Malpass, P.W. v National Australia Bank Ltd
[1988] FCA 755
•21 DECEMBER 1988
Re: PETER WILLIAM MALPASS
And: NATIONAL AUSTRALIA BANK LIMITED
No. W492 of 1986X
FED No. 755
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE
AUSTRALIAN CAPITAL TERRITORY
Davies J.(1)
CATCHWORDS
Bankruptcy - application for a declaration that a debt proved by Bank released pursuant to s.240 of the Bankrupty Act - cross-application by Bank seeking to amend the proof of debt - failure of Bank to disclose mortgage securities in the proof of debt - whether a proof of debt may be amended once composition completed - the nature of the obligations imposed by certain mortgages and guarantees - whether the composition affected the position of the cross-respondents' obligations under mortgages - whether Bank entitled to possession of mortgaged properties.
Bankruptcy Act 1966 (Cth) - ss. 90,91,92,93,240
Westpac Banking Corporation v. Morton (1988) 79 ACR 206
Richards and Anor v. The Commercial Bank of Australia (1971) 18 FCR 95
National Commercial Banking Corporation of Australia v. Hedley (1984) 3 BPR 9477
HEARING
SYDNEY
#DATE 21:12:1988
Counsel for the applicant: Mr A.T. McInnes Q.C.
Mr P.J. Dowdy
Solicitor for the applicant: Lee Rigg & Co
Counsel for the respondent: Mr A.J.L. Bannon
Solicitor for the respondent: Dibbs Crowther & Osborne
Solicitor for the Trustee: Mr N. Pappas of Baker & McKenzie
ORDER
The sum of $293,289.14 formerly owed by the applicant, Mr P.W. Malpass, to the respondent, the National Australia Bank and for which amount the Bank submitted a proof of debt in the applicant's composition with his creditors, which composition was accepted on 23 December 1986, has been wholly released pursuant to s.240 of the Bankruptcy Act 1966.
The cross-application be dismissed.
The respondent pay the costs of the proceedings.
NOTE: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
JUDGE1
In these proceedings, the applicant, Mr P.W. Malpass, seeks an order declaring that a sum of $293,289.14, which was at one time owed by him to the respondent, National Australia Bank Limited ("the Bank"), and for which amount the Bank submitted a proof of debt in the applicant's composition with his creditors, which composition was accepted on 23 December 1986, has been wholly released pursuant to s.240 of the Bankruptcy Act 1966 (Cth)("the Act").
By way of cross-application, the Bank seeks an order pursuant to s.92 of the Act granting permission to the Bank to amend its estimate of the value of its security in the proof of debt lodged in the composition, declarations that Mr P.W. Malpass, his brother, Mr A.P. Malpass, and his sister, Miss S.A. Malpass, are indebted to the Bank in respect of amounts owing by Stradbroke Island Resort Pty Limited and Fabaro Pty Limited, a declaration that that liability is secured by mortgages given by Mr P.W. Malpass, Mr A.P. Malpass and Miss S.A. Malpass to the Bank over certain real property and, lastly, an order for possession under the mortgages of that real property. Damages and/or mesne profits are also sought.
Mr A.T. McInnes, Q.C., with him Mr P.J. Dowdy of counsel appeared for Mr Malpass. Mr A.J.L. Bannon of counsel appeared for the Bank. Mr N. Pappas appeared for the Trustee, Mr H.J. Wily, to submit to any order made by the Court.
I shall deal first with the proof of debt and its effect.
On 8 December 1986, Mr Wily issued a notice to all creditors of Mr P.W. Malpass calling a meeting for 23 December 1986 to consider a composition under Part X of the Act. A statement of affairs was provided by Mr P.W. Malpass to Mr Wily. The assets shown were minimal and the debts substantial. The Bank was shown as an unsecured creditor for $55,OOO. Custom Credit Limited, which had also advanced moneys to Stradbroke Island Resort Pty Limited and Fabaro Pty Limited, was shown as an unsecured creditor for $5OOO. The total deficiency was $566,299.
At the meeting held on 23 December 1986, Mr Malpass offered to provide $100,000, to be obtained from his father, Mr W.L. Malpass. The creditors agreed to accept the composition. On 4 March 1987, Mr Wily gave due notice that the following special resolution had been passed on 23 December 1986, namely, "that the creditors accept the sum of $100,000 to be paid by Mr W.L. Malpass in full and final satisfaction of their debts as a composition under Part X of the Bankruptcy Act".
That sum was subsequently paid. Mr Wily received an additional $7,940.86 in interest. In September 1987, after a meeting of creditors had resolved that he do so, Mr Wily distributed the funds held by him, concluded his administration of the composition and completed and signed a statement of realisation and distribution of estate showing the receipt of $107,940.86 and the manner in which it had been expended. Custom Credit Limited had been accepted in the composition for $929,O66.2O. Accordingly, it received most of the dividend. The Bank was accepted for $293,289.14.
On 19 December 1986, Mr K.W. Stimpson, Manager of the Queen Street Brisbane branch of the Bank, had sworn the following proof of debt:-
"1. Peter William Malpass was at the date on which he appointed a controlling trustee, namely Hugh Jenner Wily and still is, justly and truly indebted to National Australia Bank Limited, 308-322 Queen Street, Brisbane
in the sum of $293,289.14, in accordance with the particulars specified in the statement of account annexed hereto.
2. ...
3. The following security is held by National Australia Bank Limited for the payment of part of the sum specified in paragraph 1. Letter of Lien dated the 10th July, 1980, given by Peter William Malpass over Western Mining Corporation Ltd share certificate No. 99489 for 2,000 shares (photocopy attached).
4. .... ."
The statement of account attached thereto read as follows:-
"STATEMENT OF ACCOUNT
Date of Consideration of nature of debt Amount Transaction 8/12/86 Overdraft in Bankrupt's name at
the Bank's 308-322 Queen Street Brisbane Branch< $147,295.26 Interest to 8/12/86 @ 12%< 3,311.13 $150,606.39
8/12/86 Bankrupt's Joint and Several
liability (with 2 others) as guarantor for $100,000 on
account Fabaro Pty Ltd in
respect of Overdraft at the Bank's 308-322 Queen Street Brisbane Branch $100,000.00 Interest to 8/12/86 @ 12%< 2,268.50 $102,268.50
8/12/86 Bankrupt's Joint and Several
liability (with 2 others) as guarantor for $50,000 on
account Stradbroke Island
Resort Pty Ltd as trustee for The Malpass Kerr Unit Trust in respect of Overdraft at
the Bank's 308-322 Queen
Street Brisbane Branch $ 50,000.00 Interest to 8/12/86 @ 12% 1,134.25 $ 51,134.25 Less 2,000 Western Mining
Corporation Limited shares 10,720.00 $ 40,414.25 "
That proof of debt was forwarded to Mr Wily on 19 December 1986. It was apparently mislaid at some stage and a fresh proof of debt to the same effect was sworn by Mr Stimpson on 6 April 1987 and supplied to Mr Wily. However, nothing turns on that.
The present problem from the Bank's point of view arises from the fact that the Bank lodged a proof of debt in respect of the full liabilities of Mr Malpass including the guarantees given with respect to Stradbroke Island Resort Pty Limited and Fabaro Pty Limited. Mr Malpass's liabilities under the guarantees were secured in the view of the Bank, and the Bank now desires to exercise its rights under those securities. Accordingly, the Bank seeks leave to amend its proof of debt in the composition in the following manner:
"(1) In paragraph 1 substitute for '$293,289.14' the word 'Nil'.
(2) Add to paragraph 3:
'1/3 interest in the properties known as Cronulla Carapark Caravan Park, 200 The Kingsway, Cronulla, 190 The Kingsway, Cronulla and 29 Pandalla Place, Carringbah by virtue of mortgage numbers V227224, T702405 and T860936 respectively ('the Cronulla security'), 1/2 interest in the property situated at Home Hill in the State of Queensland comprised in Certificate of Title Volume N659 Folio 134 by virtue of mortgage No. N957961 ('the Home Hill Security').'
(3) Add to the annexed statement of account: 'Less Cronulla security Valuation of property $920,000.00 Less A.P. Malpass and S.A. Galvin share 552,000.00 368,000.00 Less Home Hill security Valuation of property 30,000.00 Less A.P. Malpass share 15,000.00 $15,000.00"
As a distribution from the composition, the Bank received the sum of $15,858.83. As a condition of the amendment of its proof of debt, the Bank is content to return this sum and to pay whatever additional expenses may be involved in its distribution by Mr Wily to other creditors.
Section 240 of the Act provides:-
"(1) Subject to this section, a composition under this Part operates, unless set aside, declared void or terminated under this Part, to release the debtor from all provable debts, other than those (if any) that would not be released by his discharge from bankruptcy if he had become a bankrupt on the day on which the composition was accepted.
(2) Sub-section (1) does not affect the right of a secured creditor, or any person claiming through or under him, to realize or otherwise deal with his security -
(a) if the secured creditor has not proved in the composition for any part of the secured debt - for the purposes of obtaining payment of the secured debt; or
(b) if the secured creditor has proved in the composition for part of the secured debt - for the purposes of obtaining payment of the part of the secured debt for which he has not proved in the composition, and, for the purposes of enabling the secured creditor or a person claiming through or under him so to realize or deal with his security, but not otherwise, the secured debt, or the part of the secured debt, as the case may be, shall be deemed not to have been released.
(3) A composition does not release from any liability a person who, at the date on which the composition was accepted, was a partner or a co-trustee with the debtor or was jointly bound or had made a joint contract with him, or a person who was a surety or in the nature of a surety for the debtor."
As I have mentioned, the Bank proved in the composition for the whole of the guaranteed liabilities. Therefore, the Bank was released thereby, unless the Court gives to the Bank permission to amend its proof.
Section 243(1) provides:-
"(1) Subject to this section, the provisions of sections 82 to 107 (inclusive) and sections 140 to 148 (inclusive) apply, subject to such modifications and adaptations (if any) as are prescribed by the rules, to and in relation to a composition under this Part as if -
(a) a sequestration order had been made against the debtor on the day on which the special resolution accepting the composition was passed; and
(b) the trustee of the composition were the trustee in his bankruptcy."
Section 90 provides:-
"(1) A secured creditor is entitled to prove the whole or a part of his secured debt in the debtor's bankruptcy in accordance with the succeeding provisions of this Division, and not otherwise.
(2) A secured creditor who surrenders his security to the trustee for the benefit of creditors generally may prove for the whole of his debt.
(3) A secured creditor who realizes his security may prove for any balance due to him after deducting the net amount realized, unless the trustee is not satisfied that the realization has been effected in good faith and in a proper manner.
(4) A secured creditor who has not realized or surrendered his security may -
(a) estimate its value; and
(b) prove for the balance due to him after deducting the value so estimated.
(5) A secured creditor to whom sub-section (4) applies shall state particulars of his security, and the value at which he estimates it, in his proof of debt."
Section 91 provides, inter alia:-
"(1) Where a secured creditor has lodged a proof of debt in respect of the balance due after deducting the estimated value of his security, the trustee may at any time redeem the security on payment to the creditor of the value at which it has been estimated by the creditor.
(2) If the trustee is dissatisfied with the value at which a security has been estimated by a creditor, he may require the property comprised in the security to be offered for sale at such times and on such terms and conditions as are agreed on by the creditor and the trustee or, in default of agreement, as the Registrar directs. ...
(4) The creditor may at any time, by notice in writing, require the trustee to elect whether he will, or will not, exercise his power of redeeming the security or of requiring it to be realized and if the trustee does not, within 3 months after receiving the notice, notify the creditor, in writing, that he elects to exercise the power -
(a) he is not entitled to exercise it;
(b) subject to sub-section (5), any equity of redemption or other interest in the property comprised in the security that is vested in the trustee vests in the creditor; and
(c) the amount of the creditor's debt shall, for the purposes of this Division, be deemed to be reduced by the amount at which the creditor has estimated the value of the security."
Section 92 provides:-
"(1) Where a secured creditor has lodged a proof of debt in respect of the balance due after deducting the estimated value of his security, he may, at any time, apply to the trustee or the Court for permission to amend the proof of debt by altering the estimated value.
(2) If the trustee or the Court is satisfied -
(a) that the estimate of the value of the security was made in good faith on a mistaken basis; or
(b) that the value of the security has changed since the estimate was made, the trustee or the Court may permit the creditor to amend his proof of debt accordingly.
(3) Where the Court permits a creditor to amend his proof of debt, it may do so on such terms as it thinks just and equitable."
Section 93 provides, inter alia:-
"(1) Where a creditor who has amended a proof of debt under section 92 has received, by way of dividend, any amount in excess of the amount to which he would have been entitled under the amended proof of debt, he shall forthwith repay the amount of the excess to the trustee."
Section 94 provides:-
"Where a secured creditor who has lodged a proof of debt in respect of the balance due after deducting the estimated value of his security subsequently realizes his security, or it is realized under section 91, the net amount realized shall be substituted for the estimated value of the security and section 93 applies as if the proof of debt had been amended accordingly by the creditor under section 92 of this Act."
Section 98 provides:-
"(1) A creditor may, with the consent of the trustee, amend a proof of debt lodged by him.
(2) This section does not authorize the amendment of the proof of debt of a secured creditor by altering the estimated value of his security."
The officer of the Bank who prepared the Bank's proof of debt misunderstood these provisions. The completion of the proof of debt should have been a straightforward matter. However, the Bank's officer sought advice from the Securities Services Department of the Bank. He advised an officer of the Department that the Bank had a charge over shares of the debtor, a guarantee from the debtor's father supported by a mortgage over some real property and a mortgage over a property owned by the debtor and his brother and sister as tenants-in-common. Whether or not these facts were misunderstood in the Securities Services Department is not known. The following advice was given:-
"Only put in the shares as they are the only direct securities. The others are third party securities but they are not in the identical names of the debtor and as such you don't have to disclose them for the purposes of a proof of debt in bankruptcy."
On receiving this advice, the officer prepared the proof of debt in the form which claimed the whole of the moneys due by Mr Malpass to the Bank but did not disclose the mortgage securities with which we are now concerned. The proof of debt was thus lodged on a mistaken basis.
The Bank did not seem to realize the effect of what it had done until about the time the composition was completed. There is conflicting evidence before the Court as to whether the effect of the proof of debt was discussed in conversations which took place late in 1986 and throughout 1987 between Mr P.W. Malpass, his solicitor Mr Lee, and officers of the Bank. I think it is clear that Mr Malpass alleged that he was not liable under the guarantees, that any liability under the guarantees was not secured by the mortgagees with which we are concerned and that his father, Mr W.L. Malpass, might not produce the $100,000 for the composition if the Bank continued to press for payment under the guarantees and under the mortgages over the real estate. On the other hand, the Bank made its position clear that it did intend to claim under the guarantees and to exercise its rights under the mortgages.
I doubt that, in late 1986 or early 1987, either Mr Malpass or Mr Lee made it clear to the Bank that, unless the proof of debt were amended, the Bank would lose its secured rights. It would not seem to have been in Mr Malpass's interest for that point to be made clear.
The Bank appears not to have turned its mind to the content of its proof of debt until September 1987. On 22 September 1987, an officer of the Bank wrote an internal memo to the effect that the creditors had passed a resolution approving the declaration of a dividend by the trustee, Mr Wily, and advising that, before declaring a dividend, Mr Wily would, in the ordinary course, request a fresh proof of debt. The officer recommended that no such proof of debt be lodged and that the Bank should realise on its securities, including the security over the Western Mining shares.
Mr Wily did not, however, request any further proof of debt and, on 22 September, sent the sum of $15,858.83 to the Bank as its distribution from the composition, which sum was accepted by the Bank.
The power of the Court to permit amendment of a proof of debt under s.92 of the Act was considered by Bowen C.J., Forster and Lee JJ. in Westpac Banking Corporation v. Morton (1988) 79 ALR 206. At p 215, their Honours said:-
"The bank relies upon the words 'at any time' and contends that a proper construction of s 92 requires a conclusion that a secured creditor is given a right of unlimited duration to amend a proof of debt lodged in a composition and thereby reopen a completed transaction. We are unable to agree. Section 92 in so far as it is made applicable to the provisions of Pt X by s 243 is to be read in the context of the various provisions which make up the framework of Pt X permitting arrangements between creditors and debtors without sequestration and which display a particular legislative intention in that regard. It is difficult to conclude that the words 'at any time' are intended to give a secured creditor an unlimited right to apply to the court to amend a proof of debt when the effect of a successful application, after a composition has been completed, would be to alter vested rights obtained by debtors and creditors upon completion of the composition and would amount to a further qualification on the nature of the release of the debtor from all provable debts provided in s 240 when the express qualifications on release provided in s 240(1) are very limited indeed. The fact that the court is unable to make an order declaring the composition to be void after a final payment has been made in the composition, notwithstanding that a debtor may have given false or misleading information to creditors at the meeting at which the resolution accepting the composition was passed, or may have omitted material particulars from the statement of affairs submitted to creditors at that meeting, is a clear indication by the legislature that there is to be finality and certainty to flow from the use of these provisions of the Act."
Their Honours went on to consider other aspects of the Act and the relevant authorities: Re Sadler; Ex parte Norris (1886) 17 QBD 728; Re Becher (1944) 1 Ch 78; Re Fanshawe (1905) 1 KB 170; Re Stacey; Goldsborough Mort & Co Ltd v. Official Receiver (1950) 16 ABC 96; Re Safety Explosives Limited (1904) 1 Ch 226; Re Patrick (1935) 8 ABC 124 and Couldery v. Bartrum (1881) 19 ChD 394. At p 217, their Honours concluded:-
"It is our view that in the instant case the court had no power to vary the proof of debt after completion of the composition. If we are wrong in that view and the court did retain such a power, the exercise of that power would have been a matter of discretion and, having regard to the equities of this case, it would have been inappropriate to exercise that discretion in favour of the creditor."
Their Honours' judgment is binding on me. It follows that, as the composition has been completed, there is no power to permit amendment of the proof of debt under s.92. I would go on to add that, even if there were a discretion to do so, the discretion ought not to be exercised favourably to the Bank. As their Honours said at pp 217-218:-
"A statutory result of the acceptance of the composition was the creation of an accord between creditors to accept only the sum offered by the debtors in satisfaction of their respective debts. ...
Upon acceptance of the composition, and subject only to its due completion, the debtors were released from all provable debts (s 240(1)) and thereafter the bank was only entitled to receive payments in reduction of the debt from such distribution as was due to it under the composition in which it proved together with such sum as was recovered on realisation of the security in respect of that part of the debt for which the bank had not proved in the composition."
The Bank chose to prove in the composition for the guarantee debts due to it by Mr P.W. Malpass. It ought not to be permitted to alter its stance many months after the composition has been completed simply on the basis that, on reflection, the Bank's better course would have been to realise its securities rather than to prove in the composition. The Bank proved in the composition in respect of the guarantees and its position has been brought about entirely by its own action in seeking a distribution out of the composition in respect of the full amount of the guarantee debts which Mr Malpass owed to it.
Indeed, the matter scarcely falls within s.92 for the proof of debt did not value any security, other than the Western Mining shares, in respect of Mr P.W. Malpass's liability as guarantor for the debts of Stradbroke Island Resort Pty Ltd and Fabaro Pty Limited. What is now sought to be done appears rather to be an amendment of the proof of debt to which s.98 would apply, an aspect of the matter which reinforces the approach taken in Westpac Banking Corporation v. Morton, cited above.
The declaration sought by Mr P.W. Malpass should therefore be made.
The next issues relate to the effect of the guarantees and of the mortgages.
By a guarantee signed 7 February 1986, Mr P.W. Malpass and two other persons, with whom we are not otherwise concerned, agreed to pay to the Bank on demand, whether or not the customer was then in default or not, the money secured, being $100,000 respecting Fabaro Pty Ltd, and to indemnify the Bank against any loss which the Bank might suffer in respect thereof. The liability of the guarantors was joint and several. A similar guarantee was given on the same day respecting Stradbroke Island Resort Pty Ltd, in the sum of $50,000.
A mortgage had been given by Mr A.P. Malpass, Mr P.W. Malpass and Miss S.A. Malpass dated 8 July 1980 with respect to property described in Certificate of Title Vol.8463, Fol.84. The mortgage incorporated by reference the terms of the Memorandum filed in the Registrar General's office as No. R420940. A further mortgage between Mr P.W. Malpass, Mr A.P. Malpass and Miss S.A. Malpass dated 25 October 1983 with respect to property described in Certificate of Title, Vol.10376, Fol.71 incorporated by reference the Memorandum filed in the Registrar General's office No. T285179. A mortgage dated 9 April 1984 over property in Vol. 10139, Fol. 98 was given by Mr P.W. Malpass, Mr A.P. Malpass and Mrs S.A. Galvin (Miss S.A. Malpass). This mortgage, also referred to and incorporated the Memorandum filed in the Registrar General's office as No.T285179.
The mortgage dated 8 July 1980 provided, inter alia:-
"(the abovenamed MORTGAGOR) in consideration of loans advances or banking accommodation provided or to be provided to the Mortgagor or at the request of the Mortgagor the Mortgagor covenants and agrees with the undermentioned Mortgagee that the provisions set forth in the Schedule hereto shall be deemed to be incorporated herein and for the purposes of securing to the Mortgagee the payment of all the principal interest interest and other moneys and liabilities intended to be secured mortgages to the MORTGAGEE
...
1. The Mortgagor will pay to the Bank on demand in writing to be made for or on behalf of the Bank all moneys which are now or may from time to time hereafter be owing or remain unpaid to the Bank in any manner on any account whatsoever by the Mortgagor whether alone or jointly with any other person or corporation and whether as principal or surety including:
(a) all and every the sums or sum of money (if any) which the Bank (whether requested so to do or not) has already advanced or paid or is liable to pay or may hereafter (whether requested so to do or not) advance or pay or become liable to pay.
...
And it is agreed and declared that the moneys and liabilities intended to be hereby secured include all amounts which are at any time presently owing and payable as aforesaid AND all amounts which -
(d) are at any time and from time to time owing but not then presently payable;
(e) are at any time and from time to time owing upon a contingency;
(f) at any time and from time to time may become owing or for which the Bank may become liable by reason wholly or partly of past events or by reason of anything done or omitted by the Bank or the Mortgagor;
(g) at any time and from time to time may reasonably forseeably become owing on any account or in any manner whatsoever whether by reason of the relation of banker and customer or by operation of law or equity or otherwise by reason of anything done by the Bank with the consent or at the request of the Mortgagor;
all such amounts being due or becoming due or to become due or which may become due as aforesaid by the Mortgagor to the Bank
And it is specifically acknowledged and agreed that the aforesaid charge and mortgage extend and apply to the moneys and amounts aforesaid and each and every item referred to in paragraphs (a) to (g) (both inclusive).
PROVIDED THAT where it is agreed in writing between the Mortgagor and the Bank that payment of any of the moneys and liabilities hereby secured should be made other than on demand at any time the Bank agrees not to make demand for so much of the moneys and liabilities hereby secured as is affected by such agreement except in manner provided by that agreement.
For the purpose of this Mortgage the certificate of the Bank signed by any manager or accountant or other duly authorised officer of the Bank or any Branch thereof as to the amount of the moneys and liabilities hereby secured and as to any amounts falling within each and any of the abovementioned items shall be conclusive evidence of the amount of each such item stated therein and of the fact that each such item falls within the item so stated and such certificate shall bind the Mortgagor and in favour of any person dealing with the Bank shall be conclusive evidence that the Bank is entitled to make demand."
The mortgage dated 9 April 1984 provided inter alia:-
"....
ITEM No. 2 - MORTGAGOR (b)
Peter William MALPASS of 8th Avenue, HOME HILL in the state of Queensland Company director and Allan Pircy MALPASS of the same address Company director and Suzanne Alice GALVIN of the same address Company director
ITEM No. 3 - MORTGAGEE
NATIONAL COMMERCIAL BANKING CORPORATION OF AUSTRALIA LIMITED
The person named in Item 2 above ('the Mortgagor') in consideration of the Mortgagee named in Item 3 above ('the Bank') having at the request of the Mortgagor provided or agreed to provide loans advances and other banking accommodation to or for the Mortgagor DOTH hereby covenant and agree with the Bank that the provisions set forth and incorporated in the Schedule hereto shall be deemed to be incorporated herein AND for the purpose of securing to the Bank the due satisfaction discharge and payment on demand as therein mentioned of the moneys hereby secured MORTGAGE to the Bank all the estate and interest of the Mortgagor in the land described in Item 1 above ('the Mortgaged Property') ....
FOR THE CONSIDERATION AFORESAID the Mortgagor hereby covenants and agrees with the Bank And it is hereby agreed and declared that:
1. On demand in writing made to the Mortgagor by the Bank the Mortgagor will pay the moneys hereby secured provided that where it is agreed in writing between the Mortgagor and the Bank that the payment of the moneys hereby secured or any part thereof should be made other than on demand at any time (the Mortgagor not having defaulted or being in default) the Bank agrees not to make demand for so much of the moneys hereby secured as is affected by such agreement except in accordance with that agreement or this Mortgage. ..."
In Memorandum No. T285179, the following definitions appeared in Clause 34:-
"'the Mortgagor' when only one person is named as the Mortgagor includes the Mortgagor, his executors administrators and assigns and when two or more Mortgagors are named as the Mortgagor includes each of the Mortgagors severally and any two or more of them jointly and each of their executors administrators and assigns and when a corporation is named as a Mortgagor includes the corporation, its successors and assigns;
...
'the moneys hereby secured' means all moneys and amounts at the date of the Mortgage or at any time hereafter falling within one or more of the following descriptions:
(a) moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor, whether alone or jointly with any other person and whether as principal or surety;
(b) moneys which the Bank, whether requested so to do or not, has advanced or paid or become liable to pay to or for or on account of or on behalf of the Mortgagor;
...
(f) moneys and amounts which -
(i) are owing and payable at the date of execution of the Mortgage;
(ii) are owing but not presently payable;
(iii) are owing upon a contingency;
(iv) may become owing or for which the Bank may become liable by reason wholly or partly of past events or by reason of anything done or omitted by the Bank or the Mortgagor;
(v) may reasonably foreseeably become owing on any account or in any manner whatsoever by reason of the relation of banker and customer or by operation of law or equity or otherwise by reason of anything done by the Bank with the consent or at the express or implied request of the Mortgagor, all such moneys and amounts being due or becoming due or to become due or which may become due as mentioned in this paragraph by the Mortgagor to the Bank;
(g) moneys and amounts referred to in other clauses of the Mortgage as being added to or otherwise as forming part of the moneys hereby secured;
(h) interest due or accruing under clause 35 or turned into principal under that clause, AND it is agreed and specifically acknowledged that -
(A) in this definition each reference to the Mortgagor includes a reference (where the context so permits) to any other person whose indebtedness to the Bank is intended to be secured by the Mortgage; and
(B) the security constituted by the Mortgage extends and applies to and in relation to each and every item referred to in each paragraph and sub-paragraph of this definition."
Provisions in Memorandum No. R420940 were to like effect, though differently expressed.
One issue is whether, when the mortgages used the term "the mortgagor", in relation to a liability or default, they used that term to encompass the obligations which the three mortgagors together incurred to the Bank or whether they encompassed also the several and separate obligations which each mortgagor had to the Bank. On the widest interpretation, each of the mortgagors became separately liable, not only for any debt which the three mortgagors together had to the Bank, but also for any debt which any of the mortgagors separately had to the Bank.
In Richards and Another v. The Commercial Bank of Australia (1971) 18 FLR 95, Fox J. adopted a narrow reading. At pp 98-9, Fox J. said:-
"Clause 22, to which I have already referred, provides :
'"The Mortgagor" shall include the successors in title of the Mortgagor And all covenants by the Mortgagor shall be deemed to be binding on his successors in title. And when more persons than one are included in the term "the Mortgagor" their liability shall be joint as well as several. ...' The provisions in this clause specifically related to the term 'mortgagor' are inapplicable, because the question is not whether the liability in connexion with a guarantee or guarantees is joint or joint and several. Given that, if any liability exists, it would be joint and several, the question remains whether there are guarantees to which the clause refers. The provision that 'any words importing the singular number shall include the plural and vice versa' does not assist. The word used is in the singular, and, even if it were to be read in the plural, the result would be the same as I have already mentioned. Indeed, I do not understand the rule of construction which the provision expresses to be concerned with the present type of situation. The argument for the bank is not that one should simply read the plural for the singular, or is not that one should simply read the plural for the singular, or vice versa, but that it should be read in the plural, and also, in the alternative, in the singular. In my view this is not the natural meaning or effect of the words, and there is nothing to which I have been referred in the mortgage which produces the result contended for."
However, in National Commercial Banking Corporation of Australia Ltd v. Hedley (1984) 3 BPR 9477, Hodgson J. adopted a wider view. His Honour said, at p 9484:-
"The final question in the case is whether the debt which has been evidence in the case owing under the accounts which I previously mentioned is in fact included in the mortgage. It is said Mrs Hedley herself has no liability to the bank. The only liability which is alleged is in effect a liability under two accounts both of which are accounts of three persons, namely Messrs Ward, Rixon and Hedley.
The mortgage secures liabilities of the mortgagor and the mortgagor is identified as Mr and Mrs Hedley. There is in cl 33 a definition which says, inter alia, that 'When two or more mortgagors are parties 'mortgagor' means the mortgagors ... and each of them severally ...'. The second defendant submits that all this does is to make any liability which is a liability of both the mortgagors a liability which is joint and several; it does not have the effect of making the mortgage cover a liability which is a liability of one mortgagor alone and in support of that contention I was referred to the case of Richards v The Commercial Bank of Australia (1971) 18 FLR 95. In that case the relevant definition clause merely said that when more persons than one were included in the term 'mortgagor' their liability should be joint as well as several. Fox J held that those words did not operate to make the mortgage catch a liability of one mortgagor alone. It seems to me, however, that the clause in this case is relatively different because it says that 'mortgagor' means the mortgagors and each of them severally. Accordingly, it seems to me that when I read the word 'mortgagor' wherever it appears, prima facie, I should read that as meaning the mortgagors and each of them severally so that where the mortgage talks of a liability of the mortgagor it is in fact talking of a liability of the mortgagors and a liability of each of the mortgagors separately. I add that cl 1 of the mortgage makes it clear that the mortgage does cover liabilities which the mortgagor has along with other persons not mortgagors.
Accordingly I think the mortgage does in fact secure obligations under the accounts to which I have referred."
As the latter case shows, the provisions of the mortgages and of the registered memoranda with which we are concerned are wide enough to encompass, in appropriate circumstances, obligations which were undertaken to the Bank by one only of the mortgagors separately, not merely obligations undertaken by the mortgagors together. Nevertheless, as Fox J. pointed out in the first mentioned case, care must be taken not to read the documents too widely.
It is going too far to read the subject mortgages and memoranda as imposing a joint and several undertaking on the part of the mortgagors to pay to the Bank all the monies which may be owing at any time by the mortgagors or any of them separately.The mortgages and the memoranda do not so provide. They stipulate that the mortgagors will pay to the Bank the moneys secured by the mortgages, on demand being made in writing to the mortgagors. As Chitty J. said In re J. Brown's Estate. Brown v. Brown (1893) 2 ChD 300 at pp 304-5:-
"... it is plain that a distinction has been taken and maintained in law, the result of which is, that where there is a present debt and a promise to pay on demand, the demand is not considered to be a condition precedent to the bringing of the action. But it is otherwise on a promise to pay a collateral sum on request, for then the request ought to be made before action brought."
Here, the mortgages, including the memoranda, must be read in the latter sense, as dealing with collateral obligations, and as requiring as a condition precedent to liability that a demand in writing be made. I do not understand that there is any submission to the contrary.
In that light, I return to the guarantees. The guarantees were given by Mr P.W. Malpass and the two other persons with whom we are not otherwise concerned. The composition, by s.240(1) of the Act, released Mr P.W. Malpass from his obligations under those guarantees. The obligations were provable debts and were the subject of an accepted proof of debt.
It is submitted by Mr Bannon that, under s.240(3), the composition did not release from any liability any person who at the date the composition was accepted was jointly bound with him, or a person who was a surety or in the nature of a surety for him. It can be accepted that this is so, for s.240(3) so specifies. However, at the date of the acceptance of the composition, Mr A.P. Malpass and Miss S.A. Malpass had no liability in respect of the guarantes for no demand in writing had been made under the mortgages.
On or about 23 December 1987, that is after the obligations of Mr P.W. Malpass to the Bank had been released by the composition, the Bank served on each of Mr P.W. Malpass, Mr A.P. Malpass and Miss S.A. Malpass a demand under the mortgages which read inter alia:-
"National Australia Bank Limited hereby demands payment from you of each sum referred to below together with so much interest as has accrued thereon as at the date of payment thereof at the usual and prevalent rate charged by the Bank from time to time in similar transactions on the type of facility indicated and the repayment of which together with such interest is secured by the abovementioned security AND NOTICE IS HEREBY GIVEN that unless each sum so due be immediately paid the Bank will take such action for recovery as it may be advised and (if appropriate) will proceed to exercise the powers of sale and other the powers vested in it by virtue of the security and (if appropriate) the Real Property Act 1900, the Conveyancing Act 1919 and otherwise in that behalf. Any communication in response to this demand is to be directed to the Manager, 125 Eighth Avenue, Home Hill, Queensland Branch or to the Manager, Brisbane Office - 308-322 Queen St., Brisbane, Queensland == Sum Due As At Account The Date Hereof Malpass Enterprises Pty Limited
(account conducted at Home Hill
Branch) $262,181.57 Allan Pircy Malpass, Peter William Malpass and Suzanne Alice Galvin
Term Loan
(account conducted at Brisbane Office)$258,283.54 You are further advised that in addition to the liabilities to which reference is made above, the abovementioned mortgages also secure your liabililties to the Bank pursuant to:
- an Indemnity dated 31 December, 1980 relative to a Guarantee by Bank in favour of Sydney County Council for $5,500.
- a Guarantee and Indemnity dated 7 February 1986 given jointly and severally with two other parties, in respect of liabilities of Fabaro Pty. Limited at Brisbane Office.
- a Guarantee and Indemnity dated 7 February, 1986 given jointly and severally with two other parties in respect of liabilities of Stradbroke Island Resort Pty. Ltd. as Trustee for the Malpass Kerr Unit Trust at Brisbane Office."
By 23 December 1987, the liability of Mr P.W. Malpass under the guarantees did not exist, it had been released. Therefore, the guarantee liabilities did not form part of the sums secured by the morgages, and no demand could be made in respect thereof. Even if, on demand being made, there would have been a joint and several liability on the part of the mortgagors for the separate liabilities of the mortgagors to the Bank, there was not on 23 December 1987, any separate liability of Mr P.W. Malpass to the Bank under the guarantees in respect of which demand could be made.
Furthermore, in so far as the guarantees were mentioned, the demand was not a demand for the payment of a sum of money, as the mortgages intend, and was not a demand, or a valid demand, under the mortgages. There was merely an advice or warning as to the existence of the guarantees.
Mr Bannon further submitted that Mr P.W. Malpass had not been released from his debts by the operation of s.240 of the Act as the Bank had not proved in the composition. He submitted that the proof of debt lodged did not comply with the provisions of s.90, as the Bank had securities in respect of the guarantees which it did not value and which it did not surrender.
However, the Bank lodged a proof of debt which was accepted. There is no proceeding before the Court to set aside that proof or otherwise to invalidate it. In my opinion, the Bank proved in the composition for the purposes of s.240(2).
Another ground of contention of which notice was given on behalf of the Bank was that the $293,289.14 was not a provable debt. The ground was not relied upon in argument. I see nothing in the point.
I turn now to matters arising under the Court's accrued and State jurisdiction. The Bank seeks possession of the secured property on the ground that Mr P.W. Malpass, Mr A.P. Malpass and Miss S.A. Malpass are in breach of a term loan granted to them by the Home Hill Queensland branch of the Bank. Presumably, that loan was the principal component of the second item, $258,283.54 in the Notice of Demand served 23 December 1987.
No default in the payment of principal or interest is alleged. However, the Loan Conditions dated 9 April 1984 provided inter alia:-
"10. Until the loan is fully repaid each of the following events and occurrences shall constitute an event of default: ...
(d) if you commit a breach of or default under the terms of any other agreement or arrangement between you and National Commercial Banking Corporation of Australia Limited, or National Australia Savings Bank Limited, or ...
(g) if any guarantor of the loan becomes bankrupt or assigns his estate for the benefit of his creditors or enters into a composition or arrangement with his creditors or in the case of a company goes into liquidation either voluntarily or compulsorily, or
(h) if you become bankrupt or assign your estate for the benefit of your creditors or enter into a composition or arrangement with your creditors, or
(n) if any party to your application is a company:
(i) if such company passes a Special Resolution in terms of Section 114 of the Companies Code, as amended from time to time or, if the Companies Code does not apply, in terms of any similar statutory provision, or
(ii) if a petition is presented by or against such Company or any Company from which security is or may be held for the loan or any order is made or a resolution passed for the winding up of such Company or any such other Company or if any meeting be convened for the purpose of considering any such resolution, or
(iii) if a Receiver or a Receiver and Manager of all or any part of the undertaking or other property and assets of such Company or any Company from which security is or may be held for the loan be appointed or if any steps be taken for the appointment of such a Receiver or a Receiver and
(iv) if such Company or any Company from which security is or may be held for the loan is placed under Official Management or if any steps be taken for the appointment of such an Official Manager. ...
11. If an event of default mentioned in paragraph 10 occurs the Bank shall have the right to serve demand on you whereupon the whole of the indebtedness then outstanding in the Loan Account together with all other interest, fees and charges shall become immediately due and payable.
...
20. Where two or more are applicants for the loan, the conditions herein contained or implied shall bind them and any two or more of them jointly and each of them severally."
It is a difficult question whether clause 10(d) and (h) can be read with clause 20 so as to mean "you or any of you". See the discussion by Fox J. in Richards & Anor v. The Commercial Bank of Australia, cited above, and by Davies, Kelly and Pincus JJ. in Registrar of Liquor Licences v. Peter Iliadis & Ors (unreported judgment, No. ACT G69 of 1987, delivered 21 September 1988). It is one thing to say that the borrowers are jointly and severally liable for any default. It is another thing to say that an act by one of the borrowers is a relevant act by borrowers described as "you".
The Conditions of Loan do not include the provision, contained in the Memoranda which I have discussed, that "the Mortgagor includes each of the Mortgagors severally". The Conditions of Loan merely provide that the Conditions bind the borrowers jointly and each of them severally.
In the context, I read the word "you" in paras. 1O(d) and (h) to refer to the three borrowers jointly or to any one borrower against whom separate action is taken.
Thus, the Bank was not entitled, in respect of action taken against Mr A.P. Malpass and Miss S.A. Malpass, to rely upon the separate default of Mr P.W. Malpass. Accordingly, there was no default under the Conditions of Loan in respect of which action could be taken by the Bank against Mr A.P. Malpass and Miss S.A. Malpass.
I should also mention that the notice given by the Bank under clause 11, which was relied upon to found the demand in writing subsequently given under the mortgages on 23 December 1987, was a notice dated 17 September 1987. Mr McInnes did not specifically submit that that notice of demand was invalid or unconscionable in that the composition was accepted in December 1986 and the notice relying upon the composition was not given until September 1987. I regard this as an open question in the proceedings; but, in the absence of argument thereon, I make no comment on it.
There are further problems in the Bank's application for possession. In the first place, the Bank seeks possession of the whole property, notwithstanding Mr P.W. Malpass's one-third interest therein and the effect of the composition so far as his property and his liabilities to the Bank are concerned. Secondly, Rule 8 of Part 7 and Rule 11 of Part 40 of the Rules of the Supreme Court of New South Wales have not been complied with. I agree with Mr McInnes that, in a matter such as this, to ensure comity, such rules should be applied. See s.79 of the Judiciary Act 1903 (Cth) and s.11 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW). The second of these matters could now be remedied, but the first is, in my opinion, fatal to the claim.
For all these reasons the declarations and orders sought by the Bank must be refused.
Accordingly, the declaration sought in the application will be made and the cross-application will be dismissed. The Bank should pay the costs of the proceedings.
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