FEDERAL COURT OF AUSTRALIA
Sutherland v Vale [2008] FCAFC 148
Bankruptcy Act 1966 (Cth) ss 5, 30, 40(1)(g), 41, 115, 120, 139K, 139ZQ, 139ZR, 139ZS, 139ZT, 306
Federal Magistrates Act 1999 (Cth) s 43(2)(b)
Federal Court Rules O 11 r 13
Real Property Act 1900 (NSW) ss 36(6A), 41
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) r 1.02, 1.03
Federal Magistrates Court Rules 2001 (Cth) r 1.05
Halse v Norton (1997)76 FCR 389 cited
Electricity Commission of NSW v Arrow (1994) 85 LGERA 418 cited
Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329 cited
Re Aley; Ex parte Sweeney v Aley (1996) 63 FCR 294 cited
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR cited
Adams v Lambert (2008) 228 CLR 409 cited
Theo v Official Receiver in Bankruptcy (unreported, Cooper J, 24 August 1995) cited
Lin v Official Trustee in Bankruptcy (2001) 187 ALR 220 cited
RODERICK MACKAY SUTHERLAND v MALCOLM GEOFFREY VALE
NSD 2121 of 2007
GRAY, LINDGREN, TRACEY JJ
20 AUGUST 2008
melbourne (heard in sydney)
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| NEW SOUTH WALES DISTRICT REGISTRY | NSD 2121 of 2007 |
| ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA |
| BETWEEN: | RODERICK MACKAY SUTHERLAND Appellant
|
| AND: | MALCOLM GEOFFREY VALE Respondent
|
| GRAY, LINDGREN, TRACEY JJ | |
| DATE OF ORDER: | 20 AUGUST 2008 |
| WHERE MADE: | melbourne (heard in SYDNEy) |
THE COURT ORDERS THAT:
1. The appeal is allowed.
2. The orders of the Federal Magistrates Court, made on 2 October 2007, are set aside.
3. The proceeding be remitted to the Federal Magistrates Court to be heard and determined according to law.
4. Any issues relating to the costs of the original hearing in the Federal Magistrates Court and any re-hearing which takes place in accordance with these orders are to be determined by the Federal Magistrates Court.
5. The respondent pay the appellant’s costs of this appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| NEW SOUTH WALES DISTRICT REGISTRY | NSD 2121 of 2007 |
| ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA |
| BETWEEN: | RODERICK MACKAY SUTHERLAND Appellant
|
| AND: | MALCOLM GEOFFREY VALE Respondent
|
| JUDGES: | GRAY, LINDGREN, TRACEY JJ |
| DATE: | 20 AUGUST 2008 |
| PLACE: | melbourne (heard in SYDNEY) |
GRAY & TRACEY JJ
REASONS FOR JUDGMENT
1 This is an appeal from a judgment of the Federal Magistrates Court setting aside a notice issued pursuant to s 139ZQ of the Bankruptcy Act 1966 (Cth) (“the Act”) and dismissing an application by the appellant (“the trustee”) for orders granting him (as trustee of the bankrupt estate of Mrs Linda Vale) possession of three properties and for judgment against the respondent (“Mr Vale”) in the sum of $270,000.00 plus interest.
2 The three properties were purchased by Mr Vale and his wife between 1983 and 1994. They held the properties as joint tenants. The properties were located at Gulgong, Mudgee and Tucklan in New South Wales. The Gulgong and Mudgee properties were each described in a single certificate of title. The Tucklan property was described in five separate certificates of title.
3 On 14 November 1992 Mrs Vale suffered serious injuries in a motor vehicle accident. On 29 September 1994 she commenced an action in the Supreme Court of New South Wales claiming damages for personal injuries suffered in the motor accident. Mr Vale was the defendant. On 12 April 1995 the Court granted leave for Mr Vale’s insurer to be joined as a party to the proceeding. The proceeding was transferred to the District Court of New South Wales. It was heard between 7 and 11 June 1999 and 21 and 22 June 1999. On 15 July 1999 the District Court gave judgment in favour of the insurer. On 11 August 1999 Mrs Vale was ordered to pay the insurer’s costs. On or about 7 December 1999 Mrs Vale applied for leave to appeal to the Court of Appeal from the judgment of the District Court. Costs were assessed and a certificate of determination was registered on 7 December 2000 in the District Court in sum of $152,664.58. On 26 February 2001 Mrs Vale committed an act of bankruptcy. On 2 August 2001 the Court of Appeal dismissed Mrs Vale’s application for leave to appeal.
4 During the course of these legal processes a number of relevant events took place in relation to the three properties. On or about 28 September 1998 Mr Vale instructed a solicitor to take the legal steps which were necessary to transfer each of the properties into his name. At about this time Mr and Mrs Vale obtained a valuation of the three properties from First National Real Estate. The Tucklan property was valued at $260,000. The other two properties were each valued at $140,000. These valuations were said, in submissions, not to be “registered valuations”. It would have been more accurate to say that they were not “sworn valuations”. The letter from First National Real Estate to Mr Vale which contained the valuations was dated 28 September 1998 and also contained a statement that:
“This opinion has been prepared solely for the information of Malcolm Vale for the purposes of considering the sale of the properties and not for any other third party. Although every care has been taken in arriving at these figures we stress that this is an opinion of a reasonable asking price only and not to be taken as a sworn valuation.”
On 31 March 1999 a further valuation of the properties was obtained for the purpose of assessing the stamp duty payable on “one half share of the Market Value” of the three properties. This valuation was undertaken by a registered valuer. He valued the Tucklan property at $171,700, the Gulgong property at $130,000 and the Mudgee property at $115,000. The properties were thus valued at a total of $416,700. On 23 April 1999 Mrs Vale signed a transfer of her interest in each of the three properties to Mr Vale for a consideration of $1.00 per certificate of title – a total of $7.00.
5 On 24 April 2001 the insurance company obtained a sequestration order against Mrs Vale and the appellant was appointed as trustee of her estate. On 10 May 2001 the trustee lodged caveats against all of the properties. On 28 May 2002 a notice, issued pursuant to s 139ZQ of the Act, was served on Mr Vale claiming payment of the value of Mrs Vale’s half share interest in the properties. That half share interest was valued at $270,000 based on the September 1998 valuation. The notice recorded that a sequestration order had been made against Mrs Vale’s estate and that Mr and Mrs Vale were joint tenants of the properties. Part of the notice read:
“3 In September 1998, a registered valuation of the properties was completed by First National Real Estate and they estimated the total market value of the seven properties … to be $540,000. The bankrupt’s half share interest being $270,000.00.
4 On 23 April 1999, the bankrupt transferred to you, her interest in the seven properties for a consideration of $7.00 ($1.00 per Lot).
5 The bankrupt gave less value, than the market value of the properties at the time of transfer.
6 …
7 The said transfer of properties is a void transfer pursuant to the provisions of Section 120 of the Bankruptcy Act, in that the properties were transferred to you at a time within 2 years of the bankruptcy for consideration at less than market value of the properties.
PAYMENT by you is required to be made 28 days after service of this notice upon you of the sum of $270,000.00.
…
AND TAKE FURTHER NOTICE that should you consider that you owe a lesser amount than the amount set out above, written submissions ought to be made within 28 days to the Official Receiver for the Bankruptcy District of the State of New South Wales seeking a reduction of the amount claimed in the 139ZQ Notice and setting out the grounds why the Notice ought to be reduced. Payment of the lesser sum admitted to be due and owing should be made by you at the time of making your submission for the Notice to be reduced.
…”
We note that neither the original notice nor a signed copy of it was included in the Appeal Book. It is not even certain that such a document was in evidence in the Federal Magistrates Court. We were, however, assured by counsel that the notice contained the quoted passages.
6 On 27 June 2002 a solicitor, acting on behalf of Mr Vale, wrote to the Official Receiver responding to the s 139ZQ notice. The letter did not seek to challenge the valuation of Mrs Vale’s interest at $270,000. The solicitor did, however, submit that the properties had been purchased without input from Mrs Vale and that the $7 which had been paid by Mr Vale equated with the input into the purchase price made by Mrs Vale. The solicitor challenged the statement, made in paragraph 7 of the notice, that the properties had been transferred to Mr Vale within two years of the bankruptcy. It was asserted that Mrs Vale had become bankrupt on 24 April 2001, that the properties had been transferred on 23 April 1999 and that, accordingly, “the time of the transfer was more than 2 years prior to the bankruptcy of the bankrupt.”
7 On 31 July 2002 the Official Receiver, acting pursuant to s 139ZR(4) of the Act, served a certificate on the Land and Titles Office of NSW certifying that the three properties were charged with the liability of Mr Vale to make payment of $270,000 to the trustee.
PROCEEDINGS IN THE FEDERAL MAGISTRATES COURT
8 Nothing further appears to have occurred until 19 April 2006. On that day the trustee filed an application in the Federal Magistrates Court seeking possession of the three properties and judgment against Mr Vale for $270,000.00 plus interest. The trustee’s statement of claim recounted the events earlier described in these reasons. It continued:
“8. The [s 139ZQ] Notice claimed payment of the bankrupt’s half share interest in the properties to the value of $270,000.
9. The respondent failed to pay the demand or challenge the validity of the Notice within 28 days of service of the Notice.
10. On 31 July 2002, the Official Receiver served a certificate pursuant to section 139ZR(4) of the Bankruptcy Act on the Land Titles Office.
11. As a result of this certificate, a charge in the sum of $270,000 in favour of the [trustee] was created over the properties.
12. The [trustee] has made demand upon the respondent for payment of the principal sum and interest but no payment has been made and the respondent has either neglected and/or refused to pay the money to the applicant.
13. The respondent is in occupation of the properties.
14. Pursuant to the provisions of the Real Property Act 1900 and the Bankruptcy Act the [trustee] is entitled to enter into and take possession of the properties if the respondent has made any default in the payment of the principal or interest thereby secured.”
In his defence Mr Vale pleaded:
“8. In answer to paragraph 8, save that the Respondent admits that the Notice claimed payment of the bankrupt’s half share interest in the Properties to the value $270,000.00, the Respondent does not admit the facts and matters set forth in the paragraph.
9. Admits paragraph 9.
10. Admits paragraph 10.
11. Admits paragraph 11 to the extent that the amount of $270,000 is properly payable.
12. In relation to paragraph 12, save that the Respondent admits the demand being made, the Respondent denies that he is obliged to pay interest or that he is obliged to pay any principal sum as asserted.
13. In answer to paragraph 13, the Respondent admits that he is in occupation of the Gulgong Property. Michael Gudgeon is in occupation of the Mudgee Property.
14. In answer to paragraph 14, the Respondent does not admit the paragraph.”
9 On 29 May 2006 Mr Vale cross-claimed against the trustee and the Official Receiver. He sought an order setting aside the notice issued by the Official Receiver under s 139ZQ of the Act. No ground for setting aside the notice was given in the cross-claim. It is, however, to be noted that the final paragraph of Mr Vale’s defence, contained the general pleading that “for the reasons set forth above, the Notice under s 139ZQ ought be set aside.”
10 The learned Federal Magistrate accepted arguments advanced on behalf of Mr Vale that a notice under s 139ZQ of the Act should be construed strictly and that the notice issued by the Official Receiver was deficient and should be set aside. The specific deficiencies identified by the Federal Magistrate were that:
· The notice referred to the September 1998 valuations as a “registered valuation of the properties” whereas the document, in fact, recorded a “market appraisal”;
· The value of the properties referred to in the notice had not been established by the trustee to be the “proper value” of the properties; and
· The reference in the notice to the transfer of properties taking place “within 2 years” of Mrs Vale’s bankruptcy was incorrect.
11 Counsel for the trustee conceded before the Federal Magistrate that the September 1998 valuations were not “a registered valuation” as had been stated in paragraph 3 of the s 139ZQ Notice. The learned Federal Magistrate noted that the September 1998 appraisal and the March 1999 valuations varied significantly despite having been prepared only six months apart. He determined that the best evidence as to the value of the properties (and, therefore, as to the value of Mrs Vale’s interest) was the valuation obtained for stamp duty purposes in March 1999. That valuation valued Mrs Vale’s interest as $208,350, $61,650 less than the value stated in the Notice. The Federal Magistrates Court concluded that the value placed on the properties in the Notice had been “inflated by use of a market appraisal as opposed to a registered valuation.”
12 In dealing with the statement, made in paragraph 7 of the Notice, that the properties had been transferred to Mr Vale “at a time within 2 years” of his wife’s bankruptcy, the Federal Magistrate accepted as correct the assertions made by Mr Vale’s solicitor in his letter of 27 June 2002: see above at [6]. In particular, he accepted the solicitor’s statement that the transfers occurred “more than 2 years prior to the bankruptcy of the bankrupt.” On this basis he declared himself satisfied that the requirements of s 120(3)(a) of the Act had been met. He then dealt with Mrs Vale’s solvency at the time at which he held that the registration of the transfers had occurred. Although he did not refer specifically to s 120(3)(b) of the Act or make a finding that Mrs Vale was solvent at that time, it is implicit in his Honour’s reasons that he also determined that the requirements of s 120(3)(b) had been met. He may also be understood to have accepted Mr Vale’s contention that the statement that the transfers had occurred “at a time within 2 years” of his wife’s bankruptcy was misleading.
13 His Honour’s reasons concluded with the findings that:
“The s. 139ZQ Notice issued on 28 May 2002 contains a number of significant errors and should be set aside. Consequently the application seeking orders for possession of Mr Vale’s properties is dismissed.” (Emphasis added).
14 The Federal Magistrate “upheld” the cross-claim, set aside the s 139ZQ notice and “dismissed” the trustee’s application “seeking possession of [Mr Vale’s] properties.”
THE APPEAL
15 The trustee’s appeal from the Federal Magistrate’s decision calls into question each of the findings of significant error. The trustee contends that none of the three errors which were identified by the Federal Magistrate warranted the setting aside of the s 139ZQ notice or the upholding of the cross-claim. He also contended that the findings should not have been made having regard to the state of the pleadings and on evidentiary grounds.
THE LEGISLATION
16 Section 120 of the Act provides for circumstances in which transfers of property are to be treated as void against a trustee. At relevant times it provided:
“(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the transfer took place in a period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; …
…
(2) …
(3) Despite subsection (1), a transfer is not void against the trustee if:
(a) the transfer took place more than 2 years before the commencement of the bankruptcy; and
(b) the transferee proves that, at the time of the transfer, the transferor was solvent.
…”
17 The term “the commencement of the bankruptcy” is defined, in s 5 of the Act, to mean the time at which the bankruptcy of a bankrupt “is, by virtue of s 115, to be deemed to have commenced.” Section 115 relevantly provided that, if a person becomes a bankrupt on a creditor’s petition or by virtue of a sequestration order the bankruptcy is taken:
“to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by that person within the period of 6 months immediately preceding the date on which the creditor’s petition was presented or the application for the making of the sequestration order was made. …”
18 Section 139ZQ relevantly provided:
“(1) If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:
(a) …
(b) if a registered trustee is the trustee – on application by the trustee;
may require the person, by written notice given to the person, to pay to the trustee an amount equal to the money or the value of the property received.
(2) The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.
(3) The notice may:
(a) require the amount to be paid at a time or within a period set out in the notice; or
(b) require the amount to be paid at such times, and in such instalments, as are set out in the notice.
(4) …
(5) If the Official Receiver gives a notice under this section, the Official Receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee.
(6) …
(7) …
(8) An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction.
…”
Section 139ZR(1) of the Act provides that, if a notice is given under s 139ZQ, the property referred to in the notice is charged with the liability of the person to make payments to the trustee as required by the notice. By s 139ZR(4) the Official Receiver may certify that the relevant land is subject to a charge under subsection (1) and may lodge the certificate with the appropriate State Titles Office. By s 139ZR(6) the trustee has power to sell any property over which a charge exists under subsection (1).
19 Section 139ZS of the Act provides for application to be made to the Federal Magistrates Court to set aside a notice given under s 139ZQ. The Court may so act on the application of a person to whom a notice has been given if it “is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice ….”
20 Section 139ZT of the Act makes it a criminal offence for a person to refuse or fail to comply with a notice given under s 139ZQ.
CONSIDERATION
21 A notice given under s 139ZQ of the Act is the first step in a statutory process which is intended to assist creditors but which has the potential to have a serious impact on third parties. For this reason the notice must set out the facts and circumstances which cause the Official Receiver to consider that a transaction is void against the trustee: see s 139ZQ(2). A third party on whom the notice is served may apply to the Federal Magistrates Court to have the notice set aside. No time limit is prescribed for the making of such an application. In the present case the application was made over four years after the notice was issued and appears to have been made as a response or reaction to the trustee’s application to the Federal Magistrates Court seeking possession of the three properties. No grounds were advanced to explain why it was that Mr Vale sought to have the notice set aside. There was, however, a suggestion, in paragraph 16 of Mr Vale’s defence, that such grounds could be ascertained from a reading of the defence. Despite this, the defence did not take issue with any facts or circumstances which had been set out in the notice for the purpose of establishing that Mr Vale was a person to whom Subdivision J of Division 4B of Part VI of the Act applied. None of the three “significant errors” relied on by the Federal Magistrate was referred to in the defence. On the contrary, the defence acknowledged that the sum of $270,000, which was demanded in the notice, was “properly payable”.
22 The first of the errors referred to by the Federal Magistrate was the characterisation of the September 1998 appraisal as a “registered valuation”. The term is devoid of meaning. If it was intended to refer to a valuation by a registered valuer it may or may not have been correct. There was no evidence as to whether or not the person who provided the market appraisal in September 1998 was a registered valuer. The valuation had been obtained by Mr Vale from an estate agent for the purpose of ascertaining a reasonable asking price for the properties. The $270,000 figure was, to Mr Vale’s knowledge, derived from that appraisal. This misdescription of the appraisal in the notice was of no consequence. It was not a significant error and it did not provide a reason for the exercise of the Court’s power to set aside the notice under s 139ZS.
23 The second error relied on by the Federal Magistrate was the statement that the value of Mrs Vale’s interest in the properties was $270,000. This was said to be an error because the “best evidence” of the “proper value” at the time of the transfer, which was, mistakenly, said to have occurred on 23 April 1999, was the March 1999 valuation of $208,350.
24 Had the valuation been put in issue in Mr Vale’s cross-claim or, perhaps, in his defence, the onus of satisfying the Court that the value of the transfer, said to be void against the trustee under s 120(1) of the Act, would have fallen on the trustee: see Halse v Norton (1997) 76 FCR 389 at 398-9. The Federal Magistrate appears to have proceeded on the assumption that the valuation had been put in issue in the pleadings and that the onus fell on the trustee to justify the claim for $270,000. In this regard the Magistrate said that he was “not satisfied that the trustee has satisfactorily established that the value appearing on the s 139ZQ notice is the proper value of the relevant properties.” The Federal Magistrate was, in our view, mistaken in proceeding on this assumption. Mr Vale’s solicitor considered the notice shortly after it had been issued. On 27 June 2002 he wrote to the Official Receiver. Whilst he asserted that the notice contained certain other errors no challenge was made to the $270,000 valuation. He did not respond to the invitation, extended in the notice, to make submissions seeking a reduction in the amount and nominating a lesser figure. Nor was any challenge made when, four years later, the proceeding was commenced in the Federal Magistrates Court. The trustee’s statement of claim alleged, in paragraph 3, that the market value of the three properties in September 1998 was $540,000. This allegation was not denied in the defence although it was pleaded that the September 1998 appraisal “indicated a reasonable asking price for each of the Properties.” Paragraph 8 of the statement of claim pleaded that the s 139ZQ notice had claimed that Mrs Vale’s interest in the properties was valued at $270,000. This allegation was admitted in the defence. By paragraph 11 it was pleaded that “as a result” of the certificate “a charge in the sum of $270,000 in favour of [the trustee] was created over the properties.” The defence admitted paragraph 11 “to the extent that the amount of $270,000 is properly payable.” Again, the defence did not put in issue the quantum of the valuation. The allegation that the certificate gave rise to a charge in the sum of $270,000 was thus admitted by Mr Vale. This is not the same thing as an admission by Mr Vale that the value of the property which he received from Mrs Vale was $270,000. It is, however, an admission that, because the Official Receiver placed this valuation on the property received by Mr Vale, a charge in that sum arose under s 139ZR of the Act. It may, nonetheless, be possible to interpret the defence as containing a deemed admission that $270,000 represented the true value of the interest acquired by Mr Vale. Whether that be right or not, it is clear that the defence did not contain a contention that the allegation in the certificate that that interest was valued at $270,000 was not correct. That being, so there was no foundation, in the pleadings, for the finding that such an error supported the exercise of the Court’s power to set aside the notice under s 139ZS. Although the issue appears to have been raised in argument before the Federal Magistrate no application to amend the pleadings was made or granted.
25 In any event the valuation was one of the facts and circumstances alleged in the notice given under s 139ZQ of the Act. The material before the Federal Magistrate did not support his conclusion that the $270,000 valuation of Mrs Vale’s interest in the properties constituted a significant error much less justify the further conclusion (if, indeed, the Federal Magistrate reached this conclusion) that Subdivision J of Division 4B of Part VI of the Act did not apply to Mr Vale on the basis of the facts and circumstances alleged in the notice.
26 In the present case the competing valuations were undertaken six months apart. Although they were obtained for different purposes they were, nonetheless, valuations placed on the properties by presumptively competent valuers. It should not be regarded as surprising that the valuations differed. It would have been far more surprising had they been identical or very close. This is because, as Kirby P said in Electricity Commission of NSW v Arrow (1994) 85 LGERA 418 at 419 (which was quoted by the Federal Magistrate):
“Valuation is not a science. It is an imprecise, opinionative activity involving the consideration of many variables, sometimes with equally legitimate outcomes.”
Neither valuation can be branded as “wrong” or “incorrect” simply because it differs from the other.
27 During argument there was some debate as to whether, at least where real property is involved, it is either possible or necessary, in a notice given under s 139ZQ of the Act, for the Official Receiver to state a precise figure as being the value of the property transferred. In a case such as the present there would seem to be no reason why the Official Receiver could not simply allege that half (or some other proportion) of the value of the property had been received by the third party. Where, however, the Official Receiver chooses to assign a monetary value to an interest in real property the question arises as to how accurate he or she must be. Plainly there must be some evidentiary foundation upon which any valuation is based. Where there are two or more valuations, made within a relatively short period of time, which differ it will be difficult to make good a claim that the Official Receiver has erred because he or she has chosen to adopt one in preference to the others.
28 Reference was made to two decisions of the Court in which it was sought to set aside notices given under s 139ZQ. In Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329 Olney J set aside a notice because it did not correctly identify the property said to have been received by the third party and because it did not attempt to value the “property”. The s 139ZQ notice in that case identified the value of the whole of the property but not the value of the interest received by the third party. Moreover the notice stated that the property had been valued at $100,000 when, in fact, the valuer had estimated that, at auction, the property could achieve a price from around $98,000 to $105,000. His Honour also held that the reference, in s 139ZQ(1) of the Act, to “the value of the property received” means “the value of the property at the time it was received.” Since the valuation had been made some four years after the transfer had been made it was found that there was no evidence of the value of the property at the relevant time.
29 The second case was Re Aley; Ex parte Sweeney v Aley (1996) 63 FCR 294. In that case a bankrupt had transferred his interest in the matrimonial home to his wife. A real estate agent had made an appraisal and expressed the opinion that the property would attract a price of between $250,000 and $260,000 on the prevailing market. Drummond J did not consider this to be evidence of the value of the property when the interest was transferred because it did not purport to be a valuation of the property. His Honour said (at 300-301) that:
“I am reluctant to read s 139ZR of the Act as making a notice under s 139ZQ of the Act effective to charge property owned by the recipient of the notice with liability to pay the figure asserted in the notice as the value of the transferred property in contrast to the true value of the property at the date of receipt. Section 139ZR(1) of the Act charges the property “with the liability of the person to make payments to the trustee as required by the notice”. Under s 139ZQ(1) of the Act, all that the notice can require by way of payment to the trustee is payment of “an amount equal to … the value of the property received”. It is that, not for example the amount stated in the notice, that is to be paid. Section 139ZQ(2) of the Act does not require any information as to how the figure demanded by the notice was arrived at to be set out in the notice. The figure stated in the notice as the value of the property received from the bankrupt is not given by the Act any evidentiary force. A notice issued in reliance on s 139ZQ is, in my opinion, only effective to give rise to a debt enforceable under s 139ZQ(8) of the Act and a charge within s 139ZR of the Act if the amount demanded by the notice is, in fact, equal to the value of the property at the relevant time. Such an interpretation should not create any significant difficulty since the concept of the value of property at a particular time will generally involve an imprecise rather than an exact assessment of worth.”
We do not understand either of their Honours to suggest that a notice, given under s 139ZQ must place a monetary value on any property received by the third party. If their Honour’s reasons are to be so understood we would, respectfully, disagree. In Re Lucera Olney J was concerned that there was no evidence to support the valuation which the Official Receiver had chosen to incorporate in the notice. In Re Aley Drummond J was also dealing with a case in which the Official Receiver had included a monetary valuation of the property in the s 139ZQ notice. His Honour held that, if a figure is stated in a notice and an application is made by the third party to set aside the notice, the Official Receiver must be able to point to evidence supporting the valuation or, more specifically, to establish that, as a matter of fact, the amount stated is equal to the value of the property at the time at which it was transferred to the third party. Where real property is transferred (as it was in that case), evidence adduced by the Official Receiver as to the value of the property at that time will not be found wanting simply because the third party is able to tender evidence of another valuation of the property at the time of the transfer. So much is evident from his Honour’s acknowledgment of the inherent imprecision of valuations of this kind.
30 In the normal case it will be necessary for a trustee to obtain a valuation of property to which it is said that s 120 of the Act applies. Where real property is involved, unless the third party co-operates by consenting to the valuer entering the property, any valuation obtained will necessarily not be informed by an on site inspection. Unusually, in the present case, both valuers had access to the property because the valuations were sought and obtained by Mr Vale. Mr Vale did not contend, either in his application under s 139ZS (if the principal order sought in the cross-claim can be understood as one founded on s 139ZS) or in his defence, that the September 1998 appraisal which valued the properties, collectively, at $540,000, did not represent, as a matter of fact, the true value of the properties at the time at which Mrs Vale’s interest in them was transferred to him. Nor did he deny that Mrs Vale held an interest as a joint tenant in the properties immediately before the transfers.
31 In these circumstances, in our opinion, it was not open to the Federal Magistrate to find that the asserted value of Mrs Vale’s interest of the properties constituted a material error in the s 139ZQ notice.
32 The third error which was relied on by the Federal Magistrate was the “misleading” statement, in paragraph seven of the s 139ZQ notice, that the properties had been transferred to Mr Vale “at a time within 2 years” of his wife’s bankruptcy. It was said that Mrs Vale had become bankrupt on 24 April 2001 and that the properties had been transferred on 23 April 1999 – more than two years earlier.
33 The assertion, made by Mr Vale’s solicitor and accepted by the Federal Magistrate that Mrs Vale had become bankrupt on 24 April 2001 does not accurately reflect the terms of s 120(3)(a) of the Act. For the purposes of that paragraph the relevant date of transfer is a date “more than 2 years before the commencement of the bankruptcy …”. If a person becomes a bankrupt on a creditor’s petition the bankruptcy is taken “to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by that person within the period of 6 months immediately preceding the date on which the creditor’s petition was presented or the application for the making of the sequestration order was made …”: see ss 5 and 115 of the Act. In order to apply s 120(3)(a) of the Act it is, therefore, necessary for the Court to know:
· The date on which the relevant transfer of property took place;
· The date on which the creditor’s petition was presented or the date of the application for the sequestration order;
· The date on which the earliest act of bankruptcy was committed in the period of six months immediately before the creditor’s petition was presented or the application for a sequestration order was made.
34 The evidence before the Federal Magistrates Court relating to these matters was extremely limited. The creditor’s petition was not in evidence. Nor was the sequestration order. The dates on which they were presented and made could, presumably, have been ascertained from Court documents but the relevant dates do not appear in the evidence or in the Federal Magistrates’ reasons. The case seems to have been argued, before the Federal Magistrate, on the basis that, after final judgment was entered in the District Court for $152,664.58 on 7 December 2000, a bankruptcy notice had been issued which required Mrs Vale to pay that sum to the insurer on or before 26 February 2001. She did not do so and thereby committed an act of bankruptcy: see s 40(1)(g) of the Act.
35 There was no evidence as to the date on which Mrs Vale’s interest in the three properties was transferred to Mr Vale. The case was argued, on both sides, before the Federal Magistrate, on the basis that the transfer had occurred on 23 April 1999. That date appears on the certificates of transfer which were before the Court. The date however is the date on which the dealing was certified to be correct by Mr and Mrs Vale. The date the transfer took effect under the Real Property Act 1900 (NSW) (“the Real Property Act”) was not that date. A transfer is not effectual until it is registered in the manner prescribed by that Act see: s 41 Real Property Act. Pursuant to s 36(6A) of the Real Property Act, a dealing is registered when the Registrar-General has made such recording in the Register with respect to the dealing as the Registrar-General thinks fit. It was accepted, in argument before this Court, that the transfer took effect on the date on which, in each case, it was registered. Counsel drew attention to a stamp at the top of two of the transfer documents which it was said indicated that registration had occurred on 10 June 1999. There was no evidence led before the Federal Magistrates Court to indicate whether or not counsel’s supposition was correct. Had the transfer occurred on 23 April 1999 or, as seems likely, on a later date, it would have taken place within 2 years of the commencement of Mrs Vale’s bankruptcy on 26 February 2001.
36 The Federal Magistrate (without saying why) declared himself satisfied that Mr Vale’s solicitor was correct when he asserted that Mrs Vale “became bankrupt on 24 April 2001”, that “the property was transferred on 23 April 1999 and that, “[a]ccordingly, the time of the transfer was more than 2 years prior to the bankruptcy of the bankrupt.” The evidence did not support any of these findings. It was not, therefore, open to the Federal Magistrate to conclude that the statement in the s 139ZQ notice that the properties had been transferred to Mr Vale at a time within 2 years of his wife’s bankruptcy was “misleading”.
37 The statement, if it was understood to be referring to the commencement of Mrs Vale’s bankruptcy, may or may not have been correct. Had it been incorrect the transfers would not have been void against the trustee under s 120 because of the proviso then contained in s 120(3)(a) of the Act. A necessary precondition for the issuing of a notice under s 139ZQ would not have been present. Mr Vale, would not, therefore, have been liable or obliged to make the payment demanded in the notice. Such an error would have provided a proper ground for the setting aside of the notice under s 139ZS.
38 The Federal Magistrate did not hold expressly that he was satisfied, for the purposes of s 139ZS(1) of the Act, that, having regard to the alleged facts and circumstances set out in the notice, Subdivision J of Division 4B of Part VI of the Act did not apply to Mr Vale. It may be doubted that any such finding was implicit in his reasons. The Federal Magistrate appears to have proceeded on the basis that, if significant errors appeared in the notice, the notice should be set aside. He did not direct his mind to the criteria prescribed in s 139ZS of the Act. He may have considered that he had power to make the orders under s 30 of the Act: cf Re Lucera at 338. If he did he did not say so. In any event, for the reasons which we have given, the errors relied on by the Federal Magistrate were either not made or, if they were, were not material.
DISPOSITION
39 The appeal should be allowed. Each of the orders made by the Federal Magistrate should be set aside.
40 Because of the view which he took about the validity of the s 139ZQ notice, it was unnecessary for the Federal Magistrate to determine whether, in the circumstances, he had power to make the orders sought by the trustee and, if so, whether it was appropriate to make both the orders for possession and an order giving judgment for the trustee in the sum of $270,000. The only reason his Honour gave for refusing the application for orders for possession was that he had set aside the notice.
41 In his statement of claim the trustee asserted an entitlement, under the Real Property Act and the Act to enter into and take possession of the three properties. Counsel for the trustee advised the Federal Magistrate that orders for possession were being sought “for the purpose of sale in accordance with s 139ZR(6) of the Act.” That provision empowers a trustee to sell any property over which a charge exists pursuant to s 139ZR(1). It does not confer a right to possession on a receiver. Nor does it empower the Federal Magistrates Court to make an order for possession. No argument was advanced before the Federal Magistrate or before us that an order for possession might be supported by provisions of the Real Property Act. The statement of claim alleged that Mr Vale was “in occupation of the properties.” Mr Vale admitted that he was in occupation of the Gulgong property but alleged that a Michael Gudgeon was in occupation of the Mudgee property. No mention was made of the Tucklan property. This factual dispute was not resolved.
42 One reason why, at relevant times, Subdivision J of Division 4B would not apply to Mr Vale would be that the alleged transfer of real property took place more than two years before the commencement of Mrs Vale’s bankruptcy: see ss 120(3)(a), 139ZQ(2) and 139ZS(1). As we have earlier explained in our reasons, the Federal Magistrate, mistakenly, accepted, without giving reasons, certain contentious assertions, made by Mr Vale’s former solicitor, as to the dates on which Mrs Vale’s bankruptcy commenced and the properties were transferred to Mr Vale. If Mr Vale’s cross-claim is to be further prosecuted, it will be necessary for the material dates to be determined by evidence.
43 It will, therefore, be necessary for the matter to be remitted to the Federal Magistrates Court to be heard and determined consistently with these reasons.
| I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray, Tracey. |
Associate:
Dated: 19 August 2008
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| NEW SOUTH WALES DISTRICT REGISTRY | NSD 2121/2007 |
| ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA |
| BETWEEN: | RODERICK MACKAY SUTHERLAND Appellant
|
| AND: | MALCOLM GEOFFREY VALE Respondent
|
| JUDGES: | GRAY, LINDGREN, TRACEY JJ |
| DATE: | 20 AUGUST 2008 |
| PLACE: | melbourne (heard in SYDNEY) |
REASONS FOR JUDGMENT
LINDGREN J
Introduction and legislation
44 I have had the benefit of reading in draft the reasons for judgment of Gray and Tracey JJ. This saves me the necessity of giving an account of the facts and of the legislation.
45 Gray and Tracey JJ have set out the relevant parts of s 120 of the Bankruptcy Act 1966 (Cth) (the Act) at [16] of their Honours’ reasons.
46 At first instance the appellant (Mr Sutherland) sought orders for possession of the seven properties and a money judgment of $270,000. The supporting statement of claim made it clear that the basis of both claims for relief was the giving of the notice under s 139ZQ of the Act bearing date 27 May 2002 and apparently served on the respondent (Mr Vale) and received by him on 28 May 2002 (the Notice). Section 139ZR provides for the charge which Mr Sutherland sought to enforce by recovering possession. Section 139ZQ(8) provides for recoverability as a debt of the amount payable to the trustee under s 139ZQ.
47 Mr Vale cross-claimed for an order setting aside the Notice. The cross-claim was treated as invoking the Court’s power conferred by s 139ZS of the Act.
48 Section 139ZS is not entirely straightforward. The ground of the making of an order under the section is that “Subdivision J does not apply to the [addressee] on the basis of the alleged facts and circumstances set out in the notice”. Subdivision J applies to a person who fits the description in the preparatory words of s 139ZQ(1): “a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3”. What, however, is to be made of the addition of the words “on the basis of the alleged facts and circumstances set out in the notice”?
49 It might be suggested that these words require an assumption to be made that all of the allegations made in the notice are true, so that an applicant to set aside is confined to challenges based on formal defects or irregularities in the notice. That result would be odd and the section has not been construed in that way. Rather, it has been construed as extending to permit a challenge to the existence of the facts and circumstances set out in the notice: see Re Lucera; Ex parte Official Trustee v Lucera (1994) 53 FCR 329 (Lucera) at 336; Halse v Norton (1997) 76 FCR 389 (Halse v Norton) at 392-393 per Black CJ and 398-399 per Lee & R D Nicholson JJ.
50 Accordingly, the grounds of challenge available under s 139ZS can be seen to be of two kinds:
1. that the evidence does not support the allegations made in the notice;
2. that the facts and circumstances alleged in the notice do not describe a receipt by the addressee of money or property as a result of a transaction that is void against the trustee of a bankrupt under Div 3.
Mr Vale made three challenges to the Notice in the present case and all three are put on the basis that they belong to the first class. I discuss each of these challenges in turn below.
51 The Court’s power to set aside given by s 139ZS is discretionary. An alternative source of the power to set aside is s 30 of the Act.
General
52 The trustee in bankruptcy bears the onus of proving that a transfer is void against the trustee pursuant to s 120(1) of the Act, namely, that:
(a) the transfer of property took place in the period beginning five years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
The transferee bears the onus of proving that the transfer was not void against the trustee because it fell within s 120(3), that is to say, of proving, relevantly, that:
(a) the transfer took place more than two years before the commencement of the bankruptcy; and
(b) at the time of the transfer, the transferor was solvent.
(See Halse v Norton at 398.) It follows that unless what I describe as the “pleading point” taken by Mr Sutherland on the appeal succeeds (see below), he bore the onus of proving that the market value of the property Mr Vale received from Mrs Vale was $270,000.
53 Gray and Tracey JJ have referred (at [17] and [33]ff of their Honours’ reasons) to the definition of the expression “the commencement of the bankruptcy” in s 5 of the Act.
54 The Federal Magistrate found (at [33]) that the date of the commencement of the bankruptcy was 26 February 2001 on the basis that that date appeared on the face of the sequestration order. The hearing before the Federal Magistrate proceeded on the footing that that date was the date of the earliest act of bankruptcy within the period of six months immediately preceding the date of presentation of the creditor’s petition.
55 The expression “the date of the bankruptcy” is defined in s 5(1) of the Act in relation to a bankrupt as meaning, relevantly, the date on which a sequestration order was made against his or her estate. In the present case that date was 24 April 2001.
56 Copies of the relevant transfers of Mrs Vale’s interest in the properties to Mr Vale (Transfers) were in evidence. They bore the date 23 April 1999. A computer imprint at the top of them read “Rev: 10-Jun-1999”. This suggests that they were reviewed or perhaps even received in the Land Titles Office (LTO) on 10 June 1999. At least something happened to them in the LTO on that date. On the limited evidence that was before the Federal Magistrate, the Transfers took effect on the date of registration (on or after 10 June 1999), not the date that they bore (23 April 1999), contrary to [5](s) and [74] of the Federal Magistrate’s reasons. In any event, on either date, it is clear that the transfers of Mrs Vale’s interest in the properties took place within both the five-year period and the two-year period before the commencement of the bankruptcy on 26 February 2001.
57 I agree with Gray and Tracey JJ that the Federal Magistrate implicitly found (at [72]) that the transferor, Mrs Vale, was solvent at the time of the transfers. However, since the transfers took place less than two years before the commencement of her bankruptcy, the exception provided for in s 120(3) did not apply, and no further consideration need be given to that subsection.
58 The Federal Magistrate accepted (at [74]) that Mr Vale gave consideration totalling $7 for the transfers. This consideration was clearly of less value than the market value of the interest transferred (on any reckoning of the market value). Accordingly, the Notice was not open to attack on the ground that the transfers were not void against the trustee. The question remains, however, whether Subdiv J did not apply to Mr Vale on the basis of the alleged facts and circumstances set out in the Notice.
(1) The reference in the Notice to “a registered valuation of the properties”
59 The document referred to in the Notice as a “registered valuation of the properties” and as having been “completed” by First National Real Estate in September 1998 was a two-page letter dated 28 September 1998 from Mr Tony Riley of “O’Brien McGregor, First National Real Estate” setting out “a reasonable asking price” in respect of each property. The letter was obtained by, and addressed to, Mr Vale, the transferee, and it stated that it was prepared solely for his information. Gray and Tracey JJ set out the relevant paragraph from the letter at [4] of their Honours’ reasons.
60 There was no evidence that “registered valuations” as claimed in the Notice existed. The drafter may have intended to refer to the valuation of a “registered valuer” in the sense of a valuer of real estate registered under the Valuers Registration Act 1975 (NSW) (repealed with effect from 31 March 2005 upon the commencement of the Valuers Act 2003 (NSW)), but there was no evidence that Mr Riley fitted that description and it is difficult to think that the drafter of the Notice meant this.
61 Mr Vale, to whom the Notice was addressed, must have known, however, that the Notice’s reference to a registered valuation of the properties completed in September 1998 by First National Real Estate said to have estimated their market value at $540,000, was in fact a reference to the letter dated 28 September 1998 obtained by Mr Vale from Mr Riley of that agency and addressed to him that gave as a “reasonable asking price” the range of $520,000-$540,000. (I discuss this letter and its contents in more detail below.)
62 In my opinion the giving of a notice under s 139ZQ is a proceeding under the Act to which s 306 applies, and no distinction is to be drawn in this respect between the Official Receiver’s issuing of a bankruptcy notice under s 41 of the Act (see Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 77; Adams v Lambert (2006) 228 CLR 409 at [17]) and the Official Receiver’s issuing of a notice under s 139ZQ requiring payment to the trustee of a bankrupt estate.
63 The reference to “registered valuation” in the Notice was a formal defect or irregularity and could not have caused any injustice, let alone substantial injustice, to Mr Vale (see s 306(1) of the Act). Therefore, it cannot be said that Subdiv J did not apply to Mr Vale because the letter of 28 September 1998 was not a “registered valuation” as alleged in the Notice.
(2) The statement in the Notice that the transfer was void because the properties were transferred at a time within two years of the bankruptcy for a consideration less than the market value
64 Paragraph 7 of the Notice is set out at [5] of the reasons of Gray and Tracey JJ.
65 I gave at [56] above my reasons for concluding that the properties were transferred within two years of the commencement of the bankruptcy. Although neither the expression “the commencement of the bankruptcy” nor the expression “the date of the bankruptcy” (see [55] above) was used in the Notice, I think that the expression in the Notice “at a time within two years of the bankruptcy” would reasonably have conveyed to the addressee, Mr Vale, “at a time within two years of the date of the bankruptcy”. He would have understood “the bankruptcy” in para 7 of the Notice to refer to the date of the making of the sequestration order in respect of his wife.
66 The properties were transferred upon registration of the Transfers at some time after 10 June 1999. That was within both two years of the date of the bankruptcy (the two year period from 24 April 1999 to 24 April 2001) and two years of the commencement of the bankruptcy (26 February 1999 to 26 February 2001).
67 The statement in the Notice was correct as a statement of fact. It might be suggested that the words “in that” were misleading because s 120(1) which makes certain transfers void refers to five years, and it is only the exception or carving out in s 120(3) that refers to two years. However, Mr Vale could not have been misled: the two-year period fell within the five-year period and the transfer took place within both. It is not to the point that the Notice may have implied that the avoidance provision had a more limited scope than it in fact had.
(3) The statement in the Notice that the value of the property received was $270,000
68 It should be noted that the Transfers took the form of transfers from Mr and Mrs Vale to Mr Vale. Before the Federal Magistrate and on appeal the parties proceeded on the basis that:
· the Transfers were transfers of the property of the bankrupt Mrs Vale; and
· the value of her property transferred by the two Transfers was equal to one half of the values of the fee simple estates in the properties (cf the discussion by Olney J in Lucera at 338).
I will proceed accordingly.
69 With respect, contrary to Gray and Tracey JJ, I think that the defence did put in issue before the Federal Magistrate the question of the value of the bankrupt’s property that was transferred and that Mr Vale is accordingly entitled to challenge the Notice in relation to the value of the property stated.
Applicable rules
70 What were the rules governing pleadings in bankruptcy proceedings in the Federal Magistrates Court from the commencement of the proceeding there on 19 April 2006 to his Honour’s decision on 2 October 2007? Happily the relevant rules did not change during that time.
71 Rule 1.03 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (the Bankruptcy Rules) provided:
“(1) These Rules apply to a proceeding to which the Bankruptcy Act applies.
(2) The other rules of the Court apply, so far as they are not inconsistent with these Rules, to a proceeding to which the Bankruptcy Act applies.”
Rule 1.02 stated that the Bankruptcy Rules commenced on 6 February 2006. The remainder of the Bankruptcy Rules was silent on procedural issues including pleadings.
72 It is therefore necessary to look to “other rules of the Court”.
73 Rule 1.05 of the Federal Magistrates Court Rules 2001 (Cth) (Magistrates Court Rules) stated:
(1) It is intended that the practice and procedure of the Federal Magistrates Court be governed principally by these Rules.
(2) However, if in a particular case the Rules are insufficient or inappropriate, the Court may apply the Federal Court Rules …, in whole or in part and modified or dispensed with, as necessary.
(3) Without limiting subrule (2):
(a) …
(b) the provisions of the Federal Court Rules set out in Part 2 of Schedule 3, apply, with necessary changes, to general federal law proceedings.
…”
The provisions that were referred to in para (b) of subr 1.05(3) are not of present relevance.
74 The Magistrates Court Rules did not contain rules governing pleadings. It is, therefore, necessary to look to the Federal Court Rules (Cth) (Federal Court Rules). Order 11 r 13 of the Federal Court Rules provided relevantly as follows with respect to admissions and traverses:
“(1) …, an allegation of fact made by a party in his pleading is deemed to be admitted by the opposite party unless it is traversed by that party in his pleading ….
(2) A traverse may be made either by a specific denial or by a statement of specific non-admission.
(3) …, every allegation of fact made in a statement of claim or counterclaim which the party on whom it is served does not intend to admit must be specifically traversed by him in his defence or defence to counterclaim, as the case may be; and a general denial of such allegations, or a general statement on non-admission of them is not a sufficient traverse of them.”
As will be seen below, Mr Sutherland contends that Mr Vale is deemed to have admitted an allegation made by Mr Sutherland in his statement of claim that the market value of the properties was $540,000.
Pleadings
75 Paragraph 3 of the statement of claim contained two sentences. The first asserted that on or about 28 September 1998 Mr and Mrs Vale obtained a valuation of the properties from First National Real Estate. The second sentence asserted that their market value at that time was $540,000. Paragraph 3 of the defence responded with an admission that Mr Vale received from Tony Riley of O’Brien McGregor First National Real Estate a letter dated 28 September 1998 which indicated a reasonable asking price for each of the properties, and a statement that on or about 31 March 1999 Mr Vale received an appraisal and report by Patrick James Woods, Registered Valuer, each dated 31 March 1999, in respect of each of the properties. The defence did not respond directly and in terms to the allegation made in the second sentence of para 3 of the statement of claim that the market value was $540,000. However, by asserting in response to the whole of para 3 that Tony Riley’s letter “indicated a reasonable asking price” and that he received from Mr Woods an “Appraisal and Report”, I think Mr Vale should be understood to have been at least declining to admit that the market value was $540,000 and putting Mr Sutherland to proof.
76 Paragraph 8 of the statement of claim alleged that the Notice claimed payment of “the bankrupt’s half share interest in the properties to the value of $270,000”, to which para 8 of the defence replied that Mr Vale admitted only the making of the claim but did not admit “the facts and matters set forth in” para 8 of the statement of claim. That is to say, he did not admit that the value of the bankrupt’s half share interest in the properties was in fact $270,000.
77 Paragraph 11 of the statement of claim alleged that as a result of the certificate served on 31 July 2002 by the Official Receiver pursuant to s 139ZR(4) of the Act on the LTO (which service Mr Vale admitted) a charge in the sum of $270,000 in favour of the trustee was created over the properties. In para 11 of the defence, Mr Vale stated:
“Admits paragraph 11 to the extent that the amount of $270,000 is properly payable.”
I do not think that this was an admission that the amount of $270,000 was in fact properly payable. That this was not the intention is demonstrated by the defence’s response to para 8 of the statement of claim referred to above. In my view, by the words “to the extent that” in para 11, Mr Vale meant “if”: “if it should be found that $270,000 was properly payable, then he admitted that as a result of the certificate a charge in favour of the trustee was created over the properties in that sum.
78 Paragraph 12 of the statement of claim alleged that the trustee had made a demand on Mr Vale for repayment of the principal sum and interest, but no payment had been made and Mr Vale had either neglected and/or refused to pay the money to the trustee. Paragraph 12 of the defence responded that while Mr Vale admitted the making of the demand, he denied that he was obliged to pay interest and denied that he was “obliged to pay any principal sum as asserted”. This denial by Mr Vale of any liability in the principal sum of $270,000 might be attributable to the fact that the value was not $540,000 or that he gave consideration of no less value than the market value. The denial alone cannot necessarily be taken to be a denial that the value was $540,000.
79 The Federal Magistrate said (at [49]) that “the valuation issue [was] central to challenging the s.139ZQ notice”. The Federal Magistrate treated the valuation issue as having been raised by Mr Vale’s cross-claim. In its terms, however, the cross-claim sought only an order that the Notice be set aside, and was consistent with reliance on grounds other than the overstatement of the value. The cross-claim cannot be relied on as having made the valuation issue central to the challenge to the Notice.
80 In the result, in my opinion the state of the pleadings was that the defence did not admit that the value of Mrs Vale’s interest received by Mr Vale was $270,000 and it showed an intention to put Mr Sutherland to proof of value. The non-admission was not, however, “specific” as required by O 11 r 13(2) of the Federal Court Rules. As appears below, however, the hearing was conducted on the basis that value was in issue.
Other evidence identifying the issues that were before his Honour
81 Before the Federal Magistrate, counsel for Mr Sutherland, in his opening address, summarised the allegations made in the statement of claim without referring to the issues to be decided. However, counsel for Mr Vale did so. He said:
· that the market value was “the subject of attack”;
· that Mr Sutherland was relying only on a “kerbside valuation” prepared in September 1998;
· that on the basis of valuations obtained at about the date of the transfers (a reference to 23 April 1999 - see [56] above) the value of Mrs Vale’s interest was only some $208,350; and
· that even if the attacks on the drafting of the Notice failed, the amount of $270,000 was wrong as the amount of the debt – the amount should be only $208,350.
82 Counsel for Mr Sutherland did not object that it was not open to Mr Vale, on the pleadings, to raise these matters.
83 Mr Sutherland was cross-examined with a view to showing that he knew that the only evidence of market value he had was that of Mr Woods, but had chosen to insert Mr Riley’s “reasonable asking price” in the Notice.
84 Mr Sutherland agreed that at the time of giving the Notice, the only “evidence” of a “proper valuation” he had of the properties was that of Mr Woods. In agreeing, Mr Sutherland was recognising the difference between a reasonable asking price and an estimate of value. It seems fair to say that he chose to give a notice based on the upper limit of a “reasonable asking price” of $520,000 to $540,000 assessed by a real estate agent on 28 September 1988, in preference to a notice based on an appraisal of “market value” of $416,700 assessed by a registered valuer as at 30 March 1999. Moreover, the latter date was only some three weeks prior to the date borne by the Transfers, whereas 28 September 1988 was some five months before that date. Section 139ZQ(1) refers to “the value of the property received”, an expression that has been treated as referring to the value as at the date of receipt (see [90] below).
85 In closing submissions before the Federal Magistrate, counsel for Mr Vale contended that the Notice was defective (a) because it wrongly stated that the valuation was $270,000, and (b) because it wrongly asserted that in September 1998 a registered valuation had been completed by First National Real Estate. Counsel for Mr Sutherland submitted that in a letter, Mr Vale’s solicitor had not challenged the figure of $540,000; that Mr Vale could not challenge the figure of $540,000 because it appeared in a letter addressed to him (no doubt a reference to Mr Riley’s letter); and that Mr Vale had not urged upon his Honour that the value at 23 April 1999 was a figure other than $540,000 (as noted earlier, counsel for Mr Vale had done so in his opening). Counsel for Mr Vale responded by pointing out that Mr Sutherland himself had put into evidence the valuation made by Mr Woods, adding that Mr Sutherland had had this in his possession when he procured the issue of the Notice by the Official Receiver.
86 The letter from Mr Vale’s solicitor to which counsel for Mr Sutherland referred was dated 27 June 2002 and was an early response to the service of the Notice upon his client. It preceded by nearly four years the commencement of the proceeding by Mr Sutherland on 19 April 2006 and the filing on 29 May 2006 of Mr Vale’s defence and cross-claim. I do not think that the omission of any challenge to the amounts of $540,000 and $270,000 in the Notice in the solicitor’s letter is persuasive: what matters is the pleadings and the way in which the case was conducted before the Federal Magistrate.
87 The “pleading point” seems to have been raised for the first time in the notice of appeal filed in this Court.
88 In summary:
· the defence did not admit that the value was $540,000 (half-share $270,000) and indicated an intention to put Mr Sutherland to proof of value;
· counsel for Mr Vale made it clear in his opening before the Federal Magistrate that his client was challenging the amount stated in the Notice as representing the value of Mrs Vale’s interest;
· Mr Sutherland was cross-examined on value; and
· in closing submissions counsel for Mr Sutherland submitted only that Mr Vale had not challenged value by himself adducing evidence of a value other than $540,000.
89 In the circumstances, I do not think that it is open to this Court on appeal to decide against Mr Vale on the pleading point.
The importance of value
90 Section 120(1) refers to “market value”, which s 120(7)(c) defines, for the purpose, as market value at the time of transfer. Section 139ZQ, on the other hand, speaks of “the value of the property received”. Section 139K provides that in Div 4B (which contains Subdiv J in which s 139ZQ appears), unless the contrary intention appears, “value” in relation to property referred to in a notice means “the market value of the property when the notice was given”. There is a course of first instance authority in the Court that notwithstanding s 139K, the reference to “the value of the property received” in s 139ZQ(1) is a reference to the value of the property received as at the date of receipt: see, in particular, Lucera at 337-338. It was not submitted before us that that line of authority was incorrect and I would reserve my position in relation to it if it should need to be resolved in the future by a full court of which I am part.
91 Notices under s 139ZQ will be set aside if the Official Receiver or the trustee does not establish the value (meaning the market value) of the property received at the time when it was received: see Lucera at 338; Re Aley; Ex parte Sweeney v Aley (1996) 63 FCR 294 (Aley) at 301; Theo v Official Receiver in Bankruptcy (unreported, Cooper J, 24 August 1995) at pp 41-42; Lin v Official Trustee in Bankruptcy (2001) 187 ALR 220 at [53], [54]. In Aley, Drummond J held expressly (at 301) that a notice under s 139ZQ is effective to give rise to the debt provided for in s 139ZQ(8), and the charge provided for in s 139ZR, only if the amount demanded by the notice is in fact equal to the value of the property at the relevant time. (No doubt his Honour would have regarded his holding as extending to the offence creating provision of s 139ZT.)
The evidentiary position in the present case
92 In the present case, on the evidence to which I referred that was before the Federal Magistrate, the trustee did not prove that the value of the property received by Mr Vale for his wife was $270,000 and, on the contrary, on the basis mentioned at [81] above there was evidence that it was only $208,350.
93 Mr Riley’s letter dated 28 September 1998 stated a reasonable asking price for the fee simple as at that date. Mr Riley’s letter described Mr Vale’s request of Mr Riley as being a request for “marketing advice” for the properties. Mr Riley was not expressing an opinion that the “value” or “market value” of the properties was $540,000. The only evidence of the “value” of anything was the Appraisals and Reports of Patrick James Woods, Registered Valuer No 420. Mr Woods did purport to state market values and, indeed, market values of the half shares. Those Appraisals and Reports were obtained by solicitors acting for Mr and Mrs Vale on the transfer of the one-half interest in connection with the assessment of stamp duty.
94 The Notice stated a figure within the range of Mr Riley’s “reasonable asking price” in relation to the three properties which can be compared with the market value of the properties as assessed by Mr Woods:
|
| Riley | Woods |
| Lot 18 Springwood Park Road, Gulgong | $135,000-$140,000 | $130,000 |
| Lot 61 Ridge Road, Cooks Gap | $135,000-$140,000 | $115,000 |
| “Wattle Vale” Tucklan | $250,000-$260,000 | $171,700 |
| TOTAL | $520,000-$540,000 | $416,700 |
| A one half share | $260,000-$270,000 | $208,350 |
The mid-point on the Riley range is $530,000 which is $113,300 more than Mr Woods’s $416,700, and $265,000 is $56,650 more than $208,350. These are substantial differences. The sum of $203,350 is only 77.17% of the $270,000 referred to in the Notice.
95 The Federal Magistrate expressed himself (at [65]) as not being satisfied that the trustee had satisfactorily established that the value appearing on the s 139ZQ Notice ($540,000) was the proper value of the properties. In my opinion he was entitled not to be satisfied.
96 Section 306 does not save the Notice in respect of the purported value stated in the Notice. The case is not one of a “formal defect or irregularity” to which that section applies. Moreover, substantial injustice is caused to Mr Vale by the statutory creation of a debt (s 139ZQ(8)) and a charge (s 139ZR(1)) in the amount that the notice required Mr Vale to pay. (The substantial injustice is not eliminated by the right that was given to Mr Vale by s 139ZQ(7) to comply with the Notice by transferring “the property” to Mr Sutherland.)
97 The Federal Magistrate was entitled, on the evidence before him, to find that Subdiv J did not apply to Mr Vale on the basis that the facts and circumstances set out in the Notice were not shown to be true because it was not shown to be true that Mrs Vale transferred to Mr Vale in about June 1999 (or, indeed, at any other time) a one-half interest in the properties that had a market value of $270,000.
98 His Honour was entitled to set aside the Notice in exercise of the power given by s 139ZS or s 30 of the Act.
CONCLUSION
99 For the above reasons, the appeal should be dismissed with costs.
| I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren |
Associate:
Dated: 19 August 2008
| Counsel for the Appellant: | Mr D Murr SC and Mr B Skinner |
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| Solicitors for the Appellant: | Sparke Helmore |
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| Counsel for the Respondent: | Mr G Bigmore QC and Mr JT Johnson |
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| Solicitors for the Respondent: | Watson Mangioni |
| Date of Hearing: | 28 May 2008 |
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| Date of Judgment: | 20 August 2008 |
