It is true that in Relwood Pty Ltd v Manning Homes Pty Ltd (No 2) , as also more recently in D M & B P Wiskich Pty Ltd v Drivehard Pty Ltd (supra) nothing turned on whether garnishee rights were or were not proprietary rights, or constituted a security interest. Whatever they were, such a prior charge given by the judgment debtor must prevail. In the present case, we are not however concerned with competition between a prior chargee and the judgment creditor/garnishor, but with competition between a liquidator and judgment creditor/garnishor. In order to resolve the outcome of that competition, it is necessary to look more closely at the rights conferred by a served garnishee order, against the foregoing background.
Even if the judgment creditor were to obtain what could be characterised as a proprietary interest in the relevant garnished debt or debts - contrary to my conclusion in (3) above - the right of the garnishor is a statutory right against the garnishee. It depends only upon an effective attachment of relevant debts. That requires that there be no pre-existing equities which would prevail over the statutory rights of the garnishor. Liquidation which follows service of the garnishee order does not pre-exist attachment. It is not therefore analogous to a pre-existing equity."
9Section 5 of the Bankruptcy Act defines a "secured creditor" as a "person holding a mortgage, charge, or lien on property of the debtor as a security for a debt due to him or her from the debtor". Secure Funding contends that a garnishee order creates such a charge, lien or other right over the debt that it must be paid to it as the judgment creditor rather than to Mr Mahommed as the judgment debtor and that in the absence of payment, it may enforce its rights pursuant to the garnishee order.
10In Hall v Richards [1961] HCA 34 ; (1961) 108 CLR 84, a fter considering a number of cases involving garnishee orders, Kitto J said at 92:
"The analogy in the case of a garnishee order is obvious. Such an order, though not working an assignment or giving the judgment creditor any proprietary interest in the debt, yet gives him positive rights with respect to it which a creditor having no more than a judgment does not possess; not merely a negative right to prevent the judgment debtor from accepting payment of the debt or disposing of it, but positive rights for the recovery of what is owing on the judgment, namely a right to give a valid receipt and discharge for the money, and a right in case on non-payment to obtain execution against the garnishee: In re Combined Weighing and Advertising Machine Co. (1889) 43 Ch D 99, at pp 105, 106 . "
11Hill J reached similar conclusions in Deputy Commissioner of Taxation (NSW) v Donnelly (1989) 25 FCR 432 . His Honour referred to Kitto J's remarks in Hall v Richards and continued at 456 as follows:
"The case of Re Combined Weighing & Advertising Machine Co to which Kitto J referred made it clear that the service of a garnishee order did not create as between the garnishor and garnishee any debt either at law or in equity entitling that person to petition for the winding-up of the company against which the garnishee order was obtained. The nature of the rights obtained under a garnishee order were however discussed by Cotton LJ (at104):
'Now, what does the garnishee order do? It is no assignment to any extent of the debt due by the garnishee to the debtor of the garnishor; it merely gives the garnishor a lien upon that debt.'
Further in his Lordship's view a mere garnishee order attaching a debt and enabling the person who has obtained the order to give a good discharge did not work an equitable assignment. Bowen LJ described the effect of a garnishee order at 105 in the following terms:
'There is no assignment in equity, and I cannot see that there is any legal debt. There is an order of a court of common law that a sum equal to the original debt shall be paid by the garnishee to the judgment creditor, or as an alternative that execution may issue; but I think that the relation which is created by that section and the orders made under it does not create a debt at all; it creates an attachment of a portion of the debt, and in case of non-payment confers the right of issuing execution and nothing more.'"
12Re Barrier Reef Finance and Land Pty Ltd (1989) 1 Qd R 252 involved an unfair preference action in relation to a company. Ultimately this case decided that the service of the relevant garnishee order was made after the commencement of the winding up of the company and was therefore ineffective. Whilst the facts in that case were different, the Court set out at 253-4 the following general principles in relation to garnishee orders before coming to that conclusion:
"A garnishee order nisi when served creates an attachment of the debt owing by the garnishee and, in the case of non-payment, confers the right of issuing execution: Re Combined Weighing and Advertising Machine Co (1889) 43 Ch D 99 at 105 per Bowen LJ. True it is that it creates no debt as between garnishor and garnishee: ibid. It is not an assignment at law or in equity: ibid at 104 per Cotton LJ; Chatterton v Watney (1881) 17 Ch D 259, so that the garnishee cannot, for example, present a petition for winding up or take garnishee proceedings against a debtor of the garnishee: McKenzie & Co v Walker (1891) 17 VLR 221. It does however 'bind the debt' so that the garnishee may not pay his creditor and the garnishor may give a good discharge and, if the debt be not paid, may execute.
In Re Stanhope Silkstone Collieries Co (1879) 11 Ch D 160 Sir George Jessel MR at 161 observed:
'The attachment or garnishee order is a mode of enforcing by execution the payment of the debt in the original action; and the order that the debt be attached and that the garnishee, that is, the debtor of the original judgment debtor, shall appear to show cause why he should not pay the debt, does not operate to give the plaintiff in the original action any security until it is served.'
This statement has long been accepted as authority for the proposition that on service of the garnishee order nisi, the garnishor obtains a security; and in Combined Weighing at 104 Cotton LJ said:
'Now, what does the garnishee order do? It is no assignment to any extent of the debt due by the garnishee to the debtor of the garnishor; it merely gives the garnishor a lien upon that debt.'
In Galbraith v Grimshaw [1910] 1 KB 339 Farwell LJ at 343 after citing the passage from Stanhope Silkstone Collieries Co which I have set out went on to say:
'It is plain that Jessel MR means that as soon as the order is served it does give the judgment creditor some security. It does not, it is true, operate as a transfer of the property in the debt, but it is an equitable charge on it, and the garnishee cannot pay the debt to anyone but the garnishor without incurring the risk of having to pay it over again to the creditor.'
His Lordship cited as authority for that statement the case of Rogers v Whiteley [1892] AC 118 Galbraith v Grimshaw was affirmed by the House of Lords [1910] AC 508. The case was one of bankruptcy. The speeches all emphasised the importance of the fact that the attachment of the debt, which occurred on service of the garnishee order nisi, was earlier than the making of the sequestration order. See Lord Loreburn LC at 510; Lord Macnaghten at 511. At 512 Lord Dunedin observed:
'I think that the general principle which underlies any bankruptcy system is that after bankruptcy the bankrupt is no longer really the owner of his own property, but holds his own property as trustee for the whole of his creditors for equal division.'"
13Further, in Melsom v Vanpress Pty Ltd (1990) 2 ACSR 38 , Malcolm CJ made the point at 116 that:
"A garnishee order, as the learned trial judge pointed out, does not create the relationship of debtor and creditor between the garnishee and the garnishor. It merely gives the garnishor a lien upon the identified debt: see Re Combined Weighing and Advertising Machine Company (1890) 43 Ch D 99; Norton v Yates [1906] 1 KB 112. "
14In the bankruptcy context, there has been some debate concerning the scope of what amounts to security. In Relwood Pty Ltd v Manning Homes Pty Ltd (No 2) [1992] 2 Qd R 197 (a case relating to the priority claims between a creditor holding a garnishee order and a creditor holding a floating charge) McPherson SPJ made the following point at 200:
"The reference to 'security' is apt to mislead unless one bears in mind the statutory context in which the courts in this and other contemporary cases were speaking. There are decisions recognizing that at the stage of seizure under fi. fa. an execution creditor became 'secured'. The decisions in question arose, however, out of contests with trustees or assignees in bankruptcy of execution debtors."
15In holding that the rights of the floating charge holder should prevail, McPherson SPJ at 200-1 quoted with approval from Chatterton v Watney (1881) 17 Ch D 259 at 262:
" The effect of a garnishee order is to bind the debt attached and to prevent the creditor from receiving it; and when it is made absolute it gives the judgment creditor a right to recover payment from the garnishee, and by rule 8 it is provided that payment made by the garnishee under the proceeding shall be a valid discharge to him as against the judgment debtor. There is nothing in the terms of the General Order to affect any security for the debt, it only takes away the right of the judgment debtor to receive the money and gives the judgment creditor a right to receive it. It has not the effect of transferring the security, nor does it give the person who obtained the garnishee order any right to the security or any claim against the land comprised in it."
16McPherson SPJ then stated:
" After that, the decision in Ex parte Joselyne ceased to be authoritative on this point, thus opening the way for the Court of Appeal in Re Combined Weighing and Advertising Machine Company (1889) 43 Ch.D. 99 to hold that a garnishee order absolute effects no assignment either at law or in equity of the debt attached.
Not without an occasional backward glance (as in Pritchett v. English & Colonial Syndicate [1899] 2 Q.B. 428, 436), later decisions have remained faithful to this principle. In the same way as the execution debtor cannot sell goods after seizure under fi. fa. , so neither he nor the garnishee can dispose of the debt after the order is served. That is primarily what is meant by the ' binding ' effect of the execution process: Bond v. McClay [1903] St.R.Qd. 1, 6-7; McQuarrie v. Jaques (1954) 92 C.L.R. 262, 272-273, per Dixon C.J. The debt is attached in the hands of the garnishee to be dealt with as the court allows. The judgment creditor can give a valid receipt for the money and, in the event of non-payment, can have execution against the garnishee; but until the money is paid over no proprietary interest in the debt passes. See Hall v. Richards (1961) 108 C.L.R. 84, 92, per Kitto J. (with whom Dixon C.J. agreed); Clyne v. Deputy Commissioner of Taxation (1981) 150 C.L.R. 1, 27, per Brennan J."
17Secure Funding submitted that these passages support the following propositions:
(a) A garnishee order does not effect an assignment at law or in equity.
(b) The service of a garnishee order means that the debtor cannot dispose of or otherwise deal with the debt after the garnishee order is served.
(c) The judgment creditor is able to give a valid receipt for the payment.
(d) The cases have used references to "liens" and "security" to describe the nature of the rights enjoyed by a judgment creditor who has served a garnishee order. Whether "security" is an apt label, the service of a garnishee order creates additional rights:
(i) requiring the garnishee to pay the creditor direct unless the debt is subject to some pre existing equity precluding such effective attachment;
(ii) preventing the debtor from disposing of or otherwise dealing with the debt after service of the garnishee order;
(iii) creating a statutory right by the creditor directly against the garnishee; and
(iv) enabling the creditor to give the garnishee a receipt for the payment of the debt.
(e) Those rights should be available unless there is some reason to deny them. For example, the earlier rights available to creditors granted a security before the service of the garnishee order or some specific statutory provision to the contrary.
18In summary, Secure Funding submitted that s 58 did not prevent either direct action being taken by it against Mr Mahommed to realise its rights, or action taken against him indirectly by the issue of a garnishee order to Channel Seven.
19Mr Mahommed contested these contentions. He also referred to Relwood but made the following submissions. That case held that a garnishee order had no effect on the property in a debt until it was actually paid. A garnishee order is a process for execution, which is equivalent in effect to execution by means of a writ of fi fa. It is a matter of settled law that neither the delivery of a writ of fi fa nor seizure of the goods under it conferred any property in the goods on an execution creditor. References in the authorities to an executing creditor being somehow "secured" were instances of special definitions in earlier iterations of the bankruptcy legislation, which are no longer applicable under the present Act. The "attachment" effected by a garnishee order does not create any proprietary interest in the debt, but only confers rights on an execution creditor to prevent the debtor from accepting payment or disposing of the debt, and to give a valid receipt and discharge for the money when received.