I. INTRODUCTION

5.1 We now come to the question whether the law should be reformed to permit the attachment or moneys starting to the credit of a judgment debtor in an account, including a withdrawable share account, with a building society or credit union. As we point out in Chapter 1, garnishment is an unusual procedure insofar as the garnishee is involuntarily, and usually unwillingly, involved in a matter of concern only to the judgment creditor and the judgment debtor. The procedure may cause the garnishee little inconvenience. On the other hand, the inconvenience suffered may be considerable, eg. when court proceedings ace necessary to establish the respective rights of the judgment creditor and the garnishee. The procedure may also place the garnishee in an invidious position because of his or her relationship, be it personal or commercial, with the judgment debtor. However the existence of the procedure reflects a policy decision that a garnishee’s involvement in the affairs or the judgment creditor and judgment debtor is justified in the interests of the judgment creditor.

5.2 The interests of the garnishee are protected by the fundamental principle that the judgment creditor stands in no better position than the judgment debtor in relation to the attached debt although the existing bank account provisions involve a departure from this principle in that they require certain terms of the contract between the garnishee bank and the judgment debtor to be disregarded for the benefit of the judgment creditor. The departure is made on the basis that banks will not be unduly affected when the provisions also take account of the special nature of their operations.

5.3 Once the procedure of garnishment is taken as given, the question of reform in the present case is one of practicality rather than principle. We can see no argument in principle against law reform which would assist judgment creditors to enforce judgment debts in situations where there are funds readily available to the judgment debtor. The practical issue is to ensure that, having regard to the types of accounts offered by building societies and credit unions and the nature of their operations, any reform of the law is effective and appropriate in view of the contractual relationship which could exist between the garnishee organisation and the judgment debtor member and, at the same time, causes the minimum inconvenience and expense to the garnishee. The nature of the contract between a garnishee building society or credit union and the judgment debtor is central to the question of reform and is to be determined by reference to the rules of the organisation and the legislation by which its activities are regulated, and to any specific arrangements made between the parties within the constraints of the rules and the legislation.¹

II. BUILDING SOCIETIES

5.4 There are three types of building societies:

• co-operative housing societies, which are registered and regulated under the Co-operation Act, 1923;
• Starr- Bowkett building societies, which also are registered and regulated under the Co-operation Act, 1923; and
• building societies other than co-operative housing societies and Starr - Bowkett building societies, which are registered and regulated under the Building and Co-operative Societies Act, 1901 and the Co-operation Act, 1923,² the Co-operation Act, 1923 or the Permanent Building Societies Act, 1967 and which collectively are called “permanent building societies” in this Report.

The sole or principal object of the various types of building society is to raise funds for the purpose of making loans to members on the security of a mortgage of real property.³

5.5 Starr- Bowkett building societies may also lend on security of the paid-up share capital and deposits of the borrower member⁴ and in certain circumstances may take a charge over the shares of a borrower member as additional security for the loan.⁵ Prior to 1 September 1985 permanent building societies registered under the Co-operation Act 1923 or the Permanent Building Societies Act, 1967 also had statutory power to lend on security of the paid- up capital and deposits of a borrower member.⁶ There is no longer any express statutory base for permanent building societies to take such security. However some permanent building societies have retained the power to do so, at least temporarily, by virtue of a transitional provision in the recent amending legislation,⁷ and other societies may intend to take such security pursuant to other new provisions in the Permanent Building Societies Act, 1967.⁸ Consequently we have assumed for the purposes of this Report that the situation can arise where a permanent building society has taken security over the paid-up capital or deposits of a borrower member in some manner which prevents the member withdrawing his or her capital or deposits while the loan is outstanding.

A. Co-operative Housing Societies

5.6 Table 5.1 shows the number of registered co-operative housing societies, their estimated total membership and their share capital as at 30 June 1982, 1983 and 1984:

Table 5.1: Co-operative Housing Societies

	1982	1983	1984
No. of registered Societies	214(a)	246	251
No. of members	59,000	59,000	58,745(b)
Total share options	$60,000	$60,635	$60,000

(a) During 1981/82, 3,191 terminating building societies were restructured and amalgamated into 241 co-operative housing societies consequent on the enactment of the Co-operation (Amendment) Act, 1981. As at 30 June 1982 these terminating building societies had not been struck off the register of co-operative societies.

(b) This figure does not include the directors of co-operative housing societies, who are required to be members and whose shareholdings account for the discrepancy between the estimated number of members and the total share capital of these societies - see para 5.6.

Source: Department of Co-operative Societies

5.7 Unlike other building societies a co-operative housing society cannot take money on deposit and can issue to each member of the society only that number of shares required for membership under the rules of the society.⁹ For reasons related to the sources of loan funds available to co-operative building societies, virtually all these societies have adopted rules which stipulate that a member is to hold only one $1.00 share in the society.¹⁰ Since co-operative housing societies cannot take deposits and the withdrawable shareholding of members is nominal, there is no practical reason for extending the provisions for the attachment of debts to these societies. Therefore we recommend that the new account provision (para 4.5) should not apply to withdrawable shares in co-operative housing societies.

B. Starr - Bowkett Building Societies

5.8 Table 5.2 shows the number of active Starr - Bowkett building societies and their total membership and share capital as at 30 June 1982, 1983 and 1984. Although Starr - Bowkett building societies have statutory power to take money on deposit,¹¹ it appears that they do not do so.

Table 5.2: Starr- Bowkett Building Societies

	1982	1983	1984
No. of active societies	45	38	38
No. of members	16,000	14,793	14,464
Total share capital	$23,345,498	$22,687,419	$22,824,739
Total deposits	nil	nil	nil

Source: Department of Co-operative Societies

5.9 Starr - Bowkett building societies are terminating societies which operate broadly in the following way.¹² Each society is established with a maximum number of possible members, a minimum shareholding for membership and a limit on the maximum number of shares any one number can hold. Each share has a relatively substantial nominal value, eg $50.00. The amount which a member can borrow from the society is determined by the number of shares held by the member and the loan value of each share, so that if, say, a member holds 300 shares and each share entitles the holder to borrow $100, in due course the member will become entitled to take out a loan of $30,000. A member usually pays only a nominal portion of the subscription moneys for his or her shares when joining the society and pays the outstanding subscription moneys by monthly payments of a minimum amount per share, eg 25 c. Within the minimum and maximum shareholding limits members can take up shares to the extent that they are able to meet the initial and monthly subscription payments. The society commences lending to members when it has adequate funds to make a loan of the maximum possible amount (being the maximum shareholding multiplied by the loan amount per share).

5.10 Members acquire the right to take out a loan either by ballot or by auction. The balloting of loan entitlements is the essential and distinguishing characteristic of a Starr - Bowkett building society and each ballot determines the order in which members become entitled to an interest-free loan as funds become available to the society.¹³ However the auctioning of loan entitlements is an alternative to the ballot system under the rules of most Starr - Bowkett building societies. Under the auction system members bid for a loan entitlement by offering an interest rate at which they are prepared to take our their loan. Where a society’s rules permit loan entitlements to be auctioned the rules set a minimum and a maximum interest rate within which bids may be made. When a member takes up a loan entitlement the member’s monthly commitments are increased by a fixed amount per share which represents instalment repayments of the loan amount and, in the case on auctioned loans, interest. During the life of a Starr - Bowkett building society each member of the society who has continued to make subscription payments will become entitled to take out a loan by ballot unless the member has successfully bid for a loan. Once a loan has been made to all members who have continued their subscription payments and wish to take out a loan, the net assets of the society are distributed periodically to members in proportion to their shareholding (either directly or by way of a credit to their loan account if their loan is not yet repaid) and in due course the society is wound up.

5.11 In the case of Starr- Bowkett building societies shares in respect of which a loan has been made can be withdrawn only on repayment of the loan and payment of any other moneys due to the society. Shares in respect of which no loan has been made may be withdrawn, subject to any minimum non-withdrawal period stipulated in the rules of the society. The non - withdrawal period may be as short as one month or as long as five years. When a member withdraws shares he or she receives the amount of subscription is paid on the shares less any sums the society is entitled to deduct under its rules. In some cases the refund may not be payable until the end of the financial year in which notice of withdrawal is given unless the board approves earlier payment or until some time to be determined by the board depending on the availability of funds. The society’s rules may also empower the board no limit the number of shares which a member may withdraw in any one financial year.

5.12 By virtue of section 57 of the Co-operation Act, 1923 the society may also have a statutory charge over the subscriptions and other moneys credited to a member’s share account and a right to set off moneys credited or payable to the member against any debt due from the member to the society. There are provisions similar to section 57 in the Permanent Building Societies Act, 1967 and the Credit Union Act, 1969 and the various statutory charge provisions are discussed at paras 6.19-6.31. For the moment it is sufficient to note that, where shares in a Starr - Bowkett building society cannot be withdrawn because the member has taken out a loan in respect of those shares, the existence of a section 57 charge over the member’s account would be irrelevant in relation to any garnishee order affecting the account. The garnishee order would be ineffective regardless of the existence of the statutory charge because the member’s shares would not be withdrawable. However a member who has not taken out a loan and whose shares are withdrawable may still owe money to the society, eg. arrears in subscriptions, unpaid fines or administrative charges. The rules of a Starr - Bowkett building society will usually, if not always, be such that the refund payable to a member on withdrawal of his or her shares will be the balance of the subscriptions credited to the member after deduction of various moneys which may be due or payable by the member under the rules. Consequently the debt due or accruing to the member on withdrawal of his or her shares (and hence the potentially attachable debt) would be the amount refundable to the member after the society exercised its contractual right to set off. However, irrespective of the rules of a particular Starr - Bowkett building society, where there was a debt due from a member to the society the member’s share account would be subject to a statutory charge in favour of the society to secure the debt and any garnishee order affecting the account could only be effective to attach any balance in the account after setting off the debt due to the society.¹⁴

5.13 We have not examined the rules of all current Starr - Bowkett building societies.¹⁵ However it appears from those we have examined that the rules of a Starr - Bowkett society are intended to protect the financial stability of the society and ensure that it has a relatively stable how of subscription funds from which to make loans to members. The contract between a Starr - Bowkett building society and each member which is embodied in the rules of the society is also such that, if withdrawable share accounts in these societies were made liable to attachment notwithstanding preconditions to withdrawal limited to those specified in subsection (2) of the present bank account provisions (para 4.1), garnishee orders frequently would be ineffective because the judgment debtor had a loan from the society, the period during which shares could not be withdrawn had not expired or nothing was payable to the judgment debtor after the society exercised its contractual or statutory right to set off.

5.14 The aggregate funds invested with Starr-Bowkett building societies is relatively insubstantial when compared with the aggregate funds invested with permanent building societies (para 5.25). However the investment of any one member could be significant from the point of view of a judgment creditor. The potential significance to judgment creditors of funds in Starr - Bowkett building societies can be illustrated by reference to the rules of the Newtown and Enmore Starr-Bowkett Building Co-operative Society No 23 Limited (the Society).

5.15 Under the rules of the Society the maximum permissible shareholding is 1,000 shares and the minimum shareholding is 20 shares. The monthly subscription is 25c per share and subscriptions for shares in respect of which a loan has not been made may be withdrawn by notice in writing, at any time after five years from the date on which the shareholder became a member of the Society. If three members hold 1,000, 500 and 20 shares, their monthly subscriptions will be $250, $125 and $5 respectively and their annual subscription payments will total $3,000, $1,500 and $60 respectively. If none of the three members had taken out a loan by the end of the five year non- withdrawal period but had paid their subscriptions when due, the subscriptions credited to their accounts and available for withdrawal would be $15,000, $7,500 and $300 respectively.

5.16 We can see no reason why a judgment creditor of one of the hypothetical members of the Society should not have access to the refund to which the member would be entitled by withdrawal of his or her shares. Therefore we recommend that the new account provision (para 4.5) should apply to withdrawable share accounts with Starr-Bowkett building societies. However it does not follow from this recommendation that any refund which would be payable to a member of a Starr - Bowkett building society if the member chose to withdraw his or her shares necessarily would be attachable. Furthermore the rules of the garnishee society usually will be such that any attachable refund would be attachable as a debt accruing. The rules could also have the result that, although there was an amount to the credit of the judgment debtor for subscriptions, that amount would be extinguished by deductions for moneys payable to the society. The rules of the Society again provide examples.

5.17 The rules of the Society governing withdrawals include rules that:

• if the Society has borrowed money and its loan is not secured by a mortgage, a refund cannot be paid to a member withdrawing shares except with the consent of the Registrar of Co-operative Societies;
• a refund is not payable until the end of the financial year in which notice of withdrawal is given unless the board of the Society consents to earlier repayment;
• a refund can only be paid out of loan repayments received by the Society after receipt of the notice of withdrawal;
• refunds are to be paid in the order in which the respective notices of withdrawal are received by the Society; and
• the refund payable is the amount of the subscriptions paid by the member less any fines, charges or other dues owed by the member to the end of the financial year in which the notice of withdrawal is given and also less a sum which represents a fair proportion of any loss which the Society may incur before the end of that financial year.

5.18 Where the Society has an unsecured loan the first rule effectively operates as a precondition to be satisfied before any refund becomes due or accruing to a member withdrawing shares. Consequently any garnishee order on the account of a judgment debtor member which was served when the Society had an unsecured loan would be ineffective unless the member had already applied to withdraw his or her shares and the Registrar had consented to the withdrawal before service of the order. The second, third and fourth rules described above determine when a refund is payable. The fifth rule determines what the refund, if any, will be. Assuming that the Society receives adequate loan repayments after the notice of withdrawal is received, any refund which is payable to the member will accrue due for payment at the end of the financial year of withdrawal, and after all earlier applications for withdrawal have been met, unless the board consents to earlier repayment.

5.19 The rules of the Society clearly are designed to protect the financial stability of the Society and, in our view, it would be inappropriate to enact legislation which permitted the attachment of withdrawable share accounts with Starr - Bowkett building societies in disregard of such rules. A Starr - Bowkett society. unlike a permanent building society, has a finite life and a limited capital base and its ability to make a loan to each member is very much dependent on the due performance by every other member of his or her contractual undertakings. The distinctive nature of Starr - Bowkett building societies has led us to exclude these societies from one of the recommendations we make in Chapter 6.

5.20 In para 6.4 we recommend that a condition that money or shares cannot be withdrawn for a specified period be disregarded for the purpose of determining whether an amount in an account is attachable. In para 6.5 we further recommend that, although a non-withdrawal period should be disregarded for the purpose of attachment, it should not be disregarded for the purpose of payment under the garnishee order. As already indicated (para 5.11), the withdrawal of shares from a Starr - Bowkett building society is subject to a minimum non-withdrawal period which may be as short as one month or as long as five years. Consequently if our recommendation in para 6.4 were extended to withdrawable share accounts with these societies, unexpired non- withdrawal periods would have to be disregarded for the purpose of attachment. Although our recommendation in para 6.5 takes account of the garnishee’s contractual rights as to payment, we consider that unexpired non-withdrawal periods on Starr - Bowkett withdrawable share accounts should not be disregarded for the purpose of attachment- The attachment of a sum in the hands of a Starr - Bowkett building society for the remainder of an unexpired non-withdrawal period, which may be up to five years, could impose a significant administrative burden on the society. It could also require the society, if acting prudently, to disregard the attached amount when calculating the funds available from time to time to make loans to members and thereby cause some disruption, albeit minor, to the society/s lending program and defer the borrowing rights of other members. Accordingly we have excluded withdrawable share accounts in Starr - Bowkett building societies from our recommendation in para 6.4.

5.21 Another distinctive feature of Starr-Bowkett building societies is the contractual significance of a notice of withdrawal of shares. As the example rules set out in para 5.17 indicate, the receipt of a notice of withdrawal can be essential to the operation of rules which determine when a refund is due to a member and the funds out of which the refund is to be paid Because of rules of this type another recommendation in Chapter 6 is of particular significance in relation to Starr - Bowkett building societies.

5.22 In para 6.6 we recommend that where an amount in an account is attached, service of the garnishee order should operate (subject to the expiry of any applicable non-withdrawal period) as receipt by the garnishee of a notice of withdrawal or demand of payment made under the contract in respect of the account. If adopted this recommendation would cause terms in the contract between the garnishee and the judgment debtor which depended on the receipt of a notice of withdrawal or demand of payment to come into operation although no notice or demand had been received by the garnishee. Consequently rules of the type referred to in para 5.21 would take effect as the result of service of the garnishee order. However service of a garnishee order would operate as receipt of a notice of withdrawal or demand of payment only when the amount in the judgment debtor’s account had been attached by the order. It would not operate to make an amount in an account attachable. Consequently, because we have excluded Starr - Bowkett building societies from our recommendation that non- withdrawal periods should be disregarded for the purpose of attachment (para 5.20). our recommendation in para 6.6 could only apply to a withdrawable share account in a Starr - Bowkett building society if the non-withdrawal period applicable to the account had already expired when the garnishee order was served.

5.23 During consultations on our draft Report it was put to the Commission that it would be detrimental to the co-operative nature of Starr - Bowkett building societies if funds held by these societies were made liable to attachment We recognise that the ability of a Starr - Bowkett building society to achieve its objectives for the benefit of all members depends primarily on the performance by each member of his or her commitments under the society s rules. Nevertheless the rules are designed to protect the society, and consequently the interests of other members, where one member fails to meet his or her obligations or no longer wishes to be a member. Therefore there can be no detriment to a Starr - Bowkett building society if moneys in a withdrawable share account are liable to attachment only when they are withdrawable by the member and the amount attached is not payable under the order until it would have been payable to the member if he or she had applied to withdraw shares when the order was served.

5.24 We also anticipate that if our recommendations for reform are adopted Starr - Bowkett building societies would not be subjected to garnishee orders with any frequency. First the aggregate membership of these societies is relatively insignificant (Table 5.2. para 5.8). Secondly, a Starr - Bowkett share account is quite different from a deposit or withdrawable share account from which withdrawals are payable on demand and to which the account holder has ready access. Moneys subscribed for shares in a Starr - Bowkett building society are in the nature of a long-term investment In this respect a Starr-Bowkett share account is analogous to a fixed- term deposit in that the member anticipates that he or she will be able to meet all foreseeable day- to- day expenses and other financial commitments without having to resort to the funds paid into the society. Therefore garnishee orders on Starr - Bowkett share accounts would be likely only where the judgment debtor was a victim of unforeseen financial difficulties. However, whilst garnishee orders would be likely to be infrequent we do not consider that this is good reason to exclude Starr - Bowkett building societies from our reform proposals.

C. Permanent Building Societies

5.25 Table 5.3 shows the number of registered permanent building societies and their total membership, share capital and deposit holdings as at 30 June 1982. 1983 and 1984. grouped by reference to the legislation under which these societies are registered.

Table 5.3: Permanent^(a) Building Societies

	1982	1983	1984
Building and Co-operative Societies Act, 1901
No. of registered societies	3	3	3
No. of members	97,783	394,211	427,199
Total share capital	$139,338,000	$589,962,000(b)	$631,710,000
Total deposits	nil	nil	$61,193,000
Co-operation Act, 1923
No. of registered societies	25	11	4
No. of active societies	4	5	3
No. of members	5,579	6,191	5,809
Total share capital	$10,324,000	$11,796,000	$12,125,000
Total deposits	nil	nil	nil
Permanent Building Societies Act, 1967
No. of registered societies	46	47	47
No. of active societies	17	10	10
No. of members	3,369,195	3,398,044(b)	3,643,006
Total share capital	$4,959,827,000	$5,207,191,000	$5,659,155,000
Total deposits	$6,261,000	$914,750,000	$377,015,000

(a) See para S.4.

(b) In September 1982 the State Building Society of New South Wales Limited ceased to operate under the Permanent Building Societies Act, 1967 and registered under the Co-operation Act, 1923. On registration under the Co- operation Act, 1923 the Society transferred its engagements to the Rural Building and Investment Society Ltd, a society registered under the Building and C o- operative Societies Act, 1901 and incorporated pursuant to s41A of the Co-operation Act, 1923. Rural Building and Investment Society Ltd then changed its name to State Building Society Ltd. The significant increase in the aggregate membership and share capital of the societies registered under the 1901 Act is the result of this transfer, which correspondingly reduced the aggregate membership and share capital of the societies registered under the 1967 Act.

Source: Department of Co-operative Societies

5.26 Recent amendments to the Co-operation Act, 1923 and the Permanent Building Societies Act, 1967 have removed certain restrictions on the lending and borrowing activities of permanent building societies and allowed them a greater range of activities.¹⁶ One likely consequence of these amendments will be a shift from withdrawable to fixed share capital, with deposits forming the bulk of the funds invested with some permanent building societies.¹⁷

5.27 Permanent building societies offer various types of deposit accounts and withdrawable share accounts, although it appears that not all societies take deposits,¹⁸ and at least one society, United Permanent Building Society Ltd, now takes term investments only as deposits. Withdrawals may be made on demand, on notice or after a minimum period and usually require the presentation of a passbook and withdrawal form, some form of receipt or the use of a cashcard. Some deposit/share accounts are subject to minimum deposit/subscription requirements, ie the depositor/shareholder is required to invest a minimum amount. The investment may be for a fixed term or for a minimum period after which withdrawals maybe made on demand or on notice. A non-term minimum deposit/share account is usually also subject to a corresponding minimum balance condition and a condition that subsequent deposits and/or withdrawals are to be of a minimum amount. Societies also offer ‘Christmas Club’ accounts. Such accounts usually are subject to a condition that any withdrawal before November must be for the full amount in the account or a condition that any withdrawal before that time will result in a reduction in the interest rate otherwise payable on the account.

5.28 Most permanent building societies offer automated teller facilities, which are discussed in Chapter 4. As indicated in para 4.14 we consider that the new account provision we recommend in that chapter would encompass this type of facility. Some societies have also recently entered into agency agreements with individual banks which give the societies access to the cheque clearance system and enable them to offer cheque accounts which operate in the same manner as bank cheque accounts.¹⁹ Most permanent building societies also provide cheque or order for withdrawal facilities. A cheque or order for withdrawal facility differs from a normal cheque account in that the cheque or order drawn on behalf of an account- holder is drawn on the society’s own account. However the amount involved is debited to the account - holder’s account and credited to the society’s account when the society’s cheque or order is drawn. Consequently, if the new account provision is extended to apply to permanent building societies, there is no risk that a society would have to meet its own cheque but be unable to recover funds from the account - holder because the account had been attached after the society’s cheque had been drawn, but before it was presented.

5.29 The shares or deposits of a member of a permanent building society may not be withdrawable because the member has taken out a loan on the security of the member’s paid-up share capital and deposits (para 5.5) However, in contrast to Starr - Bowkett building societies, where a member of a permanent building society has a loan that is not secured by the member’s paid-up share capital and deposits, usually the rules of the society permit the member to withdraw any shares held over the minimum required for membership notwithstanding the loan.²⁰ Nevertheless, although a member may be entitled to withdraw from a deposit or withdrawable share account despite an outstanding loan, the account may be subject to a charge and a right of appropriation or set-off in favour of the society pursuant to the legislation under which the society is registered.²¹

5.20 The relevant statutory provisions are discussed at paras 6.19-6 31. At this point it is sufficient to note that if moneys in accounts with permanent building societies are made attachable, the situation could arise where a borrower member is in default on a loan when a garnishee order in respect of that member’s account is served on the society. In such a situation the society would have a charge over the account to the extent of the debt then due to the society and the garnishee order could be ineffective because that debt exceeded the credit amount in the account.

5.31 Recent amendments to the Permanent Building Societies Act, 1967 also result in a further restriction on the withdrawal of shares from permanent building societies. Permanent building societies are now required to maintain adequate capital in accordance with a formula set down in the Act²² and a withdrawal of shares in a society is permitted only to the extent that it does not result in the society failing to maintain its capital adequacy.²³ This new restriction would be unlikely to cause garnishee orders to be ineffective with any frequency. However the possibility that it could do so, particularly in a case where the garnishee society is in financial difficulties or temporarily over-extended, should be noted.

5.32 As we have already indicated in paras 2.29-2.34, it is not clear whether the account facilities offered by permanent building societies and their lending activities are such that these societies can. as a matter of law, be characterised as banks. Nevertheless the reality is that a particular type of deposit or withdrawable share account with a permanent building society is the practical equivalent of a bank account of the same type. There is also no difference in the legal nature of a particular type of deposit account with a permanent building society and the same type of deposit account with a bank. The legal nature of a withdrawable share account is, on the other hand, quite distinct from that of a deposit account. However the ability of the account-holder to withdraw his or her share subscriptions and any other moneys credited to the account places withdrawable share accounts on the same legal footing as deposit accounts, in that satisfaction by the account-holder of any preconditions to withdrawal from the account gives rise to a debt due or accruing from the society to the account-holder. Therefore we recommend that the new account provision (para 4.5) should apply to deposit and withdrawable share accounts with permanent building societies.

5.33 However an amount standing to the credit of a judgment debtor in a permanent building society account would not necessarily be attachable if the above recommendation were adopted. A garnishee order could be ineffective because

• the judgment debtor’s shares and deposits are security for a loan;
• the account is subject to a non-withdrawal period which is still operative when the order is served;
• the garnishee has a statutory charge over the account to secure a debt due from the judgment debtor; or
• the account is subject to a minimum withdrawal or minimum balance condition which causes the order to be ineffective because the amount of the judgment debt to be satisfied under the order is such that, given the condition. the garnishee has no contractual obligation to pay that amount on demand by the judgment debtor.

A further problem could arise because, although the garnishee order is effective to attach the amount in the account, the attached debt is a fixed- term deposit which is not due for payment for a considerable period. In Chapter 6 we make further recommendations to ensure that moneys in accounts generally can be effectively and efficiently attached where attachment is appropriate and these recommendations take account of certain of the problems identified above.

III. CREDIT UNIONS

5.34 Credit unions are registered under, and regulated by, the Credit Union Act, 1969. They raise funds by share subscriptions and, if authorised by their rules to do so, by taking deposits from members and raising loans. These funds are used to make loans to members.²⁴ Table 5.4 shows the number of active registered credit unions and their total membership, share capital and deposits as at 30 June 1982, 1983 and 1984.

Table 5.4: Credit Unions

	1982	1983	1984
No. of registered credit unions	309	307	293
Total No. of members	723,503	755,141	801,090
Total share capital	$5,563,075	$5,705,996	$6,054,598
Total deposits	$964,948,077	$1,251,897,715	$1,479,281,567

Source: Department of Co-operative Societies

5.35 The shares held by a member of a credit union are withdrawable shares, ie the member may, subject to the Credit Union Act 1969 and the rules of the credit union, apply to withdraw the moneys subscribed for his or her shares.²⁵ The nominal value of shares and the minimum number required for membership vary as between credit unions. However the figures in Table 5.4 give an average shareholding per member of $7.69, $7.55 and $7.55 as at 30 June 1982, 1983 and 1984 respectively. The value of the average shareholding and its relative constancy over time suggest that members of credit unions tend to hold only the minimum number of shares required for membership in Chapter 6 (para 6.18) we recommend that a garnishee order should not have the effect of terminating the judgment debtor’s membership of the garnishee organisation. Consequently, to the extent that members of credit unions hold only the minimum number of shares necessary for membership, there is no practical point in recommending that the value of a judgment debtor’s shareholding in a credit union be made liable to attachment.

5.36 However it appears from those credit union rules which we examined that in the case of some credit unions, a member may hold shares additional to the minimum number required for membership.²⁷ When taken alone, the value of any additional shares held by a judgment debtor in a credit union is likely to be so inconsequential as not to warrant subjecting the credit union to a garnishee order in respect of those shares.²⁸ On the other hand the judgment debtor is also likely to have a deposit account with the credit union The value of any additional shares, when added to the amount credited to the deposit account, could mean the difference between satisfying and not satisfying the judgment debt in full or at least satisfying a greater portion of the judgment debt. Therefore we recommend that the new account provision (para 4.5) should apply to withdrawable share accounts with credit unions. This recommendation, coupled with our recommendation in para 6.18 that a garnishee order should not have the effect of terminating the judgment debtor’s membership of the garnishee organisation, will limit the attachment of moneys in withdrawable share accounts with credit unions to those moneys representing the value of any additional shares the judgment debtor may hold.

5.37 Credit unions offer deposit accounts of the various types offered by permanent building societies (para 5.27), although not all credit unions offer all these types of deposit account. For example a small credit union may offer only a deposit account similar to a savings bank account, fixed-term deposits and a ‘Christmas Club’ account, whilst a large credit union may also offer minimum deposit/minimum balance/minimum withdrawal accounts.²⁹ Some credit unions also offer automated teller deposit/withdrawal facilities. Withdrawals are usually, if not invariably, subject to the presentation of a passbook or membership card³⁰ or a cashcard.

5.38 As we have already indicated in para 5.32 there is no legal or practical distinction to be drawn between a particular type of deposit account with a bank and the same type of deposit account with another institution. Accordingly we recommend that the new account provision (para 4.5) should apply to deposit accounts with credit unions. However we point out that our comments in para 5.33 regarding the effective attachment of moneys in accounts with permanent building societies also apply in relation to deposit accounts with credit unions. In addition there are several matters specific no credit unions which call for comment.

A. Repayment Rules

5.39 The rules of all credit unions contain a standard rule relating to the withdrawal of deposits other than fixed-term deposits whereby repayment is to be made in the order in which applications for withdrawal are received. If the credit union has insufficient funds in hand to meet all withdrawal applications, any member who has applied for repayment of more than $400 is to be paid $400 when entitled to payment in order of priority the withdrawal application is to be re-dated as a new application and the member paid up to $400 when again entitled to payment in order of priority. If necessary this procedure continues until the amount initially sought to be withdrawn is paid in full. A further rule provides that fixed-term deposits rank for payment in priority to other deposits, with the result that the order of priority in which repayment is to be made to members withdrawing non- term deposits will be interrupted by the repayment of fixed-term deposits the terms of which expire between the time members withdrawing non-term deposits make applications for withdrawal and the time they are paid in full. Where a credit union has insufficient immediately available funds the interruption may well be of practical significance.

5.40 In view of these rules, if non- term deposits in credit unions are made attachable the situation could arise where a non-term deposit in excess of $400 is attached to satisfy a judgment debt in excess of $400 and payment of the initial $400 and the excess is not due until some indefinite date in the future. In other words, the date on which the attached debt or part of the attached debt accrues due for payment could be uncertain.³¹ Obviously the probability of this sort of situation arising is slight since it requires the combination of a recalcitrant judgment debtor with a deposit in excess of $400, a judgment debt in excess of that amount and a non- liquid credit union. It appears that the last prerequisite alone would be extremely rare.³²‘ For this reason the possibility is not a basis for recommending against reform which permits the attachment of non-term deposits with credit unions. On the other hand, in view oh the situation to which these rules are directed, any reform which intentionally or inadvertently overrode their effect would be inappropriate. For example if subsection (1) of the existing bank account provisions (para 4.1) were simply extended to apply to accounts in credit unions, the rules could be overridden because they can be characterised as conditions relating to demand of payment (para 4.4).

B. Section 6 of the Credit Union Act, 1969

5.41 In certain circumstances a credit union cannot allow a member who has taken out a loan to withdraw share capital or deposits (section 6(10)) or can allow the member to do so only if the board of the credit union believes, on reasonable grounds, that the member has, and will continue to have, sufficient income to repay his or her indebtedness (section 6(10A)). If deposits with credit unions are made liable to attachment and a garnishee order sought to attach the deposit account of a borrower member whose shares and deposits were not withdrawable at all or were withdrawable only with the approval of the board, the garnishee order would be ineffective. The provision under which a member’s shares and deposits cannot be withdrawn unless the board considers the member has, and will continue to have, sufficient income to repay the member’s indebtedness applies wherever all or part of the members indebtedness consists of moneys outstanding in respect of a loan made after 1 January 1976.³³ Therefore it is probable that garnishee orders seeking to attach deposits in credit unions frequently would be ineffective because the judgment debtor had not fully repaid a loan made some time after that date.

5.42 Where the withdrawal of a judgment debtor’s deposits (and any excess shares (para 5.36)) is conditional on the approval of the board, we can see no objection in principle to requiring a credit union to comply with a garnishee order unless the board believes, on reasonable grounds, that the member does not- or will not, have sufficient income to repay his or her indebtedness to the credit union. However to enforce compliance in this manner would often impose inconvenience and expense on a garnishee credit union because of the need fora board meeting which was not otherwise required for some time. Furthermore, where this statutory restriction on withdrawals applies, it is likely that the overall financial position of the judgment debtor would be such that the board would have reasonable grounds to conclude that the debt to the credit union was at risk. For such practical reasons it is better that a garnishee order be ineffective to attach deposits or withdrawable share capital to which section 6(10A) of the Credit Union Act. 1969 applies. Therefore no special provision is recommended.

C. Security Arrangements

5.43 The Credit Union Act, 1969 imposes limits on the amount which a credit unions may lend a member in excess of the member’s aggregate share capital in, and deposits with, the credit union. The permissible amount varies depending on whether the loan is secured and on the terms of the loan.³⁴ Currently the maximum unsecured amount is $10,000.³⁵ A loan to a member of a credit union may be secured by a mortgage, charge, lien or other security over property.³⁶ The Association of Central Credit Unions, in its submission to the Commission. advised that the securities taken for loans in excess of the maximum unsecured amount are generally mortgages, bills of sale or liens or some formal arrangement on the member’s savings or investment account and that “(t)he security of a lien over the member’s savings or investments is used more so than the other types of security due to the areas of higher costs”.³⁷ It appears that another type of “formal arrangement” is an assignment to the credit union of the member’s deposits.³⁸

5.44 We have not inquired into the specific terms of the securities which credit unions take over the shares and deposits of members. Nor would it be appropriate for us to do so. However we note that at common law a debtor cannot take a security over his or her own indebtedness to secure a debt from another and that consequently a bank cannot take a mortgage or charge over a deposit made by a customer as security for advances by the bank to the customer.³⁹ It seems that a security in favour of a debtor of his or her own indebtedness can. at best, operate as a contractual right in the debtor to set off his or her debt against the debt sought to be secured. It also appears that at common law a debtor cannot take an assignment of his or her own debt and that any such purported assignment can only operate as a release of the debt or a covenant not to sue.⁴⁰

5.45 These common law principles may be relevant in relation to the types of securities which credit unions take over the deposits of members. However their relevance depends on the interpretation to be placed on those provisions of the Credit Union Act, 1969 which determine what securities credit unions are empowered to take and the extent to which, if at all, the Act overrides or qualifies the common law position We can do no more than point out that should the common law principles apply in any particular case, they would be significant in the context of garnishee orders because they bear on the question of whether there is any debt due or accruing from the garnishee to the judgment debtor.

1. Building and Co-operative Societies Act, 1901 ss34, 52(3) and 53(3): Co-operation Act, 1923 ss73 and 82: Permanent Building Societies Act, 1967 ss³ 1 and 32: and Credit Union Act. 1969 ss24 and 25.

2. The Building and Co- operative Societies Act, 1901 was repealed by the Co- operation Act, 1923 (s3) but, by virtue of s42(7) of the latter Act, continues to apply to those remaining societies which were registered under the earlier Act and did not become registered under the Co- operation Act, 1923 pursuant to s42 of that Act. Certain provisions of the Co-operation Act, 1923 also apply to the societies registered under the Act of 1901 (Co-operation Act, 1923 s42(8)).

3. Co-operation Act, 1923 s16(1) as amended by Co-operation Act (Amendment) Act, 1985 s5 and Schedule 2 cl(1) - operative 1 September 1985 (NSW Government Gazette No 122 30 August 1985 at 4545)): Permanent Building Societies Act, 1967 ss4, 4A, 4B and Schedule 3 (inserted by Permanent Building Societies (Amendment) Act, 1985 s5 and Schedule 2 cl (1), Schedule 10 and Schedule 11 - operative 1 September 1985 (NSW Government Gazette No 122 30 August 1985 at 4545)). The effect of Schedule 10 of the Permanent Building Societies (Amendment) Act, 1985, coupled with various amendments under the Co-operation (Amendment) Act, 1985, is to bring building societies registered under the Building and Co-operative Societies Act, 1901 and building societies registered under the Co-operation Act, 1923 other than co-operative housing societies and Starr-Bowkett building societies within certain provisions of the Permanent Building Societies Act, 1967.

4. Co-operation Act, 1923 s16(1)(c) (inserted by Co-operation (Amendment) Act, 1983 s2 and Schedule 1 cl(2) and amended by Co-operation Act (Amendment) Act, 1985 s5 and Schedule 2 cl(1) (note 3)).

5. Co-operatives Regulations. 1961 reg 78.

6. Co-operation Act, 1923 s16(1) (c) (note 4) prior to amendment referred to in note 3: Permanent Building Societies Act, s4(1) prior to amendment referred to in note 3.

7. Permanent Building Societies (Amendment) Act, 1985 s6 and Schedule 12) note 3) and Permanent Building Societies Act, 1967 s127(1) and Schedule 3 (inserted by Permanent Building Societies (Amendment) Act, 1985 s5 and Schedule 10 cl(2) and Schedule 11 (note 3)). We understand from the Department of Co-operative Societies that there are some societies which in fact come within the transitional provision because their rules have not been altered.

8. Eg. ss4A(4) and 4B (inserted by Permanent Building Societies (Amendment) Act, 1985 s5 and Schedule 2 cl(1) (note 3)).

9. Co-operation Act, 1923 s16(2) (a)(ii) and (iii).

10. Information from the Registrar of Co- operative Societies. See also Standard Rules of Co-operative Housing Societies Being Financed with Government or Guaranteed Funds, r18(1) and (2) and Standard Rules of Co-operative Housing Societies Financed by the Same Lender. Not being the Government and Not Being Guaranteed, r18(1) and (2), made under Co-operation (Amendment) Act, 1981 and promulgated in NSW Government Gazette No 59 14 April 1981 at 2195 ff.

11. Co-operation Act, 1923 s17(1)(b).

12. The general description of Starr - Bowkett building societies is based on an examination of the rules of United Starr- Bowkett Co-operative Building Society No 19 Limited. Newtown and Enmore Starr - Bowkett Building Co-operative Society No 23 Limited and North Sydney Starr - Bowkett Building Co- operative Society No 10 Limited.

13. Co- operation Act. 1923 si 6(2)(b)(ii).

14. In re General Horticultural Company: Ex parte Whitehouse (1886) 32 Ch D 512: M G Charley Pty Limited v F H Wells Pry Limited; Bank of NSW Garnishee [1963] NSWR 22 at 28.

15. Note 12.

16. Co-operation (Amendment) Act, 1985: Permanent Building Societies (Amendment) Act 1985: and note 3.

17. Permanent Building Societies (Amendment) Act, 1985 s5 and Schedule 5. in particular cls(1) and (5). Among the amendments relating to share capital effected by cl(5) of Schedule 5 is the inclusion in the principal Act of a new section. s52 (1). whereby a Permanent Building Society may, by special resolution, establish a scheme for the conversion of any of its withdrawable share capital to deposits if it is authorised to do so under its rules.

18. Eg. NSW Building Society Limited.

19. Information from Mary Edwards, Executive Director, Permanent Building Societies Association (NSW) Ltd.

20. Again, we have not reviewed the rules of all the permanent building societies. The rules examined were those of the NSW Building Society limited, the United Permanent Building Society Ltd, the Hibernian Permanent Building and Investment Society Limited (which transferred its engagements to the St George Building Society Ltd as from 1 December 1981 (see Permanent Building Societies Act, 1967 s40 and Report of the Registrar of Permanent Building Societies for Year Ended 30 lune 1982 at 8) and the State Building Society Ltd. From these rules it appears that the minimum number of shares required for membership of a permanent building society is usually, if not invariably, 20 $1.00 shares.

21. Co-operation Act, 1923 s57 as amended by Co-operation(Amendment) Act. 1989 s5 and Schedule 3 cl(11): Permanent Building Societies Act. 1967 s58 as amended by Permanent Building Societies (Amendment) Act, 1985 s5 and Schedule 5 cl(6). Although there is no equivalent provision in the Building and Co-operative Societies Act, 1901, the statutory charge provision in the Co-operation Act 1923 (s57 as amended) now applies in relation to societies registered under the 1901 Act: Co-operation Act 1923 ss41 A( 1) and (3) and 42(1), (7) and (8) and Third Schedule as amended by the Co-operation (Amendment) Act, 1985 s5 and

Schedule 8.

22. Permanent Building Societies (Amendment) Act, 1985 s5 and Schedule 5 cl(9), Schedule 10 cl(2) and Schedule 11.

23. Id. Schedule 5 cl(5). Schedule 10 cl(2) and Schedule 11.

24. Credit Union Act, 1969 ss4 and 5.

25. Credit Union Act, 1969 ss24 and 44 and Schedule 1(t).

26. We did not do an exhaustive survey of the rules of credit unions. The rules examined were those of the Hibernian Credit Union Limited and the State Government Employees Credit Union Ltd.

27. Eg. Rule 24 of the Hibernian Credit Union Limited has a minimum membership requirement of 10 fully paid $1.00 shares but permits a member to hold tip to 20 fully paid $1.00 shares provided this does not exceed 1/5th of the shares in the credit unions. By contrast, under Rule 24 of the State Government Employees Credit Union Ltd the minimum and maximum shareholding is 1 fully paid $2.00 share.

28. As would be the case under Rule 24 of the Hibernian Credit Union Limited, note 27.

29. Information from Mr R Jobson, Secretary/Manager, Association of Central Credit Unions Ltd.

30. We understand that where the bond of association between members of a credit union is employment with a particular employer or group of employers and automatic salary deductions are paid by the member’s employer to the member’s account with the credit union, presentation of a membership card rather than a passbook is the norm, since in this case a passbook cannot provide an accurate account balance on presentation.

31. It is also a situation which could arise (again exceptionally) in relation to the attachment of withdrawable share accounts with permanent Building societies. Eg. the State Building Society Ltd and the Hibernian Permanent Building and Investment Society limited have a similar provision in their respective rules in relation to the withdrawal of shares.

32. Advice of Chief Inspector of Credit Unions, Department of Co-operative Societies.

33. Credit Union (Amendment) Act. 1979 ss2(5) and 5(b)) xi) and NSW Government Gazette No 168 19 December 1979 at 5378.

34. Credit Union Act, 1969 s6(6)-(TAS).

35. NSW Government Gazette No 100 19 July 198 at 267. The rules of a credit union must fix, within the statutory limits, the amount by which a member’s indebtedness may exceed the aggregate of the members share capital and deposits. so that a particular credit union may, by choice or at the instance of the Registrar of Credit Unions, have a maximum unsecured amount of less than the statutory maximum.

36. Credit Union Act, 1969 ss3 (“mortgage”) and 6(7A).

37. letter dated 22 March 1984.

38. Information from Mr F O’Driscoll, State Government Employees Credit Union Ltd.

39. Broad v Commissioner of Stamp Duties [1980] 2 NSWLR 40 at 46-48.

40. Id, at 46.