|Focus:||Jagatramka v Coeclerici Asia (PTE) Limited (No. 2)  FCCA 2743|
|Services:||Dispute Resolution & Litigation, Financial Services|
|Industry Focus:||Financial Services|
A recent decision of the Federal Circuit Court has highlighted the need for creditors to proceed with care when preparing bankruptcy notices on the basis of a judgment expressed in a foreign currency. In Jagatramka v Coeclerici Asia (PTE) Limited (No. 2)  FCCA 2743, the Court held that a bankruptcy notice was invalid because the creditor had not complied with the relevant requirements under the Bankruptcy Regulations 1966 (Cth) (Regulations) for the conversion of a judgment or order expressed in an amount of foreign currency into Australian currency.
The decision makes it clear that a creditor cannot use any available exchange rate it wishes which purports to convert a foreign currency to Australian currency. Rather, a creditor must seek out and use a rate representing the best rate an institution is 'willing and able' to offer on that day, or at that particular time of that day, to exchange Australian dollars for the currency in which the foreign currency judgment amount is denominated.
The creditor, Coeclerici, obtained an award against the applicant, Mr Jagatramka, in arbitration proceedings held in the UK, expressed in USD and GBP. On a successful application by Coeclerici to the Federal Court to have the award enforced as if it were an order of the Court, Coeclerici sought to enforce the judgment by issuing a bankruptcy notice against Mr Jagatramka.
Pursuant to regulation 4.04(3), when drafting its bankruptcy notice, Coeclerici provided Mr Jagatramka with the option of paying the foreign expressed judgment debt that remained owing in an equivalent amount of Australian dollars. In doing so, Coeclerici accessed the website of Westpac Banking Corporation and used a service called the "FX historical rates search". The service allows visitors to search through the historical rates of exchange of various currencies purportedly on offer from Westpac. Coeclerici used an exchange rate presented on the website which purported to convert the foreign expressed judgment debt to Australian dollars.
Importantly, the Westpac webpage also presented the following disclaimers:
- "...the exchange rates provided are indicative only"
- "...they should not be relied upon as an accurate representation of any final pricing..."
- "You should contact Westpac for up to date pricing prior to dealing..." and
- "Exchange rates shown are applicable to the following transactions: for Inward Overseas telegraphic Transfers up to AUD100,000".
Coeclerici served its bankruptcy notice on 28 January 2015. On 13 March 2015, Mr Jagatramka applied to Court to have that bankruptcy notice set aside on a number of grounds of invalidity, particularly that the exchange rate used by Coeclerici was not the 'telegraphic transfer rate' as required by regulation 4.04(3) of the Regulations.
What did the Court find?
The Court defined the 'telegraphic transfer rate' as "best rate that an institution is willing and able to offer on that day or at a particular time of that day to exchange Australian dollars for the currency in which the Foreign Currency Judgment Amount is denominated".  On the basis of the disclaimers on the Westpac website, the Court did not believe that the rates presented were rates that Westpac was "willing and able" to offer on that day.
As the Regulations are silent as to the meaning of 'telegraphic transfer rate', and there is a notable absence of any case law which could assist in defining the term, the Court was assisted in its interpretation of 'telegraphic transfer rate' by the following factors:
- Several pieces of legislation refer to a 'telegraphic transfer rate' and do not define the term. The Court took this to suggest that there is an "unequivocal referent", being s 31 of the Reserve Bank Act 1959 (Cth). Under this section, the Reserve Bank of Australia was required to publish at least weekly its telegraphic transfer rates of exchange for sterling expressed in terms of Australian money. This supported the Court's view that the telegraphic transfer rate is a rate made available to the public by way of a document or other source of information containing or referring to a telegraphic transfer rate it is willing and able to offer to exchange Australian dollars for foreign currencies.
- Before August 2010, regulation 4.04(3) required the conversion to use the opening telegraphic transfer rate of the Commonwealth Bank of Australia in particular.  When amendments to this regulation were made in August 2010, the accompanying explanatory statement stated "Item 5 removes reference in subregulation 4.04(3) to any particular bank in converting into Australian currency where a judgment or order lodged in relation to a bankruptcy notice is expressed in an amount of foreign currency". The Court took this to mean that the amendment to regulation 4.04(3) was intended to be of limited scope, so that "telegraphic transfer rate" had the same meaning as under the previous provision (that is, it was an opening rate of an institution, but was no longer constrained solely to the Commonwealth Bank of Australia).
- Further, the Court made an observation about a matter for statutory interpretation. Given that the Regulations state that a conversion calculation is to use the telegraphic transfer rate prevailing on the second day before a creditor intends to submit its bankruptcy notice, the Court considered that this presupposes that there is more than one institution that makes rates available to the public.
How should a creditor convert foreign currency judgments to Australian dollars?
To ensure that creditors use the correct telegraphic transfer rate, the Court noted the following: 
- On a day two days before the day the creditor intends to lodge a bankruptcy notice, it should enquire of the major institutions as to whether rates which they are 'willing and able' to apply to exchange Australian currency from foreign currency are made available to the public, such as via a website or other means of public communication.
- From the various rates obtained, the creditor should identify the most favourable rate to use in its conversion calculation.
- If the creditor is not able to successfully achieve item 1, it should approach the major institutions for quotes of rates at which the institution is 'willing and able' to exchange Australian dollars for the foreign currency judgment amount.
- The decision in the case is unprecedented and may well change the usual practice taken by many creditors in future.
- Creditors are under greater obligations to ensure that the exchange rates used to convert foreign expressed judgments to Australian dollars are those which an institution is "willing and able" to offer, rather than using any source that provides any exchange rate which purports to make such exchange.
- With bankruptcy notices, the devil is in the detail. Any procedural errors with a bankruptcy notice will result in invalidation and will require a creditor to commence bankruptcy proceedings from scratch. Often such problems will only come to light before court when sequestration orders are being sought. Such procedural mistakes are costly and time consuming.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.