Leadenhall Australia Pty Ltd v Doman

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SUPREME COURT OF SOUTH AUSTRALIA

(Court of Appeal: Civil)

LEADENHALL AUSTRALIA PTY LTD v DOMAN & ANOR

[2024] SASCA 77

Judgment of the Court of Appeal  

(The Honourable Chief Justice Kourakis, the Honourable Justice Bleby and the Honourable Justice Blue)

26 June 2024

INTEREST - RECOVERABILITY OF INTEREST - AWARD OF INTEREST ON DEBTS AND SUMS CERTAIN - INTERPRETATION

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

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

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

The appellant sued the respondents in the Magistrates Court for post-judgment interest on a District Court judgment from the date on which the respondents became bankrupt. A Magistrate granted summary judgment in favour of the appellant for $100,000 plus costs and interest.

A Judge allowed the respondents’ appeal against the judgment and set it aside. The Judge held that, on the proper construction of sections 82 and 153 of the Bankruptcy Act 1966 (Cth), interest accruing on a pre-bankruptcy interest-bearing debt between the date of bankruptcy and discharge from bankruptcy does not survive bankruptcy but rather is postponed in bankruptcy pending a surplus, at which time it is paid or, in the absence of a surplus, the liability is discharged by section 153. The Judge held that consequentially subsection 58(3) precludes the institution of a legal proceeding for bankruptcy-period interest because such a proceeding is in respect of a provable debt.

The appellant seeks leave to appeal against that judgment. The appellant contends that bankruptcy-period interest is not a provable debt under, and for the purposes of, sections 58, 82, and 153 and is not the subject of discharge under section 153 or moratorium under section 58 of the Bankruptcy Act 1966 (Cth).

The respondents contend under a notice of alternative contention that interest accrues automatically on the District Court judgment and cannot be the subject of a separate action in the Magistrates Court.

Held by Blue AJA (Bleby JA agreeing):

1On the proper construction of section 40 of the District Court Act 1991 (SA) and of the Enforcement of Judgments Act 1991 (SA), interest accrues on and augments a District Court judgment debt automatically; is enforceable as such and is not capable of being the subject of a separate action for such post-interest judgment (at [110]).

2On the proper construction of subsections 82(3B), 153(1) and 58(3) of the Bankruptcy Act 1966 (Cth), although by reason of subsection 82(3B) a creditor cannot prove for bankruptcy-period interest on an interest-bearing debt under Part VI, bankruptcy-period interest forms part of a single debt which is a provable debt for the purposes of subsections 153(1) and 58(3) (at [414]).

3It follows that the appellant was not entitled to sue the respondents for the bankruptcy-period interest in the Magistrates Court (at [415]).

4       Appeal dismissed (at [417]).

Held by Kourakis CJ (dissenting in relation…

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Details
Case
[2024] SASCA 77
Decision Date

CaseChat Overview and Summary

The Supreme Court of South Australia considered an appeal by Leadenhall Australia Pty Ltd against the Domans concerning the recoverability of post-judgment interest after the debtors' bankruptcy. Leadenhall had obtained a judgment against the Domans in the District Court for a substantial sum. Following the judgment, the Domans were declared bankrupt. Leadenhall subsequently initiated proceedings in the Magistrates Court to recover interest that accrued on the judgment debt from the date of bankruptcy until a specified date. A Magistrate granted summary judgment to Leadenhall, but this decision was overturned on appeal to a single judge of the Supreme Court, who found the action precluded by provisions of the Bankruptcy Act 1966 (Cth).

The central legal issues before the Full Court of the Supreme Court were whether a creditor could pursue a bankrupt debtor personally for interest accruing on a judgment debt after the date of bankruptcy, particularly when the creditor was otherwise precluded from pursuing the principal debt personally against the bankrupt. The Court also considered whether a judgment creditor could sue a judgment debtor in the Magistrates Court for interest accruing under the District Court Act 1991 (SA) on a judgment originally granted by the District Court.

The Court analysed the historical position at common law and in equity, where judgments did not automatically carry interest, and a separate action was required to recover interest as damages. It then examined the relevant South Australian legislation, including the District Court Act 1991 (SA) and the Bankruptcy Act 1966 (Cth). The Court reasoned that sections 58 and 153 of the Bankruptcy Act 1966 (Cth) operate to prevent a creditor from pursuing a bankrupt debtor personally for debts provable in the bankruptcy, including the principal judgment debt. Crucially, the Court held that interest accruing on a judgment debt after the date of bankruptcy is a provable debt in the bankruptcy, and therefore, the creditor is barred by section 58 from pursuing the bankrupt personally for such interest. The Court also noted that the jurisdiction of the Magistrates Court to award interest under its own rules did not override the limitations imposed by the Bankruptcy Act.

Consequently, the Full Court dismissed Leadenhall's appeal, upholding the decision of the single judge. The Court concluded that Leadenhall was not entitled to pursue the Domans personally for the post-judgment interest that accrued after their respective dates of bankruptcy, as such claims were barred by the operation of the Bankruptcy Act 1966 (Cth).

Orders

Orders of the court

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Background

Background to the litigation

The notice of appeal and the notice of alternative contention raise two issues of general importance:1Can a creditor pursue a debtor personally for interest accruing after the bankruptcy of the debtor when the creditor is precluded from pursuing the principal against the debtor personally?2Can a judgment creditor sue a judgment debtor in the Magistrates Court for interest accruing under the District Court Act 1991 (SA) on a judgment granted by the District Court?Background Leadenhall sued the Domans in the District Court. On 30 November 2018 the District Court granted judgment against the Domans for $706,019.40.[6][6] Leadenhall Australia Pty Ltd v Doman [2018] SADC 123. Interest from 30 November 2018 accrued on the judgment debt under section 40 of the District Court Act 1991 (SA) (the District Court Act) and the combination of rule 261 of the District Court Civil Rules 2006 (SA) and rule 217 of the District Court Civil Supplementary Rules 2014 (SA) at a rate (the District Court post-judgment interest rate) equal to the cash rate of interest last set by the Reserve Bank of Australia (adjusted biannually) (the Cash Rate) plus six per cent per annum. Leadenhall took steps under the Enforcement of Judgments Act 1991 (SA) (the Enforcement Act) to enforce the judgment. On 2 January 2019 Jason Doman became bankrupt and on 4 January 2019 Peter Doman became bankrupt. At the date of the bankruptcies, post-judgment interest had accrued on the judgment debt at 7.5 per cent per annum. The District Court post-judgment interest rate reduced on 1 July 2019 to 7.25 per cent per annum and further reduced on 1 January 2020 to 6.75 per cent per annum. On 18 May 2020 the Uniform Civil Rules 2020 (SA) (the Uniform Civil Rules) commenced and repealed prospectively amongst others the District Court Civil Rules 2006 (SA) and the District Court Civil Supplementary Rules 2014 (SA). Rule 185.1 provides that post-judgment interest on a District Court (and Supreme Court and Magistrates Court) judgment debt accrues at six per cent per annum. On 23 March 2021 Leadenhall instituted a claim in the Magistrates Court against the Domans for post-judgment interest on the District Court judgment from their respective dates of bankruptcy (2 and 4 January 2019) up to 25 February 2021. The claim was prima facie expressed to be for $100,394.93 against Peter Doman and $100,685.08 against Jason Doman but was limited to $100,000 against each due to the monetary limit of the jurisdiction of the Magistrates Court. Leadenhall subsequently filed an interlocutory application seeking summary judgment. On 6 October 2021 a Magistrate granted summary judgment in favour of Leadenhall for $100,000 and reserved the questions of costs and interest. The Magistrate rejected a contention by the Domans that the action was precluded by sections 58 and 153 of the Act. In January 2022 the Domans were discharged from bankruptcy. The Domans appealed against the judgment. On 23 June 2023 a single Judge allowed the appeal and set aside the judgment. The Judge upheld the contention by the Domans that the action was precluded by sections 58 and 153 of the Act.Reasoning of courts belowThe Magistrate

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Section 40 of the District Court Act provides:40—Interest on judgment debts(1)A judgment debt bears interest at a rate prescribed by the rules.(2)Subject to any direction by the Court to the contrary, the interest runs—(a) in the case of adjudicated costs—from the date the costs are adjudicated or an earlier date fixed by the adjudicating officer;(b) in the case of any other monetary sum—from the date of the judgment. The “rules” referred to in subsection 40(1) are defined by subsection 3(1) to mean the rules of the District Court in force under the District Court Act. In turn section 51 empowers the making of rules of the court by the Chief Judge and two other Judges of the Court. Section 40 is modelled on section 114 of the Supreme Court Act 1935 (SA) (the Supreme Court Act) which provides in similar (but not identical) terms that money payable under a Supreme Court judgment bears interest at the rate prescribed by the rules of court made by the Supreme Court. Section 35 of the Magistrates Court Act 1991 (SA) (the Magistrates Court Act), which was enacted at the same time as the District Court Act, provides in otherwise identical terms that a judgment debt bears interest at a rate prescribed by the rules of the Magistrates Court made by the Chief Magistrate and two other Magistrates of the Court. As observed above, the District Court Civil Rules 2006 (SA) and the District Court Civil Supplementary Rules 2014 (SA) prescribed post-judgment interest at the Cash Rate plus six per cent per annum. Rule 134 of the Magistrates Court (Civil) Rules 2013 (SA) prescribed post-judgment interest at ten per cent per annum.Legislative history At common law and in equity, judgments did not carry interest (post-judgment interest).[7] The creditor could bring a separate action claiming interest on a judgment debt as damages.[8] Thus, in 1834 in Gaunt v Taylor[9] Sir John Leech MR said:At law a judgment does not carry interest, but interest may be recovered at law, in the shape of damages, by an action on the judgment.…It appears by the authorities which have been cited that equity in this respect follows the law; and, as a general rule, a judgment creditor is not allowed interest on his judgment in the Master’s office. The same vexatious course of proceeding, which would entitle the creditor to interest at law, will certainly entitle him to interest on his judgment in equity.[10][7] Gaunt v Taylor (1834) 3 My & K 302 (40 ER 115) at 309-310 per Sir John Leach MR; Reis v Carling (1908) 5 CLR 673 at 676 per Griffith CJ (with whom Barton J agreed) and 684 per O'Connor J.[8] Gaunt v Taylor (1834) 3 My & K 302 (40 ER 115) at 309-310 per Sir John Leach MR.[9] (1834) 3 Myl & K 302 (40 ER 115).[10] At 309-310. In 1837 An Act for the Establishment of a Court to be called the Supreme Court of the Province of South Australia (No 5 of 7 Wm IV) 1837 (SA) (the Supreme Court Act 1837 (SA)) was enacted. It established the Supreme Court of South Australia. The Court was given the jurisdiction and powers (including of enforcement) of the English common law and equity courts.

Ratio Decidendi

Legal Principle Established

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