Coshott v Parker
[2018] FCA 596
•26 April 2018
FEDERAL COURT OF AUSTRALIA
Coshott v Parker [2018] FCA 596
File number: NSD 1460 of 2017 Judge: LEE J Date of judgment: 26 April 2018 Catchwords: STATUTORY INTERPRETATION – separate question regarding the operation of s 68 of the Limitation Act 1969 (NSW) – whether, in the context of a maintained general retaining lien, that section has the effect that certain statute-barred debts were nevertheless payable in the administration of a deceased estate – s 68 has the effect that the debts are not payable Legislation: Bankruptcy Act 1966 (Cth), s 122(1)
Corporations Law, s 477(1)(b)
Federal Court of Australia Act 1976 (Cth), Pt VB
Federal Court Rules 2011, r 35.14
Interpretation Act 1987 (NSW), ss 33(2)(b), 34(1)
Limitation Act 1969 (NSW), Pts 2, 4, ss 14, 63, 68
Probate and Administration Act 1898 (NSW), s 82
Cases cited: Blunden v Desart (1842) 2 Dr & W 405
Coshott v Barry [2016] FCAFC 173; (2016) 248 FCR 534
Coshott v Parker [2017] NSWSC 1098; (2017) 323 FLR 212
Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd [2018] UKSC 21; [2018] 1 WLR 2052
In Re Rownson; Field v White (1885) 29 Ch D 358
McGrath v Troy as administratrix of the estate of the Late Warren Terence Wade [2010] NSWSC 1470
Re Cancol Ltd [1996] 1 All ER 37
Re Cao; Ex parte Dixon [1996] ANZ Conv R 321
Re Oygevault International BV (in liq) (1994) 14 ACSR 245
Spedley Securities Ltd (in liq) v Western United Ltd (in liq) (1992) 7 ACSR 271
West of England and South Wales Bank v Batchelor (1882) 46 LT 132
Handford P, Limitations of Actions – The Laws of Australia (4th ed, Thomson Reuters, 2017)
Law Reform Commission of New South Wales, The First Report on the Limitation of Actions [1967] LRC 3
Law Revision Committee, Law Revision Committee Fifth Interim Report: (Statutes of Limitation) (Lord Chancellor’s Department, London, 1936)
Date of hearing: 26 April 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 31 Counsel for the Applicant: Mr A Cheshire SC Solicitor for the Applicant: Murphy Lyons Lawyers Counsel for the Respondents: Ms M Castle Solicitor for the Respondents: Hicksons Lawyers ORDERS
NSD 1460 of 2017 BETWEEN: LJILJANA COSHOTT AND ROBERT COSHOTT FORMERLY TRADING AS ROBERT G COSHOTT & ASSOCIATES
Applicant
AND: MICHELLE LENA PARKER
First Respondent
CHRISTINA MARIE COLLINS
Second Respondent
JUDGE:
LEE J
DATE OF ORDER:
26 APRIL 2018
THE COURT ORDERS THAT:
1. The Preliminary Issue (as identified in Order 1 made on 6 April 2018) be answered “no”.
2.The proceeding be otherwise dismissed.
3.The applicants pay the respondents’ costs of the proceeding.
4.The respondents be awarded a lump sum for their costs in a sum to be determined by a Registrar of the Court.
5.Within 14 days, the respondents are to file and serve any evidence and submissions upon which they propose to rely on the issue of quantification of the lump sum for costs.
6.Within a further 14 days, the applicants are to file and serve any evidence and submissions upon which they propose to rely on the issue of quantification of the lump sum for costs.
7.The Registrar be directed pursuant to FCR 1.37 to determine the quantum of the lump sum for costs payable pursuant to Order 4 above in such manner as he or she deems fit including, if thought appropriate, on the papers.
8.The Registrar be directed pursuant to FCR 1.37, at the conclusion of the quantification process, to order that the applicants are to pay whatever sum has been quantified pursuant to Order 7 above and for that amount to be paid within 28 days from the date of the Registrar’s order.
9.Pursuant to FCR 1.39, the time fixed by which any application for leave to appeal against these Orders be brought be extended to the date 7 days after the publication to the parties of the revised reasons for judgment.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(Revised from the transcript)LEE J:
A INTRODUCTION AND BACKGROUND
On 18 August 2017, this proceeding was transferred from the Supreme Court of New South Wales to this Court: Coshott v Parker [2017] NSWSC 1098; (2017) 323 FLR 212 (Adamson J). The reason for the transfer is set out comprehensively in the judgment of Adamson J. It suffices to note that the second applicant in this proceeding is an undischarged bankrupt, and that the subject matter of the proceeding is one ‘in bankruptcy’, requiring its transfer to this Court as a special federal matter: see 224 [51] and 225 [58].
Following a series of case management hearings in this Court, on 6 April 2018, an order was made that the following question be determined separately and before all other issues (Preliminary Issue):
Whether, as a matter of law, section 68 of the Limitation Act 1969 (NSW) has the effect that given the lien that has been maintained, the Respondents (as executrices of the Estate of the Deceased) were liable to pay the Second Applicant for any debts in respect of the invoices listed in Schedule 1 to the Agreed Statement of Facts
Although conscious of the oft-repeated warning that a high degree of caution is necessary in determining limitation issues separately from other defences, both parties urged the identification and hearing of the Preliminary Issue which, depending upon its answer, would be dispositive of the proceeding. In the unusual circumstances of this case, and given the lack of any dispute as to the underlying facts, the course of determining the Preliminary Issue seems to me to be consistent with the statutory mandate to facilitate the overarching purpose in Part VB of the Federal Court of Australia Act 1976 (Cth).
I will refer to the debts contained in Schedule 1 of the Agreed Statement of Facts as the Retainer Debts. The estate referred to is the estate of Mr Michael Petrovic Lenin (Deceased), who died in 2010.
The Preliminary Issue arises for determination in the following circumstances, which are agreed between the parties:
(a)following the retention of Robert G Coshott & Associates (the former trading name of the first and second applicants), legal work was carried out for the Deceased pursuant to terms of a retainer and invoices were issued that were said to have given rise to the Retainer Debts;
(b)each of the Retainer Debts is statute-barred;
(c)a general retaining lien is held over some of the Deceased’s documents;
(d)Probate of the Deceased’s estate was granted to the respondents (as executrices) in 2010, and the respondents made distributions from the Deceased’s estate to beneficiaries under his will;
(e)if the respondents, as executrices of the Deceased’s estate, were liable to the second applicant for any of the Retainer Debts, the respondents would be liable to the second applicant (to the extent the debts are established as owing after determination of the balance of the defences that are also pleaded but are yet to be determined in this proceeding).
In order to determine the Preliminary Issue, it is necessary to have regard to three issues:
(a)the nature of the general retaining lien;
(b)the scheme relating to limitations provided for in the Limitation Act 1969 (NSW) (Act); and
(c)the obligations of a person in the position of the respondents in dealing with debts which are statute-barred, but are the subject of a general retaining lien.
B THE NATURE OF A GENERAL RETAINING LIEN
As recently as 18 April 2018, the Supreme Court of the United Kingdom, in Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd [2018] UKSC 21; [2018] 1 WLR 2052 at 2056 [2], referred to the nature of liens exercised by solicitors as follows:
Solicitors have, since time immemorial, been entitled to a common law retaining lien for payment of their costs and disbursements. That is an essentially defensive remedy, which merely enables them to hold on to their clients’ papers and other property in their actual possession, pending payment. It affords no assistance where there is nothing of value in the solicitor’s possession, and is powerless where, in a litigation context, the defendant to the claim pays the judgment debt or agreed settlement amount direct to the solicitor’s client, the claimant. But equity deals with that deficiency in the common law by first recognising, and then enforcing, an equitable interest of the solicitor in the fruits of the litigation, against anyone who, with notice of it, deals with the fruits in a manner which would otherwise defeat that interest.
Here, of course, one can put aside the latter of these types of liens, as they do not arise in the circumstances of this proceeding. It is the concept of the former, essentially defensive remedy of the solicitor’s possessory (or general retaining) lien that is relevant, and which has been described, somewhat colourfully, as a “right to hold the piece of paper or the piece of parchment…until [the solicitor’s costs are] paid” (see West of England and South Wales Bank v Batchelor (1882) 46 LT 132 at 134) or a right a solicitor has in respect of documents to “lock them up in his box, and to put the key into his pocket, until his client satisfies the amount of the demand” (see Blunden v Desart (1842) 2 Dr & W 405 at 418). Critically, it is “an essentially defensive remedy” which “affords no assistance where there is nothing of value in the solicitor’s possession”: see Gavin Edmondson Solicitors at 2056 [2].
It is important to distinguish a possessory lien from a chose in action, that is, a right enforceable by an action. A solicitor has no right to enforce actively the solicitor’s lien. It is common ground that the basis upon which the solicitor is entitled to be paid debts such as the Retainer Debts, is by the maintenance of a chose in action in contract. A possessory lien has a particular genus which does not have the character of an encumbrance or equitable charge. It follows that a failure to pay the debt which gives rise to a possessory lien does not result in a power of sale (absent a provision of statute).
This give rise to an obvious question: what is the use of such a lien? For a good example of how a solicitor’s possessory lien can be of value, one need go no further than Coshott v Barry [2016] FCAFC 173; (2016) 248 FCR 534, a case which forms a small part of the long-running litigious saga in which the applicants have been involved. In that case, Mr Barry and Mr Board performed a variety of legal work for Mr Coshott, who was later declared bankrupt. The solicitors asserted a lien over a certificate of title of property (of which Mr Coshott owned a half-share) for unpaid legal fees.
Without waiving the solicitors’ right to assert the possessory lien and to claim unpaid fees from the proceeds of an ultimate sale by Mr Coshott’s trustee in bankruptcy, the solicitors produced the certificate of title, pursuant to an order of the Court, to enable the sale of the property, and a portion of the sale proceeds were paid into Court. An issue then arose as to whether, in these circumstances, the solicitors were entitled to a declaration that they receive a specified amount on account of their unpaid fees, and whether the amount paid into Court ought to be released to them. The conclusion of both the primary judge and the Full Court was to vindicate the assertions of the solicitors. At [26]-[27], the Full Court (Logan, Jagot and Davies JJ) held that the lien continued so as to ensure that the solicitors were paid.
Before finally leaving the issue of the nature of the lien, for completeness, it is useful to extract the observations of Beazley J (as her Honour then was) in Re Cao; Ex parte Dixon [1996] ANZ Conv R 321, which were adopted by the Full Court in Coshott v Barry at 541-542 [22]:
[22] The appellants also submitted that a lien is merely a possible defence to a claim for the return of goods, but does not deny the wrongful character of the retention of the goods, at least once a demand is made. They referred to the statement of Diplock LJ in Tappenden v Artus [1964] 2 QB 185 at 198 that:
The common law remedy of a possessory lien, like other primitive remedies such as abatement of nuisance, self-defence or ejection of trespassers to land, is one of self-help. It is a remedy in rem exercisable upon the goods, and its exercise requires no intervention by the courts, for it is exercisable only by an artificer who has actual possession of the goods subject to the lien. Since, however, the remedy is the exercise of a right to continue an existing actual possession of the goods, it necessarily involves a right of possession adverse to the right of the person who, but for the lien, would be entitled to immediate possession of the goods. A common law lien, although not enforceable by action, thus affords a defence to an action for recovery of the goods by a person who, but for the lien, would be entitled to immediate possession.
[23] If it were otherwise, the appellants submitted, the lien would run in perpetuity, which would be contrary to public policy and inconsistent with the report of the New South Wales Law Reform Commission upon which the Limitation Act was based, The First Report on the Limitation of Acts (sic) ([1967] NSWLRC 3) (the Law Reform Commission report) at [315], in which it was said that a debt secured by a possessory lien would be saved for as long as the owner of the goods has a cause of action for the conversion or detention of the goods.
[24] We disagree with the appellants’ submissions.
[25] To the extent that the Law Reform Commission report functions as an aid to construction (see sub-ss 34(1) and 34(2)(b) of the Interpretation Act 1987 (NSW)), it discloses no suggestion that the law with respect to possessory liens should be altered. The nature of such a lien is not in doubt. In Re Cao; Ex parte Dixon [1996] ANZ ConvR 321, Beazley J (as she then was) said at 321 - 322:
A solicitor’s lien is possessory only, the classic statement of the nature of a lien being found in the judgment of Evershed MR in Barratt v Gough-Thomas (1951) 1 Ch 242 at 250 as follows:
The nature of a solicitor’s general retaining lien has more than once been authoritatively stated. It is a right at common law depending (it has been said) upon implied agreement. It has not the character of an encumbrance or equitable charge. It is merely passive and possessory: that is to say, the solicitor has no right of actively enforcing his demand. It confers upon him merely the right to withhold possession of the documents or other personal property of his client or former client - in the words of Sir E Sugden, LC, “to lock them up in his box, and to put the key in his pocket, until his client satisfies the amount of the demand” (Blunden v Desart (1842) 2 Dr & W 405, 418). It is wholly derived from and therefore co-extensive with the right of the client to the documents or other property (see the statement of Lord Cranworth, LJ, in Pelly v Wathen (1851) 1 De GM & G 16, 23), cited by Chitty J, in In re Llewellin [1891] 3 Ch 145, 148).
A solicitor’s right to a lien is co-extensive with the client’s rights to the documents or goods in question. As Cransworth LJ said in Pelly v Wathen (1851) 1 De GM&G 16 at 23:
It is a right derived entirely through the client, and therefore, on the most obvious principles of justice, cannot go beyond the right of the client himself. If the client’s right to the deeds which came to the hands of the solicitor is absolute, so will be the right of the solicitor. If the deeds in the hands of the client are subject to any rights outstanding in third parties, such rights will follow them into the hands of the solicitor.
See also Re Llewellin (1891) 3 Ch 145; Sawyers v Kyte (1870) 1 VR 94 at 97; McLeish v Palmer (1921) 22 SR (NSW) 53 at 57.
The capacity by reference to which the documents or goods are held is essential to the determination of whether a lien exists. See Barratt v Gough-Thomas. In Re Wright; Ex parte Clout (1984) 1 FCR 51 at 53, Beaumont J stated:
It is well established that the “retaining” lien of a solicitor extends only to property delivered to him in his professional character. Thus, he has no lien on papers which he receives as mortgagee or trustee, although a solicitor trustee has a lien on the trust estate for all costs to which he is properly entitled as solicitor to the trust (see Cordery on Solicitors, 7th ed (1981) at 274-275; Halsbury’s Laws of England, (4th ed) vol 44 at 171; Sykes, Law of Securities, (3rd ed) at 561). Where money is paid to a solicitor for a particular purpose so that the solicitor becomes a trustee of that money, the solicitor's lien will not attach to the money unless it is allowed to remain in the solicitor's hands for general purposes with the client’s express or implied consent after the particular purpose has been fulfilled or has failed (see Alessio v Daniels, Kaye J, Supreme Court of Victoria, unreported, 19 October 1983 at 5-8). Thus, in such cases, a threshold question, essentially one of fact, arises as to whether the moneys were paid to the solicitor for a specially designated purpose on the one hand or were merely paid to him “in the ordinary course of his business as solicitor for the client” on the other (see Loescher v Dean [1950] 1 Ch 491 at 495).
(Bolding in original)
C SCHEME OF THE LIMITATION ACT
Three provisions of the Act are of present relevance. The first is contained in Part 2, Division 1, which deals with periods of limitation and related matters. Section 14 relevantly provides:
(1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims:
(a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed
…
As noted above, it is, of course, common ground that any cause of action in relation to the Retainer Debts would have been a cause of action founded in contract.
The second provision is in Part 4, Division 1 of the Act. Section 63 in that division is relevantly in the following terms:
(1) Subject to subsection (2), on the expiration of a limitation period fixed by or under this Act for a cause of action to recover any debt damages or other money, the right and title of the person formerly having the cause of action to the debt damages or other money is, as against the person against whom the cause of action formerly lay and as against the person’s successors, extinguished.
(2) Where, before the expiration of a limitation period fixed by or under this Act for a cause of action to recover any debt damages or other money, an action is brought on the cause of action, the expiration of the limitation period does not affect the right or title of the plaintiff to the debt damages or other money:
(a) for the purposes of the action, or
(b) so far as the right or title is established in the action.
…
The third relevant provision, also contained in Part 4, Division 1 of the Act, is s 68, which provides as follows:
Notwithstanding this Division, where:
(a) a person is in possession of goods, and
(b) the person has a lien on the goods for a debt or other money claim payable by a second person,
the right and title of the first person to the debt or other money claim is, as against the second person and the second person’s successors, saved from extinction under this Division for so long as a cause of action of the second person or of a person claiming through the second person for the conversion or detention of the goods or to recover the proceeds of sale of the goods has not accrued or is not barred by this Act, but only so far as is necessary to support and give effect to the lien.
The scheme of limitations in New South Wales differs materially to those places in Australia where the effect of the limitation period having run is to bar the remedy rather than the right, because in New South Wales, the cause of action is extinguished upon expiration of the relevant limitation period (this is somewhat of a generalisation because even in places where the bar is on the remedy rather than the right, there are specific legislative provisions in some States or Territories providing for extinguishment of various rights, though those provisions are presently immaterial).
Where the effect is to bar the remedy, but not extinguish the right, it follows that the right (or underlying cause of action) remains in existence, but can no longer be enforced by action or set-off. As is explained by Professor Handford in Limitations of Actions – The Laws of Australia (4th ed, Thomson Reuters, 2017) at 75 [5.10.510]:
Thus, a statute-barred debt remains due and may be enforced by other means, such as the enforcement of a lien or security, or if the debt was incurred as the result of a tort, as damages in a tort action. Money paid to a creditor without appropriation can be appropriated to a statute-barred debt provided the debtor has knowledge. A personal representative is bound to plead the Limitation Act only if required to do so by a beneficiary or creditor. It has been held in England that an executor of a solvent estate may pay a statute-barred debt unless a court has adjudged it to be statute-barred, but it seems that this is unlikely to be followed in Australia. A trustee may pay statute-barred debts even if the beneficiaries object, and a personal representative may set off a statute-barred debt against a pecuniary or residuary legacy (but not against a specific legacy). However, statute-barred debts cannot be proved in bankruptcy, or generally in the liquidation of a solvent company.
The Limitation Act 1969 (NSW), unlike any other Australian Limitation Act, is based on the principle that, on the expiration of the limitation period, the cause of action should be extinguished and not merely barred. Accordingly, the right and title of a person having an action for debt, damages and other money recoverable by action or an action for an account is extinguished on the running of the period.
(Footnotes omitted)
As is noted in this passage, it has been held that an executor of a solvent estate may but is not obliged pay a statute-barred debt, but reference has been made to this principle being unlikely to be followed in Australia. I think the situation is somewhat more complicated than that and I will return to this issue below.
The passing of the Act was preceded by a report of the New South Wales Law Reform Commission, entitled The First Report on the Limitation of Actions [1967] LRC 3 (LR Report), to which I was taken by counsel for the respondents, Ms Castle. It seems to me that the LR Report is of some significance as an aid to construction, particularly as to how one is to approach s 68 of the Act. No party objected to me having regard to the LR Report and it is appropriate to use it as an aid to ascertain the meaning of the provision: see ss 34(1) and 33(2)(b) of the Interpretation Act 1987 (NSW). The LR Report was produced, of course, against the background that the general law of limitations in force in New South Wales in 1967 was the same as was in force in England in 1837 and rested, in main, on Imperial Acts passed many years before. One of the changes addressed in the LR Report was said to be of “basic importance to the principles of the law of the limitation of actions” being the “extinction of rights and titles on the expiration of the limitation periods for actions for their enforcement”. At [14] of the LR Report, the following was noted:
Before 1833 in England and 1837 in New South Wales, the expiration of the limitation period only barred the remedy by court action and not the right, whether the right was a debt, a claim for damages, a title to land, or any other right. By the Acts of the 1830’s, the expiration of the limitation period for an action to recover land worked an extinction of the title of the claimant to the land, but the law in this respect was otherwise unchanged. The Imperial Act of 1939 extinguishes a title to goods on the expiration of the limitation period for an action for the conversion or detention of the goods, but leaves the law otherwise unchanged. The Wright Committee, indeed, considered the problem and did not recommend that any change be made. We think, however, that the extinction of the claim or title should be made the general rule. Leaving the claim or title in existence without the support of a remedy by action is to leave settled expectations open for ever afterwards to disturbance by accident or by contrivance. We discuss the matter in more detail in paragraphs 306 to 330 of the notes which are appendix C to this report. Of those whom we consulted on the effect of the Bill generally, a substantial majority were in accord with our proposals for the general extinction of rights and titles on the expiration of the relevant limitation periods.
The reference to the Wright Committee in the above passage was, of course, to the Law Revision Committee Fifth Interim Report: (Statutes of Limitation) of 1936, which gave rise to legislative change in the United Kingdom. When turning to ss 63 and 68 of the Bill which later became the Act, the following appeared in the LR Report:
[306] This group of sections, sections 63 to 68, embody a major change in principle, although concerned with a problem which has not frequently arisen in the reported cases. It is a change to which we have referred before and the proposal is that it be made a general rule that, on the expiration of the limitation period for a cause of action, the personal right to debt, damages or other money, or the right of property, which the cause of action would enforce is to be extinguished.
…
[313] The fifth case considered by the Wright Committee concerns liens and charges. A solicitor’s lien may be enforced after his costs are statute-barred, so may a wharfinger’s lien and it may be that any kind of lien can be enforced after the claim which the lien secures is statute-barred. An equitable charge on shares can be enforced, by action for foreclosure or sale, though the debt for which it is security is statute-barred.
[314] The Wright Committee considered that tar the most important matters were dealt with in this fifth case and that here again it seemed very doubtful what effect, if any, the extinguishment of the debt would have on collateral rights against property. The Committee referred to its earlier recommendations that limitation periods be fixed for the recovery of money charged on personal property (twelve years, see now Imperial Act of 1939, s. 18 (l)) ; for the recovery of arrears of interest on money charged on personal property (six years, see now Imperial Act of 1939, s. 18 (5) ; and for foreclosure in respect of mortgaged personalty (twelve years, see now Imperial Act of 1939, s. 18 (2)). Actions to enforce liens and charges (including foreclosure actions) would be governed by those provisions. But those provisions would not affect the case where a creditor has in his possession a security which he could enforce without bringing an action, nor did the Wright Committee think that the right to enforce such a security in such circumstances ought to be limited. A creditor naturally refrained from bringing an action so long as he held an ample collateral security, and it would be inconvenient to both parties if he were compelled to enforce the security or lose his right altogether. The Committee did not desire to bring this about.
[315] We think that the case of a possessory lien on goods requires special treatment. We would save a debt secured by possessory lien on goods from extinction for as long as the owner of the goods has a cause of action for the conversion or detention of the goods or to recover the proceeds of sale of the goods, but only so far as is necessary to support and give effect to the lien. Section 68 of the Bill so provides. A possessory lien is not within the definition of “mortgage” in section 11 (1) of the Bill.
(Italics in original)
Having set out the above, it seems to me that the statutory intention is quite plain. The rationale of s 68 of the Act arises by reason of the introduction of the notion of extinguishment in s 63. Without a provision such as s 68, the holder of a lien (of which, as noted above, several types were considered) would be compelled to enforce the security (if such a lien was capable of enforcement) prior to the expiration of the limitation period or lose it altogether on the basis that the underlying debt would, by force of s 63, be extinguished.
In circumstances where the type of lien held was, in contradistinction to the current circumstances, one which gave active rights, such as the ability to exercise the power of sale (for example a wharfinger’s right to sell the property the subject of a lien) or a charge on shares enforceable by foreclosure or sale, s 68 of the Act acts so as to preserve the right of the holder to exercise the lien. Of course, s 68 does not transmogrify or augment the nature of the right which the lien represents. As I previously explained, the lien in issue here is merely passive and possessory, and hence s 68 does not create any rights in relation to the lien.
It follows from the above analysis that the principled construction of s 68 of the Act is that where a person lawfully maintains a lien, the right and title to the debt that it supports is not extinguished, but only insofar as it is necessary to maintain the lien (that is, to exercise whatever rights the particular lien provides, given its nature). As can be seen from the LR Report, s 68 is only necessary because of the concept introduced in s 63 of extinguishment, because a lien is only able to be maintained when the debt, underlying it, exists.
D OBLIGATION OF EXECUTRICES
It is trite that an executor has a duty not to waste an estate which the executor is administering for the benefit of others by paying out claims against the estate unless they may be properly paid: see In Re Rownson; Field v White (1885) 29 Ch D 358 at 361. As White J explained in McGrath v Troy as administratrix of the estate of the Late Warren Terence Wade [2010] NSWSC 1470 at [56]-[58], a somewhat anomalous exception to the general rule that it was devastavit for an executor to pay a debt that need not be paid, has been the subject of longstanding authority. As his Honour noted:
[56] …A debt barred by the Statute of Limitations could be paid, although the statute would provide a good defence. The exception was recognised to be anomalous and was not to be extended. The rationale for the exception was that the Statute of Limitations did not destroy the debt but only the remedy (In re Rownson; Field v White at 364). More elaborately, it was thought that the plea of the Statute of Limitations was unconscionable and that an executor had a liberty not to plead it (In re Rownson; Field v White at 362). That latter rationale was also, it seems to me, based upon the Statute of Limitations not destroying the debt.
[57] The basis for this anomalous exception no longer exists. Section 63 of the Limitation Act 1969 (NSW) now extinguishes the debt on the expiry of the limitation period. That is so notwithstanding that if any question arises in any judicial proceeding whether the debt has been extinguished, the party claiming extinction must plead the statute (s 68A).
[58] I agree with the view expressed in LG Handler & K Neal, Succession Law and Practice New South Wales, (looseleaf) LexisNexis Butterworths at [1249.2.5] that the earlier decisions permitting a personal representative to pay a statute barred debt are no longer authoritative in New South Wales in light of s 63 of the Limitation Act. Accordingly, an administrator who pays a statute-barred debt will be liable to make good the estate, unless the debt was paid after the administrator, having exercised due diligence and honest judgment, formed the view that the debt was not extinguished, perhaps because there was an answer to a limitation defence, or, if the administrator, having exercised due diligence and honest judgment, formed the view that the costs of defending the claim, or the delay in completing the administration whilst the claim is adjudicated, meant it was in the best interests of the estate to pay or compromise the claim.
When one has regard to the scheme of the Act to which I have made reference above, one can readily appreciate why his Honour says that the logical basis for this anomaly no longer exists.
In the course of submissions, counsel for the applicants, Mr Cheshire SC, made reference to s 82 of the Probate and Administration Act 1898 (NSW) (Probate Act) which relevantly provides that “[a]ll debts are to stand in equal degree” and that in the administration of an estate “all the creditors of every description of such person shall be treated as standing in equal degree and be paid accordingly out of the assets of such deceased person whether such assets are legal or equitable, any statute or law to the contrary notwithstanding”.
The argument proceeded on the basis that even though a debt was statute-barred, the effect of s 68 of the Act was to ensure that, in circumstances where there was an extant lien, the underlying debt had not been extinguished. The logic went that if a debt exists, there must, as a matter of inexorable logic, be a ‘debtor’ and a ‘creditor’ and the provisions of s 82 of the Probate Act require that all creditors of whatever description be paid equally, including statute-barred debts. While the term ‘creditor’ is not defined in the Probate Act, it is a term used in a large number of statutes. In Re Cancol Ltd [1996] 1 All ER 37 at 41, 46, Knox J observed that the “ordinary meaning” of the word ‘creditor’ includes a person entitled to the benefit of a liability presently due, whether or not quantified by judgment. Similarly, in the context of s 122(1) of the Bankruptcy Act 1966 (Cth), the expression ‘creditor’ includes not only persons to whom a debt is immediately due and payable at the time of the relevant transaction, but also persons who by reason of a then existing liability of the debtor would be entitled to prove in a hypothetical bankruptcy or winding-up: see, for example, Spedley Securities Ltd (in liq) v Western United Ltd (in liq) (1992) 7 ACSR 271 at 275 per McLelland J. Similar observations have been made in the context of s 477(1)(b) of the Corporations Law (as it then was) which suggested that the notion of ‘creditors’ does not include persons not entitled to prove in a winding-up: see Re Oygevault International BV (in liq) (1994) 14 ACSR 245 at 248 per McLelland CJ in Eq.
I was not referred to any authority in relation to s 82 of the Probate Act, nor was the argument developed in written submissions. From first principles, however, it seems to me that ‘creditors’, as that term is used in s 82, means persons to whom the estate has a subsisting legal liability: that is, a person to whom a debt is actually owing. Although a debt may continue to exist, it is unable to be maintained or enforced and it is inconsistent with the duty of an executor to waste the estate which is being administered, by extending an obligation to pay to those debts which are statute-barred. It follows from the above that if the Retainer Debts were statute-barred before the death of the Deceased, as is common ground, the respondents were never obliged at law to pay those debts, and nothing about s 68 of the Act, properly construed, changes this conclusion.
E CONCLUSION AND ORDERS
It follows from the above that the Preliminary Issue must be answered “no”.
Consistently with the cooperative manner in which this proceeding has been conducted, the parties agreed that the appropriate course upon the answering of the Preliminary Issue in the negative was for the proceeding to be dismissed with costs. Orders will be made accordingly, including facilitating the quantification of a lump sum for costs to be ordered in favour of the respondents.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate:
Dated: 9 May 2018
5
7