Vale v Sutherland

Vale v Sutherland - [2009] HCA 26 - HCA 2009 case summary — Zoe

[28]

If a transaction be void, by operation of provisions including s 120, then, upon application by the trustee, the Official Receiver is empowered by s 139ZQ(1) to take a certain step. The operation of s 120 upon the facts of this case is not disputed. The step then authorised by s 139ZQ(1) is the issue by the Official Receiver of a notice to a person who received property as a result of that transaction requiring that person to "pay to the trustee an amount equal to the money or the value of the property received". The term "value" in this provision has the meaning given by the definition of "value" in s 139K, namely "the market value of the property when the notice is given". The words "the property received" in s 139ZQ(1) identify that which is to be valued at the time the notice is given. The result is that any rise or fall in value since the date of the transaction is taken into account for the purposes of the notice provisions. In the present case there was a period of some three years between the transaction and the issue of the relevant notice.
Nevertheless, a line of Federal Court authority, mentioned earlier in these reasons and to which Lindgren J referred[6], treats the value in s 139ZQ(1) as that at the date of the transfer of the property under the avoided transaction. The authorities included Re Lucera; Ex parte Official Trustee v Lucera[7] and Re Aley; Ex parte Sweeney v Aley[8]. They did not refer to s 139K, the definitions in which apply to Div 4B and thus to Subdiv J.
The area of debate in this Court first assumed the need for valuation at the transfer date, and the dispute concerned the making of a proper finding of that value and the operation of the notice provisions.
The notice must "set out the facts and circumstances because of which the Official Receiver considers that the transaction is void" (s 139ZQ(2)). Once a notice has been issued the property is "charged with the liability of the person to make payments to the trustee as required by the notice" (s 139ZR(1)). Failure or refusal to comply with the notice is an offence (s 139ZT(1)). The amount payable to the trustee under the section is recoverable as a debt by action in a court of competent jurisdiction (s 139ZQ(8)). However, on application by the person subject to the notice, or any other interested person, a Court having jurisdiction in bankruptcy under the Act may set aside the notice where it is satisfied that Subdivision J does not apply to the person "on the basis of the alleged facts and circumstances set out in the notice" (s 139ZS(1)). These words are important in construing the section[9].
It will be necessary to set out the text of several of these provisions later in these reasons.
The "jurisdictional fact", upon the existence of which depends the exercise of the power conferred by s 139ZQ, was identified by Carr J in Re McLernon; Ex parte SWF Hoists and Industrial Equipment Pty Ltd v Prebble[10]. His Honour said[11]:

[40]

The Trustee submits that (i) the ground for an application by the appellant under s 139ZS(1) is that Subdiv J "does not apply to [the appellant] on the basis of the alleged facts and circumstances set out in the notice", (ii) the facts and circumstances there identified correspond to those considered by the Official Receiver to render the transaction in question void against the Trustee and identified as required by s 139ZQ(2), (iii) those facts and circumstances do not, where s 120 is the ground of avoidance of a transaction, include the specification of any particular sum of money or value of property received as a result of the transaction, (iv) a notice which, as indicated by s 139ZQ(1), does specify for payment to the Trustee an amount equal to the money or the value of the property received, but is in error as to that amount, is not for that reason liable to attack on the sole ground which is provided by s 139ZS(1), (v) that is because s 139ZS(1) is linked back to s 139ZQ(2), and not s 139ZQ(1), and (vi) any dispute as to the accuracy of the amount to be paid to the Trustee is to be resolved in proceedings to recover the debt or to enforce the charge.
On the other hand, the appellant, with the support of Lindgren J in the Full Court, submits that the amount claimed by the Trustee for payment under s 139ZQ(1) is included in "the alleged facts and circumstances set out in the notice", within the meaning of s 139ZS(1), and error in that amount founds a remedy under that sub‑section.
Both sides appeared to accept that in s 139ZS(1) the phrase "the Court may ..." was used in the sense indicated in authorities such as Leach v The Queen[15], namely "the Court shall ...". The sub‑section confers a power upon the Court with an obligation to exercise it if the ground specified in the sub‑section is made out.
Nor did there appear to be any dispute upon another question of construction of the Act. This concerns the interrelation between s 139ZS and s 30(1) of the Act. The latter endows courts of bankruptcy with "full power to decide all questions, whether of law or of fact, in any case of bankruptcy" and to make "such orders ... as the Court considers necessary for the purposes of carrying out or giving effect to this Act ...". Section 30 has a provenance which includes s 72 of the Bankruptcy Act 1869 (UK)[16], s 105 of the Bankruptcy Act 1914 (UK) and s 25 of the Bankruptcy Act 1924 (Cth). It is to be generously construed[17], but, consistently with the reasoning in cases such as Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia[18], it does not authorise the making of an order which would bring about a result which differs from that prescribed elsewhere in the Act[19]. Section 139ZS(2) states that a notice set aside under s 139ZS(1) "is taken not to have been given"; the sub‑section does not contemplate severance, reading down or amendment of a notice.
The result of that construction of the legislation is that s 30 could not be relied upon to qualify what otherwise would be the operation of s 139ZS for which the appellant contends. If his interpretation of that section be correct then an error in valuation will found an application to set aside the notice in question. Section 30 cannot save the notice from expungement under s 139ZS(2) by an order preserving its life as to that part of the amount which is accurately claimed.
Valuation for the purposes of s 120 (and s 121 and s 122) involves market value at the time of the transfer. Valuation is a notoriously inexact science[20]. It is apparent from the reference in the opening words of s 139ZQ(1) to those provisions as rendering transactions void under Div 3 of Pt VI of the Act, that questions of the accuracy of particular valuations may be presented by Subdiv J. Section 139ZQ(8) makes allowance for this by using the phrase "recoverable ... as a debt", stating:

[44]

Mr and Mrs Vale were the registered proprietors as joint tenants of seven parcels of land registered under the Real Property Act 1900 (NSW). On 28 September 1998 Mr and Mrs Vale obtained a "valuation" ("the 1998 valuation") which was based upon the sum of the highest range of prices given, and gave a total valuation of $540,000.00. The sum of the lowest range of prices given was $520,000.00. This "valuation" contained a disclaimer that it was "an opinion of a reasonable asking price only and not to be taken as a sworn valuation". On 31 March 1999 a further valuation of the properties was obtained, giving a total value of $416,700.00 ("the 1999 valuation"). This valuation was obtained for the purpose of assessing the stamp duty payable on the proposed transfer of Mrs Vale's interests in the properties to Mr Vale. It was undertaken by a registered valuer and it did not contain a disclaimer.
The interest of Mrs Vale as joint tenant in the properties was transferred to Mr Vale on 23 April 1999, the date certified on the transfer, in exchange for $2.00. On 26 February 2001 Mrs Vale committed an act of bankruptcy upon failure to comply with a bankruptcy notice (s 40(1)(g)). This marked the commencement of bankruptcy, for the purposes of the Act (ss 5 and 115).
The transfer of Mrs Vale's interests in the properties occurred within two years of the commencement of her bankruptcy and was for less than the market value of the properties. The result is that the transfer was void by reason of s 120(1) of the Act and s 120(3) had no application. As remarked earlier in these reasons, the appellant does not deny the operation of s 120 to the facts of this case. On 27 May 2002 a notice was issued by the Official Receiver to Mr Vale and was expressed to be pursuant to s 139ZQ of the Act ("the Notice"). The Notice recited the 1998 valuation of $540,000.00 and Mrs Vale's ownership as joint tenant with Mr Vale. It stated that payment by him of one half of that sum, $270,000.00, was required 28 days after service upon him of the Notice. The charge created by s 139ZR in favour of the Trustee was registered upon the title to the properties. The dispute concerns not the satisfaction of the jurisdictional fact presented by s 120, but the amount claimed by the Notice.
Several years passed. By Statement of Claim filed on 19 April 2006 in the Federal Magistrates Court (which is a court of bankruptcy identified in s 27 of the Act), the Trustee sought possession of the land against which the charge was registered, and also sought to recover by an action in debt with a claim for judgment against Mr Vale for $270,000.00 "together with interest". By his cross‑claim, and his defence, Mr Vale sought an order under s 139ZQ setting aside the Notice.
On 2 October 2007 Lloyd‑Jones FM, on the cross‑claim, set aside the Notice and, consequently refused the relief sought by the Trustee in this action. The Notice was set aside on the ground that it contained three "significant errors". These were that the Notice, (1) referred to the 1998 valuation as a "registered valuation" when, in fact, it was only a "market appraisal"; (2) valued the properties at $540,000.00 which was not established to be their "proper value" in light of the 1999 valuation; and (3) stated that the transfer of properties had taken place "within two years" of Mrs Vale's bankruptcy when in fact this was not the case.
The Trustee appealed to the Full Court of the Federal Court of Australia. By majority (Gray and Tracey JJ, Lindgren J dissenting) the appeal was allowed, the orders of Lloyd‑Jones FM were set aside and the proceedings were remitted "to be heard and determined according to law".
The majority held that "it was not open to the Federal Magistrate to find that the asserted value of Mrs Vale's interest [in] the properties constituted a material error in the s 139ZQ notice"[23] because none of the "significant errors" found by Lloyd‑Jones FM had been pleaded or put in issue by Mr Vale's defence or cross‑claim[24]. Furthermore, their Honours held that the first error was "of no consequence" and that the third error did not exist because the transaction in fact had occurred within two years of the commencement of Mrs Vale's bankruptcy. In relation to the second error their Honours observed that[25]:

[68]

The majority of the Full Court was correct in its conclusion that the Federal Magistrate had erred in allowing the counter‑claim and setting aside the Notice. But the decision of the majority is to be supported on reasoning which differs from that on which they relied. This is because, for the reasons given above, under the heading "The issue of construction between the parties", the Trustee's submission respecting the scope of s 139ZS should be accepted.
To that extent, the appeal to this Court should be dismissed. If no further order is made in this Court, the orders of the Full Court will stand. These involve remittal to the Federal Magistrates Court for hearing of the claim brought by the Trustee against the appellant.
The relief sought by the Trustee in the statement of claim was an order for possession of the properties and judgment in the sum of $270,000.00 plus interest. The only reason given by the Federal Magistrate for refusing relief was that the Notice had been set aside.
The majority in the Full Court expressed strong reservations as to whether the order for possession could be made[33]. That would leave the money claim for determination on remitter.
On the second day of the hearing in this Court the Trustee sought special leave to cross‑appeal against the order for remitter made by the Full Court.
The question then arises whether, if special leave to cross‑appeal is to be granted, it should be on terms respecting the carriage of costs by the Trustee of the Full Court appeal with the restoration of the costs order made by the Federal Magistrate. Written submissions on that question were filed pursuant to orders made at the conclusion of oral submissions.
The Trustee as proposed cross‑appellant seeks from this Court an order on the proposed cross‑appeal for payment not of $270,000.00 but of $208,350.00 together with interest thereon from 28 May 2002. This involves belated acceptance of a proposition that the best evidence as to the value of the half share of the relevant properties was $208,350.00.
However, it also assumes the erroneous identification of the temporal element in the valuation requirement, to which reference has been made. Accordingly, the Senior Registrar was directed by the Court to communicate with the parties as follows:

[73]

The further written submissions from both parties correctly answer (a) that the value is that at the date of the Notice and answer (b) in the negative. Further, the appellant now accepts for the purposes of the appeal and any cross‑appeal that the relevant value is that of the property at the date of the Notice, 27 May 2002, which was $208,350.00. The Trustee seeks judgment on the cross‑claim for that amount. There remain contentions between the parties as to the terms upon which a grant of special leave to cross‑appeal might be granted and the provisions for interest upon the $208,350.00 and for the costs of the litigation.
The Trustee now seeks to be in the position that would have applied if he had provided the Official Receiver with direct evidence of the value of the properties in question at the date of the Notice. The application for special leave to cross‑appeal should be granted but on terms that the Trustee bear the costs of the appellant of the appeal and cross‑appeal. The Trustee has indicated acceptance of those terms.
The appellant wishes to dispute the appropriateness of an order for interest and submits that the question of the appropriate rate for any award should be remitted to the Federal Magistrates Court. That submission should be accepted.
Order 5 of the orders of the Full Court required the appellant to pay the Trustee's costs of the Full Court appeal. Order 4 provided for the Federal Magistrates Court to determine all questions of costs in that Court. Order 4 should not be disturbed. But order 5 calls for particular consideration. It favoured the Trustee but the Trustee is now held entitled to judgment for $208,350.00 on reasoning which differs from that upon which he succeeded in the Full Court. It would have been open to the Trustee to present to the Full Court the submissions which now have been accepted by this Court. In the circumstances, order 5 should be set aside, and in its place there should be no costs order upon the Full Court appeal.

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