Vale v Sutherland

[2009] HCATrans 104

[2009] HCATrans 104

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 WEDNESDAY, 20 MAY 2009, AT 2.15 PM

Copyright in the High Court of Australia

MR G.T. BIGMORE, QC:   If it please the Court, I appear with my on behalf of the appellant.  (instructed by Watson Mangioni Solicitors)

MR B.A.J. COLES, QC:   If your Honours please, I appear with my learned friend, MR B.J. SKINNER, for the respondent.  (instructed by Sparke Helmore)

GUMMOW J:   Yes, Mr Bigmore.

MR BIGMORE:   Thank you, your Honour.  I wonder if I could begin with the text.

GUMMOW J:   We were hoping you would say that.

MR BIGMORE:   Paragraph 37 of our outline of submissions ‑ ‑ ‑

GUMMOW J:   No.  We meant the text of the Act.

MR BIGMORE:   Yes.  I was just going to preface that by a reference to the explanatory memorandum which we have extracted at paragraph 37 of our outline.  The text is an administrative mechanism and contains difficult text.  Section 139ZQ requires the specification of an amount as representing the value of property.  It would be simple if it were an amount of money that had been transferred contrary to or was impugned under section 120 or section 121 of the Bankruptcy Act, but rather than an amount of money which can be equalled, it were property such as the land in this case, the value must be specified.  Under section 139ZQ(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. 

Those facts and circumstances, we acknowledge, are simple enough in this case.  Within two years prior to the commencement of the bankruptcy an interest in land worth over $200,000 was transferred for $2 or $7 or effectively a nominal amount.  Those facts and circumstances give rise to a basis for the Official Receiver considering that the notice was void.

GUMMOW J:   Just looking at the section, then, if we look at 139ZQ(1) it says “If” certain things, then the trustee “may require”.  So, the “if” is the condition precedent or jurisdictional fact, if you like to call it, and there does not seem to be a dispute in this case but that section 120 did apply to this transaction.

MR BIGMORE:   That certainly seems to be the case, your Honour.

GUMMOW J:   Then the threshold seems to be crossed in that sense, so the trustee:

may require the person, by written notice given to the person, to pay to the trustee an amount –

What then happens upon the giving of the notice?  There is a debt created, is there not?  There is a charge created?

MR BIGMORE:   Yes, subsection (8).

GUMMOW J:   And a criminal offence by 139ZT.  The debt comes out of subsection (8) of 139ZQ, does it not?

MR BIGMORE:   Yes.

GUMMOW J:   The charge out of the section 139ZR.  These provisions, talking about the debt and the charge and the criminal offence, talk about a notice under the section, do they not?

MR BIGMORE:   Yes.

GUMMOW J:   What do you say that means?

MR BIGMORE:   A notice which is issued having satisfied the precondition in subsection (1) of ZQ and subsection (2) of ZQ further informs the content of that notice because it seems to be restricted to those facts and circumstances which bear on whether or not the underlying transaction is or is not void, so that the Official Trustee points to those basic elements of section 120 in this case.

GUMMOW J:   But 139ZQ(2) says:

The notice must set out the facts and circumstances because of which the Official Receiver considers –

What if the Official Receiver gets it wrong, as seems to have happened in this case?

MR BIGMORE:   Yes, well, the Official Receiver has got wrong the calculation under subsection (1) and has volunteered in the notice – of course at the behest of the respondent trustee – the valuation methodology.  Now, having volunteered it in the notice, it fell under scrutiny and the application was made under section 139ZS, although not necessarily expressly so but certainly intended to be under that section as the federal magistrate approached the matter, on the basis that subdivision J does not apply to the person, namely, the appellant. 

GUMMOW J:   Why not?

MR BIGMORE:   Subdivision J does not apply to the appellant because the calculation was wrong.  The point that is set against us, relying on Lopatinsky ‑ ‑ ‑

GUMMOW J:   Wait a minute.  Is this because of 139ZS(1) including the phrase “on the basis of the alleged facts”?

MR BIGMORE:   Yes.  Justice Lindgren, dissenting in the Full Court, referred also to section 30 of the Bankruptcy Act which is a general power but ‑ ‑ ‑

GUMMOW J:   We want to come to that.  Now, 139ZS(1) talks about “the Court may make an order”.

MR BIGMORE:   Yes. 

GUMMOW J:   There is a finance facilities problem here.  Does “may” mean “must” if the relevant criteria are made out there?

MR BIGMORE:   Yes, we would submit that. 

GUMMOW J:   Then there is a question – there is an Anthony Hordern’s question I think – if  139ZS is this particular procedure with this mandatory component, is there then an alternative and looser procedure available under section 30 as a matter of statutory construction where you have got an Act which has a specific and a general procedure where the specific procedure has matters hedged about it. 

MR BIGMORE:   Yes.  Well, section 30, as his Honour Justice Lindgren observed, is a general power which would perhaps fill in gaps, we would say, that to the extent necessary it would apply in the present case to provide power to do justice in the circumstance.  We say primarily though that ZS contains the formula, albeit in not felicitous words, whereby the whole question of whether or not the administrative mechanism has been appropriately invoked can be reviewed.  Our submission is that subdivision J will not apply to the appellant in this case if having identified circumstances under which a certain transaction is void, the Official Receiver miscalculates by a significant margin the amount that is to be specified in the notice under subsection (1) of ZQ.

GUMMOW J:   So, am I right in thinking, you say there is the phrase in 139ZS(1) “this Subdivision does not apply”, is to be understood as meaning the debt provision is not enlivened, the charge provision is not enlivened, and the criminal provision is not enlivened?

MR BIGMORE:   Yes, exactly, with respect, your Honour.  It is the administrative mechanism of collection, charge and – the charge and the conviction and recovery proceeding in a court of competent jurisdiction is all tacked onto the administrative mechanism of serving a notice which gives rise to an obligation to pay a fixed sum of money.  If the calculation process has gone wrong in a substantial way, as we say it has here, then subdivision J should not apply to that person.  The contrary view seemingly espoused in Lopatinsky is that we, in our ‑ ‑ ‑

GUMMOW J:   What is the citation of that case?  There seem to be a number of these cases.

MR BIGMORE:   Yes.  We refer to it in item 9 of our list of authorities, Official Trustee in Bankruptcy v Lopatinsky, a Full Court decision in 2003.

GUMMOW J:   129 FCR 234.

MR BIGMORE:   129 FCR 234, yes.

GUMMOW J:   Yes.  I think your opponent seeks some comfort from this case.

MR BIGMORE:   He does, and we understand why, because at paragraphs 149 onwards the indication or the approach that the court seemed to take there was that, if one looks at the text again, because subsection (2) of ZQ only requires the statement of the facts that go to the question of whether or not a transaction is void, there would be no statement of fact in the notice that actually expressed the valuation or the calculation.  In this case the valuation was expressed.  The Official Receiver explained in the ZQ notice how the valuation was arrived at and then made a calculation which was to divide that amount in two and call that the value of the interest that was transferred by the bankrupt to her husband. 

In Lopatinsky the court seems to have taken the view that all that is amenable to attack under ZS are those underlying facts that go to the voidness of the underlying transaction rather than an attack on the calculation.  Of course, as we know in Lopatinsky, it was sent back so that the valuation and calculation could be carried out in accordance with the Full Court’s directions.

GUMMOW J:   Another view of what subsection (2) is doing is saying the notice must set it out so that what is then said can be tested, if need be.

MR BIGMORE:   Yes, indeed.  In the present case, although there were challenges at first instance, none has survived to the Full Court.  The challenge which we make is as to the calculation rather than as to the underlying facts.  If our learned friends are right, there is no basis, save perhaps section 30, upon which we would be able to challenge the valuation and calculation process.  I need to qualify that in a moment.

GUMMOW J:   The point of the notice is that it is the manifestation of the requirement to pay.

MR BIGMORE:   Yes.

GUMMOW J:   Pay what?

MR BIGMORE:   Pay something which is said to be the value of something disposed of.

GUMMOW J:   No, it is paying an amount equal to.

MR BIGMORE:   Yes, equal to the value of the interest.  If it is not equal to the value, as established in evidence, and the federal magistrate made a clear finding as to what he thought the value was – that was $208,000‑odd rather than the $270,000 that was specified in the notice, a substantial difference, at least in terms of percentage, it certainly was a process – the magistrate took the approach that if the valuation and calculation went wrong, then the notice could be set aside under ZS.  The majority in the Full Court took a different view.  Lopatinsky expresses a different view.  Justice Lindgren took the view that the valuation and calculation approach could be the subject of challenge under at least the combination of 139ZS and section 30.

GUMMOW J:   You had better perhaps take us to the relevant passage in Lopatinsky that you disagree with.

MR BIGMORE:   It begins at paragraph  149 towards the bottom of page 255 of the report, through to - including paragraph 157.

GUMMOW J:   Is paragraph 151 a problem for you?

MR BIGMORE:   Yes, 151 is principally relied upon by our learned friends.

HEYDON J:   Do Justices Whitlam and Jacobson say what the meaning of the words “on the basis of the alleged facts and circumstances set out in the notice” are?  Their reasoning does not seem to accommodate that expression.

MR BIGMORE:   No, but they do in paragraph 151, your Honour, pick up Halse v Norton where, as we have submitted, throughout the proposition was stated that the whole process including the underlying facts in relation to the allegedly void transaction and the valuation and calculation process become at large once an application is made under ZS.

GUMMOW J:   I was wondering whether they were not – I may be wrong – meaning to suggest in 151 that there was a discretion under ZS(1) which would be an odd situation, perhaps, to have a discretion to determine whether or not there had not been a criminal liability created. 

MR BIGMORE:   Yes, I must say, I did not read it that way, your Honour, but, as your Honour has said, with respect, it would be odd if there were a discretion.  We have emphasised that there must be a substantial miscalculation rather than a de minimis miscalculation because we say our case is a substantial miscalculation.

HAYNE J:   What is the provision of Division 3 that is particularly engaged in this matter?

MR BIGMORE:   Section 120, your Honour.

HAYNE J:   Yes, which part of 120?  Which provisions within it?

MR BIGMORE:   Yes, your Honour.  Looking at subsection (1), the Official Receiver took the view, and we do not dispute that this was a transfer of property by Mrs Vale who later became bankrupt and the act of bankruptcy was within two years after the transfer.

GUMMOW J:   There was some debate over the period, was there not, but that has cleared up now.

MR BIGMORE:   That debate has long put to rest, your Honour, yes, certainly within the two years before the commencement of the bankruptcy.  Is void against the trustee of Mrs Vale’s bankruptcy if (a) the transfer took place within five years and the transferee gave consideration of less value than the market value of the property.

HAYNE J:   Which leads to the question whether in ZQ(2) the facts and circumstances, because of which the OR considers the transaction is void, include the fact or circumstance of market value and an identification of market value and an identification of either the absence of consideration or the consideration given.  Now, be it so, if that is the right construction – I at the moment have no view, of course, one way or the other – carving out questions of calculation of amount demanded as some integer in the notice separate from the statement of facts and circumstances because of which the transaction is considered void is perhaps an unnecessary elaboration.

MR BIGMORE:   Yes, your Honour, we would agree, with respect, that the Official Receiver need not have specified any information about the value or the calculation of the percentage interest that the bankrupt had disposed of.

KIEFEL J:    It would have been sufficient to say he was paid only $7 and market value must be more than that.

MR BIGMORE:   Must be more than that, yes.

HAYNE J:   Well, is that sufficient or is it that the provision requires a statement of the market value asserted?

MR BIGMORE:   It would be enough if the Official Receiver stated that the market value was substantially greater than $7.  It would need to, one would think, be a little more specific than that, ideally, but a range could be specified.  We do not cavil with that process, but what then happens in this case is that the value – whether it be done expressly in the notice, whether this process be revealed in the notice or it be done secretly in the trustee’s office and the Official Receiver’s Office, the value that is specified in the ZQ notice has to equal – the amount for payment that is specified in the ZQ has to equal the value.  So somewhere there must be an opportunity to challenge that valuation and calculation process. 

HEYDON J:   If the general statement had been adopted in paragraph 3 of the notice, it would not have been possible to make any demands for payment, threats of suit for recovery, charges, the whole of page 129 after the seventh paragraph could not have been put in. 

MR BIGMORE:   Could not have been, your Honour, no.  ZQ demands that there be a valuation and calculation.  If we accept for the moment that the calculation is a 50 per cent calculation, whereas in Lopatinsky there were issues about the percentage, in our case let us say there is not, it boils down to a simple question of whether or not the valuation was right.  In an extreme example, if the valuation that the trustee and the Official Receiver hit upon was a valuation so great that it offended logic, they had said a million dollars when the property could never have been worth or the interest could never have been worth more than $200,000, one would expect there to be a process of challenge. 

I needed to come to one provision in section 139ZQ which might be said to provide some relief to a recipient of an extraordinarily inaccurate notice.  Subsection (4) of ZQ provides that the Official Receiver after giving a notice under ZQ:

may at any time, by a further notice given to the person, revoke or amend the first‑mentioned notice. 

That must be the genesis of the part of the notice which is halfway down page 129 near line 30 which invites the recipient of the notice to pay what he thinks is unobjectionable and seek relief from the official ‑ ‑ ‑

GUMMOW J:   Where are you reading from?

MR BIGMORE:   From the middle of page 129, your Honour.  Where it says:

AND FURTHER TAKE NOTICE that should you consider that you owe a lesser amount than the amount set out above –

We did not avail ourselves of that invitation, rather, we availed ourselves of section 139ZS or whatever provisions were relied upon because they were not specified in the defence and cross‑claim.

KIEFEL J:   The notice is meant to combine both the facts and circumstances relating to section 120 and a requirement to pay an amount of money, which are two quite distinct topics.

MR BIGMORE:   They are your Honour.

KIEFEL J:   Section 139ZS(1) appears, on one view perhaps, only to be related to questions relating to avoidance because they are the only matters that can relate to the person rather than the sum due. 

MR BIGMORE:   Yes.

KIEFEL J:   By that I mean 139ZS(1) might be read as saying the subdivision is not applicable because no basis has been shown for the notice by the facts and circumstances set out in it to avoid the transaction ‑ the basal consideration.

MR BIGMORE:   That is certainly one view ‑ ‑ ‑

KIEFEL J:   And if that is so, the cold question of setting aside notices is limited to the topic of avoidance.

MR BIGMORE:   Yes.

KIEFEL J:   There is just another mechanism in relation to valuation and that is really what we are talking about.

MR BIGMORE:   Yes.  What we sought to do at first instance and succeeded in doing was persuade the Court that the notice should be set aside for the miscalculation.  We tried to advance a number of other arguments but they are no longer relevant.

KIEFEL J:   If it is not intended that the notice be set aside other than for the question of the basal facts relating to avoidance under section 120, do you say that there is no mechanism by which the valuation can be determined as an assertion in the notice founding the money claim but not the section 120 avoidance?

MR BIGMORE:   Our submission is that 139ZS is sufficient.  If it is not sufficient in itself, then section 30 of the Act, as it were, props it up for the Court to consider the valuation.  There needs to be judicial review of the valuation and calculation process.  In Lopatinsky there were live issues sent back to the trial judge of the percentages that applied as between transferor and transferee in respect of the property as a whole.  In our case it is a question of the valuation of the half‑interest in the property.

KIEFEL J:   How does that question of review or judicial determination by whatever means sit with the notion of the charge attaching?  Does the charge attach to the debt regardless of the notice, or is it linked inextricably with the notice?

MR BIGMORE:   It is linked inextricably to the notice.  If the notice falls, then there is no basis for the charge.  The charge simply secures the payment of the amount specified in the notice.  It happens to be a charge over the very property that the ‑ ‑ ‑

GUMMOW J:   The charge is preconditioned by the giving of a notice under the section, according to the provision.

MR BIGMORE:   Yes, your Honour, and indeed it is a charge on the property which the valuation and calculation process undertaken by the Official Receiver has been undertaken in respect of.

GUMMOW J:   The question then is does the phrase “under the section” mean on its face under the section or upon examination answering that description.

MR BIGMORE:   It must mean, with respect, upon examination.  In the present case perhaps the facts are complicated because the Official Receiver saw fit to specify the basis of the figure that she had chosen.  It was not necessary strictly, but it certainly was helpful because one would think that if one is going to save costs, as the explanatory memorandum suggests, one would avoid an application to set aside a notice if one clearly and simply explained what the basis of the figure was.  But it is the basis of the valuation and calculation which was erroneous in the present case.

GUMMOW J:   Are there any other passages you want to take us to in Lopatinsky?

MR BIGMORE:   Not in Lopatinsky, your Honour.  I had not proposed to spend much time on the extracts from the cases that we have referred to in our list of authorities.  We referred to the case your Honour had in Fiorino, No 5 in our list of authorities. That was preceded by the McClernon decision where the constitutional issue was raised and determined, and we do not disagree with the outcome there.  Again, though, the way in which that constitutional issue was determined depended upon there being available a review of all the aspects of the 139ZQ notice, not just to the underlying avoidance issues but also the valuation and calculation issues.

GUMMOW J:   Justice Carr used the expression “de novo” I think.

MR BIGMORE:   Yes, yes.

GUMMOW J:   De novo examination, I think.

MR BIGMORE:   In a sense because of the constitutional issue being raised in that case it shed light upon the very difficulty that would exist if one could only seek judicial review of the underlying avoidance issues and not seek judicial review of the valuation and calculation issue.

GUMMOW J:   What is the citation of that case?

MR BIGMORE:   That is 58 FCR 391. The particular passage – perhaps the review ‑ ‑ ‑

GUMMOW J:   The particular passage I have in mind is at 403, letter B.

MR BIGMORE:   Yes, yes.  That is the reference to “de novo”, your Honour, of course.

GUMMOW J:   Secondly, at page 401.

MR BIGMORE:   Yes, that is right, from letter B ‑ ‑ ‑

GUMMOW J:   Letter C.

MR BIGMORE:   Yes.  The earlier reference just above that to your Honour’s decision in Fiorino ‑ ‑ ‑

GUMMOW J:   That does not say anything.

MR BIGMORE:   ‑ ‑ ‑ and the decision in Re Pearson, Justice Wilcox’s case. Again, Pearson was a case where both parties accepted that it was better to get down to dealing with the trustee’s application to set aside the transaction and deal with those issues rather than worry about the formalities of the notice once the court’s attention was engaged.

HAYNE J:   McClernon was not a case in which there was a question of valuation, was it?

MR BIGMORE:   No, your Honour.

HAYNE J:   There it was simply payments that were at stake.

MR BIGMORE:   Yes, which makes it, of course, much simpler because the payment – an amount equals an amount.  By the same token, we would invoke the logic in McClernon because if one cannot look at the valuation and calculation aspect of it, it seems that a judicial review is not available.  So, his Honour, in our respectful submission, took the view that the complete review of the administrative process was necessary in order for the constitutional point that was taken to fail.

GUMMOW J:   There is nothing in the subdivision that says the notice is conclusive, is there?

MR BIGMORE:   No, no, that is so.  It seems that in introducing a subdivision like this for the purpose of facilitating trustees to undo improper transactions, or void transactions, and recover something for the creditors easily and without having to invest the cost in lawyers and approaching the court, the plan was nonetheless to provide an opportunity for judicial review.  If section 139ZS is not clear on its face it ought to be construed, in our respectful submission, on the basis that it facilitates a complete review, as Justice Carr seemed to think, and a hearing de novo, as it were.

GUMMOW J:   That seems to be consistent with what was said in Hansard on 19 December 1991 at pages 3906 to 3908 in the House of Representatives.  You might overnight look at the decision of Justice Jenkinson in Kuch on 24 November 1995 which has a long extract from the Hansard.

MR BIGMORE:   Yes, I think I was in Kuch; at least I was involved in Kuch.

GUMMOW J:   I am not sure that is disclosed.

MR BIGMORE:   It might be to the better.

GUMMOW J:   It seems to have been said in the Parliament that a notice which is factually incorrect would not be valid.

MR BIGMORE:   Yes, indeed.  We would say that that intention is disclosed in the explanatory memorandum as well in that it is an administrative mechanism.  One would think it strange that an administrative mechanism would be capable of miscarrying without the opportunity for judicial correction.  Your Honour, the textual approach has been undertaken before a number of judges in the Federal Court and the Federal Magistrates Court.  At the end of the day, Halse v Norton, with respect, also supports the proposition that it is a review on all issues, bearing in mind that ‑ ‑ ‑

GUMMOW J:   What is the citation we should be taken to?

MR BIGMORE:   Halse v Norton 76 FCR 389 – it is No 8. We have not endorsed the headnote, I must say. It is preferable, in our respectful submission, to go to the text at page 398 in the Chief Justice’s reasons for judgment just after letter D. This case concerned largely the onus of proof and we accept, of course, that were there to be an examination of the underlying issue about avoidance then the onus would be on the trustee to prove the facts under section 120 and any aspect where the burden fell on us we would have to prove that in an application under 139ZS.

GUMMOW J:   So in some litigation there will be a procedure by the trustee and a counterattack by the bankrupt, will there not?

MR BIGMORE:   In a case under section 120, since its 1996 formulation, where the transaction occurs within the last two years, there is not much left for the respondent to the application to do because all that the trustee needs to prove is that the transfer occurred for less than market value.  That highlights the fact that the section does not, in itself, provide the types of order, or set out a list of the types of orders that could be made, like section 588FF, for example, of the Corporations Act does.  Nonetheless, judges historically have made various orders to suit the justice of a particular case.

KIEFEL J:   Could not a declaratory order be sufficient?

MR BIGMORE:   It could be but normally, with respect, your Honour, there would be a consequential order.  Sometimes that consequential order would be simply for the retransfer of the property.  If it were still intact and capable of retransfer, that would be the appropriate order.

GUMMOW J:   That seems to be based on section 30, does it not, that sort of order?

MR BIGMORE:   Yes, that is the supporting power, in a sense that one declares under section 120 and then orders, presumably under section 30, the general power to make the order for retransfer.  But, of course, what has occurred is courts have often made orders which are not just simply for retransfer, they may be orders for the payment of an amount which represents the value, the classic example being if in a voluntary transfer where there was no moral turpitude one might find the recipient has built a house on a vacant block of land and it would be rather unfair and certainly a windfall to the trustee and the creditors for the whole to be returned.  It would be more appropriate to charge the land with the value of the land as it was and then the question is whether it is the value of the land as it was when transferred or the value of the land at the time of the declaration.

GUMMOW J:   Now, is there any particular passage in Halse v Norton?

MR BIGMORE:   Just at letter C on 399 again, still in the Chief Justice’s judgment, the sentence beginning, “However, the requirements”.

HEYDON J:   You mean Justices Lee and R D Nicholson.

MR BIGMORE:   Sorry, yes I have, I have jumped to Justices Lee and R D Nicholson, I have I am sorry.  Again, that is concentrating more on the onus of proof point which was the primary consideration in that case.  That was all in Halse v Norton.  It is perhaps an accident of history that in many of these cases the parties themselves have retreated from the existence of the notice and agitated the real issues in the case.  That did not occur here. 

As we said, forensic decisions were made, probably on both sides, but it does provide a vehicle where the textual problem with 139ZS is brought into stark light, and with respect to the extent that the Lopatinsky decision supports our learned friends in persuading your Honours that there should be no judicial review of the valuation and calculation process involved under 139ZQ, it must be wrong.  There must be an opportunity for judicial review.  The other alternative, I suppose, is the Administrative Decisions (Judicial Review) Act and possibly the Judiciary Act, but again, it would be strange to have to go outside the four walls of the Bankruptcy Act in order to find facilitation of judicial review of this administrative mechanism that the Parliament inserted in 1992.

KIEFEL J:   Assume that there is such a method of resolving a dispute about values, under section 139ZQ(4), would it be the case that the notice could be amended at any time, including after a finding in relation to value and would that then support an alteration as to the extent of the charge under 139ZR in the way the amendments to charges are normally made?

MR BIGMORE:   It would be ideal if it said so, because that would then give the recipient of the notice the opportunity that is actually specified in the notice here to seek administrative review and then, if the administrative review was not satisfactory to the person, to seek judicial review beyond that.

KIEFEL J:   But I wonder if that is what might have been in mind, given that the power of amendment is to a notice which forms the basis for the charge, and by way of analogy the charge is given elsewhere under statutes.

MR BIGMORE:   Yes.  I suppose the other section – as I stand here, the other section that occurs to me is section 178 which provides general review of trustee’s decisions, but the problem in the present case there is that because of the administrative mechanism the notice is the Official Receivers, whereas the trustee is an individual practitioner rather than the Official Trustee, but again one would not suppose that if the Official Trustee were the trustee, it is not the trustee’s decision that is reflected in the notice that ‑ ‑ ‑

GUMMOW J:   No, well, the legislative policy was to centralise this in the Official Receiver’s office, I suppose, because it is such a powerful procedure.

MR BIGMORE:   One would assume the legislative policy did not extend to allowing disparate individuals as insolvency practitioners to bring their own judgments to bear.  There needed to be some bureaucracy involved in the process, but again the Official Receiver is still acting administratively, he is not acting judicially.  One strives to find a basis upon which the valuation process can be reviewed.  Perhaps it was as well that section 139ZS was not specified at first instance but the magistrate nonetheless found the basis to review the valuation process.

GUMMOW J:   If you are successful and this notice is now set aside, it would be taken not to have been given, would it not, 139ZS(2)?  Can you give another one or start it all over again?

MR BIGMORE:   One would suppose so.  That might give rise to another argument one day.

HEYDON J:   But it is not the case your client has got something he should not have.

MR BIGMORE:   Yes, there is no doubt about that, your Honour.  The alternative, as we had pointed out, as a result of the forensic decisions that had been made, is that the trustee could proceed under section 121 but would be statute barred under section 120 after all this time, but, again, if the trustee approached the Official Receiver and requested the issue of a further notice, one would have to wait and see, but the Official Receiver would presumably obtain legal advice as to whether or not he or she could give a fresh notice where there had been a previous one set aside.  If it were a bankruptcy notice, there would be no difficulty with issuing a fresh notice so long as it was not identical with the one that had been set aside.

GUMMOW J:   One of the problems with this subdivision is that it is completely silent about time scale in various ways.

MR BIGMORE:   Yes, and there is no doubt that our application was responsive to the belated attempt by the trustee to actually get the charge turned into money.

CRENNAN J:   Is there any possibility to set it aside just as to the overvaluation of the 68,000?

MR BIGMORE:   Not that one can find in the text, but that would be the ideal outcome.  One would have to find that somewhere in the general words of section 30 and, logically, one would think that would be the appropriate outcome of a challenge to – a case might involve, as it did here at first instance, a challenge to the underlying avoidance issues and a challenge to the valuation and the calculation of percentage interest.  All of those things would be live if at the end of the day the court found the underlying valuation issue was made good by the trustee, having the onus of proof of course.  The valuation issue, the onus, one would think, would be upon the trustee to make good the valuation that he had chosen. 

GUMMOW J:   The question Justice Crennan asked you I think highlights the consideration and interrelation between section 139ZS and section 30. 

MR BIGMORE:   Yes, and, as we attempted to indicate in our outline of submissions, the ‑ ‑ ‑

GUMMOW J:   In other words, is section 139 an exhaustive statement of the jurisdiction of the court to set aside?

MR BIGMORE:   The difficulty with section 30 is that it has been held to not to confer jurisdiction but simply supplemental power to act with the jurisdiction found elsewhere.  That is why one has the problem with Lopatinsky, for example.  If section 30 were to be enlivened, as it were, as a general judicial review power, that would be surprising given what has been said about it so far. 

GUMMOW J:   What has been said about it in this Court?  Its predecessor has referred to it in Price v Parsons I think all those years ago.

MR BIGMORE:   Yes.

GUMMOW J:   It might be worth having a look at that overnight.  It is an important question I think.

MR BIGMORE:   Yes, it certainly is.

GUMMOW J:   It is referred to en passant in some of these cases, but it is not really pursued.  One view is that the Parliament having created this – I will not monster – but created this procedure under subdivision J and provided a particular mechanism under ZS, there is room left for section 30 to eke out its operation to partly set aside.  I just do not know what the answer is.

MR BIGMORE:   Justice Lindgren thought there was.  We agree, with respect.  It is hard to give that textual foundation though, especially in view of the fact that we would be very close to trying to find a jurisdiction.

GUMMOW J:   In the Full Court one got the impression that the majority were with you except they turned against you because of a pleading point, is that right?

MR BIGMORE:   I think the pleading point was a convenient basis on which to turn against us, but the problem was that I think the majority perceived that Mr Vale might be getting away with something.  Now, with great respect, that is right in a sense, the way the judge in the first instance stands, because on the face of it the trustee is left without the recourse that he sought, has not amended his case or issued a fresh case but chose to appeal.  With respect, that is not so, there are many forensic decisions that the trustee can yet make to invoke section 121 or to approach the Official Receiver for a fresh notice, as your Honour said.

GUMMOW J:   But 121 is more difficult, is it not?

MR BIGMORE:   Not much more these days, your Honour.

GUMMOW J:   It does not have the time scale, does it, limitations?

HEYDON J:   Proof of defeating creditors.

MR BIGMORE:   It has the difficulty that the trustee would have to prove insolvency.

CRENNAN J:   That might be hard on the facts here, might it not?  There was significantly just the one debt, was there not?

MR BIGMORE:   Yes, it would be very difficult, your Honour, on the facts here, but one does not know what the other facts are.  All I am saying is that there are opportunities available to the trustee to do other things apart from those things that he sought to do in his application before the magistrate here, which was simply to enforce the charge by possession.  He wanted possession and he wanted payment, which might have been seen as alternative remedies but were not expressed so.  He certainly wanted to get the $270,000 and saw that as a means of doing it, although, of course, as the section itself says, he probably should have been doing that in a State court in order to enforce the charge or simply issue a writ for a $270,000 judgment which he could then enforce by writ of execution.

GUMMOW J:   If the trustee had not followed the notice course and simply pursued section 120 plus section 30, what would the remedy have been?

MR BIGMORE:   We do not know, your Honour.  The facts do not disclose what the remedy would have been.  It might simply have been an order for retransfer of the interest, it might not have been.  There might have been consideration of the amounts owed under mortgages.  There might have been an order for a payment of an amount of money.  If one can attribute the magistrate’s approach to the valuation issue, there might have been an order for payment of $208,000‑odd and, on the facts as disclosed in this particular case, that would seem to be a just result.

KIEFEL J:   I notice in terms of the pleadings, the trustee’s pleadings, that reliance was not placed upon a charge arising just by reference to the notice.  It was based upon the Official Receiver certificate, which appears at appeal book 135.

MR BIGMORE:   Yes.

KIEFEL J:   A type of floating charge.

MR BIGMORE:   One is perhaps recasting the trustee’s case in a way which does reflect the operation of subdivision J to say that ‑ ‑ ‑

KIEFEL J:   But does 139ZR(4) operate as a charge to which a notice, as amended from time to time, can attach?  Is that what the certificate is identifying?

MR BIGMORE:   If the Official Receiver amended this notice, then one would think that the charge would operate only to the amended amount.  When I say amended the notice, amended from $270,000 to $208,000‑odd.  If the Official Receiver did that, I would think, off the top of my head, that the charge would only extend to the $208,000‑odd, whereas the process has been, of course, that the Official Receiver has given his certificate, which is the basis for registration on the title under the Torrens system.

GUMMOW J:   Do you have these certificates of title in the evidence?  Do we have copies of the certificates of title?

MR BIGMORE:   Yes, we do.  They are immediately before the transfers, your Honour.

GUMMOW J:   Are they showing the charge registration?

MR BIGMORE:   Yes, they do.  At 113 is the start of the titles.  That does not show the charge.

GUMMOW J:   It shows mortgages, though.

MR BIGMORE:   I do not think the appeal book contains the information your Honour seeks as to the - I am indebted to my learned friend – starting at page 88.  “Charge to Mr Sutherland” – between 40 and 50 on page 88.

GUMMOW J:   Thank you.

MR BIGMORE:   As we understand the process, the basis for the recording of the charge is the existence of the certificate.  Whether section 30 empowers the Court to direct the Official Receiver to amend the notice is perhaps the question.  I am not aware of any case that would support that proposition, but I am not aware of one that would stand in its way.  It would seem if there were judicial review under the Judicial Review Act a similar course could result were this a relevant decision, so perhaps it does ‑ ‑ ‑

GUMMOW J:   I am not sure it is a decision under an enactment.

MR BIGMORE:   No, that is arguably by analogy that that would be the type of outcome that could obtain but whether section 30 in its terms facilitates that is something I cannot support with authority.

GUMMOW J:   Do you want to say anything about the Full Court treatment of the pleading point?

MR BIGMORE:   No more than we have already said.  We have relied on what Justice Lindgren said and, with great respect, I cannot state it any better or any more widely than that.  It is the same with the valuation evidence point.  We say that both those points should fall away and, with respect, the real issue is the scope of review that is available under 139ZS, with or without section 30.  I cannot add to that and really, your Honour, unless there are any further questions I cannot do anything other than look at section 30 over night.  May it please the Court.

GUMMOW J:   Yes, Mr Coles.

MR COLES:   If your Honours please, it is our submission that the requirements made essential by the Act for a valid notice under section 139ZQ are those identified under in subsection (2) of that section, that is to say:

The notice must set out the facts and circumstances because of which the Official Receiver considers the transaction is void against the trustee.

It following that when the facts and circumstances are directed to an avoidance which is the consequence of the application of section 120 of the Act, it will be those facts and circumstances which enliven the operation of that provision and not any other facts and circumstances.

GUMMOW J:   You talk about the facts and circumstances in an objective sense.  Subsection (2) is talking about in a particular sense what the Official Receiver considers.

MR COLES:   It is the facts and circumstances because of which he “considers that the transaction is void” under the Act.  It is our submission, your Honour, that calls attention, in this case at least, to section 120 and why, having regard to the provisions of that section, the transaction is void.  Likewise, we say that when one looks at the power to set aside the notice under 139ZS, the reference there to the setting aside of the notice on the basis of the alleged facts and circumstances set out in the notice refers exactly to the same facts and circumstances which were those which produced the matter which the Official Receiver considered for the purposes of the ‑ ‑ ‑

GUMMOW J:   Are you saying that the Official Receiver set out more than needed to be set out?

MR COLES:   Yes.  It would be unsurprising to find a notice that may set out a few more facts and circumstances but a question arises ‑ ‑ ‑

GUMMOW J:   And if does set out more, what then happened, and the excess is erroneous.?

MR COLES:   The likelihood is that it does not matter because the notice simply sets out too much.

KIEFEL J:   That is mere surplusage, is that what you are saying?

MR COLES:   Yes, that is right.  It is mere surplusage so far as the application to set aside the notice is concerned because the application under ZS is necessarily confined to the basis appearing in the notice, or the basis of the alleged facts and circumstances set out in the notice which have the subsection (2) function, that is to say, to indicate the basis for why the transaction is void against the trustee.

GUMMOW J:   Then you have to show us what you say the surplus was here.

MR COLES:   Yes, the question of market value does not or does not always arise, of course, in the context of a transaction or a transfer being void against the trustee because there are two sorts of transactions contemplated, one being a transaction for no consideration, the other being a transaction for a consideration which is less than the market value of the property transferred necessarily at the date of the transfer.  One plausible view, if we may respectfully say so, of the facts in this case is that this is simply a transfer for no consideration at all.  That the nominal ascription of a dollar to each of the transfers of course is no real and genuine consideration and whatever else may be left of this Court’s decision of Barton after the introduction of the new form of section 120, it would remain correct, in our respectful submission, that consideration for the purposes of the Bankruptcy Act at least means a real substantial genuine transaction and not a $1 transaction.

Whether that is so or not, the only occasion for a consideration of market value in the context of avoidance under section 120(1) is the conclusion which the second part of subsection (b) authorises, namely, that if the transferee gave a consideration of less value than market value, then that is a reason why the transaction can be concluded as being void and the consideration being less than market value may be a fact or circumstance on the basis of which, for the purposes of 139ZQ(2), the notice may be given and is a matter which the deficiency or the fact of the undervalue is accordingly one of the facts or circumstances which must be set out in the notice.  We distinguish in our submissions, if your Honours please, that it is the fact of the transaction being at an undervalue, not the extent or degree of the undervalue.

HEYDON J:   Mr Coles, your client wanted some money and wanted to charge and if it did not get the money, it wanted to sell.  What would page 129 of the appeal book have said if paragraph 3 on page 128 had been left out, so that all that was alleged was really the facts and circumstances as you say they are, namely, that it is void because of transfer within two years at a consideration less than market value, as paragraph 7 states.  What would the rest of that page have said?

MR COLES:   If paragraph 3 had been left out?

HEYDON J:   Yes.

MR COLES:   Well, it would be sufficient for the purposes of the engagement of section 120 if, as paragraph 4 asserted, the transfer was inconsideration of $1 per lot, and as paragraph 5 went on to say, the bankrupt gave less value than the market value, because it must have been uncontroversial that the properties were inevitably of more value than $1.

HEYDON J:   What demands would have been made on the bottom part of page 129 in those circumstances?  It would not have been possible to demand any specific sum because there was not the material to lead to a conclusion about a sum, therefore no charge, therefore no power of sale, therefore waste of words.

MR COLES:   Well, a question arises, of course, which again is one of construction, in our submission, of section 139ZQ(1), whereby the notice may require the person to pay to the trustee an amount equal to the value of the property received.

HAYNE J:   Is it not necessarily implicit in the demand for money that the amount demanded is the value of the property received in a case such as this which is not a money case?

MR COLES:   Yes.  There are two matters – let me say yes.

HAYNE J:   And does that not necessarily refer to the value of the property received at the date of receipt and, in turn, so that you see the full panoply of interrogatories, does that not necessarily entail that it is the market value of the property at the date of receipt marching in step thus with section 120(7)(c)?

MR COLES:   Dealing with the second of your Honour’s questions I think perhaps first there is a question of construction as to whether it is the value of the property at the date of the transfer which is void against the trustee or whether it may be the value of the property as at the date of the notice.  In favour of that latter proposition, let me canvass these possibilities.  Section 139K, of course, describes “value” in relation to – the additional provision, refers to “value” as at the date of the notice.  At least an equally good indicator is the fact that if the trustee was seeking, as he would be entitled to do in a proceeding under section 120, to recover the property itself, he would obviously recover the property with the value which it enjoyed at the date of its recovery which would be consistent with an entitlement to receive payment of the value of the property as at the date of the notice.

Money is different.  It is sometimes said, Re Lucera is an example, that one treats property as being in the same category as money and since money will always be a sum of money certain, for that reason you would pick the date of the transfer as the relevant value because in the case of money you would have a known sum transferred at the date of the transfer which would be the same sum at the date of the notice, but, of course, that rather overlooks the tendency of property to increase or decrease in value according, of course, to the market.  To deal with your Honour’s second question, it is a question of construction in relation to which there is first instance authority, albeit not, in our respectful submission, particularly persuasive.  It suggests one might limit oneself to the date of the transfer. 

To come to what I think was the third part of your Honour’s question, it is an inevitable fact of life that any amount demanded by a trustee if he wishes to take advantage of the section – and it was obviously the contemplation of the Parliament that he might wish to – but it is an inevitable consequence that any amount demanded will rarely incontestably be the exact uncontroversial market value of the particular property, at least if it is real estate.  I mean, there might be other possibilities or greater levels of precision depending on the nature of the property in question, because property at large is amenable to the operation of these sections.  It has been said in many authorities that the determination of a value of property is necessarily imprecise.  That is not science.  It depends, I think, as one judge said, on an opinionative determination, and, of course, valuers often differ.  So it is a question of construction, therefore, your Honours, whether Parliament ‑ ‑ ‑

GUMMOW J:   We know it is a question of construction.  That is why we are here. 

MR COLES:   The question of construction is, and, with respect, it admits of only one answer.

GUMMOW J:   We want to know what you say the correct construction is.

CRENNAN J:   It is a bit complicated, is it not, by 139K?

MR COLES:   It is a little bit, so can I put that to one side for the moment, yes.  To deal with the ZQ(1) question, demand an amount of money equal “to the value of the property received”, it is, in our respectful submission, unlikely that Parliament intended that a notice would fail because it failed – or it was not able to state with some supposed degree of exactitude or it would be impossible – in circumstances where it would be impossible with exactitude to say what the value was.

GUMMOW J:   It is not a question of the notice failing, it is a question of a criminal offence under 139ZT being triggered by a failure to comply with this ambiguous piece of paper, is it not, and the question of when the debt accrues too. 

MR COLES:   Yes, I want to deal with that.  That is a very important matter.  Can I say as to the criminal liability matter, the offence of course is not one of strict liability – or not specified to be as it would be required to be so specified if it were.  It leaves open a very considerable range of defences.

GUMMOW J:   We have to look at the Criminal Code, do we not?

MR COLES:   Yes, but I think the Criminal Code requires that if an offence is to be one of strict liability then it has to specify that situation.  In general terms we would submit that the construction of the statute will be determined by the usual processes without applying any significantly different principle of construction depending on whether the statute has an operation in the criminal sphere or is simply civil in its operation.  Questions of levels of proof may differ, but can I put this to your Honours ‑ ‑ ‑

GUMMOW J:   That is 6.1 of the Criminal Code, I think, cases where fault elements are not required.

MR COLES:   Yes, 6.1, your Honour. 

GUMMOW J:   You say 139ZT does not answer 6.1 of the Code.

MR COLES:   Yes, your Honour.  Can I continue with some observations I was putting to your Honours in relation to the correspondence with the amount of money nominated in the notice.  With any question of the objective or ultimately ascertained true market value it may well be, in our respectful submission, that a notice might turn out to claim an amount of money which was less than the market value of the property at the relevant date, or it could be more.  The question of course, in our respectful submission, is whether the legislature intended some misstatement or miscalculation. 

GUMMOW J:   I think the legislature was not writing with a clear brain, I am afraid.

MR COLES:   So it must have intended, in our respectful submission, if there was any work to do at all for the provision ‑ ‑ ‑

GUMMOW J:   It must have intended this or the other thing.  It is not all that clear what was being attempted in any detailed fashion.

MR COLES:   No.

GUMMOW J:   I mean, the absence of time scales, for example.  One would have thought if one were drafting this sort of thing that is one of the first things you would think about.  You have all these debts and charges being created.

MR COLES:   The view has been expressed by many first instance judges in the Federal Court that the provisions, in effect, fail to fulfil what may be supposed to have been the parliamentary expectations for their operation, but we would respectfully respond to that observation by saying the task of a court called upon to construe the provisions is to do more than solemnly pronounce that Parliament has missed the mark but to grapple with the language and suppose the Parliament intended them to have an operation, if their words are capable of them doing so.

GUMMOW J:   That is true, but not necessarily when they go about creating criminal offences, Mr Coles.

MR COLES:   That creates a question for consideration, undoubtedly, your Honour.  Hence I draw attention to the fact, your Honour, that one may note the fact that the offence is not one to which there is no defence is not perhaps unimportant in some respects and there may be scope for defences on one view in relation to a criminal prosecution which are not necessarily available to the civil action for the debt if the trustee brings that proceeding.

GUMMOW J:   Can I ask you this?  What is there at this stage that would stop your client proceeding under section 120 and section 30 to obtain remedies?

MR COLES:   The section 120 remedy, as has been indicated, your Honour, is subject to a limitation period which by now has expired.

GUMMOW J:   Where do we see the limitation period?

MR COLES:   It is section 127(3), if your Honours please:

An action under section 120 with respect to a transfer shall not be commenced by the trustee of the estate of a bankrupt after the expiration of 6 years ‑ ‑ ‑

HEYDON J:   What is to stop your client giving a notice which amends the first notice under section 139ZQ(4)?  At the moment you seem to be realistically chasing $208,000.  What is wrong with amending the notice instead of demanding $208,000‑odd?

MR COLES:   In our respectful submission, nothing at all.

HEYDON J:   Would it not be prudent to do so before the proceedings terminate?  Although it says “at any time”, you cannot give these notices after contested proceedings have terminated.

MR COLES:   No, that is right.  Well, the Federal Court magistrate had, of course, set the notice aside so there would be a question whether you could amend a notice that has already been set aside.  One, I would have thought, could not, but ‑ ‑ ‑

HEYDON J:   Yes, but the Full Court has wiped that from the page.

MR COLES:   The Full Court has restored the notice, as it were, and ordered the proceedings be sent back, so if the appeal was dismissed, the notice could be amended.

GUMMOW J:   When you say the Full Court restored the notices, what does that mean?

MR COLES:   Well, it set aside the order setting them aside, I suppose, your Honour, although they remain on foot.

CRENNAN J:   Could the Receiver be directed to amend the notice, if the Official Receiver decided not to do it of their own motion?

MR COLES:   I think he could, your Honour.  Again, section 30 could be called into play, we would think.  It seems to us there is another matter for consideration.

It is said that ZS may be the only mechanism for the setting aside of notice and, in our respectful submission, there is much to be said for that view but that does not, in our respectful submission, conclude the real question or a substantial question, namely, is there – if your Honours accept the submission as to the construction that the facts and circumstances in ZS are those described in subsection ZQ(2) – that is to say those that produce the avoidance – then ZS does enough work by authorising the setting aside of the notice on those grounds.

One has, however, what, in our respectful submission, is a somewhat separate question, namely, to what defences may one assert to an action in debt because importantly as your Honours – and the thrust of the proceeding and what the trustee was seeking in the present proceeding was, apart from some ancillary orders in relation to his power of sale, he was seeking under section 139ZQ(8) to recover an amount payable to the trustee which by the terms of subsection (8) is recoverable as a debt by action against the person in a court of ‑ ‑ ‑

GUMMOW J:   Where do we see that?  Where was he relying on 139ZQ(8)?

MR COLES:   Yes, in the originating process the ‑ ‑ ‑

GUMMOW J:   Where do we see that?

MR COLES:   If your Honours please, it is ‑ ‑ ‑

HAYNE J:   Page 3, paragraph 8 of the prayer for relief, I suspect.

MR COLES:   Yes, thank you, your Honour.  The sequence of events was the trustee brought the claim which sets out the final orders and its position of the respective parcels of land.  I will pass over that for the moment.  Paragraph 8:

Judgment for the plaintiff against the defendant in the sum of $270,000.00 together with interest –

The authority to bring that proceeding of course is subsection (8) and one then asks the question, may one not if there is some misstatement or some argument or some bona fide issue about the value of the property in contention between the parties, in my respectful submission, it would be ‑ ‑ ‑

GUMMOW J:   You say by a plea of partly indebted?

MR COLES:   That is right.  As the cases point out, nothing gives to the statement in the notice any conclusive effect, it is simply a contention that there is a debt due.  In our respectful submission, it is open to a defendant to a debt proceeding to put on a defence as to the proper amount of the debt due.  This is a debt of the same kind, or created and ‑ ‑ ‑

GUMMOW J:   Wait a minute.  What would be the source of the debt properly due?

MR COLES:   The source of the debt?

GUMMOW J:   Yes.

HAYNE J:   The notice you might have given but had not.

MR COLES:   The source of the debt is the statutory provision but it is the same debt as – it is no more or less a debt than the sort of debt with which the Court was concerned in ‑ ‑ ‑

GUMMOW J:   When you say “it”?

MR COLES:   The debt – the cause of action, let me call it.  We have not put this on the list, your Honour – I have copies for your Honours, if it would be of assistance – in Young v Queensland Trustees Ltd (1956) 99 CLR 560. We have copies available for your Honours, if that is of assistance.

GUMMOW J:   Yes, we have it here.

MR COLES:   There is discussion which, in our respectful submission, is in point, of the nature of a debt and the entitlement of a person to plead defences to an action in debt and ‑ ‑ ‑

HAYNE J:   An amount payable under this section which is recoverable and an amount is payable under the section, is it not, if there is a requirement to pay it in accordance with (1) and if the notice were to be set aside, as it was at first instance under ZS, (2) tells us that a notice that has been set aside is taken not to have been given.

MR COLES:   Absolutely, so the cause of action is immediately destroyed if the notice is set aside.  There is no doubt about that.  If the notice is not set aside, the cause of action created by subsection (8) for debt is allowed go forward.  In our respectful submission ‑ ‑ ‑

GUMMOW J:   Wait a minute.  When you say “is not set aside”, that gives it a particular construction of the word “may” at subsection (1) of ZS, does it not?

MR COLES:   Yes.

GUMMOW J:   Now, there is a finance facilities question here, is there not?

MR COLES:   Yes, indeed.

GUMMOW J:   If the court is satisfied that the subdivision does not apply on the basis of the alleged facts and circumstances, an order will be made.

MR COLES:   I do not dispute, your Honour, that that would constrain the court to make the order.

GUMMOW J:   If the order is made, the notice set aside, it is treated as never having been given and the cards collapsed, I trust.

MR COLES:   There is no doubt about that, in our respectful submission.  If misstatement of the value does not invalidate the notice, as, in our respectful submission, it does, not because the requirements for a good notice are those set out in subsection (2) of ZQ, and if ZS in relation to setting it aside requires the applicant for the setting aside order to negate, at least prima facie, the existence of the facts and circumstances which adduce the consideration by the Official Receiver that the transaction was void because the elements of section 120 were satisfied, then, as I have already put, questions of the correctness or departure from external proof of the precise amount of the value will be able to be litigated or, indeed, are not engaged by the application to set aside the notice because the application to set aside the notice being focused on those facts and circumstance which produce avoidance, the question of disputing the value arises by other considerations.

One is, to give your Honours an example, if the plaintiff sues the defendant in an action in debt, for example, for goods sold and delivered at a particular price or at a reasonable price, the defendant may say, well, those goods are in some way deficient or lacking in some required quality and may accordingly set up by way of defence, in the typical Mondel v Steel sort of situation, the extent of the inadequacy to reduce the debt which the plaintiff claims.  In our respectful submission, there will be nothing to stop a defendant’s.....from doing exactly the same thing here by saying, if I pay you the whole amount of this debt you will be unjustly enriched to the extent to which that payment exceeds the value of the property which you are entitled to recover and accordingly ‑ ‑ ‑

GUMMOW J:   Mondel v Steel is a very particular rule, is it not?

MR COLES:   By analogy with the idea, your Honour, that one may deploy as a defence a diminution in the claim for debt against one – I do not suggest the principle itself applies, it is an illustration of the same process we would suggest.  By not making the cause of action for debt a conclusive or indefensible one the legislature has authorised the defendant in the debt proceeding to defend the proceedings as such.  Setting aside the notice is not a precondition to that or not even ‑ ‑ ‑

GUMMOW J:   Is this in your written submissions, Mr Coles?

MR COLES:   No, your Honour.  It goes to show, your Honour, that the provisions of ZS relating to setting aside the notice are directed to a very specific and narrow matter and leave at large an issue if one arises as to defending the claim in debt.  Here, of course the defendant did not claim in its defence any particular issue as to what the value was, rather it asserted that there were different valuations.  No valuation evidence was seemingly called by anybody which does rather produce the outcome, in our respectful submission, that the debt – the amount specified in the notice which may by the statute be recovered as a debt was not shown to be excessive and accordingly, the correct order would have been to enter judgment for the amount claimed in the notice. 

HEYDON J:   You are assuming that the Full Court is correct and of course that is in issue. 

MR COLES:   Yes.  It seems to us, with respect, that it is productive of confusion to bring into play issues of valuation which only arise if there is some consideration for a transaction at an undervalue and do not necessarily arise at all if there was no consideration for an action – for a transfer at an undervalue.

HEYDON J:   They come in, though, because you have to work out what has to be given back.  You have to take X and subtract $2 or $7 from it, or X and some larger figure that was paid.  That is a valuation question.

MR COLES:   Yes, because the trustee must in effect refund to the person the – but not by ZQ, that arises under 120 itself, that is not a matter that needs to be dealt with in the ZQ notice.  The entitlement of the transferee to a refund of any consideration it has paid arises under section 120(4) and is not a matter with which ‑ ‑ ‑

HEYDON J:   Yes, but you asked for money, you did not just ask for a reversal of the transaction.

MR COLES:   True.

HEYDON J:   To ask for money raises a market value question.

MR COLES:   Not really, the ‑ ‑ ‑

HEYDON J:   Justice Lindgren thought it had been raised on the pleadings.

MR COLES:   Yes.  In the present case of course if the trustee were called upon to refund the consideration under subsection (4) it would at best be the $2 or $7 before it had been paid for the transfer. 

So, in our respectful submission, one does not need to come to a conclusion favourable to the recipient of the notice that grounds exist to set it aside under 139ZS to recognise that the recipients of the notice may nevertheless have defences to the action debt either along the lines I have described because they may defend the debt on any grounds that would suggest that the recovery of it would be excessive or, for that matter, by declaratory relief or by resort to section 30 of the Act.

GUMMOW J:   I think we need to know fairly precisely what you say was this excess material in the notice at page 128 of the appeal book.

HEYDON J:   You have it both ways, do you not?  Subsection (3) is excess to requirements in relation to subsection 139ZQ(1), but it is not surplus to requirements as a basis for the demands for payment, et cetera.

MR COLES:   Yes.  It exposes not an element essential to the validity of the notice but a basis for the calculation.  It does expose, in our respectful submission, a basis upon which the Official Receiver has been told by the trustee, or has issued the notice of the initiative of the trustee, how the amount claimed in the notice is worked out and, in that sense, whether it is right or wrong, it is at least informative and it exposes the amount of the claim.  It does not expose and does not need to expose the basis for the avoidance – or the fact of avoidance of the transaction.

GUMMOW J:   No one impugns that the Official Receiver looked at this and this is what she considered the notice had to say.  How has she gone outside 139ZQ(2)?  I just do not understand the submission.

MR COLES:   It may be the notice says too much or says more than it needs to say but, again, the question is not whether the notice says too much or not.

GUMMOW J:   There is no impugning of the decision or consideration by the Official Receiver, is there?

MR COLES:   No.

GUMMOW J:   Obviously, there has to be some margin of appreciation, as the Europeans would say, in providing for this sort of thing to be done by an officer like the Official Receiver.

MR COLES:   I agree, but, again, we emphasise the essential point for consideration is whether having regard to the requirements which the Act makes essential for a valid notice, the inclusion of matters which are, if your Honour accepts the first submission I make, the inclusion of additional matters invalidate notice.

HAYNE J:   Do you accept that it is necessary for the notice to be valid for it to demand a sum certain?

MR COLES:   Yes, that seems to follow from subsection (2), the notice may require the payment of an amount.  Could I qualify that with a possible alternative – it may say – I suppose it could ask for amounts in the alternative or it could do, with respect, what the notice does in this case, it gives the – at page 129, line 30, it invites the recipient of the notice if he considers he owes a lesser amount to make some submissions seeking a reduction of the amount and making payment of the lesser sum.  So, in a sense, the notice does make an alternative demand for payment of a lesser sum if submissions are made by the recipient.

HAYNE J:   In the case of receipt of property as distinct from receipt of money, the Official Receiver must assert, and as a sum certain, the value of the property received. 

MR COLES:   Must assert some sum of money which has some rational connection with that subject matter, absolutely, yes.  For reasons I have already put, it would be sheer chance that the amount alighted upon happened to correspond uncontroversially with everybody’s view of what the value was because valuation is not a science.

HAYNE J:   When ZS or poses the question of whether the subdivision does not apply on the basis of the alleged facts and circumstances set out in the notice, those facts and circumstances at least include the facts and circumstances mentioned in ZQ(2).

MR COLES:   Yes, indeed.

HAYNE J:   Is it your case that they are confined to the facts and circumstances in ZQ(2) and in particular do not extend to the assertion of a sum certain as being either the value or within the range of values properly assigned to the property received.

MR COLES:   Yes, that is our preferred construction, if your Honour please.

KIEFEL J:   Do you say that that falls to be determined by the issue in the proceedings which is as to the extent of the debt rather than the existence of the debt?

MR COLES:   Yes, your Honour, exactly.  We say issues of extent go to a quantum dispute which the parties may agitate apart from the 139ZS procedure.  That is our preferred construction of the legislation, and we say it works harmoniously because ‑ ‑ ‑

KIEFEL J:   As was touched on before, if at the conclusion of those proceedings it is determined that the value is an amount less than appears in the notice, it is at that point that the Official Receiver would need to amend the notice by issuing a new notice. 

MR COLES:   He could issue a fresh notice, because the notice will then describe the quantum of the charge, and it is appropriate that the property be charged by the correct amount, once the correct amount is or can be ascertained. 

KIEFEL J:   This still sits, as was pointed out before, very unhappily with a pending criminal – possibility of a criminal offence if the notice is not dealt with in some way.

MR COLES:   Well, it does, there is no doubt about that.  The imposition of that liability creates concerns about – or directs attention, I suppose, close attention to the statutory language.  I do not, of course, shrink from that.  But again, we respectfully suggest that once one finds its meaning by a process of construction, then that is its meaning alike for civil as for criminal proceedings.

KIEFEL J:   And it is not, as you said, not strict liability so the existence of a dispute would overcome the ‑ ‑ ‑

MR COLES:   Very much, and it would be just cause for a person to say, I did not comply with the notice, because ‑ ‑ ‑

KIEFEL J:   Yes, there must be similar – well, one would hope not too often, but are there any similar situations arising under statutory notices which have a potential criminal liability attaching to them the potential for a dispute as to the notice?

MR COLES:   I am sorry to say, your Honour, I cannot give you an adequate answer to that.  It is a matter for appropriate research, which we will certainly look at.

KIEFEL J:   One would think that it has arisen before.

GUMMOW J:   What is the force of the words “refuses or fails” in ZT?

HAYNE J:   It is 5.2 of the Criminal Code Code, is it not?  I would have thought so.

MR COLES:   I am afraid I have not brought the Criminal Code.

HAYNE J:   There is probably a necessity to prove intention with respect to the conduct if he or she means to engage in that conduct.  That is intend to engage in the conduct of refusing or failing.

MR COLES:   That would be my submission, with respect.  It is not simply a matter of saying the man got a notice and did not do anything about it.

HAYNE J:   There is evidently a procedural imbroglio that is created by what has occurred here.  I wonder what analogy, if any, can be drawn with the not uncommon circumstance of the oppression petition, where the judge at the end of the oppression petition says – just and equitable petition, rather; not the oppression petition.  “The ground is made out.  I will adjourn it for a week to see what the parties want to do” and there is then some frantic negotiation.  I wonder where there is a fight about value, there might not be a conclusion pronounced about value, then a pause before final orders are made.

MR COLES:   Yes.  Your Honour invokes, with respect, a very practical ‑ ‑ ‑

GUMMOW J:   He invokes sensible case management, actually.  We keep hearing lectures about it.

MR COLES:   There are other analogies that spring to mind.

GUMMOW J:   This is how it works and should work in real life.

MR COLES:   In short, your Honours, we say that once it can be seen that setting aside a notice on the grounds on which that notice may be set aside, that leaves at large but untroubled by the question of setting aside or not the issue of the amount of the debt and correspondingly the extent of the charge.  We say that if one were to be strict about the present case, the defence simply did not adequately put in issue any proper defence to the claim for debt.

It put in issue the existence for their own sake of two rival or competing expressions of supposed value, neither of which may have been correct but neither of which may have been less than or, for that matter, more than the market value to which the trustee was entitled.  So one may well say one is left with the claim for debt which the statute authorises, but no affirmative case by the debtor saying that the market value was something else and therefore the trustee should have succeeded on the amount of his claim and it was not to the point that he agitated an inconclusive dispute about the existence of two appraisals, one of which was larger than the other or less than the other.

HEYDON J:   If you won on the construction point but lost on the points that Justice Lindgren was against you on would that suggest that rather than restoring the decision of the federal magistrate it would be a case of an order that 208,000, plus interest, be paid by the appellant to you?

MR COLES:   That is right, that is right.  That is an order, in my respectful submission, consistently with the submission I have just put, the Full Court could and should have made.

HEYDON J:   Yes, of course.  Can we find in the Full Court any account of the arguments you have been advancing to us this afternoon in relation to construction?  If not it might have a costs implication.

MR COLES:   I think, your Honour, the Full Court did not, I think it is fair to say, quite focus on the proposition that I have drawn on, which is essentially a matter of construction, and find support, as your Honours have been taken to by my friend from the Lopatinsky decision.  I do not know that the Full Court said anything in particular.  The Full Court did not, I have to confess, refer to Lopatinsky, which is, I suppose, my best authority for the construction I have advanced.

HEYDON J:   Was your argument put to the Full Court?

MR COLES:   No, your Honour.

GUMMOW J:   Well, you would have been in a cross‑appeal situation, would you?

MR COLES:   Perhaps notice of contention, your Honour.

HEYDON J:   Well, in the Full Court you were appealing on pleading, valuation, and the question is, what is the consequence of not putting an argument that the notice could not have been set aside, because it did state the facts and circumstances of the general kind you assert, and the rest was surplusage on that issue.

MR COLES:   Well, in our respectful submission, the point has always been one of, at the end of the day, statute construction.

HEYDON J:   It is not a question of not being able to take the point, but it is just a question of what effect it would have on costs.  It would mean that you would be successful in this Court, but would victory carry costs?

MR COLES:   It should not, your Honour, because of, in our respectful submission, the principle that they follow the event, and different views or different arguments about points of construction are inevitable, in our respectful submission, particularly in this Court.

HEYDON J:   If you had put it to Justices Gray, Lindgren and Tracey it might have succeeded and the appeal might be unnecessary.

MR COLES:   Well, I can perhaps agree with that, your Honour.  Could I accept, your Honour, it is a matter for consideration if your Honours come to that outcome.

GUMMOW J:   Are you foreshadowing an application for special leave to cross‑appeal in this Court?

HEYDON J:   You want the order changed, so it will be necessary, if you embrace the possibility of getting $208,000 plus interest.

MR COLES:   Yes, well, I would need to do that.  I will need instructions, your Honour.

GUMMOW J:   We will adjourn at 4.00, Mr Coles.  This case is listed tomorrow and both of you can think about some of these matters overnight.

MR COLES:  If your Honour pleases.

GUMMOW J:   And if you need to come armed with some documents you had better come armed with them tomorrow.

MR COLES:   If your Honour pleases. 

GUMMOW J:   I think also you had better come armed with a very succinct revised statement of the construction propositions that have been advanced this afternoon so that we know precisely what we are dealing with without having solely to derive it from the transcript, do you see what I mean?

MR COLES:   Yes, your Honour.

GUMMOW J:   It only needs to be two pages.

MR COLES:   What I have been saying this afternoon, your Honour, I think will find substantial reflection in the outline of submissions which is fairly brief that we have put on in this Court.  I am not actually sure I can say very much in writing.

GUMMOW J:   So be it.

MR COLES:   I take your Honour’s point.

GUMMOW J:   It did not spring back to my mind this afternoon that I had read it before in your written submissions, but that may be my fault.

MR COLES:   Can I address that, your Honour?  I think the issue then next raised by the ‑ ‑ ‑

GUMMOW J:   One issue is this.  Do you seek to support the Full Court’s reasoning insofar as they focused upon the pleadings and the manner of conduct of the litigation?

MR COLES:   Yes.  We adopt, and I do not think I can improve upon what the Full Court said about the pleading point.  I have in the written outline ‑ ‑ ‑

GUMMOW J:   Not just the pleading point.  It is how the case was conducted.  There was a cross‑examination on this question.  No one sprang to their feet on the other side and said this is not a question that is open on the pleadings.  What is happening?

MR COLES:   Your Honours bear in mind that the pleading point, of course, as has been described, was raised in the notice of appeal in the Full Court.  It was not part of the subject matter, seemingly, of the debate before the learned magistrate.

GUMMOW J:   I had in mind, amongst other things, the cross‑examination of Mr Sutherland on these questions, page 23 and following in the appeal book.

HEYDON J:   Do you say the pleading point should not have been taken because it was the case where Suttor v Gundowda Pty Ltd applied?  Was that set in the Full Court?

MR COLES:   Yes, I believe so.

HEYDON J:   It did not seem to make much impact on Justice Lindgren.

MR COLES:   No.  He did no refer to it.

HEYDON J:   Normally when Justice Lindgren does not refer to something it is a sign it does not exist.

MR COLES:   Quite.  I will make some more inquiries, but it would be amazing, your Honour, in my respectful submission if Suttor v Gundowda and Holcombe v Coulton were not referred to in the Full Court, but perhaps they did not need to be.

HEYDON J:   The majority did not have to because they rejected it as a matter of substance.

MR COLES:   Yes.

GUMMOW J:   Very well.  Is this a convenient time, Mr Coles?

MR COLES:   It is, your Honour, thank you.

GUMMOW J:   Very well.  We will until adjourn until 10.15 am tomorrow morning.

AT 4.00 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 21 MAY 2009