Vale v Sutherland
[2009] HCATrans 105
[2009] HCATrans 105
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S38 of 2009
B e t w e e n -
MALCOLM GEOFFREY VALE
Appellant
and
RODERICK MACKAY SUTHERLAND
Respondent
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 21 MAY 2009, AT 10.19 AM
(Continued from 20/5/09)
Copyright in the High Court of Australia
GUMMOW J: Yes, Mr Coles.
MR COLES: As your Honours please.
GUMMOW J: We have some more materials now.
MR COLES: If your Honour please. May I, subject to any particular indications from your Honours to the contrary, proceed as follows. May I complete my submission.
GUMMOW J: Has your opponent seen this?
MR COLES: Yes, your Honour.
GUMMOW J: Have you any opposition to this summons being filed in Court, Mr Bigmore?
MR BIGMORE: No, we do not, your Honour.
GUMMOW J: I realise he may have other submissions.
MR BIGMORE: Yes, we do.
GUMMOW J: Yes, Mr Coles.
MR COLES: Might I proceed then, if convenient to your Honours, to conclude the development of our submissions in response to the appeal and to the submissions made by our learned friend yesterday and then to proceed to those fresh matters that have been the subject of applications recently filed. Can I draw your Honours’ attention to the fact that there has been lodged with the Registry a document called “SUMMARY OF RESPONDENT’S PROPOSITIONS” which was an attempt to put in, I hope, succinct form or point form the subject of an observation by your Honour Justice Gummow yesterday about the utility or desirability of having a succinct statement in point form of the summary of the respondent’s construction argument and its thrust.
GUMMOW J: One critical matter seems to be the finding of the magistrate, which I think has not been disputed, that the best evidence as to value was $208,350.
MR COLES: That is at appeal book 245, line 30, I think, your Honour. That may, when I come to the last oral submission, the submissions I foreshadowed, be a matter of significance in one aspect of the possible disposition of the appeal.
May I then, your Honours, pick up from where we were yesterday, just by way of filling in a couple of gaps? I offered an observation to your Honours yesterday in response to a question from the Bench about the relevant principles of construction of a statute which imposes criminal liability. The proposition I advanced was intended, although not by name, to reflect some observations contained in a judgment of Justice Gibbs in Beckwith v The Queen (1976) 135 CLR 569 at 576. There will be doubtless known immediately to your Honours other and no doubt later observations, but that was the proposition that I rather thought I had in mind in answering your Honour’s question yesterday.
Now, may I then take up in our submissions in reply, in response, by inviting your Honours’ attention to a couple of further authorities? May I invite the Court’s attention firstly to Anscor v Clout and Another (2004) 135 FCR 469, a decision of the Full Court of the Federal Court, comprising Justices Wilcox, Moore and Lindgren. The proceedings involved a transfer of property, namely, the payment of certain commissions said to be void against the trustee under section 120. The passages to which I would wish to invite the Court’s attention ‑ ‑ ‑
GUMMOW J: Well, what is the purpose of taking us to Anscor?
MR COLES: Just to draw your Honours’ attention to the formulations of some propositions from Justice Lindgren and to identify how we would seek to apply them to the certain issues in the present appeal ‑ ‑ ‑
GUMMOW J: This is page 477, is it?
MR COLES: Precisely, your Honour. At the foot of page 477 commencing with the discussion “The new s 120 effected two changes”, there is then, in our respectful submission, a valuable series of observations commencing at paragraph 29 of his Honour’s judgment and continuing over the whole of the page felicitously, in our respectful submission, capturing a number of propositions of some importance and in the present appeal I think no great controversy. I would like to draw the Court’s attention to the bottom of page 478 in the point secondly noted by his Honour. In paragraph 36 his Honour says:
Second, s 120(1) requires the Court to be satisfied only that the value of the consideration was less than the market value of the property transferred as at the date of the transfer. Unlike s 120(4), s 120(1) does not require the Court to assign any particular value to the consideration.
He adopts some views as being in accordance with those of Justice Merkel in the case to which he refers. What I get out of that is simply this, that we would respectfully suggest that when the Official Receiver is for the purposes of a consideration which the statute requires him to make in connection with the issue of a notice under section 139ZQ giving attention to the matters or, indeed, to the decision to issue the notice, the legislature will not have imposed, in our submission, any more onerous requirements on the Official Receiver in the issue of that notice than are, in effect, imposed upon the Court by the requirements of section 120(1).
GUMMOW J: So Anscor assists, you say, your proposition 5, is that right?
MR COLES: This is right. It can be put in various ways I have put it several times in various ways and I would avoid repeating myself but likewise, the Official Receiver in his approach to the notice issuing is not required to assign the particular value to the consideration. He is really identifying – indeed, section 139ZQ(2) requires that there shall be set out in the notice the facts and circumstances and I have already put that they are, in our submission, the facts and circumstances which enliven, as it were, the operation of section 120 and not a survey at large of what might be called conceivable or potentially relevant facts and circumstances in whatever controversies of an underlying kind may subsist between the participants in the transaction and, ultimately, later the trustee in connection with the transfers to be set aside.
I would also, for a different purpose, draw your Honours’ attention to the fourth of Justice Lindgren’s propositions appearing in paragraph 38 of the judgment in Anscor v Clout on page 479 of that judgment. His Honour draws attention to section 120(4). If I can omit close reading of the first full paragraph and come down to paragraph 39, his Honour records that:
Section 120(4) does not provide for the transferee to become a creditor of a bankrupt but imposes an obligation to pay upon the trustee in bankruptcy. Moreover, the policy underlying s 120 is to enable the trustee in bankruptcy to recapture the amount of the “shortfall in consideration”; not to go further by, in effect, requiring the transferee to pay more for the property than its market value at the time of the transfer.
We would respectfully adopt those observations in aid of our suggested response invoking the entitlement of the trustee to bring the action in debt and the place which that right conferred by the statute occupies in testing the content of the power and what is involved in the task of – I would respectfully say the alternative task under 139ZS involved in the setting aside of the matters.
GUMMOW J: I am just wondering how one matches the thought in paragraph 39 there as to section 120(4) with the notice scheme regime with the creation of a debt.
MR COLES: Quite. This is why I am drawing attention to it, your Honour.
GUMMOW J: Of necessity it has to be a liquidated sum.
MR COLES: Yes.
HAYNE J: The debt is for the whole, not the shortfall.
MR COLES: Indeed.
HAYNE J: The debt is the whole of the value, not the shortfall in consideration.
MR COLES: Quite. One has to accommodate that situation. Indeed, one has to accommodate in the analysis of the cause of action in section 139ZQ(8) the fact that the amount of the value asserted in the notice which is the foundation of the claim for debt must necessarily tolerate or accommodate a variety of reducing or diminishing circumstances, one of which will be the fact that there may equally be a debt unknown to the trustee or the Official Receiver due to the transferee because that transferee has, in the contemplation of the section, supplied some consideration.
So it must be allowable or recognisable in the contemplation of the legislation that as a defence in that action for debt the transferee will be able to set up its own entitlement in effect to abate its obligation to pay the amount asserted to be the value of the property to reduce that liability in a proceeding in a court of competent jurisdiction by the extent of its – the transferee’s - own entitlement to receive back from the trustee in full, not as a provable debt, the amount of the consideration so paid.
CRENNAN J: Then one might get a different judgment from the judgment sought in relation to the debt by the Official Trustee. But what happens to the notice in those circumstances?
MR COLES: To serve at least one useful effect which the notice may have, namely to ground the basis for a charge – and the charge being of course co‑extensive in value with the amount in the notice, the notice will need to be reduced or amended to accommodate accurately the foundation for the charge which is then to be registered on the title. We see that as a harmonious interplay of the ‑ ‑ ‑
CRENNAN J: Would there need to be an order following the judgment debt for the different sum from that shown on the notice?
MR COLES: In our respectful submission, no. It would be sufficient administratively for the trustee to go back to the Official Receiver, who issues these notices to begin with, or at the initiative of the trustee and say, “Official Receiver, would you please amend the notice you have issued to reflect the amount now properly claimable and then would you please issue me with a fresh certificate so I can then lodge that with the appropriate lands registry to record my charge”.
HAYNE J: Do you say the amount properly claimable is the amount net of the consideration paid?
MR COLES: In the court of competent jurisdiction that will be the outcome, we would have to submit.
HAYNE J: It would be the outcome, would it not, as a result of counterclaim leading to judgments set‑off rather than set‑off properly so‑called, would it not?
MR COLES: In principle, yes, although it may depend on certain rules of certain courts authorised by way of defence, in effect, what is otherwise a set‑off.
HAYNE J: I understand that but the statutory debt is for the whole, is it not?
MR COLES: Yes.
HAYNE J: There is then a claim made by the person who owes that statutory debt of an entitlement under 120(4) and but for the intervention of particular rules enabling a particular fashion of pleading, it would be properly identified as counterclaim not set‑off, would it not?
MR COLES: I think that is right, with respect, yes.
HAYNE J: Yes.
MR COLES: Another illustration which again the legislation has to accommodate is the situation where the liability of the transferee may suffer some abatement in consequence of the property transferred being itself subject to encumbrance. The idea of the section seems to be to get back into the bankrupt’s estate the value, ultimately, of the property transferred, net of any consideration that has been paid for it, but, of course, necessarily recognising that the subject matter of the transfer, the property transfer, may itself be encumbered and if the transferee has taken subject to encumbrances, then that is obviously a reduction, we would think, in the value of the property and would have to be accommodated in any judgment that might be sought and obtained in the court of competent jurisdiction.
GUMMOW J: You use this expression “court of competent jurisdiction”, that, it seems to me, would include the Federal Court by virtue of section 39B(1A)(c), it would be arising under a law made by the Parliament.
MR COLES: Yes, I agree with that, your Honour, and we would think ‑ ‑ ‑
GUMMOW J: As indicated in this Court in LNC v BMW 151 CLR 575 because the federal law is the source of the debt. So there would be no difficulty in putting on a cross‑claim, would there, in a notice application?
MR COLES: Absolutely not, that is right. We would also think that section 27 of the Bankruptcy Act, provided the court of competent jurisdiction is, of course, the Federal Court of Australia or the Federal Magistrates Court, but not otherwise, section 27 of the Bankruptcy Act could come into play to similar effect but it is obviously limited to those courts of competent jurisdiction, indeed, perhaps it makes them courts of competent jurisdiction to which those provisions apply.
GUMMOW J: Procedurally, there would seem to be no obstacle in wrapping it all in the one proceeding.
MR COLES: Quite.
KIEFEL J: Could I interrupt you, Mr Coles? Do you accept that the existence of the debt which is sued upon is dependent upon the notice under 139ZQ(8)?
MR COLES: Yes, I have to, because that is how it is ‑ ‑ ‑
KIEFEL J: It does not have a separate existence other than as provided for by that section.
MR COLES: Via the notice. Yes, that is right.
KIEFEL J: If that is the case, in the civil proceedings for the debt, what is the position then with respect to a judge who finds that the true value is a sum lesser than that in the notice? Is the court in a position under some authority that does not immediately come to mind to enter a judgment for a lesser sum – not a greater sum but a lesser sum than the notice – or does the notice have to be amended prior to judgment to enable judgment to be entered for the correct sum?
MR COLES: Can I answer that this way. My first submission is the former and let me be clear about this, the reason why I have taken the Court to these qualifications or reducing elements that may go to this place, or to be available as defences or cross‑claims in proceedings in the court of competent jurisdiction for the recovery of the debt is to indicate that there is inconformity with what I had put yesterday. There is nothing, we accept, that is conclusive or preclusive about the notice itself, so far as creating the liability.
KIEFEL J: I see.
MR COLES: The whole idea of identifying the controversies that may subsist in the court of competent jurisdiction as being able to reduce the amount of the debt is to further or to advance the proposition really that I was starting to put yesterday, namely that there is no reason likewise why the debtor could not put into play the proposition that the amount recorded in the ZQ notice is greater than the amount of the true value of the property as evidenced by admissible valuation evidence in aid of having the liability of that debtor reduced to the amount of the true liability because it would be said that whatever the entitlement on the face of it to recover the statutory debt, a court of competent jurisdiction would take into account a defence along those lines, just as it would a defence along any lines.
To try and make my position I hope still clearer is that the reason I am putting this of course is that here we say – and by these means we identify – is a basis to be discerned from the legislation for a controversy – or a contest about the true value of the property, it being necessarily an imprecise concept to begin with, and one does not therefore have to go through, and indeed one is not ultimately authorised to go through the process of evaluation dispute under the ZS process, because the 139ZS process is limited to an evaluation of whether the facts and circumstances go into the issue of the notice to begin with – that is to say in this case the 120 matters are or are not made out.
KIEFEL J: Could I just take you back to 139ZQ(8). I take it from what you are saying that you regard that provision as enabling the bringing of proceedings, that is to say the invocation of the court’s jurisdiction to deal with a claim for a debt for the amount in the notice, thereafter the controversy exists between the parties by the claim and counterclaim.
MR COLES: Yes.
KIEFEL J: The court is entitled regardless of the notice, which only initiates this process, to enter judgment for the amount it finds. The notice you would say under this section enables the invocation of the court’s jurisdiction and it operates as a charge. They are the two ‑ ‑ ‑
MR COLES: This is right.
KIEFEL J: ‑ ‑ ‑ and of course as a notice itself to the person against whom it is given. They are the two principal effects.
MR COLES: Yes. It would not be likely that the notice would impose liability for a charge only without also being itself the foundation for the cause of action in debt.
KIEFEL J: No, that is right.
MR COLES: Can I put this, though – and before I come I have to answer your Honour’s ‑ ‑ ‑
KIEFEL J: But your point is that the notice itself is not set up by the statute to be conclusive as to the debt, it only enables the controversy to be undertaken.
MR COLES: Yes, but it does so in a way, in our respectful submission, and I mention this before I come to answer your Honour’s second question from a moment ago which I have not I acknowledge responded to. The reason for referring your Honours to the case in 99 CLR yesterday, Queensland Trustees, is to indicate, when one has a cause of action for debt and the debtor puts in contention by way of response or answer to the existence or, I suppose, for that matter, the amount of the debt, that does not, according to the authority of Queensland Trustees, throw upon the creditor the obligation to prove more than the debt.
In other words, matters of defence – in the Queensland Trustee’s Case the assertion the debt had been in the lifetime of the deceased member already paid – are matters which are shouldered by the defendant to the action. So this has an important role to play, in our respectful submission, to put the onus of raising matters which call into question the debt identified under the ZQ notice, puts the onus on the ‑ ‑ ‑
GUMMOW J: Recoverable as a debt?
MR COLES: As a debt, that is right.
GUMMOW J: What is recoverable?
MR COLES: Now, this is said in opposition to some authorities to which I am about to come because I need to deal with them – they are to this extent on one view against me – that say that all that a notice under ZS does is to – subject to perhaps a fairly minimal requirement of raising a serious question to be tried – all a ZS notice, on one view, does is to stimulate the necessity for the trustee to bring or embark upon a full‑scale recovery application under 120 or 120(1) or 120(2), as the case may be. We respectfully submit, that cannot have been the object of a Parliament to treat these ZS notices as no more than a kind of show cause notice or something of that nature.
Indeed, we would add, Parliament had before it, not very distantly from the enactment of these provisions, the scheme of statutory notices under the Corporations Act and it could have dealt with the problem by the same sort of 459E, F, G mechanism of saying if there is a plausible question or a serious question to be tried about whether the debt exists or not, then the ZQ notice would be simply set aside and the parties remitted to establish the debt at law, but in contradistinction to the 459E statutory demand process with which your Honours are very familiar, they adopted a very different mechanism, in our respectful submission, advisedly so.
Can I come, lest I forget, to your Honour’s second question which was, I think, to the effect that would it be a necessary precondition for the trustee first to seek the Official Receiver’s amendment to the notice? My inclination is to submit not, because the occasion for what, in our respectful submission, would be an administrative process consequent upon, really, the resolution as between the parties of the controversy about the amount that truly was the payable amount which became the amount of the charge, would necessarily postdate that determination and the utility of the amendment to the notice in that context would be to validate, or make accurate at least, the quantum of the charge for the purposes of the issue of the certificate and the registration of the encumbrance, we would respectfully suggest.
Could I then, your Honours, in aid of what I was putting a moment ago, say a little more about the proposition which we do dispute, but we accept there is powerful authority that has nurtured the contrary view, that is to say, the contention that a proceeding under section 139ZQ involves or calls into play a de novo evaluation of the trustee’s claim.
At first instance in Norton v Halse, which became Halse v Norton, Justice Carr sitting in the Federal Court of Australia in Western Australia in 1996 – a decision which is reported (1996) 137 ALR 593, but I am not aware elsewhere reported – really held that the way 139ZS worked was that it enabled the recipient of the ZQ notice to allege, in effect, and make out what he described as a prima facie case that the alleged facts and circumstances set out in the notice either did not exist or, if they did not exist, they did not disclose a voidable transaction. He held that the onus of adducing evidence then shifted to the trustee who, in effect, was obliged to either suffer the notice to be set aside or to meet that claim ‑ ‑ ‑
GUMMOW J: Have we got that case on our list in 137 ALR?
MR COLES: No, your Honours have on the list the decision of the Full Court of the Federal Court of Australia on an unsuccessful appeal from Justice Carr’s judgment called Halse v Norton (1997) ‑ ‑ ‑
GUMMOW J: Yes, we looked at that.
MR COLES: Mr Bigmore drew your Honours’ attention to it yesterday.
GUMMOW J: Section 139ZQ(8) is a Shepherd v Hills provision, is it not? The debt provision?
MR COLES: Yes, Shepherd ‑ ‑ ‑
GUMMOW J: It is a Shepherd v Hills provision.
MR COLES: I am not familiar with the authority to which your Honour refers. Can I say we have looked and noticed that the formula used in subsection (8) is not, of course, unique to this legislation. Indeed, we were in a quest of a response to the question your Honour Justice Kiefel asked us yesterday or variants related to that topic.
HAYNE J: Mr Coles, the point is perhaps not unimportant and perhaps may or may not assist your case. Mallinson v Scottish Australian 28 CLR 66 at 70, Commonwealth v SCI Operations 192 CLR 285 particularly at 313, take up the general issue, and in the latter case, SCI, 192 at 313, there is quoted from Mallinson:
“The rule applicable here is stated in Shepherd v Hills –
11 Exchequer –
‘Wherever an Act of Parliament creates a duty or obligation to pay money, an action will lie for its recovery, unless the Act contains some provision to the contrary’ –
so far so good –
and where the amount is liquidated the action of debt is appropriate –
Hopkins v Swansea, Meeson & Welsby. Where the claim is for value, one is at least straining to say that the claim is liquidated, so that ZQ(8) when it says “recoverable . . . as a debt” may be going a step further than the Shepherd v Hills rule. The Shepherd v Hills rule, yes, the amount is recoverable, but as to the form of action, as an action for debt if the amount is liquidated, this amount may be not perhaps as easily seen as a liquidated sum.
MR COLES: Yes, so perhaps it may be, your Honour, that that is why, although if not a debt, maybe subsection (8) makes it so.
HAYNE J: But the action for debt is to recover value, and it may be that that leads on to, or perhaps lends some weight, I do not know, to your contention that what is at issue when action is brought by the trustee to recover a sum, though in form an action for debt, is in truth action for value leaving at large the possibility of controversy about value, but within that suit it would be open to the court to say, you have assigned X dollars to the value, that is not right, the amount of value is X minus, you may have judgment for that without the intervention of an amendment to the notice. Now, the difficulty that I think that chain of argument then must confront is we have got this criminal offence backing it up. Can we so construe the Act when to fail or refuse constitutes a crime?
MR COLES: Well, if I can make two observations. Firstly, I can, I think, until we get to the difficulty presented by the criminal element of the provision, adopt gratefully your Honour’s observations as to be built into our own submissions, and I do so. So far as the criminal element is concerned that, I have acknowledged yesterday, creates a cause of concern but, again, as we put by reference to Beckwith, the process of construction may not significantly differ.
Indeed, in Beckwith’s Case Justice Gibbs said the rule directing attention to a particular mode of construction because a statute has a penal consequence may in recent times, or may by then, which I think was 1976, be a rule of last resort. So that one may proceed to construe the sections according to their content on the usual bases – indeed, one would in either case – with a recognition that they impose a penal responsibility.
HEYDON J: If you do not pay because a court says that you do not have to pay that extra amount you have not paid, it would be strange to call it refusing or failing.
MR COLES: Exactly. It would not be on the true construction of the expression “refusal”. Refusal must mean ‑ ‑ ‑
HEYDON J: “Failure” does not mean just, “It passed my mind that I should have sent a cheque on Monday”. That really means something positive.
MR COLES: It is our submission “refusal” means wilful refusal without reasonable cause – or just cause, as I think I put it yesterday. So understood, then there is no – I am concerned about this difficulty, that the process of construction accommodates perhaps not merely the prospect that the particular construction may produce a criminal conviction, but it would be sufficient reason to have concerns about the penal thrust of a section that it simply exposed an accused person, or a person, to the peril of prosecution whether or not his defence has succeeded. One would, I think, have to factor in that, if that is a legitimate concern which, in our submission, it may be.
If one adopts a construction, as your Honour suggests, of the extent or the reach of the criminal responsibility as in ZT – and it is to be noted it carries with it a very grave punishment – imprisonment for a period not exceeding six months is no light matter, which will constrain a rigorous construction, in our respectful submission, of the content of the expression “A person who refuses or fails to comply with a notice”. It would constrain, in our respectful submission, the identification of the elements of failure to be failure without reasonable cause and the element of refusal to be refusal wilfully and without any belief in circumstances which justify that refusal – the onus of ‑ ‑ ‑
GUMMOW J: There may be a difficulty also with the amplitude of this power of amendment. Where the judicial power has been invoked and there is a Chapter III proceeding under way for determination of rights there may be a constraint upon administrative action to destroy or vary the nature of that dispute.
MR COLES: In principle, that is so.
GUMMOW J: An extreme example of that is the notion that there may be a contempt of court, explained in one of the Builders Labourers’ Cases 152 CLR 25 where it was said that where there was a proceeding on foot in the Federal Court for deregistration, I think, the intervention of the Executive by appointing a royal commission was apt to frustrate that exercise of judicial power. Those ideas, to some extent, I think, can be in play here.
MR COLES: Yes. It may be to a degree tempered ‑ ‑ ‑
GUMMOW J: They inhibit you from standing up now and saying, “Look, here is another notice”.
MR COLES: It may require, at least, attention or closer attention to the recognition of the circumstance that any amendment of the notice would of course itself give rise ‑ ‑ ‑
GUMMOW J: I think it has to be post adjudication.
MR COLES: Yes, indeed, but it would itself not – it would still be exposed to attack on available grounds under 139ZS so that the process would be ongoing and the entitlement to apply to have the notice set aside would apply equally, in our respectful submission, to an amended notice and would indeed arise afresh each time the notice was amended so that would be some palliation of the potential injustice that administrative process might visit.
CRENNAN J: I suppose that is the other way of doing it, for the court when it gives judgment for the lesser sum to set aside the notice as to the surplus.
MR COLES: Yes.
CRENNAN J: That may be the solution to the amendment problem.
MR COLES: Except that our submission is that the elements which enliven the entitlement to set aside the notice are confined by the terms of ZS itself to the courts being satisfied about the alleged facts and circumstance being those, as I have said, which ground the 120 consideration in a case like this are not present, in our respectful submission. May I then briefly refer to Halse v Norton. I have drawn your Honours’ attention that in the first instance decision the ZS notices were seen as no more than a vehicle to prompt the Trustee ‑ ‑ ‑
GUMMOW J: I think you could say with some confidence that none of the matters we have been debating have been adverted to in the case law heretofore to any significant degree. Anyhow, what do you want get out of Halse v Norton?
MR COLES: Halse v Norton (1997) 76 FCR 389, may it please the Court, is another instance of the ZQ consideration in the context of the former provisions of section 120 but nothing particularly turns on that. The particular passages to which we would draw to your Honours’ attention when your Honours are evaluating our argument about the ‑ ‑ ‑
GUMMOW J: At the bottom of page 389 where it says “unreported” that is inaccurate, is it not? It is 137 ALR, is it?
MR COLES: I am sorry, I will just give your Honours that reference properly.
GUMMOW J: At the bottom of page 389 it says ‑ ‑ ‑
HEYDON J: Page 391 between F and G gives the correct reference.
MR COLES: Yes. It is 137 ALR 593.
HEYDON J: Instead of the cases cited.
GUMMOW J: Thank you.
MR COLES: The particular passage to which we would invite your Honour’s attention when evaluating our submission as to the limitations built into section 131ZS in point of what is available for evaluation or what informs the satisfaction which the section describes, when your Honour is evaluating our submissions on that, we would need your Honours to consider observations in this case and by way of particular focus may I draw attention to what appears on page 398, picking up below the line E. Yes, well perhaps I should start at the full paragraph:
It is for that reason that when the operation of s 139ZS has been considered in this Court, an application under that section to set aside a notice has been taken to be the means provided by the Act under which any dispute between the recipient of the notice and the trustee as to the application of Div 3 to the transaction is to be litigated: see Re Pearson; Ex parte Wansley v Pearson (1993) 46 FCR 55 at 60; Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329 at 335-336. That is, s 139ZS has been construed as a provision by which an application made under that section initiates litigation appropriate to resolve a dispute between the trustee and a third party. Then on that construction it would follow, unless the Act provided to the contrary, that the onus of proof in that litigation would be as provided in Div 3 of the Act. Therefore, where an application under s 139ZS involves a dispute between the trustee and the person served with the notice as to the application of Div 3 to a transaction, the onus will be on the trustee to satisfy the Court that the provisions of Div 3 so apply, subject to express contrary –
subsections and he goes on to say – this is in the joint judgment of Justices Lee and Nicholson:
His Honour held (at 598-599), that an applicant under s 139ZS would be obliged to ‑
An applicant under 139ZS, that is to say the recipient of the notice:
would be obliged to adduce some evidence to show that there was a real issue to be decided in the proceeding, but that the onus of proving that the provisions of subdiv J applied to the applicant and, therefore, that the provisions of Div 3 applied to the transaction, would rest on the respondent to the application.
I just draw attention without taking your Honours’ time to read it all to what follows over onto the next page. In our respectful submission, although it is not essential for me to make good this proposition, those observations may fail to give completely adequate recognition to the plain text of section 139ZS itself. Our submission is really that even if their Honours are right, then nothing was shown in the 139ZS application by the present appellant, Mr Vale, to measure up even to Justice Carr’s rather benign stricture of a prima facie case of some error in the matters about which the Official Receiver – or the matters to which the Official Receiver had to give consideration, and in particular ‑ ‑ ‑
GUMMOW J: ZS is one of those unfortunately drafted provisions which the Commonwealth persists in doing. It is a Barrett‑type provision, is it not, that both creates a right and invests jurisdiction, or seems to, in this crablike procedure by saying “if the Court something then it may do something”.
MR COLES: I put yesterday, and I have replicated the observation in the short point form outline, that if there are two ways of reading ZS, the respondent’s way of reading it is that one is looking at whether the court is satisfied that the subdivision does not apply to the person and the important words are:
on the basis of the alleged facts and circumstances set out in the notice –
that is to say, that calls attention to the requirements of section 139ZQ(2) which sets out what the matters that are to be alleged in the notice, or to be set out in the notice are, and not to other extraneous or different or narrative or historical or other sorts of facts. If that is right, then of course there is no proper basis for impugning questions not material to the section 120 inquiry, namely, the extent of the deficiency of the consideration and therefore the valuation information upon which the evaluation of the extent of that deficiency was based. That is not a matter we put that informs a conclusion about the operation of section 120 and is, accordingly, not a matter which section 139ZQ(2) requires to be set out in the notice, even though for informational and demand‑making purposes the notice may and will contain other material. Misstatements in that other material will not matter. Misstatements in the material that relates to the requirements of 139ZQ(2) which are the foundational requirements on the basis of which the Official Receiver considers that the transaction is void obviously will.
GUMMOW J: Your proposition comes to this, does it not? ZS is to be understood this way, as if it said a person to whom a notice has been given under section 139ZQ or by any other interested person may apply to the Court to set aside the notice. The grounds on which the application may be made are 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, on such an application, if the ground is made out, must make an order setting aside the notice and when the ground is expressed as the “Subdivision does not apply to the person on the basis of the alleged facts and circumstances”, that is a reference to no more than subsection ZQ(2), not the concluding words of ZQ(1), namely, the obligation to pay.
MR COLES: That is right, that is the debate. In our respectful submission, strong textual support for our submission is gained from the adoption of the identical language in the two provisions.
GUMMOW J: How then is there a dispute activated as to the accuracy of the amount required for payment?
MR COLES: That, as I have been seeking to put, your Honours, is something that will be activated typically in the recovery proceedings under subsection (8) and is available to be so activated. What happens if the trustee ‑ ‑ ‑
GUMMOW J: And in those proceedings under (8), where you have this transmutation of value into a debt, how does the controversy as to recovery of less than the whole of the amount claimed get resolved in that action under (8)?
MR COLES: The recipient will be entitled, in our submission, to defend the trustee’s claim in debt on grounds which include putting in issue the true value of the trustee’s entitlement.
KIEFEL J: The challenge of the quantum of the debt connected to the value of the property.
MR COLES: The challenge of the quantum of the debt, yes. There are of course other means as well.
GUMMOW J: You rely on Young’s Case there.
MR COLES: We rely on Young’s Case. The other means, of course, one should not omit in one’s evaluation, and your Honours will not, of course, do so, the other options given to recipients of these notices. One technique for overcoming entirely any disputed perceptions of valuations would be to adopt the benefit of the provision extended by subsection ZQ(7), that is to say:
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 is transferred to the trustee.
So, in effect, that is a money or the box notion and if you think the money is too much, you hand back the container.
HAYNE J: Can I go back to your construction of subsection (8) for a moment. In a case involving property not money, is a consequence of your approach to the construction that where there is a claim by a trustee for a debt, that debt in the case of property must be proved by the trustee proving as part of his or her case the market value of the property received?
MR COLES: In my submission, not as part of his case in‑chief. He will be entitled, in our respectful submission, to say that he issued a notice and that the amount payable by the recipient of the notice is recoverable by him for that reason. If that were not so, our reason for putting that submission includes the reason that there would be little purpose, in our submission, in providing for, amongst other things, subsection (8) if the only consequence of issuing the notice was to pave the way for something which the trustee never needed anyway, namely, to simply bring an application for the restoration of the property.
HAYNE J: Action for debt is founded, you say, in the trustee’s assertion of value in the notice?
MR COLES: Yes, and including, in my response to your Honour’s question is of course the adoption of the Shepherd v Hills line of analysis.
GUMMOW J: If you are right about that, how does that form of construction as to how these things are resolved fit in the framework of the piece of litigation in this case?
MR COLES: This brings me in a moment to, I think, the cross‑appeal. Can I save that up, if it is convenient, your Honour, otherwise I will move straight to that now.
GUMMOW J: No, no.
MR COLES: I have little more to go until I get to it, in any event. Indeed, that was, subject to other matters, the last consideration I wished to refer to. Could I just complete the reference to what I say about Halse v Norton. If I could invite your Honours by way of illustration to go to page 399 of the report, just to pluck but one of several examples. Their Honours say, for example, just above the letter G:
However, s 139ZS states that the Court may set aside a notice if it is satisfied on the hearing of an application that subdiv J does not apply to the applicant. In the latter circumstance the party bearing an onus of proof is determined according to the nature of the proceeding –
Your Honours will notice a curious elision in their Honours’ statement about what it is the court must be satisfied about. In our respectful submission, section 139ZS does not say that the court may set aside a notice if it is satisfied that subdivision J does not apply.
GUMMOW J: What page are you reading from?
MR COLES: I am reading from the bottom of page399 of 76 FCR, if your Honour pleases. Because there is a distinction, on one view, between the concept of subdivision J not applying for whatever reason and the statutory construction that the court is to be ‑ ‑ ‑
GUMMOW J: They have omitted some words ‑ ‑ ‑
MR COLES: Those words are crucial to the definition of them.
GUMMOW J: The words they have omitted, you say, hooks the subsection back to subsection XQ(2).
MR COLES: Precisely, and, in our respectful submission, the Full Court’s reason is, generally speaking, could be said to be encapsulated in that omission. Once you would just simply say let us look around and see if subdivision J applies at all. It is an easier step to say, well, let us have regard to things like value and so forth, or misstatements of value or misstatements of anything. If you are anchored in the text of the statute, then you do not come to the conclusion at all. You are looking at the facts and circumstances which are, by the terms of the statute, made essential to the essential requirements of the valid notice and not other aspects of its content. As I say I do not necessarily need to convince your Honours that the Full Court of the Federal Court was wrong in that respect. It is sufficient ‑ ‑ ‑
GUMMOW J: I will just interrupt you again, Mr Coles, you may need some instructions on this. It may be that if you were to be given leave to pursue this cross‑appeal, there may be a burden of costs, quite substantial, imposed as a condition.
MR COLES: I think Justice Heydon drew my attention to that possibility yesterday and it was one which one would say could not utterly be wholly regarded as unforeseeable.
GUMMOW J: I am sure you have alerted your instructor, that is all we are anxious about it at the moment. Yes, go on.
MR COLES: I shall most certainly take instructions about any conditions your Honour may indicate may be necessary. Can I just pick up a couple of matters. To finalise what I was saying about Halse v Norton, I do not need necessarily to make good the proposition that the observations in that case are incompatible with the provision. It is sufficient to say that if the case is right, as I have already put, the person attacking the notice has not really ascribed any grounds for setting it aside relating to why subdivision J does not apply or why the alleged facts and circumstances are not made out. Indeed, that was not the way they seemed to attack the notice.
I draw attention to both the form of the application and the pleadings which your Honours have seen. Even on that relatively relaxed standard, there was not a basis for the learned federal court magistrate setting aside the notice and the Full Court was correct in regarding the matters which he held to be significant errors as not being significant errors of the kind which found that a satisfaction under 139ZS and, for that reason, he should not have set aside the notice. To the contrary, he should have made orders for possession and entered judgment for an amount.
Second lastly can I say, your Honours, we have considered again the authority of Kuch v Official Trustee where your Honours will recall – and I am afraid I do not have a - I am not sure it is reported – but amongst other things Justice Jenkinson observed simply that a notice which is factually incorrect would not be valid, apart from being subject to the general ‑ ‑ ‑
GUMMOW J: We did not observe it. I think the Minister observed it.
MR COLES: Yes, that comes from the second reading speech, that is right. The inevitable paraphrase which secondary material sometimes finds itself expressed in is not, in our respectful submission, really of much assistance in the process of construction of the provisions, and the proposition “a notice which is factually incorrect would not be valid as an observation” should be limited to those facts which are themselves facts and circumstances which are required by section 139ZQ(2) to be set out.
Could I lastly observe, your Honour, that a conclusion in favour of the respondent’s submissions about the interface between the validity of a 139ZQ notice and the accuracy of the amount which it claims, or more accurately the amount which it requires to be paid, can also sustain a valuation against a background of general – or an evaluation in the general law of the question of the necessity or otherwise for accuracy in notices which demand payment of money.
Can I hand up to your Honours copies of the Court’s decision in Bunbury Foods Proprietary Limited v National Bank of Australasia (1983) 153 CLR 491 and the passage, if your Honours please, dealing with the what I suppose one might call a general law of notices of demand commences at the foot of page 503 of the report.
Needless to say, I acknowledge immediately that the subject matter with which their Honours were there dealing was some little distance away from the topics presently agitated before the Court, but the observations at the foot of page 503 in the unanimous judgment of the Court are, in our respectful submission, appropriate for this Court’s consideration as I integer in the evaluation of the statutory intents it be likely that Parliament had in mind that real rigor was unattainable where an issue of value is involved, and in any event as a matter of background, the general law did not insist upon utmost accuracy for many purposes where, in any event, real rigor might have been just as well justified. They are our submissions, your Honour.
Can I then come to the cross‑appeal matter, your Honour. We apply to file formally notice of cross‑appeal dated 21 May 2009 and summons. There is prepared – although I think we are led to understand it may not be required – an application for special leave to cross‑appeal. That is available if your Honours require that document to be filed. Can I also indicate that to the extent that may be necessary and that we have not already done so, we undertake ‑ ‑ ‑
GUMMOW J: It is governed by rule 42, is it not?
HAYNE J: Rule 42, I think, yes.
MR COLES: I was going to say, your Honour, to the extent that we have not already done so or to the extent that we may be required to do so, I offer an undertaking in connection with payment of any ‑ ‑ ‑
GUMMOW J: Yes, 42.08.
MR COLES: If your Honour pleases. We offer an undertaking, your Honour, to pay any necessary filing fees.
HEYDON J: But you have the notice of cross‑appeal, which is what 42.08 speaks of, on. Your question that you posed is, should there be an application for leave to cross‑appeal?
MR COLES: Yes.
GUMMOW J: Rule 42.08.4, you may seek special leave on your feet, as it were.
MR COLES: Yes, I see, your Honour. Yes, if your Honour pleases.
GUMMOW J: Why should you get special leave on this point?
MR COLES: If leave were granted, your Honour, it would assist in the speedier resolution ‑ ‑ ‑
GUMMOW J: It would have to be on terms that the order of the magistrate as to costs was restored, I suspect, and that you bear the costs of the appeal to the Full Court and the appeal in this Court in any event. That is what you need to get instructions about, I suspect, because it is a new case. The peg on which you have to hang it, I think, procedurally, is that, yes, they have to say that your statement of claim as to paragraph 15(h) was an action to recover the debt.
MR COLES: Yes, that is right.
GUMMOW J: That is on page 8 of the appeal book. If you need some time to take instructions, Mr Coles, just tell us.
MR COLES: In the circumstances which your Honour has indicated, I withdraw the application for leave to cross‑appeal.
GUMMOW J: Where does that leave your submissions?
MR COLES: In our submission, the appeal should be dismissed for the reasons we have given or offered because the decision of the Full Court in setting aside the magistrate’s decision was correct. Not necessarily for all of the reasons given by the Full Court. The orders they made were the correct orders in the circumstances.
GUMMOW J: The orders the Full Court made sent it back to be done again and reserved questions of cost, did it not? I am looking at the application book.
MR COLES: That is right.
HEYDON J: Page 297.
GUMMOW J: Yes, 297, as Justice Heydon says. And reserve questions of costs too. So if you go back before the Federal Magistrates Court all these questions will just come back again, will they not, all these costs questions will come back, because you will – I imagine, when you get back before the magistrate you will want to say that you have a debt action under paragraph 15(h)? The magistrate will not be unmindful of what we have been saying to you this morning, I imagine. Anyhow, if you want to proceed, Mr Coles, you proceed.
MR COLES: Well, I have really made my submissions, your Honour, in support of the opposition to the appeal. I am not sure subject to any other matter about which I can assist your Honour.
GUMMOW J: Yes, Mr Bigmore.
MR BIGMORE: If the Court please, I did have some homework to do which was in relation to this Court’s treatment of section 30 and its predecessor. Might I hand up copies of Price v Parsons (1935‑1936) 54 CLR 332.
GUMMOW J: That is dealing with section 25 of the 1924 Act, I think.
MR BIGMORE: It is. I have only extracted the relevant pages, your Honour and the same with Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589, two separate bundles.
GUMMOW J: Thank you.
MR BIGMORE: In Price v Parsons the relevant treatment was two‑thirds of the way down page 354 in the joint judgment where the predecessor, section 25, was described as providing jurisdiction to make a consequential order for effectively the recovery of proceeds of something that had been alienated in a transaction which was void. In Clyne, the relevant passage – perhaps I should take the Court to the middle of page 597, the beginning of the paragraph, just the first sentence there:
Moreover, the court has, in our opinion, no power to backdate a sequestration order to make it take effect either before, or contemporaneously with, the commencement of the bankruptcy resulting from the acceptance of the debtor’s petition.
This was the famous Mr Clyne’s attempt to change effectively the relation backdate. The relevant passage for present purposes is five lines from the bottom of 597:
Neither the general power conferred by s. 30(1)(b) of the Act to make such orders as the court considers necessary for the purpose of carrying out or giving effect to the Act, nor the power given to the Federal Court by its rules to antedate its orders . . . extends to permit the court to make an order which would bring about a result different from that prescribed by the express provisions of the Act and so serious in its possible consequences -
which is a little way away from what I put yesterday based on Federal Court single judge decisions such as Justice Neaves and Justice Pincus, the latter in a matter of Bayliss where section 30 was regarded as a power in aid of jurisdiction to be found elsewhere in the Act. Be that as it may, I wonder if I could take the Court in reply very briefly back to the text of section 139ZS?
GUMMOW J: Yes. It would be helpful if you could tell us where you see the grounds of the appeal now lying in view of what may have been an excursion this morning.
MR BIGMORE: Yes. I must say, your Honour, we, for our part, would go back to the text and make what is our primary submission, namely, that the expression “the alleged facts and circumstances set out in the notice” where found in ZS(1) not only hooks the words in subsection ZQ(2) but also hooks the words at the end of subsection (1). I have referred in submissions to the Official Receiver’s valuation and calculation process. The determination of an amount equal to the value of property received gives rise to the existence of a fact or circumstance just as surely as the matters referred to in subsection (2).
Subsection (2) is mandatory. It directs the Official Receiver to include in the notice facts and circumstances relating to the avoidance of a transaction under Division 3 but, equally, however briefly stated the result of the valuation and calculation process might be, it nonetheless is a fact or circumstance stated in the notice. Our primary submission has always been that ZS opens up the jurisdiction and to the extent that it falls short in terms of conferring power, section 30 fills that gap.
HEYDON J: The consequence of this submission is very unfortunate for people in your client’s position. It is going to lead to vapoured general notices in order that there can be an attempt to avoid the risk of a small error leading to total invalidity.
MR BIGMORE: Your Honour, the mandate in subsection ZQ(1) cannot be avoided by the Official Receiver.
HEYDON J: Let me ask you this. If instead of in a kind of tight, interconnected logical and formally impressive way, which we see in the notice, it had simply referred in bald terms to they key words of section 120, would that have been a valid notice?
MR BIGMORE: No. It would need to give the particulars that were necessary to establish the case. It would be sufficient, your Honour, to give a broad description of the value. In a case such as this where the consideration is $2 and the value is plainly more than $200,000 of the particular interest transferred, then it would be enough at that level and in relation to that task for the Official Receiver to say the market value far exceeds the amount that was transferred or the amount that was paid.
HEYDON J: So the fault was to refer in paragraph 3 on page 128 to the registered valuation which estimated the total market value to be 540,000?
MR BIGMORE: Yes. The calculation we do not disagree with, the 50 per cent interest calculation, of course, but there might also be other calculations. I was going to say a word about section 120(4) and how that might fit into the process because ZQ compels the Official Receiver not only to state an amount equal to the value of the property, but it focuses attention on the property received. In this case it is de minimis, of course, but in another case it might be the case that the consideration that was given instead of $2 was $200,000 so that the difficult was a mere $8,000. In which case, is the property received in subsection (1) focusing on the $8,000 or the $208,000, leaving the rather curious result, as contended for by our learned friends, that in a recovery proceeding for $208,000 that a court would recognise that the correct net amount that should be the subject of a debt judgment would be only $8,000.
Curious because, of course, one then does not get over the problem with the existence of the charge or the criminal consequences and, as Justice Crennan observed, is there a power to set aside a notice in part?
GUMMOW J: I want to be clear about this. The upshot of Mr Coles not pursuing his cross‑appeal is that he is not seeking in this Court an order for payment of $208,000.
MR BIGMORE: No, he is not.
GUMMOW J: In this court. But, if you are not to be successful on the appeal and the order of the Full Court stood, the matter would go back to the magistrate and then before the magistrate I think we can take it that it would be put to the magistrate this is really a debt recovery because of 15(h) and the sort of matters you are now putting to us would be put to the magistrate. Is that how you see what would happen?
MR BIGMORE: That is what would unfold, yes, your Honour. Without the benefit of your Honour’s judgment in this case, it might be surprising to find a trustee acquiescing in such an approach by us. One would expect the primary submission of a trustee in the position of the respondent here before the magistrate to be, we have successfully had your Honour’s order set aside, we are entitled to enforcement of our charge, we are entitled to judgment for $270,000 because that is the amount specified in the notice.
That is a valid notice. There is no longer any challenge to the validity of the notice, and for us to be permitted to raise questions about the extent of valuation and the findings that the magistrate had already made in relation to that and seek judgment or resist judgment in respect of any amount over and above the $208,000‑odd might be a very difficult thing for us to do without that guidance.
HEYDON J: You might well have lost on the points that Justice Lindgren found in your favour and then they could not be re‑agitated.
MR BIGMORE: No.
CRENNAN J: In a sense, we are in the present position because neither party sought alternative relief in respect to 208,000. You could have done it on a cross‑appeal seeking the setting aside of the notice as to the 62,000 which was the overvaluation and, equally, it could have been done in the application. Just putting in 208,000 as an alternative to the judgment sought in respect of 270,000, that would have been the responsive – open to either party in relation to the issues adumbrated in the pleadings and also during the course of the hearing.
MR BIGMORE: Before the proceeding it would have been better for the respondent, the trustee, to go to the Official Receiver and seek amendment of the notice. For our part, when we applied and enlivened ZS, we joined the Official Receiver and we sought plainly an order simply setting aside the notice. It is hard to perceive – at least it was then – hard to perceive, I am sure, anything in ZS that would inspire a partial setting aside.
CRENNAN J: You could have under the notice, though, given an indication, as you were invited to, to state within 28 days that unless a sum was the correct sum – and, indeed, you could have tendered it. I think the invitation was to send off that lesser sum together with your written submissions as to why it was the correct sum.
MR BIGMORE: It was, your Honour, yes.
CRENNAN J: So that suggests that there is some contemplation that there could be an amendment to the notice, otherwise sending off those submissions would be meaningless.
MR BIGMORE: Indeed. The power and the provision in the notice are not entirely foursquare. I took the Court yesterday to ZQ(4) where the Official Receiver has the power to revoke or amend and either party to the notice, either the trustee or the recipient of the notice, could request the Official Receiver to do anything at any time, perhaps not during the course of proceedings, of course. We accept that. I am sorry, my learned friend ‑ ‑ ‑
MR COLES: …..normally wish to interrupt my learned friend. The respondent is understandably a little concerned about the prospective procedural outcomes, even if your Honour were to dismiss the appeal and it may be, your Honours, that the invitation that your Honour has invited me to take up to get further instructions really should not have been disclaimed so relatively quickly.
GUMMOW J: I think that would be a good idea. Yes, all right. How long will you need?
MR COLES: If the invitation is still available, your Honour?
GUMMOW J: Yes. How long will you need? Do telephone calls have to be made and so on?
MR COLES: It is possible, your Honour, yes. Half an hour, I think, probably would be ‑ ‑ ‑
GUMMOW J: We will adjourn until noon, unless we hear earlier.
MR COLES: I am grateful to your Honours. Thank you.
AT 11.37 AM SHORT ADJOURNMENT
UPON RESUMING AT 12.11 PM:
GUMMOW J: Yes, Mr Coles.
MR COLES: May it please the Court. Your Honours, thank you for the indulgence which the Court has afforded. The task of obtaining instructions is a complex question and one that has not been able to be completed in the time available or any period of time during which it would be reasonable to expect your Honours to wait. We are, nevertheless, conscious of the desirability of promoting a procedure which would, if possible, and depending on the outcome of the matter before the Court, could have a potential to reduce the disputes between the parties and the expense which will attend them.
What I would like to do, your Honour, for reasons I will mention, is to renew the application for leave to file and rely upon a cross‑appeal but to invite your Honours to consider this proposition, that it seems, so far as I have been able to take instructions on the matter, to be the case that the cost issues between the parties are not at all clear‑cut. There are, for example, just to take but one illustration, questions of the potential relevance of such matters as offers of compromise and the like which would need to be taken into account on a debate on the question of costs and it is not the position of either of us, I think, your Honour, to be able to put considerations before the Court of the full range of elements that would inform a reasoned evaluation of proper costs consequences.
So, really, your Honours are invited to consider a grant of leave on terms that the costs would be reserved and the parties could put in written submissions at a suitable time rather than, in effect, to pronounce upon the disposition of the costs questions as a condition of that grant. I am afraid your Honour that that is all I can put to your Honours. I do not have instructions to assent to the across‑the‑board orders that your Honours contemplated as an appropriate term. Whether, indeed, that could be seen to be seen to be an appropriate term would, in our respectful submission, depend on an evaluation of issues more extensive than the simple question to grant or not to grant leave.
So my application, your Honours, is to invite your Honours to consider a grant of leave and to reserve questions of costs with leave to the parties to put in submissions, no doubt informed by the outcome of your Honours’ determination and the judgment of the Court.
GUMMOW J: That rather assumes that we enter upon the resolution of the question presented by the cross‑appeal when we may not have needed or it may not have been appropriate to do so because there was no grant and there was no grant because of the costs situation. So we need to get the submissions on costs fairly promptly, I think, in other words, before we embark upon a judgment writing process.
MR COLES: Well, the matters that would be included in those submissions, your Honour ‑ ‑ ‑
GUMMOW J: Well, we will see what Mr Bigmore says. Yes, Mr Bigmore.
MR BIGMORE: I agree, with respect, with your Honour’s observation that we would need to dispose of the question of any conditions in relation to costs that should attend a grant of leave. For our part, we are not in a position to advance any submissions today but we could probably do so in the next seven days, seven to 14 days. I am content, your Honours, if your Honours wish to do so, to answer, as it were, hypothetically the submissions that would be made were our learned friends to obtain a grant of leave.
GUMMOW J: Yes, I think you should do that now.
MR BIGMORE: Yes.
GUMMOW J: Well, you have been doing it, actually.
MR BIGMORE: Yes, I was trying to refashion what I was saying to, as it were, ignore the grant of leave, but we will go back to square one, I suppose. The Full Court remitted the matter to the federal magistrate to consider effectively what remained of the whole of the application made by the present respondent, which included the orders for debt recovery, adjustment for debt, and what the cross‑appeal raises is the possibility that their claim in the first place was misconceived in reliance upon the notice and the way in which they relied upon the notice to establish a debt of $270,000. They now say they are entitled to an order for the $208,350. For them to be entitled to do that would depend upon the acceptance by the Court of our learned friend’s submissions as to the meaning and operation of section ZS.
I made my submissions originally and in reply as to what the textual significance of the hooking of facts and circumstances back to either subsection (1) and/or subsection (2). Clearly, it does hook subsection (2) in relation to the avoidance aspect of it. Our submission is that it hooks subsection (1) in relation to the fact or circumstances of valuation and calculation, albeit that the Official Receiver might express that very cursorily. One would hope not because one would hope a notice would spell things out but certainly it could do so simply by the Official Receiver saying, “I have made the calculation of respective interest in the property transferred and I have valued the property and your liability to pay is X as a result of that process.”
If we are wrong in that submission and that the way in which our complaint about valuation which was articulated at the trial would be treated conceptually is as resisting a prima facie case for debt made in reliance upon a notice, the difficulty we have is the statute does not spell out what then happens in relation to the charge and in relation to the criminal sanction. Indeed, if I could take the Court very briefly to the criminal provision ZT. We did not look closely at subsection (2) in our original submission, but it seems to contemplate that, presumably if no order had already been obtained under subsection ZQ(8), that the criminal sanction would be imposed and then, at the discretion of the court, an additional penalty could be imposed or an order could be made for the payment of the amount that had not already been paid under the notice, if any.
GUMMOW J: What is the difference between, if there is one, or the relation between refusing and failing?
MR BIGMORE: It would seem in terms of fault elements under the Criminal Code that one would need a real intent in order to refuse or one might be recklessly indifferent, I suppose, in the process of refusing, whereas, as it were, mere negligence would be a sufficient fault element of failing. I suppose, in the practical context of these cases under this subdivision, failing to pay would be not having the money to pay, presumably, because of the property that had been transferred and where the transfer was void was no longer available. It might have been mortgaged and the proceeds of the mortgage wasted, in which case the property could not be transferred and the recipient may have no other resources, in which case the failure would not be due to any intent or any mens rea in the old language, it would be due to inability to pay.
GUMMOW J: Then subsection (2) seems to involve the imposition of a fresh obligation or a supplementary obligation to pay.
MR BIGMORE: Yes.
GUMMOW J: The other thing I do not understand at the moment is, is there any attachment of interest to these obligations?
MR BIGMORE: No, no. Our learned friends seek interest and I was going to take a moment to effectively inquire as to what basis there might be for that. It may be by analogy with those cases which say that if a trustee or liquidator impugns a preference and writes to a creditor and makes a demand for payment of the preferred amount and the creditor – eventually it goes to judgment, the creditor would be ordered to pay interest from the date of the demand rather than from the date of the institution of proceedings.
But in the present case, our submission is that if there is to be any interest, it would be interest from the time that the $208,350 was demanded which is today. Alternatively, and we would say preferably, interest would not run until there was a judgment debt for that amount and then the interest would run pursuant to the laws of the appropriate State or the Federal Court if the judgment were obtained there for the payment of the amount.
HEYDON J: The Federal Magistrates Court. I mean, what do the rules of that court or the statutes applying to that court say about interest?
MR BIGMORE: I have not checked, I must confess, your Honour, in relation to that.
HEYDON J: I think they pick up the Federal Court Rules.
MR BIGMORE: They pick up the Federal Court rules, yes, that is so. I do believe that is the case, your Honour. Again, as to what the specifics ‑ ‑ ‑
GUMMOW J: But that is what I might call curial interest.
MR BIGMORE: Yes.
GUMMOW J: That is the court structure providing an interest payment ‑ ‑ ‑
MR BIGMORE: Yes.
HEYDON J: Not pre-judgment.
GUMMOW J: On a judgment, but in advance of the judgment there does not seem to be any statutory source here.
MR BIGMORE: No, and it is specific, in the cross‑appeal the interest is sought from the date of the notice, not from the date of issue of the proceeding or amendment of the proceeding and so on.
KIEFEL J: Is there a problem inherent in an offence which relates to compliance with a notice which requires payment of an amount equal to the value of property, regardless of the fact that a sum could be stated? It is not referring to a fact which is certain.
MR BIGMORE: There is a problem, your Honour. It requires precision on the part of the Official Receiver.
KIEFEL J: Certainly cannot depend upon an opinion. You cannot be expected to pay on the basis of something which, on the face of the notice, if the notice in terms is or is to be taken to say “Here is a dollar value which I attribute” to which a value is attributed and this is the amount that is represented by the value. It would be very hard, I would have thought, to say that criminal liability can attach if you do not meet that.
MR BIGMORE: Not even the Tax Act says that criminal liability attaches to failure to pay tax in accordance with the notice of assessment, so indeed, with respect, we have always shared your Honour’s concern about the apparently draconian consequence of failure to comply with a notice where the Official Receiver has exercised a decision‑making process.
KIEFEL J: We could spend some time looking at the problems with ZT, I suspect.
MR BIGMORE: Yes, the problem, really, in the Shepherd v Hills approach is that whilst it would be all right if one did not have ZR and ZT, it certainly creates a difficulty if you cannot amend the notice. If there is not a process by which the notice is set aside as to part or amended as a result by the Official Receiver as a respondent, the Official Receiver could be ordered to amend the notice. Although the application does not specifically seek that relief, the application seeks complete setting aside a smaller version, or a lesser version would be appropriate, but unless the notice is changed, a judgment debt is not going to alleviate the difficulties that relate to the charge or the criminal sanction in relation to the difference.
Just taking one moment perhaps to look at the summary of respondent’s propositions that our learned friends referred to this morning, I might have already said it, but in relation to paragraph 7 we respectfully disagree that the hooking of the expression “alleged facts and circumstances” in ZS is restricted to subsection (2) of ZQ.
GUMMOW J: Sorry, what paragraph was that?
MR BIGMORE: Paragraph 7 is where our learned friends begin to advance the proposition that ZS hooks only to subsection (2) of ZQ. I concede, as I did yesterday, that Lopatinsky is some support for their position in relation to that and to the extent that it does support it in that way, we continue to submit that it is wrong.
Paragraph 14 was the other paragraph that I had specifically noted. There is no reason why the legislature would not require precision in relation to a notice of this type. The way in which the legislature appears to have dealt with it is to allow the Official Receiver to pick a value and to give the recipient of the notice the opportunity to restore the property under subsection (7) of ZQ. Unfortunately, if the property has been mortgaged or changed or dissipated even, that option no longer avails.
HAYNE J: The point made by 14 must be understood against a background of the long‑established practice about claims for debt or liquidated demand on common counts where a plaintiff assigned a value to the value of work and labour done for and at the request of an opposite party, yet there could be a dispute about the computation of that value. Those matters were looked at extensively by Mr Justice Sholl in Alexander v Ajax Insurance [1956] VLR 436. I do not suggest we go to it.
MR BIGMORE: One would characterise this claim by the trustee at first instance as an indebitatus claim and that is presumably why Young v Queensland Trustees is advanced as shedding some light on the problem.
There is no doubt there was an onus on us to prove either payment, which is not the case and there was no suggestion of payment, except perhaps to the extent that section 120(4) might come into it, de minimis in this case. Equally there was a suggestion by us of misstatement of value and we succeeded on that fact‑finding exercise. His Honour found at first instance that the value was the $208,350 rather than any other amount. That established with precision the value, but there was in existence a notice which on the face of subdivision J was not easily amenable to amendment by the magistrate.
If the magistrate had had a statutory authority clearly before him where instead of setting it aside, he could amend it or direct amendment of it, then we would not be here. It would be a clear situation where on the facts of this case the magistrate would have said “The notice should have specified $208,350, not $270,000. I have power under this provision” – or perhaps if this Court says the power is there nonetheless under section 30 or under section ZS then he would presumably have done just that. He would have just caused the notice to change, thereupon the charge would have been only to the extent of the $208,000, the criminal sanction would only have existed for refusal or failure in relation to the $208,000, not the $270,000.
CRENNAN J: Nobody asked him to do that, though.
MR BIGMORE: We asked him to set aside, but we won. We achieved that outcome. That is, I suppose in the sense with hindsight one can say we asked for too much but we asked for that, rather briefly and cryptically it must be conceded, because that was the maximum relief and we were raising a lot of other grounds as well which we did not succeed on.
HEYDON J: I am not entirely clear what the priorities of the parties are, I am not clear whether Mr Coles would prefer to win the appeal or win the cross‑appeal. Equally, I am not clear what your priorities are. Which do you wish to do, do you wish to ‑ ‑ ‑
MR BIGMORE: Our priorities are if we have to, if leave is granted unconditionally or otherwise, to resist the cross‑appeal and win the appeal, in the sense that we want to restore the outcome that the magistrate set aside the notice. Our primary position of course is that that is then a matter for the respondent if the respondent wants to take matters further in other ways later. That is our primary position. Our fallback position based on the discussion these last two days is that ZS, properly construed, and perhaps leaving aside Lopatinsky and drawing some comfort from Halse v Norton is sufficient in its own terms to permit an outcome whereby the notice would be set aside as to part. If that is right this Court could make that order on the facts in this case, this Court could make the order without remitting it to the primary decision‑maker. That is our fallback position and one does not need a cross‑appeal in order to get that.
HEYDON J: It is probably my ageing brain, but I have not heard any, or at least I cannot recollect any, clear submissions as to whether the statute permits notices to be set aside in part as distinct from either totally maintained or totally set aside.
MR BIGMORE: No. Her Honour Justice Crennan raised the issue and I tried to deal with it by indicating that there is no clear statement of that in the legislature. It would have to be by implication in section 139ZS or with some comfort drawn from section 30. But it would be also open – we do not make the submission but it would be possible to say that section 30 would be – if section 30 were invoked to allow amendment, as it were, or setting aside as to part, then it may be inconsistent with the plain words of ZS which permit only setting aside or not.
GUMMOW J: That is the problem.
MR BIGMORE: That is the problem.
GUMMOW J: It is the Anthony Horden problem. You have what seems to be a specific regime and the question is, can you undercut it, or is it undercutting it?
MR BIGMORE: Historical wisdom has been that because of the Draconian consequences and the nature of the regime, parties have generally fallen away from the mechanism that subdivision J represents and gone back to first causes and run their 120 cases and resisted them and made their 120(4) claims, or whatever it happens to be. In this case that did
not occur. There has been a polarising of views. We defend ourselves by saying we ask for what section 139ZS enables us to ask for and if we fell short on all our other grounds, as we did, then his Honour might have said, “Well, if I had power, I would amend it or set it aside as to part”, and we could have had that debate, but no debate of that nature has occurred hitherto.
GUMMOW J: The sequestration order on this estate was made in 2001, was it not?
MR BIGMORE: Yes.
GUMMOW J: On 24 April 2001. Has the bankruptcy administration been extended? That is a long while ago.
MR BIGMORE: It is a long while. I do not think it needs to be extended. I think it can continue. There might be some limitation periods coming in by virtue of section 127 and so on, but for present purposes we do not see any difficulty with that, your Honour.
GUMMOW J: The petitioning creditor, do we know who that was?
MR BIGMORE: NRMA, I think, was the petitioner. Unless there is something further, your Honours, those are our submission, if the Court pleases.
GUMMOW J: Thank you. I will indicate to counsel what the Court presently proposes to do and give you the opportunity to comment and then make the orders appropriately.
1.On or before 28 May 2009, the respondent file and serve his written submissions about what, if any, conditions should be imposed, whether as to costs or otherwise, in connection with the grant which he seeks a special leave to cross‑appeal.
2.On or before 4 June 2009, the appellant file and serve his written submissions on the subject referred to in order 1.
3.The Court thereafter will consider the course it will take in this matter and inform the parties accordingly.
With reference to order 3, the Court obviously may require further written submissions, may relist it or may simply proceed to determination. Is there any difficulty with those three orders?
MR BIGMORE: Not for our part, your Honour.
GUMMOW J: Very well. The Court will make those orders.
MR COLES: Would your Honours be assisted by some submissions ‑ ‑ ‑
GUMMOW J: There was one thing I wanted to ask you, Mr Coles. Do you want to say anything about interest?
MR COLES: Yes, that is what I was raising, your Honour. Section 76 of the Federal Magistrates Court deals with that question. Interest was claimed in paragraph 15(j) of the statement of claim on the $270,000 amount. It may be, your Honour, there are other bases upon which a claim for interest could be made and it may be better, your Honour, if we were to put that in – with your Honours’ leave, of course – to include that in our written submissions.
MR BIGMORE: And if we could respond?
GUMMOW J: Yes, I think that is a good idea, Mr Bigmore, rather than doing it on the run.
MR BIGMORE: Yes, thank you, your Honour.
GUMMOW J: So, order 1 should say:
File and serve his written submissions concerning interest and about ‑ ‑ ‑
HEYDON J: Which do you prefer, or do you have any order of priorities? Do you want primarily to have the appeal dismissed or do you want primarily to have the cross‑appeal successful? What is the relationship?
MR COLES: They are not mutually exclusive alternative remedies. The orders we seek are: appeal dismissed, cross‑appeal allowed.
HEYDON J: They are inconsistent to this extent, are they not? If the appeal is dismissed it goes back to the federal magistrate. If the cross‑appeal succeeds then you get an order for $208,350 now.
MR COLES: But it would follow that the appeal would, in our respectful submission, formally be dismissed because the relief it sought to set aside the – or to reverse in effect the orders of the Full Court would not be granted.
HEYDON J: Does that mean that the cross‑appeal is the preferred vehicle for success?
MR COLES: I can only restate my positions, your Honour. I see them as co‑equal and consistent forms ‑ ‑ ‑
HEYDON J: In some sense you may be right. I still think there is an inconsistency between the idea that the proceedings go on and the idea that the proceedings stop. If you win both, of course ‑ ‑ ‑
MR COLES: Could your Honours add to the grant of leave to include in written submissions any observations on that topic that may appear appropriate with the corresponding indulgence to our learned friend to do the same?
GUMMOW J: Say that again, Mr Coles.
MR COLES: Would your Honours be prepared to extend the direction in relation to written submissions, in relation to conditions of leave now to include submissions on interest to any relevant submissions either party may wish to make on the form of orders for the disposition of all of the proceedings?
GUMMOW J: So:
1.On or before 28 May 2009, the respondent file and serve his written submissions concerning interest and about what, if any, conditions should be imposed, whether as to costs or otherwise, in connection with a grant which he seeks a special leave to cross‑appeal, and upon the form of orders to be made in this Court.
2.On or before 4 June 2009, the appellant file and serve his written submissions on the subject referred to in order 1.
3.The Court thereafter will consider the course it will take in this matter and inform the parties accordingly.
Is that understood?
MR BIGMORE: May it please, your Honour.
GUMMOW J: The Court will now adjourn until 10.00 am tomorrow.
AT 12.41 PM THE MATTER WAS ADJOURNED
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