Pyramid Building Society (In Liq) v Terry & Another
(1997) 189 CLR 176(Judgment by: McHugh J)
PYRAMID BUILDING SOCIETY (in liquidation) v BRUCE MITCHELL TERRY & ANOR
Court:
Judges:
Toohey
Gaudron, Gummow
McHughKirby JJ
Subject References:
BANKRUPTCY
Composition under Pt X of the Bankruptcy Act 1966 (Cth)
Contingent liability under a guarantee
Whether a "provable debt" in a Pt X composition.
STATUTORY INTERPRETATION
Relevance of statutory history and purpose.
Legislative References:
Bankruptcy Act 1966 (Cth) - 82; 187; 198; 238; 239; 240; 243.
Other References:
Bankruptcy Rules (Cth), r 84.
Judgment date: 25 SEPTEMBER 1997
Judgment by:
McHugh J
I agree with Gaudron and Gummow JJ that this appeal should be allowed. I also agree with much of the reasoning that leads them to that conclusion. But I am unable to agree with their reasons in so far as they suggest that, read literally, s 82(1) of the Bankruptcy Act 1966 (Cth), as modified by r 84 of the Bankruptcy Rules (Cth) [F23] , does not cover a liability under a guarantee of the kind entered into by Mr and Mrs Terry.
Paragraph 82(8)(b) defines "liability" to include "an express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of , money or money's worth" (my emphasis). As at the date of bankruptcy, Mr and Mrs Terry had entered into an agreement that was "capable of resulting in the payment of, money or money's worth". That being so, the liability under the agreement was a liability "to which [the] bankrupt was subject at the date of the bankruptcy" and which was "provable in his bankruptcy" [F24] .
It follows in my opinion that, if s 82 is construed literally without regard to the history and purpose of the section and its modifications, Kirby J, with whom Toohey J concurs, is correct in holding that the compositions accepted by the creditors released Mr and Mrs Terry from their contingent liabilities. However, I do not think that s 82, as modified by r 84, can be construed without regard to its history and purpose. When the history of the section and the purpose of the modifications enacted by r 84 are examined, the best conclusion that can be drawn from the statutory scheme is that liabilities of the kind in question in this case remain on foot after a debtor makes a composition with his or her creditors.
In my opinion, one of the purposes of the modifications - perhaps their primary purpose - was to exclude contingent and future debts and liabilities. Thus, r 84(a) modified s 82(1) by omitting the words "present or future, certain or contingent" and the words "or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy". The modifications to s 82(8) also indicate that contingent and future debts were to be excluded from the composition. Thus, the original par 82(8)(b) was omitted. It had provided that liability included:
"[A]n obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt."
Furthermore, the original par 82(8)(c), which became par 82(8)(b) after the modification, had defined a liability to include:
"[A]n express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:
- (i)
- in respect of amount - fixed or unliquidated;
- (ii)
- in respect of time - present or future, or certain or dependent on a contingency; or
- (iii)
- in respect of the manner of valuation - capable of being ascertained by fixed rules or only as matter of opinion."
The modification omitted sub-par (ii).
I cannot escape the conclusion that the purpose of these modifications was to exclude contingent and future debts. I find it difficult to accept that, having deleted those provisions in the old s 82 that expressly referred to future or contingent debts and liabilities, the modification nevertheless intended that such debts and liabilities should be caught by the general words of the new par 82(8)(b). When a construction of a legislative provision will promote the purpose of the legislation, a court should prefer that construction to one that is contrary to, or less effective in promoting, that purpose [F25] . That being so, the words "engagement ... capable of resulting in the payment of, money or money's worth" in that paragraph should not be read as including contingent debts or liabilities.
Subject to the foregoing comments, I agree with the reasons of Gaudron and Gummow JJ. The appeal should be allowed.