Austral Mining Construction Pty Ltd (In Liquidation) v NZI Capital Corporation Limited

[1991] HCATrans 165

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B4 of 1991

B e t w e e n -

AUSTRAL MINING CONSTRUCTION

PTY LTD (In Liquidation)

Applicant

and

NZI CAPITAL CORPORATION LIMITED

First Respondent

SOGELEASE AUSTRALIA LIMITED

Second Respondent

Application for special leave

to appeal

BRENNAN J

TOOHEY J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON THURSDAY, 27 JUNE 1991, AT 11.23 AM

Copyright in the High Court of Australia

Austral 1 27/6/91

MR F.L. HARRISON, OC:  May it please the Court, I appear

with my learned friend, MRS P.M. WOLFE, for the

applicant. (instructed by Anderssen & Company)

MR P.A. KEANE, QC:  May it please the Court, I appear with

my learned friend, MR P.D. McMURDO, for the first

respondent, NZI Capital Corporation Limited.

(instructed by Henderson Trout)

BRENNAN J:  The Registrar has been informed by Gadens

Ridgeway, solicitors for the second respondent in

this matter, that Sogelease Australia Limited does

not wish to make submissions to the Court in this

matter and will abide by the decision of the Court.

Yes, Mr Harrison.

MR HARRISON: If the Court pleases, there are some

authorities which we would seek to pass up to the

Court. I will be referring initially to the

Bills of Sale Act which is in the blue folder in

those authorities.

BRENNAN J: Thank you. Yes, Mr Harrison.

MR HARRISON:  If the Court pleases, the particular question

that the Full Court decided was whether the

bill of sale in this case - which is what one

sometimes calls, in the form of an old system,

mortgage - which is at page 56, was an instrument

as defined in the Bills of Sale and Other

Instruments Act 1955-1986, and if it was the

consequence was sufficient to prevent the applicant

from gaining title by reason of a non-compliance

with section 19 of the Bills of Sale Act as to the

form and contents.

We say, however, that the questions of general

importance that arise here are two. The first is

that although this was a very narrow point that the

decision decided, it does determine the question

whether a number of provisions of the Bills of Sale Act apply to bills of sale in standard form given	by companies, and I will take Your Honours to those
in a moment. And secondly, it is submitted that
the interpretation that the Full Court put on the word "debenture"' or the meaning that is ascribed
to the term is somewhat out of line with previous
aut~orities and is such as is likely to cause difficulty in the application of the decision to other contexts in which the expression is used.

BRENNAN J: That is the basic question, is it not?

MR HARRISON:  Yes, Your Honour.

BRENNAN J:  If you fail on that, you fail. The other

questions do not arise, do they?

Austral 2 27/6/91

MR HARRISON: That is so, Your Honour.

BRENNAN J: Well, perhaps you should address that first.

TOOHEY J: Could I just ask you this before you do,

Mr Harrison. If you make good that proposition,

bearing in mind that the instrument was registered

under the provisions of the Companies Code, are

there practical consequences that follow from the

failure to register the document under the

Bills of Sale Act?

MR HARRISON:  No, Your Honour. We do not and did not submit

that it should have been registered under the

Bills of Sale Act. It is clear that it was

unnecessary to register it under the

Bills of Sale Act, Your Honour, by reason of

section 211 of the then Companies Code to

section 67 of the current legislation.

Your Honours, the Full Court, although

unanimous in its conclusion in the two principal

judgments of the Chief Justice and

Mr Justice Derrington adopt rather different approaches, particularly in their reliance on the

well-known passages in judgments of

Mr Justice Chitty in Edmonds v Elaina Furnaces

Company and Levy v Abercorris Slate & Slab Co. In

the High Court in Handevel Pty Ltd v Comptroller of

Stamps (Victoria), (1985) 157 CLR 177 at page 195

in the joint judgment of Justices Mason, Wilson,

Deane and Dawson - - -

TOOHEY J:  Do we have a copy of that?

MR HARRISON:  Yes, Your Honour. The Court said in the last

paragraph:

Any discussion of the nature of a

debenture must begin with the statement that

English judges of great authority have

confessed that the term defies accurate

definition ..... However, it has been generally

agreed that two characteristics of a debenture

are, first, that it is issued by a company

and, secondly, that it acknowledges or creates

a debt.

And: authorities are cited, and then Their Honours go on to deal with other questions that arise in

relation to that. But the tenor, in our

submission, of that approach is that the two

matters mentioned there that a debenture is "issued

by a company" and "acknowledges or creates a debt",

are taken simply as indicia and not necessarily

decisive or determinative of the question in any

particular case.

Austral 27/6/91

The approach taken by the Chief Justice,

however, in our submission, was that in effect he

treated those two tests as decisive, except in some

isolated or limited number of exceptional cases

that are already established and that, in our

submission, appears from his judgment at page 22.

If one starts at line 650:

Documents in certain precise categories

are not usually described as debentures, for

example a real estate mortgage and a

negotiable instrument, even though they may be

issued by a company and acknowledge a debt.

And then at line 666:

Yet the argument for the appellant would have

us accept this proposition, notwithstanding

that there is no hint of any such

idiosyncratic category of exclusion observable

in the broad statutory reference to

"debentures".

BRENNAN J:	Where are you reading from, Mr Harrison.
MR HARRISON:	Page 22, Your Honour.

BRENNAN J: Of - - -?

MR HARRISON:  Of the record, Your Honour, I am sorry.

BRENNAN J: Yes.

MR HARRISON:	Which, in our submission, is really reversing the approach that other courts have taken. In
other words, His Honour has treated the two tests
adopted by Mr Justice Chitty as decisive unless one can establish an exemption and that really leaves
one in a position that unless one can point to an established authority that a particular class of
instrument is outside the definition, well
then, that appears to conclude the point and we
are excluded in the case of the bill of sale, we
would submit, because - simply as the result of
there having been no such exception established
perhaps in the period when the question was
particularly agitated in the late 19th century.
BRENNAN J:	Why do you say this is not a debenture?
MR HARRISON:	We say it is not a debenture because, although

one cannot define a debenture with an exhaustive

definition, a debenture, we submit, is generally a

kind of security issued by companies, one really

has to say, in the nature of instruments that are

commonly called "debentures" and that that

expression does not cover particular securities,

Austral 4 27/6/91

such as mortgages, which are regarded as a separate

class. And there is a distinction, in effect,

also, because mortgages of land and mortgages of

chattels operate to convey the legal title to the

property as opposed to what one would say is a

debenture in ordinary understanding, assuming one

is talking of a secured debenture, which will, in

most circumstances, be a floating charge so that

property can pass. So that there is a conceptual

distinction to be made, in our submission, between

a security which confers legal title on the

mortgagee and other securities, which are merely

equitable in nature.

BRENNAN J: 

So is the proposition this, that a mortgage

debenture which creates a floating charge may be
classified as a debenture, but a mortgage which

transfers property by way of security is not?

MR HARRISON: 

Which transfers property by way of conferring

legal title on the mortgagee, is not.

BRENNAN J:  By way of security.

MR HARRISON:  By way of security, yes, Your Honour. There

is really no distinction, no proper conceptual

distinction to be made between mortgages, in the

true sense, of land and of chattels. Their

operation is the same, yet it appears - although

Mr Justice Derrington really reads down the

existing authorities, it appears to be accepted

that mortgages of land do not come within the

general description of the term.

When one sees, for example, in Santley v

Wilde, which was referred to in Handevel, a description of "what is a mortgage", His Honour,

the judge there, makes no distinction between a

mortgage of chattels and a mortgage of land and the
only distinction is in the nature of property and

not in the legal effect of the instrument.

BRENNAN J:  Now, what is your best case to support your

proposition, as to the distinction based upon

transfer of property?

MR HARRISON:  We have to say it is not governed by

authority. What we say is that the question arose in England in the late 19th century in relation to

an exception in the bills of sale legislation there

and was canvassed in the judgments of

Mr Justice Chitty, but in the late 19th century it

was not accepted that the matter was determined,

and after that it appears that the matter really

was not considered because the view was taken,

after the decision In re Standard Manufacturing in

the early 1890s, that the English bills of sale

Austral 27/6/91

legislation was not concerned with company

securities at all for various reasons that do not

apply here. So one had a sort of short burst of

cases in the late 19th century, leaving the matter
up in the air, and then very little consideration

since, although one finds that, for example, from

time to time, it appears to be assumed that bills

of sale given by companies were subject to the

Bills of Sale Act as in Re J & D Contracting,

(1970) QWN 40, which concerned the application of

the construction of section 40 of the

Bills of Sale Act, which is an Act that limited the

powers of sale on default.

Your Honours, I asserted that the matter was

left somewhat up in the air by the English

authorities and in support of that I would refer

Your Honours to Topham v Greenside Glazed

Fire-Brick Company, (1887) 37 Ch D 281 at page 290

and following. A number of the English decisions

were concerned with a situation that arose in the
case of an issue of debentures in which there was a
trustee for debenture holders and which involved an
old system mortgage by the company to the trustee

and then the issue of debentures by the trustee, and the question arose, for discussion at least,

because the cases were often determined on other

issues, as to whether the mortgage in the covering

deed had to be registered. In Topham,

Mr Justice North, at page 290, says, in the last

paragraph:

I will deal first with the contention

that this memorandum is a "debenture," and is

therefore excepted from the operation of the

Bills of Sale Acts. That depends upon

section 17 of the Act of 1882, and the

question arises what is a "debenture"? It was
held by Mr Justice Chitty in Edmonds v Elaina

Furnaces Company that a memorandum of

agreement, which contained a covenant by a

company to pay to each of nine persons, who

the sum of money set opposite his name, pari passu, and which charged all the property of the company as security for the payment

thereof, was a debenture. I feel some little

difficulty in following that decision, for

this reason: it was held by Mr Justice Field

in Chambers in Brocklehurst v Railway Printing

and Publishing Company, and by the Court of

Appeal in Ross v Army and Navy Hotel Company,

that the covering deed, which usually

accompanies debentures as a security for the

payment of the debentures when due, is not a
"debenture" within section 17; but requires

registration under the Bills of Sale Acts if

were mentioned in the agreement as lenders,

Austral 6 27/6/91

it deals with personal chattels, and is void

if not registered. I feel a difficulty in

seeing how, if a covering deed is not a
"debenture," an agreement which contains

substantially the material parts of a covering

deed, viz., the agreement to pay the several

persons named pari passu, and the charging of

the debts upon the property of the company -

can be a debenture. Another difficulty arises

in this way. In Ross v Army and Navy Hotel

Company it was treated by the Court of Appeal

as at least an open question whether an

instrument which charged specific property of

the company, as distinguished from a general

charge of all its capital, stock or goods,

chattels, and effects, could be a "debenture":

and in the present case the property charged

is very specific; it consists of the company's

interest in certain lands, and the agreement

does not charge any chattels at all, except so

far as the mortgage of the lands affects the

chattels which are affixed to it.

TOOHEY J:  I know we are concerned with the question of

statutory construction, but as a matter of

commercial usage, would there be any real doubt as

to whether this was a debenture or not?

MR HARRISON:  I suppose it depends on one's prejudice. I

would not have called it a debenture, but perhaps I

am on that side of the case, but I would - - -

TOOHEY J: Also I am reminded of the adage that if it looks

like a bird and sings like a bird and flies like a

bird, then it is probably a bird.

MR HARRISON:  Yes, well we would say this is called a bill

of sale; it looks like a bill of sale; it talks

about the Bills of Sale Act. It does not use the

word "debenture". It is only by going to the law

books and looking at the propositions that say -

well some interpret as saying, "If it secures a

debt and is given by a company, it is a debenture."

BRENNAN J:  The curious thing is, of course, included within

the definition of "Bill of Sale" are "Assignments,

and transfers, of chattels" and out of that general

description there is carved the exceptions which

include debentures.

MR HARRISON:	Yes.
BRENNAN J:	It is difficult therefore to assign to the term "debenture" a meaning which excludes, by its
nature, "Assignments, and transfers, of chattels.

Austral 7 27/6/91

MR HARRISON:  Yes, we would submit so. That tends to limit

the notion to equitable charges and the like; the

notion of debentures.

BRENNAN J: Well, one would not need to accept debentures

expressly from the classification of "Assignments,

and transfers, of chattels" if that argument were

right.

MR HARRISON:  But debentures would come within other

provisions of the definition, for example, perhaps:

Any other assurances of chattels; .....

Powers of attorney, authorities, or licenses

to take possession of chattels -

and (viii):

Any agreement, whether intended to be followed

by the execution of any other instrument or

not, by which any legal or equitable right to

any chattels or to any charge or security

thereon or thereover is conferred.

So that, in particular, would bring the debenture

within the definition.

Your Honour, Mr Justice Derrington, with whom

Mr Justice de Jersey - Mr Justice de Jersey also

agreed with the Chief Justice - took a rather, I
suppose one ought to say, even wider view of

"debenture" than the Chief Justice and he framed

his judgment on the notion that when one talks of a

mortgage one is talking of an instrument that does

not contain a covenant for repayment of the debt,

which would lead, on the basis of His Honour's

decision, to the conclusion that, well the normal

real property mortgage would in fact be a debenture
because it normally does contain a covenant for

repayment of the debt, and the judgment, in our

submission, seems not to be based on any

authorities which suggest any basis for saying that

a mortgage of real property does not ordinarily contain a covenant for the repayment of a debt.

If one could go first to page 31 of the

record, His Honour starts to develop this thesis by

referring, starting at page 386, to a statement in

the judgment of Chief Justice Gibbs, in Handevel:

Although he dissented from the result for

other reasons, Gibbs CJ appears to have been

ad idem with the majority of the Court when he

also said: "It may nevertheless be assumed that a single mortgage, or an agreement to

give such a mortgage, would not be a debenture

within the ordinary meaning of that term: see

Austral 8 27/6/91

Knightsbridge Estates Trust Ltd v Byrne. (It

may be that the word "single" is a misprint

for "simple".) The reason of course is that a

simple mortgage for the repayment of money

does not constitute a promise by the company

to make that payment, for such a promise may

be made elsewhere and the mortgage may exist

independently simply to secure the performance

of that promise, which is a totally different

function from the promise itself.

And then he develops on that at page 32 starting at

line 955:

Viscount Maugham said that whatever be the
ambit of the word, it did not in the section
under consideration include an ordinary
mortgage of land. This bare statement is of

little assistance for upon the same reasoning

as that of the High Court in Handevel it
probably means that a debenture must contain a

promise to pay so that an ordinary mortgage

which contains no such promise but merely

provides security for the performance of such

a promise, which is made elsewhere, lacks that

element.

And again, at page 34, His Honour concludes at line 1027 that, in effect, a mortgage of land

containing a covenant for repayment will be a
debenture. That view that a mortgage does not

ordinarily contain a covenant for repayment, as I

have submitted, does not appear to be justified by

any authority His Honour referred to and is

contrary to the statement in Handevel, at page 192.

TOOHEY J:  Mr Harrison, would it be usual to find a mortgage

document that did not contain a promise to repay in

some form or other?

MR HARRISON:  No, Your Honour, and that seems to be accepted

by the courts. In Handevel, at page 192 in the

joint judgment of four judges, Their Honours say:

The classic definition of a mortgage is

that given by Lindley M.R. in Santley v Wilde.

" ... a mortgage is a conveyance of land or an

assignment of chattels as a security for the

payment of a debt or the discharge of some

other obligation for which it is given".	The
conveyance may be either a conveyance in
equity or at law.	However, the important

point is that, although a mortgage usually
secures a money debt, it does not always do

so.

Austral 9 27/6/91

I appreciate that does not touch precisely on the

point that Mr Justice Derrington was making,

because he was saying that the provision for the

payment of money could have been in another

instrument but, with respect, that does not appear

to be a distinction that is being made there, or if

one goes again to Topham v Greenside Glazed

Fire-Brick Company which I referred to earlier,

Mr Justice North, in discussing these matters of

covering deeds, said at page 292 at about half-way

down the page:

Nor do I find in the document any agreement by

the company to pay. It is true that there is

an agreement to give a legal mortgage when

requested, and a legal mortgage would, no

doubt, contain a covenant by the company to
pay the debt.

They are, I suppose, merely a couple of examples one can give and I have found nothing which

suggests that one does not normally find such a

covenant.

So the effect of the decision is that one has

a majority of the Full Court, which would require
all those bound by it to conclude that an ordinary

mortgage of land will come within the expression

"debenture" when it is used in a statute subject,

of course, to textural indications to the contrary,

and that, in our respectful submission, is contrary

to ordinary notions and is a matter which justifies the grant of special leave in this particular case.

I should add, going back to the provisions of

the Bills of Sale Act, that in our affidavit we
referred to provisions that would not apply if the

Full Court's judgment were correct or were allowed

to stand. That is the provisions relating to

attestation, when it be effective in relation

to - - -

BRENNAN J: Those raise quite interesting and difficult

points of construction. They all hinge upon this

definition of "debenture", do they not?

MR HARRISON:  Certainly, yes. What I was moving to say is

there are other sections, which are not mentioned

there, relating to implied covenants and

restrictions on realization, which I should mention

for completeness in the miscellaneous part of the

Act. Those are our submissions, if the Court

pleases.

BRENNAN J: Thank you, Mr Harrison. We need not trouble

you, Mr Keane.

Austral 10 27/6/91

There is not sufficient reason to doubt the

correctness of the conclusion of the Full Court

that the instrument in this case is a debenture for

the purposes of paragraph (g) of the definition of

"Bill of Sale" in section 6(1) of the Bills of Sale

and Other Instruments Act, 1955-1986, Queensland,

to warrant the grant of special leave to appeal.

Accordingly, special leave to appeal is refused.

MR KEANE1 We ask for costs, Your Honours.

BRENNAN JI With costs.

AT 11.52 AM THE MATTER WAS ADJOURNED SINE DIE

Austral 11 27/6/91