National Australia Bank Limited v Colin Kennedy Mccormack [1991] ACTSC 74 (30 September 1991)

SUPREME COURT OF THE ACT

NATIONAL AUSTRALIA BANK LIMITED v. COLIN KENNEDY McCORMACK
S.C. No. 1188 of 1988
Appeal from Master

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Higgins J.(1)

CATCHWORDS

Appeal from Master - Examination under O43 r31 Supreme Court Rules - Whether creditor entitled to examine the prospects of a case for setting aside a maintenance agreement on the grounds of fraud - Possibility that maintenance agreement could be set aside - Whether it amounted to or could be included within the term "means of satisfying the judgment" - Authorities.

Supreme Court Rules O43 r31

Family Law Act 1975 (Cth), s.86

Bankruptcy Act 1966

Howard v Howard (1945) P 1

Robinson v Stuart (1891) 12 NSWLR (Eq) 47

Schartner v Schartner (1970) 10 DLR (3d) 61

Watkins v Ross (1893) 68 LT 423

Re: Wagner (1958) QWN 49

Melsom PM v Mullen ZL and Ors (1985) FLC 79,953

Re: Stephen Moore; ex parte: Sonenco (No. 77) Pty Ltd and Brian Raymond Silvia (FCA; Einfeld J.; 10/3/89; unreported)

The Marriage of Chemaisse (1988) 12 Fam LR 48

Re: Caruana and Fenech; ex parte Deputy Commissioner of Taxation (1988) FLC 76,557

HEARING

CANBERRA
30:9:1991

Counsel for the Plaintiff: Mr G. Richardson

Instructing solicitors: Messrs Abbott Tout Russell Kennedy

Counsel for the Defendant: Mr Harvey

Instructing solicitors: Messrs Blake Dawson Waldron

ORDER

The order of the Master made 19 June 1991 be set aside.

The matter be remitted to the Master for completion of the examination.

DECISION

This is an appeal from Master Hogan. It relates to a decision by the Master to reject questions proposed by counsel for the appellant, a judgment creditor, to be directed to the respondent, a judgment debtor. It is, clearly enough, an interlocutory matter.

2. The occasion for the questions being proposed was an examination of the respondent pursuant to O43 r31 (ACT Supreme Court Rules). The subject matter of the questions proposed, concerned a maintenance agreement between the respondent and his wife. That agreement was, it seems, registered under s.86 of the Family Law Act 1975 (Cth). The enquiries proposed had two objectives. The first was to gain admissions or information from which it might be concluded that the agreement was a sham entered into to defeat creditors including the appellant. The second was to gain admissions or information from which it might be concluded that certain transfers of property which had taken place were not authorised by that Agreement.

3. The enquiry before the Master was as to the "means" of the respondent. The terms of it are expressed in the relevant rule as follows:
"whether the judgment debtor has any, and, if so, what other

property or means of satisfying the judgment or order".

4. The question the Master posed for himself was whether the possible vulnerability of the maintenance agreement to action to set it aside amounted to or was included within the term "means of satisfying the judgment" as used in the rule.

5. The Master decided that it did not. He disallowed the questions.

6. Ultimately, of course, the rule as drafted must be interpreted according to its terms.

7. However, some guidance can be gleaned from past cases involving similar rules.

8. In Howard v Howard (1945) P.1 "means" were, in context, regarded as property (or money) which the debtor may fairly be assumed to be likely to get. A similar approach is to be discerned from Robinson v Stuart (1891) 12 NSWLR (Eq) 47. The term is a wide one. In Schartner v Schartner (1970) 10 DLR (3d) 61, as Mr Richardson, for the appellant, pointed out, "means", at least in a matrimonial context, includes potential as well as actual earning capacity.

9. Watkins v Ross (1893) 68 LT 423 is authority for the view that there is a discretion to limit questioning where the enquiry seeks to examine the validity of a defence to an action by an innocent third party.

10. That does not arise in the present case. If the appellant's suspicions are warranted the wife would not be an "innocent" party to the sham. Further, there are no proceedings to which the wife of the respondent is relevantly a party. In any event, the Master proceeded on a point of principle not of discretion.

11. It is only of marginal relevance, but it may be noted that such an enquiry could be entered into on the public examination of a bankrupt (Re: Wagner (1958) QWN 49).

12. Mr Harvey, for the respondent, points to the purpose of the rule as being in aid of the recovery of the judgment debt. He submits therefore that the enquiry should be limited to "means" capable of being attached pursuant to enforcement remedies this Court can grant.

13. Whilst I acknowledge the ingenuity of this argument, I do not, with respect, accept it. It seems to me that not only the availability but the non-availability of enforcement remedies may be enquired into and, further, the availability of other possible means for making available property which may then become available for seizure. I think the term is wide enough, for example, to enable the creditor to determine whether the alternative process of bankruptcy is worth taking or not. This course of enquiry would be subject to a discretion to limit the scope of that enquiry where it seemed to be going into so much detail as to be a "public examination" rather than an enquiry to ascertain means for satisfaction in due course and by due process of a judgment debt.

14. I would think that if a creditor discovered, on enquiry, that the debtor had, with a view to frustrating execution, delivered goods to accomplices and concealed their whereabouts, it would be open to the creditor to have those goods seized.

15. However, Mr Harvey further submits that whilst, under s.86(3) of the Family Law Act 1975, the maintenance agreement can be set aside for fraud or undue influence, the respondent has no standing to set it aside. Thus, it is irrelevant and futile, it is said, to enquire of the respondent whether someone else would or could do so when it is plain that no-one else has an interest in fact in doing so.

16. In Melsom PM v Mullen ZL and Ors (1985) FLC 79,953, Brinsden J. held that a trustee in bankruptcy had no power under the Bankruptcy Act 1966 to set aside a maintenance agreement entered into to defeat creditors registered pursuant to s.86 of the Family Law Act 1975 (Cth).

17. In 1987, s.86(6) of the Family Law Act 1975 was amended so as to subject s.86(6) to s.121 of the Act. The purpose of the amendment is referred to in Re: Stephen Moor; ex parte: Sonenco (No. 77) Pty Ltd and Brian Raymond Silvia (FCA; Einfeld J.; 10 March 1989; unreported). It was to enable collusive transactions between husband and wife to be set aside to frustrate an intention on their part to defeat creditors. It applied only to transactions executed or made after the amendment took effect (see The Marriage of Chemaisse (1988) 12 Fam LR 48).

18. In Moor, Einfeld J. agreed with the opinion of Davies J. as expressed in Re Caruana and Fenech; ex parte Deputy Commissioner of Taxation (1988) FLC 76,557. In that case his Honour said:

(76,562) "Moreover, I think it is beyond argument that, if
this Court (the Federal Court) were satisfied that the
creditors were prejudiced by reason of being confronted with
a maintenance agreement which had been entered into in fraud
of them, the Court would be entitled in its discretion to
make an order under sec. 239 (Bankruptcy Act 1966) setting
aside any composition arrived at. This Court will be astute
to protect creditors against fraud, whatever its guise."

That was a case arising from an agreement not subject to the 1987 amendment.

19. The maintenance agreement enquired into here was dated and filed (it seems) on 31 May 1987. The 1987 amendment came into effect on 13 January 1988.

20. Whilst this makes a creditor's position more difficult, it is clear from Moor and the authorities referred to therein that the creditor could move to set aside the agreement if it was shown to be a sham, ie a fraudulent attempt to defeat creditors. It follows that I do not agree with the opinion expressed in Melsom (supra) insofar as that decision is contrary to that opinion.

21. It is not necessary, in my view, that a creditor show that there is an unanswerable case for setting aside a transfer pursuant to a maintenance agreement. The creditor is entitled to examine its prospects for taking such proceedings so far as it is within the power of the debtor to provide such information. It is enough that the enquiry is not obviously pointless.

22. I therefore respectfully disagree with the test applied by the Master. It is, in my opinion, open to a creditor to enquire as to the existence of voidable dispositions. Such dispositions do relate to the means of the debtor to satisfy the debt. Only if it appears that the disposition enquired about is unarguably not avoidable should the creditor be disentitled further to pursue information concerning it.

23. I hold that the appellant is entitled to pursue the line of questioning proposed subject to any particular lawful objection on other grounds.

24. I set aside the order of the Master discharging the examination summons and the consequential order as to costs. I remit the matter to the Master to enable the examination to be completed according to law.

25. I will hear the parties as to any required consequential directions and costs.