NZI Capital Corporation v Hamilton, W

[1995] FCA 292

CATCHWORDS

COMPANIES - debentures - property charged and chargeable - charge created by deed - "book debts" released from charge - floating charge converted to fixed charge upon action being taken to appoint liquidator - whether charge extends to moneys paid in discharge of "book debts".

NZI CAPITAL CORPORATION v WILLIAM HAMILTON as liquidator of REX DEVELOPMENTS PTY LIMITED (IN LIQUIDATION)
AG 37 of 1994

LOCKHART, WILCOX, OLNEY, HILL, O'LOUGHLIN JJ.
1 MARCH 1995
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA  )
  )
NEW SOUTH WALES DISTRICT REGISTRY  )    No.  AG37   of  1994
  )
GENERAL DIVISION                 )

ON APPEAL FROM THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:NZI CAPITAL CORPORATION

Appellant

AND:WILLIAM HAMILTON as liquidator of REX DEVELOPMENTS PTY LIMITED (IN LIQUIDATION)

Respondent

COURT:    LOCKHART, WILCOX, OLNEY, HILL, O'LOUGHLIN, JJ
DATE:     1 MARCH, 1995
PLACE:    SYDNEY

MINUTE OF ORDER
THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA  )
  )
NEW SOUTH WALES DISTRICT REGISTRY  )    No.  AG37   of  1994
  )
GENERAL DIVISION                 )

ON APPEAL FROM THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:NZI CAPITAL CORPORATION

Appellant

AND:WILLIAM HAMILTON as liquidator of REX DEVELOPMENTS PTY LIMITED (IN LIQUIDATION)

Respondent

COURT:    LOCKHART, WILCOX, OLNEY, HILL, O'LOUGHLIN, JJ
DATE:     1 MARCH, 1995

REASONS FOR JUDGMENT
THE COURT:
     This appeal concerns the construction of two documents; one in evidence, the other not.  The first is a deed of charge dated 6 September 1985 ("the charge"); the other is a document apparently dated 30 May 1986 ("the release") which released from the charge part of the property charged under it.  Curiously, the release is not in evidence, but there is in evidence a document styled "memorandum of release of property or part of property from charge", which records that there has been released from the ambit of the charge: "... all book debts now or in the future owing to the chargor."

The case has been conducted at all stages of its history on the basis that, notwithstanding the absence of the release, the above quoted words appearing in the memorandum of release accurately state the relevant provisions of the release itself.

The charge relevantly provides as follows:

"Clause 2.01 the chargor as a beneficial owner hereby charges the charged property to the chargee to secure the payment of the moneys secured."  

The expression "charged property" is defined in the charge to include "the property specified and referred to in the first schedule".

The first schedule to the charge provides that the charged property is: "All and singular the present and future property, assets and undertaking of the chargor including -" There then follow certain matters which are not relevant for present purposes.

The nature of the charge is relevantly described in clause 2.02 of the charge as being a fixed charge over "(4) all book and other debts and other moneys now or in the future owing to the chargor" and is described also as being a floating charge over the balance of the charged property. 

The proceeding first came before the Master of the Supreme Court of the Australian Capital Territory who held that the security held by the chargee (the appellant in this
appeal) extended to cheques tendered to the chargor (Rex Developments Pty Limited, now in liquidation) (the company) after the commencement of the winding up of the company by creditors in payment of book debts owed by them to the company.

The Master also held that the effect of the release did not extend to cheques tendered in payment of such debts after the commencement of the winding up. 

His judgment rested on the distinction which he found to exist between book debts themselves and cheques tendered in payment of them.  Whether that perceived distinction is sound in law is the critical question in this case. 

On appeal to the Full Bench of the Supreme Court of the Australian Capital Territory, constituted by Miles CJ, Gallop and Higgins JJ, their Honours divided on the relevant question.  The Chief Justice and Gallop J held that the deed of charge did not extend to  cheques tendered to the company after 8 May 1987 by creditors in payment of the book debts owed by them to the company.  Higgins J  dissented from the views of the other members of the Supreme Court. 

The summons to wind up the company was filed on 8 May 1987 in the Supreme Court registry and the company was wound up by order of the Supreme Court on 25 May 1987.  Hence, the winding up commenced on 8 May 1987.

It is common ground, and has been so throughout the curial history of the case, that the filing of the summons to wind up the company caused the floating charge, created by the deed of charge, to be converted into a fixed charge pursuant to clause 2.03 (b)(ii), the relevant event being "Any action being taken by any person to appoint a liquidator of the chargor."

The floating charge created by the deed of charge became a fixed charge on 8 May 1987; thereafter all property of the company present or future, the subject of the floating charge, became subject to a fixed charge.  Under the deed of charge itself the book debts due to the company, whether present or future, became subject to a fixed charge; but after the date of the release, 30 May 1986, they were not subject to the charge because of the terms of the release.  The purpose of the release was to take book debts outside the reach of the secured creditor who was previously entitled to the benefit of the charge over them.

There is, of course, a distinction in law between a debt and a cheque in discharge of the debt, but that is not a distinction that is relevant for present purposes.   Book debts can be paid in a variety of ways including cheque, cash, credit card or set off.   But by whatever means payment is adopted, the book debt is extinguished or reduced pro tanto with the amount of the payment. If book debts are not subject to a charge it is impossible for moneys received by the company in payment of them to be treated other than in discharge or reduction of the debts.

The cheques or cash or other means used to pay the debts have no relevant legal character independently of the debts themselves.  It would be an extraordinary result if a creditor who has no charge over a company's book debts, nevertheless has a charge over the moneys paid to the company in discharge or reduction of them.  The fact that the charge extends by way of floating charge to "the balance of the charged property" as it does in this case, has no relevant consequence in law for present purposes.

Plainly the parties to the deed of charge and the release intended that the benefit of the charge in favour of the secured creditor, would not extend to book  debts or moneys paid in discharge or reduction of them by whatever means  payment was made.  The construction contended for by the appellant would exclude from the scope of the expression "book debts" (where used in the deed of charge and the release) those sums which are received in payment of the book debts, notwithstanding that those sums represented the very same asset that was excluded from the charge by the release.  We do not accept that construction.
     We were referred in argument by counsel for the appellant to the judgment of the High Court in Ferrier v Bottomer (1972) 126 CLR 597 in support of their argument. But that case, like the present, turned upon the wording of the instrument of charge itself and the facts of that case; it is of no real assistance in determining the question before us.

We were referred by counsel for the respondent to a recent decision of a judge of the Supreme Court of New South Wales in Mineral and Chemical Traders Pty Limited v Tymczyszyn Pty Limited (In liquidation) (1995) 15 ACSR 398. That case is quite different from the present case and it did not involve the question of construction with which the Court is presently concerned.

The order of the Court is that the appeal be dismissed with costs. 

I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment herein of the Court given on 1 March 1995.

Associate

Dated:   24 March 1995

Counsel for the Appellant     :    Mr B A Coles QC

Mr M Cashion

Solicitors for the Appellant  :    Kemp Strang & Chippindall

Counsel for the Respondent    :    Mr R McFarlan QC

Solicitors for the Respondent :    Minter Ellison Morris Fletcher

Date of Hearing             :    1 March 1995

Date of Judgment            :    1 March 1995