Duncan (as trustee for the bankrupt Estate of Garrett) v National Australia Bank Ltd - [2006] SASC 239

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
DUNCAN AS TRUSTEE FOR THE BANKRUPT ESTATE OF AVERIL GAY GARRETT v NATIONAL AUSTRALIA BANK LIMITED
[2006] SASC 239
Judgment of The Full Court
(The Honourable Justice Vanstone, The Honourable Justice White and The Honourable Justice Layton)
15 August 2006
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PAYMENT INTO COURT, AND OFFERS TO SETTLE OR CONSENT TO JUDGMENT
Appeal from order of single judge that moneys paid into court be paid out to the respondent - moneys paid into court pursuant to an undertaking given as a condition of the grant of an injunction restraining the respondent from exercising rights of sale under a mortgage - single judge held that moneys were paid into court for the purpose of protecting the interests of the respondent and that the respondent was entitled to an exercise of discretion in its favour - whether judge erred in concluding that the monies were to be paid out "at the discretion of the Court" and erred in ordering payment out to the respondent without determining whether it had any entitlement to the money or had suffered a loss as a result of the injunction.
Held: moneys were paid into court for the purpose of securing interest payments due to the respondent under a bill facility pending determination of the challenge to its entitlements - that upon payment into court the respondent obtained an equitable interest in the moneys - that upon the abandonment/discontinuance of the related proceedings the respondent became entitled to enforce its security - that those circumstances warranted the payment out to the respondent of the moneys held in court - appeal dismissed.
Law of Property Act 1936 (SA), s 55A; Bankruptcy Act 1966 (Cth), s 27, s 60; Supreme Court Rules r 25, r 39, r 42, r 44, r 63, r 69, r 100; Water Conservation Act 1936 (SA), s 85; Renmark Irrigation Trust Act 1936 (SA), s 212; Sewerage Act 1929 (SA), s 105; Land Acquisition Act 1969 (SA), s 23A; Supreme Court Act 1935 (SA), s 50, s 119; Corporations Act 2001 (Cth), s 468, referred to.
Pilmer v HIH Casualty and General Life Insurance Ltd (No 2) (2004) 90 SASR 465 ; Harmer v Commissioner of Taxation (Cth) (1991) 173 CLR 264, not followed.
Dwight v Federal Commissioner of Taxation (1992) 37 FCR 178; Re Lovering; Galladin Pty Ltd v Jackson (1994) 50 FCR 587, discussed.
Andrew Garrett Wine Resorts & Anor v National Australia Bank Ltd (No 2) (2005) 239 LSJS 56; Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 7) [2005] SASC 455; Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (2004) 206 ALR 69; Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd & Anor (No 2) [2004] SASC 229; Andrew Garrett Wine Resorts Pty Ltd & Ors v National Australia Bank (2004) 236 LSJS 342; Ex parte Bouchard; Re Moojen (1879) 12 Ch D 26; WA Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038; Bird v Barstow [1892] 1 QB 94; Re Gordon; Ex parte Navalchand [1897] 2 QB 516; Re Ford; Ex parte Trustee [1900] 2 QB 211; Singer v Gilchrist, Watt & Sanderson Pty Ltd (1950) 67 WN(NSW) 89; Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd (1989) 90 ALR 589; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249, considered.

DUNCAN AS TRUSTEE FOR THE BANKRUPT ESTATE OF AVERIL GAY GARRETT v NATIONAL AUSTRALIA BANK LIMITED
[2006] SASC 239
Full Court: Vanstone, White and Layton JJ

VANSTONE J: I consider this appeal should be dismissed for the reasons given by White J.
WHITE J: A judge of this Court ordered that moneys paid into court in this action, together with the interest which had accrued on it, should be paid out to the respondent. The appellant, who was an intervener in the proceedings at first instance, appeals against that order. It is contended that the judge erred in concluding that the moneys were to be paid out “at the discretion of the court” and erred in ordering the payment out of the moneys to the respondent without first determining whether it had any entitlement to the money or had suffered a loss as a result of an injunction issued upon the undertaking that the moneys would be paid into court.
Background
This is a matter of some history.
Averil Gay Garrett (“Mrs Garrett”) and Andrew Garrett Wine Resorts Pty Ltd (“Wine Resorts”) were the registered proprietors of a property in the Adelaide foothills known as “Springwood Park”. In referring to them collectively, I will describe them as “the mortgagors”. In circumstances more fully described in an earlier decision of the judge,[1] the mortgagors granted a mortgage to the respondent to secure advances by it to members of what may be called, loosely, “the Garrett Group”. On 29 October 2003 the respondent, in the exercise of a power of sale arising under the mortgage, applied for an order that the mortgagors give up possession of Springwood Park. It was accepted that s 55A of the Law of Property Act 1936 (“LPA”) applied to the mortgage, at least as far as Mrs Garrett was concerned. An order in favour of the respondent was made by a master of the court.
[1] Andrew Garrett Wine Resorts & Anor v National Australia Bank Ltd (No 2) [2005] SASC 105; (2005) 239 LSJS 56.
The mortgagors appealed. They also issued the present proceedings in this Court on 4 February 2004. In these proceedings they claimed that employees or agents of the respondent had engaged in misleading or deceptive conduct, or unconscionable conduct in relation to the advance of facilities secured by the mortgage and in the making of demands for amounts said to be secured by the mortgage. They sought various declarations as to the extent of their liability to the respondent and an injunction or injunctions restraining the respondent from taking any action to enforce the rights which it had arising under the mortgage.
In addition, the mortgagors claimed an interlocutory injunction in the following terms:
An order restraining the defendant from taking any steps to enforce its rights under the provisions of the Memorandum of Mortgage given by the plaintiffs to the defendant dated 21 June 2002 Registered No 9374752 until the plaintiffs’ claim in this action has been determined.
The application for interlocutory relief and the appeal in the possession proceedings were heard at the same time by Besanko J. At the hearing, the mortgagors contended that their mortgage secured an original advance of $1.5m, but not a subsequent additional advance of $600,000. The notice of default served under s 55A of the LPA was invalid, it was contended, because it asserted a default in paying the sum of $2.1m whereas, so the mortgagors claimed, the mortgage secured only the original advance of $1.5m.
The mortgagors put another argument in the alternative. That was that the mortgage secured no more than the amount advanced under a bill facility of $2.1m (plus interest and costs) and did not secure other liabilities of the mortgagors to the respondent.
In his decision delivered on 2 March 2004, Besanko J accepted that there were triable issues as to whether the mortgage did secure the sum of $2.1m rather than $1.5m, whether a notice of default under s 55A of the LPA which asserted a greater sum than was later found to be due and owing was valid, and whether the mortgage secured all liabilities of the mortgagors to the respondent.
Besanko J did not decide that the notice served by the respondent pursuant to s 55A of the LPA claiming the sum of $2.1m was invalid. The judge thought that Besanko J had made such a finding[2] but I accept the submission of both Mr Cudmore for the appellant and Mr Livesey QC for the respondent that that view of the reasons of Besanko J is incorrect. As already indicated, Besanko J held was that there was a triable issue that the notice served pursuant to s 55A of the LPA claiming the sum of $2.1m was invalid.[3] However, in my opinion, nothing in the appeal turns on that mistake. The judge’s decision did not turn on invalidity of the notice of demand.
[2] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 7) [2005] SASC 455 at [9].
[3] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd [2004] SASC 60 at [50]; (2004) 206 ALR 69 at 82.
Besanko J held that it was open to him to mould an order which would ensure adequate protection to the respondent, and which would otherwise do justice between the parties pending the final hearing. Besanko J said:
In short, I think the following should be conditions of a refusal of the order for possession or the grant of the interlocutory relief sought by the mortgagors:
1.All amounts of interest, or the equivalent thereof, on the amount advanced under the bill facility (ie, $2,100,000) which have fallen due to date are to be paid and future instalments of interest under the facility are to be met by the mortgagors as and when they fall due. In other words, the mortgagors should pay all amounts of interest, or the equivalent thereof, under the bill facility past and future. I will hear from the parties as to whether the amounts should be paid to the mortgagee or into court.
2.That the appellants take all necessary steps for an early trial and that there be an early trial.
3.The appellants should give the usual undertaking as to damages.[4]
[4] Ibid at [51], 82.
After hearing from the parties as to the appropriate form of orders and as to the wording of the conditions, on 5 March 2004 Besanko J accepted undertakings from the mortgagors as follows:
1.The plaintiffs by counsel undertake to abide by any order the Court or a Judge may make as to damages in case the Court or a Judge shall hereafter be of the opinion that any person shall have sustained any by reason of this order by which the plaintiffs ought to pay.
2.Within 14 days of this order, the plaintiffs pay into Court outstanding interest pursuant to the terms of the bill facility dated 3 January 2003 from 21 July 2003 to 29 February 2004 of $195,864.23.
3.The plaintiffs are to pay into Court interest falling due under the bill facility dated 3 January 2003 at the end of each consecutive calendar month the first payment being due on 31 March 2004 until the determination of the consolidated proceedings or further order.
Besanko J then issued an interlocutory injunction in the following terms:
1.Save and except for the making of a demand in compliance with section 55A of the Law of Property Act for the sum of $1.5 million pursuant to the mortgage dated 21 June 2002 and any claim made on pleadings in the consolidated proceedings until further order the National Australia Bank Limited is restrained from making any demand or taking any steps to enforce any rights with respect to the following mortgages whether by itself or by its agents or employees and whether directly or indirectly:
1.1 Registered Mortgage Number 9374752 dated 21 June 2002
1.2 Registered Mortgage Number 9617285 dated 29 May 2003
Subsequently, the mortgagors caused the following amounts to be paid into court.
Date  Amount
19 March 2004  $195,864.00
6 April 2004  $31,343.90
30 April 2004  $28,883.36
18 June 2004  $30,216.69
Each payment was accompanied by a notice which said that the sum was paid “with a denial of liability” and that it was paid pursuant to “an order” of the court made on “5 March 2003”. It would have been more accurate to say that the payments were made pursuant to an “undertaking” given to the court, which undertaking had been given on 5 March 2004, not 2003. The words “with a denial of liability” could not of course be understood as having qualified the terms of the undertaking which had been accepted by Besanko J on 5 March 2004.
As the mortgagors did not make any payment at all by 30 June 2004 as required by the undertaking, on 8 July 2004 the respondent applied for a discharge of the interlocutory injunction and for an order that the mortgagors give up possession of Springwood Park.
On 26 July 2004, Besanko J made orders discharging the interlocutory injunction and requiring the mortgagors to give up possession of Springwood Park to the respondent. His reasons for so doing appear in the following passage of his judgment:
It was a condition of the relief granted that [the mortgagors] pay interest falling due under the bill facility dated 3^rd January 2003 at the end of each consecutive calendar month. [The mortgagors] have not made the payment due at the end of June, and it is clear from the evidence and the submissions made to me that they will not be in a position to make the payment due at the end of July. Before me, [the mortgagors] were able to put the matter no higher than to say that they may be able to pay the interest instalments in the future. They were unable to specify any date by which they may be able to pay outstanding interest. In those circumstances I do not think it appropriate to continue the injunction.[5]
[5] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd & Anor (No 2) [2004] SASC 229 at [20].
An appeal from this decision was dismissed by the Full Court,[6] as was a subsequent application to the High Court for special leave to appeal from that decision.
[6] Andrew Garrett Wine Resorts Pty Ltd & Ors v National Australia Bank [2004] SASC 348; (2004) 236 LSJS 342.
Subsequent to the decision of the Full Court, Mrs Garrett applied for an order setting aside the order for possession. That application was dismissed on 23 March 2005.[7]
[7] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 2) [2005] SASC 105; (2005) 239 LSJS 56.
On 22 December 2004, Mrs Garrett filed a debtor’s petition under the Bankruptcy Act 1966 (Cth). The appellant was appointed her trustee in bankruptcy. By s 60(2) of the Bankruptcy Act this action, insofar as it concerned Mrs Garrett, was stayed until the appellant made an election either to prosecute or discontinue the action. Notice of the action was served on the appellant on 13 January 2005. After obtaining an extension of time in which to respond to that notice, the appellant responded by letter dated 24 February 2005. The judge described the effect of that letter as being neither to elect to prosecute nor to discontinue the action, and concluded that Mrs Garrett’s cause of action was, by virtue of s 60(3) of the Bankruptcy Act, deemed to have been abandoned. It was not suggested that either of those conclusions was wrong.
An order for the winding up of Wine Resorts was made on 17 May 2005. By notice of discontinuance filed 20 September 2005 Wine Resorts, by its liquidators, discontinued the action.
On the same day the respondent applied for an order that the moneys held in court be paid out to it.
In summary, it can be seen that the mortgagors paid moneys into court pursuant to undertakings given to satisfy conditions stipulated by Besanko J for the grant of the interlocutory injunction restraining the respondent from taking action to enforce its mortgage over Springwood Park. The action by the mortgagors impugning their liability to the respondent and challenging the amount secured by the mortgage has been abandoned in one instance, and discontinued in the other. The question for the court was whether the moneys paid in as a condition of the grant of an interlocutory injunction should be paid out to the respondent, or as the appellant claimed, to him.
The Judge’s Reasons
The judge referred to the decision of the High Court in Harmer v Commissioner of Taxation (Cth)[8] and to the decision of Mullighan J in Pilmer v HIH Casualty and General Life Insurance Ltd (No 2).[9] The judge extracted the following four principles from those authorities:
-the Registrar is the legal owner of all moneys in court pursuant to section 119 of the Supreme Court Act.
-no competing claimant to the moneys has any equitable interest in the moneys until an order for payment out is made.
-if moneys are paid into court at large, then the Court has a judicial discretion as to whom the moneys should be paid out.
-if moneys are paid into court for a specific purpose, then the Court should generally exercise its discretion regarding payment out in a manner consistent with the purpose for which the money was paid into Court.[10]
[8] (1991) 173 CLR 264.
[9] [2004] SASC 389, (2004) 90 SASR 465.
[10] Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 7) [2005] SASC 455 at [41] per Gray J.
The judge held that in the present case the moneys had been paid into court for the express purpose of protecting the respondent “against the loss of its secured right to immediately enforce its mortgage over Springwood Park”. The judge then identified a number of factors supporting an exercise of the discretion in favour of the respondent. These included that the price for delaying the respondent’s right to possession was payment of the interest accrued during the period of the delay; that the respondent had sought possession of Springwood Park and had succeeded in its action; that the proceedings commenced by the mortgagors impugning the respondent’s securities had been abandoned; that but for the injunction the respondent would have been able to take possession and dispose of Springwood Park earlier and thereby make use of the sale proceeds at an earlier time; and that the principal challenge to the respondent’s mortgage had been rejected. The judge then exercised the discretion in favour of the respondent.
As will be seen, I agree with the conclusion of the judge, although for different reasons.
Submissions of the Appellant
Mr Cudmore submitted that the judge had erred in holding that the moneys paid in were to be applied “at the discretion of the court”. The true position, it was submitted, was that an order for payment out should only be made after the court has determined the entitlement of a party to that money. In this case the respondent had not obtained any judgment for a monetary sum as the only order in the proceedings in its favour was an order that the mortgagors give up possession of Springwood Park. It was submitted that the moneys should be held in court pending a determination of the entitlement of the respondent to them. Whether or not the respondent could prove such an entitlement would depend on whether it could prove a loss, or at least a loss of the kind for which the moneys in court provided security. It was submitted that Besanko J had required the moneys to be paid into court to provide protection to the respondent against any loss which it might suffer as a result of fluctuations in the value of its security pending a final determination of its entitlement. It was submitted that the judge had erred in failing to inquire whether or not the injunction had in fact caused the respondent to suffer any such loss.
Payment of Moneys into Court
The circumstances in which moneys may be paid into court are various. Sometimes it will be at the instigation of the party paying in. At other times it will be a result of an order made by a court, or as a means of meeting a condition imposed by a court. At other times it may be by agreement with another party. Supreme Court Rule 39 permits a party at any time to pay moneys into court in satisfaction of a cause of action. Once paid in the moneys cannot be withdrawn without the leave of the court or the consent of the parties (SCR 39.01). If the plaintiff accepts the moneys paid in, payment out shall be made to him/her or, on written authority, to the plaintiff’s solicitors (SCR 39.06). The court has power to order payment into court so as to provide a security to the other party, e.g., as a condition of a grant of leave to defend on an application for summary judgment (SCR 25.03), or as security for costs (SCR 100), or to provide security for the costs to be incurred in the carrying into effect of an order of the court (SCR 63.13(2)). Orders for payment in can be made in interpleader proceedings (SCR 42, 44) and with respect to trust moneys, the disposition of which is in dispute (SCR 63.04(d)) and with respect to moneys held by a receiver (SCR 69.09).

A number of statutes also provide for payment to be made into court. Some provisions concern offers of amends[11] and others the compensation to which other persons may be entitled.[12]
[11] See for example Water Conservation Act 1936 (SA), s 85; Renmark Irrigation Trust Act 1936 (SA), s 212; Sewerage Act 1929 (SA), s 105.
[12] See for example Land Acquisition Act 1969 (SA), s 23A.
Given this variety of circumstances, it is to be expected that the decision by the court as to payment out in a particular case is to be determined by a consideration of the relevant statutory or rule regime governing the payment in, the rule regime concerning the holding of the moneys in court, the purpose for which the moneys have been paid in, any relevant decision of the court concerning the legal or beneficial ownership of the moneys or the entitlement to them, and any relevant event in the litigation in relation to which the moneys have been paid, rather than by reference to any rule of general application.
One matter that is clear is that in all cases moneys paid into court vest in the registrar on behalf of the court. The registrar becomes the legal owner of the money.[13] The moneys are to be dealt with by the registrar in accordance with the rules of court and in accordance with any order of the court.[14]
[13] Supreme Court Act 1935 (SA), s 119; Pilmer v HIH Casualty & General Insurance Ltd(No 2) [2004] SASC 389 at [73], (2004) 90 SASR 465 at 478. See also the definition of “suitors’ funds” in SCR 5(1).
[14] Supreme Court Act 1935, s 119.
Mr Livesey QC submitted that the second principle stated by the judge, namely, “no competing claimant to the moneys has any equitable interest in the moneys until an order for payment out is made” states the position too broadly. His submission was that, although true in some circumstances, the statement of principle in that way does not give effect to the position stated in many authorities that in some circumstances another party may have an equitable interest in moneys paid into court.[15] In the circumstances of this case, his submission was that the respondent did have an equitable interest in the moneys.
[15] See, for example, Ex parte Bouchard; Re Moojen (1879) 12 Ch D 26 at 29.
There are statements in the authorities for the principle as stated by the judge. In Harmer v Federal Commissioner of Taxation (Cth)[16] the High Court considered the liability for income tax on interest earned on moneys paid into the Supreme Court of Western Australia by an interpleader. The Supreme Court had subsequently ordered that the moneys be paid into an interest bearing account in the names of the claimants’ solicitors pending resolution of the competing claims to the money. The High Court held that it was those solicitors who were assessable for the tax. The interpleader itself had no legal or beneficial interest in the moneys. Further, until their respective claims had been determined, the claimants had no “present entitlement” to the interest. This was so while the moneys were held in court and after they had been paid out to be invested. The court said:
After payment in, the claimants acquired an interest in the moneys in the sense that they were entitled to insist that they be properly administered and applied for the purposes for which they were paid in. However, no claimant was beneficially entitled to either the whole or any part of the moneys paid into court or the interest earned thereon. The moneys were received and held by the Accountant to be applied in accordance with the orders ultimately made by the Supreme Court. The respective interests of the individual claimants were, at best, contingent. None had an entitlement to the capital or the income of the fund which was vested either in interest or in possession. A fortiori, none had a present legal right to demand or receive payment of either capital or income.[17] (Footnotes omitted)
[16] (1991) 173 CLR 264.
[17] Ibid at 272-3.
It is to be remembered, however, that the High Court was there speaking of moneys paid into court by an interpleader. It was implicit in the payment that the interpleader disclaimed any interest in the money. The claimants did not have any beneficial interest in the moneys. Until their respective claims were determined, they had no interest in the money other than an entitlement “to insist that the moneys be properly administered and applied for the purposes for which they were paid in”.[18]
[18] Ibid.
In my opinion, the High Court was not in the passage quoted articulating a principle of general application to the effect that no competing claimant to moneys in court has any equitable interest in those moneys until the order for payment out is made. On the contrary, the court referred expressly to one kind of payment in which a beneficial interest is retained by the payer, namely, a payment into court of trust moneys.
There are many circumstances in which trust money can be paid into court by a trustee either pursuant to an order made on the application of a beneficiary or pursuant to an application made by the trustee himself or herself. In such a case, the funds paid into court remain subject to any pre-existing trust notwithstanding the payment in. If some person or persons were presently entitled to the corpus or income before payment in, the fact of payment in to await the orders of the court will not, of itself, displace that present entitlement. If entitlement is disputed, the function of the court will be to identify existing interests in the money paid into court rather than to create new ones. If the interest of a beneficiary in the moneys is vested and the beneficiary has a right to demand and receive payment of income, the fact that the interest and the right are disputed and await vindication by the order of the court will not make the interest contingent or negate the existence of the right. That being so, if a beneficiary is found by the court to have had a pre-existing interest in the income, the fact that the interest was not admitted or its extent was not ascertained at the time of payment in or until the making of the relevant order does not mean that the beneficiary was not presently entitled to it both at that time and during the period pending the court’s determination.[19] (Footnotes omitted)
[19] Ibid at 272.
Harmer was applied by Mullighan J in Pilmer v HIH Casualty & General Life Insurance Ltd (No 2).[20] In that case, Mullighan J ordered that HIH pay into court $7.2m which he had found HIH liable to pay to the defendants as partial indemnification of a liability which, in an earlier decision, he had found the defendants to have to the plaintiff. As I understand it, these moneys were ordered to be paid into court to provide security not only to the defendants, but to the plaintiff in respect of the judgment which it had obtained against the defendants, pending the determination of the appeal of the defendants to the High Court. An order for the winding up of HIH was subsequently made. A question then arose as to whether the moneys in court were “the property” of HIH so that the operation of ss 468(1) and (4) of the Corporations Act 2001 (Cth) would be attracted in relation to a payment out to the defendants in the action. After a review of several authorities concerning the status of moneys paid into court, Mullighan J held that HIH had neither a legal nor a beneficial interest in the moneys which it had paid into court. Accordingly it was held that no infringement of ss 468(1) and (4) was involved in the payment of the moneys out of court to the defendants.
[20] [2004] SASC 389, (2004) 90 SASR 465.
Mullighan J held:
[Harmer] establishes that while the money was in court, none of the claimants had an interest in the money until an order for payment out was made. Clearly, the party paying the money into court had no legal or equitable interest in the money. Consequently it acknowledges that no-one has an interest in the money until an order for payment out is made.[21]
[21] (2004) SASC 389 at 76, (2004) 90 SASR 465 at 479.
Later, Mullighan J stated as a principle emerging from the authorities that the party who pays money into court does not retain any legal or equitable interest in the money.[22]
[22] Ibid at [113], 486.
In my respectful opinion, for the reasons already given, Harmer does not stand as authority for such a universal proposition. Whether or not the payer or another party has a beneficial interest in the moneys will depend upon all the circumstances to which I have already referred. Further, whether or not a payer retains a beneficial interest, the effect of the payment may be to establish an interest in the nature of a lien or equitable charge in that money in the other party. The line of English authority which commenced with Ex parte Bouchard; in re Moojen[23] and which concluded with the decision of the Court of Appeal in WA Sherratt Ltd v John Bromley (Church Stretton) Ltd[24] to which Mullighan J referred indicates that this is so.
[23] (1879) 12 Ch D 26.
[24] [1985] 1 QB 1038.
The Court of Appeal in Ex parte Bouchard held that where the moneys in dispute were paid into court as a condition of the grant of an adjournment of a bankruptcy petition, the equitable title of the petitioner to those moneys was complete on the payment in to abide the event of the action.[25] In Bird v Barstow Lord Esher held that the effect of a payment into court by a defendant of the amount claimed by a plaintiff as a condition of leave to defend the action was to provide a security to the plaintiff for that amount.[26] In Re Gordon; Ex parte Navalchand the plaintiff in similar circumstances was described as a secured creditor with a charge over the money paid in.[27] Statements to similar effect appear in Re Ford; Ex parte the Trustee.[28] The effect of these decisions was that upon the defendant becoming bankrupt after the payment in, the security of the plaintiff entitled it to payment in full to the extent of the entitlement proved. After an extensive review of the authorities in WA Sherratt Ltd v John Bromley (Church Stretton) Ltd[29] this position was confirmed by the Court of Appeal. Oliver LJ, with whom the other members of the court agreed, did hold that a party paying into court as a condition of leave to defend “parts outright” with his money, but held that the plaintiff is a secured creditor in the liquidation of the defendant to the extent of the money paid in.[30]
[25] (1879) 12 Ch D at 29.
[26] [1892] 1 QB 94 at 96.
[27] [1897] 2 QB 516 at 520.
[28] [1900] 2 QB 211 at 213.
[29] [1985] 1 QB 1038.
[30] Ibid at 1056-1057.
While there is Australian authority to the effect that moneys paid into court under rules regimes providing for payment in on an offer of compromise belong neither to the plaintiff nor to the defendant but are simply under the control of the court[31], other decisions in respect of moneys paid in as a security for the other party’s claim support the proposition that the second party has an equitable lien or charge on those moneys to the extent of its entitlement.
[31] Singer v Gilchrist, Watt & Sanderson Pty Ltd (1950) 67 WN(NSW) 89; Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd (1989) 90 ALR 589.
In Dwight v Federal Commissioner of Taxation[32] Hill J considered the taxation liability in respect of interest earned on moneys paid by a plaintiff as security for costs into a bank account established in the name of solicitors for the parties. In holding that the liability was that of the plaintiff, Hill J said:
The form which such security will take is a matter for the court … . It might, as here, take the form of cash which could be ordered to be paid into court to abide the outcome of the proceedings, or be invested in the joint names of the solicitors for the parties. It might take the form of a guarantee, or it might take the form of a security over other property, real or personal. In whatever form it is ordered, the property, the subject of the security, will continue to be the general property of the party who has given the security, and once an order for costs has been made in favour of, say, the defendant against the plaintiff, the defendant will become, in all respects, a secured creditor … . Pending the resolution of the dispute between the parties and the making of a cost order, the defendant would have no proprietary interest in the property forming the security, but at best would have a right, in the nature of an equitable charge, giving him, after a costs order has been made and the costs taxed or agreed, recourse to the fund to satisfy the terms of the judgment … .[33]
[32] (1992) 37 FCR 178.
[33] Ibid at 186.
In short, Hill J held that a defendant would become a secured creditor in relation to these moneys paid into court as security for costs upon the making of a costs order in the proceedings in its favour. Until that time, its interest was in the nature of an equitable charge giving it, after the costs order had been made and the costs taxed or agreed, recourse to the fund to satisfy the terms of the judgment.[34]
[34] Cf ReLovering; Galladin Pty Ltd v Jackson (1994) 50 FCR 587 at 594-5.
Hill J distinguished Harmer on the grounds that it did not involve any question at all that the income was that of the party paying the money into court, and because of the different purpose for which the moneys had been paid in, i.e. not as security for the costs to which the defendant may ultimately be entitled, but to be dealt with in accordance with the order of the court consequent upon its determination of the conflicting claims to the moneys.[35]
[35] Ibid at 188.
In Re Lovering[36] the circumstances were that in consequence of a dispute concerning the operation of a farming property which included a dispute about the ownership of certain livestock and crops, the proceeds of sale of the livestock and crops were paid into court. At the trial, both the plaintiff and defendants were partially successful but the court ordered payment out of the moneys to the plaintiff apparently in the exercise of the court’s power to order equitable execution in respect of the total amount found to be payable to the plaintiff. Before the payment out was effected, the defendants entered into bankruptcy and there was a question of whether the moneys paid into court formed part of their bankrupt estate. Hill J followed his earlier decision in Dwight and concluded:
[W]hatever the basis of the jurisdiction to direct that the funds paid into court be paid out to [the plaintiff], one of two consequences follows. Either, at that point of time, the beneficial interest of [the defendants] was divested in favour of a beneficial interest arising in [the plaintiff], or [the plaintiff] became a secured creditor in respect of the judgment in its favour of the fund in court.
On either view, the moneys paid into court did not vest absolutely in the trustee. Clearly if, once the order was made, the beneficial interest in the funds was in [the plaintiff], the moneys in question were not property of [the defendants] vesting in their respective trustees in bankruptcy under s 58 of the Act. If the order to pay out merely perfected the status of [the plaintiff] as a secured creditor, then the trustee would only have the money vested in it under s 58 subject to the equities of [the plaintiff] which affected it. Section 58 does not affect the right of a secured creditor to deal with his security which, in the present context, would mean having moneys paid to it.[37]
[36] (1994) 50 FCR 587 at 594-5.
[37] Ibid at 597.
Having regard to these authorities, I conclude that there may be circumstances in which the payer of moneys into court does retain an interest in the moneys. A trustee or a beneficiary paying trust moneys and a person providing security for costs are examples. There are also circumstances in which other parties will acquire an interest in moneys paid into court. A payment into court as a condition of leave to defend, as discussed in the English authorities, provides an example. That being so, my opinion is that the second principle stated by the judge at first instance requires some qualification, and that has an effect on the third and fourth principles stated by him. Those principles do not form the basis for the determination of the respondent’s claim in this case. Insofar as Pilmer v HIH[38] held that a claimant may never have an equitable interest in the moneys until the order for payment out is made, I respectfully consider that it should not be followed by this Court.
[38] Pilmer v HIH Casualty & General Life Insurance Ltd (No 2) [2004] SASC 389, (2004) 90 SASR 465.
The Equitable Interest of the Respondent
In the present case, the respondent did, in my opinion, acquire an equitable interest in the moneys paid by, or on behalf of, the mortgagors into court. That conclusion arises from the character of the payments which were made and from the purposes for which the payments were made. Furthermore, I consider that upon payment in the mortgagors were divested of any interest in the moneys.
Besanko J indicated that he required the interest due to the respondent under the bill facility, or the equivalent thereof, to be paid into court. The mortgagor satisfied that condition by the undertaking which they proffered and the subsequent payments in accordance with that undertaking. They could have satisfied the condition by paying into court an amount on account of interest, or an amount which was at least sufficient to cover the interest, or, as Besanko J had indicated, an amount equivalent to the interest. However, what the mortgagors undertook to do was to pay into court the outstanding interest itself and the “interest falling due” under the bill facility as at the end of each month. In other words, the mortgagors undertook to pay into court the interest due under their contract with the respondent pending the hearing and determination of their claim that their obligations should be set aside or varied. The mortgagors appropriated themselves, or caused others on their behalf to appropriate, particular moneys to the respondent’s contractual entitlement. Because, and only because, of the allegations which they made impugning the respondent’s entitlement, those moneys were paid into court instead of to the respondent. Mr Cudmore submitted that what had been paid into court was an amount equivalent to the interest which was due rather than the interest itself. That submission cannot be sustained. The terms of the mortgagors’ undertakings are clear: it was the outstanding interest pursuant to the terms of the bill facility and the interest which would fall due which the mortgagors undertook to pay into court. The first indication that the respondent had an equitable interest in the moneys is therefore that it was its very contractual entitlement which was paid into court.
Furthermore, the moneys were paid into court to secure the entitlement of the respondent.
The appellant relied upon a passage in the reasons of Besanko J delivered on 5 March 2004 after he had heard the parties as to the terms of the appropriate orders and as to the conditions which he proposed. Besanko J required the interest to be paid at the default rate rather than the ordinary rate. In his reasons for stipulating this requirement, Besanko J said:
I am entitled to take into account the overall protection to the mortgagee provided by the conditions I propose. At the moment there is no specific condition protecting the mortgagee against fluctuations in the value of the property, and I think that in those circumstances it is appropriate that I take a course in relation to interest that provides maximum protection to the mortgagee. Interest should be paid at the default or penalty rate. [Emphasis added]
It was submitted that the words emphasised indicated that the purpose of the condition with respect to payment of interest was to protect the respondent against fluctuations in the value of its security. I am unable to accept that submission. The passage quoted indicates that Besanko J considered that the respondent should have “maximum protection”. The possibility of fluctuations in the value of its security was a reason why that was appropriate, but it does not follow that the only purpose, or even a purpose, of the condition with respect to payment of interest was to protect the respondent against fluctuations in the value of its security. The most obvious and natural purpose of the condition imposed by Besanko J was to secure to the respondent the interest to which it was otherwise entitled during the period in which it was restrained by the interlocutory injunction from exercising its power of sale under the mortgage. There is no reason to suppose that the moneys to be paid into court were to be available to the respondent only in the event that the security provided by the mortgage (Springwood Park) proved to be inadequate to cover all of the liabilities which the mortgage secured.

Mr Cudmore submitted that the conclusion of the judge at first instance that “the moneys were paid into court for the express purpose of protecting [the respondent] against the loss of its secured right to immediately enforce its mortgage over Springwood Park” was a finding that the moneys were ordered to be paid into court for the limited purpose for which he contended. In my respectful opinion this submission involves a misconception. The passage upon which the appellant relies indicates a conclusion as to the ultimate purpose of the conditions imposed by Besanko J, rather than a conclusion as to the means by which that ultimate purpose was to be attained. As already indicated, the obvious purpose was to secure to the respondent the interest payments to which it would otherwise be entitled.
In these circumstances, my conclusion is that it can be said that the mortgagors had “parted outright” with the moneys and that the respondent had an equitable charge on the moneys in court. The payment into court secured to the respondent the interest payments in the event that the challenge to its entitlement as contained in the proceedings instituted on 4 February 2004 failed. As it happens, that claim did not proceed to judgment. The mortgagors discontinued (in one case) and abandoned (in the other) the challenge to the respondent’s entitlement. Upon that abandonment and discontinuance, the respondent was entitled to enforce its security which, as Hill J pointed out in Re Lovering[39] meant having the moneys paid out to it.
[39] Re Lovering; Galladin v Jackson (1994) 50 FCR 587 at 597.
It was unnecessary for the respondent to do anything further to prove its entitlement. As already indicated, by the terms of their undertaking, the mortgagors acknowledged that the moneys paid in were the moneys to which, subject to the determination of the proceedings issued on 4 February 2004, the respondent was entitled in relation to the bill facility.
Further, it was not necessary for the respondent to establish that it had suffered a loss by reason of the grant of the interlocutory injunction before it could obtain an order for payment out. Parties who are entitled contractually to a payment do not have to prove a loss in order to establish their entitlement to the contractual payment. As the respondent was not asserting that it had suffered a loss, no inquiry as to damages pursuant to the undertaking as to damages given at the time of the issuing of the interlocutory injunction was necessary. In this respect, the reliance placed by the appellant in his submissions before this court on the principles discussed in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd[40] as to the assessment of loss which a plaintiff who has given an undertaking as to damages is liable to make good was misplaced.
[40] (1981) 146 CLR 249.
The present case is very similar to the cases in which the defendant has paid the amount claimed by the plaintiff into court as a condition of leave to defend. In this case, as in those cases, one party, as a condition of an exercise of judicial discretion in its favour, was required to secure the amount claimed by the other. It is appropriate accordingly to speak of the respondent having an equitable lien or charge on the moneys paid into court. This conclusion is similar to the decision of Mullighan J in Pilmer v HIH Casualty and General Life Insurance Ltd (No 2)[41] in which it was held that the defendants were entitled to payment out of the moneys paid in by HIH in satisfaction of the liability established by the judgment against it.
[41] [2004] SASC 389, (2004) 90 SASR 465.
In summary, I would hold that the moneys were paid into court for the purpose of securing to the respondent the interest payments due under its bill facility pending the determination of the mortgagors’ challenges to that entitlement; that upon each payment into court, the respondent held an equitable interest in the form of a lien or charge over the moneys; and that upon the abandonment/discontinuance of the mortgagors’ claims, the respondent became entitled to enforce its security. Those circumstances by themselves warranted the payment out to it of the money held in court. The discretionary considerations upon which the judge relied, although relevant and proved, were not necessary for a decision to be made in favour of the respondent. Hence, as indicated earlier, I consider that the decision of the judge at first instance was correct but for different reasons from those given by him. If I am wrong in that conclusion, I would hold that the matters to which the judge referred well justified an exercise of the discretion in the respondent’s favour.
I add the following. My conclusion that the respondent had an equitable interest in the moneys paid into court is not intended to foreclose any argument available to the appellant in respect of the moneys which might arise under the provisions of the Bankruptcy Act 1966. Such arguments as may be available under the Bankruptcy Act were not advanced at first instance nor before this court. This court does not have jurisdiction with respect to bankruptcy.[42] Mr Livesey QC acknowledged expressly that such rights as the appellant may have may yet be determined in appropriate proceedings in the Federal Court.
[42] Bankruptcy Act 1966, s 27.
Interlocutory/Final Judgment
On the hearing of the appeal, the court raised with the parties the question of whether the judgment at first instance was interlocutory, in which case the appeal to this court lay only with leave[43], or final, in which case the appeal lay as of right. Mr Cudmore submitted that the decision of the judge was final but sought, in the event that that submission was rejected, leave from this court to appeal. Mr Livesey QC submitted that the decision was interlocutory and that, unless leave was granted, the appeal was incompetent.
[43] Supreme Court Act 1935, s 50(1A)(c).
It is unnecessary in my opinion to resolve this question. In the view which I take of the matter, the appeal should fail whether it be an appeal as of right or an appeal only with leave. I am prepared to assume, without deciding, that the appeal was an appeal as of right. For the reasons given above, I would dismiss the appeal. If, contrary to my assumption, the appeal lies with leave only, I would grant leave to appeal but would dismiss the appeal.
LAYTON J: I have had the opportunity of reading the draft reasons for decision of White J. With respect I agree with those reasons for decision and the conclusion that the appeal should be dismissed. I add only some further reasoning which in my view fortifies why the appeal should be dismissed.
Without traversing each of the facts that have been set out in the reasons of White J, I simply focus on the following points. A number of facts were not in dispute before Besanko J and before Gray J. They included:
·Mrs Garrett and Andrew Garrett Wine Resorts Pty Ltd (“Wine Resorts”) were the registered proprietors of Springwood Park which was the subject of a mortgage with the National Australia Bank (“the Bank”).[44]
·There was a credit contract entered into on 3 January 2003 between the Bank and Mr and Mrs Garrett whereby the Bank lent them $2.1 million under a bill facility.[45]
·Wine Resorts and Mrs Garrett gave a guarantee and indemnity for the repayment of the $2.1 million and interest and expenses.[46]
·The bill facility matured on 20 June 2003 and no payment was made.[47]
·As a consequence Mrs Garrett was in breach of the credit contract in the sum of $2.1 million and was at the same time in default of the mortgage over Springwood Park.[48]
·A Notice of Termination of the credit contract was served on Mr and Mrs Garrett on 14 July 2003 on the basis that as at 14 July 2003, the sum of $2.1 million was owed. On or about 27 August 2003 Notices of Default under the mortgage were served on Wine Resorts and Mrs Garrett seeking repayment of the unpaid $2.1 million. The sum was not paid.[49]
[44] Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank (2004) 206 ALR 69, [1].
[45] Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank (2004) 206 ALR 69, [5].
[46] Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank (2004) 206 ALR 69, [5], [22]. There was also an assertion by the Bank that Mrs Garrett was the guarantor of additional debts of the Andrew Garrett Group of Companies in an amount in excess of $7m, which was contested.
[47] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [5].
[48] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [6].
[49] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [7]-[8].
The argument before Besanko J was as to the amount of the bill facility which was secured by the mortgage. It was claimed by Mrs Garrett and Wine Resorts that the Notices of Default were invalid as they asserted a breach for failure to pay $2.1 million instead of $1.5 million plus interests plus costs. Wine Resorts and Mrs Garrett asserted that the amount secured by the mortgage was limited to the initial advance by the Bank of $1.5 million prior to further advances being made under the credit contract for total sum of $2.1 million. It was further claimed that the assertion by the Bank that the amount due under the mortgage was $2.1 million when it was limited to $1.5 million, was misleading and deceptive conduct and or amounted to false or misleading representations contrary to the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”). A similar allegation was made of breaches of the Trade Practices Act 1974 (Cth) (“TP Act”) in relation to the guarantee and indemnity given by Mrs Garrett and it was alleged that the guarantee was ineffective to increase the amount secured by the mortgage beyond $1.5 million.[50]
[50] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [22].
It is apparent on this scenario, that it was not disputed by Mrs Garrett that the Bank was entitled to be paid $2.1 million,[51] it was only the amount which could properly be claimed as secured by the mortgage, being the specific subject of this action, which was disputed.
[51] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [10].
Besanko J found a triable issue on the basis of the potentially invalid notices pursuant to s 55A of the Law of Property Act1936 in arguably asserting an incorrect amount of $2.1 million in lieu of $1.5 million. Besanko J in refusing to order that the Bank have possession of Springwood Park and instead granting an interlocutory injunction, did so on the basis that the Court had the power to grant injunctions under the TP Act and the ASIC Act. In doing so, his Honour noted that the Court was not confined to the principles of the courts of equity but at the same time his Honour considered that there was “no reason in the circumstances of this case not to apply, or substantially apply, the equitable principles”.[52]
[52] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [49].
His Honour then considered it appropriate to make an order for injunction and that it was appropriate to “mould an order that will ensure adequate protection to the mortgagee and will otherwise do justice between the parties during the period pending the final hearing”.[53] His Honour continued, that he saw:
no reason why interest or the equivalent of interest should be allowed to accumulate, and I think past interest (or the equivalent thereof under a bill facility) should be paid by the mortgagors and that they should pay the interest (or the equivalent thereof) that falls due in the future. In the exercise of my discretion I have decided that the interest should be calculated on the sum of $2.1m.[54]
[53] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [50].
[54] Andrew Garrett Wine Resorts Pty Ltdv National Australia Bank (2004) 206 ALR 69, [50].
Thereafter, his Honour expressed specific conditions, which were later followed by the specific undertakings to pay such monies into Court, as well as the consequential orders made, all of which are set out in the reasons of White J.
In my view Besanko J crafted very specific express conditions for the order granting an injunction. These conditions were in addition to noting the undertaking given by Mrs Garrett and Wine Resorts as to damages. The express purpose for requiring the conditions was to protect the Bank as mortgagee of an amount of at least $1.5 million plus costs and interest, pending the hearing of the triable issue.
In my view these factors reinforce that when such monies were paid into Court pursuant to those conditions and the resultant undertakings given, it was a payment made to secure for the Bank the interest to which it was legally entitled under the agreed credit contract. The Bank had an equitable interest in the form of a lien or charge over those monies when they were paid in. The monies paid into Court were not to be held on the basis that it was necessary for the Bank to prove its entitlement to such monies or to prove that it sustained any loss as a consequence of the granting of an injunction. The Bank was therefore entitled to payment out of the monies. The appeal should be dismissed.