I. INTRODUCTION

4.1 In Chapter 2 we set out the provisions which permit the attachment of moneys in accounts with banks in disregard of certain preconditions to withdrawal which otherwise would prevent effective attachment It is necessary to examine these provisions critically before we consider their extension to accounts in building societies and credit unions (Chapter 5). For this purpose we repeat the provisions as they appear in Part 46 of the Supreme Court Rules:

2(1) A sum standing to the credit of a judgment debtor in an account in a bank shall for the purpose of this Part be a sum due or accruing to the judgment debtor, notwithstanding that any condition relating to demand of payment is unsatisfied.

(2) A sum standing to the credit of a judgment debtor in a deposit account in a bank shall for the purposes of this Part, be a sum due or accruing to the judgment debtor, notwithstanding that any of the following conditions applicable to the account has not been satisfied -

(a) a condition that notice is required before money is withdrawn

(b) a condition that a personal application must be made before money is withdrawn

(c) a condition that a deposit book must be produced before money is withdrawn: or

(d) a condition that a receipt for money deposited in the account must be produced before money is withdrawn.

4.2 The bank account provisions call for comment for the following reasons:

• the scope of subsection (1) is not clear,
• the term “bank” is not defined, leading to uncertainty whether the provisions apply to financial institutions which are not recognised banks;
• the provisions do not indicate when moneys attached in a deposit account are to be paid under the garnishee order where withdrawal from the account is subject to a notice condition; and
• the provisions may be inadequate to accommodate recent changes in banking operations (in particular the introduction of automated teller machines) and possible changes in the future.

II. RECOMMENDATIONS FOR REFORM OF THE BANK ACCOUNT PROVISIONS

A. Scope of Subsection (1)

4.3 Subsection (1) permits the attachment of a sum standing to the credit of a judgment debtor in an account ‘notwithstanding that any condition relating to demand of payment is unsatisfied”. Whilst it is clear that the subsection encompasses conditions additional to a condition that a demand of payment shall be made. it is not clear just what conditions might be characterised as conditions “relating to” a demand of payment. particularly having regard to subsection (2).

4.4 Subsection (2) applies only to deposit accounts. A deposit account is merely a type of account and in a broad sense, the conditions described in paragraphs (a) to (d) of subsection (2) are conditions “relating to” demand of payment On this basis it is arguable that, for subsection. (2) to have some operation, the draftsman¹ must have intended the words “relating to” in subsection (1) to be of limited scope. Therefore the subsection is to be restricted to a condition that a demand of payment is to be made and conditions as to the manner in which the demand is to be made, eg. a condition that it is to be made at a particular branch or in writing, or only by the account-holder. The alternative argument is that subsection (2) has been included out of caution in view of the cases specifically concerned with deposit accounts (para 2.22) and should not be taken to limit the operation of subsection (1). The difficulty with this argument is that, if the words “relating to” are to be given a wide interpretation, there is the danger that subsection (1) encompasses conditions relating to demand of payment which it would not be appropriate to disregard for the purposes of attachment For example in Chapter 5 we discuss certain conditions governing the withdrawal of shares and deposits from building societies and credit unions which we consider it would be inappropriate to disregard, but which could come within subsection (1) if the bank account provisions in their present form were extended to building societies and credit unions.

4.5 The present uncertain scope of the bank account provisions should be remedied. We recommend that the provisions in the Supreme Court Rules, District Court Act, 1973 and Local Courts (Civil Claims) Act, 1970 which permit the attachment of an amount standing to the credit of a judgment debtor in a hank account be repealed. The existing provisions should be replaced by a single provision (the new account provision) which applies to all bank accounts and which specifies, in the manner of the existing provision applying to deposit accounts, the types of conditions applicable to accounts which are to be disregarded for the purpose of attachment. If subsection (1) is repealed it will be necessary to specify in the new provision each type of condition relating to demand of payment which should continue to be disregarded for the purpose of attachment Therefore if the above recommendation is adopted, the conditions to be disregarded under the new account provision should include a condition that a demand of payment is to be made and a condition as to the manner in which or place at which the demand is to be made.

In Chapter 6 (paras 6.4-6.10) we also recommend that certain other conditions which can apply to accounts with building societies and credit unions (and also banks) be disregarded for the purposes of attachment. If our later recommendations are accepted the conditions specified in the new account provision will include these other conditions.

B. Meaning of the Term “Bank”

4.6 In Chapter 2 (paras 2.29-2.33) we discussed the legal uncertainty which surrounds the term “bank” in the context of considering whether the existing bank account provisions applied to accounts with building societies and credit unions. The uncertain application of the provisions in that context illustrates the general difficulty of determining whether any particular organisation which borrows and lends money is carrying on the business of banking and is therefore a bank. We consider that the provisions for the attachment of moneys in accounts should be so drafted that any particular financial institution can know whether or not it is within the scope of the provisions. Accordingly we recommend that the new account provision should, in its application to banks, be limited to apply to

(a) a bank within the meaning of the Banking Act 1959 (Cth): and

(b) a person who carries on State banking within the meaning of section 51(xiii) of the Constitution of the Commonwealth.

4.7 Banks within the meaning of the Banking Act 1959 (Cth) are those bodies corporate which are authorised under Part II of the Act to carry on banking business in Australia and also the Commonwealth Bank of Australia the Commonwealth Savings Bank of Australia the Commonwealth Development Bank of Australia the Australian Resources Development Bank Limited and the Primary Industry Bank of Australia Limited.² Consequently our recommendation in paragraph (a) would bring the named banks and bodies corporate with banking authorities within the account provisions. The Banking Act 1959 (Cth) also prohibits persons other than bodies corporate from carrying on any banking business in Australia and permits a body corporate to do so only if it has a Part II authority.³ However the Treasurer may exempt a person who desires to carry on any banking business, but does not desire to carry on the general business of banking, from compliance with such provisions of the Act as might be specified in the exemption order.⁴

4.8 In view of the general prohibitions under the Banking Act 1959 (Cth) and the limited scope for exemption from these prohibitions, it is unlikely that any person or institution subject to the Act would be carrying on significant banking business of the type to which the account provisions are directed without a Part II authority. Therefore we consider that the provision recommended in paragraph (a), in combination with the provision in paragraph (b), is sufficiently inclusive. Although it is dependent on Commonwealth legislation which may be amended, it seems unlikely that the Commonwealth system of regulating banking by the issue of authorities, which is central to the definition and gives it the virtue of certainty, will change in the near future. However State banks such as the State Bank of New South Wales are outside the ambit of the Commonwealth’s legislative power in respect of banking and consequently are not banks within the meaning of the Banking Act 1959 (Cth), ie. they are not among the bodies corporate authorised under that Act to carry on banking business in Australia.⁵ The recommendation in paragraph (b) ensures that State banks would be included as banks for the purposes of the account provisions.

C. Withdrawal Subject to a Notice Condition

4.9 Under subsection (2) of the bank account provisions (para 4.1), money in a deposit account is a sum due or accruing, and therefore attachable, notwithstanding that the bank requires notice before withdrawals are made from the account. However the subsection does not indicate whether, when a notice condition is to be disregarded, the garnishee bank is required to pay the attached sum immediately or when the period of notice would have expired had it been given on the date of service of the garnishee order, ie. whether the sum attachable is attachable as a debt due or a debt accruing. If a notice period is disregarded in determining the time of payment by the garnishee bank then, contrary to the fundamental premise that the judgment creditor stands in the same position as the judgment debtor in relation to the attached debt, the judgment creditor stands in a better position to the extent that payment of the debt is accelerated. Therefore, although there appears to be no authority as to the time of payment of an amount in a deposit account which is subject to a notice condition, it seems clear in principle that the amount is attachable as a debt accruing.

4.10 At present a garnishee order issued out of the District Court requires compliance with the order within 14 days of service (para 2.6). Consequently, if a District Court order attaches an amount in a bank account subject to a notice period in excess of 14 days the garnishee bank is obliged to accelerate payment of the attached amount to comply with the order or risk proceedings being brought by the judgment creditor. To avoid this sort of situation arising we recommend that the provisions for attaching moneys in accounts make it clear that where the withdrawal of an amount attached is subject to a period of notice, the garnishee is not required to make payment in compliance with the garnishee order until the notice period has expired.

4.11 The draft legislation implements this recommendation in two ways. First, the introductory words of the account provision have been amended to make it clear that it is only for the purpose of determining whether an amount standing to the credit of a judgment debtor in an account is capable of attachment that the conditions set out in the provision are to be disregarded. Whether that amount or some part of it is actually attached depends on the contract between the garnishee and the judgment debtor and whether, eg. the account is a joint account, the garnishee is entitled to exercise a right of set-off against the account or the judgment debtor has made a prior assignment of the debt.

4.12 Second, in Chapter 6 (para 6.6) we recommend that where an amount in an account is attached, the garnishee order should be deemed to operate as a notice of withdrawal or demand of payment under the contract in respect of the account which the garnishee should be deemed to have received on the date of service of the order or, if the judgment debtor is not then entitled to give notice of withdrawal or demand payment, on the date the judgment debtor would have been entitled to do so. As indicated in paras 6.5-6.8 this recommendation solves several problems, including that of notice periods. It has the effect that where an account is not subject to a non-withdrawal period but is subject to a notice condition, service of the garnishee order has the same contractual consequences as would result if the garnishee had actually received notice of withdrawal from the judgment debtor on the date of service of the order. For example if the notice period is seven days, then, in accordance with the contract between the garnishee and the judgment debtor, the attached amount is not due for payment until seven days after the garnishee order is served. The effect of the recommendation where the account is subject to a non-withdrawal period and a notice condition is discussed when we consider non-withdrawal periods (paras 6.3-6.8).

D. Changes Resulting from Automation

4.13 At present the conditions which are to be disregarded for the purpose of attaching moneys in bank accounts comprise an exhaustive list. The provisions are not applicable unless the condition in question is either a condition” relating to demand of payment” or, in the case of a deposit account, a condition of a kind described in paragraphs (a) to (d) of subsection (2). In view of the introduction of automated deposit/withdrawal systems, not only by banks but also by some building societies and credit unions, it is necessary to consider whether conditions applying to the operation of “cashcard” facilities are within the provisions.

4.14 In the case of banks a cashcard facility may be used on either a cheque account or a deposit account To use the facility to withdraw funds the customer inserts a plastic card in an automated teller machine and separately keys-in a” personal identification number” (PIN), the account from which the withdrawal is to be made and the amount of the withdrawal. These actions constitute a demand of payment by the customer of and the keying- in of the customer’s PIN is the essential precondition to payment. In our opinion an automated withdrawal would be within the broad terms of subsection (1) and, where the accessed account is a deposit account, also within paragraph (b) of subsection (2) because the condition that the customer’s PIN be keyed - in is in the nature of a condition that a personal application must be made before money is withdrawn.

4.15 In para 4.5 we have recommended that the existing provisions be repealed and replaced with a single provision, in the form of subsection (2), which applies to accounts generally and includes additional conditions relating to demand of payment In our opinion the new provision we recommend would be adequate to accommodate automated withdrawal procedures. However the new provision should be sufficiently flexible to permit its ready application in the event that changes in the ways in which moneys are withdrawn result in conditions of withdrawal which would not be within the provisions as so amended. Therefore we recommend that the conditions applicable to accounts which are to be disregarded for the purpose of attachment should include any condition prescribed by regulation.

4.16 The recommendations in this Report are based on the current activities of building societies and credit unions (and also banks). The financial sector is highly innovative and in the forefront of technological change. Consequently it is reasonable to expect that reform based on the present activities of certain organisations within this sector may prove inappropriate in the future. For this reason we recommend that the new account provision (para 4.5) should not apply to any account exempted by regulation.

4.17 The recommendations we make in paras 4.15 and 4.16 apply only in relation to the District Court Act, 1973 and the Local Courts (Civil Claims) Act, 1970 and call for the inclusion in each Act of a power to make the appropriate regulations. As we point out in para 1.23 the Supreme Court Rule Committee is empowered to alter, add to or rescind the Supreme Court Rules for the time being in force, and to make additional rules. Consequently the Committee could exercise its rule-making power at any time to add to the list of conditions applicable to accounts which are to be disregarded for the purpose of attachment or to exclude a particular type of account from the operation of the provisions.

1. The provisions as they appear in the Supreme Court Rules, and adopted in the District Court Act. 1973 and the Local Courts (Civil Claims) Act. 1970, are in the form recommended by this Commission in its 1969 Report. Supreme Court Procedure. LRC 7 (at 385). Unfortunately (but explicably in the context of that Report and its objectives). the Commission did not elaborate tin the provisions beyond commenting that they “will enlarge the circumstances in which a judgment debtor’s credit balance with a bank can be attached by way of execution” (at 26).

2. Banking Act 1959 (Cth) s5(1); Primary Industry Bank Amendment Act 1978 (Cth) ss1(2), 3 and 7; and Commonwealth Banks Amendment Act 1984 (Cth) s33.

3. Sections 7 and 8.

4. Section 11.

5. The Commonwealth of Australia Act 63 and 64 Vic Ch 12 s51 (xiii): and Banking Act 1959 (Cth) s6.