FEDERAL COURT OF AUSTRALIA Coshott v Learoyd [2001] FCA 88 PRACTICE AND PROCEDURE – Enforcement of judgments – Application by judgment debtor to set aside garnishment orders pursuant to which moneys had been paid into Court – Whether orders were validly made – Whether judgment debtor was a party to an appeal dismissed by consent – Whether there was a debt owing at time of service of garnishment orders – Whether obligation by mortgagee exercising power of sale to pay surplus to mortgagor is a "debt". Federal Court Rules, Order 37 rule 7 Supreme Court Rules (NSW), Part 46 rules 3, 5 ROBERT GILBERT COSHOTT and LJILJANA COSHOTT v RODERICK IAN LEAROYD, SALWEEN PTY LTD and WOOLLAHRA MUNICIPAL COUNCIL NG779 of 1997 N283 of 1999 WILCOX J 16 FEBRUARY 2001 SYDNEY GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG779 of 1997 BETWEEN: ROBERT GILBERT COSHOTT AND LJILJANA COSHOTT APPELLANTS AND: RODERICK IAN LEAROYD FIRST RESPONDENT SALWEEN PTY LTD SECOND RESPONDENT WOOLLAHRA MUNICIPAL COUNCIL THIRD RESPONDENT JUDGE: WILCOX J DATE OF ORDER: 16 FEBRUARY 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The District Registrar pay to Woollahra Municipal Council or its solicitors the sum of one hundred and twenty thousand dollars ($120,000.00) paid into Court on 9 January 2001 pursuant to the garnishment order made by Wilcox J on 13 December 2000. 2. Ljiljana Coshott pay to Woollahra Municipal Council the costs incurred by it in connection with the hearings of 1 February and 9 February 2001 relating to the said garnishment order. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N283 of 1999 BETWEEN: ROBERT GILBERT COSHOTT AND LJILJANA COSHOTT APPELLANTS AND: RODERICK IAN LEAROYD FIRST RESPONDENT SALWEEN PTY LTD SECOND RESPONDENT WOOLLAHRA MUNICIPAL COUNCIL THIRD RESPONDENT JUDGE: WILCOX J DATE OF ORDER: 16 FEBRUARY 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The District Registrar pay to Woollahra Municipal Council or its solicitors the sum of eleven thousand two hundred and thirty-two dollars and twenty-five cents ($11,232.25) paid into Court on 9 January 2001 pursuant to the garnishment order made by Whitlam J on 15 December 2000. 2. Ljiljana Coshott pay to Woollahra Municipal Council the costs incurred by it in connection with the hearings of 1 February and 9 February 2001 relating to the said garnishment order. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NG779 of 1997 NEW SOUTH WALES DISTRICT REGISTRY N283 of 1999 BETWEEN: ROBERT GILBERT COSHOTT AND LJILJANA COSHOTT APPLICANTS/APPELLANTS AND: RODERICK IAN LEAROYD FIRST RESPONDENT SALWEEN PTY LTD SECOND RESPONDENT WOOLLAHRA MUNICIPAL COUNCIL THIRD RESPONDENT JUDGE: WILCOX J DATE: 16 FEBRUARY 2001 PLACE: SYDNEY REASONS FOR JUDGMENT WILCOX J: 1 These two matters are before the Court because of a dispute concerning moneys paid into Court pursuant to garnishment notices issued in respect of each of them. The history of the proceedings 2 On 24 September 1997 Robert Gilbert Coshott and Ljiljana Coshott instituted a proceeding in this Court (NG779 of 1997) against seven respondents, one of whom was Woollahra Municipal Council ("the council"). 3 The matter went to trial against only three of the seven original respondents. Those three respondents included the council. During the course of the trial, it was established that Mr and Mrs Coshott were husband and wife and lived together at 5 Gilliver Avenue, Vaucluse. 4 On 23 March 1999 I dismissed the proceeding as against all three respondents, and made costs orders, including an order in favour of the council. Those costs were subsequently allowed at $120,000. The costs were not paid. 5 On 7 April 1999 a notice of appeal was filed by Mr Coshott. He entitled the document "Robert Gilbert Coshott and Ljiljana Coshott Applicants" and gave an address for service; namely, 5 Gilliver Avenue, Vaucluse, 2030. The council was one of the respondents named in the notice of appeal. The notice of appeal stated "[t]he appellant appeals" from the whole of my judgment. Upon the filing of the notice of appeal, the matter was numbered N283 of 1999. 6 On 15 June 1999 Mr Coshott filed an amended notice of appeal. This document retained the same title and address for service and also referred to "the appellant" appealing. 7 On 20 August 1999 Robinson Creais, solicitors, filed a notice of appointment of solicitor. This document was entitled with a reference to both Mr and Mrs Coshott as "appellants". The document stated: "the appellants, who formerly appeared in person, now appoint" Mr Creais "to act for them in the proceedings". 8 Submissions in respect of the appeal were filed by the respondents. But the appeal did not go to hearing. On the day before the appointed hearing, counsel for each of the parties signed short minutes of orders. Pursuant to those short minutes, on 26 August 1999 the Full Court appointed to hear the appeal (Lee, Emmett and Gyles JJ) made consent orders as follows: Flag 1 "1. Appeal be dismissed. 2. The Appellants to pay the Respondents' costs. 3. The order of Sackville J made on 15 July 1999 staying orders 2 and 3 of Wilcox J made on 23 March 1999 be vacated." 9 The council's appeal costs were subsequently allowed at $11,232.25. They were not paid. The garnishment orders 10 On 13 December 2000 Deacons, lawyers, presented to the Court a notice of motion on behalf of the council, in matter NG779 of 1997. The notice of motion sought leave to file and serve a garnishment notice addressed to Citibank Limited ("Citibank"). The draft garnishment notice identified the judgment debtor as "Ljiljana Coshott of 5 Gilliver Avenue, Vaucluse". No reference was made to Mr Coshott. The notice of motion was supported by an affidavit of Warwick Philip O'Rourke, a partner in Deacons, who deposed to the fact that the trial costs ($120,000) remained unpaid. He went on: "3. The Garnishee named in the Garnishment Notice, Citibank Limited (ABN 88 004 325 080), is indebted to the judgment debtor. The Garnishee on 18 November 2000 sold the judgment debtors' property at 5 Gilliver Avenue, Vaucluse, NSW 2030 ('the property') as mortgagee exercising a power of sale and as such, will have to account to the debtor for the residue sale proceeds after satisfaction of the garnishee's debt. Annexed and marked 'B' is a true copy of the front page of the contract for the property. 2. My office has been advised by the mortgagee that settlement of the contract for the sale of the property will occur on 21 December 2000." 11 Mr O'Rourke annexed to his affidavit a photocopy of extracts from a contract of sale of the property known as 5 Gilliver Avenue, Vaucluse. The vendor was shown as Citibank, exercising its power of sale pursuant to two specified mortgages "made between Citibank Limited as Mortgagee and Robert Gilbert Coshott & Ljiljana Coshott as Mortgagors and both dated 30 May 1994". The purchase price was shown as $6,000,000. 12 In accordance with usual practice, the motion was heard ex parte. On 13 December 2000 I made the following orders: "1. The third respondent have leave to file and serve on the garnishee a Garnishment Notice as set out in the draft Garnishment Notice attached to the Amended Notice of Motion. 2. A sealed copy of the Garnishment Notice and affidavit of Warwick Philip O'Rourke sworn 8 December 2000 be personally served on the garnishee. 3. A sealed copy of the Garnishment Notice and affidavit of Warwick Philip O'Rourke sworn 8 December 2000 be sent by pre-paid ordinary post separately addressed to Robert Gilbert Coshott and Ljiljana Coshott at 5 Gilliver Avenue, Vaucluse, NSW, 2030." 13 On 15 December 2000 Deacons presented a second notice of motion, this time in matter N283 of 1999, seeking leave to file and serve a garnishment order in respect of the costs of the appeal ($11,232.25). Once again the proposed garnishee was Citibank and the stated judgment debtor was Mrs Coshott, alone. This notice of motion was supported by an affidavit of Mr O'Rourke in similar terms to his earlier affidavit. 14 This second notice of motion came before Whitlam J. His Honour made orders similar to those which I had made two days earlier, with the addition that the matter be listed before me at 10.15 am on 1 February 2001. The dealings with Citibank 15 Unsealed copies of the two garnishment orders were served on Citibank on 19 December 2000. However, as the orders were unsealed, the parties accept this service had no legal effect. 16 On 21 December 2000 the sale of the Vaucluse property was completed. Deacons acted for Citibank on the sale, but the sale was handled by a partner other than Mr O'Rourke; namely, Ms Alison Deitz. According to a letter written by Ms Deitz to Mrs Coshott on 29 December 2000, the accuracy of which is not in dispute, at the time of settlement various payments were made in respect of municipal rates, water rates, legal costs in connection with the sale, agents commission and land tax. Ms Deitz said a sum of $2,821,580.16 was paid to Citibank (this apparently being the amount due under the mortgages) and there were two payments of $1,195,394.73. The total of these two payments was apparently the surplus due to the mortgagors, Mr and Mrs Coshott. 17 The first payment was made to one Hugh Thomas, apparently pursuant to court orders in a matter involving Mr Thomas and Mr Coshott. The second payment of $1,195,394.74 was paid into Deacons' trust account. Ms Deitz told Mrs Coshott that Citibank wished to deduct $25,000 from this amount pending a determination of the amount due to it in respect of the costs of removal and storage of personal property within the house and that Citibank proposed to pay a total of $150,098.97, and costs of $38, pursuant to three garnishee orders it had received. Those orders were the two (unsealed) Federal Court orders served on behalf of the council and one Local Court garnishee order. Ms Deitz sought a direction from Ms Coshott regarding payment of the balance due to her, after deducting these amounts, $1,020,257.77. 18 Mrs Coshott disputed the proposed deductions but directed Ms Deitz to pay the $1,020,257.77 to her. Apparently this was done on the same day, 29 December. 19 On 3 January 2001 sealed copies of the Federal Court garnishment orders were served on Citibank. 20 On 9 January 2001 Deacons paid to the Registrar of this Court a total of $131,232.55, being the total sum payable under the two Federal Court garnishment orders. The application for payment out 21 Both matters came before me on 1 February 2001. Mr G A Sirtes appeared on behalf of the council and sought an order, in each matter, for payment to the council of the money received by the District Registrar pursuant to the relevant garnishment order. Mr E Wasilenia appeared on behalf of Mrs Coshott. He opposed the orders sought by Mr Sirtes and contended I should set aside the garnishment orders and direct that the moneys be paid out to Mrs Coshott. Mr Wasilenia advanced several reasons. 22 As it was not convenient to hear argument in support of those reasons on that day, I stood the matter over until 9 February 2001. On that day argument ensued and I reserved my judgment. Liability for the appeal costs 23 The first submission advanced by Mr Wasilenia relates only to the costs of the appeal ($11,232.55). Mr Wasilenia contends Mrs Coshott was not a party to the appeal, so the garnishment order in respect of the appeal costs should be vacated. 24 I have set out the facts in relation to the appeal. It is true that the notice of appeal was filed by Mr Coshott, but it named both himself and Mrs Coshott as "applicants". That description was incorrect – the correct term was "appellants". However, it seems clear that the intention was to make Mrs Coshott a party to the appeal. 25 When solicitors took over the appeal, they not only corrected the description; they retained the reference to Mrs Coshott, as one of two appellants. More importantly, counsel appearing on behalf of both Mr and Mrs Coshott signed short minutes of the order the Full Court subsequently made. He purported to do so on behalf of both Mr and Mrs Coshott. The Full Court made orders that were consistent with the short minutes including an order that "[t]he appellants" pay the respondents' costs; that is, both appellants. This first submission is untenable. No debt at 3 January 2001 26 Mr Wasilenia's second point is that no moneys were owed by Citibank to Mrs Coshott on the day of service of sealed copies of the garnishment orders, 3 January 2001. It is common ground between the parties that this was the date of effective service, the orders served on 19 December 2000 having been unsealed. 27 Order 37 rule 7 of the Federal Court rules relevantly provides as follows: "(1) Subject to the Rules, and without limiting any other means of enforcement which may be available, the Court may, in order to enforce a judgment or order of the Court, make any order, issue any writ or take any other step that could be made, issued or taken by the Supreme Court of the State or Territory in which the judgment or order is to be enforced if the judgment or order had been made by that Supreme Court. (2) The modes of procedure and forms of process of the Supreme Court of the State or Territory in which the judgment or order is sought to be enforced shall be available and followed in the Court so far as is practicable mutatis mutandis for the enforcement of orders of the Court." 28 As the garnishment orders were to be served in New South Wales, the reference in rule 7(1) is to the powers of the Supreme Court of New south Wales. The relevant Rules of that Court are contained in Part 46. They include the following: "3 (1) A judgment creditor may, with the leave of the Court, but subject to any Act, file and serve on the garnishee a garnishment notice – (a) of attachment, to the extent of an amount specified in the notice, of debts due or accruing to the judgment debtor from the garnishee; and (b) of motion for payment under this Part. (2) A judgment creditor may move for leave under subrule (1) without filing or serving a notice of the motion. (3) The Court shall not give leave under subrule (1) unless it appears to the Court that – (a) the judgment or order is unsatisfied; and (b) there is a debt due or accruing to the judgment debtor from the garnishee. … 5 (1) A garnishment notice shall take effect upon its being served on the garnishee and upon its being so served shall operate to attach in the hands of the garnishee, to the extent of the amount specified in the notice, all debts which are due or accruing from the garnishee to the judgment debtor at the time of service of the notice (whether or not they were so due or accruing at the time when leave was granted under rule 3(1)). …" 29 As is apparent from rule 5(1), it is critical to the effectiveness of a garnishment notice that there be a debt or debts "due or accruing from the garnishee to the judgment debtor at the time of service of the notice". Mr Wasilenia argues there was no debt due or accruing on 3 January 2001. His reason is that, on 29 December 2000, Deacons had drawn a cheque or cheques in favour of the District Registrar for the amounts payable under the garnishment orders. Mr Wasilenia says the regulations that apply to solicitors' trust accounts require the trust account ledger to be debited with the value of each trust account cheque immediately the cheque is drawn; consequently, he contends, the cheque or cheques must be regarded as paid on 29 December 2000. If Deacons paid the money on 29 December, Mr Wasilenia argues, they did not hold any money on behalf of Citibank on 3 January; as Citibank itself held no money on behalf of Mrs Coshott, there was no debt due by Citibank to Mrs Coshott on that day. 30 It may be true that solicitors are obliged to debit their trust account ledger immediately upon the drawing of a trust account cheque. However, this does not derogate from application of the rule that, when a payment is made by cheque, the amount will be treated as paid on the date the cheque is given, provided the cheque is met on presentation. The mere drawing of a cheque does not effect payment; delivery is the critical act. The principle was stated in a unanimous judgment of the High Court of Australia in National Australia Bank Limited v KDS Construction Services Proprietary Limited (1987) 163 CLR 668 at 676: "Generally speaking, when a cheque is given in payment of a debt, it operates as a conditional payment. The payment is subject to a condition that the cheque be paid on presentation. If it is dishonoured the debt revives. Although it is sometimes said that the remedy for the primary debt is suspended, the suspension is no more than a consequence of the conditional nature of the payment ... The condition is a condition subsequent so that, if the cheque is met, it ranks as an actual payment from the time it was given. Subject to non-fulfilment of the condition subsequent, the payment is complete at the time when the cheque is accepted by the creditor ..." 31 It appears that, between 29 December and 9 January, Ms Deitz held in her possession a cheque or cheques drawn in favour of the Registrar of the Court. However, the cheque or cheques were not yet delivered; so Ms Deitz retained control over the funds they represented. If, before 9 January, she had received instructions from Citibank to cancel the cheques, she would have been bound to take this action, with the result that the moneys would never have reached the Court. That situation only changed on 9 January, when the cheque or cheques were delivered to the Registrar. 32 It cannot be said the moneys were paid out by Deacons before 9 January 2001. Until delivery of the cheque or cheques, Deacons retained the money in its trust account on behalf of Citibank. Citibank continued to owe Mrs Coshott the sum of $131,232.55 until it discharged its debt by payment of this sum to the District Registrar pursuant to the garnishment orders. Garnishment orders invalidly made 33 Mr Wasilenia's third point arises out of the terms of rule 3(3)(b) of the Supreme Court Rules. It will be recalled that subrule (3) forbids the Court to grant leave to a judgment creditor to file and serve a garnishment notice unless "it appears to the Court" that two conditions are satisfied. The second condition is that "there is a debt due or accruing to the judgment debtor from the garnishee". Mr Wasilenia contends that, upon each of the days when the subject garnishment orders were made, 13 December and 15 December, no debt was either due or accruing by Citibank to Mrs Coshott. The sale of the property had not yet been settled; unless and until it was, no surplus was payable to Mr and Mrs Coshott. 34 It is clear that no debt was due by Citibank to Mrs Coshott before completion of the sale on 21 December. Although there was a contract for a sale at a price substantially in excess of the mortgage debt to Citibank, there was always a possibility that the sale would go off. Until there was a completed sale, at a net price greater than the mortgage debt, Citibank was under no liability to the mortgagors. 35 The question whether there was a debt "accruing" by Citibank to Mrs Coshott on 13 and 15 December is more difficult to resolve. It might be thought that, once the contracts for sale had been exchanged, a debt was accruing, in the sense that there was a liability contingent on completion. However, it is doubtful whether, in this context, the words "debt accruing" cover a contingent liability. 36 In O'Driscoll v Manchester Insurance Committee [1915] 3 KB 499, the English Court of Appeal had to consider the application of garnishee provisions to the case of a medical practitioner debtor who was entitled to receive payments from an insurance committee. At the date of service of the garnishee order, the committee held funds, out of which a payment would be made to the practitioner, but the amount of his entitlement had not been determined. The Court held this did not matter. All three judges distinguished the case from one where there was not yet certainty about the existence of a debt. For example, Swinfen Eady LJ said at 512-513: "Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore there was a 'debt' at the material date, though it was not presently payable and the amount was not ascertained. It is not like a case where there is a mere probability of a debt, as, for instances, where a person has to serve for a fixed period before being entitled to any salary, and he has served part of that period at the time the garnishee order nisi is served. In such a case there is no 'debt' until he has served the whole period." At 516 Bankes LJ quoted and applied a statement in the Annual Practice, 1915: "But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and the case where both the debt and its payment rest in the future. In the former case there is an attachable debt, in the latter case there is not." 37 In the present case, it is strongly arguable that, at neither 13 nor 15 December 2000, was any debt accruing by Citibank to Mrs Coshott; both the debt and its payment rested in the future. If that is the case, rule 3(3)(b) of the Supreme Court Rules seems unduly limited. It would be consistent with the policy underlying the use of garnishment orders for the Court to allow the issue of an order in a case where it appeared that a debt was likely to become due or accruing. If the debt never accrued, no harm would be done to the debtor; the order would never have a practical operation. But such a change would enable enforcement of a judgment by garnishment in a greater range of circumstances. 38 It is not necessary, in the present case, to form a concluded view as to whether there was a debt "accruing due" by Citibank to Mrs Coshott on 13 or 15 December. As Mr Sirtes contends, weight must be given to the words "it appears to the Court". These words make a grant of leave conditional, not on actual indebtedness, but on a determination by the Court that it appears indebtedness exists. That determination may be made on an ex parte application: see subrule (2). The appearance may be misleading; there may be no indebtedness (actual or accruing) at that time. However, that does not matter. It is sufficient that the Court thought there was indebtedness. 39 The concluding words of subrule 5(1) support this approach. This subrule specifies the effect of service of a garnishment notice. It is to "operate to attach in the hands of the garnishee, to the extent of the amount specified in the notice, all debts which are due and accruing from the garnishee to the judgment debtor at the time of service of the notice (whether or not they were due and accruing at the time when leave was granted under rule 3(1))." [Emphasis added] It will be noted, first, that service of the garnishment order affects only debts due or accruing at the time of service but, second, that it does not matter whether or not those debts were due or accruing at the time the leave was granted. 40 Mr Wasilenia argues that the parenthetical words in subrule (1) were intended to cover only a situation where a debt was due or accruing at the time of leave being granted and some other debt fell due or accruing between that time and the date of service. He instanced a periodic payment such as for salary. However, I see no justification for reading down the parenthetical words. It makes sense that the order should apply to all debts at the date of service, actual or accruing, regardless of the position at the time when leave was granted. Whether the obligation was a debt 41 Finally, Mr Wasilenia contends that, although Citibank had an obligation to pay to Mrs Coshott one-half of the surplus on sale of the mortgaged property, this was not a "debt" within the meaning of rule 5(1) of Part 46 of the Supreme Court Rules. He says a mortgagee's obligation to account to the mortgagor, for the proceeds of sale of a mortgaged property, is an equitable obligation for which the word "debt" is inappropriate. 42 I reject this contention. I do not doubt that a mortgagee's obligation is an obligation enforceable in equity: see Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd ed, 1992) para [115]. However, that is not inconsistent with it also being a "debt" within the meaning of Order 46 rule 5(1). A debt and a trust obligation are not mutually exclusive concepts. Where a trustee comes under a present obligation to pay money to a beneficiary the trustee also becomes a debtor of the beneficiary in respect of those moneys. 43 The word "debt" is one of wide application. In Re European Life Assurance Society (1869) LR 9 Eq 122 at 127, James VC defined the word "debt", in a garnishee context, as meaning "a sum of money which is now payable or will become payable in the future by reason of a present obligation". Section 112(4) of the Conveyancing Act 1919 (NSW) imposes a payment obligation in respect of any net surplus after exercise of a mortgagee's power of sale. The subsection reads: "(4) The money which is received by the mortgagee or chargee, arising from the sale, after discharge of prior incumbrances to which the sale is not made subject (if any), or after payment into court under this Act of a sum to meet any prior incumbrance, shall in the absence of an express contract to the contrary be held by the mortgagee or chargee in trust to be applied by the mortgagee or chargee, first in payment of all costs, charges, and expenses properly incurred by the mortgagee or chargee as incident to the sale or any attempted sale or otherwise; and, secondly, in discharge of the money, interest, and costs, and other money (if any) due under the mortgage or charge and the residue of the money so received shall be paid to the person entitled to the mortgaged or charged property or authorised to give receipts for the proceeds of the sale thereof." [Emphasis added] If there is a residue, the mortgagee has an obligation to pay that residue to the mortgagor; there is a "debt". Disposition 44 There is no substance in any of the points taken on behalf of Mrs Coshott. Her application to set aside the garnishment orders must be rejected. Orders should be made, in each matter, for payment to the council, or its solicitors, of the moneys paid into court by Deacons on behalf of Citibank. Mrs Coshott must pay the costs incurred by the council in relation to the hearings on 1 and 9 February 2001. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox. Associate: Dated: 16 February 2001 Counsel for the Applicant: E Wasilenia Solicitor for the Applicant: Hill Ryner & Co Counsel for the Respondent: G A Sirtes Solicitor for the Respondent: Deacons Date of Hearing: 9 February 2001 Date of Judgment: 16 February 2001