Morris Finance Ltd v Brown

Case [2017] FCAFC 97

FEDERAL COURT OF AUSTRALIA

Morris Finance Ltd v Brown [2017] FCAFC 97

Appeal from: Morris Finance Limited v Free, Trustee of the Property of Neil Warren Brown, a Bankrupt [2016] NSWSC 516
File number: VID 1485 of 2016
Judges: BEACH,  MARKOVIC AND MOSHINSKY JJ
Date of judgment: 19 June 2017
Catchwords: BANKRUPTCY – application for leave to appeal from decision of the Supreme Court of New South Wales – equitable charge over real property – proceedings for orders for possession and sale – whether applicant required leave under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to commence such proceedings – consideration of interaction between ss 58(3)(b) and 58(5) of the Bankruptcy Act – whether equitable chargee a “secured creditor” under s 58(5) of the Bankruptcy Act – meaning of “realize or otherwise deal with” in s 58(5) of the Bankruptcy Act in its application to an equitable charge – application for leave to appeal granted – appeal allowed
Legislation:

Bankruptcy Act 1924 (Cth) s 60

Bankruptcy Act 1966 (Cth) ss 5, 58(3)(b), 58(5), 90

Federal Court of Australia Act 1976 (Cth) s 24

Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) s 7

Bankruptcy Act 1898 (NSW) s 10

Insolvency Act 1874 (Qld) s 75

Insolvency Act 1890 (Vic) s 59

The Bankruptcy Act 1870 (Tas) s 11

The Bankruptcy Act 1892 (WA) s 9

The Insolvent Act 1886 (SA) ss 126, 220

An Act to amend and consolidate the Laws relating to Bankrupts 1849 (Imp) (12 & 13 Vict, c 106) ss 141, 142, 184

An Act to amend the Laws relating to Bankrupts 1825 (Imp) (6 Geo IV, c 16) s 108

An Act to establish a Court in Bankruptcy 1831 (Imp) (1 & 2 Will 4, c 56) ss 25, 26

Bankruptcy Act 1869 (UK) ss 12, 13, 72

Bankruptcy Act 1883 (UK) ss 9, 168

Cases cited:

Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397

Evenwood Pty Ltd v Conway [1997] WASC 14

Hall v Richards (1961) 108 CLR 84

Hanshaw v National Australia Bank [2012] NSWCA 100

In re England; Ex parte Pannell (1877) 6 Ch D 335

In re Wherly; Ex parte Hirst (1879) 11 Ch D 278

Lawrence & Hanson Group Pty Ltd, in the matter of Pugliese v Pugliese [2016] FCA 1278

Mango Media Pty Ltd v Velingos [2008] NSWSC 202

Morris Finance Ltd v Brown [2016] NSWCA 343

Morris Finance Ltd v Free, Trustee of the Property of Neil Warren Brown, a Bankrupt [2016] NSWSC 516

Perpetual Trustee Company Ltd v Daniel Cuitanovic as Trustee of the Bankrupt Estate of Dimitrovski [2013] NSWSC 722

Savieri v Brown [2008] NSWSC 1210

Scott v Bagshaw (2000) 99 FCR 573

Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584

Talacko v Bennett [2017] HCA 15

Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45

Tennant v Trenchard (1869) LR 4 Ch App 537

The Melbourne Tramways Trust v The Melbourne Tramway and Omnibus Company…

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AGLC
Morris Finance Ltd v Brown [2017] FCAFC 97
Case
[2017] FCAFC 97
Decision Date

CaseChat Overview and Summary

In the case of Morris Finance Ltd v Brown, the applicant, Morris Finance Ltd, sought leave to appeal a decision from the Supreme Court of New South Wales. The primary dispute involved an equitable charge over real property and the rights of the applicant to commence proceedings for orders for possession and sale of the charged property. The court was required to determine whether Morris Finance Ltd needed leave under section 58(3)(b) of the Bankruptcy Act 1966 (Cth) to initiate such proceedings and whether the equitable chargee qualified as a "secured creditor" under section 58(5) of the Bankruptcy Act. Additionally, the court needed to interpret the phrase "realize or otherwise deal with" in the context of an equitable charge.

The court examined the interaction between sections 58(3)(b) and 58(5) of the Bankruptcy Act, considering whether the equitable chargee was a "secured creditor" and if the term "realize or otherwise deal with" included judicial processes for enforcement of the charge. The court concluded that the equitable chargee qualified as a "secured creditor" and that "realize or otherwise deal with" encompassed the use of judicial processes. Therefore, Morris Finance Ltd did not need leave to initiate proceedings to enforce the equitable charge. The appeal was allowed, and the court set aside the previous answer to the separate question, stating that the applicant did not require the court's leave to commence the proceedings. The costs of the appeal were to be borne by the respondents, with the costs of the original proceedings in the Supreme Court to be determined by that court.

Orders

Orders of the court

1. The applicant have leave to appeal the decision of Darke J of the Supreme Court of New South Wales made on 15 April 2016.

2. The appeal be allowed.

3. Order 1 of Darke J’s orders of 15 April 2016 be set aside and in lieu thereof it be substituted:

Order that the separate question: “Does the plaintiff require the leave of the Court (within the meaning of s 58 of the Bankruptcy Act 1966 (Cth)) to commence the proceedings or to take any fresh step in the proceeding?”

be answered: “No”.

4. The first to third respondents pay the applicant’s costs of and incidental to the application for an extension of time, the application for leave to appeal and the appeal, to be taxed in default of agreement.

5. Any further question of costs in relation to the proceeding in the Supreme Court of New South Wales be reserved for consideration by a judge of that Court.

6. Liberty to apply.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Finally, the third respondent made reference to Hall v Richards (1961) 108 CLR 84 and Taylor J’s discussion at 101, but we do not consider that case to be on point. That case concerned a judgment creditor levying execution on a judgment debtor’s interest in land by the use of a caveat. The question was whether that made the judgment creditor a “secured creditor” under the relevant bankruptcy legislation and conferred a “lien” or “charge”. It was held that it did not. It was in that context that Taylor J observed that levy by execution was not equivalent to a realization by an encumbrancee of his security. In the present case we are concerned with the enforcement of an equitable security over land, not an unsecured judgment creditor levying execution facilitated by a caveat permitted under relevant legislation associated with the potential use of a writ of fieri facias.CONCLUSION In summary, leave to appeal should be granted and the appeal allowed. We will set aside his Honour’s answer to the separate question and answer it “No”. In our view, the costs of the proceedings before us should follow the event save that we will make no order for costs against the fourth respondent as none was sought or against the fifth respondent who filed a submitting notice. We see no reason to make any indemnity costs order, but we will give the parties an opportunity to address us further on that question if they so choose. Finally, the costs of the proceedings in the Supreme Court of New South Wales will be left for that Court to determine.

Ratio Decidendi

Legal Principle Established

The first Commonwealth bankruptcy legislation was the Bankruptcy Act 1924 (Cth). It was substantially based upon the 1883 UK Act (and the later 1914 UK Act) although it incorporated some aspects of the then State legislation. Relevantly, s 60 of the Bankruptcy Act 1924 (with the marginal note set out as a heading) provided as follows:60. Effect of sequestration order(1) Upon sequestration the property of the bankrupt shall vest in the official receiver named in the order, and shall be divisible among the creditors of the bankrupt in accordance with the provisions of this Act.(2) After sequestration, except as directed by this Act, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, or shall commence or take any fresh step in any action or other legal proceeding, unless with the leave of the Court and on such terms as the Court imposes.(3) This section shall not affect the power of any secured creditor to realize or otherwise deal with his security.(Emphasis added.) Unlike the various iterations of bankruptcy legislation that we have identified above, s 60(3) of the Bankruptcy Act 1924 did not contain the words “in the same manner as he would have been entitled to realise or deal with it if this section had not been passed”. But commentary on s 60(3) indicates that the absence of these words did not serve to and was not intended to change that position. In Rogers G and Wardle H, A Guide to Bankruptcy Law in Australia (Butterworth & Co. (Australia) Ltd, 1948), it was noted (at 60 to 61) in respect of s 60(3) of the Bankruptcy Act 1924 that:… s. 60(3) makes it clear that a secured creditor is not prevented from realizing or otherwise dealing with his security in the same manner as he would have been entitled to do if no bankruptcy proceedings had been taken. To hold otherwise would completely upset all recognized rules and the practice of lending money on recognized securities. Thus, the mortgagee who has advanced a sum of money on the security of real estate possessed by the bankrupt, will be allowed to realize or deal with his security in the same way as he would have been entitled to do if there had been no bankruptcy. This position is consistent with the case law concerning s 12 of the 1869 UK Act and s 9 of the 1883 UK Act. For completeness, we note that the Bankruptcy Act 1924 was amended from time to time up to the enactment of the Act, which implemented the 1962 recommendations of the Committee to Review the Bankruptcy Law of the Commonwealth chaired by Sir Thomas Clyne. But the amendments to the Bankruptcy Act 1924 do not affect the present question. As for the Act, s 60 of the Bankruptcy Act 1924 was re-enacted as s 58 of the Act. No intention was manifested to make any change concerning the position of secured creditors and the Clyne Committee Report was silent on the matter. To complete this description of the legislative history, we note that ss 58(3) and 58(5) of the Act as originally enacted were in the same form as their present form. The definition of “secured creditor” in s 5(1), as originally enacted, was substantially the same as paragraph (b) of the current definition. It is to be observed that s 58(5) uses the word “right” (“the right of a secured creditor”) instead of the word “power” as used in the predecessor legislation discussed earlier. It is not clear why this change was made. But if anything, the word “right” more readily embraces the invocation of judicial processes for realization than perhaps the word “power”.ANALYSIS