Harvey v Commercial Bank of Australia Ltd - [1937] HCA 81

HARVEY AND OTHERS

RESPONDENTS,

THE COMMERCIAL BANK OF AUSTRALIA Company-Winding - up-Proof of debt-Secured creditor--Valuing - security-

" Specific security on the property of " company-Land-Trust in favour of company-Registered mortgage in favour of creditor of company-Companies MELBOURNE,

Act 1928 (Vict.) (No. 3659), sec. 207-Insolvency Act 1928 (Vict.) (No. 3705), secs. 194, 195.

The registered proprietor of certain land executed a declaration of trust of the land in favour of a company. He then gave a mortgage of the land to a bank to secure moneys owing by the company to the bank, which did not know of the declaration of trust. The mortgage was registered. Subsequently the company went into liquidation, and the bank claimed to be entitled to prove for the whole debt without giving up or giving credit for the security

Held that the mortgage constituted a specific security on the property of the company within the meaning of secs. 194 and 195 of the Insolvency Act 1928 (which were made applicable to the winding up of insolvent companies by sec. 207 of the Companies Act 1928) (Vict.), and that, in proving its debt, the bank should have given up or given credit for the value of its security.

Decision of the Supreme Court of Victoria (Lowe J.): In re P. Bird Ply. Ltd., (1937) V.L.R. 303, reversed.

58 CLR 383

APPEAL from the Supreme Court of Victoria.

On 28th April 1937 P. Bird Pty. Ltd. was indebted to the Commercial Bank of Australia Ltd. in the sum of £17,777 for money advanced and interest thereon. On 28th April 1937 the company went into voluntary liquidation, and Cecil Britton Harvey, Dudley Chitty and Wilfred McCrae Howitt were its liquidators. The bank lodged a proof of debt with the liquidators, but it was rejected on the ground that the bank, being a creditor holding specific securi- ties on the property of the company, failed to realize or give credit for the value of such securities. On 23rd January 1929 Philip Bird, who was the registered proprietor of certain lands under the Transfer of Land Act (Vict.), executed an indenture declaring that he held the lands upon trust for the company and would transfer and deal with them as the company directed. On 27th March 1930 Philip Bird, who had become a surety for the debt of the company to the bank, executed a mortgage of the same lands to the bank to secure the moneys owing by the company to the bank. The mortgage to the bank was duly registered, but the bank did not know and was not informed of the declaration of trust in favour of the company. On 12th January 1928 the company also gave to the bank a general lien over all its assets. The bank in its proof of debt valued certain securities but refused to value or give credit for the security which it held over the land. The liquidators rejected the proof, and the bank applied to the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Harvey v Commercial Bank of Australia Ltd

Details

AGLC: Harvey v Commercial Bank of Australia Ltd [1937] HCA 81
Case: [1937] HCA 81
Decision Date: 17 December 1937

CaseChat Overview and Summary

The High Court of Australia heard an appeal from the Supreme Court of Victoria concerning a proof of debt lodged by the Commercial Bank of Australia Ltd. (the bank) in the voluntary liquidation of P. Bird Pty. Ltd. (the company). The liquidators of the company rejected the bank's proof of debt on the grounds that the bank, as a secured creditor, had failed to value or give credit for its specific securities on the company's property. The bank contended that its mortgage and general lien did not constitute specific securities on the company's property, and therefore it was entitled to prove for the full amount of the debt without accounting for these securities.

The central legal issue before the High Court was whether a mortgage granted by a third party, Philip Bird, over land he legally owned but held in trust for the company, constituted a specific security on the property of the company for the purposes of the Insolvency Act 1928 (Vic.), which applied to company liquidations under the Companies Act 1928 (Vic.). A related issue was whether a general lien granted by the company over its assets also constituted a specific security. The bank argued that because it was unaware of the trust declaration when it accepted the mortgage from Philip Bird, and because the mortgage secured Philip Bird's guarantee for the company's debt, it was not a security over the company's property.

The High Court, in allowing the appeal, reasoned that the general rule in bankruptcy and company liquidations is that a secured creditor must either surrender their security, realise its value, or give credit for its value when proving their debt. This rule aims to ensure equality among creditors. The Court held that the mortgage granted by Philip Bird, despite his ignorance of the trust and the fact that it secured his guarantee, constituted a specific security on the company's property. This was because Philip Bird held legal title to the land in trust for the company, and the company was the beneficial owner. Consequently, if the bank enforced the mortgage, the company's property would be used to satisfy its debt, thereby augmenting the company's assets if the security were not accounted for. The Court found that the bank's belief about the ownership of the property was irrelevant to the application of the rule, as the substance of the transaction was that the company's property was encumbered. The Court also noted that the general lien was of theoretical significance only in relation to the land in question and did not need to be separately determined.

The High Court ordered that the appeal be allowed with costs, setting aside the decision of the Supreme Court of Victoria. The Court ordered that the bank's summons in the Supreme Court be dismissed with costs, meaning the bank was required to value or realise its mortgage security as a condition of proving its debt in the liquidation.

Orders