FEDERAL COURT OF AUSTRALIA

Coshott v Coshott [2017] FCA 1239

ORDERS

THE COURT ORDERS THAT:

1.    Under r 2.43 of the Federal Court Rules 2011 (Cth), the following payments be made to the interlocutory applicants out of the moneys that were paid into Court pursuant to the orders made by Buchanan J on 9 March 2016:

(a)    $14,153.42 to Mr Barry and Mr Board;

(b)    $299,000 to Mr Prentice;

(c)    $6,842.58 to Mr Barry; and

(d)    interest in the account at the time the principal sums are paid out, in the following proportions:

(i)    4.4% to Mr Barry and Mr Board;

(ii)    93.5% to Mr Prentice; and

(iii)    2.1% to Mr Barry.

2.    A garnishee order be issued in accordance with the request for enforcement by Mr Prentice dated 27 March 2017 and filed on 28 March 2017.

3.    Mrs Coshott pay the costs of the interlocutory applicants (Mr Barry, Mr Board and Mr Prentice) to be fixed by way of a lump sum.

4.    The determination of the basis upon which costs are to be paid be made on the papers.

5.    The quantum of the lump sum costs order be determined by a Registrar.

THE COURT DIRECTS THAT:

6.    By or before 4.00 pm on 3 November 2017, the interlocutory applicants (Mr Barry, Mr Board and Mr Prentice) file and serve:

(a)    any affidavit in support of costs being awarded on an indemnity basis;

(b)    any submissions, not longer than three pages, on costs being awarded on an indemnity basis; and

(c)    an affidavit constituting a Costs Summary in accordance with paragraphs 4.10 to 4.12 of the Court’s Costs Practice Note (GPN-COSTS).

7.    By or before 4.00 pm on 17 November 2017 the interlocutory respondent (Mrs Coshott) file and serve:

(a)    any affidavit opposing costs being awarded on an indemnity basis;

(b)    any submissions, not longer than three pages, on costs not being awarded on an indemnity basis; and

(c)    any Costs Response in accordance with paragraphs 4.13 and 4.14 of the Costs Practice Note (GPN-COSTS).

8.    In the absence of any agreement having been reached on the quantum of the costs order to be made and notified by email to the associate to Justice Bromwich by or before 4.00 pm on 1 December 2017, the appropriate lump sum figure for the applicant’s costs be referred to a Registrar for determination.

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

REASONS FOR JUDGMENT

BROMWICH J:

1    The determinative question raised in four interlocutory applications before the Court is whether statutory trustees for sale, appointed by Buchanan J in these bankruptcy proceedings under s 66G(1) of the Conveyancing Act 1919 (NSW), can be compelled by way of garnishee orders to make payments to the judgment creditors of the beneficiary, Mrs Ljiljana Coshott. Enforcement in this manner was opposed by Mrs Coshott. She contended that the trustees for sale could not properly be made the subject of the garnishee orders, having regard to their fundamental obligation under the statutory trust to account to her for her interest in the net proceeds of sale of the property.

2    The history of the appointment of the trustees for sale was described in Coshott v Coshott [2016] FCA 966 at [4]-[8], [20] and in Coshott v Crouch [2017] FCAFC 135 at [3]-[5], but does not otherwise need to be repeated.

3    The issue of enforcement against the trustees for sale arises in circumstances in which those trustees, having received four garnishee orders from judgment creditors of Mrs Coshott, have paid money into Court pursuant to orders made by Buchanan J on 9 March 2016. The judgment creditors are Mr Maxwell Prentice, Mr Stephen Barry and Mr Martin Board jointly, and Mr Barry solely.

4    By way of three separate applications under r 2.43 of the Federal Court Rules 2011 (Cth), the judgment creditors now seek payment out of Court in respect of the debts that were sought to be garnisheed from the trustees for sale. Mr Prentice also seeks the issue of a further garnishee order addressed to the trustees for sale. The Court was informed by counsel for Mr Prentice, mentioning the matter on behalf of the trustees for sale, that they did not wish to be heard on the present applications.

5    There was no dispute as to the existence of the judgment debts upon which the garnishee orders were based. Nor did Mrs Coshott make any application for any of the garnishee orders in question to be set aside. It was common ground that this Court could not make any order for payment out to the judgment creditors under r 2.43 if such a payment could not properly have been compelled from the trustees for sale had the money not been paid into Court.

6    In the event that no impediment was found to exist for the issue of a garnishee order to the trustees for sale by judgment creditors of Mrs Coshott, no reason was advanced on her behalf not to grant the relief sought by way of orders for payment from the moneys paid into Court and by way of a further garnishee order. The evidence in support of that outcome was ample but for the question posed. The answer to that question therefore determines the outcome of the four interlocutory applications before the Court.

Statutory trust for sale

7    As noted at the commencement of these reasons, the trustees for sale were appointed under s 66G(1) of the Conveyancing Act, as applied as surrogate federal law by s 79 of the Judiciary Act 1903 (Cth). Section 66G(1) provides as follows:

66G    Statutory trusts for sale or partition of property held in co-ownership

(1)    Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.

8    The obligations on a trustee for sale appointed under the Conveyancing Act arise directly from the terms of the statute, the interpretation of which is informed by case law. In addition to the statutory powers of management conferred on trustees for sale by s 66D of the Conveyancing Act, ss 66G(7), 66F(2) and 66H have a bearing on the present case:

(1)    Section 66G(7) provides:

Where property becomes subject to such statutory trust for sale:

(a)    in the case of joint tenancy, a sale under the trust shall not of itself effect a severance of that tenancy,

(b)    in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs.

(2)    Section 66F provides:

In this Division [Division 6 – Statutory trusts of property held in co-ownership]:

…

(2)

(a)    Property held upon the “statutory trust for sale” shall be held upon trust to sell the same and to stand possessed of the net proceeds of sale, after payment of costs and expenses, and of the net income until sale after payment of costs, expenses, and outgoings, and in the case of land of rates, taxes, costs of insurance, repairs properly payable out of income, and other outgoings upon such trusts, and subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners,

(b)    where:

(i)    an undivided share is subject to a settlement, and

(ii)    the settlement remains subsisting in respect of other property, and

(iii)    the trustees thereof are not the same persons as the trustees for sale,

then the statutory trust for sale includes a trust for the trustees for sale to pay the proper proportion of the net proceeds of sale or other capital money attributable to the share to the trustees of the settlement to be held for and to go to the same persons successively in the same manner and for and on the same estates, interests, and trusts as the undivided share would if not disposed of have been held and have gone under the settlement.

…

(3)    Section 66H provides:

So far as practicable trustees on the statutory trust for sale, or on the statutory trust for partition, shall consult the persons of the age of eighteen years or upwards and not subject to disability for the time being beneficially entitled to the income of the property until sale or partition, and shall, so far as consistent with the general interest of the trust, give effect to the wishes of such persons, or, in the case of dispute, of the majority (according to the value of their combined interests) of such persons, but a purchaser shall not be concerned to see that the provisions of this section have been complied with.

9    In Dixon v Roy (1991) 5 BPR 97,390 at 3, Young J (as his Honour then was) said of s 66H:

The word “consult” means more than one party telling another party what it is that he or she is going to do. The word involves at the very least the giving of information by one party, the response to that information by the other party, and the consideration by the first party of that response; see, for example, Fletcher v Minister of Town and Country Planning [1947] 2 All ER 496 at 500; Rollo v Minister of Town and Country Planning [1948] 1 All ER 13; Re Union of the Benefices of Whippingham and East Cowes; Derham v Church Cms for England [1954] AC 245 at 249; Agricultura Horticultural and Forestry Industry Training Board v Aylesbury Mushrooms Ltd [1972] 1 WLR 190 at 194; R v Secretary of State for Social Services; Exparte Association of Metropolitan Authorities [1986] 1 WLR 1; New Zealand Fishing Industry Association Inc v Minister of Agriculture and Fisheries [1988] 1 NZLR 544.

10    In Application of Richard Albarran; Harb v Harb [2010] NSWSC 1251, Brereton J considered the effect of s 66G(7). His Honour considered a number of prior cases on that provision, being MacDiarmid v MacDiarmid [1957] 74 WN (NSW) 170 at 171, Abbott v Pegler (1980) 1 BPR 97,025 and Hughes v Egger (No 2) [2005] NSWSC 323; 12 BPR 22,791 at [15]. His Honour said at [19]:

These cases demonstrate that, after trustees have been appointed pursuant to s 66G for sale of the property, the rights of the beneficial owners of the property become a right to have the trust for sale performed and to share in the proceeds of sale in accordance with their beneficial interests. They no longer have a beneficial interest in the real property itself.

11    In the present case, the obligation on the trustees for sale to pay the net proceeds to the former owners of the property was reinforced by specific orders made by Buchanan J at the time of making the original appointment. Those orders were varied only in respect of who was appointed, following a Full Court decision that overturned the appointment of Mr Prentice as sole trustee for sale: Coshott v Prentice [2014] FCAFC 88; 221 FCR 450 at [20].

12    Relevantly, orders 7 and 11 made by Buchanan J on 10 September 2013 were as follows (the portion in square brackets being an amendment made by Buchanan J on 19 September 2014):

7.    The property be sold by [the Trustees for Sale], with all the obligations and privileges pertaining thereto (including signing for and on behalf of the second cross-respondent any contract for the sale of land and any transfer pursuant to the Real Property Act 1900 (NSW) and determining the price at which the property is to be sold) and the proceeds after payment of all expenses of and incidental to such sale to be divided equally between the cross-claimant [Mr Prentice in his capacity as trustee of the property of Mr Coshott, a former bankrupt] and second cross-respondent [Mrs Coshott], pursuant to order 11.

…

11.    Upon completion of the sale of the property, the proceeds thereof be distributed in the following manner and priority:

11.1    Firstly, in discharge of any valid encumbrance over the title to the Property;

11.2    Secondly, in payment of agent’s commission, auctioneers and auction fees associated with the sale of the property;

11.3    Thirdly, expenses and reasonable legal costs and disbursements incurred upon the sale of the property;

11.4    Fourthly, in adjustment of council rates, water rates and other statutory imposts;

11.5    Fifthly, in payment of the cross-claimant’s professional and legal costs of the proceedings;

11.6    Sixthly, and subject to orders above, the remains to be divided equally between the cross-claimant and the second cross-respondent subject to any charge or lien.

Garnishee orders against trustees for sale

13    Orders under debt enforcement laws that can be made by the Supreme Court of New South Wales may also be made to similar effect by this Court, including garnishee orders, using the New South Wales provisions as a form of surrogate federal law, applied by the operation of s 53 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and, if needed, r 41.10 of the Federal Court Rules, obviating the need for reliance on s 79 of the Judiciary Act.

14    Section 53 of the Federal Court Act provides:

53    Enforcement of judgment

(1)    Subject to the Rules of Court, a person in whose favour a judgment of the Court is given is entitled to the same remedies for enforcement of the judgment in a State or Territory, by execution or otherwise, as are allowed in like cases by the laws of that State or Territory to persons in whose favour a judgment of the Supreme Court of that State or Territory is given.

(2)    This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for the execution and enforcement of judgments of the Court.

15    Rule 41.10 of the Federal Court Rules provides:

41.10    Execution generally

(1)    A party who wants to enforce a judgment or order of the Court may apply to the Court to make an order, to issue any writ, or to take any other step that can be taken in the Supreme Court of the State or Territory in which the judgment or order has been made as if the judgment or order was a judgment or order of that Supreme Court.

(2)    An order made under subrule (1) authorises the Sheriff, when executing the orders of the Court, to act in the same manner as a similar officer of the Supreme Court of the State or Territory in which the order is being executed is entitled to act.

(3)    A party who wants to enforce an order in more than one State or Territory may adopt the procedures and forms of process of the Supreme Court of the State or Territory in which the judgment or order has been made.

Note:    It is not necessary to adopt different modes of procedure and forms of process in each State or Territory.

16    The relevant provision of the Civil Procedure Act 2005 (NSW), applied in the above way, is s 117, which provides:

117    Operation of garnishee order in relation to debts

(1)    Subject to the uniform rules, a garnishee order operates to attach, to the extent of the amount outstanding under the judgment, all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of the order.

(2)    For the purposes of this Division, any amount standing to the credit of the judgment debtor in a financial institution is taken to be a debt owed to the judgment debtor by that institution.

17    Critically, the key terms of s 117 provide that a garnishee order may “attach … all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of the order”. This phrase has been the subject of long-standing judicial interpretation both in Australia and in the United Kingdom, from where it apparently originated, as considered below.

18    In Coshott v Learoyd [2001] FCA 88, Wilcox J considered the effectiveness of garnishee orders addressed to a bank which, as mortgagee in possession, had effected the sale of a property previously owed by Mrs Coshott and her husband, Mr Robert Coshott. The garnishee orders were in relation to costs orders made against Mrs Coshott and had been served after the sale of the property and prior to payment into court of the amounts to which the garnishee orders related. To that extent, the facts in Coshott v Learoyd were quite similar to the present situation, with the only material difference being the basis upon which a power of sale existed and was exercised. As in this case, an application was made for payment out of the moneys paid in to court. It was also argued on behalf of Mrs Coshott in Coshott v Learoyd that the garnishee orders should be set aside, a step that has not been taken in this case. It was further argued in Coshott v Learoyd that the moneys in court should be paid to Mrs Coshott, again a step that has not been taken in this case. Nonetheless, Mrs Coshott now seeks to stop the payments out that are presently sought and to stop a further garnishee order being issued.

19    Wilcox J dismissed Mrs Coshott’s application in Coshott v Learoyd. His Honour’s reasons for doing so are instructive on the topic of whether the obligation of the bank to account for the net proceeds of sale was a “debt” for garnishment purposes. His Honour found that it was, observing:

Whether the obligation was a debt

41     Finally, Mr Wasilenia [counsel for Mrs Coshott] contends that, although Citibank had an obligation to pay to Mrs Coshott one-half of the surplus on sale of the mortgaged property, this was not a “debt” within the meaning of rule 5(1) of Part 46 of the Supreme Court Rules [now s 117 Civil Procedure Act].  He says a mortgagee’s obligation to account to the mortgagor, for the proceeds of sale of a mortgaged property, is an equitable obligation for which the word “debt” is inappropriate.

42    I reject this contention.  I do not doubt that a mortgagee’s obligation is an obligation enforceable in equity: see Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd ed, 1992) para [115].  However, that is not inconsistent with it also being a “debt” within the meaning of Order 46 rule 5(1).  A debt and a trust obligation are not mutually exclusive concepts.  Where a trustee comes under a present obligation to pay money to a beneficiary the trustee also becomes a debtor of the beneficiary in respect of those moneys.

43    The word “debt” is one of wide application.  In Re European Life Assurance Society (1869) LR 9 Eq 122 at 127, James VC defined the word “debt”, in a garnishee context, as meaning “a sum of money which is now payable or will become payable in the future by reason of a present obligation”.  Section 112(4) of the Conveyancing Act 1919 (NSW) imposes a payment obligation in respect of any net surplus after exercise of a mortgagee’s power of sale.  The subsection reads:

“(4)    The money which is received by the mortgagee or chargee, arising from the sale, after discharge of prior incumbrances to which the sale is not made subject (if any), or after payment into court under this Act of a sum to meet any prior incumbrance, shall in the absence of an express contract to the contrary be held by the mortgagee or chargee in trust to be applied by the mortgagee or chargee, first in payment of all costs, charges, and expenses properly incurred by the mortgagee or chargee as incident to the sale or any attempted sale or otherwise; and, secondly, in discharge of the money, interest, and costs, and other money (if any) due under the mortgage or charge and the residue of the money so received shall be paid to the person entitled to the mortgaged or charged property or authorised to give receipts for the proceeds of the sale thereof.” [Emphasis added]

If there is a residue, the mortgagee has an obligation to pay that residue to the mortgagor; there is a “debt”.

20    The emphasis in the above quote was added by Wilcox J. Particular emphasis should be placed on the first sentence in [43] from Coshott v Learoyd above: a debt arises for garnishment purposes when there is a sum of money payable in the future by reason of a present obligation. That is so even if the precise amount payable is not presently known, because, as Wilcox J observed in Coshott v Learoyd at [36]:

In O’Driscoll v Manchester Insurance Committee [1915] 3 KB 499, the English Court of Appeal had to consider the application of garnishee provisions to the case of a medical practitioner debtor who was entitled to receive payments from an insurance committee. At the date of service of the garnishee order, the committee held funds, out of which a payment would be made to the practitioner, but the amount of his entitlement had not been determined. The Court held this did not matter. All three judges distinguished the case from one where there was not yet certainty about the existence of a debt. For example, Swinfen Eady LJ said at 512-513:

“Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore there was a ‘debt’ at the material date, though it was not presently payable and the amount was not ascertained. It is not like a case where there is a mere probability of a debt, as, for instances, where a person has to serve for a fixed period before being entitled to any salary, and he has served part of that period at the time the garnishee order nisi is served. In such a case there is no 'debt' until he has served the whole period.”

The present garnishee orders and the application for a further garnishee order

21    In the present case, the trustees for sale settled on the sale of the property that they were appointed to carry out in October 2015. By way of affidavit sworn on 29 February 2016, the trustees for sale indicated that as part of a proposed distribution of the sale proceeds, Mrs Coshott would be entitled as co-owner to an amount of $330,204. On the basis that they had received a number of garnishee orders from judgment creditors of Mrs Coshott, the trustees for sale sought to pay her entitlement under the distribution into Court up to the amount of the garnishee notices to avoid involvement in any dispute about the enforcement of the underlying debts.

22    On 9 March 2016, Buchanan J made orders that the trustees pay money into Court as follows:

(1)    $14,153.42 – sought by Mr Barry and Mr Board by way of a garnishee order of the District Court of New South Wales dated 13 January 2016.

(2)    $299,000 – sought by Mr Prentice by way of a garnishee order made by a Registrar of this Court dated 20 January 2016.

(3)    $65,400 plus interest of $10,359.19 – sought by Mr Barry by way of a garnishee order of the Local Court of New South Wales dated 3 February 2016.

(4)    $44,091.41 – sought by Mr Barry by way of a garnishee order of the Local Court of New South Wales dated 1 March 2016.

23    The sum that was in fact paid into Court by the trustees for sale was $319,996, which is only sufficient to meet items (1) and (2) above, and $6,842.58 of item (3). The applicants in combination seek payment in order of the date of the garnishee orders to that effect, with interest to be apportioned pro rata.

24    Mr Prentice seeks a further garnishee order addressed to the trustees for sale in the amount of $177,670.29.

25    The trustees for sale are ultimately required to distribute the balance of the proceeds of the sale of property to the beneficiaries. As at the date of the issue and service of the four existing garnishee orders, that obligation to account to Mrs Coshott for her share of the net proceeds of sale had been triggered by the completion of the sale of the property. That obligation is a form of equitable debt and is not finally discharged until the final payment is made to Mrs Coshott. Interim payments do no more than pay down the final debt.

26    The question that arises in the present case is whether the obligation to account to Mrs Coshott for her share of the net proceeds of sale of the property constitutes a debt that is “due or accruing from the garnishee to the judgment debtor at the time of service of the order”, within the meaning of s 117 of the Civil Procedure Act. That is, do the trustees for sale have a debt due or accruing to Mrs Coshott to which a garnishee order may attach in favour of her judgment creditors, being Mr Prentice, Mr Barry and Mr Board? By reason of the statute and case law referred to above, the answer to that question must be “yes”.

27    The combined effect of s 66G(7) and, if needed, orders 7 and 11 of the orders made by Buchanan J on 10 September 2013 reproduced above at [12], was that the trustees for sale in this case had substantially the same present obligation upon a sale being concluded to account to the original owners of the property for the net proceeds of sale as is imposed by s 112(4) of the Conveyancing Act on a mortgagee after exercising a power of sale. Following Coshott v Learoyd, that present obligation in turn is also a “debt” for the purposes of making a garnishee order under s 117 of the Civil Procedure Act.

28    By reason of the foregoing, the proceeds of sale, subject to deduction of the costs and expenses of the trustees for sale of the ambit approved by the Full Court in Coshott v Crouch at [13], were “debts” for the purposes of garnishment. The judgment debtors were entitled to obtain and serve a garnishee order made under s 117 of the Civil Procedure Act upon the trustees for sale, provided it was served between the time that the obligation arose upon the completion of the sale of the property and extinguishment of that debt upon the final payment being made to Mrs Coshott. Such garnishee orders could be satisfied, in whole or in part, by payment into Court: see Coshott v Learoyd at [32]. For the same reasons, Mr Prentice is entitled to obtain the further garnishment order that he seeks.

Conclusion

Orders

29    The following payments should be ordered to be made out of the moneys paid into Court of $319,996:

(1)    $14,153.42 to Mr Barry and Mr Board;

(2)    $299,000 to Mr Prentice;

(3)    $6,842.58 to Mr Barry; and

(4)    payment of interest in the account at the time the principal sums are paid out, in the following proportions:

(a)    4.4% [$14,153.42 divided by $319,996] to Mr Barry and Mr Board;

(b)    93.5% [$299,000 divided by $319,996] to Mr Prentice; and

(c)    2.1% [$6,842.58 divided by $319,996] to Mr Barry.

30    The further garnishee order sought by Mr Prentice should issue.

31    Orders to the above effect granting the relief sought will be made and entered forthwith.

Costs

32    Given that the principal authority by which it is clear that the trustees for sale could validly be garnisheed by the applicants, Coshott v Learoyd, involved Mrs Coshott herself, the opposition both to payment out of Court and to the issue of a further garnishee order was clearly devoid of merit. In those circumstances, there does not seem to be any reason why the interlocutory applicants should be out of pocket by having to litigate for what should have been routine relief. A similar view was taken, albeit in relation to an appeal that also involved Mrs Coshott, the trustees for sale, and Mr Prentice: see Coshott v Crouch at [58]-[59]. However, Mrs Coshott has not been given an opportunity to make any submissions as to why indemnity costs are not appropriate.

33    The appropriate course is to order Mrs Coshott to pay the applicants’ costs, and to make provision for determination both of the basis for those costs and of the quantum of those costs, the latter by a Registrar of the Court.

Associate:

Dated:    20 October 2017

SCHEDULE OF PARTIES