obtained a divorce from his first wife (first affidavit of Mr Vale, paragraph 7).
e)In 1986, Mr Vale transferred the property at 117 Herbert Street Gulgong into his name. The property was then sold for $62,000 (first affidavit of Mr Vale, paragraph 19).
f)Mr Vale married Mrs Vale on 24 August 1986 (first affidavit of Mr Vale, paragraph 10).
g)On 19 March 1991, Mr and Mrs Vale purchased the property at 61 Ridge Road, Cooks Gap, Mudgee (“the Mudgee property”) for $72,000. The Mudgee property was purchased with the proceeds of the sale of the property at 117 Herbert Street, Gulgong. To assist in the purchase, Mr Vale borrowed a small amount from the Commonwealth Bank, Gulgong and recommenced payment of that loan with the rental proceeds received from the tenant of the Mudgee property (first affidavit of Mr Vale, paragraph 20).
h)On 14 November 1992, Mrs Vale was involved in a motor vehicle accident. After a long period of hospitalisation, she was subsequently admitted to the Brain Injury Unit, Royal Rehabilitation Centre, Sydney. Mrs Vale has not been able to work due to the injuries sustained (affidavit of Mr Sutherland, paragraph 4; first affidavit of Mr Vale, paragraph 34).
i)In May 1993, there was an alleged conversation between a social worker at the Rehabilitation Centre and Mrs Vale, in Mr Vale's presence, advising her to transfer any assets in joint names into Mr Vale's name (first affidavit of Mr Vale, paragraphs 38 and 39).
j)In 1994, Mr Vale became aware that a property known as “Wattlevale” in Tuckland (“the Tuckland property”) was for sale as the owner had died. Mr Vale knew the property well as he had cut sleepers on it 20 years earlier. He also knew that the value of the timber of the property was more than its sale (first affidavit of Mr Vale, paragraph 26).
k)On 5 September 1994, Mr Vale entered into a loan agreement with Westpac Bank, Gulgong for a loan of $79,000 to purchase the Tuckland property. The purchase price of the Tuckland property was $106,000 and comprised 1729 acres. Mr Vale and Mrs Vale registered as joint owners of Lot 18, Springwood Park Road, Gulgong which had a sale price of $108,000 (first affidavit of Mr Vale, paragraph 27).
l)On 29 September 1994, Mrs Vale commenced an action in the Supreme Court of New South Wales by statement of claim issued against Mr Vale, claiming damages for personal injury suffered in respect of the motor vehicle accident that occurred in Mudgee on 14 November 1992 (“the personal accident proceedings”) (affidavit of Mr Sutherland, paragraph 4).
m)On 29 October 1994, Mr and Mrs Vale completed purchase of the Tuckland property (affidavit of Sutherland, paragraph 6).
n)On 12 April 1995, Master Malpass granted leave for the insurer to be joined as a party to the personal injury proceedings (affidavit of Mr Sutherland, paragraph 6).
o)In 1996, Mr Vale repaid the loan to Westpac Bank for the Tuckland property from proceeds of an insurance claim for a motor vehicle accident concerning Mr Vale's son, and from the proceeds of sale of timber which Mr Vale cut from the Tuckland property (first affidavit of Mr Vale, paragraph 30).
p)On 11 October 1996, a statutory declaration declared by Mrs Vale stated she was able to pay any debts she had as and when they were due (first affidavit of Mr Vale, paragraph 40).
q)On 28 September 1998, Mr Vale instructed William Washington, a solicitor in Mudgee, to carry out the necessary legal work to effect the transfer of each of the Gulgong, Mudgee and Tuckland properties to Mr Vale. Mr and Mrs Vale obtained a valuation of all three properties from Tony Riley of First National Real Estate which gave a total market value of $540,000 (affidavit of Mr Sutherland, paragraph 14).
r)On 31 March 1999, Patrick James Woods, a registered valuer, valued the Gulgong, Tuckland and Mudgee properties to give a total market value of $416,700 (affidavit of Mr Sutherland, paragraph 16).
s)On 23 April 1999, Mrs Vale affected a transfer of her interest as joint tenant in the properties to Mr Vale pursuant, to two registered transfer dealings. Consideration of $1 was paid for each of the registered transfer dealings (affidavit of Mr Sutherland, paragraph 16).
t)Between 7 and 11 June 1999, the personal injury proceedings were heard before Sidis J in the District Court of New South Wales. Mr Vale did not give evidence (affidavit of Mr Sutherland, paragraph 7).
u)On 1 July 1999, the Valuer General's Office issued a notice of valuation in respect of Gulgong property (first affidavit of Mr Vale, paragraph 16).
v)On 15 July 1999, Sidis J provided written reasons for judgment in favour of NRMA which also commented on the failure of Mr Vale to give evidence (affidavit of Mr Sutherland, paragraph 7).
w)On 11 August 1999, Sidis J delivered judgment in relation to costs and ordered Mrs Vale to pay NRMA's costs of the personal injury proceedings (affidavit of Mr Sutherland, paragraph 8).
x)On 7 December 1999, Mrs Vale filed an ordinary summons for leave to appeal from the judgment of Sidis J (affidavit of Mr Sutherland, paragraph 9).
y)In 2000, the house on the Mudgee property burnt down. After the fire, a new house was built using the proceeds from an insurance claim. Mr Vale also built on the property a 20,000 gallon concrete water tank, double garage containing a workshop, new boundary fence and two dams (first affidavit of Mr Vale, paragraph 22).
z)On 7 December 2000, costs were assessed and a certificate of determination of costs was registered and judgments entered in the District Court in the sum of $152,664.58 (affidavit of Mr Sutherland, paragraph 8).
aa)On 24 April 2001, a sequestration order was made against Mrs Vale on the application of NRMA Insurance. Mr Sutherland was appointed trustee of Mrs Vale's estate (affidavit of Mr Sutherland, paragraph 2).
bb)On 10 May 2001, a caveat was lodged against all three properties (second affidavit of Mr Vale).
cc)In May 2001, Mr Vale received correspondence from the trustee of Mrs Vale's estate, Jirsch Sutherland, including a notice under s.77A of the Bankruptcy Act. Upon receipt of that correspondence Mr Vale retained Philip Kruit, a solicitor in Mudgee (first affidavit of Mr Vale, paragraph 50).
dd)On 2 August 2001, the Court of Appeal dismisses Mrs Vale’s application (affidavit of Mr Sutherland, paragraph 9).
ee)On 28 May 2002, a notice pursuant to s.139ZQ of the Act and signed by the official receiver was served upon Mr Vale by registered post at Lot 18, Springwood Park Road, Gulgong, New South Wales. The notice claimed payment of Mrs Vale's half interest in the properties to the value of $270,000. The claim was based on the valuation received by Mr and Mrs Vale in September 1998 (affidavit of Mr Sutherland, paragraph 17).
ff)On 31 July 2002, the official receiver serves a certificate pursuant to s.139ZR(4) of the Act on the Land and Titles Office location (affidavit of Mr Sutherland, paragraph 19).
The relevant legal principles
Section 139ZQ of the Act is an administrative provision for the recovery of property void as against the trustee in bankruptcy:
139ZQ Official Receiver may require payment
(1)If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:
(a) If the Official Trustee is the trustee - on the initiative of the Official Receiver; or
(b) If a registered trustee is the trustee - on application by the trustee;
may require the person, by written notice given to the person, to pay the trustee an amount equal to the money or the value of the property received.
(2)The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.
(3)The notice may:
(a) require the amount to be paid at a time or within a period set out in the notice; or
(b) require the amount of be paid at such times, and in such instalments, as are set out in the notice.
(4)After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by further notice given to the person, revoke or amend the first-mentioned notice.
(5)If the Official Receiver gives a notice under this section, the Official receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee.
(6)A notice to be given under this section to the Commonwealth, a State or a Territory, or to an authority of the Commonwealth, of a State or of a Territory, is taken to be duly given if it is given to a person who, by any law, regulation, appointment or authority, has the function of paying, or in fact pays, money on behalf of a Department of the Commonwealth, of that State or of that Territory, or on behalf of the authority, as the case may be.
(7)If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property if transferred to the trustee.
(8)An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction.
The important element of the section concerns the value of the property received, which must be determined at the date of the transaction. Section 139ZQ(2) makes it mandatory that the notice set out the facts and circumstances as the official receiver must identify what it considers to be the transaction that is void against the trustee.
A s.139ZR notice given in relation to any property results in that property being charged with the liability of the recipient of the notice to make payment to the trustee. The charge has priority over any existing or subsequent encumbrance over the property. The trustee has the right to sell any property over which a charge has been created by a notice.
139ZR Charge over property
(1)If a notice under section 139ZQ is given to a person in respect of any property:
(a) the property is charged with the liability of the person to make payments to the trustee as required by the notice; and
(b) if the person makes the payments or transfers the property to the trustee, the property ceases to be subject to the charge.
(2)Subject to subsection (3), a charge under subsection (1) has priority over any existing or subsequent mortgage, lien, charge or other encumbrance over the property in favour of an associated entity of the bankrupt, and has that priority despite any other law of the Commonwealth or any law of a State or Territory.
(3)A charge under subsection (1) does not have priority over a mortgage, lien, charge or other encumbrance in favour of an associated entity of the bankrupt if that entity satisfies the Court that that mortgage, lien, charge or other encumbrance arose from a transaction that was entered into at arm’s length and for valuable and adequate consideration provided by that entity and is not void against the trustee under Division 3.
(4)If any property being land is subject to a charge under subsection (1), the Official Receiver may certify by signed writing that the land is subject to a charge under that subsection and may lodge the certificate with the Registrar-General, Registrar of Titles or other proper officer of the State or Territory in which the land is situated.
(5)The officer with whom the certificate is lodged may register the charge as nearly as practicable in the way in which mortgages over land are registered under the law in force in the State or Territory in which the land is situated.
(6)The trustee has power to sell any property over which a charge exists under subsection (1) and, if the property is so sold, then, subject to any charges that have priority over the first-mentioned charge, the proceeds of the sale are, to the extent of the charge, to be applied in or towards the discharge of the liability to make a payment or payments to the trustee of the person to whom the notice was given.
Section 139ZS allows the recipient of a notice to apply to have it set aside if the Court is satisfied that the provisions of Division 4B, Subdivision J of the Act do not apply to the recipient on the basis of the alleged facts and circumstances set out in the notice.
139ZS Power of Court to set aside notice
(1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.
(2) A notice that has been set aside is taken not to have been given.
Respondent’s submissions
Mr Johnson, appearing for Mr Vale, submits that the applicant has not sought to put any evidence before the Court with respect of service on Mrs Vale, as there is evidence that people other than Mr Vale and Mrs Vale occupied these premises. Mr Johnson acknowledges that there is no specific provision in the Federal Magistrates Court Rules (Bankruptcy) Rules 2006 (Cth) in respect of service of notices to occupiers. The procedure adopted in the Federal Court Rules (Cth) is that provided for under the Uniform Civil Procedure Rules (NSW).
Mr Johnson submits that the s.139ZQ notice which asserts that $270,000, an amount equal to a half share of the value of the property, was received on 23 April 1999 which is the date of the transfer. Paragraph 3 of the notice, which purports compliance with s.139ZQ(2) in September 1998, states that a registered valuation of the properties was completed by First National Real Estate. The total value of the properties was estimated to be $540,000 (first affidavit of Mr Sutherland, p.32).
Mr Johnson submits that $540,000 was not a registered valuation, nor did it purport to be one, as that amount was given as an opinion for marketing purposes. He contends that Mr Sutherland had available to him the valuations of Mr Wood when he requested his entitlement under s.139ZQ. The half interest according to Mr Wood's valuation totalled $208,850. Mr Johnson submits that the notice on its face is wrong as to:
a)the amount; and
b)any evidentiary basis upon which the value is based.
Mr Johnson further submits that are a number of consequences to this incorrect claim of value. First, that any charge that created upon the issue of the notice under s.139ZR is incorrect. In this case, a charge already exists and is sought to be maintained by the trustee. The charge amounts to $62,000 more than the trustee is entitled to.
In support of this submission, Mr Johnson referred to Re Aley; Ex parte Sweeney v Aley and Another (1996) 63 FCR 294 at 300 per Dummond J:
I am reluctant to read s 139ZR of the Act as making a notice under s.139ZQ of the Act effective to charge property owned by the recipient of the notice with liability to pay the figure asserted in the notice as the value of the transferred property in contrast to the true value of the property at the date of receipt. Section 139ZR(1) of the Act charges the property “with the liability of the person to make payments to the trustee as required by the notice”. Under s.139ZQ(1) of the Act, all that the notice can require by way of payment to the trustee is payment of “an amount equal to … the value of the property received”. It is that, not for example the amount stated in the notice, that is to be paid. Section 139ZQ(2) of the Act does not require any information as to how the figure demanded by the notice was arrived at to be set out in the notice. The figure stated in the notice as the value of the property received from the bankrupt is not given by the Act any evidentiary force. A notice issued in reliance on s.139ZQ is, in my opinion, only effective to give rise to a debt enforceable under s.139ZQ(8) of the Act and a charge within s.139ZR of the Act in the amount demanded by the notice is, in fact, equal to the value of the property at the relevant time. Such an interpretation should not create any significant difficulty since the concept of the value of property at a particular time will generally involve an imprecise rather than an exact assessment of worth.
The official Receiver could not properly issue such a notice unless he had available to him information identifying the value of the property at the relevant time; if a notice is challenged, the Official Receiver and the trustee would have the onus of proving that the amount demanded by the notice was an amount equal to the value of the property in question.
Mr Johnson argues that the s.139ZQ notice is challenged by the cross claim. It is submitted that the trustee has claimed an extra $62,000 more than would otherwise be available.
In Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera and Others (1994) FCR 329 at 337, Olney J states:
The substance of the transaction whereby the bankrupt and Mrs Lucera joined in a transfer of the property to Mrs Lucera as sole proprietor can fairly be said to be a disposition of property. The Official Receiver is entitled under s.139ZQ(1) to give notice requiring the person who received “any property” (in this case the former interest of the bankrupt in the land) to pay the trustee the value of the property so received. Although the Bankruptcy Act provides no specific guidance, “the value of the property received” can only mean the value of the property at the time it was received. I have formed this view not only from the ordinary meaning of the words but also from the fact that the same subsection deals with the case of money which has been received as a result of a void transaction and in that case the liability is to pay “an amount equal to the money… received”. Clearly this can only refer to the sum of money actually received at the time of the transaction and by parity of reasoning, the value of the property received must mean the value of property at the time it was received.
The notice given to Mrs Lucera does not correctly identify the property said to have been received by Mrs Lucera nor does it attempt to value the “property” which Mrs Lucera received as a result of the void transaction.
Mr Johnson submits that the September 1998 letter from First National Real Estate was not a registered but a false valuation.
Mr Johnson also contends that the s.139ZQ notice requires strict construction, as was considered by McInnis FM in Jabbour v Official Receiver & Ors [2002] FMCA 28 at [122]:
122. Accordingly the only other matter remaining to be considered is the issue of whether it is necessary for the s.139ZQ notice dated 28 March 2001 to include reference to s 120 as well as 121 of the Bankruptcy Act. To the extent that it does not include reference to s 120 of the Bankruptcy Act in my view it is defective as it would normally be expected that in exercising the power to issue the notice under that provision the Official Receiver ought to be aware that the notice effectively is equivalent to an order that a trustee may seek to obtain from a court on determination of an application. In those circumstances it is my view that such a notice should properly refer to all relevant sections to be relied upon by the Official Receiver. The absence of any reference to s 120 to the extent that s 120 is relied upon in the notice would therefore constitute a deficiency and on its own may provide a basis upon which the application in this case to set aside the notice could succeed.
Mr Johnson then referred to commentary on s.139ZQ in McDonald, Henry & Meek: Australian Bankruptcy Law & Practice at [139ZQ.0.10] where the editors note that under s.218 of the Income Tax Assessment Act 1936 (Cth) on which s.139ZQ is loosely based, “a notice under the section must be explicit and must be strictly with the terms of the section”: Perpetual Trustee Co Ltd v Holdsworth [1966] NSWR 7555.
Paragraph 4 of the notice states:
On 23 April 1999, the bankrupt transferred to you, her interest in the seven properties for a consideration of $7 ($1 per lot).
Mr Johnson submits that as at 23 April 1999, all that was being done was the perfecting of a gift as evidenced by the statutory declaration of October 1996 and that the transfer at that stage was $1.00. Mr Johnson submits that this raises the issue of consideration. Paragraph 5 of the notice states:
The bankrupt gave less value, than the market value of the property at the time of transfer.
Mr Johnson submits that the evidence before the Court is that the basis upon which the market value of the properties was being determined was by at best a marketing document that was not a valuation and is not proof of market value.
Paragraph 7 of the notice states:
The said transfer of properties is a void transaction pursuant to the provisions of s.120 of the Bankruptcy Act, in that the properties were transferred to you at a time within two years of the bankruptcy for consideration at less than market value of the properties.
Mr Johnson submits that only s.120 of the Act was sought to be relied upon in this notice, and that it is important for the trustee to have regard to s.120(1) of the Act in paragraph 7 of the notice.
Section 120(1) of the Act states:
Transfers that are void against trustee
(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:
(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
The combined operation of s.5 and s.115 of the Act defines the commencement of bankruptcy as the first act of bankruptcy within six months prior to the presentation of the creditor’s petition upon which the sequestration order was sought. Mr Johnson submits that as the transfer of the property was in October 1996 and the sequestration order was made on 24 April 2001 (see [5] above), it was consequently within the 5 year period. Mr Johnson contends that the market value of the property at the date of transfer was $7 (at $1 per lot), which is reflected in the transfer.
Mr Johnson submits that the s.139ZQ notice served in these proceedings claims to give rise to a charge the subject of these proceedings. It does not seek an order for sale of the property but an order for possession and a judgment for the debt. Mr Johnson contends that because of the importance of the two year period, the notice itself is misleading because it claims that the transfer was “within two years of the bankruptcy”. Mr Johnson argues that the notice must be able to be construed strictly. The recipient, whatever their level of education and understanding, must receive a notice that is clearly expressed.
Mr Kruit, the solicitor from whom Mr Vale sought advice after receiving the notice, confirmed by letter dated 27 June 2002 to the Official Receiver, that he had been retained by Mr Vale and was responding to the s.139ZQ notice.(affidavit of Mr Sutherland, Exhibit “RMS”, p.35) The fifth point of Mr Kruit’s letter reads:
5.With respect to paragraph 7 it is noted that:
a) the bankrupt became bankrupt on 24 April 2001;
b) the property was transferred on 23 April 1999;
c) section 36 of the Acts Interpretation Act 1901; 36 Reckoning of time.
(1) Where in an Act any period of time, dating from a given day, act or event, is prescribed or allowed for any purpose, the time shall, unless the contrary intention appears, be reckoned exclusive of such day or the day of such act or event.
(2) Where the last day of any period prescribed or allowed by an Act for the doing of anything falls on a Saturday, or a Sunday, or on a day which is a public holiday or a bank holiday in the place in which the thing is to be or may be done, the thing may be done on the first day following which is not a Saturday, a Sunday or a public holiday or bank holiday in that place.
Accordingly, the time of the transfer was more than 2 years prior to the bankruptcy of the bankrupt.
Mr Johnson referred to Lin v Official Trustee in Bankruptcy (No.1) [2001] FMCA 106 in which Raphael FM analysed the law in relation to an application to set aside a s.139ZQ notice and a cross application by the trustee to declare the transfer of property void under s.120(1). Mr Johnson acknowledged that a determination of liability and cross-claim with declaration is not sought in this matter; however, he adopts the law as stated in Lin.
Mr Johnson then referred to the Notice of Default addressed to Mr Vale and dated 8 September 2005 (affidavit of Mr Sutherland, Exhibit “RMS” p.41). Mr Johnson submits that a notice requiring rectification of a default for the purposes of either s.111(2)(b) of the Conveyancing Act 1919 (NSW) or s.57(2) of the Real Property Act 1900 (NSW) must be for rectification of an actual default. Mr Johnson argues that the notice should fail to the extent that it is relied upon to obtain an order under s.60 of the Real Property Act, because it seeks a payment of $33,160.64 in respect of legal costs in addition to the inaccurate amount contained in it.Absent a Court order in respect of fees, there is a statutory charge that arises under s.139ZR upon the issue of the s.139ZQ notice. There is no statutory foundation or mechanism for recovery of costs. A notice that requires rectification of things which cannot be done, for example, acceleration clauses or defaults which have not occurred, will be defective and of no force or effect: Morrisey & Anor v Bright [1978] 2 NSWLR 1. The evidence given by Mr Sutherland was that the figures were prepared by his solicitor. Mr Johnson submits that the entirety of the Mr Sutherland’s claim should fail on the basis of the Mr Vale’s cross-claim.
Mr Johnson contends that, alternatively, the effective date of transfer of ownership of the properties was when Mrs Vale signed the statutory declaration on 11 October 1996 (first affidavit of Mr Vale, Exhibit “MGV-1”, pp.21-22). Mr Johnson argues that the transfer was an imperfect gift in the traditional sense: Milroy v Lord (1862) 4 De GF & J 264; Corin & Anor v Patton (1990) 169 CLR 540. In circumstances such as this, where the statutory declaration had not been carried into effect by registration of the transfer signed on 23 April 1999, Mr Johnson contends that the authorities are clear that it was an imperfect gift. Therefore, the estate of Mrs Vale would vest in Mr Sutherland as trustee of her property: s.58 of the Act. Mr Johnson relied on Marchesi v Apostoulou [2006] FCA 1122 per Weinberg J where that transfer had not been registered and the trustee sought a declaration.
Mr Johnson contends that the statutory declaration of Mrs Vale in October 1996 gives rise to the effective date of the transfer. However, he acknowledges that it was in effect subject to an imperfect gift. Mr Vale continued to pay the mortgages, bills and the cost of litigation associated with his wife’s accident and injuries. There was also evidence of the conversation with the social worker and the advice given. Conversely there was no evidence that at the time of signing the statutory declaration, Mrs Vale could not pay her debts as and when they fell due. Mrs Vale gave evidence that she transferred her interest in the properties to her husband because she thought it was important that her husband owned them. In cross-examination, Mrs Vale indicated that she had access to bank accounts if she needed funds.
Mr Johnson submits that the effective date of the transfer was 11 October 1996 for $1, which was submitted as being the market value. Mr Johnson argues that although that was set out in Mr Vale’s defence, no evidence was put forward and no argument made to challenge this issue.
Applicant’s submissions
Mr Skinner, appearing for the applicant, acknowledged that the s.139ZQ notice was not challenged until 2006, although there is no time limit specified in the section. In this respect, this case can be distinguished from Lin – that until such time the notice is set aside, the s.139ZQ notice acts as a charge. Mr Skinner submits that the position in this case is different in that immediately after the s.139ZQ notice was issued, a certificate under s.139ZR(4) was registered and recorded on the titles of the relevant properties. Therefore, before any challenge to the s.139ZQ notice took place, a notice of default pursuant to s.57(2)(b) of the Real Property Act was served.
Mr Sutherland had, at the time of the hearing, reached the point of applying to the Court to seek an order for possession of the relevant properties for the purpose of sale in accordance with s.139ZR(6) of the Act. Mr Skinner submits that the statement of claim filed pleads that as a consequence of the certificate and its registration, a charge in the sum of $270,000 was created over the properties. The respondent admits to this pleading and paragraph 11 of the defence reads:
Admits paragraph 11 to the extent that the amount of $270,000.00 is properly payable.
Mr Skinner submits that a cross-claim was not required because the applicant had a s.139ZQ notice which was sought to be set aside after the charge was registered. Mr Skinner further submits that there is nothing in the cross claim which says that the charges are to be set aside or limited. Mr Skinner contends that the trustee seeks to enter and take possession of the properties to secure a sale and pay the amount claimed in the s.139ZQ notice.
Mr Skinner further submits that the power to set aside a s.139ZQ notice may exist where the alleged facts and circumstances do not apply. The first technical argument is that there is a deficiency in the notice because it failed to assert two things – the effect of relation back and whether or not the notice was within the two year or outside of the five year period as per s.120 of the Act. Mr Skinner acknowledges that Mr Kruit raised these issues in his 27 July 2002 letter but did not take the matter any further by seeking to set the notice aside (affidavit of Mr Sutherland, Exhibit “RMS”, p.35).
Mr Skinner submits that all that the notice does is simply assert a number of facts:
a)A sequestration order was made and Mr Sutherland was appointed as trustee.
b)As at 24 June 1997, Mrs Vale was a joint tenant in a number of the properties.
c)As at September 1998, there was a valuation of the properties which was said to be $540,000.
d)The valuation was conducted by Mr Vale.
The amount in (c) above was in the letter from First National Real Estate of 28 September 1998.(affidavit of Mr Sutherland, Exhibit “RMS” p.8) The s.139ZQ notice states that pursuant to a request by Mr Vale for marketing advice about three properties, the following values were provided:
a)Springwood Park, Gulgong is $140,000;
b)Ridge Road, Cooks Gap is $140,000;
c)Watervale is $260,000.
Mr Skinner contends that these amounts add up to $540,000, and, given that the parties were joint tenants and there was a transfer, one half of that amount is $270,000.
Mr Skinner acknowledges that although this is not a registered valuation, it is supported by the letter of 28 September 1998 and that Mrs Vale’s half share interest is $270,000. On 23 April 1999, Mrs Vale transferred the seven properties for a consideration of $1.00 per lot. Mr Skinner submits that the evidence clearly does not suggest that the transfer which took place on 23 April 1999 was in furtherance of an imperfect gift which took place in 1996. Mr Skinner submits that neither Mr Vale nor Mrs Vale was able to say what occurred by reason of the transfer on 23 April 1999. In particular, Mr Vale was unable to say why it was done.
It is submitted that as far as Mr Sutherland is concerned, the matter is at a complete end and there is no significance to the claim of an imperfect gift. It is also submitted there is no nexus made between each of the alleged imperfect gifts and the transfer of the properties on 23 April 1999. Mr Skinner asserts that the transfer for $1.00 was for less than the market value. He argues that this is supported by both the evidence of 28 September 1998 and other valuations.
Mr Skinner then referred to the definition in s.5 of the Act of the commencement of bankruptcy:
The commencement of the bankruptcy, in relation to a bankrupt, means the time at which his or her bankruptcy is, by virtue of section 115, to be deemed to have commenced;
Section 115 of the Act provides:
(1) If a person becomes a bankrupt on a creditor’s petition and subsection (1A) does not apply, then the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by the person within the period of 6 months immediately before the date on which the creditor’s petition was presented.
The relevant commencement date in this matter, which appears on the face of the sequestration order, is 26 February 2001.
Section 120 of the Act provides:
(1) Transfers that are void against trustee A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the transfer took place in a period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; …
Section 120(3) of the Act states:
(3) Transfer that are not void. Despite subsection (1), a transfer is not void against the trustee if:
(a) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(b) the transferee proves that, at the time of the transfer, the transferor was solvent.
Mr Skinner submits that it is clear that the transaction in this matter was open to challenge under s.120 as having taken place within two years of the commencement of the bankruptcy: ss.5, 115 and 120 of the Act.
With respect to the question of evaluation, Mr Skinner contends that nothing has been put forward against the proposition that the value as at 23 April 1999 should be a different amount. There is no evidence to say that the market value of this property as at 23 April 1999 is a figure other than $270,000. There is no action seeking to set aside the amount in the letter from Mr Kruit, who was the solicitor on the record at the time and was writing on behalf of Mr Vale.(affidavit of Mr Sutherland, Exhibit “RMS” p.35) Significantly, Mr Kruit does not challenge the figure of $540,000. It is submitted that Mr Vale has not challenged the value of the properties and that the valuation was effectively addressed to him. On this ground, Mr Skinner argues that this notice cannot be scrutinised along the lines submitted by Mr Johnson.
Mr Skinner contends that the technical argument about s.120 and the commencement of the bankruptcy, together with Mr Johnson’s submissions on the valuation of $540,000 and that $270,000 was not a registered valuation, are of little significance. This is particularly given the subsequent registration of the charge. Mr Skinner submits that the Court has to be satisfied that the alleged facts and circumstances set out in the notice have been made good. The cross claim has not sought an order to the effect that the statutory declaration was an imperfect gift that was perfected by the transfer and hence the transfer went back to 1996.
Mr Skinner argues that the cross claim did not raise this issue. Mr Skinner argues that the statutory declaration simply stated what might occur in the future. Importantly, Mr Kruit did not refer to the statutory declaration. This was put to Mr Vale, but he was unable to indicate whether he provided Mr Kruit with a copy of it. Mr Vale stated in his evidence:
I don’t know. I don’t remember.
Mr Skinner argues that on that basis there could be no criticism of the trustee concerning that statutory declaration. Further there is no evidence to suggest that either Mr or Mrs Vale knew what had occurred by reason of the transfers of 23 April 1999. Mr Vale’s evidence was:
I don’t remember why we did it.
The applicant seeks an order for possession so that he can sell the property. Mr Skinner contends that because of the operation of s.139ZR(4) of the Act, once a charge is registered it is to be dealt with as a mortgage would be dealt with in the State jurisdiction.
Consideration
The parties do not dispute that on 28 May 2002 the Official Receiver issued a notice pursuant to s.139ZQ of the Act and was sent by registered post by way of service on the respondent. The notice claimed payment of half interest in certain properties registered to Mr Vale to the value of $270,000. On 27 June 2002 Mr Kruit, solicitor, wrote to the Official Receiver in response to the service of the s.139ZQ notice advising that he acted on behalf of Mr Vale. Mr Vale failed to pay the demand or challenge the validity of the notice. On 31 July 2002 the Official Receiver served a certificate pursuant to s.139ZR(4) of the Act on the New South Wales Land Titles Office permitting registration of the charge over the relevant properties of Mr Vale, the sole registered proprietor.
Mr Sutherland, the trustee of Mrs Vale’s estate, filed an application in this Court on 19 April 2006 seeking orders for possession of Mr Vale’s properties and judgment for the sum of $270,000.00 together with interest and costs: [3] above, 15(a)-(g). On 29 May 2006 solicitors for Mr Vale filed a cross-claim for the s.139ZQ notice to be set aside. Although s.139ZS provides that a person named on the s.139ZQ notice or an interested party can apply to the Court to set it aside, the parties in this matter acknowledge that until the cross claim was filed, no challenge to the s139ZQ notice had been pursued. The parties further agree that there is no time limit in which a s.139ZS challenge must be brought; however, four years has passed since the s.139ZQ notice was issued.
Consequently and as a result of the Mr Vale failing to satisfy the demand for payment of $270,000, Mr Sutherland seeks to enter and take possession of Mr Vale’s properties. The issue of the s.139ZQ notice resulted in a charge over the properties identified in the notice. This charge has subsequently been registered against the properties in New South Wales Land Titles Office and has priority over any existing or subsequent encumbrances over the properties. Mr Sutherland has the right to sell the properties subject to the charge created by the issuing of the notice. Mr Sutherland is seeking to pursue that course by applying to this Court for an order for possession. Mr Vale has responded by challenging the validity of the original s.139ZQ notice by pursuing to have it set aside.
A cross claim pursuant to s.139ZS allows a hearing de novo in which this Court may investigate and decide whether any defence to the liability claimed arises from evidence provided by Mr Vale: Re McLennon; Ex parte SWF Hoists & Industrial Equipment Pty Ltd v Prebble (1995) 130 ALR 609. As there is no time limit in which to make an application to have a notice set aside, the consideration to take into account in determining if it is reasonable to permit the application to proceed is whether any of the parties would be prejudiced.
The s.139ZQ notice issued on 28 May 2002 contains the following:
PAYMENT by you is required to be made 28 days after service of this notice upon you for the sum of $270,000.00
Although the issue of service is disputed, Mr Vale did retain Mr Kruit to respond to the Official Receiver in respect of the notice. Correspondence from Mr Kruit was dated 27 June 2002. The Official Receiver subsequently served the s.139ZR(4) certificate on 31 July 2002.
There has been nothing placed before the Court to indicate that this matter was being pursued until the application was filed on 19 April 2006. I do not believe that either party is in any way prejudiced by the matter being considered now as opposed to closer to the issue of the original notice. Nor has the Court been informed of any other proceeding involving these parties which are pending and may relate to issues considered here. In the circumstances, although the application to have the s.139ZQ notice set aside has been delayed for a considerable period of time, it is not apparent that either party would be prejudiced by the matter being considered now. In Re McLennon at 42, Carr J said:
In my opinion in the absence of any prescribed period for making such an application it should be made with a reasonable time. What is reasonable will depend upon all the circumstances of any particular case, including whether there is any prejudice to any interested party.
The section 139ZQ notice acts as a charge. That charge remains in place either until it is complied with or the notice is set aside. This case differs because after the time limit of the 139ZQ notice expired, a certificate under s.139ZQ(4) and a Notice of Default pursuant to s.111(2)(b) of the Conveyancing Act and s.57(2) of the Real Property Act were issued.(affidavit of Mr Sutherland, Exhibit “RMS”p.41) Subsequently the 139ZR(4) certificate was registered by the Registrar-General and is on the title of the relevant properties.
Section 139ZR(6) gives a trustee the power to sell any property over which a charge exists: at [8] above. The statement of claim pleads that as a consequence of the certificate and its registration, a charge in the sum of $270,000 was created over the properties: at [3] above. The relevant paragraphs from the statement of claim are:
8. The Notice claimed payment of the bankrupt’s half share interest in the properties to the value of $270,000.
9. The Respondent failed to pay the demand or challenge the validity of the Notice within 28 days of service of the Notice.
10. On 31 July 2002, the Official Receiver served a certificate pursuant to section 139ZR(4) of the Bankruptcy Act on the Land Titles Office.
11. As a result of this certificate, a charge in the sum of $270,000 in favour of the applicant was created over the properties in the defence filed on 29 May 2006 the response was:
The defence filed on 29 May 2006 responded as follows:
8. In answer to paragraph 8, save that the respondent admits that the Notice claimed payment of the bankrupt’s half share in the properties to the value of $270,000, the Respondent does not admit the facts and matter set forth in the paragraph.
9. Admits paragraph 9.
10. Admits paragraph 10.
11. Admits paragraph 11 to the extent that the amount of $270,000 is properly payable.
Consequently, the relevant circumstances of the s.139ZQ notice were that:
a)a charge in the sum of $270,000 was created over the properties;
b)it was admitted by Mr Vale that the amount of $270,000 is properly payable;
c)the cross claim was filed after the charge was registered and does not seek to limit or set aside the charge;
d)Mr Kruit did not challenge the valuation;
e)the value recorded in the notice was supported by the First National Real Estate letter obtained by Mr Vale, as at 28 September 1998.
A s.139ZQ notice may be set aside if it fails to establish that the value of the property claimed is correct: Re McInnes; McInnes v Official Receiver in Bankruptcy, No NB23 of 1999 FED No 882/94 Bankruptcy (unreported) per Einfield J; Re Kuch; Ex parte Kuch v Official Trustee in Bankruptcy, No VB 2754 of 1992 FED No 955/95 (unreported) per Jenkinson J. The notice must not only carefully set out the value of the property but also state the basis for the valuation. In this matter, the valuation issue is central to challenging the s.139ZQ notice.
Paragraph 3 of the s.139ZQ notice states:
In September 1999, a registered valuation of the properties was completed by First National Real Estate and they estimate the total market value of the seven properties marked (a)-(g) as mentioned in paragraph 2 to be $540,000.00.(affidavit of Mr Sutherland, Exhibit “RMS” p.3)
The letter from First National Real Estate of 28 September 1998 and addressed to Mr Vale states:
This opinion has been prepared solely for the information of Malcolm Vale for the purposes of considering the sale of the properties and not for any other third party. Although every care has been taken in arriving at these figures we stress that this is an opinion of a reasonable asking price only and not to be taken as a sworn valuation.(affidavit of Mr Sutherland, Exhibit “RMS” p.8)
I note the submissions made by Mr Johnson that I have referred to at [12]-[15] above, and those of Mr Skinner referred to at [29]-[31] and [36]-[37] above. The respondent’s argument is that the notice on its face is wrong as to the amount, so is the evidentiary basis upon which the value is substantiated. Consequentially the charge created under s.139ZR is also incorrect as it is $62,000 more than Mr Sutherland is entitled to: Re Aley; Re Lucera; Jabbour; Perpetual Trustee Co Ltd v Holdsworth.
An alternative valuation was the appraisal prepared by Patrick Jones Wood, Registered Valuer No 420 of Mudgee, New South Wales. That appraisal was prepared on 31 March 1999 for the purpose of assessing stamp duty on one half share of the market value of the seven lots. The total valued was $416,700, with the half share being $208,350 which is $62,000 less than the value determined by First National Real Estate.(affidavit of Mr Sutherland, Exhibit “RMS” pp.10-29) However, I note the decision of Electricity Commission of New South Wales (trading as Pacific Power) v Arrow – BC9404936, New South Wales Court of Appeal (unreported) where Kirby J said:
Valuation is not a science. It is an imprecise, opinionative activity involving the consideration of many variables, sometimes with equally legitimate outcomes.
As the value of the property at the relevant time is challenged by Mr Vale in his cross claim, the onus of proving the amount demanded by the notices was equal to value of the property in question, lies with the Official Receiver and the Trustee: Re Aley.
The only evidence before the Court as to value of the properties consists of the marketing advice setting out the reasonable asking price only from First National Real Estate and the appraisal prepared by Mr Wood, a registered valuer.(affidavit of Mr Sutherland, Exhibit “RMS” pp.8-9,10-29) The relevant material tendered in Mr Sutherland’s affidavit was unchallenged and no sworn evidence or cross-examination was heard from either party who prepared these valuations.
The two valuations differ in value with the market advice prepared by First National Real Estate being approximately $62,000, or 30% higher, than Mr Wood’s appraisal. The valuations were prepared in September 1998 and March 1999 respectively, which are only six months apart. There is nothing before the Court to indicate that the results were influenced by any substantial change in the value of the properties.
In the absence of any evidence, submission or claims in the cross claim on this issue as to the correct value to be claimed by the s.139ZQ notice, a determination would come down to what the best evidence is. The valuation prepared by Mr Wood consists of an appraisal and report in his role as a registered valuer. The report has been prepared for the express purpose of a stamp duty assessment on one half share of the market value. The valuation was prepared to comply with the requirements of s.68 of the Stamp Duties Act 1920 (NSW) which states:
(1) In the case of every conveyance and agreement chargeable with ad valorem duty under this Act the Chief Commissioner may require the purchaser or other person primarily liable with respect to such instrument to furnish him within the time specified by him with a declaration by a competent valuer as to the value of the property comprised in such instrument, or with such other evidence of the value of such property as the Chief Commissioner thinks fit, and may assess the duty in accordance therewith.
(2) If the Chief Commissioner is not satisfied with such evidence of value he may cause a valuation of the property to be made and may assess the duty on the footing of such valuation.
(3) Any such assessment shall be subject to objection and appeal in the manner and subject to the conditions prescribed by section 124.
(4) …
(5) ….
A registered valuer is in turn subject to the provisions of the Valuers Registration Act 1975 (NSW) and the Valuers Regulation 2005 (NSW) at the time when the valuation was prepared. On the other hand, the market appraisal prepared by First National Real Estate only contains a disclaimer (see [50] above). Consequently I have formed the view that on the material available, the best evidence as to the value of the one half share of the relevant properties is $208,350.
Mr Skinner argues that all the notice does is assert the following facts:
a)A sequestration order was made and Mr Sutherland was appointed trustee.
b)As at 24 June 1997 Mrs Vale was a joint tenant of a number of properties.
c)In September 1998 there was a valuation of the properties and the estimated value was said to be $540,000.
d)Mrs Vale’s one half share in the relevant properties was $270,000.
Mr Skinner acknowledges that the notice was not prepared using a registered valuation, however, the notice under s.139ZQ states:
3. In September 1998, a registered valuation of the properties was completed by First National Real Estate …(affidavit of Mr Sutherland, Exhibit “RMS” p.32, emphasis added)
Further it is argued that the September 1998 valuation was requested, by Mr Vale and not by Mr Sutherland. Mr Skinner also submits that the terms of the notice are supported by the letter of 28 September 1998 from First National Real Estate and that the factual matrix is correct.
However, I have formed the view that the facts and circumstances stated in the notice are not correct in the following respects:
a)The statement that a “registered valuation of the properties” was carried out is not correct, as it was a market appraisal indicating the possible asking price if the properties were to be offered for sale.
b)The claimed value of the properties was thus inflated by use of a market appraisal as opposed to a registered valuation.
Mr Kruit, on behalf of Mr Vale, raised issue with the content of the notice in his letter dated 27 June 2002 but then did not challenge it or seek to have it set aside (affidavit of Mr Sutherland, Exhibit “RMS1” pp.35-36). Nothing further took place in relation to this issue until the filing of the cross claim on 29 May 2006. The cross claim does not claim that the charges are to be set aside or limited.
Nothing has been put forward against the proposition that $270,000 was a half interest of $540,000, that the value as at 23 April 1999 was a different figure or that the references made to the evaluation for stamp duty were at another date. Mr Kruit did not challenge the figure of $540,000. The cross claim does not seek a declaration to the effect that the statutory declaration made by Mrs Vale evidenced an imperfect gift that was perfected by the transfer.
In support of the view that the value in the notice was not correct, I refer to the observations of Drummond J in Re Aley at [300]:
I am reluctant to read s139ZR of the Act as making a notice under s.139ZQ of the Act effective to charge property owned by the recipient of the notice with liability to pay the figure asserted in the notice as the value of the transferred property in contrast to the true value of the property at the date of receipt. S 139ZR(1) of the Act charges the property “with the liability of the person to make payments to the trustee as required by the notice”. Under s139ZQ(1) of the Act, all that the notice can require by way of payment to the trustee is payment of “an amount equal to … the value of the property received”. It is that, not for example the amount stated in the notice, that is to be paid. S139ZQ(2) of the Act does not require any information as to how the figure demanded by the notice was arrived at to be set out in the notice. The figure stated in the notice as the value of the property received from the bankrupt is not given by the Act any evidentiary force. A notice issued in reliance on s139ZQ is, in my opinion, only effective to give rise to a debt enforceable under s139ZQ(8) of the Act and a charge within s139ZR of the Act if the amount demanded by the notice is, in fact, equal to the value of the property at the relevant time. Such an interpretation should not create any significant difficulty since the concept of the value of property at a particular time will generally involve an imprecise rather than an exact assessment of worth.
The Official Receiver could not properly issue such a notice unless he had available to him information identifying the value of the property at the relevant time; if a notice is challenged, the Official Receiver and the trustee would have the onus of proving that the amount demanded by the notice was an amount equal to the value of the property in question.
I was also referred to Re Lucera where Olney J commented on the appropriateness of a trustee issuing a s139ZQ notice which does not correctly identify or value the property in question:
The substance of the transaction whereby the bankrupt and Mrs Lucera joined in a transfer of the property to Mrs Lucera as sole proprietor can fairly be said to be a disposition of property (and thus a settlement of property for the purposes of s 120) in so far as the bankrupt thereby ceased to have an interest as joint tenant in the property. The Official Receiver is entitled under s139ZQ(1) to give notice requiring the person who received “any property” (in this case the former interest of the bankrupt in the land) to pay the trustee the value of the property so received. Although the Bankruptcy Act provides no specific guidance, “the value of the property received” can only mean the value of the property at the time it was received. I have formed this view not only from the ordinary meaning of the words but also from the fact that the same subsection deals with the case of money which has been received as a result of a void transaction and in that case the liability is to pay “an amount equal to the money…received”. Clearly this can only refer to the sum of money actually received at the time of the transaction and by parity of reasoning, the value of the property received must mean the value of the property at the time it was received.( Re Lucera at 337)
My attention has also been drawn to the commentary in McDonald, Henry & Meek: Australian Bankruptcy, Law & Practice at 139QZ.0.10 referring to Jabbour at [122] where a notice which did not refer to the appropriate section of the Act may be invalid. The editors note that the decision in Jabbour is indicative of the strict application of the provision. In support of this view, they note the inter-relationship or similarly between s.139QZ of the Act and s.218 of the Income Tax Assessment Act 1936 (Cth) and state:
A notice under this section must be explicit and must be strictly within the terms of the section: Perpetual Trustee Co Ltd v Holdsworth [1966] NSWR 755.
The trustee is only entitled to the amount of the proper value and the trustee also bears the burden of establishing the proper value. The affidavit of Mr Sutherland indicates that two separate valuations existed at the time the notice was issued. There was a significant difference in the amount of those two valuations and I am not satisfied that the trustee has satisfactorily established that the value appearing on the s.139ZQ notice is the proper value of the relevant properties.
The other defect in the notice identified by Mr Johnson concerns the issue of the claim that the transfer was void pursuant to s.120 of the Act. The notice relevantly states:
4. On 23 April 1999, the bankrupt transferred to you, for interest in the seven properties for a consideration of $7.00 ($1.00 per lot).
5. The Bankrupt gave less value, than the market value of the properties at the time of transfer.
6. The abovementioned property is property as defined by Section 5, Section 58 and Section 120 of the Bankruptcy Act.
7. The said transfer of properties is a void transfer pursuant to the provisions of Section 120 of the Bankruptcy Act, in that the properties were transferred to you at a time within 2 years of the Bankruptcy for consideration at less than market value of the properties.
It was argued that the notice was misleading because it claims the transfer was “within two years of the bankruptcy” and therefore cannot be construed strictly. The analysis by Mr Kruit when responding to the 139ZQ notice states that “the transfer was more than 2 years”: see [20] above.
The relevant provisions of the Act are:
5. (1) In this Act, unless the contrary intention appears:
the commencement of the bankruptcy, in relation to a bankrupt, means the time at which his or her bankruptcy is, by virtue of section 115, to be deemed to have commenced;
115 (1)If a person becomes a bankrupt on a creditor’s petition and subsection (1A) does not apply, then the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by the person within the period of 6 months immediately before the date on which the creditor’s petition was presented.
120 (1) Transfers that are void against trustee A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value that the market value of the property.
…
(3) Transfers that are not void Despite subsection (1), a transfer is not void against the trustee if:
(a) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(b) the transferee proves that, at the time of the transfer, the transferor was solvent..
The thrust of the argument in respect of the s.120 issue is the reference “within 2 years” and that this wording makes the notice misleading. It is important that the notice can be construed strictly so that a person receiving the notice, regardless of their level of education or understanding, can appreciate its contents. Mr Vale referred the notice to Mr Kruit who raised his concern that the transaction was outside two years and not as stated in the notice.
In Lin, Raphael FM observed in respect of operation of s.120:
12. Section 139ZQ is an administrative aid to a trustee in bankruptcy who seeks to recover money or property to which he claims he is entitled pursuant to ss 120, 121 or 122 of the Bankruptcy Act. Although a notice requires the recipient to make a payment or to transfer property to the trustee on pain of criminal sanctions it is not determinative of any issue between the trustee and the recipient but is subject to the right of the recipient to apply to the court under s 139ZS to set the notice aside. In the meantime the notice acts a charge upon the property. The provision is constitutionally valid (McLernon; Ex parte SWF Hoists and Industrial Equipment Pty Limited v Prebble (1995) 130 ALR 609).
13. In Halse v Norton (1997) 76 FCR 389 the Full Bench of the Federal Court (Black CJ, Lee and RD Nicholson JJ) upheld the decision of Carr J reported as Norton v Halse (1996) 137 ALR 593 that the trustee bore an onus of establishing either that the facts and circumstances alleged in the notice under s 139ZQ and relied upon at the hearing existed, or that other facts or circumstances existed that would bring the transaction, the subject of the notice, within s 120 or 121 of the Act (per Black CJ at 391). At 392 the Chief Justice said:
"Clearly, s 139 ZS is not the exclusive means of challenging a notice under s 139ZQ (see re McLernon at 403), and there may well be cases in which there is good reason for the trustee to bring what would be in effect a cross application for a declaration that a transaction is void, as in re McLernon: see also Theo v Official Trustee in Bankruptcy (1996) 70 FCR 317; 34 ATR 404".
This is the very application and cross application with which the case before me deals.
14. Mr Bigmore QC who appeared on behalf of the applicant invited me to consider first the validity of the allegation that the property had been transferred in breach of s 120 of the Bankruptcy Act. In other words he wished me to deal with the respondent's cross application. He asserted that if I found that the transfer was not void against the trustee there was no need to consider the validity of the s 139ZQ notice.
I am satisfied that Mr Kruit’s letter of 27 June 2002 correctly sets out the position with respect to the two year period:
5. With respect to paragraph 7 it is noted that:
(a) the bankrupt became bankrupt on 24 April 2001;
(b) the property was transferred on 23 April 1999;
(c) Section 36 of the Acts Interpretation Act 1901;
36. Reckoning of time
(1) Where in an Act any period of time, dating from a given day, act or event, is prescribed or allowed for any purpose, the time shall, unless the contrary intention appears, be reckoned exclusive of such day or of the day of such act or event.
(2) Where the last day of any period presecribed or allowed by an Act for the doing of anything falls on a Saturday, on a Sunday or on a day which is a public holiday or a bank holiday in the place in which the thing is to be or may be done, the thing may be done on the first day following which is not a Saturday, a Sunday or a public holiday or bank holiday in that place.
Accordingly, the time of the transfer was more than 2 years prior to the bankruptcy of the bankrupt.
This satisfies the requirements of s.120(3)(a) of the Act.
The other element that must be satisfied is the solvency of Mrs Vale at the time of registration of the transfer. The question is whether at the time of registration, Mrs Vale could pay her debts as and when they fell due. Mr Sutherland’s evidence showed that a member of the Vale family was a small creditor with NRMA Insurance, the only other creditor. Mrs Vale gave evidence in cross-examination that she had access to her husband’s bank accounts. No other evidence contradicted her evidence. Mrs Vale gave evidence that she was transferring her share in the properties because she thought it important that her husband own the properties so that he could effectively run his farming business. The social worker’s advice to pursue this course was not in dispute.
The alternative argument, which would place the transfer outside of the operation of s.120(1), is that the transfer would need to have occurred before 25 April 1997: see [5(aa)] above. This contention can only succeed if the statutory declaration executed on 11 October 1996 provided a legitimate mechanism for Mrs Vale to transfer her share in the relevant properties to Mr Vale on that date.(first affidavit of Mr Vale, Exhibit “MGV-1” pp.21-22) If it is not in dispute that Mr Vale did not instruct his solicitor to carry out the necessary legal work to affect the transfer until 28 September 1998, the actual transfer was affected on 23 April 1999.
On the 23 April 1999, Mrs Vale transferred her half share of the seven properties for consideration of $1.00 per lot, and this evidence does not suggest that the transfer took place in the furtherance of an imperfect gift having taken place in 1996. Neither Mr Vale nor Mrs Vale could give specific reasons for the transfer. Mr Vale in evidence said he could not remember why this was done.
Mr Johnson argues that the statutory declaration confirms the existence of an imperfect gift within the traditional sense of Milroy v Lord and Corin & Anor v Patton. If the statutory declaration had not been subsequently carried into effect by the registration of the transfer, it would have remained an imperfect gift and the estate of Mrs Vale would have vested in Mr Sutherland as trustee of her property under the operation of s.58 of the Act: Morchesi v Apostoulou [2006] FCA 1122 per Weinberg J. In that case, the transfer had not been registered and the trustee sought a declaration.
Mr Tolley who witnessed Mrs Vale’s statutory declaration gave evidence and was cross-examined. It was not put to him that he had backdated or falsified that document. The statutory declaration of Mrs Vale executed on 11 October 1996 stands. There was a considerable amount of material about what Mrs Vale may or may not have known about the purpose of the statutory declaration; but her evidence was clear and unequivocal that she wrote that document out. Mr Johnson submits that the statutory declaration gives rise to the effective date of the transfer as 11 October 1996, albeit imperfect. After that date, Mr Vale continued to pay all the mortgages and the bills including those of his wife’s litigation in relation to her accident and injuries.
Neither Mr Vale nor Mrs Vale was able to state the purpose of the statutory declaration other than that it was brought into existence. The document is a simple statement of intent of what may occur in the future. Mr Kruit did not make any reference to the statutory declaration and Mr Vale was unable to say whether or not he had provided him with a copy. In the circumstances, I do not believe that any significance can be attached to the imperfect gift argument.
Conclusion
The s.139ZQ notice issued on 28 May 2002 contains a number of significant errors and should be set aside. Consequently the application seeking orders for possession of Mr Vale’s properties is dismissed.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate:
Date: 2 October 2007
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