Barwick v Latec Investments Ltd

[1966] HCA 54

HIGH COURT OF AUSTRALIA

McTiernan, Taylor, Menzies, Windeyer and Owen JJ.

BARWICK v. LATEC INVESTMENTS LTD.

(1966) 115 CLR 528

7 September 1966

Money-lenders (N.S.W.)

Money-lenders (N.S.W.)—Secured loans—Proceedings other than for enforcement of security prohibited—Repayment of loan guaranteed—Liability of guarantor—Money-lenders and Infants Loans Act, 1941-1961 (N.S.W.), s. 24 (1).* Money-lenders (N.S.W.)—Contracts of loan—Certain classes excluded from operation of legislation by amending Act—Only transactions entered into after amendment affected thereby—Money-lenders and Infants Loans Act, 1941-1961 (N.S.W.), s. 3B.**

Decisions

September 7.
The following written judgments were delivered: -
McTIERNAN J., TAYLOR J., MENZIES J. AND OWEN J. This is an appeal by leave from an order of the Supreme Court entering judgment in demurrer for the plaintiff company, the present respondent, in an action brought by it against the present appellant. The demurrer was to two pleas filed by the defendant and in the Supreme Court and on this appeal the arguments proceeded upon the basis that the facts were as follows, although all of them do not appear from the pleadings. (at p531)

2. The plaintiff was at all relevant times a registered money-lender. In May 1958 it lent to a company, Glen Shee Pty. Ltd., the sum of 10,000 pounds repayable with interest by instalments. To secure the repayment of the loan and interest thereon the plaintiff took from the borrower an equitable mortgage and a "mortgage of lease". In consideration of the making of the loan to Glen Shee Pty. Ltd. the defendant at the time of the making of the loan entered into a contract of guarantee with the plaintiff by which he promised to repay on demand the loan and interest thereon should Glen Shee Pty. Ltd. make default in repaying the same. At the same time he gave the plaintiff, by way of collateral security, a promissory note for 14,000 pounds payable on demand. Glen Shee Pty. Ltd. made default in repayment of the loan and the necessary demands were made upon the defendant. He failed to comply with them and this action was commenced after 7th December 1961, that being the date when Act No. 50 of 1961 (to which we will refer later) came into force, an Act which added, inter alia, s. 3B to the Money-lenders and Infants Loans Act, 1941-1948 (N.S.W.). (at p532)

3. The first matter for decision raises a question as to the construction of s. 24 of the Money-lenders and Infants Loans Act. That section is in Pt III of the Act and, so far as material, is as follows:
"24. (1) If any security is after the commencement of this Act made or taken to secure the payment of any money lent by a money-lender or any interest thereon, the money-lender shall not be entitled to institute any proceedings other than for the enforcement of the security, to recover any amount payable under the contract or payable pursuant to any guarantee for the repayment of the loan or any interest thereon.
(2) In this section 'security' includes bill of sale, mortgage, lien, and charge of any real or personal property, and any assignment, conveyance, transfer or dealing with any real or personal property to secure the repayment of any loan." (at p532)

4. This definition of "security" has been held to be exhaustive with the result that the promissory note given by the defendant in the present case was not a "security" within the meaning of the section: Y.Z. Finance Co. Pty. Ltd. v. Cummings (1964) 109 CLR 395 . We are dealing therefore with a case in which the borrower from the money-lender gave security for the repayment of the loan and the guarantor did not do so and the first question for decision is whether, on its true construction, s. 24 prevents the plaintiff, in these circumstances, from taking proceedings against the defendant on his promissory note and the contract of guarantee and permits it only to enforce the security taken by it from Glen Shee Pty. Ltd. (at p532)

5. A similar question arose for decision in the Supreme Court in Gange v. Hatzidoulis (1964) 64 SR (NSW) 138; 81 WN (Pt 2) 286 and by a majority (Sugerman and Wallace JJ., Walsh J. dissenting) it was held that s. 24 should be read "distributively". This was explained to mean that if security is taken by a money-lender from a borrower, the lender cannot take proceedings against the borrower other than to enforce the security and that if security is taken from a guarantor the only proceedings that may be taken against the guarantor are proceedings to enforce the security. If, however, the borrower has given the lender security in respect of the loan and the guarantor has not done so, the lender is not debarred from taking proceedings against the guarantor on the contract of guarantee. (at p533)

6. In the present case the Supreme Court (Walsh, Macfarlan and Nagle JJ.) felt that it should follow the decision in Gange's Case (1964) 64 SR (NSW) 138; 81 WN (Pt 2) 286 and accordingly it decided the question in favour of the plaintiff and held that, notwithstanding the fact that Glen Shee Pty. Ltd. had given security to repay the loan made to it, the plaintiff's rights were not limited to enforcing that security but that it was entitled to proceed against the defendant on the promissory note and on the contract of guarantee. We are therefore called upon to consider the correctness or otherwise of the majority decision in Gange's Case (1964) 64 SR (NSW) 138; 81 WN (Pt 2) 286 . (at p533)

7. As Sugerman J. (with whom Wallace J. agreed) said in that case, the construction which was there adopted involved reading into the section much that is not expressed. The words "by or from the borrower or a guarantor" would require to be read after the words "made or taken" and the words "against the person giving the security" after the words "shall not be entitled to institute any proceedings". In the light, however, of some of the consequences that his Honour considered would flow from giving the section what appears to be its literal meaning, he was of opinion that it was necessary to amplify it in some such way as we have stated. Otherwise, his Honour said, a guarantee unsupported by security given by a guarantor would be enforceable if the borrower had given no security but would be unenforceable if the borrower had given security. Walsh J. took the view that as applied to a case where the borrower had and the guarantor had not given security the section barred the lender from taking proceedings against the guarantor. In Gange's Case (1964) 64 SR (NSW) 138; 81 WN (Pt 2) 286 , as in the present case, security had been taken from the borrower by the lender but the guarantee was unsecured. Thus, Walsh J. said, the condition precedent to the operation of the section had been fulfilled since security had been taken by the lender to secure the payment of the loan. The lender was not therefore, to use the words of the section, "entitled to institute any proceedings other than for the enforcement of the security, to recover any amount . . . payable pursuant to any guarantee for the repayment of the loan or any interest thereon". His Honour left open, however, the question whether the opening words of the section, "If any security is . . . made or taken to secure the payment of any money lent", refer only to cases where security had been given by the borrower in which case the provision would not operate where the borrower had not given security but the guarantor had done so. (at p534)

8. With all respect to those who have taken the view that the section should be read distributively, we prefer the conclusion to which Walsh J. came in Gange's Case (1964) 64 SR (NSW) 138; 81 WN (Pt 2) 286 . It may be that the words "security made or taken" refer only to security made by or taken from the borrower but if that be the right construction to be placed upon those words the plaintiff in the present case would not be entitled to maintain its action. Whether that is the meaning to be given to the opening words we do not think it necessary to decide. We prefer to wait until a case arises in which the borrower has not given security but the guarantor has done so. (at p534)

9. In our opinion, and apart from a further matter with which we will now deal, the defendant is entitled to rely upon s. 24 and the action against him is not maintainable. (at p534)

10. The further question arises in this way. The loan to Glen Shee Pty. Ltd. was made and the defendant gave his promissory note and entered into the contract of guarantee before 7th December 1961, the date when the Money-lenders and Infants Loans (Amendment) Act, 1961, came into operation, and the present action was begun after that date. Section 2 (1) (b) of the amending Act inserted into the principal Act a new section, s. 3B, in these terms:
"3B. (1) The provisions of Part III of this Act, sections twenty-one, thirty and 30A excepted, shall not apply to or in respect of any loan of the following classes nor any contract, security or guarantee made or given in relation thereto: -
(a) a loan made to any company;
(b) a loan to any person if the loan is for an amount in excess of five thousand pounds, or where a greater amount is prescribed, such greater amount;
(c) . . . .
(d) . . . . " (at p534)

11. For the plaintiff it has been submitted that this provision applies to loans falling within the classes specified made before the commencement of the amending Act and outstanding in whole or in part at the date of its commencement as well as to loans made after its commencement. The loan in the present case was made to a company and, further, it exceeded 5,000 pounds. Accordingly, so the argument runs, the defendant cannot avail himself of the provisions of s. 24 which is in Pt III of the principal Act. (at p535)

12. A similar argument was considered and rejected by the Supreme Court (Sugerman, Walsh and Macfarlan JJ.) in Kirby v. Associated Securities Ltd. (1964) 64 SR (NSW) 233; 81 WN (Pt 2) 229 and with respect we agree with the conslusion reached by their Honours in that case. In considering whether s. 3B operates in the way for which the plaintiff contends, regard must be had to the whole of Pt III except for ss. 21, 30 and 30A. It contains a number of provisions (amongst which we would include s. 24) which cannot be regarded as merely procedural in character and to read s. 3B as applying to transactions entered into before 7th December 1961 would be to destroy or impair vested rights. It should be added that when the draftsman of the amending Act intended that a provision inserted by it into the principal Act should operate on transactions entered into before the amendment came into force he said so. (See, for example, s. 2 (1) (q) of the amending Act.) Accordingly we are of opinion that s. 3B has no application to the present case. (at p535)

13. For these reasons we would allow the appeal, set aside the order of the Supreme Court and in lieu thereof enter judgment in demurrer for the defendant. (at p535)

WINDEYER J. I am in agreement with other members of the Court except that I prefer to rest my conclusion on the construction of s. 24 that Walsh J. lastly suggested in his judgment in Gange v. Hatzidoulis (1964) 64 SR (NSW) 148; 81 WN (Pt 2) 286 . That is to say I read the section as referring directly only to a security taken by a money-lender from a borrower to secure the repayment of money lent to him. I do not read it as referring to a security given by a surety to secure the performance by him of his obligations under a guarantee. (at p535)

2. The enactment is obviously not for the benefit of money-lenders, but for the protection of persons having dealings with them. A borrower who gives security may repay the loan in full and redeem his security. If he does not, the money-lender has no other remedy than to realize the security, and he cannot get more from the borrower than doing that produces. In also exonerating a surety in a case where the money-lender takes a security from the borrower, the section can have inescapable consequences that are odd, or would seem odd if one expected a provision which so fundamentally alters the ordinary liabilities of debtors, creditors and sureties not to have odd results. The purpose of exonerating the surety is presumably to ensure that the benefit which the section is intended to give the borrower shall not miscarry, as it would if a surety who had paid or become liable to pay the debt were to seek indemnification from the borrower. (at p536)

3. In the view I take, the result might not be different if the surety himself had given a security. But it is unnecessary to express any view on that. As I see it, that is a situation to which the section is not really directed and the complications of which the draftsman apparently did not foresee. (at p536)

4. On other aspects I have nothing to add to what has been said in the judgment just delivered which I had the advantage of reading. (at p536)

5. The appeal should be allowed. (at p536)

Orders

Appeal allowed with costs. Order of Supreme Court set aside. In lieu thereof order that judgment in demurrer be entered for defendant on the first and second pleas.