Doman v Leadenhall Australia Pty Ltd

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SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeal: Civil)

DOMAN & ANOR v LEADENHALL AUSTRALIA PTY LTD

[2023] SASC 97

Judgment of the Honourable Justice McDonald 

23 June 2023

BANKRUPTCY - ADMINISTRATION OF PROPERTY - PROOF OF DEBTS

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT

BANKRUPTCY - ADMINISTRATION OF PROPERTY - PROOF OF DEBTS - WHAT DEBTS PROVABLE - INTEREST

BANKRUPTCY - ADMINISTRATION OF PROPERTY - DISTRIBUTION OF PROPERTY - SURPLUS - RIGHT OF CREDITOR TO INTEREST ACCRUING AFTER SEQUESTRATION

This is an appeal against a decision of a Magistrate to grant summary judgment in favour of the respondent in the amount of $100,000 on 6 October 2021. The decision related to a debt recovery claim based on a statutory right to interest on a judgment debt pursuant to s 40 of the District Court Act 1991 (SA).

Essentially there had been an order for judgment in favour of the respondent in the District Court of South Australia (‘the District Court’) in the sum of $706,019.40 (‘the judgment debt’). That amount was subject to a statutory right to interest by operation of s 40 of the District Court Act. Subsequent to the delivery of that judgment the appellants entered into bankruptcy. The respondent then commenced proceedings in the Magistrates Court against the appellants for post-bankruptcy interest on the damages awarded in the District Court. The $100,000 that was the subject of the judgment in the Magistrates Court was the interest calculated as due and accruing on the judgment debt from the date of the appellants’ bankruptcy, capped at the jurisdictional limit in that court.

The notice contains seven grounds of appeal.  These are:

1.      The Magistrate erred as a matter of law in failing to follow the decision of the Full Court of the Supreme Court of Tasmania in Edwards v Stocks [2008] TASSC 12 at [41] and the principle that interest on a prebankruptcy debt is only payable out of the surplus (of the bankrupt estate) if and when there is a surplus and if there is no surplus, interest after bankruptcy cannot be claimed from the debtor, either from the bankrupt estate, or independently by a separate and new action outside of the bankruptcy.

2.      The Magistrate erred as a matter of law in following the decision of a District Court Master in White v Spithas [2015] DCSA 54 in so far as the Master found that interest on a pre-bankruptcy debt, accruing after the date of bankruptcy, could be claimed by a creditor outside of the bankruptcy, as an independent debt for which a right of action or chose in action, existed, outside of the bankruptcy and which could be pursued by way of a Magistrates Court action.

3.      The Magistrate erred as a matter of law in failing to correctly apply Coventry v Charter Pacific Corporation Limited [2005] HCA 67 (Coventry) and Foots v Southern Cross Mine Management Pty Ltd & Ors [2007] HCA 56 (Foots) in relation to the treatment…

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Details
Case
[2023] SASC 97
Decision Date

CaseChat Overview and Summary

In the case of Doman v Leadenhall Australia Pty Ltd, the appellants, having entered into bankruptcy, were sued by the respondent for post-bankruptcy interest on a judgment debt that had accrued before their bankruptcy. The case raised questions about the interpretation of the Bankruptcy Act 1966 (Cth) concerning the entitlement of creditors to post-bankruptcy interest. The appellants argued that the respondent's claim was not permissible under the statute because it did not have the requisite permission from the Federal Court and that the interest was subsumed within the bankrupt estates being administered by the trustee in bankruptcy. The central issue before the court was whether the statutory language of s 82(3B) of the Bankruptcy Act, which excludes post-bankruptcy interest from being a provable debt, should be interpreted in a way that would alter the common law principles regarding interest on provable debts.

The court considered the statutory language and the presumption against altering common law doctrines unless expressly required by the statute. It was noted that the explanatory memorandum accompanying the legislative amendment suggested the intent was to codify the existing common law position. The appellants also referenced recent authorities that supported their interpretation, arguing that the principle that bankruptcy does not discharge a debtor's liability for future interest was well-established at common law. The court had to determine whether these authorities and the explanatory memorandum were sufficient to alter the interpretation set by the Magistrate, which held that post-bankruptcy interest was not a provable debt.

Ultimately, the court found in favour of the respondent, upholding the interpretation of the Magistrate. The court held that the statutory language of s 82(3B) clearly excluded post-bankruptcy interest from being a provable debt and that this was consistent with the common law. The court did not find that the explanatory memorandum or the authorities cited by the appellants warranted a different interpretation. The appeal was dismissed, and the respondent was entitled to seek post-bankruptcy interest on the judgment debt from the appellants.

Orders

Orders of the court

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Background

Background to the litigation

Central to the decision of the Magistrate and the resolution of the issues on this appeal is the statutory interpretation of a number of interconnected provisions of the Bankruptcy Act 1966 (Cth) (‘the Bankruptcy Act’) that impact on the entitlement of a creditor to post‑bankruptcy interest.Background The background to this matter is not contentious. On 18 May 2016 the respondent commenced proceedings against the appellants in the District Court.[2][2] Action number DCCIV-16-672. On 30 November 2018 judgment was delivered in favour of the respondent in the sum of $706,019.40. On 2 January 2019 the second appellant entered into bankruptcy. The first appellant likewise followed into bankruptcy on 4 January 2019. A trustee in bankruptcy was appointed for the appellants, who at the time of the Magistrates Court proceedings, remained undischarged bankrupts.[3][3] Since then the appellants have been discharged from bankruptcy. There was no dispute that the judgment debt and post‑judgment interest which had accrued up to the date of bankruptcy was a debt or liability provable in the bankruptcy. The respondent had lodged proofs of debt in respect of those amounts but had not at the time of the Magistrates Court proceedings received any distribution from the bankrupt estates. On 23 March 2021 the respondent commenced an action against the appellants for payment of post‑bankruptcy interest on the judgment debt.[4] On 22 April 2021 a defence was filed by the appellants. The appellants denied that the respondent had standing to bring the claim. They contended that the action was not competent by operation of ss 58(3) and 82 of the Bankruptcy Act because the action was commenced without the permission of the Federal Court and the claim for interest had been subsumed within the bankrupt estates of the appellants which was being administered by the trustee in bankruptcy. [4] Action number CIV-21-002675. On 23 April 2021, the respondent filed an interlocutory application seeking to strike out the defence under r 85.1(c) of the Uniform Civil Rules 2020 (SA) (‘UCR’) and for summary judgment under UCR 144.2(1). On 27 May 2021 the appellants filed an interlocutory application seeking judgment dismissing the action under UCR 143.2 on the ground that the action was frivolous, vexatious or an abuse of the Court’s processes. In the alternative, the appellants sought a stay of proceedings pursuant to UCR 12.1(2)(o). Both applications were heard together on 22 June 2021. On 6 October 2021 the Magistrate delivered her judgment.[5] Having heard the arguments, the Magistrate arrived at the view that the appellants had no real prospects of successfully defending the respondent’s claim. Her Honour provided the following reasons for arriving at that position:[6]·The overarching feature of the Bankruptcy Act is the concept of a provable debt in bankruptcy.·Those debts which are provable are spelled out by s 82 of the Bankruptcy Act: matters falling outside those categories are not provable.·The scope and operation of s 58(3) of the Bankruptcy Act turns on the proper interpretation of s 82 and the concept of provable debt.·Similarly, the discharge provided by s 153 of the Bankruptcy Act is expressly dependent upon the status of the debt or liability as a provable debt.·The language in s 82(3B) and its application is clear: the post-bankruptcy interest on a provable debt (ie. Running Interest) is not a provable debt. [5] Leadenhall Australia Pty Ltd v Doman [2021] SAMC 129 (‘Magistrate’s Judgment’).[6] Magistrate’s Judgment at [47].

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

Counsel for the appellants went so far as to submit to the Court:[42][I]t is not an overstatement to contend that the construction arrived at by the Magistrate alters bankruptcy law and practice in such a way as to affect each and every bankruptcy in which provable debts attract interest. The consequences extend far beyond the case at bar and cannot have been in her Honour’s contemplation at the time of her decision. [42] Written Submissions of the Appellants (FDN 22) at [71].Presumption against alteration of common law doctrines It was submitted by the appellants that the purpose and effect of s 82(3B) should be considered against the common law development of bankruptcy law. The appellants relied upon the principle of statutory interpretation that legislation is presumed to not alter common law doctrines and not invade common law rights unless the words of the statute expressly or necessarily require that result. Both presumptions are underpinned by the same philosophy: that it is the responsibility of the courts to protect the individual from the excesses of the state.[43] It is assumed that this protection is best afforded by common law principles.[43] D Pearce, Statutory Interpretation in Australia (Lexis Nexis Australia, 9th ed, 2019) at 237. In Potter v Minahan,[44] O’Connor J discussed the rationale behind this presumption:It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness; and to give any such effect to general words, simply because they have that meaning in their widest, or usual, or natural sense, would be to give them a meaning in which they were not really used.[44] (1908) 7 CLR 277 at 304. In Balog v Independent Commission Against Corruption,[45] the High Court observed that where two alternative constructions of legislation are open, that which is consonant with the common law is to be preferred. [45] (1990) 169 CLR 625 at 635-636.Explanatory memorandum It was the appellants’ submission that above and beyond this presumption, the explanatory memorandum could not make it plainer that the legislative intent behind the introduction of s 82(3B) was to codify the longstanding common law position. It was submitted that the clear exposition of the purpose of the enactment in the explanatory memorandum should of itself be sufficient for the appeal to be allowed.Recent authorities in support of the appellants’ position The appellants relied on a number of relatively recent authorities in support for their preferred interpretation of the relevant provisions of the Bankruptcy Act. One of those was Midland Montagu Australia Ltd v Harkness,[46] That case dealt with the payment of creditors by two companies, one of which was being wound up and the other was under a scheme of arrangement. In that context and having considered a number of the common law authorities McLelland CJ in Eq made the following observations about s 82(3B) of the Bankruptcy Act:One of the premises upon which this rule is based is the proposition that neither bankruptcy nor winding up, as such, effects a discharge of a debtor’s liability for future interest, although each limits the means by which, and the assets against which, such a liability may be enforced. That proposition, as a matter of general law, is overwhelmingly supported by the authorities from Bromley v Goodere onwards, including, in Australia, Re Paul & Gray Ltd (1933) 33 SR (NSW) 295 and Mackenzie v Rees (1941) 65 CLR 1, especially per Dixon J at 8-12. This proposition is not affected by s 82(3B) of the Bankruptcy Act 1966 (Cth), which provides: “A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy.” That subsection does no more than enact in statutory form a principle as to the proof of liabilities carrying interest which has been part of the general law of bankruptcy since 1729: see Mackenzie v Rees (at 8). That no change to the law was intended is confirmed by the Explanatory Memorandum presented to each House by the respective ministers moving the second reading of the Bankruptcy Amendment Bill 1987, by cl 39 of which, when enacted, subs (3B) was inserted in s 82 (Commonwealth of Australia Parliamentary Debates, Senate, 15 September 1987 at 91: House of Representatives, 7 December 1987 at 2885). …[46] (1994) 35 NSWLR 150 at 164.