CONSIDERATION
21 A notice given under s 139ZQ of the Act is the first step in a statutory process which is intended to assist creditors but which has the potential to have a serious impact on third parties. For this reason the notice must set out the facts and circumstances which cause the Official Receiver to consider that a transaction is void against the trustee: see s 139ZQ(2). A third party on whom the notice is served may apply to the Federal Magistrates Court to have the notice set aside. No time limit is prescribed for the making of such an application. In the present case the application was made over four years after the notice was issued and appears to have been made as a response or reaction to the trustee's application to the Federal Magistrates Court seeking possession of the three properties. No grounds were advanced to explain why it was that Mr Vale sought to have the notice set aside. There was, however, a suggestion, in paragraph 16 of Mr Vale's defence, that such grounds could be ascertained from a reading of the defence. Despite this, the defence did not take issue with any facts or circumstances which had been set out in the notice for the purpose of establishing that Mr Vale was a person to whom Subdivision J of Division 4B of Part VI of the Act applied. None of the three "significant errors" relied on by the Federal Magistrate was referred to in the defence. On the contrary, the defence acknowledged that the sum of $270,000, which was demanded in the notice, was "properly payable".
22 The first of the errors referred to by the Federal Magistrate was the characterisation of the September 1998 appraisal as a "registered valuation". The term is devoid of meaning. If it was intended to refer to a valuation by a registered valuer it may or may not have been correct. There was no evidence as to whether or not the person who provided the market appraisal in September 1998 was a registered valuer. The valuation had been obtained by Mr Vale from an estate agent for the purpose of ascertaining a reasonable asking price for the properties. The $270,000 figure was, to Mr Vale's knowledge, derived from that appraisal. This misdescription of the appraisal in the notice was of no consequence. It was not a significant error and it did not provide a reason for the exercise of the Court's power to set aside the notice under s 139ZS.
23 The second error relied on by the Federal Magistrate was the statement that the value of Mrs Vale's interest in the properties was $270,000. This was said to be an error because the "best evidence" of the "proper value" at the time of the transfer, which was, mistakenly, said to have occurred on 23 April 1999, was the March 1999 valuation of $208,350.
24 Had the valuation been put in issue in Mr Vale's cross-claim or, perhaps, in his defence, the onus of satisfying the Court that the value of the transfer, said to be void against the trustee under s 120(1) of the Act, would have fallen on the trustee: see Halse v Norton (1997) 76 FCR 389 at 398-9. The Federal Magistrate appears to have proceeded on the assumption that the valuation had been put in issue in the pleadings and that the onus fell on the trustee to justify the claim for $270,000. In this regard the Magistrate said that he was "not satisfied that the trustee has satisfactorily established that the value appearing on the s 139ZQ notice is the proper value of the relevant properties." The Federal Magistrate was, in our view, mistaken in proceeding on this assumption. Mr Vale's solicitor considered the notice shortly after it had been issued. On 27 June 2002 he wrote to the Official Receiver. Whilst he asserted that the notice contained certain other errors no challenge was made to the $270,000 valuation. He did not respond to the invitation, extended in the notice, to make submissions seeking a reduction in the amount and nominating a lesser figure. Nor was any challenge made when, four years later, the proceeding was commenced in the Federal Magistrates Court. The trustee's statement of claim alleged, in paragraph 3, that the market value of the three properties in September 1998 was $540,000. This allegation was not denied in the defence although it was pleaded that the September 1998 appraisal "indicated a reasonable asking price for each of the Properties." Paragraph 8 of the statement of claim pleaded that the s 139ZQ notice had claimed that Mrs Vale's interest in the properties was valued at $270,000. This allegation was admitted in the defence. By paragraph 11 it was pleaded that "as a result" of the certificate "a charge in the sum of $270,000 in favour of [the trustee] was created over the properties." The defence admitted paragraph 11 "to the extent that the amount of $270,000 is properly payable." Again, the defence did not put in issue the quantum of the valuation. The allegation that the certificate gave rise to a charge in the sum of $270,000 was thus admitted by Mr Vale. This is not the same thing as an admission by Mr Vale that the value of the property which he received from Mrs Vale was $270,000. It is, however, an admission that, because the Official Receiver placed this valuation on the property received by Mr Vale, a charge in that sum arose under s 139ZR of the Act. It may, nonetheless, be possible to interpret the defence as containing a deemed admission that $270,000 represented the true value of the interest acquired by Mr Vale. Whether that be right or not, it is clear that the defence did not contain a contention that the allegation in the certificate that that interest was valued at $270,000 was not correct. That being, so there was no foundation, in the pleadings, for the finding that such an error supported the exercise of the Court's power to set aside the notice under s 139ZS. Although the issue appears to have been raised in argument before the Federal Magistrate no application to amend the pleadings was made or granted.
25 In any event the valuation was one of the facts and circumstances alleged in the notice given under s 139ZQ of the Act. The material before the Federal Magistrate did not support his conclusion that the $270,000 valuation of Mrs Vale's interest in the properties constituted a significant error much less justify the further conclusion (if, indeed, the Federal Magistrate reached this conclusion) that Subdivision J of Division 4B of Part VI of the Act did not apply to Mr Vale on the basis of the facts and circumstances alleged in the notice.
26 In the present case the competing valuations were undertaken six months apart. Although they were obtained for different purposes they were, nonetheless, valuations placed on the properties by presumptively competent valuers. It should not be regarded as surprising that the valuations differed. It would have been far more surprising had they been identical or very close. This is because, as Kirby P said in Electricity Commission of NSW v Arrow (1994) 85 LGERA 418 at 419 (which was quoted by the Federal Magistrate):
"Valuation is not a science. It is an imprecise, opinionative activity involving the consideration of many variables, sometimes with equally legitimate outcomes."
Neither valuation can be branded as "wrong" or "incorrect" simply because it differs from the other.
27 During argument there was some debate as to whether, at least where real property is involved, it is either possible or necessary, in a notice given under s 139ZQ of the Act, for the Official Receiver to state a precise figure as being the value of the property transferred. In a case such as the present there would seem to be no reason why the Official Receiver could not simply allege that half (or some other proportion) of the value of the property had been received by the third party. Where, however, the Official Receiver chooses to assign a monetary value to an interest in real property the question arises as to how accurate he or she must be. Plainly there must be some evidentiary foundation upon which any valuation is based. Where there are two or more valuations, made within a relatively short period of time, which differ it will be difficult to make good a claim that the Official Receiver has erred because he or she has chosen to adopt one in preference to the others.
28 Reference was made to two decisions of the Court in which it was sought to set aside notices given under s 139ZQ. In Re Lucera; Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329 Olney J set aside a notice because it did not correctly identify the property said to have been received by the third party and because it did not attempt to value the "property". The s 139ZQ notice in that case identified the value of the whole of the property but not the value of the interest received by the third party. Moreover the notice stated that the property had been valued at $100,000 when, in fact, the valuer had estimated that, at auction, the property could achieve a price from around $98,000 to $105,000. His Honour also held that the reference, in s 139ZQ(1) of the Act, to "the value of the property received" means "the value of the property at the time it was received." Since the valuation had been made some four years after the transfer had been made it was found that there was no evidence of the value of the property at the relevant time.
29 The second case was Re Aley; Ex parte Sweeney v Aley (1996) 63 FCR 294. In that case a bankrupt had transferred his interest in the matrimonial home to his wife. A real estate agent had made an appraisal and expressed the opinion that the property would attract a price of between $250,000 and $260,000 on the prevailing market. Drummond J did not consider this to be evidence of the value of the property when the interest was transferred because it did not purport to be a valuation of the property. His Honour said (at 300-301) that:
"I am reluctant to read s 139ZR of the Act as making a notice under s 139ZQ of the Act effective to charge property owned by the recipient of the notice with liability to pay the figure asserted in the notice as the value of the transferred property in contrast to the true value of the property at the date of receipt. Section 139ZR(1) of the Act charges the property "with the liability of the person to make payments to the trustee as required by the notice". Under s 139ZQ(1) of the Act, all that the notice can require by way of payment to the trustee is payment of "an amount equal to … the value of the property received". It is that, not for example the amount stated in the notice, that is to be paid. Section 139ZQ(2) of the Act does not require any information as to how the figure demanded by the notice was arrived at to be set out in the notice. The figure stated in the notice as the value of the property received from the bankrupt is not given by the Act any evidentiary force. A notice issued in reliance on s 139ZQ is, in my opinion, only effective to give rise to a debt enforceable under s 139ZQ(8) of the Act and a charge within s 139ZR of the Act if the amount demanded by the notice is, in fact, equal to the value of the property at the relevant time. Such an interpretation should not create any significant difficulty since the concept of the value of property at a particular time will generally involve an imprecise rather than an exact assessment of worth."
We do not understand either of their Honours to suggest that a notice, given under s 139ZQ must place a monetary value on any property received by the third party. If their Honour's reasons are to be so understood we would, respectfully, disagree. In Re Lucera Olney J was concerned that there was no evidence to support the valuation which the Official Receiver had chosen to incorporate in the notice. In Re Aley Drummond J was also dealing with a case in which the Official Receiver had included a monetary valuation of the property in the s 139ZQ notice. His Honour held that, if a figure is stated in a notice and an application is made by the third party to set aside the notice, the Official Receiver must be able to point to evidence supporting the valuation or, more specifically, to establish that, as a matter of fact, the amount stated is equal to the value of the property at the time at which it was transferred to the third party. Where real property is transferred (as it was in that case), evidence adduced by the Official Receiver as to the value of the property at that time will not be found wanting simply because the third party is able to tender evidence of another valuation of the property at the time of the transfer. So much is evident from his Honour's acknowledgment of the inherent imprecision of valuations of this kind.
30 In the normal case it will be necessary for a trustee to obtain a valuation of property to which it is said that s 120 of the Act applies. Where real property is involved, unless the third party co-operates by consenting to the valuer entering the property, any valuation obtained will necessarily not be informed by an on site inspection. Unusually, in the present case, both valuers had access to the property because the valuations were sought and obtained by Mr Vale. Mr Vale did not contend, either in his application under s 139ZS (if the principal order sought in the cross-claim can be understood as one founded on s 139ZS) or in his defence, that the September 1998 appraisal which valued the properties, collectively, at $540,000, did not represent, as a matter of fact, the true value of the properties at the time at which Mrs Vale's interest in them was transferred to him. Nor did he deny that Mrs Vale held an interest as a joint tenant in the properties immediately before the transfers.
31 In these circumstances, in our opinion, it was not open to the Federal Magistrate to find that the asserted value of Mrs Vale's interest of the properties constituted a material error in the s 139ZQ notice.
32 The third error which was relied on by the Federal Magistrate was the "misleading" statement, in paragraph seven of the s 139ZQ notice, that the properties had been transferred to Mr Vale "at a time within 2 years" of his wife's bankruptcy. It was said that Mrs Vale had become bankrupt on 24 April 2001 and that the properties had been transferred on 23 April 1999 - more than two years earlier.
33 The assertion, made by Mr Vale's solicitor and accepted by the Federal Magistrate that Mrs Vale had become bankrupt on 24 April 2001 does not accurately reflect the terms of s 120(3)(a) of the Act. For the purposes of that paragraph the relevant date of transfer is a date "more than 2 years before the commencement of the bankruptcy …". If a person becomes a bankrupt on a creditor's petition the bankruptcy is taken "to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by that person within the period of 6 months immediately preceding the date on which the creditor's petition was presented or the application for the making of the sequestration order was made …": see ss 5 and 115 of the Act. In order to apply s 120(3)(a) of the Act it is, therefore, necessary for the Court to know:
· The date on which the relevant transfer of property took place;
· The date on which the creditor's petition was presented or the date of the application for the sequestration order;
· The date on which the earliest act of bankruptcy was committed in the period of six months immediately before the creditor's petition was presented or the application for a sequestration order was made.
34 The evidence before the Federal Magistrates Court relating to these matters was extremely limited. The creditor's petition was not in evidence. Nor was the sequestration order. The dates on which they were presented and made could, presumably, have been ascertained from Court documents but the relevant dates do not appear in the evidence or in the Federal Magistrates' reasons. The case seems to have been argued, before the Federal Magistrate, on the basis that, after final judgment was entered in the District Court for $152,664.58 on 7 December 2000, a bankruptcy notice had been issued which required Mrs Vale to pay that sum to the insurer on or before 26 February 2001. She did not do so and thereby committed an act of bankruptcy: see s 40(1)(g) of the Act.
35 There was no evidence as to the date on which Mrs Vale's interest in the three properties was transferred to Mr Vale. The case was argued, on both sides, before the Federal Magistrate, on the basis that the transfer had occurred on 23 April 1999. That date appears on the certificates of transfer which were before the Court. The date however is the date on which the dealing was certified to be correct by Mr and Mrs Vale. The date the transfer took effect under the Real Property Act 1900 (NSW) ("the Real Property Act") was not that date. A transfer is not effectual until it is registered in the manner prescribed by that Act see: s 41 Real Property Act. Pursuant to s 36(6A) of the Real Property Act, a dealing is registered when the Registrar-General has made such recording in the Register with respect to the dealing as the Registrar-General thinks fit. It was accepted, in argument before this Court, that the transfer took effect on the date on which, in each case, it was registered. Counsel drew attention to a stamp at the top of two of the transfer documents which it was said indicated that registration had occurred on 10 June 1999. There was no evidence led before the Federal Magistrates Court to indicate whether or not counsel's supposition was correct. Had the transfer occurred on 23 April 1999 or, as seems likely, on a later date, it would have taken place within 2 years of the commencement of Mrs Vale's bankruptcy on 26 February 2001.
36 The Federal Magistrate (without saying why) declared himself satisfied that Mr Vale's solicitor was correct when he asserted that Mrs Vale "became bankrupt on 24 April 2001", that "the property was transferred on 23 April 1999 and that, "[a]ccordingly, the time of the transfer was more than 2 years prior to the bankruptcy of the bankrupt." The evidence did not support any of these findings. It was not, therefore, open to the Federal Magistrate to conclude that the statement in the s 139ZQ notice that the properties had been transferred to Mr Vale at a time within 2 years of his wife's bankruptcy was "misleading".
37 The statement, if it was understood to be referring to the commencement of Mrs Vale's bankruptcy, may or may not have been correct. Had it been incorrect the transfers would not have been void against the trustee under s 120 because of the proviso then contained in s 120(3)(a) of the Act. A necessary precondition for the issuing of a notice under s 139ZQ would not have been present. Mr Vale, would not, therefore, have been liable or obliged to make the payment demanded in the notice. Such an error would have provided a proper ground for the setting aside of the notice under s 139ZS.
38 The Federal Magistrate did not hold expressly that he was satisfied, for the purposes of s 139ZS(1) of the Act, that, having regard to the alleged facts and circumstances set out in the notice, Subdivision J of Division 4B of Part VI of the Act did not apply to Mr Vale. It may be doubted that any such finding was implicit in his reasons. The Federal Magistrate appears to have proceeded on the basis that, if significant errors appeared in the notice, the notice should be set aside. He did not direct his mind to the criteria prescribed in s 139ZS of the Act. He may have considered that he had power to make the orders under s 30 of the Act: cf Re Lucera at 338. If he did he did not say so. In any event, for the reasons which we have given, the errors relied on by the Federal Magistrate were either not made or, if they were, were not material.