Hall v Richards

108 CLR 84

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(Judgment by: Taylor J)

Hall v
Richards

Court:

Judges: Dixon CJ
Kitto

TaylorMenzies
Windeyer JJ

Judgment date: 15 and 16 February, 9 June 1961

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Judgment by:
Taylor J

This is an appeal from an order made by the Supreme Court of Tasmania sitting in the exercise of jurisdiction conferred upon it by s 18 of the Bankruptcy Act 1924-1958. The order was made upon a summons for directions pursuant to the Act and it was concerned with the manner in which a sum of money remaining after a mortgagee's sale should be applied in the administration of a bankrupt's estate. The bankrupt, Herbert Paul Franz Homann, had presented a debtor's petition on 15th August 1958 and on that day a sequestration order was made. Part of his assets, namely, realty of which he was the registered proprietor pursuant to the Real Property Act 1862 (as amended), was subject to two registered instruments of mortgage and in February 1959 the second mortgagee duly exercised his power of sale. Having sold the land he, first of all, discharged the first mortgage, then retained sufficient moneys in his hands to discharge the indebtedness of the bankrupt under the second mortgage and, thereupon, accounted to the Official Receiver for a balance of 458 pounds 15s. 4d. But, in addition to the two mortgages noted upon the relevant certificate of title, notice of a number of caveats -- twenty-nine in all -- appeared. These caveats had been lodged between 21st February 1957 and 2nd May 1958 by persons and companies who had obtained judgments against the bankrupt for money sums before the sequestration of his estate. The caveats were lodged pursuant to statutory provisions to which I shall presently refer and no doubt they were lodged in reliance upon the decision in Re Price; Ex parte Tinning (1931) 26 Tas LR 158, which held that a judgment creditor who had lodged a caveat pursuant to the provisions referred to was a "secured creditor" within the meaning of the Bankruptcy Act. What the effect of the decision was in the circumstances of that case does not readily appear and is somewhat difficult to understand but in the present case it was presented by the appellants as authority for the proposition that the moneys now in the hands of the Official Receiver should be applied primarily in discharge of their judgment debt and, pro tanto, to the exclusion of the other creditors in the estate. I should add that eleven of the caveats mentioned had been lodged before that of the appellants but the claims in respect of which these caveats were lodged had been satisfied by payment prior to the commencement of the bankruptcy. But, although some of the judgment debts of the remaining seventeen caveators had been reduced by that time, substantial sums were still owing in respect of them.

The legislative provisions with which the argument in the case has been primarily concerned are s 94 of the Real Property Act, 1862, and the sections of that Act which provide for the lodging of caveats together with s 22 of the Real Property Act, 1886. By s 82 of the first mentioned Act any settlor of land under the provisions of the Act, transferring such land to be held by a trustee, or any beneficiary, or other person, claiming an estate or interest in any such land may, by caveat, in the prescribed form forbid the registration of any instrument affecting such land either absolutely or until after notice of an intended dealing. The caveat is required, among other things, to contain a sufficient description to identify the estate or interest therein claimed by the caveator. S 83 makes familiar provision with respect to notification of the caveat and with respect to the manner in which the registered proprietor may take proceedings for its removal. It also provides that, except in the case of a caveat lodged by a settlor or beneficiary, every such caveat shall, unless an order to the contrary be made by the Supreme Court, be deemed to have lapsed upon the expiration of fourteen days after notice given to the caveator that such registered proprietor has applied for the registration of any dealing with the land. No entry is to be made in the register book affecting the land in respect of which a caveat is lodged so long as the caveat remains in force (s 84). It will be seen that there is nothing on the face of these provisions to authorize the lodging of a caveat by a judgment creditor. But by s 22 of the Real Property Act, 1886 provision was made enabling this to be done. By that section it is provided that it shall be lawful for the judgment creditor of any person registered as the proprietor of land under the Real Property Act to enter a caveat in the manner prescribed by s 82 thereof and, by subs (2), the practice, procedure, and mode of dealing with any such caveat is, in all respects, to be the same as if such judgment creditor claimed an estate or interest in such person's land within the meaning of that section. Finally, it is provided that the Court or judge, in deciding on the validity or otherwise of such caveat, shall be guided by the ordinary rules of law and equity as to upholding or setting aside a judgment. These latter words introduce difficulties of their own which, to some extent, were debated during the argument but it is unnecessary for us to pursue them in this case. The provisions of s 94 of the Real Property Act, 1862 are of such importance that it is desirable that they should be set out in full:

s 94. Sale under fi fa, decree, or order of the Supreme Court, or under warrant of execution.

(1)

No execution shall bind or affect any estate or interest in land under this Act.

(2)

The Recorder, on being served with a certified copy of any writ of fieri facias issued out of the Supreme Court, or of any direction, decree, or order of such Court, or of any warrant of execution issued under the Local Courts Act, 1896, or of any direction or order of any court of competent jurisdiction, directing or authorizing the sale of any estate or interest in land held under this Act, accompanied by a statement signed by any party interested, or his attorney, solicitor, or agent, specifying the land sought to be affected thereby, shall, after marking upon such copy the time of such service, enter the same in the register book.

(3)

After any such estate or interest in land so specified shall have been sold under any such writ, direction, decree, or order, or warrant of execution, the Recorder shall on receiving a transfer thereof in such form as the case requires under this Act (which transfer shall have the same effect as if made by the registered proprietor), enter such transfer in the register book, and on such entry being made the purchaser shall become the transferee, and be the registered proprietor of such land.

(4)

Unless and until such service as aforesaid no sale or transfer under any such writ, direction, decree, or order, or warrant of execution shall be valid as against a purchaser or mortgagee, notwithstanding the same was actually lodged for execution at the time of the purchase or mortgage, and notwithstanding the purchaser or mortgagee had actual or constructive notice of the lodgment of such writ, direction, decree, or order, or warrant of execution.

(5)

Upon production to the Recorder of sufficient evidence of the satisfaction of any writ, direction, decree, or order, or warrant of execution, a copy whereof shall have been served as aforesaid, he shall cause an entry to be made in the register book of a memorandum to that effect.

(6)

On such entry being signed by the Recorder, such writ, direction, decree, or order, or warrant of execution shall be deemed to be satisfied, and the same shall cease to bind, charge, or affect any such estate or interest in such land as aforesaid, unless a transfer upon a sale thereunder shall be produced for registration, within three months from the day on which the copy was served.

It was, perhaps, open to argument that the provisions to which we have referred were intended to be fully supplementary to those contained in the Registration of Deeds Act, 1935 with respect to the registration of judgments against the owners of land held under old system title. S 11 of that Act provides that, subject to that section, "every judgment whereby any sum of money is made payable . . . shall, when registered, be a charge upon the lands of the judgment debtor". Registration is effective for a period of five years but it may be renewed in the manner provided by the section. But it is clear that the provisions of the Real Property Acts to which we have referred do not contain any counterpart of the operative words of the Registration of Deeds Act which purport to create a "charge" -- whatever that expression may mean in the context in which it is used (cf the discussion in (1939) 12 Australian Law Journal 454 and (1939) 13 Australian Law Journal 19, 50, 111 on this subject). It is true that the provisions of s 94 operate to bind the land in the hands of the judgment debtor in the sense that he may not deal with the land whilst the caveat remains in force. But there are no words appropriate to create a charge in favour of the judgment creditor in the sense that the lodging of the caveat is to operate to confer upon him any interest by way of security or otherwise in the registered proprietor's land. However, to establish that the lodging of a caveat does create such an interest the decision in Re Price; Ex parte Tinning (1931) 26 Tas LR 158 was relied upon. In that case the judgment creditor lodged a caveat pursuant to s 22 abovementioned and some months later the debtor became bankrupt. Thereupon the trustee applied to the Court for directions as to whether the judgment creditor was a secured creditor within the meaning of the Bankruptcy Act. Nicholls CJ held that he was. After referring to the procedure by which the judgment creditor became entitled to enter a caveat his Honour went on to say: "It will suffice to say that this caveat, until removed, stands as a clog on the proprietor's right of alienation, and that so long as the judgment creditor has the right to levy on the land there is no ground for removing it. He has the power to levy. He also has prevented dealings with the land. These two facts go far in the direction of giving him the powers of a mortgagee" (1931) 26 Tas LR, at p 159. At a later stage he said: "After examining the rights conferred by a number of different kinds of liens and charges, both common law and equitable, and whether arising out of agreement, created by a will or settlement, conferred by custom or by law, I find my consideration of the matter at an end. I do not see what class of lien or charge there is which, when the holder has no estate or interest in the land itself, gives him any more than the caveator judgment creditor has. He has, by right of his judgment, power to levy on the land for his debt, and he has exercised a right to prevent dealings with the land, thereby keeping it available for his levy. In my opinion these rights amount to a statutory charge or lien" (1931) 26 Tas LR, at p 160. In the result his Honour held that the judgment creditor was a secured creditor within the meaning of the Act, that is to say, "a person holding a mortgage, charge, or lien on the property of the debtor or any part thereof, as a security for a debt due to him from the debtor".

It is unfortunate that the learned Chief Justice was not referred to other provisions of the Bankruptcy Act which, it seems to me, make it quite clear that the question whether the judgment creditor was entitled in priority to the trustee in bankruptcy could not be resolved merely by inquiring whether the judgment creditor fell literally within the terms of this definition. I will presently refer to these other provisions but before doing so it is of some interest to consider the effect which his Honour's decision would have if applied to the circumstances of the present exceptional case. First of all, it must be conceded that if the appellants became entitled, by virtue of their caveat, to a charge on the land in question then each of the successive seventeen caveators became entitled to like interests. What then is the position if, as the learned Chief Justice suggests, the appellants' charge might have been enforced by causing execution to issue? They did not, of course, do so, but if they had all that could have been levied upon was the right, title and interest of the judgment debtor in the land and, of course, a sale under the writ would necessarily have been subject to any encumbrances then noted on the title which would have included the charge created by the lodging of any caveat prior to execution. Indeed, in conformity with this notion, s 94 of the Real Property Act, 1862 provides that after the sale of any interest in land under a writ of execution the Recorder shall on receiving a transfer (which transfer shall have the same effect as if made by the registered proprietor), enter such transfer in the register book, and on such entry being made the purchaser shall become the transferee and be the registered proprietor of such land. That being so, it is difficult to see how the existence of the right to levy by execution could provide any foundation for the proposition that the lodging of the caveat by the judgment creditors created a charge upon the whole of the interest of the registered proprietor in the land at the time the caveat was lodged, as distinct from a charge on his interest in the land at the time of execution. This, of course, would mean that the lodging of a caveat could not confer upon the judgment creditor any right in priority to the subsequent caveators.

Secondly, it should be noticed that the sale which took place was a sale by the second mortgagee who, pursuant to s 55 of the Act, was entitled to convey the lands to the purchaser freed and discharged from all liability on account of any mortgage or encumbrance registered subsequently to his own. So that if, as was contended, the appellants' claim to a charge upon the land depended solely upon the lodging and subsistence of their caveat, their claim must, of necessity, be taken to have been defeated by the subsequent destruction of the caveat.

Faced with these difficulties the appellants contended, though faintly, that their judgment bound the judgment debtor's land from the time when judgment was entered. On this point it is, I think, sufficient to say that it is apparent from an examination of the provisions of 54 Geo. III, c. 15, the Proclamation of the Governor of New South Wales made on 18th January 1817 and 6 Geo IV, No 22 (NSW) and subsequent legislation that this proposition cannot be maintained. Nor, would any such conclusion be consistent with the provisions of s 11 of the Registration of Deeds Act, 1935 or with those of subs (1) of s 94 of the Real Property Act, 1862.

Returning then to the decision in Re Price; Ex parte Tinning (1931) 26 Tas LR 158 it is necessary to point out that in the circumstances of that case, the judgment creditor did not at the time when the question arose have any right to issue execution. He did not, as the learned Chief Justice assumed, "by right of his judgment (have) power to levy on the land for his debt" (1931) 26 Tas LR, at p 160. It is true that the Bankruptcy Act in general terms defines "secured creditor" to mean "a person holding a mortgage, charge or lien on the property of the debtor, or any part thereof, as a security for a debt due to him from the debtor". But even if, in the face of the observations which have already been made, it be thought that the appellants fall within the literal terms of this definition standing by itself other provisions of the Act make it abundantly clear that such a prima facie view cannot be entertained. By s 60(1) of the Act it is provided that upon sequestration the property of the bankrupt shall vest in the Official Receiver named in the order and shall be divisible among the creditors of the bankrupt in accordance with the provisions of the Act. Thereupon it provides that after sequestration, except as directed by the Act, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt or shall commence or take any fresh step in any action or other legal proceeding, unless with the leave of the court and on such terms as the court imposes. This provision is, of course, subject to the qualification contained in subs (3) that it shall not affect the power of any secured creditor to realize or otherwise deal with his security. These words are relied upon by the appellants but they furnish no support for their contentions. To levy by execution on the right, title and interest of a judgment debtor in land of which he is the registered proprietor is not equivalent to a realization by an encumbrancee of his security. Execution is limited to a levy upon the debtor's interest, if any, in the land, to be ascertained after taking into consideration the encumbrances to which the land is subject. But if there remains any residual doubt it is put at rest by the provisions of s 92 of the Bankruptcy Act which place restrictions upon the rights of creditors to execute upon the goods or lands of a debtor who subsequently becomes bankrupt. By this provision a creditor who has issued an execution against the goods or lands of a debtor is not entitled to retain the benefit of the execution against the trustee in bankruptcy unless he has completed the execution before sequestration and before notice of the presentation of any petition by or against the debtor or before notice of the commission of any available act of bankruptcy. Quite clearly this provision applies to all judgment creditors including any who have registered their judgments under the Registration of Deeds Act or who have lodged caveats under the Real Property Act, and it will be seen that it applies to executions where the writ has issued before sequestration. But if we are to give effect to the appellants' contention it would mean that a judgment creditor who has not proceeded to the point of execution would be in a stronger position than one who had but who had not yet completed it or if, having completed it, had done so with notice of the presentation of the petition or with notice of the commission of any available act of bankruptcy. I think it is clear that s 92 was designed as a special provision to govern the rights of execution creditors and it affords a clear and unambiguous indication that the Act does not regard or treat judgment creditors as secured creditors for the purposes of the Act. It is, of course, also clear from what has already been said that the appellants are not now entitled to levy by execution upon what was formerly the judgment debtor's interest in the lands in question. That interest is now vested in the Official Receiver and is not available as the debtor's property upon which a levy may be made under an execution.

For the reasons which have been given, I am of the opinion that the appeal should be dismissed and, in the circumstances of the case, it should be dismissed with costs.