FEDERAL COURT OF AUSTRALIA Sutherland v Vale [2007] FCA 1876 APPLICATION FOR LEAVE TO APPEAL – restatement of the law sought – unable to conclude that the matters to be raised on appeal are not arguable Acts Interpretation Act 1901 (Cth) s 36 Bankruptcy Act 1936 (Cth) s 5, s 115, s 120(3)(b), s 139ZQ, s 139ZS, s 139ZT, s 306 Federal Court of Australia Act 1976 (Cth) s 25(1A) Adams v Lambert (2006) 228 CLR 409 Halse v Norton (1997) 76 FCR 389 RODERICK MACKAY SUTHERLAND v MALCOLM GEOFFREY VALE NSD 2121 OF 2007 BUCHANAN J 6 DECEMBER 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 2121 OF 2007 BETWEEN: RODERICK MACKAY SUTHERLAND Applicant AND: MALCOLM GEOFFREY VALE Respondent JUDGE: BUCHANAN J DATE OF ORDER: 6 DECEMBER 2007 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. An extension of time in which to appeal is granted; 2. Costs of the application are reserved. 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 NSD 2121 OF 2007 BETWEEN: RODERICK MACKAY SUTHERLAND Applicant AND: MALCOLM GEOFFREY VALE Respondent JUDGE: BUCHANAN J DATE: 6 DECEMBER 2007 PLACE: SYDNEY REASONS FOR JUDGMENT BUCHANAN J: 1 This judgment deals with an application for an extension of time in which to appeal against a judgment of Lloyd-Jones FM (Sutherland v Vale [2007] FMCA 1617). 2 Mr Sutherland's application is supported by an affidavit by the solicitor who had the day to day carriage of the proceedings in respect of which leave is sought, Mr Patrick Kaluski. Mr Kaluski explains in his affidavit sworn on 26 October 2007 that at the time judgment was to be delivered (2 October 2007) counsel appearing for the appellant was away and unavailable until 18 October 2007. On the first available date for a conference with counsel, 23 October 2007, advice was given that 'an appeal is warranted'. Mr Kaluski swears that at the time of this conference he did not appreciate that an appeal was to be filed within 21 days and that the time in which to appeal expired on the day of the conference. He thought 28 days was available. The time involved is very short. In the circumstances I can see no prejudice to the respondent if time is extended. 3 However an extension of time will not normally be granted if an appeal would have no prospects of success. Attention is therefore required to the nature of the issues which may arise for consideration. 4 In his judgment the Federal Magistrate traced a long history explaining the factual circumstances in which: • Mr and Mrs Vale (the respondent) came to be the joint owners of certain properties in the Gulgong and Mudgee area; • Mrs Vale's injury in 1992 in a motor vehicle accident; • the fact that Mrs Vale commenced an action for damages for personal injuries, nominally against Mr Vale but to which the insurer, NRMA was joined as a party; • that on 23 April 1999 Mrs Vale transferred her interest as joint tenant in the properties to Mr Vale for nominal sums; • that the personal injury proceedings were heard in the District Court of NSW in June 1999; • that on 15 July 1999 judgment was given for the insurer, NRMA; • that Mrs Vale sought leave to appeal in December 1999; • that on 7 December 2000 costs were assessed and judgments entered in the District Court in the sum of $152,664.58; • that on 24 April 2001 a sequestration order was made against Mrs Vale on the application of NRMA Insurance; • that Mr Sutherland, the present applicant, was appointed trustee of Mrs Vale's estate; and • that on 2 August 2001 the Court of Appeal dismissed Mrs Vale's application for leave to appeal. 5 On 28 May 2002 a notice was served upon Mr Vale claiming payment equivalent to the interest in the properties which Mrs Vale transferred to her husband upon the basis that those transfers were void against the trustee of her estate. The proceedings, commenced by Mr Sutherland in the Federal Magistrates Court of Australia, sought possession of the properties which, as indicated above, were by this time registered solely in Mr Vale's name. Mr Vale cross-claimed seeking that the notice (which had been issued under s 139ZQ of the Bankruptcy Act 1936 (Cth)) ('the Act') be set aside. 6 The failure by Mr Vale to comply with the notice issued under s 139ZQ resulted in a charge over the property which permitted the Official Receiver to so certify. A certificate to that effect was served by the Official Receiver on the Land Titles Office on 31 July 2002. The effect of the cross-claim was, for the first time, to challenge the notice some four years after it was issued. 7 Counsel for Mr Vale advanced a series of challenges to the validity of the notice arguing, in a number of respects, that strict compliance with the provisions of s 139ZQ was required and that a failure to strictly comply was fatal to the validity of the notice. The Federal Magistrate found in favour of the arguments on Mr Vale's behalf. He concluded that the notice was in relevant respects 'misleading'. His conclusion was expressed as follows: 'The s 139ZQ notice issued on 28 May 2002 contains a number of significant errors and should be set aside. Consequently the application seeking orders for possession of Mr Vale's properties is dismissed.' 8 The grounds of appeal to be advanced are as follows: '1. His Honour erred in finding that strict construction of a Notice under s.139ZQ of the Bankruptcy Act 1966 is required. 2. His Honour erred in finding that the applicant had not satisfactorily established that the value of property referred to in a Notice under s.139ZQ of the Bankruptcy Act 1966 was the proper value of the relevant properties. 3. His Honour erred in finding that a Notice under s.139ZQ of the Bankruptcy Act 1966 was misleading in that it referred to a transfer "within two years" notwithstanding the definition of "the commencement of the bankruptcy" in s.5 of the Bankruptcy Act 1966.' Ground 1 9 One reason why the requirements of s 139ZQ have been said to require a strict construction is that non-compliance carries criminal sanctions (s 139ZT). Mr Skinner foreshadowed, however, a desire to argue for a more liberal approach following the judgment of the High Court in Adams v Lambert (2006) 228 CLR 409. That case dealt with the meaning and operation of s 306 of the Act which relieves against invalidity arising from formal defects or irregularities. I can see no indication in the judgment of the Federal Magistrate that Adams v Lambert was referred to in the argument before him or that s 306 was relied upon as an answer to the challenges made to the s 139ZQ notice. However, Mr Skinner indicated that he wished to argue in the appeal that, by parity of reasoning with the High Court judgment, Ground 1 of the appeal could be sustained. He also took issue with Mr Johnson's reliance on a number of authorities referred to as supporting a strict approach. It is not necessary for me, on this application to attempt any detailed analysis of the argument. I accept, for present purposes, that there is room for debate arising from Ground 1. Ground 2 10 The Federal Magistrate found that two 'valuations' were prepared. The trustee relied upon the higher of the two as the foundation for his claim that the value of Mrs Vale's interest in the properties was $270,000, although she transferred that interest for $7. That valuation was contained in a letter to Mr Vale from First National Real Estate dated 28 September 1998. The letter said, in part: 'This opinion has been prepared solely for the information of Malcolm Vale for the purposes of considering the sale of the properties and not for any other third party. Although every care has been taken in arriving at these figures we stress that this is an opinion of a reasonable asking price only and not to be taken as a sworn valuation.' 11 The second valuation was dated 31 March 1999. It was prepared by Mr Patrick Wood, a registered valuer, for the purpose of assessing stamp duty on a half-share of the relevant lots (subsequently transferred by Mrs Vale on 23 April 1999). The Federal Magistrate said (at [55]): 'The valuation prepared by Mr Wood consists of an appraisal and report in his role as a registered valuer. The report has been prepared for the express purpose of a stamp duty assessment on one half share of the market value.' And (at [56]): 'A registered valuer is … subject to the provisions of the Valuers Registration Act 1975 (NSW) and the Valuers Regulation 2005 (NSW) at the time when the valuation was prepared. On the other hand, the market appraisal prepared by First National Real Estate only contains a disclaimer (see [50] above). Consequently I have formed the view that on the material available, the best evidence as to the value of the one half share of the relevant properties is $208,350.'' 12 The Federal Magistrate's conclusion was the trustee had not established that the s 139ZQ notice correctly stated the value of the property transferred. 13 In Halse v Norton (1997) 76 FCR 389 Lee and R D Nicholson JJ said (at 398) when referring to an application to set aside such a notice: 'Therefore, when an application under s 139ZS involves a dispute between the trustee and the person served with the notice as to the application of Div 3 to a transaction, the onus will be on the trustee to satisfy the Court that the provisions of Div 3 so apply, subject to express contrary provisions such as those set out in ss 120(2) and (5), 122(3), 123(2) and 124(2) of the Act which place the onus of proof of certain matters on the person seeking to uphold the transaction.' and (at 399): 'If a notice served on a person under s 139ZQ remains uncontested, service of the notice provides the trustee with a right that may be enforced against that person, namely, the right to recover as a debt the sum claimed in the notice. If the claim for the payment of money made in the notice is disputed, s 139ZS provides a means by which the controversy as to the application of Div 3 of the Act to the transaction is to be resolved and determined by the Court.' 14 Section 139ZS was invoked in the present case. The Federal Magistrate was in my view bound by authority to conclude, as he did, that the trustee bore the onus of showing that the notice correctly stated the correct value of the property transferred. His finding that the onus was not discharged was a sufficient basis to set aside the s 139ZQ notice. Mr Skinner has said, however, he proposes to argue that Halse v Norton should not be followed and that the Court should decide instead that the onus in an application under s 139ZS lies properly upon an applicant under that provision and not upon a trustee. He indicated that, if an extension of time is granted, the appellant's request is that the appeal be heard by a Full Court, and not a single judge. Ground 3 15 The transfer made by Mrs Vale occurred on 23 April 1999. The sequestration order against her estate was made on 24 April 2001. The Federal Magistrate accepted a contention that s 36 of the Acts Interpretation Act 1901 (Cth) (which deals with reckoning of time) resulted in the transfer being more than two years before the bankruptcy. He concluded further that, on the evidence before him, Mrs Vale was solvent at the time of the transfer. These two findings supported a finding that the transfer, the subject of the s 139ZQ notice, was not void against the trustee (s 120(3)(b) of the Act). The trustee contends, however, as it did before the Federal Magistrate that the definition of 'the commencement of the bankruptcy' in s 5 of the Act, in combination with s 115 of the Act, lead to the conclusion that the commencement of the bankruptcy (as also appears on the face of the sequestration order) is 26 February 2001. On this approach the transfer occurred within two years of the commencement of Mr Vale's bankruptcy and s 120(3)(b) had no application. 16 In my view this Ground of appeal is reasonably arguable. Mr Johnson did not suggest otherwise. Conclusion 17 Although the matters raised by Ground 1 of the appeal appear to raise a possible issue for attention and Ground 3 of the proposed appeal seems reasonably arguable I would not assess Ground 2 as having any realistic prospect of success on the present state of the authorities. Unless this Ground of appeal is upheld the s 139ZQ notice cannot stand, whatever the result of the other challenges and the appeal will not succeed. However, Mr Skinner has advanced the application squarely upon the basis that he wishes to seek a restatement of the law in relation to the onus arising under s 139ZS and also seek at least a review of the position concerning the strictness with which s 139ZQ notices should be dealt. I do not think that opportunity should be denied in the absence of any prejudice arising from the delay in bringing the appeal. There is no such prejudice. Mr Johnson properly did not suggest any. Stay 18 At the hearing of the present application Mr Skinner made an oral application for a stay of the orders of the Federal Magistrate. The application appeared to be prompted by Mr Johnson's written argument pointing out that no stay had been sought. I was told from the bar table that the trustee has lodged a caveat over the properties in question and there has been correspondence between the parties. I declined to entertain the application for a stay on the basis presented. The applicant may renew any such application if it wishes, in a more formal way, with appropriate evidentiary support if that is necessary. Orders 19 It is not desirable for me to express any further view about the merits of the arguments that the appellant wishes to advance on the appeal. It is sufficient to say that I am unable to conclude that the matters which the appellant wishes to advance are not arguable. In the circumstances I will grant an extension of time in which to appeal. Costs of the application will be reserved. I note that the appellant requests that the appeal be heard by a Full Court. That is a matter which I will bring to the attention of the Chief Justice (see s 25(1A) of the Federal Court of Australia Act 1976 (Cth)). I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan. Associate: Dated: 6 December 2007 Counsel for the Applicant: B Skinner Solicitor for the Applicant: Sparke Helmore Counsel for the Respondent: J T Johnson Solicitor for the Respondent: Watson Mangioni Lawyers Date of Hearing: 14 November 2007 Date of Judgment: 6 December 2007