Re Alan Bond Ex Parte: Hongkong Bank of Australia Limited [1992] FCA 79; (1992) 106 ALR 329 (1992) 34 FCR 447 (5 March 1992)

FEDERAL COURT OF AUSTRALIA

Re: ALAN BOND
Ex Parte: HONGKONG BANK OF AUSTRALIA LIMITED
No. N N4860 of 1991
FED No 87
Bankruptcy
[1992] FCA 79; (1992) 106 ALR 329
(1992) 34 FCR 447

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Morling J.(1)

CATCHWORDS

Bankruptcy - bankruptcy notice - judgment obtained in Supreme Court - judgment for very large sum expressed in United States dollars - requirement in bankruptcy notice to pay judgment debt in either United States or Australian dollars - whether correct exchange rate used to convert United States dollars to Australian dollars - hypothetical effect on exchange rate of sale of United States dollars to meet judgment debt in Australian dollars - whether conversion should be made at historical or hypothetical exchange rate - use of historical exchange rate - bankruptcy notice not invalidated

Bankruptcy Act 1966, s. 41(2A) and (2B)

HEARING

SYDNEY
5:3:1992

Counsel for the applicant: B. Coles QC with D.P. Robinson and C.R.

Newlinds

Instructed by: Neil Lawson and Co.

Counsel for the respondent: F.M. Douglas QC with S.M.P. Reeves

Instructed by: Mallesons, Stephen, Jaques

ORDER

Application dismissed.

Applicant to pay respondent's costs.

In the event that a sequestration order is made against the judgment debtor founded upon the bankruptcy notice, the costs of the application are to be treated as part of the petitioning creditor's costs.
NOTE: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

DECISION

On 23 September 1991 HongKong Bank of Australia Limited ("the judgment creditor") obtained a final judgment against Alan Bond ("the judgment debtor") in the Supreme Court of New South Wales. The judgment was for the sum of US $194,644,443.97. The judgment has not been satisfied nor has execution of it been stayed.

2. On 23 December 1991 a bankruptcy notice was issued against the judgment debtor. For present purposes, the relevant part of the notice was in the following terms:

"WHEREAS HONGKONGBANK OF AUSTRALIA LIMITED of 1 O'Connell
Street, Sydney, New South Wales (hereinafter referred to as
'the judgment creditor') has claimed that the sum of United
States Dollars 194,644,443.97 is due by you to it under a
final judgment obtained by it against you in the Supreme
Court of New South Wales on the 23rd day of September 1991
in proceedings 50431 of 1991, being a judgment the execution
of which has not been stayed:
AND WHEREAS the sum of Australian Dollars 251,738,804.93 is
an amount that is the equivalent in Australian Dollars of
the said sum of United States Dollars 194,644,443.97
calculated at the exchange rate of $US0.7732 to $A1 as at
19 December 1991, being the second business day before
23 December 1991 the day on which application was made for
the issue of this notice:
THEREFORE TAKE NOTICE that within 28 days after service of
this notice on you, excluding the day on which this notice
is served on you, you are required -
(a) to pay the sum of either:
(i) United States Dollars 194,644,443.97; or
(ii) Australian Dollars 251,738,804.93;
so claimed by the judgment creditor to the
judgment creditor; or
..."

3. The judgment debtor now applies to have the bankruptcy notice set aside. The principal ground upon which the application is based is that the notice does not accurately state the equivalent in Australian dollars of the amount of US $194,644,443.97 for which judgment was obtained in the Supreme Court and is accordingly invalid. The inaccuracy is said to arise from the use of an incorrect exchange rate when converting the sum due under the judgment into Australian dollars.

4. In order to understand the argument in support of the invalidity of the notice it is necessary to refer to sub-ss. 41(2A) and (2B) of the Bankruptcy Act 1966 ("the Act"), which are in the following terms:

"(2A) Where the judgment debt or sum ordered to be
paid in accordance with the judgment or order is expressed
by the judgment or order as an amount in the currency of a
foreign country (in this sub-section referred to as the
'amount of foreign currency'), the bankruptcy notice shall
state that payment is to be made in either -
(a) the amount of the foreign currency; or
(b) a specified amount of Australian dollars, being
an amount that is the equivalent in Australian
dollars of the amount of foreign currency on the
second business day before the day on which
application was made for the issue of the
bankruptcy notice.
(2B) The rate for ascertaining on a particular
day for the purposes of paragraph (2A)(b) the equivalent in
Australian dollars of an amount of foreign currency is the
average of the rates at which Australian dollars may be
bought in that foreign currency at -
(a) 11 o'clock in the morning; or
(b) if another time is prescribed for the purposes
of this sub-section - that other time,
on that day from 3 authorised foreign exchange dealers
selected by the creditor who applied for the issue of the
bankruptcy notice."

5. It is common ground that no other time has been prescribed pursuant to para. 41(2B)(b).

6. Prior to the issue of the bankruptcy notice Mr James Lane, a solicitor employed by the judgment creditor's solicitors, made enquiries of three authorised foreign exchange dealers as to the exchange rate for selling United States dollars and purchasing Australian dollars at 11 a.m. on 19 December 1991. The results of his enquiries were stated in a statutory declaration made by him and furnished to the Registrar. The statutory declaration was tendered in evidence before me without objection. Mr Lane was not cross-examined on his declaration, the relevant paragraphs of which are as follows:

"2. On 20 December 1991 at approximately 5.05 p.m. I
telephoned the Barclays Bank Australia Limited Foreign
Exchange Dealing Room and asked what the exchange rate
was for selling United States Dollars and purchasing
Australian Dollars at 11.00 a.m. on 19 December 1991.
I was quoted a figure of 0.7735.
3. On 20 December 1991 at approximately 5.10 p.m. I
telephoned the CHASE AMP Bank Limited Foreign Exchange
Dealing Room and asked what the exchange rate was for
selling United States Dollars and purchasing
Australian dollars at 11.00 a.m. on 19 December 1991.
I was quoted a figure of 0.7730.
4. On 20 December 1991 at approximately 6.00 p.m. I
telephoned the Standard Chartered Bank Australia
Limited Foreign Exchange Dealing Room and asked what
the exchange rate was for selling United States
Dollars and purchasing Australian Dollars at
11.00 a.m. on 19 December 1991. I was quoted a
figure of 0.7730.
5. The average of 0.7735, 0.7730 and 0.7730 to four
decimal places is 0.7732."

7. The sum of Australian $251,738,804.93 referred to in the bankruptcy notice was calculated by reference to the average exchange rate referred to in para. 5 of Mr Lane's statutory declaration.

8. It is common ground between the parties that if a person had sold a parcel of approximately US$194 million and purchased Australian dollars at or about 11 a.m. on 19 December 1991 (which was the second business day before the day on which application was made for the issue of the bankruptcy notice) the exchange rate might well have been marginally affected. The extent to which the rate may have varied is a matter of opinion. The three authorised foreign exchange dealers to whom the solicitor for the judgment creditor referred were Barclays Bank Australia Limited ("Barclays"), CHASE AMP Bank Limited ("CHASE"), and Standard Chartered Bank of Australia Limited ("Standard Chartered"). According to the representative of CHASE who quoted the exchange rate of 0.7730 referred to in para. 3 of Mr Lane's declaration, the rate would probably have been "something like ... 7745 (to) 7750" if there had been a sale of a parcel of US $194 million and a purchase of Australian dollars at the relevant time.

9. The representative of Standard Chartered who furnished the exchange rate of 0.7730 referred to in para. 4 of Mr Lane's declaration was asked whether there would have been a change in the rate if the client had been selling "a very large amount, say, $100M American dollars." She replied:

"I can't even imagine - I think the range on, the spread of the
price you would receive would probably be about twenty points so
you could probably go twenty points either side of that."

She added:

"It is a bit hard to judge".

10. Mr Coles QC, senior counsel for the applicant, submits that Mr Lane did not obtain the average of the rates which three authorised foreign exchange dealers would have provided for a dealing in a parcel of US$194,644,443.97 and that the failure to obtain and use the average of such rates resulted in non-compliance with the requirements of sub-s 41(2A) of the Act.

11. The point upon which Mr Coles relies appears to be free from authority. I was referred to cases in which the expressions "rate of exchange" and "a fair rate of exchange" have been considered: see, for example, Alexander Stewart and Sons Limited v Robinson [1920] HCA 78; (1920) 29 CLR 55 at 59; LNC (Wholesale) Pty Limited v Collector of Customs (1988) 77 ALR 347 and Comptroller-General of Customs v AMI Toyota Limited (1989) VR 231. However I do not think these decisions shed any light on the proper construction of sub-ss. 41(2A) and (2B) of the Bankruptcy Act.

12. Mr Coles argued his point persuasively but I do not think it is valid. In my opinion the reference in sub-s. (2B) to "rates at which Australian dollars may be bought in that foreign currency" at the time and on the date specified in the subsection is a reference to rates which can be ascertained and identified as historical facts, i.e. rates at which Australian dollars could have been bought at the relevant time. It is not a reference to rates which might have been quoted had a hypothetical transaction taken place in the market.

13. Sub-sections 41(2A) and (2B) were enacted following the decision in Re Ikin: ex parte Lamborghini Tractors of Australia Pty Limited (1985) 4 FCR 582. It was there held that a bankruptcy notice requiring payment in a foreign currency of a judgment debt expressed in that currency, without reference to the Australian currency equivalent, was invalid. It is reasonably plain that the legislature's intention in enacting sub-ss 41 (2A) and (2B) was to provide a simple and precise method of calculating an amount that is the equivalent in Australian dollars of an amount of foreign currency. Such a method is provided if the calculation is made by averaging three historical rates of exchange. The ascertainment of such rates involves no more than the making of enquiries of authorised foreign exchange dealers as to exchange rates at a particular point in time. Dealers can answer such enquiries by reference to their records. But if Mr Coles' argument is correct, much more would be required of them. They would be required to apply their minds to the question whether an historical exchange rate may have differed and, if so, to what extent, had it been influenced by a transaction which did not in fact take place. It might be expected that many dealers would decline to express an opinion upon such a matter or would do so only upon payment of a fee. It is unlikely that the legislature could have intended that judgment creditors would be faced with the task of obtaining such opinions from dealers.

14. It is true that two of the three dealers who were selected by the judgment creditor ventured opinions (which can only be described as tentative) as to the extent to which the exchange rate may have been affected by a transaction of the size that would have been required to obtain Australian currency of the value of the amount for which judgment was entered in the Supreme Court. But the opinions were only to the effect that the exchange rate would have moved within a certain range. Whether the movement would have been to the top or the bottom of the range was not stated, nor could it have been stated with any certainty.

15. For the above reasons, I do not think Mr Coles' principal argument is valid. In a separate argument, he submitted that the evidence did not establish that the rates referred to in Mr Lane's declaration were, in fact, obtained from three authorised foreign exchange dealers. In particular it was submitted that Ms Hand, the Barclays' officer who spoke to Mr Lane, did not give him the rate at which Australian dollars might have been bought with US dollars from Barclays itself. It was said that all she did was to quote a figure obtained from the Telerate Service. Telerate is apparently one of a number of financial information services. However, a fair reading of the transcript of the conversation between Mr Lane and Ms Hand shows that the rate of 0.7735 referred to in para. 2 of Mr Lane's declaration was Barclays' rate at the relevant time.

16. Although there was some informality in the way in which the information was sought and given, I am satisfied that the three rates which were used to obtain the average rate were each rates at which Australian dollars might have been bought in US currency at the relevant time from Barclays, CHASE AMP, and Standard Chartered respectively.

17. Mr Douglas QC, senior counsel for the judgment creditor, submitted that if there had been any departure from the strict requirements of the Act the departure would have been "a formal defect or an irregularity" within the meaning of s. 306(1) of the Act, and that no substantial injustice had been caused by any such defect or irregularity. Since, in my opinion, there is no formal defect or irregularity in the bankruptcy notice there is no need for me to consider this argument.

18. The attack on the validity of the bankruptcy notice fails. Accordingly, the application is dismissed with costs. In the event that a sequestration order is made against the judgment debtor founded upon the bankruptcy notice, the costs of the application are to be treated as part of the petitioning creditor's costs.