Elias v Pascoe

LEGISLATION CITED: Bankruptcy Act 1966 (C'th) s5, s27, s120, s121, s123, s139J, s139ZQ, s139ZR, s139ZS, s139ZT, s139ZQ, Constitution s75

Cottrell v Nichols [2003] FCA 1351 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 General Steel Industries Inc v Commissioner for Railways (NSW) and Others [1964] 112 CLR 125 CASES CITED: Green v Schneller (2001) 189 ALR 464 Halse v Norton (1997) 76 FCR 389 Re Chase; Permfox Pty Ltd v Official Receiver for the Bankruptcy District of New South Wales [2002] FCA 1564 Re McLernon; ex parte SWF Hoists and Industrial Equipment Pty Ltd v Prebble (1995) 58 FCR 391 Sutherland v Brian (1999) 149 FLR 321

PARTIES: George ELIAS (Appellant) Scott Darren PASCOE as trustee of the bankrupt Estate of Milad ELIAS (Respondent)

COUNSEL: V R W GRAY (Appellant) B A J COLES, QC/ J M WHITE (Respondent)

SOLICITORS: Strathfield Law (Appellant) Kemp Strang (Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40550/05 DC 4851/03

GILES JA SANTOW JA BRYSON JA

9 MAY 2006 George ELIAS v Scott Darren PASCOE as Trustee of the bankrupt Estate of Milad ELIAS Judgment 1 GILES JA: Mr Milad Elias was made bankrupt on 18 November 2002. The respondent became the trustee of his bankrupt estate. On 13 July 2003 the Official Receiver gave to the appellant, a brother of Mr Milad Elias, a notice under s 139ZQ of the Bankruptcy Act 1966 (C'th) ("the Act"), requiring that the appellant pay to the respondent $70,561 as money received as a result of a transaction by Mr Milad Elias that was void against the respondent ("the Notice"). On 17 December 2003 the respondent brought proceedings against the appellant in the District Court claiming the $70,561. On 6 June 2005 J C Gibson DCJ ordered that there be summary judgment against the appellant for that sum. This is an application for leave to appeal from the judge's decision, heard on full submissions as if an appeal. 2 In my opinion, the judge was in error in ordering summary judgment, first, because she refused an adjournment to the appellant so that he could challenge the validity of the Notice in the Federal Magistrates Court, and secondly because she held that there was not an arguable defence to the respondent's claim. Although technically interlocutory and thus requiring leave to appeal, and for an amount less than $100,000 and requiring leave to appeal for that reason also, the judgment effectively determined the rights and obligations of the parties with respect to a not insignificant sum of money. It was ordered in circumstances in which it would be a manifest injustice to allow the judgment to stand. Leave to appeal should be granted, and the appeal should be allowed.

Relevant provisions of the Act 3 Section 139ZQ of the Act is in its Division 4B of Pt VI. By s 139J, the objects of the Division include - "(b) to enable the recovery of certain money and property for the benefit of the bankrupt's estate". 4 Section 139ZQ provides - " 139ZQ. Official Receiver may require payment

(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) if the Official Trustee is the trustee - on the initiative of the Official Receiver; or

(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 installments, as are set out in the notice.

(4) After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by a further notice given to the person, revoke or amend the first-mentioned notice.

(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) A notice to be given under this section to the Commonwealth, a State or a Territory, or to an authority of the Commonwealth, of a State or of a Territory, is taken to be duly given if it is given to a person who, by any law, regulation, appointment or authority, has the function of paying, or in fact pays, money on behalf of a Department of the Commonwealth, of that State or of that Territory, or on behalf of the authority, as the case may be.

(7) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.

(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." 5 By s 139ZR, if a notice under s 139ZQ is given to a person in respect of any property the property is charged with the liability of the person to make payments to the trustee as required by the notice. 6 By ss 139ZS and 139ZT of the Act - " 139ZS. Power of Court to set aside notice

(1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, 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, the Court may make an order setting aside the notice.

(2) A notice that has been set aside is taken not to have been given.

(1) A person who refuses or fails to comply with a notice under section 139ZQ is guilty of an offence punishable upon conviction by imprisonment for a period not exceeding 6 months.

(2) If a person is convicted of an offence against subsection (1) in relation to the refusal or failure of the convicted person or another person to comply with a notice under section 139ZQ, the court that convicted the person may, in addition to imposing a penalty on the convicted person, order that person to pay to the trustee an amount not exceeding the amount, or the total of the amounts, that the convicted person or the other person, as the case may be, refused or failed to pay to the trustee in accordance with the notice." 7 By reference to s 5 of the Act, in s 139ZS "the Court" means a Court having jurisdiction in bankruptcy under the Act. By s 27, the Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy, exclusive of the jurisdiction of all courts other than that of the High Court under s 75 of the Constitution or of the Family Court under certain provisions of the Act. By reference to s 5, in relation to jurisdiction or proceedings "bankruptcy" means any jurisdiction or proceedings under or by virtue of the Act.

The Notice 8 In the Notice it was asserted that the appellant had received $70,561 as a result of a disposition of property under s 120 and/or s 121 of the Act that was void against the respondent. The setting out of the facts and circumstances, as required by s 139ZQ(2), was relevantly that Mr Milad Elias and his wife had acquired a property at Guildford as joint tenants in 1993 (para 3), had subdivided and improved it into two lots with dwellings (para 5), had sold the two lots (paras 6 and 7), and - "8. On 30 March 2000 you received the net proceeds of sale after discharge of mortgage and other charges on 19 and 19A Osgood Street Guildford ('the properties') pursuant to a direction to pay given by the bankrupt and Therese Elias to their solicitors. The net proceeds of sale were $141,123 of which the bankrupt as joint tenant was entitled to $70,561. … 11. At the date when the bankrupt directed his net interest in the properties to you, you gave no consideration to him for the transfer of property ('transfer') to you. 12. The said transfer is void pursuant to the provisions of Section 120 of the Bankruptcy Act in that it was transferred at a time within 5 years of the commencement of the bankruptcy and you gave no consideration for the transfer or consideration of less than market value of the properties. 13. Further and in the alternative the said transfer is void pursuant to the provisions of Section 121 of the Bankruptcy Act in that the transferor's main purpose in making the transfer was to prevent the transferred properties from becoming divisible among the transferor's creditors. 14. Further and in the alternative the said transfer is void pursuant to the provisions of Section 121 of the Bankruptcy Act in that the transferor's main purpose in making the transfer was to hinder or delay the process of making the property available for division among the transferor's creditors." 9 The Notice demanded payment of the $70,561 within 28 days and said that action might be taken to recover the money as a debt pursuant to s 139ZQ(8). Although not required by s 139ZQ, it continued - " AND FURTHER TAKE 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. AND FURTHER TAKE NOTICE that failure to comply with this notice may, under section 139ZT of the Bankruptcy Act , 1966. render you liable upon conviction for a term of imprisonment not exceeding six months. Where a person is convicted under this section, the Court in addition to imposing a penalty on the convicted person may order that the person pay to the Trustee an amount not exceeding an amount referred to in this notice. AND FURTHER TAKE NOTICE that the Court on application by you or any other interested person may make an application seeking an order setting this notice aside on the basis of the facts and circumstances set out in this notice."

Response to the Notice 10 The appellant's solicitors wrote to the Official Receiver by a letter dated 30 July 2003, taking up the invitation to make a submission "for the Notice to be reduced". 11 After referring to the Notice, the letter said - "We act for Mr George Elias. Our client denies being the recipient of any voluntary disposition void under s 120 and denies being the recipient of a fraudulent disposition void under s 121. We are instructed that the facts under which you have made the assertions contained in the Notice are either incorrect or incomplete. We are instructed that should you make a material finding of fact or law to the contrary, our client will make application to the Court under s 139ZS."

12 Over some pages the letter then explained that the appellant had received approximately $370,000 from the sale of the two lots, and that he had received it partly as compensation for the work he had done and money he had spent renovating the existing dwelling on the property, subdividing the property and constructing a dwelling on the new lot, and partly in reimbursement of a loan. Although the letter did not expressly so state, the appellant was a builder and property developer. It was explained that the work had been performed under a joint venture in which the new lot was to belong to the appellant but to be occupied by his (and Mr Milad Elias') parents; that Mr Milad Elias had then said that he did not wish to remain living in the existing dwelling; that by agreement the joint venture had been unwound and the appellant had advanced $200,000 to his brother's wife to help purchase another property; and that the $370,000 was reimbursement of approximately $320,000 outlaid for the work and part repayment of the loan. 13 The letter concluded - "As you will infer from the above, the participation by our client in the proceeds of sale of Osgood Street were [sic] not voluntary dispositions (in any sense of the term), nor ones made to defraud creditors. They were payments by direction made in the ordinary course of business and for valuable consideration. We are also instructed that the amounts claimed for works are conservative. As such the amount claimed in the Notice should be reduced to NIL ." (emphasis in original) 14 The judge accepted that the letter was sent by the solicitors, but the Official Receiver had no record of receiving it.

The District Court proceedings 15 In the statement of claim filed in the District Court the respondent alleged his position as trustee of Mr Milad's bankrupt estate (para 1), and - 2. On or about 3 July 2003, the plaintiff caused to be issued by Giulia Inga, the Official Receiver for the Bankruptcy District of New South Wales, a notice under section 139ZQ of the Bankruptcy Act 1966, to George Elias of 16 Lindsay Street, Burwood in the State of New South Wales. Particulars Document titled 'Notice under Section 139ZQ of the Bankruptcy Act 1966' and dated 3 July 2003 ('the Notice'). 3. The plaintiff relies on the Notice as if the same were fully pleaded herein.

4. It was an express term of the Notice that the defendant was required to pay the plaintiff the sum of $70,561.00 within 28 days of service of the Notice on the defendant.

5. It was a further term of the Notice that in the event the defendant did not pay the sum of $70,561.00 to the plaintiff, the plaintiff shall be entitled to take action against the defendant in a court of competent jurisdiction for the recovery of the sum of $70,561.00 as a debt due by the defendant to the plaintiff pursuant to the provisions of section 139ZQ(8) of the Ba nkruptcy Act 1966.

6. It was a further term of the Notice that should the defendant consider a lesser amount than $70,561.00 be owed by the defendant to the plaintiff, the defendant was required to make written submission to the official receiver within 28 days of service of the Notice seeking a reduction of the amount claimed in the Notice and setting out the grounds why the Notice ought to be reduced." 16 The respondent then alleged the service of the Notice (para 7) and the appellant's failure to pay the $70,561 (para 8) or to provide a written submission seeking a reduction of the amount claimed and setting out grounds for the reduction (para 9). The pleading concluded - "10 In the premises, the defendant is indebted to the plaintiff in the sum of $70,561.00. Particulars The plaintiff relies on section 139ZQ(8) of the Bankruptcy Act 1966 ." 17 The appellant's solicitors wrote to the respondent's solicitors by a letter dated 29 December 2003. They referred to para 9 of the statement of claim alleging failure to provide a written submission, drew attention to their letter of 30 July 2003 (enclosing a copy), and said that they had had no reply. They said - "As the appropriate forum for the determination of the debt claimed is the Federal Court please advise whether you are instructed to discontinue the current District Court proceedings and commence in the correct forum? If not, please advise whether you are instructed to amend the current pleadings so as not to (inadvertently) mislead the Court?" 18 The second of these paragraphs was a reference to the allegation in para 9 of the statement of claim. Understandably enough, the solicitors went on to express concern that the proceedings had been brought without a prior reply to the letter of 30 July 2003, and asked that no action be taken until a reply was provided. 19 Three follow-up letters and a telephone conversation with the respondent's solicitors finally brought a rather curt response, by a letter dated 13 February 2004, that the Official Receiver had no record of receiving the letter of 30 July 2003 and "[i]n the circumstances, we are instructed to proceed with the District Court proceedings". 20 The appellant's defence was filed on 27 February 2004. It was - "1. The Defendant admits paragraphs 1 and 2 of the statement of claim.

The Defendant denies that paragraph 3 of the statement of claim constitutes a pleading in accordance with the rules of court and in any event denies the assertions of fact contained in paragraphs 5, 11, 12, 13 and 14 of the notice.

The Defendant admits that the notice purported to require the Defendant to pay to the Plaintiff the sum of $70,561 but otherwise denies paragraph 5 of the statement of claim.

The Defendant will refer to the notice dated 3 July 2003 for its true meaning and effect but otherwise denies paragraph 6 of the statement of claim.

The Defendant denies paragraphs 7 and 8 of the statement of claim.

The Defendant denies paragraphs 9 and 10 of the statement of claim." 21 Some observations are appropriate at this point. 22 It is unfortunate that the respondent did not see fit to give a reasoned response to the letter of 30 July 2003. There was no proper basis to doubt that the appellant's solicitors had sent the letter and believed it had been received, and thus to ignore the letter apparently because the 28 days in the Notice (which in any event had no statutory foundation) had been surpassed; and even as a copy letter received in December 2003, what was in the letter of 30 July 2003 called for attention. 23 It was not correct that, as the letter of 29 December 2003 asserted, the appropriate forum for "determination of the debt claimed" was the Federal Court, in that the respondent was entitled to bring his proceedings in the District Court: see s 139ZQ(8) of the Act. The appellant's solicitors were aware of s 139ZS of the Act, see their letter of 30 July 1993, and it may be that they had it in mind, but it was for the appellant to bring his own proceedings in the Federal forum. As will be seen, and as the defence showed, when the respondent continued with his proceedings the appellant's solicitors accepted that the District Court was a forum for "determination of the debt claimed". 24 The respondent's allegation in the statement of claim of failure to provide a written submission was of doubtful relevance to his entitlement to recover the $70,561, but was apt to convey to the appellant that he could contest in the proceedings the facts and circumstances in the Notice; the asserted reliance on the Notice as if fully pleaded would have assisted in this. It is unfortunate that the appellant's defence denied some allegations which do not seem to have been open to denial, such as the service of the Notice and failure to pay the $70,651, but it did. By the denials in paras 2, 3 and 10 the defence made plain the appellant's position that the facts and circumstances set out in the Notice were not correct and that he could defend the claim on that ground.

Prior to the summary judgment application 25 The respondent filed in the District Court an affidavit sworn on 17 January 2005 deposing as to his trusteeship, the purchase of the Guildford property and its sub-division and sale, and the payment of $141,123.14 to the appellant, the service of the Notice, and that the amount claimed had not been paid nor had application been made to have the Notice set aside. The annexures to the affidavit included a copy of the Notice. They also included a settlement statement recording payment of $141,123.14 to "C Elias", which the respondent said in the affidavit he believed was a mistake for the appellant. 26 The appellant filed in the District Court affidavits of Mr Milad Elias, Mr Milad Elias' wife and himself sworn on 6, 20 and 20 April 2005 respectively. They were lengthy, and deposed to a course of events ending with payment of approximately $370,000 to the appellant of which he directed payment of $141,123.14 to Charlie Elias, another brother. The affidavits gave broadly the same account as had been given in the letter of 23 July 2003, but in more detail. The appellant said that at the time he had no notice of any act of bankruptcy or other insolvency on the part of Mr Milad Elias. 27 Our papers did not show when these last-mentioned affidavits were served on the respondent. Counsel for the appellant said that inquiries of his solicitors showed that a letter enclosing them was sent to the respondent's solicitors on 12 April 2005. That can not be right as to the affidavits of 20 April 2005. It is clear enough, however, that the affidavits had been received by the respondent at the time the summary judgment application was heard. 28 The District Court proceedings were set down for hearing on 2 June 2005. Through error in the office of the appellant's solicitors, they thought that the date was for a directions hearing. J C Gibson DCJ vacated the hearing, but received an oral application by the respondent for summary judgment. The judge stood the oral application over for hearing on 6 June 2005. 29 Our papers did not include a transcript of the proceedings before the judge on 2 June 2005. Whatever happened, however, produced an affidavit of Mr Pasternacki of the appellant's solicitors, sworn on 3 June 2005, explaining the error in his office and at least in part directed to whether the solicitors should pay costs wasted because of the vacation of the hearing. However, the affidavit spoke also of an "issue of lack of jurisdiction" raised on 2 June 2005 as a new issue of which the appellant had not previously been apprised. Mr Pasternacki referred to respondent's submissions served on the morning of 2 June 2005, and the new issue must have been the respondent's contention in those submissions, which I infer was to be put forward at the hearing but was then made the basis of the application for summary judgment, which the judge described in her reasons when she said that on 2 June 2005 counsel for the respondent "raised the issue of the entitlement of the defendant to defend these proceedings, bearing in mind that there had been no application to set aside the notice in the Federal Court". 30 The new issue presented to the appellant that he could not, as he had sought to do by his defence and the filing of the affidavits, contest in the District Court the facts and circumstances set out in the Notice and defend the claim on that ground; on the respondent's contention, the only avenue for contest was by an application under s 139ZS of the Act to set aside the Notice. As to that, Mr Pasternacki's affidavit included - "13. As a result of the events of 2nd June 2005 and the service that morning of the Plaintiff's submissions, the Defendant has now brought proceedings in the Federal Magistrates Court at it's [sic] Sydney Registry File Number SYG 1445/05.

14. I pray that this Honourable Court will stay these proceedings pending the determination of this matter on its merits."

The hearing on 6 June 2005 31 The respondent was represented on 6 June 2005 by Mr J White of counsel. The appellant was initially represented by Mr V R W Gray of counsel, and when he had to depart by Mr Pasternacki. The judge had the respondent's written submissions from 2 June 2005, and had received a written outline of submissions from the appellant. 32 Neither written submissions was in our papers. The transcript of the oral submissions is hard to understand without the written submissions, and why an adjournment was refused and why summary judgment was granted is to be found in the judge's reasons, not the transcript. Some reference to the transcript, however, helps to understand the reasons. 33 None of the affidavits of January and April 2005 was read in the course of the submissions of Mr White and then Mr Gray, although it is clear enough that the judge knew they had been filed. At one point during Mr Gray's submissions the transcript records - "HER HONOUR: Yes but what is your defence to these proceedings? GRAY: We have a bona fide transaction for full value. HER HONOUR: Where do I find that in your defence? GRAY: Well off the cuff I -- HER HONOUR: I don't, do I, to be frank. I don't find anything in this defence. Where do I find that this is a bona fide transaction? GRAY: Certainly in the evidence and your Honour I'm sorry but I really must -- HER HONOUR: Mr Gray - Mr Gray I'm not going to go to the evidence . This defence - and when I read it I just couldn't make head or tail of it - nowhere does it say that it is a challenge to the validity of the notice and it's come before me for hearing in circumstances where your client wasn't ready for hearing and I converted it into a summary judgment application basically on the basis that this point needs to be dealt with but I'm dealing with a summary judgment application in a hearing where this is your client's defence and there's been no application to amend and I keep saying, where do you challenge the validity of their notice and you haven't." (emphasis added) 34 Mr Gray completed his oral submissions and departed. Mr Pasternacki then drew to the judge's attention that his affidavit showed that "Federal Court proceedings" were now on foot, and the judge said that "that would be relevant to the question of what I do". Mr Pasternacki did not at that time read his affidavit, but the judge engaged in an inconclusive discussion with Mr White and Mr Pasternacki about whether, if she were to enter summary judgment, the appellant could "still seek to set aside the notice and any judgment that was based on it". Mr White's response was that the appellant could not. 35 Mr White made his oral submissions in reply, in the course of which he said that the appellant had "now raised matters which go outside its [sic] defence" and read the respondent's affidavit of 17 January 2005. Mr White said that the affidavit set out what he called "jurisdictional facts", and that "all of the relevant facts are set out in detail in the notice which is now in evidence and prima facie unless there's a direct challenge those facts would be accepted by your Honour as being the facts as asserted would be accepted by your Honour as being correct" (emphasis added). The judge's response was, "That's very helpful". It was most odd. Mr White was relying on the facts in the Notice and postulating challenge to those facts. But the judge had declined to go to the evidence on which Mr Gray had wished to rely to challenge the facts in the Notice, and did not invite Mr Pasternacki to return to the affidavits filed on behalf of the appellant. 36 The judge said to Mr White "I've read what you've said about delay". This apparently referred to the respondent's submissions, and from the cases of which mention was then made was delay in applying to the Federal Magistrates Court. 37 After the mention of the cases the judge said to Mr White, "that's what you have to say in relation to the stay". The transcript continues - WHITE: We just need to be clear on that I think your Honour, there's no stay application before the Court as -- HER HONOUR: I think you'll find that's what Mr Gray's basically indicating. WHITE: Mr Gray didn't make that application which I don't want to cavil with but I have a couple of additional things that I would like to be taken into account. HER HONOUR: And what are they? … " 38 Mr White tendered the letter of 29 December 2003, saying that it showed that the appellant had "raised the question of a Federal Court being the proper place for argument about these issues" but had "done nothing until last Friday", and submitting that the delay would be important in the judge's exercise of her discretion. As another observation, this did not correctly represent the letter of 29 December 2003. The appellant's solicitors' point had been that the respondent should have brought his proceedings in the Federal Court. This was not correct, but application by the appellant under s 139ZS of the Act was a different matter. 39 The transcript continues - "WHITE: The other points on the stay application are based upon particularly Re Cotterel [sic: Cottrell v Nicholls [2003] FCA 1351], in my submission it's quite unlikely that the Federal Court or the Federal Magistrates' Court will set the notice aside in any event because of the delay. There's also a question of abuse of process which is raised by the defendant's conduct in having two applications pending in two different Courts dealing with the same issues. Prima facie that would be regarded as an abuse of process. So we're left in the situation where we say in the exercise of your Honour's discretion you simply wouldn't entertain any application for transfer. I somewhat doubt whether there's jurisdiction to order such a transfer anyway. HER HONOUR: I don't think there is I have to say. WHITE: I'm certainly not aware of any and Mr Gray hasn't descended into any explanation as to how the District Court would make that. HER HONOUR: No. I must say what I had in mind was whether or not I should grant some form of stay but I've heard your submissions on the stay. Is there anything further? I'll deal with the costs issue afterwards. WHITE: No." 40 The judge invited Mr Pasternacki to address her "in relation to the application for a stay". Mr Pasternacki referred to his affidavit, and the judge said it would "go in in due course". In her reasons the judge said that the materials before her were the statement of claim, the defence, the affidavit of the respondent and material attached to the affidavit of Mr Pasternacki, although at that point describing Mr Pasternacki's affidavit as going to the issue of costs. It was the source of the evidence of the application to the Federal Magistrates Court, and Mr Pasternacki had in terms asked that the Court "stay these proceedings pending the determination of this matter on the merits".

Error in refusing an adjournment 41 In her reasons the judge dealt with the stay application after she had dealt with the application for summary judgment. After pronouncing the order for judgment against the appellant, she continued - "That brings me to the question of whether or not a stay should be granted. It was not immediately apparent to me whether a stay was being sought. The precise nature of the orders sought by Mr Gray are that any judgment should be stayed to allow the defendant to make an application to the Federal Court under s 139ZS or that these proceedings be transferred to the Federal Court to enable to [sic] the defendant to make such application by way of cross-claim and enable issues between the parties to be determined." 42 Whatever may or may not have been immediately apparent, the judge heard and determined an application for a stay. Her description of the application as an application that any judgment be stayed is very difficult to understand. The transcript does not contain anything said by Mr Gray about a stay, but it is tolerably clear that the appellant's written submissions said something on that matter. The judge's reference in that respect to "what Mr Gray's basically indicating" does not suggest precision in the written submissions. In this Court the appellant, represented by Mr Gray, submitted that the judge had misdescribed the application, and that his application was not for a stay of execution of a judgment but that, if the judge was of the view that he was not entitled to put in issue in the District Court proceedings the facts in the Notice, the District Court proceedings should be stayed to allow him to pursue his application to set aside the Notice in the Federal Magistrates Court. The respondent, represented by Mr White as junior to Mr Coles QC, did not controvert this in his submissions. 43 In my opinion, the judge did misdescribe the application. From Mr Pasternacki's affidavit, an application had been made to the Federal Magistrate's Court and he asked for a stay in the terms earlier set out. A stay of execution of a judgment would have been manifestly unsatisfactory to the appellant. He may have found his application in the Federal Magistrates Court impeded by a judgment against him in the District Court, and may have found that, if he had the Notice set aside, he had difficulty in consequentially having the District Court judgment set aside - Mr White had submitted that he could not do so. How the judge came to misunderstand the stay application is unclear, but I am satisfied that she did. 44 In following paragraphs of her reasons the judge -

(a) stated "[t]he general principle … that the plaintiff should not be deprived of the fruits of his victory but at the same time the courts must exercise discretion in such matters in a wise and just fashion"; and

(b) referred to delay in applying to the Federal Magistrates Court, saying in particular that the appellant had been "receiving legal advice from July 2003 and considering issues of jurisdiction as early as December 2003" and regarding Cottrell v Nichols [2003] FCA 1351 as a case in which the "considerable delay" of twenty three months was "surprisingly similar" to the appellant's delay in applying to the Federal Magistrates Court; the judge did not specifically say that the appellant's delay weighed against a stay, but plainly so held. 45 The judge continued - "Then there was the question of whether there is a serious issue to be tried as to the validity of the notice. And in this regard I have to say, having looked at the affidavit of Mr Pascoe and having looked at the state of the defence which is essentially all I have, that it is simply impossible to say that there is any explanation of a reasonable kind for this transaction. I have read the statements in the letter of 30 July but I am not satisfied on the evidence before me that there is a serious issue to be tried as to the validity of notice having regard to the material that is before me for the purpose of this application. Accordingly the next order I make is application for stay refused." 46 The judge's reasoning was to apply the general principle and decline a stay because of the two factors of delay and no serious issue to be tried. With respect, she erred in each of these elements of the reasoning. 47 First, and because she regarded the application as an application for stay of execution of a judgment, the judge applied the wrong principle. It was not a case of depriving the respondent of the fruits of his victory. The exercise of her Honour's discretion should have started from the neutrality of the respondent's claim and the appellant's defence, the question being whether the crowning of the one or the other as victor should be on 6 June 2005 or on an adjourned date after the appellant had prosecuted his application to set aside the Notice. 48 Secondly, Cottrell v Nichols did not provide useful guidance. Because she regarded the application as an application for stay of execution of a judgment, the judge must have had in consideration the effect of delay on the proposed application to the Federal Magistrates Court. Her reasoning was that, if delay meant that the application was unlikely to succeed, that weighed against a stay. But the facts were quite different, and in the case before the judge there was in truth no delay of anything like twenty-three months. 49 Section 139ZS of the Act does not state any time within which an application to set aside a notice may or must be made. It was said in Cottrell v Nichols that an application should be made within a reasonable time, and that twenty-three months was not a reasonable time. The appellant had immediately responded to service of the Notice, by the letter of 30 July 2003. Until his solicitors received the letter of 13 February 2004, he would reasonably have expected consideration of his submission that the amount claimed in the Notice should be reduced to nil. Thereafter he demonstrated, by his defence and the filing of the affidavits, that he sought to contest in the District Court the facts and circumstances set out in the Notice and to defend the claim on that ground. He may or may not have been incorrect in that, which was the essential issue on the application for summary judgment, but Mr Pasternacki's affidavit made clear that until 2 June 2005 the respondent had not suggested that he was misguided, and that Mr Pasternacki was taken by surprise by what he called the new issue. The passage of time which could reasonably have been called delay was at best the fifteen months from February 2004 to early June 2005, but the time passed not because the applicant was sitting on his hands but because he believed (through his solicitors) that s 139ZS of the Act was not the sole avenue to challenge the facts and circumstances in the Notice. To say that the solicitors had been "considering issues of jurisdiction as early as December 2003" repeated the incorrect view of the letter of 29 December 2003 and overlooked the view of jurisdiction which, rightly or wrongly, they held. 50 Thirdly, the judge fell significantly into error when she said that there was not a serious issue to be tried as to the validity of the Notice. Again, she must have had in consideration whether there was a serious issue to be tried in the application to the Federal Magistrates Court. It was not helpful to say that there was no "explanation of a reasonable kind for this transaction" in the defence filed in the District Court, since what mattered was the explanation which would be put before the Federal Magistrates Court; nonetheless, the defence did squarely deny the essential components of the Notice going to voidness of the transaction against the respondent. Putting that aside, the judge looked to the evidence before her, and said that she was not satisfied that there was a serious issue to be tried as to the validity of the Notice "having regard to the material that is before me for the purposes of this application". The reason the judge did not have before her evidence supporting the appellant's denial of the facts and circumstances set out in the Notice, and thus showing what would support the application to the Federal Magistrates Court, was that she had declined to pay regard to the evidence which Mr Gray had said would show a bona fide transaction. There was a denial of procedural fairness so far as the judge refused the stay application on this ground. 51 The so-called stay application amounted to an application for adjournment of the summary judgment application. In my opinion, adjournment of that application, so that the appellant could prosecute in the Federal Magistrates Court his application to set aside the Notice, was the only reasonable course. The appellant had sought a stay. Where the basis of the respondent's application for summary judgment was that the Notice was determinative against the appellant unless successfully challenged in the Federal Court or the Federal Magistrates Court, and the appellant's solicitors had been taken by surprise by the new issue, it was unjust to deny to the appellant the opportunity to prosecute his application in the Federal Magistrates Court unless that application was without arguable merit. There was material of which the judge was aware, although she declined to pay regard to it, providing an arguable case against the voidness of the transaction, and considerations of delay adverse to the application were by no means cogent and were one only of the matters for the attention of the Federal Magistrates Court. There should have been an adjournment.

Error in ordering summary judgment 52 There is some difficulty, with respect, in discerning the basis on which the judge ordered summary judgment. The judge was critical of the framing of the appellant's defence, but the determinative basis appears to have been that it was not open to the appellant to defend the respondent's claim by challenging in the District Court the facts and circumstances set out in the Notice. 53 At an early point in her reasons the judge said - "And I note that in fact when the defence was filed there were only two issues that were in fact traversed by a denial. One of these was that no submissions of explanation had been provided and the other was a denial that the statement of claim 'constitutes a pleading in accordance with the rules of Court'." 54 This was not correct. The denials had gone further, and included in para 2 of the defence denial of "the assertions of fact contained in paragraphs 5, 11, 12, 13 and 14 of the notice". Whether or not it was open to the appellant to go behind the Notice in the proceedings in the District Court, by his defence he did so, and made plain his position that the facts and circumstances set out in the Notice were not correct and that he could defend the claim on that ground. 55 After referring to s 139ZQ of the Act and the respondent's reliance on s 139ZQ(3) and (8)), the judge said - "What then is the state of the pleadings? I think I have already made it quite clear that I consider the notice of grounds of defence to be less than helpful. Essentially it is not in dispute that there was a transaction, that the plaintiff is a registered trustee in bankruptcy and trustee of the bankrupt estate of Milad Elias, that the official receiver issued a notice to the defendant on or about 3 July 2003, that this notice related to a transaction, that the defendant was served with a notice on 13 July 2003 and that the defendant has failed to pay the plaintiff the amount specified in the notice order. It is not in dispute on the pleadings, and this is important, that the notice is regular on its face. There is no claim, and Mr Gray made this quite clear, in this Court, that the notice is invalid. There is no assertion that the notice should be for example set aside. Now Mr Gray asserted that these were in fact matters for the plaintiff satisfying the onus of proof. However, what amounts to discharging an onus of proof will depend very often on what the pleadings in a case say." 56 This is not easy to understand, but does not pay regard to what the defence did put in issue. There appears to proleptically underlie the judge's view of the pleading that, so long as there was a "valid" Notice, the facts and circumstances set out in it were not open to challenge. However, it is not necessary to explore this further because, after some further matters, the judge said - "Now I have repeatedly complained about this defence not disclosing any cause of action that I can determine. There is no assertion for example that the transaction was not a void, but a valid, transaction and the assertion that I should somehow look into affidavits that have been filed in the proceedings to determine this when these are matters that should be pleaded in my view is unsatisfactory. However, that is a minor point because the real question is whether these proceedings can be challenged in this Court at all." 57 The judge then said - "It is not in dispute that a person upon whom a s 139ZQ notice is served has an option of seeking an order under s 139ZS to set aside the order or to seek a declaration under s 30 of the Bankruptcy Act . That is a matter about which the parties agree. The trouble is that the Court as defined in the Bankruptcy Act under ss 5 and 27 of that Act is the Federal Court or the Federal Magistrates Court. This Court simply does not have the jurisdiction to entertain such an application. It must be brought in the Federal Court. What the defendant goes on to say in paragraph 4 subs C of the defendant's written submissions, is that the defendant can, as an alternative, defend the proceedings the trustee may bring to recover the monies or property referred to in the notices. In other words what is said is that notice issued under division 4B of the Bankruptcy Act are little more than letters of demand. It is a request for money. It may be that the person who receives it will pay up but if they do not there has to be a full hearing on the facts. And that, to be frank, is what Mr Gray is submitting, and that is what I have a problem with because the whole purpose, as I read the provisions of the Bankruptcy Act and the intention of the legislation, is to prevent that very scenario from occurring. Where a notice has been issued the Act, clearly, by its structure, it anticipates that an application will be brought to set aside the notice or to seek a declaration under s 30 of the Bankruptcy Act or some similar application. And it may well be that in the course of so doing, or if the proceedings are brought without the issuing of a s 139ZQ notice that there is a defence which involves looking a the merits of whether the transaction is void or not. I have no problem with that. What I have a problem with is the assertion that if a notice is issued and, there being no payment, an application is brought to sue on the notice as a debt so to speak that the proceedings can be defended in this Court without seeking to set aside the notice. It seems to me that that would defeat the purposes of the whole notice regime as set out in division 4B and that is not the intention of the legislation. This is not some form of letter of demand with a statutory section set at the top of it of a kind that's merely minatory in nature. The purpose of a notice under division 4B is that that notice must be complied with if it is not set aside or the subject of a declaration or some other form of proceedings, because the trustee, as I understand it, has the option of bringing proceedings in any event. Mr Gray drew to my attention that they may bring proceedings in this Court or in the Federal Court. But that does not mean that where a trustee has issued a notice that somehow that notice is invalidated because there are alternative means for the trustee to bring an action before the Court. So in summary I am satisfied that the purpose of the division as is set out in the mission statement, if I can call it that, in s 139J of the Act is to enable the recovery of money and property for the benefit of the bankrupt's estate and that the division provides what is called in the statute an administrative mechanism for the recovery of money where a transaction is asserted to be void which is intended to be simple and inexpensive in operation. If properly issued and not set aside under the appropriate provisions of the Act for setting aside notices the issue of the notice requires a person who receives a notice to pay to the trustee an amount equal to the money or the value of the property received or alternatively they must take the action that is before them as being alternative procedures. And I note the reference in the written submissions of the plaintiff to Perfox Pty Ltd in the matter of Chase v The Official Receiver for the Bankruptcy District of New South Wales 200 FCA 1560 [sic: re Permfox Pty Ltd; Chase v Official Receiver for the Bankruptcy District of New South Wales [2002] FCA 1564] where Mr Justice Allsop said this at para 3. In a way his Honour was merely stating the obvious but that is the situation. Having regard to those matters it follows that I do not accept Mr Gray's submissions that s 139ZS's jurisdiction is very limited and that it does not exhaust the ways in which a person to whom a s 139ZQ notice is served may defeat a trustee's claim. I accept that the cases referred to by Mr Gray, and in particular, Hawsey v Norton (1997) 76 FCI 389 [sic: Halse v Norton (1997) 76 FCR 389] make it quite clear that there is a statutory procedure for the issuing of a notice and that once that notice has been issued a party who receives that notice must take steps as are necessary to comply with it. One point which appeared to be raised before me, although it was canvassed faintly, was the assertion that in fact a letter had been sent to the official receiver explaining the nature of the transaction and that therefore in some way there had been compliance with the notice. That's a matter that really should be canvassed in any application to set aside the notice. Accordingly, having regard to these matters, and I am conscious that having received the relevant authorities and submissions in reply about an hour and a half ago I may not have done Mr Gray's submissions full justice, I am of the view that it is appropriate that I should enter summary judgment for the defendant." 58 On the application for summary judgment it was sufficient for the appellant to demonstrate an arguable defence. The authorities are well known and the sufficiency has been expressed in different words, including in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99 that it must be clear that there is "no real question to be tried". 59 The judge's citation of Re Permfox Pty Ltd; Chase v Official Receiver for the Bankruptcy District of New South Wales did not support her decision. Allsop J said at [3] that s 139ZQ of the Act provided an administrative mechanism for recovery of transfers void against a trustee, and that "[i]f properly issued, and if not set aside under s 139ZS of the Act, the issue of the notice requires the person to pay to the trustee an amount equal to the money or the value of the property received". This did not address whether or how proceedings brought pursuant to s 139ZQ(8) could be defended where the notice had not been set aside, and left for determination what might be encompassed by "if properly issued". 60 Nor did the judge's citation of Halse v Norton support her decision. In that case it was held that, once the applicant under s 139ZS had adduced evidence to show that there was a real issue to be tried as to the transaction in question, the trustee had the onus of proving that the transaction was void as against him. Black CJ said that the power to issue a notice is "conditioned upon … the existence of the facts and circumstances that produce [the result of voidness]" (at 392), and that s 139ZS was not the exclusive means of challenging a notice. Lee and Nicholson JJ said that s 139ZS permitted review of the Official Receiver's opinion and his acts based on that opinion (at 398). To the contrary of supporting s 139ZS as the exclusive avenue for defeating a trustee's claim, their Honours accepted its non-exclusivity, and recognised that a notice could be challenged by challenging the facts and circumstances and the voidness said to result. 61 Their Honours all referred to Re McLernon; ex parte SWF Hoists and Industrial Equipment Pty Ltd v Prebble (1995) 58 FCR 391, in which Carr J had accepted that a notice was neither conclusive nor challengeable only through s 139ZS; his Honour's reasons included (at 403) - "I have already referred above to the fact that there is no provision that a s 139ZQ notice is conclusive. A hearing under s 139ZS is in my opinion a hearing de novo in which the Court may investigate and determine the correctness of the facts and circumstances stated in the notice and whether any defence to the liability asserted in the notice arises out of additional facts proved by the applicant. Furthermore, in my opinion, there are alternative means for challenging the notice. Olney J in Re Lucera referred to s 30 of the Act as a source of such a power. For example, under s 30(1)(b) the Federal Court would have power in an appropriate case to make a declaration that the condition precedent to the operation of s 139ZQ had not been satisfied and also to grant an injunction restraining any further proceedings based upon a notice issued under that section." 62 The force of a notice given under s 139ZQ of the Act may arise beyond the circumstances of the present case. It may arise in proceedings concerning a charge under s 139ZR, or in criminal proceedings taken under s 139ZT. The Act does not expressly say that liability to pay a charge or commission of an offence can only be contested via an application under s 139ZS. A notice may have prima facie force, and there are arguments for giving it more than prima facie force unless set aside such an application, but there are also arguments to the contrary. In my opinion, there is a real question to be tried as to whether the appellant could defend the respondent's claim by challenging, otherwise than by an application under s 139ZS of the Act, the facts and circumstances set out in the Notice. 63 The respondent submitted in this Court that setting aside the Notice was within the exclusive bankruptcy jurisdiction, and in substance that, if there were alternative avenues to challenge, they did not include a defence in the District Court. This did not receive direct consideration in the judge's reasons. Where the recipient may be sued, the question as to a charge may arise or the recipient may be put on trial in a court other than the Federal Court or the Federal Magistrates Court, there is at least an arguable case that a contention as earlier indicated may be put forward in the court in which action is taken against the recipient, and is not within the exclusive bankruptcy jurisdiction. As was pointed out by Barrett J in Green v Schneller (2001) 189 ALR 464 at 469, referring to Sutherland v Brian (1999) 149 FLR 321, when a person becomes bankrupt courts must determine all kinds of questions about the consequences, and there is not exclusive jurisdiction in respect of every question turning on the interpretation and application of the Act. In providing for proceedings in a court of competent jurisdiction, s 139ZQ(8) treats those proceedings as other than proceedings under or by virtue of the Act. The same can be said of criminal proceedings taken under s 139ZT. There is in my view a real question to be tried as to whether the challenge can be brought in the District Court proceedings. 64 I express no concluded view, only that this was not a case for summary judgment and summary judgment should not have been ordered. There is no point in this Court going further, because in the view I have taken about adjournment the success or failure of the application to the Federal Magistrates Court (which we were told was still on foot and awaiting the outcome in this Court) is likely now to govern. For that reason also, the present rather unsatisfactory pleadings (on both sides) in the District Court may not matter, but if the proceedings in that Court go further they should receive attention so that the issues between the parties are clear and there are no false issues.

1. Grant leave to appeal and direct the filing of a notice of appeal within seven days.

3. Set aside the orders made by J C Gibson DCJ on 6 June 2005 other than the order for payment of costs by Mr Pasternacki.

4. Opponent/respondent pay claimant/appellant's costs and have a certificate under the Suitors Fund Act if otherwise qualified. 66 SANTOW JA: INTRODUCTION The claimant, George Elias, was the recipient of moneys paid by Milad Elias, who was subsequently declared bankrupt. The claimant seeks leave to appeal and a concurrent hearing to set aside a summary judgment by J C Gibson DCJ in the District Court in favour of Scott Darren Pascoe, who is the Trustee of that bankrupt estate and the opponent. That summary judgment was obtained by the opponent in the District Court after he had served notice upon the claimant pursuant to s139ZQ of the Bankruptcy Act 1966 (Cth) ("the Act"). 67 The summary judgment followed proceedings to recover as a debt moneys alleged to have been paid by the bankrupt to the claimant in the sum of $70,561. That sum being below $100,000, leave is required. I consider that leave should be granted. If left undisturbed, the decision though in one sense interlocutory would finally declare the rights of the parties on the question of entitlement to the moneys in dispute so giving rise to a res judicata; Spencer Bower, Turner and Handley The Doctrine of Res Judicata 3rd ed (Butterworths) at 170-1. There are moreover significant matters of principle involved and the claimant has at least a reasonably arguable case. Though the amount involved is below $100,000, with interest it amounts to around $82,000, a sum not far below the threshold for an appeal as of right. 68 The payment of $70,561 by the bankrupt to the claimant was held by the primary judge to be void against the Trustee, pursuant to s139ZQ of the Act. The summary judgment followed service of a Notice under the Act and failure to pay within 28 days thereafter. 69 The principal questions to be determined on appeal are these: (a) was there at least an arguable case that the claimant was entitled to defend the action brought pursuant to s139ZQ(8) of the Act by the Trustee in a State court where the opponent had sought recovery, namely the District Court, by putting in issue the facts alleged in the Notice, and (b) should the primary judge have stayed the District Court proceedings to enable the claimant to pursue his application in the Federal Magistrates Court to set aside the Notice? 70 The latter question only needs to be answered if the answer to the first question is in the negative.

SALIENT FACTS 71 The opponent is Trustee of the bankrupt estate of Milad Elias, the brother of the claimant. He sought to recover from the claimant a debt in the amount of $70,561 pursuant to Div 4B of the Act and in particular s139ZQ(8). 72 Milad Elias was made bankrupt pursuant to a sequestration order made on 18 November 2002. 73 Milad Elias and his wife were the registered proprietors (as joint tenants) of a property subsequently subdivided into the properties known as 19 Osgood Street and 19A Osgood Street, Guildford. 74 In March 2000, Mr and Mrs Milad Elias sold 19 Osgood Street to Mr and Mrs Calderon for a stated consideration of $173,000. They sold 19A Osgood Street to Messrs Miu and Yu for a stated consideration of $216,500. 75 Various sums were paid to the mortgagee. The balance of $141,123.14 was paid to the claimant. 76 The opponent in his capacity as trustee of the bankrupt asserted an interest in one half of these proceeds, that is, $70,561 (it being a joint tenancy). 77 On 3 July 2003, a Notice under s139ZQ of the Act was executed by the Official Receiver for this sum. 78 The claimant was served with the Notice on 13 July 2003. 79 The claimant asserted that he delivered a letter on 30 July 2003 to the Official Receiver explaining the circumstances in which the moneys had been received by the claimant (and that it was not a transaction to defraud creditors). He asserted that in those circumstances, the claimant's liability to pay should be reduced to nil. 80 The Official Receiver had no record of receiving the letter, though the primary judge accepted that it had been sent (judgment at [3]). 81 The claimant had failed to pay the opponent the amount specified in the Notice within 28 days of service as specified in the Notice. 82 On 17 December 2003, the opponent filed a statement of liquidated claim in the District Court. This was served on the claimant on 23 December 2003 and essentially relied on the Notice "as if the same were fully pleaded herein". The Notice of Grounds of Defence in response dated 16 February 2004 amounted essentially to a denial of the critical paragraphs of the Notice but, similarly to the Statement of Claim, did not elaborate. 83 In a letter dated 29 December 2003, the claimant complained that a letter (the 30 July letter) was in fact written and no reply received. This letter was followed up by two more letters. 84 The 29 December 2003 letter challenged the jurisdiction of the District Court and asserted that the appropriate forum for determination of debt was the Federal Court. 85 The proceedings were listed for hearing before the primary judge on 2 June 2005. The claimant's solicitor sought an adjournment on the basis that he was under the impression that the matter was listed for directions only. 86 At no time on or before that day was any application made by the claimant to set aside the Notice. 87 The claimant alleges that on 3 June 2005, he filed an application in the Federal Magistrates Court seeking an order under s139ZS setting aside the Notice. 88 The primary judge adjourned the proceedings to 6 June 2005 for determination of a motion for summary disposal of the proceedings and so ordered, giving brief reasons. On that day the claimant sought a stay to enable him to pursue his application in the Federal Magistrates' Court to have the Notice set aside. The primary judge refused the application for a stay.

The Relevant Legislation 89 The relevant legislation is as follows: Bankruptcy Act 5. Interpretation "the Court" means a Court having jurisdiction in bankruptcy under this Act. 27. Bankruptcy courts (1) The Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than:

(a) the jurisdiction of the High Court under section 75 of the Constitution; or (b) the jurisdiction of the Family Court under section 35 or 35A of this Act.

30. General powers of Courts in bankruptcy (1) The Court:

(a) has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and (b) may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.

(2) The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched. (3) If in a proceeding before the Federal Court under this Act a question of fact arises that a party desires to have tried before a jury, the Federal Court may, if it thinks fit, direct the trial of that question to be had before a jury, and the trial may be had accordingly in the same manner as if it were the trial of an issue of fact in an action. (5) Where:

(a) a bankrupt, a debtor or any other person has failed to comply with an order or direction of a Registrar, or with a direction or requirement of an Official Receiver or trustee, under this Act; or (b) a trustee has failed to comply with an order, direction or requirement of a Registrar, or with a requirement or request of the Inspector-General, under this Act; the Court may, on the application of the Registrar, Official Receiver, trustee or Inspector-General, as the case requires: (c) order the person who has failed to comply with the order, direction, requirement or request, as the case may be, to comply with it; or (d) if it thinks fit, make an immediate order for the committal to prison of that person.

(6) The power conferred on the Court by subsection (5) is in addition to, and not in substitution for, any other right or remedy in respect of the failure to comply with the order, direction, requirement or request, as the case may be. 31. Exercise of jurisdiction (1) In exercising jurisdiction under this Act, the Court shall hear and determine the following matters in open Court:

… (e) applications to set aside or avoid a charge, charging order, settlement, disposition, conveyance, transfer security or payment; … (f) applications to declare for or against the title of the trustee to any property;

123. Protection of certain transfers of property against relation back etc. (1) Subject to sections 118 to 122 (inclusive), nothing in this Act invalidates, in any case where a debtor becomes a bankrupt:

… (c) a contract, dealing or other transaction by or with the debtor for market value…

139J. Objects of Division The objects of this Division are: (a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and (b) to enable the recovery of certain money and property for the benefit of the bankrupt's estate. 139ZQ. Official Receiver may require payment (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) if the Official Trustee is the trustee - on the initiative of the Official Receiver; or (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) After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by a further notice given to the person, revoke or amend the first-mentioned notice. (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) A notice to be given under this section to the Commonwealth, a State or a Territory, or to an authority of the Commonwealth, of a State or of a Territory, is taken to be duly given if it is given to a person who, by any law, regulation, appointment or authority, has the function of paying, or in fact pays, money on behalf of a Department of the Commonwealth, of that State or of that Territory, or on behalf of the authority, as the case may be. (7) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee. (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. 139ZS. Power of Court to set aside notice (1) If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, 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, the Court may make an order setting aside the notice. (2) A notice that has been set aside is taken not to have been given.

DISPOSITION Arguable case? 90 It is not necessary to go further than to determine whether or not there was at least an arguable case that the claimant was entitled to defend the action brought pursuant to s139ZQ(8) of the Act by the Trustee in the District Court, notwithstanding that it was neither the Federal Court nor the Federal Magistrates Court. Such defence would have been by putting in issue the facts alleged in the Notice. 91 As necessary background, I need first to describe the case that the claimant wanted to put in terms of putting in issue the facts alleged in the Notice. It was that the sum of $70,561 was required to be paid in consideration for the claimant (a) building a new dwelling at the back of the bankrupt's property at 19 Osgood Street, Guildford, and (b) funding alterations to the bankrupt's existing home at that address. The claimant contended in elaboration that he was entitled to a fee simple estate in the subdivided block on which the new house was erected, on condition that, as he said had occurred, he agree that their parents would be able to live there. The sum of $70,561 was derived from the proceeds of sale of that property. The parties to this claimed arrangement were brothers, giving a degree of plausibility to this being explicable as a family arrangement. 92 There is some support for the plausibility of these arrangements in the fact that the solicitors for the claimant wrote on 30 July 2003 to the Official Receiver (WB, 123) setting out in more elaborate form the substance of what was unsuccessfully sought to be put before the primary judge. The primary judge accepted that though the Trustee contended that he had not received the letter, it had been sent. The letter relevantly stated: "Our client denies being the recipient of any voluntary disposition void under s.120 and denies being the recipient of a fraudulent disposition void under s.121. We are instructed that the facts under which you have made the assertions contained in the Notice are either incorrect or incomplete. We are instructed that should you make a material finding of fact or law to the contrary, our client will make application to the Court under s 139ZS.

George Elias and Milad Elias (The Bankrupt) entered into Joint Venture to redevelop the 19 Osgood Street, Guildford property in 1993. The agreement was that George Elias would redevelop and subdivide the property into 1 new house and substantially renovate the existing (front) dwelling. The agreement budgeted in excess of $50,000 for those renovations and it was agreed that George Elias was to pay off the Bankrupt's (and his wife Therese's) then Mortgage of approximately $50,000. It was further agreed that in consideration of those advances and the works to be carried out and materials provided by George Elias, the new property at the rear was to vest in George Elias or as he directed, to be occupied by the Bankrupt's and our client's parents during their lifetime.

Our client estimates that the value of unsubdivided property at about the time of making the Agreement was about $200,000 with the bankrupt and his wife then having on that estimation approximately $150,000 in equity in the property.

Works started in accordance with the Agreement in 1997 and were completed before Plans were lodged for registration on 22/2/2000.

After George Elias had completed his side of the bargain; i.e. built the new dwelling, renovated the existing dwelling at a cost exceeding $50,000 and discharged and paid the bankrupt's (and his wife's) then Mortgage (debt) of $50,000 (approx), and before George Elias had lodged the sub-divided plans/title for registration, the Bankrupt advised George Elias that he no longer wished to remain at Osgood Street. This also meant that the Elias Snrs could not occupy the new dwelling under the former agreement.

He requested that George Elias vary their Agreement to "just sell and take the money you invested back." George Elias did not agree and requested that his time and effort as builder and developer be compensated. The Bankrupt and George Elias agreed to so vary the Agreement. At that time, George Elias estimates that the value of the works at the rear exceeded $220,000, not including plans etc not including discharge of the Bankrupt's (and his wife's) Mortgage (approximately $50,000) and not including George Elias' renovations to the existing dwelling which exceeded $50,000, making his claim at that time approximately $320,000." 93 There followed further elaboration of what subsequently was said to transpire. By affidavit dated 20 April 2005, nearly two years after the letter of 30 July 2003, the claimant sought to substantiate the arrangements being as I have described. 94 When the matter came before the primary judge on 2 June 2005 and was dealt with as an application for summary judgment at the invitation of the primary judge, she did not allow these factual matters to be ventilated before her. She did so essentially on jurisdictional grounds, though added some observations on the merits of the defence, in the following passage (WB, 137-8, judgment [5]-[6]): "It is not in dispute on the pleadings, and this is important, that the notice is regular on its face. There is no claim, and Mr Gray made this quite clear, in this Court, that the notice is invalid. There is no assertion that the notice should be for example set aside. Now Mr Gray asserted that these were in fact matters for the plaintiff satisfying the onus of proof. However, what amounts to discharging an onus of proof will depend very often on what the pleadings in a case say. The Court of Appeal has made it manifestly clear in Kirby v Sanderson Motors (2000) 54 NSWLR 135 that pleadings in this Court, and in particular defences, must be pleaded with precision. Indeed the Court of Appeal noted that the regime for defences in this Court was stricter than the Supreme Court and that great care must be taken to ensure that all contested issues are raised in this Court.

Now I have repeatedly complained about this defence not disclosing any cause of action that I can determine. There is no assertion for example that the transaction was not a void, but a valid, transaction and the assertion that I should somehow look into affidavits that have been filed in the proceedings to determine this when these are matters that should be pleaded in my view is unsatisfactory. However, that is a minor point because the real question is whether these proceedings can be challenged in this Court at all.

It is not in dispute that a person upon whom a s139ZQ notice is served has an option of seeking an order under s139ZS to set aside the order or to seek a declaration under s20 of the Bankruptcy Act . That is a matter about which the parties agree. The trouble is that the Court as defined in the Bankruptcy Act under ss5 and 27 of that Act is the Federal Court or the Federal Magistrates Court. This Court simply does not have the jurisdiction to entertain such an application. It must be brought in the Federal Court." 95 The primary judge having thereby found the defence pleaded inadequate but in any event concluding that only the Federal Court or the Federal Magistrates Court had jurisdiction to set aside the Notice, added this (WB, 140-1, judgment [8]-[9]): "So in summary I am satisfied that the purpose of the division as is set out in the mission statement, if I can call it that, in s139J of the Act is to enable the recovery of money and property for the benefit of the bankrupt's estate and that the division provides what is called in the statute an administrative mechanism for the recovery of money where a transaction is asserted to be void which is intended to be simple and inexpensive in operation. If properly issued and not set aside under the appropriate provisions of the Act for setting aside notices, the issue of the notice requires a person who receives a notice to pay to the trustee an amount equal to the money or the value of the property received or alternatively they must take the action that is before them as being alternative procedures. And I note the reference in the written submissions of the plaintiff to Permfox Pty Limited in the matter of Chase v The Official Receiver for the Bankruptcy District of New South Wales (2000) FCA 1560 where Mr Justice Allsop said this at para 3. In a way his Honour was merely stating the obvious but that is the situation.

Having regard to those matters it follows that I do not accept Mr Gray's submissions that s139ZS's jurisdiction is very limited and that it does not exhaust the ways in which a person to whom a s139ZQ notice is served may defeat a trustee's claim. I accept that the cases referred to by Mr Gray, and in particular, Hawsey v Norton 1997, 76 FCI 380 [sic, should be Halse v Norton (1997) 76 FCR 389] make it quite clear that there is a statutory procedure for the issuing of a notice and that once that notice has been issued a party who receives that notice must take such steps as are necessary to comply with it." 96 It will be apparent that in determining as a question of law, that the Notice was in effect an administrative process creating a debt which must be paid unless the Notice were set aside in either the Federal Court or the Federal Magistrates Court, the primary judge did not consider a number of authorities which bear upon this question. An application for summary judgement may be successfully resisted by establishing no more than that there was a real question to be determined, here of law. The claimant contends that it did so. 97 The claimant's starting point is that the notice procedure under s139ZQ is predicated upon there being a person who "has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3"; see s139ZQ(1). The claimant's case is that the factual matters originally the subject of its solicitor's letter of 30 July 2003 and subsequently the subject of the affidavit of 20 April 2005, if established, would have made out a defence under s123(1)(c) of the Act. Under s123(1)(c), though subject to earlier provisions, it is provided that nothing in the Act invalidates a contract, dealing or other transaction by or with the debtor for market value. The defence did not set out the factual matters which are said to substantiate that there was such a contract. But equally there are but bare assertions in the opponent's statement of claim when it incorporates by reference the assertions in the Notice. 98 The authority the primary judge did cite was in Re Chase; Permfox Pty Ltd v Official Receiver for the Bankruptcy District of New South Wales [2002] FCA 1564 where Allsop J observed at [3]: "[3] S139ZQ was inserted into the Act by Act No 9 of 1992. It provides an administrative mechanism for the recovery, in personam, of transfers void against a trustee. If properly issued , and if not set aside under s139ZS of the Act, the issue of the notice requires the person to pay to the trustee an amount equal to the money or the value of the property received." [emphasis added] 99 The words "if properly issued" are relied on by the claimant in support of its contention that the Notice has no effect unless it be first established by the issuer of the Notice that "a person has received money or property as a result of a transaction that is void against the trustee of a bankrupt". It is contended that the issuer must establish that essential predicate of s139ZQ(1), in every case, or at least if that matter is put in issue, even if only by bare denial. Here it was put in issue both by the original letter of 30 July 2003 with amplification of reasons and subsequently by the defence, elaborated by the affidavit sought to be relied upon by the claimant. 100 It is apparent that the primary judge, while making brief reference to Halse v Norton (1997) 76 FCR 389, did not establish that the claimant had failed to raise a real question of law to be determined. The authorities looked at more closely do not justify the conclusion that the claimant's case was "so clearly untenable that it cannot possibly succeed"; compare Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) and Others [1964] 112 CLR 125 at 130. In particular, the primary judge did not refer to what was said by Black CJ in Halse at 391-2 in two important passages which I quote below: "In deciding whether s139ZS(1), by the use of the expression "if the Court... is satisfied that this Subdivision does not apply to the person...", imposes an onus on an applicant for an order setting aside the notice to prove that Subdivision J does not apply to that person, Carr J [the trial judge] concluded that the answer did not depend exclusively upon the terms of s139ZS, or upon the terms of Subdivision J as a whole, but required consideration of some of the provisions within Div3. I agree, because those provisions determine the circumstances under which transactions are void against the trustee and it is voidness against the trustee under Div3 that is an essential precondition to the valid exercise of the power to give a notice under s139ZQ(1). Carr J observed that Subdivision J only applies where a person has received (in this case) property as a result of a transaction that is void against the trustee of a bankrupt. He described that as "a basic jurisdictional fact ": see 137 ALR 593 at 599.

As his Honour pointed out, referring to the decision of a Full Court of this court in Official Trustee in Bankruptcy v Mitchell (1992) 38 FCR 364 at 369-70, and the cases cited in that decision, a trustee has always carried the onus of proving the facts that make a transaction void and in instances in which the onus of proof is to lie elsewhere the Parliament has clearly so provided."

"Clearly, too, s139ZS is not the exclusive means of challenging a notice under s139ZQ (see Re McLernon at 403), and there may well be cases in which there is good reason for the trustee to bring what would be in effect a cross-application for a declaration that a transaction is void, as in Re McLernon ; see also Theo v Official Trustee in Bankruptcy (1996) 34 ATR 404. It would be strange if the position of the trustee varied according to the procedure adopted in the particular case.

In these circumstances, but especially because of the nature of the "jurisdictional fact" upon which the power to issue a notice is dependent, I consider that the primary judge was correct in concluding that Subdivision J has not changed the position with regard to the burden of proof other than requiring an applicant to put before the court sufficient evidence to call the validity of the notice into question." [emphasis added] 101 While it is true that the claimant baldly denied the relevant facts in its defence, that did not mean that the claimant could not thereafter substantiate that denial in the manner it sought to do, including taking up the invitation contained in the Notice itself to respond. That was precisely what the claimant sought but was prevented from doing in the letter of 30 July 2003 and subsequently in his affidavit of 20 April 2005. 102 The primary judge made no reference to the judgment of Carr J in Re McLernon (1995) 58 FCR 391 who said: "I have already referred above to the fact that there is no provision that a s139ZQ notice is conclusive. A hearing under s139ZS is in my opinion a hearing de novo in which the court may investigate and determine the correctness of the facts and circumstances stated in the notice and whether any defence to the liability asserted in the notice arises out of additional facts proved by the applicant. Furthermore, in my opinion, there are alternative means for challenging the notice . Olney J in Re Lucera referred to s30 of the Act as a source of such a power. For example, under s30(1)(b) the Federal Court would have power in an appropriate case to make a declaration that the condition precedent to the operation of s139ZQ had not been satisfied and also to grant an injunction restraining any further proceedings based upon a notice issued under that section." (at 403) [emphasis added]

Jurisdiction of District Court 103 That however still leaves the question whether only in the Federal Court or Federal Magistrates Court is there jurisdiction to challenge the proper issue of the Notice in the way I have just described. 104 The primary judge relied upon the definition of "court" in s5 of the Act and upon s27 of the Act to conclude that it was only in the Federal Court or the Federal Magistrates Court that a Notice could be set aside. I have earlier quoted s27 of the Act. It states that these two courts "have concurrent jurisdiction in bankruptcy, and that jurisdiction is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under s75 of the Constitution". 105 However, that provision needs to be reconciled with s139ZQ(8) when it provides that "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". [emphasis added] 106 The question here is therefore whether there is an alternative means for challenging the Notice by resisting it in "a court of competent jurisdiction", namely the District Court where the trustee or official receiver elected to bring recovery proceedings, notwithstanding that that court is neither the Federal Court nor the Federal Magistrates Court. I consider that such a proposition is not untenable. 107 Reference should be made to the purpose as announced in the Second Reading Speech for the Notice procedure then introduced (Hansard 14 November 1991): "The Bill will include provision to enable the Official Receiver, on behalf of the Official Trustee, and registered trustees to recover property, disposed of by a bankrupt in a transaction designed to defeat creditors which is void against the trustee, by administrative means instead of exclusively by litigation. Setting aside void antecedent transactions by litigation can cause difficulties for trustees, and bankrupts can arrange their affairs on occasions confident in the knowledge that no action will be taken to set aside the transaction because of the costs associated with doing so. The new administrative procedures provided for in proposed Subdivision J of Division 4B of Part VI of the Act to be inserted by clause 25 of the Bill are based on provisions of the Income Tax Assessment Act 1936 and will enable more cost effective setting aside of void antecedent transactions and a correspondingly greater return for creditors." 108 Compatibly with that announced purpose of introducing "new administrative procedures" to recover void payments under the Act, issuance of the Notice could indeed be conclusive of there being a debt in the amount stated in the Notice, subject only to the capacity of a recipient to bring proceedings to set aside the Notice in the Federal Magistrates Court or Federal Court. However, the alternative interpretation, which I do not consider untenable, is that such Notice can be challenged not only by the recipient bringing proceedings in the Federal Court or Federal Magistrates Court to set aside the Notice but also by way of defence in, for example, the District Court as a court of competent jurisdiction when the issuer of the notice elects to recover the claimed debt there. The effect of such a challenge is to put in issue the predicate to s139ZQ, namely whether the person has received any money or property as the result of a transaction that is void against the trustee of a bankrupt under Division 3. If no such challenge is made, the Notice on this interpretation is indeed determinative that the amount in the Notice must be paid as a debt due to the trustee so that the Notice, but only in those circumstances, operates by administrative means. 109 Which of the two interpretations is correct was not, with respect, properly determined by the primary judge at the level of concluding whether or not there was a real question to be determined in relation to that matter. 110 Moreover, the primary judge was in error in failing to have regard to the relevant affidavit evidence and restricting herself solely to the defence. This is more especially given the nature of the statement of claim which itself operated by way of broad assertion. On the jurisdictional question, I do not reach a concluded view as to whether s27 of the Act is sufficient to preclude a court such as the District Court in these circumstances from entertaining the defence here sought to be relied upon. It suffices that I conclude that there was a real question of law to be determined, in circumstances where s27 of the Act is not so plain as to lead to no other conclusion than that reached by the primary judge.

Conclusion 111 The primary judge was, with respect, in error in granting summary judgment to the Trustee when there was a real question of law to be determined as to whether the District Court had jurisdiction to entertain the defence raised by the claimant. In those circumstances I do not need to consider whether the stay of proceedings should have been granted. As I presently see matters I consider that there was some plausibility in the contention that a stay should have been granted, more especially given the conclusion I have reached in regard to the first question.

OVERALL CONCLUSION AND ORDERS 112 I consider that the claimant should be granted leave to appeal and the appeal granted, with costs in its favour. I propose orders in the same form as those proposed by Giles JA and concurred in by Bryson JA and agree with their respective observations concerning the present pleadings. 113 BRYSON JA: In my opinion her Honour Judge Gibson was in error in disposing of the action summarily because there were reasonable grounds on which the claimant (defendant) contended that it was open to him to dispute the claimed debt which underlay the notice pursuant to s.139ZQ of the Bankruptcy Act 1966 (Cth); and also there were reasonable grounds on which he disputed that claimed debt. I see little basis for the view that the claim in the notice was conclusive; the Bankruptcy Act makes no express provision that claims in notices are conclusive, and the provision by the Bankruptcy Act of means for setting such notices aside is a slight basis for an implication that the notice is not otherwise open to dispute. If the legislation impliedly made such notices conclusive, the legislation might trench upon the judicial power of the Commonwealth. I agree with the orders which Giles JA as proposed. 114 Both parties failed to state their positions clearly in the District Court proceedings. The opponent (plaintiff) did not show in a clear way whether it was alleged that the debt claimed in the notice pursuant to s.139ZQ existed in fact, or whether on the other hand it was alleged that the existence of the debt had been established by giving the notice followed by absence of an order setting the notice aside. The Statement of Claim left that centrally important subject up in the air, and was of little value for that reason. The claimant's Notice of Grounds of Defence was also unclear, and also failed to state the matter relied on, which could not be understood unless stated in an extensive way. Unsatisfactory pleadings contributed to lack of clarity in argument and in disposition in the District Court. The action should not go further unless there are amendments. **********

11/05/2006 - change lower court case number - Paragraph(s) cover

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.