Federal Court of Australia

Roufeil as Trustee of the Bankrupt Estate of Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust [2023] FCAFC 142

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The orders made by the Federal Circuit and Family Court of Australia (Division 2) on 23 December 2022 be set aside.

3.    Judgment for the appellant in the amount of $194,290 together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) from 4 April 2020 at the rates referred to in the Interest on Judgments Practice Note at para 2.2.

4.    The respondent pay the appellant’s costs of the appeal and of the proceedings at first instance.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DERRINGTON J:

1    I agree with the reasons and orders proposed by Jackman J.

Associate:

Dated:    23 August 2023

REASONS FOR JUDGMENT

ABRAHAM J

2    I agree with the orders proposed by Jackman J, and that the appeal be allowed for the reasons given by him.

Associate:

Dated:    23 August 2023

REASONS FOR JUDGMENT

JACKMAN J:

Introduction

3    This is an appeal from the judgment of the primary judge in the Federal Circuit and Family Court of Australia (Division 2) in Roufeil as Trustee of the Bankrupt Estate of Mervyn Ross Tarrant v Tarrant Enterprises Pty Ltd as Trustee for the MRT Family Trust (No 2) [2022] FedCFamC2G 1077.

4    On 8 September 2016, a sequestration order was made against the estate of Mr Mervyn Ross Tarrant (Mr Tarrant), and the appellant (the Trustee) was appointed his trustee in bankruptcy. In the course of administering Mr Tarrant’s estate, the Trustee became aware that from 21 July 2015 to 29 August 2016, 27 amounts totalling $194,290 were paid or transferred by electronic funds transfer from a bank account held by Mr Tarrant in the account name “Tarrant Accountants and Business Advisors” (the TABA Bank Account) to a loan account, of which the respondent (Tarrant Enterprises) was the account holder (the TE Bank Account). Both accounts were held with the National Australia Bank Ltd (NAB). The Trustee claims that the payments constituted payments of money by Mr Tarrant to Tarrant Enterprises in the circumstances set out in ss 120, 121 and 121A of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), and accordingly are void as against the Trustee.

5    In the period in which those payments were made, Mr Tarrant was conducting a business as a sole trader under the name “Tarrant Accountants and Business Advisors”, and thus the TABA Bank Account was held by him personally. Tarrant Enterprises was incorporated on 14 September 1994, with Mr Tarrant as its sole director. On 23 March 1999, Tarrant Enterprises executed a deed under which it was appointed the trustee of the MRT Family Trust. The trust deed specified Mr Tarrant’s children, Ms Lara Tarrant (Lara) and Mr Mervyn Steven Tarrant (Steven) as the “Specified Beneficiaries”, and Mr Tarrant fell within the definition of “General Beneficiary”. Mr Tarrant was the sole director of Tarrant Enterprises until 1 May 2013, when Lara and Steven were appointed directors. Mr Tarrant resigned as a director on 12 January 2015, and from that date Lara and Steven were the only directors of Tarrant Enterprises.

6    On 20 December 2007, Tarrant Enterprises completed the purchase of a penthouse unit in Market Street, Wollongong (the Penthouse). Tarrant Enterprises funded the purchase entirely by drawing down $2,151,951.13 from a loan facility of $2.16 million which NAB granted to Tarrant Enterprises (NAB Loan). It was a term of the NAB Loan that Tarrant Enterprises would make 359 monthly repayments of $16,736.31, and a final payment of $12,476.88. Mr Tarrant provided a guarantee for the NAB Loan.

7    The amount which Tarrant Enterprises drew down on the NAB Loan was debited to the TE Bank Account, which had been created shortly before the loan was drawn down. There was a practice for a number of years before July 2015 whereby Mr Tarrant caused payments to be made from the TABA Bank Account to the TE Bank Account in relation to the NAB Loan, commonly on a monthly basis.

8    After Tarrant Enterprises purchased the Penthouse, Mr Tarrant encountered financial difficulties. The primary judge found that the principal cause appeared to have been that in 2008 and 2009 Mr Tarrant recommended through his company, Tarrant Financial Consultants Pty Ltd (TFC), to its clients that they invest in a managed investment scheme known as the Astarra Strategic Fund (ASF). ASF was one of five managed schemes of which the responsible entity was Trio Capital Limited, and which were conducted fraudulently, although Mr Tarrant was not aware of the fraud. In August 2010, TFC was wound up, and its Australian Financial Services Licence was suspended. On 25 November 2011, a delegate of ASIC banned Mr Tarrant from providing financial services for seven years. The Administrative Appeals Tribunal (AAT) affirmed the decision of the delegate, and on 6 February 2015 the Full Federal Court dismissed Mr Tarrant’s appeal: Tarrant v Australian Securities and Investments Commission [2015] FCAFC 8; (2015) 317 ALR 328. On 29 July 2014, NAB issued a default notice addressed to Tarrant Enterprises, copied to Mr Tarrant as guarantor, stating that Tarrant Enterprises was in arrears in the amount of $265,175.54, and demanding payment of that amount. Tarrant Enterprises did not comply with that notice, and on 3 October 2014, NAB sent Mr Tarrant a demand that he pay NAB $1,902,679.40.

9    The bank statements for the TABA Bank Account and the TE Bank Account record the 27 transfers totalling $194,290 in amounts which vary from $400 to $16,000. The first payment was made on 21 July 2015 and the last of them on 29 August 2016. The description of each of the payments in each of the two bank accounts is “Internet Transfer Mrt Penthouse Tarrants”, or words to similar effect.

Salient Legislative Provisions

10    Section 120(1) of the Bankruptcy Act provides as follows:

A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a)    the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and

(b)    the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.

Subsection (2) provides a number of exemptions from subs (1) including:

(d)    a transfer of property if the transfer is of a kind described in the regulations.

Regulation 31 of the Bankruptcy Regulations 2021 (Cth) (which corresponds to reg 6.09 of the Bankruptcy Regulations 1996 (Cth)) provides as follows:

For the purposes of paragraph 120(2)(d) of the Act, a transfer is of a kind to which subsection 120(1) of the Act does not apply if the costs of recovering the transferred property would, in the opinion of the trustee in the transferor’s bankruptcy, be likely to exceed the value of the property to the transferor’s creditors.

Section 120(7) provides relevantly as follows:

For the purposes of this section:

(a)    transfer of property includes a payment of money….

11    Section 121(1) of the Bankruptcy Act provides as follows:

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 property would probably have become part of the transferor’s estate or probably have been available to creditors if the property had not been transferred; and

(b)    the transferor’s main purpose in making the transfer was:

(i)    to prevent the transferred property from becoming divisible among the transferor’s creditors; or

(ii)    to hinder or delay the process of making property available for division among the transferor’s creditors.

Section 121(9) defines “transfer of property” as including “a payment of money”.

12    Section 121A provides as follows:

(1)    This section applies if:

(a)    a person who later becomes a bankrupt (the transferor) transfers property to another person (the transferee); and

(b)    the transferee gives some or all of the consideration for the transfer to a person (a third party) other than the transferor.

(2)    Sections 120 and 121 apply as if the giving of the consideration to the third party were a transfer by the transferor of the property constituting the consideration.

(3)    If the giving of the consideration to the third party is void against the trustee in the transferor’s bankruptcy under section 120 or 121, the trustee has the same rights to recover the property constituting the consideration as the trustee would have if the giving of the consideration had actually been a transfer by the transferor of the property constituting the consideration.

The Reasons of the Primary Judge

13    The primary judge dealt at length with the meaning of the expression “payment of money” as used in s 120(7)(a) of the Bankruptcy Act, from [38] to [67]. Rather than considering the expression “payment of money” as a composite phrase with an ordinary English meaning, the primary judge considered separately the meaning of “money” and “payment”: [40]. As to the meaning of “money”, the primary judge identified two classes of things to which “money” has been used to refer, namely cash and unconditional promises to pay money on demand: [41]-[57]. In the latter regard, the primary judge referred to the well-known cases of Re Harmony and Montague Tin and Copper Mining Company (Spargo’s Case) (1873) LR 8 Ch App 407 and In re Paraguassu Steam Tramroad Company (Ferrao’s Case) (1874) LR 9 Ch App 355. The primary judge also said in relation to balances recorded in a current account held by a customer with his or her bank, that a credit balance recorded in a current account signifies a debt owed by the bank, but the cash becomes the property of the bank, referring to Foley v Hill (1848) 2 HLC 28; (1848) 9 ER 1002 at 1005-1006 (Lord Cottenham LC).

14    As to the meaning of “payment”, the primary judge noted the variety of means by which money may be paid, noting that the usual method of payment of money involves bank money: [58]-[59]. The primary judge said that payment by bank money manifests itself as a chain of debit and credit entries which commences with the payer’s bank debiting the payer’s current account with the amount the payer intends to pay the payee, and which ends with the payee’s bank crediting the payee’s account with that amount: [61]. The primary judge then said that the crediting of the payee’s account does not necessarily mean the payment has been completed, or that the transaction can properly be characterised as a payment, quoting the following passage in the judgment of Megaw LJ in Tenax Steamship Co Ltd v The Brimnes (Owners) [1974] EWCA Civ 15; [1975] QB 929 at 963:

Whatever mode or process is used, “payment” is not achieved until the process has reached the stage at which the creditor has received cash or that which he is prepared to treat as the equivalent of cash or has a credit available on which, in the normal course of business or banking practice, he can draw, if he wishes, in the form of cash.

The primary judge did not acknowledge that the issue in that case was the expression, as used in a charterparty, “payment in cash”, rather than the expression “payment of money”.

15    The primary judge noted that the banking system allows for the crediting and debiting of amounts to effect payment without the use of cash: [63]. The primary judge quoted from the reasons of Lord Millett in Foskett v McKeown [2001] AC 102 at 127-128:

We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked.

16    The primary judge expressed the conclusion of the discussion referred to above in the following terms at [67]:

The expression “payment of money” in s 120(7)(a) of the Bankruptcy Act at the very least includes:

(a)    the tender by A (the payer/transferor) to B (payee/transferee) of cash in a certain amount, and B’s acceptance of that tender;

(b)    the discharge by A (the payee/transferee) of a debt in a certain amount B (the payer/transferee) owes to A in consideration of the discharge by B of a debt of at least the same amount A or some other person owes to B; and

(c)    person A (payer/transferor) instructing his or her bank to debit an amount to A’s current account and cause the same amount to be credited in a current account B holds with his or her bank.

It should be noted that that conclusion was expressed in non-exhaustive terms, and that subparagraph (c) referred only to “current accounts”.

17    At [68], the primary judge found that during the period over which the 27 payments were made, the TABA Bank Account was a current account in the hands of Mr Tarrant. Each entry made in relation to each payment was debited to the TABA Bank Account, which either had a debit balance or a credit balance at the time. The primary judge then said that there was nothing to suggest that the TE Bank Account was a current account in the hands of Tarrant Enterprises; that is, there was nothing to suggest that Tarrant Enterprises had an arrangement with NAB in relation to the TE Bank Account under which it could direct NAB to pay amounts to its order, and debit those amounts to the TE Bank Account: [68(c)]. In the same subparagraph, the primary judge found that any amount credited to the TE Bank Account was not a credit available to Tarrant Enterprises on which, in the normal course of business or banking practice, Tarrant Enterprises was entitled to draw, if it so wished, in the form of cash, referring to the passage quoted from the reasons of Megaw LJ in The Brimnes referred to above. Importantly, the primary judge then expressed the conclusion that “for that reason it cannot be said that the credit entries that were made in the TE Bank Account constituted payment to Tarrant Enterprises”. The primary judge then said that each of the 27 amounts that was debited to the TABA Bank Account was credited to the TE Bank Account and on the debiting of each amount, NAB discharged, to the extent of the amount credited, part of the amount Tarrant Enterprises owed NAB under the NAB Loan: [68(d)].

18    At [70] the primary judge said the following:

In short, on NAB, at the direction of Mr Tarrant, making each set of debits and credits to the TABA Bank Account and the TE Bank Account respectively, Mr Tarrant discharged, to the extent of the amount of each debit and credit, a debt (the NAB Loan) Tarrant Enterprises owed to NAB. For that reason, each set of the debits and credits constituted a payment by Mr Tarrant to NAB in the amount of each debit and corresponding credit. I therefore do not accept the Trustee’s submission that the crediting of each amount to the TE Bank Account made money available to Tarrant Enterprises which it was free to use, and which it did use, to transfer to NAB “the property in the money” it received from Mr Tarrant.

In fact, the Trustee made no such submission, either in the paragraph referred to in the primary judge’s footnote reference to the Trustee’s written submissions, or anywhere else in the Trustee’s oral or written submissions. I observe that this error of attribution appears to have arisen simply from a misreading of the Trustee’s written submissions.

19    The primary judge then referred at [72] to Mr Tarrant being a creditor of Tarrant Enterprises to the extent of the payments of $194,290, by reason of Mr Tarrant either having made those payments at the implied request of Tarrant Enterprises or under compulsion by reason of Mr Tarrant’s liability under the guarantee to pay the NAB Loan. However, at [73] the primary judge found that Mr Tarrant intended to release Tarrant Enterprises of the liability to reimburse him the 27 payments he made to NAB, but found that Tarrant Enterprises had not given any consideration for such a release. The consideration contended for by Tarrant Enterprises was a purported agreement by Tarrant Enterprises to forbear suing Mr Tarrant for negligence in connection with the investment by the MRT Family Trust in ASF, but the primary judge rejected the submission that there was such an agreement, a point to which I will return below. Accordingly, the primary judge found that the purported release was of no legal effect: [73].

20    The primary judge then expressed the conclusion at [74] that none of the 27 payments constituted a payment of money by Mr Tarrant to Tarrant Enterprises. Rather, the primary judge found that each of the 27 payments constituted payments by Mr Tarrant to NAB alone, in discharge of the debt Tarrant Enterprises owed to NAB under the NAB Loan to the extent of the payments.

21    The primary judge then dealt with the question whether, apart from the concept of “payment of money”, the 27 payments were “transfers of property” by Mr Tarrant to Tarrant Enterprises, and rejected that proposition: [76]-[81].

22    The primary judge then held that the Trustee’s claims against Tarrant Enterprises under s 120(1) of the Bankruptcy Act fail, because there was no payment of money or transfer of property from Mr Tarrant to Tarrant Enterprises that was capable of being rendered void under s 120(1): [82]. The primary judge did not consider the other defences on which Tarrant Enterprises relied: [83].

23    As to s 121A of the Bankruptcy Act, the primary judge contrasted s 121A with ss 120 and 121, observing that s 121A does not expressly provide that “transfer of money” includes “payment of money”. In light of the primary judge’s conclusion that the 27 payments did not constitute a transfer of property, the primary judge held that s 121A did not apply to the payments that were made: [85].

24    As to s 121(1), in light of the primary judge’s conclusion that none of the 27 payments constituted a payment of money by Mr Tarrant to Tarrant Enterprises, or a transfer of property, the primary judge held that the Trustee’s claims under s 121(1) must also fail: [88]. Again, the primary judge did not consider the other defences on which Tarrant Enterprises relied: [89].

25    Accordingly, the primary judge dismissed the Trustee’s application with costs.

Ground 1 of the Notice of Appeal: Were the 27 payments the payment of money to Tarrant Enterprises?

26    The Trustee contends that the 27 payments amounting to $194,290 constituted “transfers of property” from Mr Tarrant to Tarrant Enterprises within the meaning of ss 120 or 121 of the Bankruptcy Act because, and only because, those payments constituted “payments of money” within the meaning of the definition of “transfer of property” in ss 120(7)(a) and 121(9)(a). The Trustee does not contend that if those 27 payments are not “payments of money” then they should be regarded as “transfers of property” for some other reason.

27    The Trustee accepts that if analysed as a matter of contract, it is correct that what may appear to be a simple transaction with value being passed from one bank customer to another bank customer, is in fact two transactions involving three parties (noting that the banker for both Mr Tarrant and Tarrant Enterprises was the same, namely NAB). As a matter of contract, NAB debited the TABA Bank Account held by Mr Tarrant as the payer, thus reducing the debt which it owed to Mr Tarrant in the present case, and then credited the TE Bank Account with that same amount, with the effect of reducing the debt owed in the present case to NAB by Tarrant Enterprises. However, the Trustee submits that the inquiry posited by s 120 through the use of the term “payment of money” is not a technical legal one. The Trustee relies on the reasoning of Perram J in Federal Commissioner of Taxation v Rozman [2010] FCA 324; (2010) 186 FCR 1 at [19]-[23], a case concerned with the question whether a direction by a private company to a debtor to discharge the debt by payment to a shareholder can be described as being a situation in which “a private company pays an amount to an entity”. Perram J expressed no doubt that that statutory language was satisfied, reasoning as follows:

20    As a matter of ordinary English, the verb “to pay” includes amongst its many meanings notions of satisfaction and discharge. Thus, only a pedant would protest that a woman who buys a pair of shoes on a credit card has not paid for them; and this is so notwithstanding that every credit card purchase conceals at least one payment by direction: Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300 at 320-321 [71]-[74] per Tamberlin J. So too, it would be idle to suggest that a man who buys a hat by cheque has not paid for it simply because a cheque is a direction to a financial institution to pay a sum certain to another person: s 10 of the Cheques Act 1986 (Cth).

21    In this case, it could scarcely be suggested that had Tredex drawn a cheque upon its bankers in favour of Ms Rozman and delivered that cheque to her that it would not have paid her any money because the true flow of funds was from its bankers to hers. Yet, if that be not so, there is no plausible way of distinguishing other kinds of payment by direction. If a direction to pay given by cheque can be a payment, why not a direction given by letter, email or telephone call? If a direction given to a bank is a payment, why not a direction given to some other kind of business, such as Fibre or Triton?

22    In truth, there is no reason to construe “pay” as requiring a direct flow of money from payer to payee. Only in a world in which the concept of money was confined to cash and coin could such a notion even begin to work, for once it be accepted that that concept includes debts and other choses of action, it becomes nonsensical to speak about money literally moving from the payer to the payee. Ms Rozman’s construction of the word “pay” is, therefore, to be rejected. It ignores ordinary usage and it does so for no good reason.

23    Ms Rozman’s attempt to confine the word “pay” to situations where actual money changes hands is not novel, and, when raised, has generally been rejected.

28    Similarly, in ABB Australia Pty Ltd v Commissioner of Taxation [2007] FCA 1063; (2007) 162 FCR 189 at [165], Lindgren J said:

Even a payment into a creditor’s bank account is a payment to a third party, namely, the bank. The payment is made on the basis that the amount will be credited to the creditor’s account with the bank, and we have no difficulty in saying that the debtor has “paid” the creditor.

Accordingly, his Honour held that a payment to a third party at the direction of a creditor was simultaneously payment to the creditor and to the third party.

29    The Trustee also referred to European Bank Ltd v Citibank Ltd [2004] NSWCA 76; (2004) 60 NSWLR 153 at [56] in which Handley JA (with whom Spigelman CJ and Santow JA agreed) referred to a debtor who delivers a cheque to his creditor making a conditional payment which becomes unconditional when the creditor’s bank receives payment of the cheque from the debtor’s bank and said:

The payment between banks completes a payment between their customers.

30    The Trustee relied also on Quality Publications Australia Pty Ltd v Federal Commissioner of Taxation [2012] FCA 256; (2012) 202 FCR 574, in which Edmonds J cited with approval at [40] the passages from Perram J’s reasons in Federal Commissioner of Taxation v Rozman to which I have referred above, and said at [43] that there are a number of bankruptcy cases in which it has been accepted that where B is indebted to A and A simply directs B to make payment to C on A’s behalf, B’s payment to C is a payment by A for the purpose of the bankruptcy preference provisions. One of those cases was Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at 437, in which Dawson, Gaudron and Gummow JJ held that there may be a payment made by the debtor within the meaning of s 122(1) of the Bankruptcy Act where the debtor directs a third party who holds funds at the direction of the debtor or is otherwise obliged to the debtor to account to the debtor not by payment to the debtor but to a creditor of the debtor. Their Honours illustrated that proposition by reference to Re Stevens (1929) 1 ABC 90 at 93, in which a debtor authorised the purchaser of his property to issue a promissory note to a creditor in part payment of the purchase price, the creditor accepting the note in discharge of the debtor’s debt to him. Moule J said that the debtor:

parted with his assets, and the payment which he himself should have received he has authorised to be made to the creditor, and it is just the same as if he had received payment himself and had himself handed such payment to [the creditor].

31    The Trustee also relied on the judgment of Perram J in Harrison v Nandicorp Pty Ltd [2021] FCA 1603 at [34]-[37], in which his Honour held that payments made by Mr Gunasegaram, who later became bankrupt, to a loan account held in his name as trustee of a trust, thereby reducing the debit balance of that loan account, constituted a payment of money for the purpose of s 120(7)(a) of the Bankruptcy Act. The Trustee submitted that that case was indistinguishable from the present case. I note that judgment in that case was delivered on 17 December 2021, shortly after the hearing of the present proceedings concluded.

32    The Trustee drew attention to the primary judge’s conclusion at [67] being expressed in non-exhaustive terms, but observed that the subsequent reasoning, particularly at [68(c)] appeared to proceed on the basis that the categories of “payments of money” listed at [67] were the only operative categories. In particular, the primary judge’s conclusion at [68(c)] that the TE Bank Account was not a current account was said by the primary judge to mean that it could not be said that the credit entries that were made in that account constituted payment to Tarrant Enterprises. The Trustee submitted that the primary judge should have recognised that credit entries in a loan account, such as the TE Bank Account, were just as much payments of money as credit entries in a current account. The Trustee also submitted that the reasoning in The Brimnes was directed specifically to the meaning of the particular expression “payment in cash” which was used in the charterparty in that case.

33    The submissions for Tarrant Enterprises proceeded on a fundamentally different basis, analysing the payments as transactions between banker and customer in terms of the law of contract and the law of property. The starting-point in the argument was Foley v Hill, to which I have referred above, to the effect that money placed in the custody of a banker is the money of the banker, who is answerable for the amount because the contract with the customer requires payment to the customer on demand a sum equivalent to that paid into the banker’s hands. The proposition remains sound, and was recently described in Philipp v Barclays Bank UK plc [2023] UKSC 25; [2023] 3 WLR 284 at [28] as a historical breakthrough in the development of banking law. The customer’s right to withdraw the money depends on demand for payment: N. Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 121 (Bankes LJ); National Australia Bank Ltd v Norman [2009] FCAFC 152; (2009) 180 FCR 243 at [53] (Graham J, with whom Spender J agreed); Croton v The Queen (1967) 117 CLR 326 at 330 (Barwick CJ).

34    The next step in the argument for Tarrant Enterprises was the proposition that the debiting of one bank account and the corresponding crediting of another person’s bank account does not constitute the obtaining of the same property. Rather, the payer’s chose in action against the payer’s bank is extinguished or reduced, and a new chose in action is brought into existence representing a debt in an equivalent sum owed by the payee’s bank to the payee: R v Preddy [1996] AC 815 at 834 (Lord Goff); Lordianto v Commissioner of the Australian Federal Police [2019] HCA 39; (2019) 266 CLR 273 at [75]-[76] (Kiefel CJ, Bell, Keane and Gordon JJ). As their Honours expressed the point in the latter case at [76], dealing with a claim pursuant to the Proceeds of Crime Act 2002 (Cth):

First, when an originator instructs a bank to make a transfer from their account, the chose in action representing that credit balance is extinguished or reduced by the amount of the transfer. Second, a fresh chose in action is created, or the value of an existing chose in action is increased, for the beneficiary which entitles them to withdraw an equivalent amount from their bank, subject always to the terms of their contract with their bank. Third, the property the beneficiary acquires is wholly distinct from the property which the originator had before the transfer.

35    While I do not doubt the correctness of the propositions pertaining to contract law and property law which are expressed in the authorities on which Tarrant Enterprises relied, I do not regard those authorities as being applicable to the present question. I respectfully agree with the reasoning of Perram J in Federal Commissioner of Taxation v Rozman, to which I have referred above, that the concept of “payment” or “payment of money” is an ordinary English expression, which takes its meaning from ordinary usage. In my view, it is entirely appropriate to refer to a banking transaction in which value is transferred from one bank account to another as being a payment of money between the two account holders, irrespective of whether the bank account receiving the money is a current account or a loan account or some other kind of account. The mere fact of receipt of that value constitutes the payment of money. That ordinary usage is supported by the authorities to which the Trustee referred.

36    When Mr Tarrant effected the 27 transactions whereby his account with NAB was debited and Tarrant Enterprises’ account with NAB was credited with corresponding amounts, NAB was accepting those payments on behalf of its customer, Tarrant Enterprises. A payment to a customer’s account with its bank is effective because that bank is authorised to receive money on its customer’s behalf. As Professor Robert Stevens expresses the point in The Laws of Restitution (Oxford University Press, 2023) at p 50:

The bank’s acceptance is attributed to its customer because that is what the bank has been authorised to do on its principal’s behalf. The customer has accepted because its agent has accepted. Banks are agents for receipt.

37    In my view, it is wrong to say that by invoking a three-party or four-party payment system in making a payment, the payer initiating the process has not paid money to the recipient account holder. Section 120 does not apply only to a “transfer of property” in the strict legal sense. The definition of that expression in s 120(7)(a) expressly includes the “payment of money”, and it is that latter concept in its ordinary and natural meaning on which the Trustee correctly relies.

38    Accordingly, the elements of s 120(1)(a) are established. I consider below in relation to the notice of contention whether the other defences raised by Tarrant Enterprises succeed. My ultimate conclusion is that those other defences fail, and that the Trustee is entitled to succeed on the basis of his claim under s 120. In those circumstances, it is not necessary to consider whether the Trustee is also entitled to succeed pursuant to s 121.

Ground 2 of the Notice of Appeal: Does s 121A of the Bankruptcy Act apply?

39    Ground 2 of the notice of appeal contends that the primary judge erred in failing to find that by reason of the operation of s 121A of the Bankruptcy Act, the Trustee was entitled to recover the amount of $194,290 from Tarrant Enterprises. As I have concluded that the Trustee is entitled to succeed pursuant to s 120, it is not necessary to consider the application of s 121A. Further, it is not necessary to consider whether the extended definition of “transfer of property” to include “transfer of money” in ss 120 and 121 applies also to s 121A on its proper construction, and I express no opinion on that issue.

Notice of Contention by Tarrant Enterprises

40    Ground 1 of the notice of contention is that the Trustee ought to have been estopped or otherwise prevented from proceeding on various paragraphs of the statement of claim by reason of issue estoppel or res judicata, or the matter ought to have been dismissed or stayed as an abuse of process. In the course of oral argument, Tarrant Enterprises abandoned its arguments based on issue estoppel and res judicata, but maintained its contention based on abuse of process.

41    Tarrant Enterprises contends that the present proceedings were an abuse of process on the basis that the use of the Court’s procedures in this case was and is unjustifiably oppressive to it or would bring the administration of justice into disrepute, submitting that abuse of process is inherently broader and more flexible than issue estoppel or res judicata: Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; (2015) 256 CLR 507 at [25] (French CJ, Bell, Gageler and Keane JJ); UBS AG v Tyne [2018] HCA 45; (2018) 265 CLR 77 at [43]-[46] (Kiefel CJ, Bell and Keane JJ). In evaluating this contention, it is necessary to review the various steps which the parties and others have taken in relation to the present dispute.

42    On 1 October 2019, the Trustee issued a notice pursuant to s 149F(1) of the Bankruptcy Act objecting to Mr Tarrant’s discharge from bankruptcy. The ground of objection was that referred to in s 149D(1)(ab) that “any transfer is void against the trustee in the bankruptcy because of section 121”. That was a notice issued to Mr Tarrant, not to Tarrant Enterprises, and was an administrative means of extending Mr Tarrant’s bankruptcy, rather than being a means of recovering the amount of $194,290. On 4 November 2019, Mr Tarrant applied for a review by the Inspector-General in Bankruptcy of that objection. I note that the nature of such a review was considered recently by the Full Court in Inspector-General in Bankruptcy v Rutherfurd (Bankrupt) [2023] FCAFC 99 (Rares, Rofe and Downes JJ). On 28 January 2020, Mr Tarrant’s review failed, and the decision was made to confirm the Trustee’s decision to issue the notice of objection, with the result that Mr Tarrant would remain bankrupt until 18 October 2024. Mr Tarrant then made an application on 24 February 2020 to the AAT, naming the Inspector-General in Bankruptcy as the respondent. Accordingly, neither of the parties to the present proceedings were parties to the proceedings in the AAT.

43    On 3 April 2020, the Official Receiver, at the request of the Trustee, issued a notice to Tarrant Enterprises pursuant to s 139ZQ of the Bankruptcy Act requiring payment to the Trustee of $194,290, claiming that the payments totalling that amount were void under ss 120 and 121 of the Bankruptcy Act. On 9 June 2020, Tarrant Enterprises commenced proceedings in the Federal Circuit Court seeking to set aside the notice pursuant to s 139ZQ. The application named the Official Receiver, not the Trustee, as the respondent. The proceedings were fixed for hearing on 29 January 2021, and on that day Ms Lara Tarrant, being a director of Tarrant Enterprises, sought to appear on behalf of Tarrant Enterprises. On the same day, Judge Street refused the application of Ms Tarrant for leave to appear, and dismissed the proceedings with costs. On 19 February 2021, Tarrant Enterprises filed an interim application seeking to set aside the orders made on 29 January 2021. Judge Street heard that application on 10 March 2021 and dismissed it on that day. On 23 March 2021, Tarrant Enterprises commenced an appeal in this Court seeking to set aside the orders Judge Street had made on 10 March 2021. On 17 May 2021, by consent Katzmann J ordered that the appeal from Judge Street’s decision be allowed, remitted the matter to the Federal Circuit Court, and ordered that it be heard together with the present proceedings.

44    In the meantime, on 22 March 2021 the present proceedings were commenced by the Trustee in the Federal Circuit Court. Tarrant Enterprises brought an application for a stay of these proceedings on the ground that they were vexatious, in view of the pending appeal to the Federal Court, and the primary judge dismissed that application on 23 April 2021. On 6 August 2021, by consent of Mr Tarrant and the Inspector-General in Bankruptcy, the AAT varied the decision of 28 January 2020 such that the ground relating to s 149D(1)(ab) (relating to any transfer being void because of s 120) was cancelled, and the ground relating to s 149D(1)(n) (relating to the bankrupt’s failure to disclose to the trustee the beneficial interest in any property) was confirmed. By amendments to his application and statement of claim filed on 27 September 2021, the Trustee withdrew his reliance on the notice pursuant to s 139ZQ, and decided to run the substantive case pursuant to ss 120 and 121 without what had become by then the unnecessary step of relying on the s 139ZQ notice. The hearing of these proceedings took place on 25 and 26 October 2021, with the date of the last submissions being 10 December 2021. The primary judge delivered judgment on 23 December 2022. On 10 February 2023, the Trustee filed the Notice of Appeal in the present proceedings.

45    It is clear from that narrative of the history of the litigation that the only relevant step taken by the Trustee against Tarrant Enterprises before commencing these proceedings was to request the Official Receiver to issue the s 139ZQ notice as an administrative measure in an attempt to recover the amount of $194,290. In the course of conducting the present proceedings, the Trustee took the sensible step of withdrawing his reliance on that notice, preferring to contest the substantive merits of the underlying allegations concerning ss 120 and 121 on their own. The Trustee is to be commended for doing so in the interests of the efficient conduct of the litigation, without the unnecessary distraction of the issue concerning whether the s 139ZQ notice was valid, that being an issue which had generated a substantial amount of litigation at the suit of Tarrant Enterprises. The Trustee was cross-examined at the hearing before the primary judge but nothing was put to the Trustee to the effect that he had conducted proceedings oppressively or vexatiously. In my view, there is no basis whatsoever for any such contention. I reject the proposition that the present proceedings are an abuse of process.

46    I note in addition that Tarrant Enterprises did bring an application for a stay of the present proceedings on the grounds that they were vexatious or oppressive, which the primary judge decided adversely to Tarrant Enterprises on 23 April 2021. There was no application for leave to appeal against that decision. The usual remedy for an abuse of process is a permanent stay of proceedings, in order to protect the relevant party (and the Court itself) from the consequences of the alleged oppressive or vexatious conduct. The proceedings have now run their course, with the matter having been heard and decided at first instance by the primary judge. Even if I had been of the view that there had been oppressive conduct by the Trustee in these proceedings, it would have been of questionable utility to order on appeal that the proceedings be permanently stayed or dismissed, given that they had already run their course, and the Court has heard full argument on the appeal. However, in the circumstances, there is no need for me to express a final view on that question.

47    Ground 2 of the notice of contention contends that the Trustee had not pleaded a case under s 121A of the Bankruptcy Act and should not be allowed to run such a case. It is not necessary to decide that ground of contention, in circumstances where I have concluded that the Trustee is entitled to succeed on the basis of s 120 without the need to consider the Trustee’s alternative case based on s 121A.

48    Ground 3 of the notice of contention is to the effect that the judgment below should be affirmed on the basis of the other defences relied on by Tarrant Enterprises but which were not decided by the primary judge. There are three such defences.

49    First, Tarrant Enterprises invokes reg 31 of the Bankruptcy Regulations 2021 (Cth), which I have extracted above, setting out a kind of transfer of property to which s 120(1) does not apply.

50    There is a question of construction as to the relevant time applicable to the opinion of the trustee under reg 31. Tarrant Enterprises submits that the relevant time is immediately before the final hearing of the proceedings, whereas the Trustee submits that the applicable time is when the proceedings are commenced. In my view, the Trustee’s submission is correct. Regulation 31 refers to an estimation of costs of recovering property in circumstances where those costs have not already been incurred but are likely to be incurred in the future. That is the ordinary meaning of the relevant expression “would… be likely to exceed”. Further, the construction advanced by Tarrant Enterprises would produce the anomaly that an unscrupulous transferee of such property could deliberately conduct itself in a way which would unnecessarily increase the trustee’s costs of recovering the property, and thereby arm itself with a defence to an otherwise meritorious claim by the trustee. Accordingly, in the present case, the question is whether the Trustee formed an opinion by 22 March 2021 that the costs of recovering the amount of $194,290 would be likely to exceed that amount. There is no evidence of the Trustee having formed such an opinion. The Trustee was cross-examined on the costs which he had actually incurred in recovering the $194,290, but the questions were directed to the Trustee’s estimate of those costs incurred as at the time of the final hearing at which he was cross-examined: T56.9-61.17. The Trustee denied that, as at the time of his cross-examination, it was likely that the total amount that it will cost to recover the $194,290 will exceed $194,290: T60.18-20. It may perhaps be inferred, given the Trustee held the opinion at a late stage in protracted litigation that the costs would not exceed $194,290, that the Trustee would have held with at least as much conviction the same opinion at the time of commencing proceedings. In any event, the cross-examination was directed to the wrong time-frame for the purposes of reg 31. Accordingly, Tarrant Enterprises has failed to establish that the Trustee formed the opinion referred to in reg 31, and thus that defence to the Trustee’s claim fails.

51    Second, Tarrant Enterprises raises a defence of so-called double recovery. Counsel for Tarrant Enterprises did not develop the argument orally, but merely referred to the written submissions. As expressed in the closing written submissions of Tarrant Enterprises at first instance, the defence appears to raise an argument that the payment of the $194,290 reduced the amount owing to NAB by each of Mr Tarrant and Tarrant Enterprises by that amount. It is then contended that the creditors want to get the very same $194,290 twice: once from Mr Tarrant through his 27 transfers to NAB, and also now from Tarrant Enterprises. Tarrant Enterprises submitted that ss 120 and 121 were designed to disgorge the $194,290 from NAB rather than from Tarrant Enterprises, because NAB received the actual transfer of property and used it to reduce its own balance, and it should be NAB which gives that money to the Trustee to be distributed as provided under the Bankruptcy Act.

52    In my view, the argument is misconceived. The right of recovery which follows a successful claim under s 120 is a right on the part of the Trustee in bankruptcy to recover the property (including money) which the person who later becomes bankrupt has transferred (or paid). As my reasoning in relation to the notice of appeal indicates, that is a right of recovery by the Trustee against Tarrant Enterprises. Once the Trustee has recovered that money, there will then be questions as to the administration and distribution of that money, along with other assets. The Trustee may well need to rule on a proof of debt by NAB, or make a decision on other means sought by creditors to recover from the bankrupt estate. Those are questions for another occasion. The present proceeding does not involve any question of any creditor obtaining double recovery of that creditor’s claim. The question is a straightforward one of applying the clear legislative intention that a transaction falling within s 120(1) is rendered void.

53    Third, Tarrant Enterprises asserts a right of set-off pursuant to s 86 of the Bankruptcy Act, claiming that Mr Tarrant owes Tarrant Enterprises as Trustee of the MRT Family Trust the amount of $159,804, which should be set off against the claim by the Trustee for $194,290, being a balance of $34,486 owing by Tarrant Enterprises to the Trustee.

54    The submission confronts a well-established line of authority to the effect that a debt or liability of the bankrupt cannot be set off against that creditor’s liability pursuant to s 120 or s 121 to refund the impugned payments, given that a liability arising from s 120 or s 121 is payable to the trustee in bankruptcy, not as a debt due to the bankrupt but as the proceeds of the avoidance by the trustee of a preference, and accordingly there is a lack of mutuality in the debts sought to be set off: Re Amour; Ex parte Official Receiver v Commonwealth Trading Bank of Australia (1956) 18 ABC 69 at 74-76 (Clyne J); Re Grezzana; Painter v Charles Whiting & Chambers Ltd (1932) 4 ABC 203 at 205-6 (Paine J); Re Smith; Ex parte Trustee; J Bird Pty Ltd and Tully (Respondents) (1933) 6 ABC 49 at 57 (Lukin J); Rory Derham, The Law of Set Off (4th ed, Oxford University Press, 2010) at [13.07]. The availability of a set-off pursuant to s 86 requires that the creditor’s liability to, and the creditor’s claim against, the bankrupt be mutual, two aspects of which are that the claims must be between the same persons and that the benefit and burden must lie in the same interest: Gye v McIntyre (1991) 171 CLR 609 at 623. The Trustee and Mr Tarrant are different persons and hold different interests. I note that in relation to company liquidations, the High Court has recently held that s 553C of the Corporations Act 2001 (Cth) does not permit a set-off in relation to claims which a liquidator has acquired in that capacity: Metal Manufacturers Pty Ltd v Morton [2023] HCA 1 at [18] (Kiefel CJ, Gordon, Edelman and Steward JJ). Accordingly, the defence of set-off must fail.

55    Ground 4 of the notice of contention is to the effect that, to the extent that there was a finding of fact in the last three sentences of [73] of the primary judgment, such a finding was not open to the primary judge as there had not been proper compliance with the rule in Browne v Dunn (1893) 6 R 67, and that the matters contained in those sentences of [73] were otherwise not a sufficient basis for any such findings. This ground relates to the question whether Tarrant Enterprises gave any consideration for a release by Mr Tarrant of his claim that Tarrant Enterprises was obliged to pay him $194,290. The last three sentences of [73] are as follows:

There is no evidence, however, that Tarrant Enterprises gave any consideration for such release, other than matters on which Tarrant Enterprises relies for contending Mr Tarrant agreed to release his rights to be reimbursed in consideration of Tarrant Enterprises agreeing to forbear suing Mr Tarrant for negligence. I am not satisfied there was any such agreement, for the reasons the Trustee in his written submissions submits that there was no such agreement [a footnote reference then refers to the Trustee’s written submissions filed 17 November 2021 at [49]-[50]]. In those circumstances, there being no consideration for Mr Tarrant’s purported release of his rights to be reimbursed for the $194,290 worth of payments he made to NAB, the purported release is of no legal effect.

56    In [49] of the written submissions referred to in that passage, the Trustee referred to Mr Tarrant’s evidence given in his public examination in 2018 that the payments made by Mr Tarrant to Tarrant Enterprises were gifts made from a sense of moral obligation to his children to do something to make up for the losses that had been caused to the MRT Family Trust, and submitted that that evidence given in 2018 should be preferred to the attempt in these proceedings to explain the payments by reference to a binding agreement made, or having its origins, in 2010. The Trustee submitted that it was inconceivable that all three witnesses giving evidence on this topic in 2018 (being Mr Tarrant, and his children, Lara and Steven) could all have overlooked such a significant event, namely a discussion about the children suing their father and an agreement to forbear from taking such proceedings. The Trustee submitted that the failure to mention the existence of such an agreement in 2018 should be accepted as evidence that no such agreement was made. The Trustee then submitted in [50] that there were other reasons for rejecting Tarrant Enterprises’ reliance on any “forbearance agreement”, namely the complete absence of any record of such an agreement, the lack of any external advice ever been sought about whether a claim by Tarrant Enterprises against Mr Tarrant existed or as to its value, and the fact that Mr Tarrant had repeatedly protested his innocence of wrongdoing in relation to losses suffered through investments in the ASF.

57    The rule in Browne v Dunn is a rule of practice to the effect that, unless notice has already clearly been given of the cross-examiner’s intention to rely upon such matters, it is necessary to put to an opponent’s witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of the witness’s evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings: Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 16 and 26 (Hunt J); White Industries (Qld) Pty Ltd v Flower & Hart [1988] FCA 806; (1988) 156 ALR 169 at 216-21 (Goldberg J); VN Railway Pty Ltd v Federal Commissioner of Taxation [2013] FCA 265; (2013) 211 FCR 188 at [50] (Tracey J); Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93; (2014) 226 FCR 555 at [50]-[51] (Logan J). However, it is well recognised that there needs to be flexibility in the application of that rule, such a need arising from the very nature of the subject matter which it concerns, and reflecting the central purpose of the rule being to secure fairness in the conduct of adversarial proceedings, while bearing in mind that cross-examination is an art: R v Birks (1990) 19 NSWLR 677 at 688 (Gleeson CJ, with whom McInerney J agreed).

58    In the present case, there can be no doubt that counsel for the Trustee had given ample notice of his intention as cross-examiner to challenge the existence of the alleged conversation in 2010 concerning the “forbearance agreement”. In the public examinations conducted in 2018 and early 2019, there was no suggestion by any of the examinees that there had been any such conversation in 2010, and counsel for the Trustee elicited clear concessions that the payments made by Mr Tarrant to Tarrant Enterprises were gifts rather than being pursuant to any legal obligation: examination of Mr Tarrant on 18 January 2019 at T6.33-45; examination of Lara Tarrant on 1 November 2018 at T21.9-43; and examination of Steven Tarrant on 1 November 2018 at T84.18-85.7. The three witnesses then made affidavits in these proceedings giving evidence for the first time of the conversations in 2010 concerning a forbearance agreement. The Trustee’s opening written submissions dated 15 October 2021 made a submission in [29] that no consideration was given by Tarrant Enterprises for the 27 payments in issue, referring to the evidence given by the three witnesses in their public examinations that the payments were made and received as gifts by Mr Tarrant, and pointed out that the supposed forbearance agreement was contrary to the previous evidence which they had given. The submission included the proposition that Tarrant Enterprises never had any intention of suing Mr Tarrant and had not led any evidence that it did have such a claim, or that any advice had been sought as to whether such a claim existed or as to its value. The three witnesses therefore could not have been in any doubt when they gave their evidence at the hearing that the Trustee challenged the existence of the conversations in 2010.

59    Turning then to the cross-examination of the three witnesses at the hearing before the primary judge, there can be no valid complaint that the witnesses were not fairly challenged on whether the purported conversations in 2010 actually took place. Mr Tarrant was cross-examined extensively as to whether the conversations claimed to have taken place in 2010 occurred at all (T142.19-145.26), including the explicit proposition that he had had no discussion with Lara and Steven in 2010 in which he suggested that they should consider whether they or the trust might be able to sue him (T142.19-22). Ms Lara Tarrant was cross-examined on the same topic (T95.14-97-103.2), including the express proposition that the claimed conversations in 2010 did not take place (T97.7-9). Mr Steven Tarrant was the third of the witnesses to be cross-examined on that topic (T160.18-162.19), and it was put to him that he had made no mention in 2018 of any such conversation in 2010, that his evidence in 2018 was simply that the payments were a gift, that it was implausible to think that his memory had improved since 2018 of events that took place in 2010, that there was no document recording any such agreement as alleged in 2010, and that if he had formed an idea of suing his father at that time, he would have remembered that when he gave evidence in 2018. Although it was not explicitly put to Mr Steven Tarrant that the 2010 conversations had not taken place, he could not have been in any reasonable doubt that that was the point of the questions that were put to him on the topic of the 2010 conversations.

60    Accordingly, I reject the contention by Tarrant Enterprises that there was any breach of the rule in Browne v Dunn in relation to the cross-examination on the claimed conversations in 2010. It is therefore not necessary to consider what consequences, if any, would have flowed from any breach of that rule of practice.

61    The written and oral submissions of Tarrant Enterprises on Ground 4 of the notice of contention were confined to the submission that there had been a breach of the rule in Browne v Dunn. No submission was put to the effect that there was insufficient material to justify the primary judge’s conclusion that there was no forbearance agreement reached in the 2010 conversations. If, however, that aspect of Ground 4 is still maintained, I reject it. There was ample material, particularly having regard to the failure to refer to any such forbearance agreement in the public examinations, to justify the primary judge’s conclusion. Further, the forbearance agreement was claimed to be one between Mr Tarrant and Tarrant Enterprises, whereas the conversations in 2010 were between Mr Tarrant and his children, who were not directors of Tarrant Enterprises until 1 May 2013.

Conclusion

62    Accordingly, the Trustee is entitled to judgment in his favour in the amount of $194,290 by reason of the avoidance of the 27 payments pursuant to s 120 of the Bankruptcy Act.

63    During the oral argument, it became apparent that the claim for pre-judgment interest, which had been made in the application filed on 22 March 2021, had been deleted in the Amended Application filed on 27 September 2021. This would appear to have been the result of an oversight, rather than a deliberate decision. Counsel for the Trustee made an application orally to amend the Amended Application in order to claim interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (FCA Act). In Keefe v Marks (1989) 16 NSWLR 713 at 717, Gleeson CJ said that “if for some reason no claim for interest were pleaded, an application at the hearing to amend the pleading by including a claim for interest would ordinarily be virtually irresistible, unless there existed some special circumstances giving rise to a discretionary consideration”. Meagher JA at 728 expressed the matter in more absolute terms to the effect that a mere failure to include a claim for interest in a statement of claim does not prevent one from asking for interest at the hearing, whether with or without an amendment, and “any such application is automatically granted”. Shortly after that case was decided, the High Court said in Haines v Bendall (1991) 172 CLR 60 at 66-67 that the award of interest under s 94 of the Supreme Court Act 1970 (NSW) is an integral element in the attainment of the object of damages, namely to compensate a plaintiff for injury sustained, and accordingly the award of interest is compensatory in character, and the award of interest for the period of delay in payment between the date of accrual of the cause of action and judgment affords the fair legal measure of compensation. The High Court said that while the Court has a discretion in awarding interest, that is a discretion which must be exercised in accordance with legal principle, and in conformity with the general principles governing the award of damages so that an award of interest on damages should do no more than assist in the restoration of a plaintiff to the position in which he or she would have been but for the wrong. To similar effect, McHugh and Gummow JJ in Andjelic v Marsland (1996) 186 CLR 20 at 39 reiterated that the power to award interest under s 94 should be regarded as “entirely compensatory”, and should not be used to penalise either party for delay or failure to observe Court procedures. Although s 51A of the FCA Act qualifies the entitlement to pre-judgment interest with the words “unless good cause is shown to the contrary”, delay simpliciter does not prevent the applicant from obtaining an award of interest, because the respondent has continued to have the benefit of the use of the money during the period of delay: Management 3 Group Pty Ltd (in liq) v Lenny’s Commercial Kitchens Pty Ltd (No 2) [2012] FCAFC 92; (2012) 203 FCR 283 at [32] (Lander, Gilmour and Gordon JJ); Qube Logistics (Rail) Pty Ltd v Australian Rail, Tram and Bus Industry Union [2021] FCAFC 83; (2021) 308 IR 39 at [63]-[64] (Bromberg, Katzmann and O’Callaghan JJ).

64    Counsel for Tarrant Enterprises opposed any application to amend in order to claim interest, claiming that there was prejudice in that Tarrant Enterprises could have put on evidence of disentitling conduct by reason of the Trustee’s delay in bringing the proceedings. I reject that submission. First, the Trustee could not conceivably be criticised for unreasonably delaying the commencement of the proceedings. Although about a year elapsed between the service of the s 139ZQ notice and the commencement of the proceedings, that was a period in which Tarrant Enterprises was engaged in numerous forensic battles with the Inspector-General in Bankruptcy relating to the s 139ZQ notice. It was entirely reasonable for the Trustee to wait a reasonable period of time to see whether those forensic battles would produce a clear outcome, without having to engage in expensive and time-consuming litigation himself. Any delay by the Trustee in the period before the issue of the s 139ZQ notice is not of any conceivable relevance, as the Trustee does not seek interest for that period. Second, the alleged delay would not constitute good cause to deny the Trustee a claim for pre-judgment interest. The discretion in awarding interest is properly seen as a discretion relating to the quantification of interest so as to ensure that the compensatory principle is fulfilled and that the claimant is compensated properly for the time value of the principal amount to which the claimant is entitled but has not yet received. Accordingly, the Trustee’s application to amend in order to claim interest should be allowed, as well as the claim for interest itself.

65    The Trustee claims interest pursuant to s 51A of the FCA Act from 4 April 2020, being the day after the s 139ZQ notice was issued. The Trustee selects that date on the basis that a payment or transfer to which s 120 applies is voidable rather than void (see Official Trustee in Bankruptcy v Alvaro (1996) 66 FCR 372 at 426-7 per Wilcox and Cooper JJ), and the Trustee elected to avoid the payments by the issue of the s 139ZQ notice. It is therefore unnecessary to consider whether the Trustee may have been entitled to interest from an earlier point in time.

66    Accordingly, in my view the following orders should be made:

1.    The appeal be allowed.

2.    The orders made by the Federal Circuit and Family Court of Australia (Division 2) on 23 December 2022 be set aside.

3.    Judgment for the appellant in the amount of $194,290 together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) from 4 April 2020, at the rates referred to in the Interest on Judgments Practice Note at para 2.2.

4.    The respondent pay the appellant’s costs of the appeal and of the proceedings at first instance.

Associate:

Dated:    23 August 2023