National Australia Bank Ltd v Nguyen

Judgment 1HER HONOUR: These proceedings raise an interesting issue as to the enforcement of a garnishee order. The proceedings arise out of a loan from the National Australia Bank to Ms Tien Nguyen which was secured by a mortgage over real property. On 5 June 2013 the bank commenced the proceedings, seeking possession and judgment in the sum of about $364,000. The statement of claim, however, was not served until January of this year. Ms Nguyen did not defend the proceedings and the bank exercised its power of sale, possibly assisted by Ms Nguyen but, in any event, it was agreed that the property would be sold and the proceeds applied to discharge Ms Nguyen's undisputed liability to the bank. 2 Ms Nguyen is presently in custody and has been in custody since at least the end of March 2014. The sale of the property settled on 16 April 2014. Unfortunately the bank provided the wrong settlement figure to the solicitor acting for Ms Nguyen and accordingly gave a discharge of the mortgage whilst still being owed approximately $120,000 by her. The proceeds of sale were subsequently banked into the trust account of the solicitor who acted for Ms Nguyen on the sale. 3It will be necessary to return to the circumstances of the deposit of those funds. The bank says that a person from the solicitor's firm initially accepted that the mistake had been made and indicated that, upon clearance of the funds, further payment would be made to the bank. The evidence on behalf of the solicitor, who is the garnishee, disputes that account and contends that the person to whom the officer of the bank spoke said no more than that the mistake would be checked in due course. 4On 23 April 2014, a further payment due to the bank not having been made by the solicitor, the bank made formal demand but still the payment was not made. The bank then, on 16 May 2014, obtained default judgment against Ms Nguyen in the sum of the outstanding amount. The bank then renewed the demand to the solicitor for payment of that sum out of the funds held by the solicitor. That demand again was not complied with. 5On 29 May 2014 a garnishee order was issued at the request of the bank requiring the solicitor, who is the respondent to the present motion, to pay the sum of about $119,000. A notice to that effect was served on 2 June 2014. On 16 June 2014, Ms Nguyen wrote to the bank's solicitor (from the facility where she is detained) to say that she wished to resolve the matter but that the solicitor had failed to follow her instructions on the settlement of the sale. She noted her difficulties in dealing with that problem whilst in custody. On the same day she wrote to the solicitor instructing him that she should have had all outstanding debt to the bank settled by the completion of the sale. 6The solicitor named in the garnishee order is Ghazzan Dib trading as Dib Lawyers. However, it appears that the person who has had primary conduct of the conveyance and the subsequent correspondence concerning the disputed sum is an employee of that firm, Mr Jim Kekatos. Mr Kekatos swore an affidavit in opposition to the present application. In his affidavit he states that he was retained by Ms Nguyen to act on the sale on 23 April 2014. However, that cannot be right, since it is a date which postdates the completion of the sale. The bank put in evidence before me a costs agreement evidently sent by the firm to Ms Nguyen dated 6 March 2014. 7 Mr Kekatos states that in about 20 March 2014 he had a conference with a woman whose full name is Namkang Yoth Oun but to whom he refers as "Jenny". Jenny is the sister-in-law of Ms Nguyen. Mr Kekatos's affidavit asserts that Jenny is the director of Nguyen Developments Pty Limited and accordingly the person from whom he obtained instructions on behalf of that company as another client. 8The affidavit spells the name of the company "Ngyen" but I understood that to be a reference to the same company in respect of which a company search was tendered as Exhibit A, Nguyen Developments Pty Limited. Certainly it was not suggested, upon the issue being raised, that the company search tendered did not relate to the corporate client of Mr Kekatos. The company search reveals that Jenny is not a director of the company and that the only director of the company is Van Duc Nguyen, whose date of birth was in the year 1942. It may be that Van Duc Nguyen is the father of both Ms Nguyen, the defendant to these proceedings, and Ronnie Nguyen, the husband of Jenny. 9In any event, Mr Kekatos's affidavit sets out the detail of a conference he had with Jenny in which she requested him to obtain instructions from Ms Tien Nguyen, the defendant to these proceedings, that the proceeds of the sale of the property which secures the loan to the bank would be handed over to Ronnie. The basis for that request was the allegation that Ms Tien Nguyen had stolen a lot of money from Ronnie. 10Since it is clear from the material before me that the date on which Mr Kekatos alleges he received instructions from Ms Tien Nguyen is wrong, it is not possible to ascertain whether that conversation took place before Mr Kekatos agreed to act on the sale. In any event, he attended the Emu Plains Facility where he says on 27 March 2014 he obtained Ms Tien Nguyen's authority to take instructions directly from Jenny in relation to disbursement of the proceeds of the sale of the property. 11It is important to have regard to the precise words of the conversation which he says in his affidavit gave rise to that authority, as follows: I [Mr Kekatos] said: Tien, is it OK to take instructions directly from Jenny in relation to the settlement She said: Yes, it is OK to take the instructions from Jenny in relation to the sale. I cannot contact you and you cannot contact me anyway, so just do whatever she wants. Whatever money left over is going to them anyway. She can give you instructions about the sale and the leftover money. 12Mr Kekatos states that on 15 April 2014 he had a conversation with Jenny in the following terms: I said: Jenny how do you want the balance of the funds drawn from the settlement. There is about $313,000.00 left over. She said: Jim, draw the cheque in favour of your trust account and put it in the Ngyen [sic] file. I need to ring Ronnie and ask him how he wants it disbursed. There are some bills we need to pay in relation to the subdivision and he is developing overseas as well. I cannot get a hold of him right now. 13That, of course, was the day before the completion of the sale. Mr Kekatos' understanding that there would be about $313,000.00 "left over" from the sale must have been derived from the bank's provision of an incorrect payout figure. The evidence put forward by the bank on the present application shows that Mr Kekatos was probably actually aware by 17 April 2014 of the underpayment to the bank. Perhaps more importantly, it is clear that the firm was aware of that fact on 16 April 2014, the day of the settlement. 14The proceeds of the sale, swollen by the mistaken underpayment, were deposited into the firm's trust account in the name of Nguyen Developments Pty Limited on 17 April 2014. I note that the ledger contains what I would regard as the correct spelling of the name of that company according to the company search. 15It is Mr Kekatos' contention that the deposit of the funds in the name of the company at that time was in accordance with the purported authority of Jenny, purportedly on the instructions of Ms Tien Nguyen. 16I note in passing that the whole of Mr Kekatos' affidavit is directed to showing why the funds held by Dib Lawyers in the trust account are not liable to be paid pursuant to the garnishee order, in part on the basis that those funds are held on trust for the company. 17A matter of concern is the apparent conflict between the solicitor's duty to that entity and his duty to Ms Tien Nguyen to account to her for the proceeds of the sale of the property. Mr Kekatos' affidavit is silent on that issue. 18I should acknowledge that I have not put this concern to him or heard from him as to how he would respond to it, but it seems clear enough that there was at least a potential conflict of interest from 16 April 2014 when the firm was on notice that the funds it had been instructed by Jenny to deposit in trust for the company included an overpayment to the detriment of his other client, Ms Tien Nguyen. 19A further concern, to which I have already referred, is the fact that he asserts he took his instructions for the company from Jenny, whereas it is clear, at least on the face of the company search, that she is not a director of that company and that the only person is an elderly man. In any event, it is not for me to determine any issue arising from those concerns. 20The critical issue is whether the garnishee order is now enforceable against Dib Lawyers. Section 117 of the Civil Procedure Act 2005 provides: (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 credit of the judgment debtor in a financial institution is taken to be a debt owed to the judgment debtor by that institution. 21As already noted, the time of service of the order was 2 June 2014. Payment with respect to a debt attached by a garnishee must be made with fourteen days after that date: see s 118 of the Act. 22The present application is brought pursuant to s 124 of the Act, which provides: Procedure where garnishee order not complied with (1) On the application of a judgment creditor who considers that a garnishee order has not been complied with, the court: (a) may hear and determine any question as to the liability of the garnishee to pay the debt, wage or salary sought to be attached by the garnishee order, and (b) if satisfied that the garnishee is so liable, may give judgment in favour of the judgment creditor against the garnishee: (i) for the amount of that debt, wage or salary, or (ii) for the unpaid amount of the judgment debt, whichever is the lesser. (2) The court may refuse to give such a judgment if it is of the opinion that such a judgment should not be given. (3) Without limiting subsection (2), the reasons that may lead the court to form such an opinion may include: (a) the smallness of the amount outstanding under the judgment, and (b) the smallness of the debt, wage or salary to be attached. (4) As between the garnishee and the judgment debtor, an amount paid to the judgment creditor by the garnishee under a judgment given under this section is taken to have been paid to the judgment debtor. 23The bank submits that the authority given by Ms Tien Nguyen on 27 March 2014 to Mr Kekatos gave him authority to disburse the proceeds of sale at the direction of Jenny only to the extent of any funds "left over" after the sale of the property. 24The bank further submits that, in the context of the circumstances I have recited, the use of that phrase by Ms Tien Nguyen could only refer to the balance of funds after full discharge of her liability to the bank. 25The instruction given on 15 April 2014 to deposit the sum of $313,000 into Dib Lawyers' trust account on trust for the company, so it was submitted, must be construed in that context and in light of the further evidence that Mr Dib knew, at least constructively as at that date, and certainly before the deposit of the cheque the following day, that approximately $120,000 of that sum would not, or could not, properly constitute "left over" funds. In my view those submissions are plainly right. 26On behalf of Mr Dib it was argued that an order for judgment ought not be made against him, for two reasons. First, it was submitted that no debt was owed by him to the judgment debtor at any time. Secondly, or perhaps as an aspect of the first proposition, it was submitted that Mr Dib held the money on trust and that money on trust is not necessarily a debt. 27It was further submitted that the money was held on trust for Nguyen Developments Pty Limited. In support of those propositions Mr Alan, who appeared for Mr Dib or Dib Lawyers, relied on a decision of the Chancery Division in Re Greenwood Sutcliffe v Gledhill [1901] 1 Ch 887. The circumstances of that case could scarcely be said to be on point in the present application. Importantly, as noted on behalf of the bank, the judgment includes the following statement of principle: "You cannot possibly say that a trustee is a debtor to the cestui que trust before he has or but for some fault of his might have had the money which it is his duty to hand over." 28The issue in that case was whether a garnishee order operated as a forfeiture of a gift made under a trust in a Will. The decision does not seem to me to stand as authority for the proposition that money held on trust by a solicitor for a client cannot be a debt within the meaning of s 124 of the Uniform Civil Procedure Act and, in any event, there is further relevant authority as to that proposition to which I will return. 29In the present case, if the sum in question (the excess proceeds due to the underpayment) was not held on trust for Ms Tien Nguyen (which, in my view, is doubtful), that was due to the fault of the solicitor in the way in which he treated the proceeds of sale. As the circumstances I have recited will reveal, it is plain, in my view, that the solicitor ought to have deposited at least the $120,000 odd that ought to have stood to the account of Ms Tien Nguyen on trust for her. 30It was submitted on behalf of the bank that indeed the whole proceeds of sale ought to have been deposited in the first instance on trust for Ms Tien Nguyen, the "left over" funds then being transferred to be held on trust for the company by ledger entry. In any event, what is clear, in my view, is that at least to the extent of the money by which the payout figure was short, those funds were always held on trust for Ms Tien Nguyen. 31The second proposition contended for on behalf of the solicitor was that no debt was owed to the judgment debtor at any time. As I understand the argument, it was that there was no immediate obligation to pay the trust funds out to Ms Nguyen. At most, there was a duty to account. I do not accept that submission. 32In my view, it is clear on the evidence that Mr Kekatos held both authority and instructions from Ms Tien Nguyen from at least 27 March 2014 to discharge her liability to the bank before making any other disbursement of the proceeds of sale. In that context I note that the other decision to which I referred previously, which is the decision of Coshott v Learoyd [2001] FCA 88, a decision of Wilcox J, held at [42] that the fact that a mortgagee's obligation to account to the mortgagor for any surplus in the proceeds of sale is an obligation enforceable in equity does not mean that such an obligation is not also a debt within the meaning of the Federal Court's equivalent of the garnishee rules. 33In all the circumstances, I am satisfied that, as at 2 June 2014, the amount by which the payout figure had been understated by the bank was a debt due or accruing from Dibs Solicitors to Tien Nguyen within the meaning of s 124 of the Civil Procedure Act. 34Section 124 is expressed in terms which indicate that, notwithstanding such a finding, the Court has a residual discretion whether to give judgment in favour of the judgment creditor against the garnishee. I do not think the proper exercise of that discretion was expressly addressed in the submissions of the parties but it was perhaps implicit Mr Allen's submissions that I would not exercise that discretion for the reason that the sum of about $120,000 remains held in Mr Dibs' trust account and that he is content to give an undertaking to continue to hold that amount, pending the resolution of any dispute between or claim by the bank against Nguyen Developments Pty Limited on the grounds of unjust enrichment. 35In all the circumstances, I am sufficiently confident of my conclusion as to the debt owed by Dibs Solicitors to Tien Nguyen that I see no reason not to exercise my discretion to grant the relief sought. Accordingly I make order 1 sought in the Notice of Motion filed 8 July 2014. 36Unless the respondent gives notice to the plaintiff and my associate by close of business on Tuesday as to any desire to be heard as to costs, the order that will be entered is that the respondent to the motion pay the plaintiff's costs.