Pilmer v HIH Casualty & General Insurance Ltd (No 2)

[2004] SASC 389

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

PILMER & ORS v HIH CASUALTY & GENERAL INSURANCE LIMITED & ORS (No 2)

Judgment of The Honourable Justice Mullighan

26 November 2004

CORPORATIONS - WINDING UP

PROPERTY IN WHICH CORPORATION HAS BENEFICIAL INTEREST  ---  MONEY PAID INTO COURT PURSUANT TO COURT ORDER

Plaintiff covered for professional indemnity insurance by defendants - plaintiff found liable for professional negligence - first defendant disputed obligation of indemnity - judgment entered that first defendant obligated to indemnify the plaintiff - first defendant ordered to make payment into court of the amount required to discharge its obligations to the plaintiff - the first defendant became insolvent and the Supreme Court of New South Wales ordered that the first defendant be wound up and liquidators appointed - whether the funds in court are the property of the first defendnat for the purposes of s 468 of the Corporations Act 2001 ("the Act") - whether the payment out would constitute disposition of property under s 468(1) of the Act and void - whether in the circumstances the court should exercise its discretion to validate a disposition that would otherwise be void.

Insurance Contracts Act 1984 (Cth) s 57; Corporations Act 2001 (Cth) Part 5B, Part 5.4B, s 468, s 468(1), s 468(4), s 474, s 588FF; Supreme Court Rules r 39, r 109, r 109.02, r 109.03, r 109.05, r 109.06, r 109.06(b), r 109.07, r 109.08, r 109.11, r 109.11(1), r 109.11(2), Practice Direction 17; Supreme Court Act 1987 (SA) s 5, s 119, referred to.
In Re Gordon; Ex Parte Navalchand [1897] 2 QB 516; W A Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038; Ex Parte Banner; In re Keyworth (1874) 9 D Ch App 379; Bird v Barstow [1892] 1 QB 94; Ex Parte Bouchard; In Re Moojan (1879) 12 Ch D 26; In Re Ford Ex Parte The Trustee [1900] 2 QB 211; Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Ltd [1972] VR 702; Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd (1989) 90 ALR 589; Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264; Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306; Re Margart Pty Ltd (In Liquidation); Hamilton v Westpac Banking Corporation & Anor (1984) 79 FLR 330; Wiley v Commonwealth (1995) 131 ALR 712; Wiley & Anor v Commonwealth (1996) 66 FCR 206; Re Lovering & Anor; Galladin Pty Limited (Receiver & Manager Appointed) v Jackson (1994) 50 FCR 587; Dwight v Commissioner of Taxation (1992) 37 FCR 178; Halvanon Insurance Co Ltd v Central Reinsurance Group [1988] 3 All ER 857; The Registrar of the Accident Compensation Tribunal (Vic) v Commissioner of Taxation of the Commonwealth of Australia (1993) 178 CLR 145, discussed.
Duke Group Ltd (In Liq) v Pilmer (1998) 144 FLR 1; Duke Group Ltd (In Liq) v Pilmer (1999) 73 SASR 64; Pilmer v Duke Group Ltd (In Liq) (2001) 207 CLR 165; Pilmer v HIH Casualty & General Insurance Ltd (2000) 80 SASR 472; Singer v Gilcrest Watt & Sanderson Pty Ltd (1950) 67 WN(NSW) 89; Hixon v Hixon & Fire & All Risks Insurance Co Ltd [1988] 2 Qd R 553; Peal Furniture Co Ltd v Adrian Share (Interiors) Ltd [1977] 1 WLR 464; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311; Tellsa Furniture Pty Ltd (In Liquidation) v Glendare Nominees Pty Ltd (1987) 9 NSWLR 254; Guthrie v Chandler & Anor (1991) 5 ACSR 387; Re Terene Pty Ltd (In Liq) (1992) 7 ACSR 309; Re Gray's Inn Construction Co Ltd [1980] 1 All ER 814; Re Steane's (Bornemouth) Ltd [1950] 1 All ER 21, considered.

PILMER & ORS v HIH CASUALTY & GENERAL INSURANCE LIMITED & ORS (No 2)
[2004] SASC 389

Civil

1. MULLIGHAN J:               This is an application for specific directions that the Registrar of this Court pay to, or at the direction of the plaintiffs, the amount of money due by them pursuant to a judgment of this Court.  As will be seen, I have been asked by the parties to resolve issues as preliminary matters and depending upon how they are resolved, the plaintiff requests an order for payment out of money in court.

2. The plaintiffs carried on practice as accountants under the name of Nelson Wheeler in Perth during 1987 and 1988 with the exception of one of the plaintiffs who is a personal representative of a former partner of that firm who died some years ago.   I shall refer to the plaintiffs as “NWP”.

3. In or about July 1991 NWP retained the second and third defendants or one of them who carried on the business of insurance brokers to obtain policies of professional indemnity insurance with a limit of $50 million.  I shall refer to the defendant who arranged the cover as “Willis Corroon”.

4. The insurance cover was arranged in layers.  The first layer was underwritten by the first defendant, which I shall refer to as “HIH”, for $10 million.  This cover has been referred to as “the Primary Policy”.  The first excess layer was written by GIO Insurance Ltd for $10 million.  The second excess layer was written by London insurers and HIH for $30 million.  The London insurers wrote 76 per cent of that amount and the balance of 24 per cent, namely $7.2 million was written by HIH.

5. In June 1992 Duke Group Limited (In Liquidation) (“Duke Group”) gave notice to NWP of a claim for damages against them for what I shall briefly describe as professional negligence.  On 30 June 1992 NWP gave written notice of the claim to Willis Corroon which in turn gave notice within the relevant claims period to HIH.  The claim was accepted and HIH appointed solicitors, Phillips Fox in Perth, to act on its behalf and for NWP.

6. Duke Group commenced proceedings in this Court against NWP for breach of contract and tort arising out of a report prepared by them pursuant to the Main Board Listing Rules of the Australian Stock Exchange in the context of the acquisition of the predecessor of Duke Group of the shares in a related company (“the Duke Group proceedings”).

7. NWP denied the causes of action and the Duke Group proceedings went to trial before me commencing on 15 June 1994 and concluding on 19 September 1997.  On 30 January 1998 judgment was entered against NWP for $93,863,796.81, including interest, to the date of judgment, plus costs:  Duke Group Ltd (In Liq) v Pilmer & Ors (1998) 144 FLR 1, 27 ACSR 1, 16 ACLC 567.

8. NWP appealed, and Duke Group cross-appealed, against the judgment to the Full Court of this Court.  On 15 June 1998 execution of the judgment was stayed pending the appeal subject to various undertakings by NWP and injunctive orders.

9. Following the judgment being entered HIH accepted liability for the indemnity under the Primary Policy and claimed that it was entitled to recover about $14.4 million from NWP being legal costs of defending the Duke Group proceedings.  It indicated that it intended to deduct these costs from the indemnity of $10 million under the Primary Policy with the consequence that no amount would be paid by HIH towards discharging the judgment.  HIH intimated that it did not accept  that it was the insurer on risk with respect to the 24 per cent of the Second Excess Policy.  GIO accepted the obligation of indemnity for $20 million under the first excess layer and the London insurers accepted their share of liability for the indemnity under the second excess layer, namely 76 per cent.  They all accepted liability to pay the costs of NWP in defending the Duke Group proceedings.

10. The Full Court heard and determined the appeal.  The amount of the judgment against NWP was increased to $117,073,842.91, including interest to 30 January 1998: Duke Group Ltd (In Liq) v Pilmer (1999) 73 SASR 64.

11. NWP instructed their present solicitors on about 24 June 1999 to advise them regarding indemnity issues under the policies of insurance relating to claims by the Duke Group.  Phillips Fox continued to act for them in the Duke Group proceedings.

12. On 12 August 1999 NWP made an application to the Full Court for a stay of execution of its judgment which was granted on 13 August 1999, until 20 August 1999.  It was ordered that, if during that time NWP or any of them initiated an application to the High Court of Australia for special leave to appeal from the judgment, until the hearing and determination of such application or consequential appeal upon various conditions, including that the application for special leave and any appeal by leave be prosecuted with all due diligence and expedition.

13. On 13 August 1999 the Full Court entered the judgment in accordance with the decision on the appeal.  On 20 August 1999 Doyle CJ, who was the presiding member of the Full Court, further stayed execution of the judgment until 3 September 1999 and imposed a condition that GIO and the London Insurers pay money into court.  They did so on various dates in August and October 1999.

14. NWP made an application for special leave to appeal to the High Court of Australia on 25 August 1999 against the judgment of the Full Court and such leave was granted as to a particular matter on 30 November 1999.

15. That particular matter related to assessment of damages for the loss sustained by Duke Group in consequence of the breach of contract and tortious conduct of NWP.  The issue was whether Duke Group sustained any loss upon issuing new shares applied as part of the purchase price of the shares in a related company.  Thereafter the scope of the leave was later expanded.

16. The High Court gave judgment on the appeal on 31 May 2001 and allowed NWP’s appeal:  Pilmer v Duke Group (In Liq)  (2001) 207 CLR 165. The Duke Group proceedings were remitted to the Full Court for the making of orders consistent with the reasons for decision of the High Court. The Full Court entered judgment against NWP in favour of Duke Group and the amount remaining due under the judgment, including interest at 27 October 2004, is $3,654,000 or thereabouts.

17. I mention certain matters which occurred before the decision of the High Court and the subsequent judgment of the Full Court.  In October 1999 GIO and the London Insurers discharged their obligations under the first and second excess layers of insurance upon entering into arrangements with Duke Group for payment of the indemnity under the contracts of insurance with NWP.  HIH also accepted and discharged its obligations under the Primary Policy by payment of $10 million to Duke Group.  Some aspects of the various liabilities of GIO and the London Insurers were the subject of compromise.  The total amount paid was $28,365,179.84 which represents discharge of the total obligation as at 20 December 1999 of $31,552,752.62.  A little over $10 million of money paid into court by GIO and the London Insurers remains in accounts in court in the Duke Group proceedings.

18. Following the grant of special leave to the High Court on 3 December 1999, McHugh J granted to NWP a stay of execution of the judgment of the Full Court for an amount above $31,737,464.37, together with post judgment interest on that sum.  The reason for that decision is that if the appeal to the High Court was successful, NWP would remain liable for that amount to Duke Group in any event.  I shall refer to this amount as “the inevitable judgment sum”.

19. NWP then made an application to me on 7 December 1999 for a stay of execution of that inevitable judgment sum until 5.00 pm on 31 January 2000 to enable the sum of $4,145,960 to be paid into court.  If not paid, the stay was to lapse.

20. It is not necessary for present purposes to explain how this amount was calculated.  It represented the different amount of the inevitable judgment sum which had not, in effect, been paid by the insurers, including HIH, pursuant to its obligations under the Primary Policy.

21. At this time HIH continued to deny that it had underwritten the 24 per cent of the second excess layer previously mentioned.  NWP had not instituted proceedings against HIH to establish the existence of that cover.  Willis Corroon had acted as the broker with respect to the policy of insurance.

22. On 23 December 1999 I intimated that unless proceedings were commenced by NWP against HIH and Willis Corroon before 10 January 2000, the interim stay would be revoked and the application for a further stay was adjourned to that date.  Unless HIH granted the indemnity and paid, or secured, the balance of the inevitable judgment sum, the members of NWP would be bankrupted with serious financial and professional consequences to them.  The consequences were described as “financial and personal ruin” which was obvious.  If the indemnity was granted and the appeal to the High Court successful, the inevitable judgment sum due by NWP would probably be covered by the indemnity.

23. In the Duke Group proceedings I made an order on 23 December 1999 that execution of the judgment against NWP be stayed to enable the sum of $4,145,960 to be paid into court and in the event that it was not paid in, the stay automatically cease at 5.00 pm on 31 January 2000.

24. NWP commenced proceedings against HIH and Willis Corroon in the current action on 6 January 2000 claiming, inter alia, an order for specific performance of the contract of insurance alleged by them to exist for the 24 per cent of the second excess layer and damages for refusal to meet that indemnity.

25. It was appropriate that those proceedings be resolved quickly.  Duke Group opposed the application for a stay of execution of the judgment and, particularly, the inevitable judgment sum.

26. On 17 January 2000, NWP made an application for orders that HIH and Willis Corroon pay into court the sum of $3,922,189 to satisfy the condition imposed by the order for a stay of execution made on 23 December 1999.  This amount was incorrectly calculated.  At a hearing of the application on 27 January 2000, HIH indicated that it was prepared to give an undertaking to “have at all times during the currency of the proceedings sufficient cash on hand to meet any liability that may be found against it in these proceedings forthwith”.  Willis Corroon gave a similar undertaking on 28 January 2000.  However, counsel for HIH made it plain that HIH would not quarantine sufficient monies for this purpose in a separate fund.

27. These undertakings were considered to be adequate at that time.  There was no suggestion or indication that HIH did not have sufficient cash available to comply with the undertaking.  In view of its undertaking, HIH was not required to pay money into court at that time.

28. On the basis of these undertakings Duke Group, which was represented by counsel at this hearing, did not oppose the continuation of the stay until the commencement of the trial of the proceeding by NWP against HIH.  An order was made continuing the stay.

29. NWP and Duke Group, through their legal representatives, calculated that if the appeal by NWP to the High Court was successful and damages were not allowed for the issue of shares, the amount of the judgment which Duke Group could enforce against NWP was a little in excess of $35 million, including interest and that 24 per cent of the second excess layer of indemnity represented $3,605,573.98 after taking account of amounts paid by other insurers.

30. On 29 February 2000 I made an order that the order made on 23 December 1999 granting the stay of execution on the inevitable judgment be varied by providing that the stay continue until further order to enable that amount to be paid into court following the determination of the proceedings by NWP against HIH.

31. The hearing of these proceedings was expedited.  The issues of liability under the alleged contract of insurance was heard first and the trial commenced before me on 16 February 2000.  The trial occupied 23 days over the ensuing months and was completed on 6 June 2000.  HIH denied throughout the trial that it was on risk for 24 per cent of the second excess layer even though it had re‑insured part of that risk.  On 6 September 2000 I found that there was a valid contract of insurance between a firm of accountants BDO Nelson Parkhill of which some of NWP were members when the policy was effected and which covered all of NWP for reasons which have no present relevance and HIH for the 24 per cent of the second excess layer:  Pilmer v HIH Casualty & General Insuranc Ltd (2000) 80 SASR 472. On 16 October 2000 I entered a declaratory judgment in favour of NWP in accordance with these findings and adjourned further consideration of the proceedings to a date to be fixed to enable further declarations and orders sought by NWP to be considered. The effect of the judgment was that HIH had to discharge its obligations under the 24 per cent of the second excess layer by payment of an amount which could not exceed $7.2 m.

32. NWP and HIH entered into negotiations but agreement was not reached as to the amount which should be paid into court.  On 19 November 2000 NWP made a second application for an order that HIH pay into court $7.2 million being the total sum required to discharge its obligations under the second excess layer.  On 27 November 2000 solicitors for HIH wrote a letter to solicitors for NWP which included the following:

    “On 27 November 2000, NWPs’ solicitors received a letter from HIH’s solicitors.  The letter records in part:

    ‘The audited financial statements of our client for the year ending 30 June 2000 disclosed net assets of $93.1 million, including current assets of $3,450.5 million.  The current assets include cash of $461.6 million.  Our client is an insurer and has reserves available to pay claims as they fall due.  There is no question about its capacity to satisfy its liability to your clients.  There is no valid reason why our client should pay money into Court for any part of the judgment in the main action which  has been stayed.  Your clients’ position is secure.

    Annexed and marked ‘24’ is a true copy of the letter dated 27 November 2000.”

    NWP persisted in their application which was heard on 28 and 30 November 2000. A point made by NWP was that interest on the judgment against them in favour of Duke Group was running with the effect that it was eating into the total cover of $50 million. Also, it was submitted that NWP had other money claims against HIH in consequence of the declarations which had been made, including a claim for interest under s 57 of the Insurance Contracts Act 1984 (Cth) and for damages. It was contended that the rate of interest payable under that Act was higher than the rate of interest payable on the judgment in favour of the Duke Group. NWP submitted that the payment into court of the $7.2 million would secure its position pending the outcome of the appeal to the High Court.

33. At this hearing HIH was asked if sufficient money could be secured for the benefit of NWP depending upon the outcome of the appeal to the High Court and isolated from its creditors.  Counsel was given the opportunity to take instructions.

34. On 12 December 2000 it was ordered that HIH pay into court $7.2 million to the credit of this action in an account entitled “No 25 of 2000 – Pilmer & Ors v HIH Casualty & General Insurance Limited & Ors”. The Registrar was directed to invest that sum in the common fund pursuant to R 109.06(b) of the Supreme Court Rules 1987 and to keep that sum and all interest earned invested until further order. It was also ordered that no part of the sum and interest could be paid out of court to any person or party until further order of the court. This order for payment was satisfied by HIH paying $3,605,573.98 on the 19 December 2000 and the balance on 2 January 2001.

35. At these dates HIH was aware that NWP could not pay the inevitable judgment sum to Duke Group and HIH had not abandoned its counterclaim against NWP in respect of the costs of defending the Duke Group proceedings which had been adjourned.  It had filed and served a notice of appeal against the declaratory judgment which had not been discontinued.  NWP were liable to pay Duke Group an amount not less than $3,605,573.98, following calculations of the inevitable judgment amount and that liability had been stayed.  The final liability of NWP to Duke Group was not known at that time.

1. HIH contends that at this time NWP were not entitled to interest under the Insurance Contracts Act 1984 (Cth), interest was not payable under the declaratory judgment, the maximum liability of HIH under that judgment was $7.2 million other than the $10 million already paid under the Primary Policy, the liability of HIH to NWP depended upon the resolution of its appeal and NWP’s potential liability to Duke Group exceeding $7.2 million.

2. Also, at this time there was no evidence before the Court or in the possession of NWP or Willis Corroon that HIH was, or was likely to become, insolvent.

3. At 30 June 2004 the money in court in the account had increased to $8,455,186.85.

4. On 15 March 2001 provincial liquidators of HIH were appointed by the Supreme Court of New South Wales.  Pursuant to that order the provincial liquidators took possession of the property of HIH.

5. HIH informed NWP through their respective solicitors on 3 October 2001 that the liquidators did not dispute the validity of the declarations which had been made, HIH would not pursue the counterclaim for costs, would not assert that any payments to Duke Group pursuant to the second excess layer policy, including interest, would constitute preferential payments in the administration of HIH, and further would consent to orders that:

   “(a)so much of the money as is necessary to secure your clients’ liability to the Duke liquidator for the unsatisfied part of the principal judgment (including interest the amount is approximately $3,605,573.98) may, pursuant to the 24% policy, be so secured, subject to directions to the effect stated in (b) below

   (b)the money covered by any orders referred to in (a) above is to remain in Court and must not be paid out to any party or secured in favour of any other party until all outstanding issues between the interested parties (such as costs and contribution) have been resolved.  When all such issues have been resolved further orders can be given about the party or parties entitled to the money.”

6. At the time the declaratory judgment was made, it had been established by orders of the Full Court that NWP were liable for damages to the Duke Group.  As has been seen, whatever decision was made by the High Court, NWP were liable for the inevitable judgment sum.

7. On 27 August 2001 the Supreme Court of New South Wales ordered that HIH be wound up and appointed liquidators.  The liquidation continues.  HIH has a deficiency of assets over liabilities.

8. It is accepted that if there is payment out of court to NWP of sufficient funds to discharge their liability to Duke Group, they would receive more in respect of the debt owed by HIH to them than unsecured creditors of HIH would receive with respect to their debts.  The amount due by NWP to Duke Group is not less than $3,605,573.98.  Execution of this amount is the subject of an order for a stay as has been mentioned.

9. Duke Group has made an application in the Duke Group proceedings for an order that the stay granted in that action be lifted.

10. NWP is entitled to be indemnified by HIH to the extent of 24 per cent of the second excess layer policy.

11. It is accepted by the parties that the money in Court is not amenable to the making of an order under s 588FF of the Corporations Act 2001 (Cth) which relates to voidable transactions.

    Statement of Issues

12. The parties have agreed that I should decide such of the following issues as is necessary to resolve the matters in contention between them:

    “1Whether the funds in court in account number P214 in this action (‘the Funds’) are ‘the property of the Company HIH Casualty & General Insurance Limited (In Liquidation) (‘HIH’) for the purposes of sections 468(1) and 468(4) of the Corporations Act (2001) (‘the Act’).

    2If the answer to paragraph 1 above is ‘yes’, whether an order for:

    2.1    payment out to the Plaintiffs of $3,605,573.98; or,

    2.2    payment of the balance, or of any part of the Funds;

    to anyone else other than the liquidators of HIH would constitute a disposition of the property of HIH within the meaning of section 468(1) of the Act.

    3If the answer to paragraph 2 is ‘yes’, whether the disposition of the property of HIH is an ‘exempt disposition’ within the meaning of section 468(2) of the Act.

    4If the answer to paragraph 1 is ‘yes’, whether an order for:

    4.1    payment out to the Plaintiffs of $3,605,573.98; or,

    4.2    payment of the balance, or of any part of the Funds;

    would amount to an attachment, sequestration, distress or execution put in force against the property of HIH within the meaning of section 468(4) of the Act.

    5If the answer to paragraph 1 is ‘yes’, and if the liquidators of HIH pursuant to a settlement of these proceedings were to consent to an order for payment out by the Registrar to the Plaintiffs of any or all of the Funds whether that consent would constitute, or form an indispensable part of:

    5.1 an exempt disposition within the meaning of section 468(2) of the Act; or if not,

    5.2 a void disposition within the meaning of section 468(1) of the Act.

    6Whether in the circumstances the Court should exercise its discretion to validate a disposition that would otherwise be void.”

    The Corporations Act

13. S 468 provides:

    “(1)Any disposition of property of the company, other than an exempt disposition, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.

    (2)In subsection (1), exempt disposition, in relation to a company that has commenced to be wound up by the Court, means:

    (a)    a disposition made by the liquidator, or by a provisional liquidator, of the company pursuant to a power conferred on him or her by:

    (i)this Act; or

    (ii)rules of the Court that appointed him or her; or

    (iii)an order of the Court; or

    (aa)  a disposition made in good faith by, or with the consent of, an administrator of the company; or

    (ab)  a disposition under a deed of company arrangement executed by the company; or

    (b)    a payment of money by an Australian ADI out of an account maintained by the company with the Australian ADI, being a payment made by the Australian ADI:

    (i)on or before the day on which the Court makes the order for the winding up of the company; and

    (ii)in good faith and in the ordinary course of the banking business of the Australian ADI.

    (3)Notwithstanding subsection (1), the Court may, where an application for winding up has been filed but a winding up order has not been made, by order:

    (a)    validate the making, after the filing of the application, of a disposition of property of the company; or

    (b)    permit the business of the company or a portion of the business of the company to be carried on, and such acts as are incidental to the carrying on of the business or portion of the business to be done, during the period before a winding up order (if any) is made;

    on such terms as it thinks fit.

    (4)Any attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up by the Court is void.”

    “Property” is defined in s 9 to mean:

    “Unless the contrary intention appears:  property means a legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.”

    The Supreme Court Act and Rules

14. I also mention the relevant provisions of the Supreme Court Act 1935 and the Supreme Court Rules 1987 regarding money paid into court.

15. S 119 provides:

    “All suitors’ funds shall be vested in the registrar on behalf of the court and shall be dealt with by him in accordance with this Act and the rules of court, and any order of the court or a judge.”

    Suitors’ funds are defined in s 5 of the Act as:

    “suitors’ funds means moneys in the custody or charge of the court that have been paid into the court for or on account of, or to the use or credit of, any person in a cause or matter, and includes interest and accretions upon any such moneys.”

16. R 109 of the Supreme Court Rules relates to the Suitors’ Fund. For present purposes relevant provisions of the Rule are that the order for payment into court must state with precision how the funds are to be dealt with and “contain the whole of the instructions to be acted upon by the Registrar and all particulars necessary to be known by him”: R 109.02. Neither a Master of the Court nor a Registrar are to be liable for giving effect to any order for payment out of funds: R 109.03. R 109.05 provides for the establishment of a Supreme Court Suitors’ Fund into which all deposits of money received by the Registrar are to be paid. R 109.06 provides for investment of the Suitors’ Fund including in a common fund which is to be invested as far as possible in securities authorised by the Trustee Act 1936 with some specified exceptions. Interest earned on investments made from the common fund are to be paid into the common fund and the money received in respect of the payment off of securities shall form part of the common fund: R 109.07 and R 109.08.

17. R 39 relates to payment into court by a party in satisfaction of a cause of action and R 109.11(1) provides that in such circumstances, the Registrar may, on such authority as he thinks proper, pay the money out to the person entitled thereto except in circumstances specified in R 109.11(2) which are not relevant for present purposes.

18. Practice Direction 17 of the Court provides directions as to procedures for the payment into court and out of court.

19. It may be seen from all of these provisions that money paid into court vests in the Registrar who is the legal owner of the money.  All parties acknowledge that to be the case.  It follows that when HIH paid the money into court, it ceased to be the legal owner of the money.

20. Earlier in these reasons I mentioned the terms of the payment in order.  It did not specify that the money paid in was to abide the order or orders of the Court but I do not regard that as a matter of significance.  As has been seen, the order also provided that no part of the money or interest could be paid out to any person until a further order of the Court.

21. It is NWP’s contention that the money in court is not the property of HIH and HIH has no legal or equitable interest in it.

22. It is HIH’s contention that it is beyond dispute that the money was the property of HIH before it was paid into court.  HIH was the sole legal and beneficial owner of the money at that time.  Upon payment into court, although the legal ownership vested in the Registrar, HIH retained the benefit of the money.  The Court, upon ordering the payment into court, had no power to change the beneficial interest in the money.  I return to these contentions shortly.

23. Willis Corroon contends that the money paid into court is not the property of HIH because upon the payment in, it parted with ownership of the money and was not free to deal with it.  Later I mention other contentions of Willis Corroon.

24. I shall return to these contentions later.

25. First I address the contentions of NWP.

26. Mr Wells QC, who appeared with Mr Keith, for NWP contends that “a contrary intention” appears from s 468 because “property of the company” in that section can only mean property in which the company has a beneficial interest in the sense of an interest that would be available in the winding up, and to the extent of that interest. It is further contended that there is no disposal of property of a company where there is a dealing by someone other than the company who has the right to say how the property is to be dealt with and whatever interest the company has in that property gives it no control of management of the property nor power to interfere. This circumstance is said to have arisen in the present case because of the payment in.

27. A number of submissions were made in support of these contentions.  First, I mention the submission that upon payment of money into court for whatever purpose the payer ceases to have any legal or equitable interest in the money.  This submission is based upon a line of cases commencing with the decision of Vaughan Williams J in In Re Gordon; Ex Parte Navalchand [1897] 2 QB 516. This case commenced a line of authority which has been confirmed in England by the Court of Appeal in W A Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038. This line of cases establishes that when money is paid into court, the party making the payment does not retain any legal or equitable interest in the money and such an interest is acquired only at the time the court makes an order for payment and the decision is made as to who is entitled to the money.

28. In Gordon’s case the defendant paid money into court in satisfaction of the plaintiff’s claim with a denial of liability and became bankrupt before trial.  It was held that the plaintiff was in effect a secured creditor by reason of the payment into court and he was entitled to the money if he succeeded in establishing his title to it.  This decision was approved in Singer v Gilchrist Watt & Sanderson Pty Ltd (1950) 67 WN(NSW) 89.

29. In Ex Parte Banner, In re Keyworth (1874) 9 Ch App 379 it was held that money paid into court as a condition of leave to defend an action belongs to the party who is found eventually to be entitled to the sum in dispute. The same decision was made in Bird v Barstow [1892] 1 QB 94 in which case Lord Esher MR said that the meaning of an order giving leave to defend upon payment of money into court is to give security to the plaintiff if he succeeds in the action. He went on to say at 96:

    “It is paid into Court and received by the Court in order to secure the plaintiff in obtaining satisfaction of a judgment, if he obtains one, and on terms that, if he does, it shall be paid out to him, so far as it goes, to satisfy that judgment.”

    Fry LJ agreed and observed that in substance the order was that the money should be paid into court to abide the event: at 97.  I refer also to the decision of the Court of Appeal in Ex Parte Bouchard; In Re Moojan (1879) 12 Ch D 26. Here a petition was stayed upon payment into court of the amount of the alleged debt to abide the result of an action brought to recover the amount claimed. The Court of Appeal held that the equitable title of the petitioning creditor was complete when the money was paid into court. Once the creditor established the debt, there was no question about his title to the money: see Baggallay LJ at 30.

30. In In re Ford Ex Parte The Trustee [1900] 2 QB 211 Wright J followed these decisions and held that money paid into court under the rules of court for leave to defend must be treated as money paid to abide the event of the action and is security for the sum which the plaintiff may obtain at trial. Should the defendant become bankrupt before the trial the money must remain in court until the plaintiff’s claim is decided by the court or there is an adjudication upon proof in bankruptcy.

31. In the context of an adjournment being granted by the court upon money being paid into court to abide the event of an action it was held by the Court of  Appeal in Bouchard that the equitable title of the creditor to the money was complete when it was paid into court.  The only question was what was the event of the action.  The money was to be the money of the creditor if he succeeded in establishing his title to it.

32. None of these cases suggest that in the circumstances HIH retained any beneficial interest in the money once paid into court before and until the Court ordered payment out of the money or part of it to HIH.

33. In Sherratt the defendants voluntarily paid into court the amount of the plaintiff’s claim, there having been made an application for summary judgment, and counterclaimed for an amount greater than the plaintiff’s claim.  The plaintiff did not proceed with the application for summary judgment or accept the money paid into court.  Later the defendants went into liquidation and made an application to withdraw the moneys in court.  After extensive review of the authorities, Oliver LJ held that the plaintiffs were secured creditors following a line of cases which he mentioned commencing with Gordon’s case.  The other members of the Court, Goff LJ and Donaldson MR agreed.

34. Oliver LJ rejected the contention that the money in court remained an asset of the party paying the money into court and said at 1056-1057:

    “That the money in court may become such an asset is unquestionable if an order is made for payment out.  But in my judgment a defendant paying into court under R.S.C, O. 22, r. 1, parts outright with his money.  I doubt whether it can be said that the Accountant-General is a trustee in whose hands his money can be traced.  Nor is there a ‘debt’ or chose in action in the accepted sense of the word.  The money becomes subject entirely to whatever order the court may see fit to make and to treat it as the defendant’s property available for distribution in his bankruptcy is to assume, for the purposes of exercising the court’s discretion, the very situation which will only arise if the court exercises its discretion in a particular way.

    In my judgment the principles emerging from the In re Gordon line of cases are still applicable to money paid in under the current rules.  The plaintiffs are therefore secured creditors to the extent of that money in the defendants’ liquidation and that event cannot, by itself, constitute a change of circumstances which can properly be regarded as justifying the court in exercising its discretion to order repayment.  While, therefore, I appreciate the dilemma with which the judge was faced, I am forced to the conclusion that in adopting the starting position that the plaintiffs were unsecured creditors, he misdirected himself.  I would allow the appeal and restore the order of the district registrar.”

    Robert Goff LJ agreed.  He said at 1057:

    “It is plain that there is an established line of authority, stemming from In re Gordon [1897] 2 QB 516, that a plaintiff is treated as a secured creditor to the extent of money paid into court, whether that money has been paid in involuntarily, i.e. as a condition of defending the action, or voluntarily. In particular, I am satisfied that the decision of this court in Dessau v Rowley [1916] WN 238 was made on that basis. It is true that, in the judgments in that case, only Phillimore LJ expressly refers to the plaintiff as a secured creditor; but I do not see how the court could have made the order it did unless it proceeded on the basis that the plaintiff was indeed a secured creditor. Ever since In re Gordon [1897] 2 QB 516, this has been regarded as established law; and, so far as I am aware, it has never been questioned.”

    Donaldson M also agreed at 1059.

35. It may be seen from this line of cases that upon payment in, the other party becomes in the nature of a secured creditor and is entitled to the money, or part of it, upon his or her claim being established.  Each of the members of the Court in Sherratt accepted that the party paying in “parts outright” with his money.

36. I now turn to some Australian cases.  In Singer Hanson J appears to have accepted that money in court belongs neither to the plaintiff nor the defendant, but is under the control of the court but this view was doubted by Demack J in Hixon v Hixon& Fire & All Risks Insurance Co Ltd [1988] 2 Qd R 553 at 554. In Commercial Banking Company of Sydney Ltd v Colonial Financiers Australia Pty Ltd [1972] VR 702, the Full Court of the Supreme Court of Victoria acknowledged the correctness of the line of cases up until that time, which I have mentioned. Although the Court was concerned with provisions of the Companies Act 1961 (Vic), it seems clear that it accepted that the party paying into court retained no legal or equitable interest in the money pending the decision by the court as to who was entitled to it.  Lush J said at 706 that the payment in:

    “… involved an appropriation by the defendant of part of its property and the setting aside of that part specifically to answer the plaintiff’s claim if that claim was made good.  I think that such an arrangement may be described as the giving in favour of the plaintiff of a charge on property …”

1. In Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd (1989) 90 ALR 589, Pincus J referred to Banner, Bourchard and Gordon without criticism and preferred the decision in Sherratt to the decision in Peal Furniture Co Ltd v Adrian Share (Interiors) Ltd [1977] 1 WLR 464 although acknowledging that he was not bound by either decision. He concluded at 593:

   “The mode of treatment of payments into court which emerges from the cases is as follows:  Whereas the rules appear to give an unfettered discretion to the court (as the passage in N J Williams Supreme Court Practice Victoria, 2^nd ed (1973) suggests) it is not truly unfettered; the discretion is exercised on the basis that the payment will not be allowed to be withdrawn (even if it is too late, under the rules, for the other side to accept it) unless it is seen that the payment in was made by mistake, or that circumstances have changed in some significant way or other matters of that kind; the unsecured creditors are, however, protected to a degree because the payment in may be treated as a preference; ordinarily, once the money is paid in the plaintiff or applicant is entitled to have it kept there until liability is established.

   On the view of the law which I take, the bank’s application cannot succeed.  It claims as a secured creditor the interest which Caboolture Park has in the money in court, but that interest is only a right to ask the court for an exercise of discretion.  There is not (as Mr Dutney suggested there was) a contest between a superior and an inferior class of security, because the money in court is not subject to the bank’s security.”

   In this case Pincus J was concerned with an application by a receiver and a secured creditor of a company for payment out of money paid into court by one of the parties, presumably in satisfaction of the entry of judgment against it in accordance with the decision of the court.  Subsequently that party went into receivership.

2. I was referred to Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 which may be described as an interpleader case. Moneys were paid into court by a company which had no claim to it pending the resolution of the competing claims by others. The Court subsequently ordered that the money be deposited in an interest-bearing account in the name of the claimants’ solicitors pending resolution of the claims. The Court held that upon payment into court, the money became “trust moneys” in the broad sense that the holder of the money (in the present case that person is the Registrar of the Court) was not beneficially entitled to the money as they were received by the court pursuant to the statutory provisions and Rules of Court under which they were paid in: at 272. The Court went on to say at 272-273:

   “After payment in, the claimants acquired an interest in the moneys in the sense that they were entitled to insist that they be properly administered and applied for the purposes for which they were paid in.  However, no claimant was beneficially entitled to either the whole or any part of the moneys paid into court or of the interest earned thereon (See e.g. Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306, at pp 312-314). The moneys were received and held by the Accountant to be applied in accordance with the orders ultimately made by the Supreme Court. The respective interests of the individual claimants were, at best, contingent. None had an entitlement to the capital or the income of the fund which was vested either in interest or in possession. A fortiori, none had a present legal right to demand or receive payment of either capital or income. It follows that none of the claimants was ‘presently entitled’ to the income of the fund for the purposes of s 99A of the Act during the period between the time of the payment in of the moneys and the time when they were received by In Residence’s solicitors to be deposited with the Building Society.”

3. Once the money had been invested, it was held on trust for a statutory purpose: at 276.

4. In Official Receiver in Bankruptcy v Schultz, referred to in the passage outlined above in the judgment of Harmer, it was held that the right of a beneficiary to an unadministered estate of a deceased person is not a property right but a right to due administration.  The High Court in Harmer has regarded that position as analogous to money paid into court.

5. This case assists in some respects in resolving the issues in the present case.  It establishes that whilst the money was in court, none of the claimants had an interest in the money until an order for payment out was made.  Clearly, the party paying the money into court had no legal or equitable interest in the money.  Consequently it acknowledges that no-one has an interest in the money until an order for payment out is made.

6. I do not think that in Harmer when the Court said that the respective interests of the claimants were “at best, contingent”, it was qualifying its conclusion that none of the claimants had a beneficial interest in the money until so decided by the Court.  The beneficial interest would only exist when the contingency occurred.  The decision in Harmer is not in any way inconsistent with the decisions in the cases which I have mentioned.

7. However, Harmer was cited for the proposition that when money is paid into court, the Registrar or appropriate court official holds the money on a statutory trust for a purpose or purposes to be decided by the Court in due course when making the decision for payment out.  Perhaps the nearest analogy is a discretionary trust where no interest in the property of the trust vests in a particular person until the discretion is exercised and the person becomes a beneficiary.  I do not accept that there is a statutory trust with respect to money in court.  I have mentioned the relevant provisions of the Supreme Court Act.  They do not suggest the creation of a trust and the relationship of trustee and beneficiary although such a relationship may well exist where money is invested in the names of solicitors of the parties as in Harmer’s case.  In any event, if this type of trust applies, it does not assist HIH because prior to, and at the time of, payment out HIH does not have a legal or beneficial interest in the money.

8. I mention an argument addressed by Mr McNamara QC regarding Harmer’s case. The Court said, at 272, that when trust money is paid into court pursuant to an order on the application of a beneficiary or the trustee, the funds remain subject to any pre-existing trust notwithstanding the payment in. It is submitted that if the contention that HIH lost property in the money at the time of payment in, the decision in Harmer must be wrong.  I do not agree.  The circumstances in Harmer are different than in the present case.  The money was paid in by a company having no interest in the money.   The entitlement to the money had to be determined by the court.  The claimants were not presently entitled “to the money, which was interest on the fund, which was deposited”.  The claimants, or some of them, were entitled to the fund to the exclusion of the party paying into court.  As the Court went on to say, it was when the money was paid into Court that the amount owed by the interpleader became trust moneys “in the sense that neither [the person then holding the money] nor the court itself was beneficially entitled to them”.  As has been seen from the passage earlier cited, it was after payment in that the claimants acquired an interest of the nature specified by the Court.

9. In my view the observations in Harmer about trust money paid into court do not assist in the present case.  At payment in by HIH the money was not trust money.  In Harmer at the time of payment in there was a pre-existing trust.

10. Helsham CJ in Eq considered the expression “disposition of property of the company” in s 368 of the Companies (NSW) Code which is in the same terms as s 468 in Re Margart Pty Ltd (In Liquidation); Hamilton v Westpac Banking Corporation & Anor (1984) 79 FLR 330. In that case the company gave to a defendant an equitable mortgage over its assets to secure bank advances. The company ceased trading and a notice of demand was given under that mortgage. There was a fixed charge over the company’s realty and equipment and a floating charge over its other assets. Assets were realised and the proceeds of sale paid into a bank account subsequent to the commencement of the winding up. The liquidator claimed that these payments were dispositions within the meaning of s 368. It was held that “any disposition of property of the company” in s 368 did not include the process by which a person with a beneficial interest in the property obtains that property on the proceeds of its realisation, from the company when entitled to have it: at 334. He went on to say at 334:

    “In all reality a person would not normally be described as disposing of his property when he hands it over to another to whom he had previously promised to deliver it on the happening of a certain event when that event occurs.  This is only another way of stating in legal terms the proposition that the word ‘disposition’, when used with reference to property, normally has the meaning of connoting a change in the beneficial ownership of an asset by transfer or other type of dealing.”

    He concluded that this approach accorded with the rationale behind s 368 and said at 335:

    “The locus classicus of that is to be found in the reasons for judgment of Lord Cairns LJ in Wiltshire Iron Co Ltd; Ex parte Pearson (1868) 3 Ch App 443 at 446, where his Lordship said concerning s 153 of the 1862 English Act (which is to the same effect as s 368):

    ‘The 153^rd section no doubt provides that all dispositions of the property and effects of the company made between the commencement of the winding up (that is the presentation of the petition) and the order for winding up, shall, unless the court otherwise orders, be void.  This is a wholesome and necessary provision, to prevent, during the period which must elapse before a petition can be heard, the improper alienation and dissipation of the property of a company in extremis.’

    What lies behind the section is the prevention of the improper alienation and dissipation of the company’s property.  I do not believe it was intended to reach out to transactions by which a secured creditor receives assets covered by his security at a time when he was entitled to have them.”

    Later, he said, at 336:

    “I take the view that the phrase ‘any disposition of the property of the company’ in the context of s 368 relates to something done with property that the company is free to deal with.  I do not think that there is a disposal of property of the company when there is a dealing by someone who is really someone other than the company and who has the right to say how it is to be dealt with, and whatever interest the company has in that property gives it no control or management over the property nor power to interfere.”

11. At relevant times in the present case the liquidator commenced when the order for winding up was made.

12. In Wily v Commonwealth [reported as Wiley v Commonwealth] (1995) 131 ALR 712 Lockhardt J, at first instance, considered whether payments made by receivers of a company, before the company went into liquidation, to the Commonwealth out of funds held in an account maintained by them to meet licence fees due pursuant to the Television Licence Fees Act 1964 (Cth) were dispositions of property of the company and void under s 468(1). Lockhart J held that the payment did not constitute dispositions of property of the company. He accepted that s 468 applies only to property in which the company has a beneficial interest and only to the extent of that interest. He followed the approach in Margart.  On appeal in Wily & Anor v Commonwealth (1996) 66 FCR 206 Sheppard J held that the legislature could not have intended s 468 to encompass property in which the company did not have a beneficial interest or in which it might or might not have much of an interest depending on the outcome of a realisation of company assets.

13. On appeal Shepherd and Lindgren JJ agreed with Lockhart J in adopting the observations in Margart.  Sheppard J said that the disposition caught by the section “relates to something done with property that the company is free to deal with” and the fact that a liquidator was appointed did not affect the receiver’s position because the company was not free to deal with the property: at 210.  Later Sheppard J said at 210:

    “I agree that the definition is wide enough to cover all property in which the company has an interest including property in which it has a legal but not a beneficial interest. However, the terms of s 9 open with the words, ‘Unless the contrary intention appears’. In my opinion, the legislature could not have intended s 468 to encompass property in which the company did not have a beneficial interest or property in which it might or might not have a beneficial interest depending upon the outcome of a realisation of a company’s assets. The real value, in given circumstances, of an equity of redemption provides an example.

    There is, in my opinion, no indication in the legislation that the legislature intended to bring about a situation which would tend to undermine the confidence of secured creditors in the effectiveness of their securities in cases where there was a winding up.”

    Lindgren J agreed with the conclusions of Lockhart J that s 468(1) operates only in respect of property in which the company has a beneficial interest in the sense of an interest which would be available in the winding up, and to the extent of that interest: at 223. He also agreed with Lockhart J that a winding up order brings about the termination of a receiver’s authority to act as the agent of the company only to a limited extent: “his authority to incur debts or liabilities provable in the winding up is at an end but not his authority, as the company’s agent to dispose of company property” (citations omitted) at 234. Lindgren J also agreed with Sheppard J and Helsham J in Margart that “any disposition of the property of a Company” in the context of s 468 (or its New South Wales predecessor considered in Margart) relates to something done “with property that the company is free to deal with”: at 224. These observations exclude contingent interests from the meaning of property in s 468.

14. On refusing the application of the liquidator for special leave to appeal to the High Court, McHugh and Gummow JJ accepted the correctness of the decision in Wily of the Full Court of the Federal Court and said that the construction of s 468(1) by Lockhart and Lindgren JJ was correct. I accept these decisions.

15. I now turn to the decision of Hill J in Re Lovering & Anor; Galladin Pty Ltd (Receiver & Manager Appointed) v Jackson (1994) 50 FCR 587. There was a dispute between a company and its directors as to the ownership of livestock upon the sale of which directors of a company paid the proceeds into court pursuant to an order of the Supreme Court of South Australia. The directions then became bankrupt. The dispute was resolved by judgment of the court and orders were made for payment out of the money in court, including to the directors. They became bankrupt before the payment to them of that money. Upon bankruptcy their property forthwith vested in the trustees of their estates pursuant to s 58 of the Bankruptcy Act 1966 (Cth). It became necessary to decide who owned the money at relevant times. Hill J said that he was inclined to the view that the directors retained a beneficial interest in the moneys paid into court before any order was made for payment out if it be appropriate to regard the money held by the Registrar of the Court as upon trust, however, he did not have to so decide, as payment out orders had been made. His Honour went on to consider the ownership of the money after the payment out orders had been made which is of no significance to the issues I must resolve.

16. With respect, I have not accepted this view as I do not regard the party paying the money into court as retaining a beneficial interest in it.  I prefer the line of authority which I have mentioned.  No doubt there are exceptions which do not arise in the present case and need not be considered.  One exception is where a trustee pays trust monies into court where beneficiaries have vested interests.

17. In reaching his decision, Hill J followed his own decision in Dwight v Federal Commissioner of Taxation (1992) 37 FCR 178. In that case His Honour decided that money paid into an account of solicitors by way of security for costs by order of a court continued to be the general property of the party giving the security but applying Sherratt’s case once the order for payment out was made to a party, that party became a secured creditor: at 186.  I have mentioned my understanding of the decision in Sherratt which I regret to say may differ from the view expressed by Hill J in Dwight, although it appears that in Dwight the parties agreed that the money paid into the account remained the property of the party making that payment: at 181. If that interpretation is correct Dwight does not assist in resolving the issues which I must decide.

18. Earlier in these reasons, I mentioned the submission of NWP that the contrary intention appears as to the definition of “property” in s 9 because of the terms of s 468(1). That submission was accepted in Wily.

19. Mr Simpkins SC who, with Mr Friedgut, appeared for Willis Corroon supported the submissions of NWP and summarised the position by contending three possible conclusions.  First, that the money in court is vested completely in the Registrar in his or her official capacity and is held in accordance with orders of the court.  Secondly, that the Registrar has legal ownership but holds the money on a statutory trust, which requires the Registrar to deal with money in court in accordance with orders of the court.  Thirdly, that the money in court is held beneficially for HIH but is subject to a security interest in equity in favour of NWP with the consequence that HIH has a beneficial interest in the money contingent upon the money not being required or not being otherwise exhausted.

20. In all three possibilities, HIH is not free to deal with the money and consequently it is not property within the meaning of s 468.

21. I need not further discuss these contentions. I accept the first possibility which is supported by ample authority. In view of this conclusion, I have not concluded that the Registrar holds the money subject to a statutory trust. I have not found it necessary for present purposes to resolve this possibility. If there is a statutory trust, there must be beneficiaries and it seems that any beneficiaries could only have contingent beneficial interests, the contingency being an order of the court for payment out in favour of that beneficiary. As I have accepted the view that a contingent beneficiary does not have property in the money in court within the meaning of s 468, it is unnecessary to consider this possibility further. I have also rejected the third possibility except that I have concluded that NWP are in the position of a secured creditor with regard to the money in court in accordance with the English authorities I have mentioned and also Halvanon Insurance Co Ltd v Central Reinsurance Group [1988] 3 All ER 857. However, I have preferred the first possibility and in doing so I have also accepted the third possibility to the limited extent that the purpose of the payment in was to provide security to NWP but I have not regarded NWP or HIH as having any beneficial interest in the money before an order for payment out.

22. It was made clear to me that the question raised by the issues do not involve whether Willis Corroon is entitled to payment out to it of any of the money in court because at this stage it does not have a judgment against HIH.  Should that occur, Willis Corroon may be entitled to have determined whether any of the money may be paid to it.  It reserves the right to make such a claim.

1. I now turn to submissions of HIH.

2. HIH contends that it was the legal and beneficial owner of the money before payment into court but although, upon payment in, legal ownership passed to the Registrar and HIH lost control of the money, it retained beneficial ownership of the money. S 468(1) is concerned with beneficial interests and as HIH did not lose beneficial property in the money, it retained ownership within the meaning of s 468(1).

3. The order for payment in did not, on its face or by its terms, alter property interests in the money.  HIH contends that it could only have lost property in the money if it intended to dispose of its interest in the money and it did not have that intention.

4. Mr McNamara, who appeared with Mr Williams for HIH, contended that in all of the cases to which I have referred from Gordon to Sherratt, and I expect some Australian cases, involved a choice on the part of the party paying into court. That choice was made in the course of litigation and it may be inferred that the party intended to part with his or its interest in the money, including the beneficial interest. Consequently these cases do not assist in the interpretation of s 468(1) as to the meaning of property.

5. I reject that contention. In none of the cases is an intention to part with the legal and beneficial interest in property, the basis of the decision. In each case the court considered the consequence of payment in court in the circumstances. The intention of the party making the payment was not the basis of the decision. The consequence was that the other party obtained security. It may be said that the interests of the parties in the moneys in court was contingent upon the occurrence of a future event. Such an interest is not property within the meaning of s 468.

6. I am not prepared to find or assume that HIH did not intend to part with property in the money paid into court in the circumstances.  At the time of payment in, the declaration as to the involvement of HIH in the second excess layer had been made.  In that sense, liability had been established.  HIH complied with the payment in order in the knowledge that at least part of the money would be used to indemnify NWP for their liability in the Duke Group proceedings.  Later the letter from HIH solicitors of 3 October 2001 to the solicitors for NWP, which I have mentioned, confirmed that position.  Either HIH intended to part with property in the money at the time of payment in or had done so by the time the letter was written, or at least some and possibly all of the money.

7. The next contention of HIH is that the order for payment is, in effect, an interlocutory order which cannot alter the interests of a party in property.  It has not been suggested that the order had that consequence.  It was the compliance with the order, the payment in itself, which had that consequence.

8. HIH also submitted that in order to construe s 468 correctly, it is necessary to have regard to its context in the Act. It is to be found in Part 5B which deals with winding up in insolvency or by the court. The section applies to companies which are insolvent. Creditors are prejudiced by insolvency and s 468 is concerned with that prejudice and operates for the benefit of creditors, not anyone else. I was referred to other sections where “property of the company” is mentioned. These sections, which I need not mention, prevent creditors individually attacking the property of the company and provide protection for them as a class. They prevent undue preference. The liquidator takes control of the property of the company but it does not vest in the liquidator unless so ordered by the court: s 474. The tasks of the liquidator is to cause the property of the company to be collected and applied in discharging its liabilities.

9. It is submitted that this scheme indicates that property of the company as in s 468 does not exclude contingent interests in property immediately available to the company. If it did, then the orderly operation of Part 5.4B of the Act in the winding up of HIH would be compromised.

10. I reject these submissions. I do not think the legislative scheme established by Part 5.4B assists in the construction of s 468 as to the meaning of the property of the company. As has been mentioned, I accept that HIH has no legal or beneficial interest in the money in court until the Court says so, usually in the form of an order for payment out. I accept that the effect of the cases to which I have referred is that HIH has no relevant interest in the money until an order is made for payment to it of the money or some part of it and only to that extent. This approach is not inconsistent with the orderly winding up of HIH or the scheme established by Part 5.4B.

11. HIH also contended that it is unsafe to act on any authority deriving from a decision of an English court earlier than 1933 because before that time a payment into court had to be pleaded.  Payments in were kept from the judge until liability had been resolved.  It was submitted that there was a change in 1933.  The party paying into court had to indicate whether the payment in was with or without an admission of liability which requirement was abolished in 1948.  The point which is sought to be made about the English cases is that the payment into court attracted or invited certain consequences.  Once the money was accepted by the other party, it became the property of that party who could make that acceptance at any time.

12. To some extent these contentions were rejected by Oliver LJ, with whom the other members of the Court of Appeal agreed, in Sherratt:  see 1050 ff.  He concluded that although there were differences in the framework of the earlier rules from the present rules, there was not much difference in substance, and he concluded that the alterations in the rules did not detract from the authority of the Gordon line of cases: at 1054, and I respectfully agree for present purposes.  The question is simply whether upon payment in the party making the payment parted with the property in the money.  As I have mentioned, that was held to be the case in Sherratt, and I accept the reasoning in, and authority of, that decision.

13. I was referred to other cases from which it is submitted the conclusions should be drawn that HIH retained a beneficial interest in the money in court.

14. I earlier mentioned Halvanon Insurance.  In that case the defendant in an action was given leave to defend upon payment of the amount in dispute into court.  Hobhouse J, sitting in the Queen’s Bench Division, reviewed some of the older English cases which establish that the plaintiff became a secured creditor of the defendant by reason of the payment in but held that the defendant had the general property in the money in court.  However, it appears that he was not referred to Sherratt.  I do not accept that the decision in Halvanon assists in the resolution of the issues before me.

15. I was also referred to The Registrar of the Accident Compensation Tribunal (Vic) v Commissioner of Taxation of the Commonwealth of Australia (1993) 178 CLR 145. Awards of worker’s compensation were paid to a statutory fund which was under the control of the Registrar of a Tribunal. The relevant legislation provided that the money administered by the Registrar may be “invested, applied or otherwise dealt with in any manner that the Registrar thinks fit for the benefit of the person entitled to the money” and that the Registrar was not bound by any law relating to the administration of trust funds by trustees. The majority of the Court, Mason CJ, Deane, Toohey and Gaudron JJ held that the compensation payments under the control of the Registrar were held by him as trustee in the strict sense. The issue was whether the Income Tax Assessment Act 1936 (Cth) bound the Registrar and the majority held that he was so bound. The minority, Brennan, Dawson and McHugh JJ held that a trust had not been created. A trust is the creature of equity and a relationship which obliges one person to pay money or transfer property to another “may exhibit the features of a trust for the benefit of another, but there is no such trust unless the obligation is enforceable in equity”. The remedies available to the persons to benefit from the moneys “are designed to enforce the performance of statutory, not equitable, duties” and consequently the Registrar was not a trustee: at 173.

16. I do not derive much benefit from this case for present purposes.  The role of the Registrar was to administer the funds for the benefit of specified persons in accordance with previous determinations which is a different situation from the circumstances of the present case.

17. Reference was made to cases when Mareva injunctions on that type of order was made: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 and Re Lovering: Galladin.

18. There was debate before me as to the nature of the order for payment in which I made on 12 December 2000.  There is no profit in examining the power to make the order as that is beyond question and was acknowledged by the parties. 

19. I do not regard the order as a Mareva injunction and I have not been assisted by these cases.  The purpose of the order has been mentioned.  It was not to prevent HIH dissipating its assets or placing them beyond the jurisdiction of the court as is the case with a Mareva injunction or that type of order.  The significance of this discussion for present purposes is the injunctions or orders of that type do not provide security to the party seeking the order.  I have decided that a consequence of the payment in order is to provide security to NWP.

20. I mention some fundamental principles which emerge from the decisions in these cases which I accept:

    1The party who pays money into court in the circumstances referred to in the cases does not retain any legal or equitable interest in the money.  The money is vested in the Registrar and is to be disbursed in accordance with the decision of the court.

    2S 468(1) only operates in respect of property in which the company has a beneficial interest in the sense of property which would be available in the winding up and only to the extent of that interest and also in the sense that the company is free to deal with the property.

    3In circumstances such as in the present case, the moneys in court provide security to the party who is to benefit in accordance with the decision of the court as to payment out and that party is in the nature of a secured creditor.  For that reason the company is not free to deal with the money.  It could not deal with any of the money unless the Court so decided when making an order for payment out.

    4There is no disposition of property of a company unless the company has a beneficial interest in the money at the time of the payment out.

21. The application of these principles to the present case requires the issues which have been posed to be answered as follows:

    1The funds in court are not the property of HIH for the purposes of s 468(1) and (4).

    2Payment out of money in Court to NWP would not constitute a disposition of the property of HIH within the meaning of s 468(1).

22. These conclusions not only accord with these principles but with the reason for the making of the order for payment of the moneys into court.  I have set out in some detail the circumstances in which the order for payment in was made.  It was in those circumstances that action was taken to protect the plaintiffs who faced financial ruin at the hands of Duke Group because HIH, then apparently solvent and asserting solvency, wrongly refused to meet its contractual obligations to them.  In the circumstances the payment in secured their entitlements against HIH and was intended to do so.  The liquidators of HIH confirmed that undertaking by the letter from its solicitors dated 3 October 2001. 

    Discretion

23. If I am wrong in my conclusion that the money in court is not the property of HIH and payment out to anyone other than the liquidator of HIH would not constitute a disparity of that company’s property, I would be required to exercise a discretion.

24. It is accepted that the words “unless the Court otherwise orders” in s 468(1) give the Court a wide general discretion to validate any disposition of property caught by the subsection. This discretion is not “to be limited by any attempted classification of those cases which do, and those which do not, fall within them” Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311 at 316 where the Full Court of the Federal Court considered s 227 of the Companies Act (NT) which is in similar terms to s 468(1); Tellsa Furniture Pty Ltd (In Liq) v Glendare Nominees Pty Ltd (1987) 9 NSWLR 254; Guthrie v Chandler & Anor (1991) 5 ACSR 387 at 394-395 and Re Terene Pty Ltd (In Liq) (1992) 7 ACSR 309.

25. While these decisions make it plain that the discretion is not fettered by any particular matter, consideration must be given to the interests of others and various decisions have pointed to matters where their interests have been regarded as relevant to the exercise of the discretion.  Some of them are mentioned by Priestly JA in Tellsa at 260 and by Hedigan J in Re Terene at 314.  Hedigan J referred to Tellsa and summarised the matters that are of most relevance to the present case.

    1Validation would result in one pre-liquidation creditor being paid in full at the expense of other creditors: Re Gray’s Inn Construction Co Ltd [1980] 1 All ER 814.

    2The persons involved act in good faith and with honest intentions: Re Steane’s (Bournemouth) Ltd [1950] 1 All ER 21.

    3The parties were unaware of the presentation of the relevant winding up petition (now order): Tellsa Furniture.

    4The relevant payments were made in the ordinary course of business and were needed to continue the business of the company: Tellsa Furniture.

26. I have regard to these matters.  However, I also accept the observations of Vaisey J in Re Steane’s (Bournemouth) Limited at 25:

    “… the court is free to act according to the judge’s opinion of what would be just and fair in each case. … The legislature, by omitting to indicate any particular principles which should govern the exercise of the discretion vested in the court, must be deemed to have left it entirely at large, and controlled only by the general principles which apply to every kind of judicial discretion.”

    Both Priestly JA and Hedigan J, in their respective decisions, considered whether validation must be refused if unsecured creditors would not be treated pari passu but both said that the pari passu principle cannot be a decisive consideration.  At all events, as I have mentioned, I regard NWP as in the position of a secured creditor in the circumstances.

27. In the present case I would have no hesitation in exercising the discretion should it have been necessary to do so for the following reasons:

    1HIH had wrongly denied the existence of its acceptance of the 24 per cent of the second excess layer.

    2HIH asserted to the Court at significant times that it was solvent and had adequate funds to meet its liability to the NWP should liability be established.

    3The undertakings given by HIH.

    4NWP was put to considerable expense due to the false denial by HIH of the existence of the cover.

    5The money was paid into court to provide security to NWP upon liability against HIH being established to enable discharge of their obligations to Duke Group and avoid financial ruin.  I make this observation acknowledging that it could be established that the total amount of the money in court and interest may not be sufficient to discharge the judgment sum due by NWP to Duke Group and any costs payable by them.  The position is not clear at this stage.

    6This security was provided before the winding up order relating to HIH.

    7There was no reason to suppose that HIH was insolvent or had any financial difficulties at any time before the order for payment in.

    8The attitude of the liquidator of HIH as revealed in the letter of 3 October 2001 previously mentioned.

    9At all relevant times NWP and Willis Corroon acted in good faith.

    10Premiums were paid to HIH for the second excess layer insurance cover and retained by it: Pilmer & Ors v HIH Casualty & General Insurance & Ors (2000) 80 SASR 472 at 470. HIH had the use of that money for about 13 years which to some extent contributed to the solvency of HIH and benefited the general body of its creditors.

    11But for the wrongful denial of the existence of the second excess layer cover of NWP by HIH, the amount of that cover would have been available to indemnify NWP at the latest in late 1999 with obvious benefits to NWP.

    12The Duke Group proceedings were instituted in 1992 and it was not until 1999 that HIH denied the existence of its participation in the second excess layer.  Throughout all of that time HIH conducted NWP’s defence to the action.  It appointed counsel and solicitors and made decisions about the conduct of the defence.  At no time during that period did HIH give any indication that it was not on risk within the second excess layer.

    The money was paid into court nearly four years ago for the purposes I have mentioned.  It has been regarded by the parties as the fund from which liability flowing from the involvement of HIH in the second excess layer insurance would be paid.  It is not a case of other creditors having had expectations of benefit from this fund which had been established for particular purposes.

    As I have said, should it have been necessary I would have exercised the discretion under s 468(1) and validated the disposition of the money in court had it been the property of HIH.

    S 468(4)

28. I have decided that the money in court is not the property of HIH. Consequently s 468(4) has no application. Furthermore, there was no attachment, sequestration, distress or execution put in force against HIH before the money was paid into court. It has not been necessary to decide if payment out of the money in court, or part of it, to NWP to discharge their liability to Duke Group could be described as enforcement of a judgment in the present action by NWP against HIH of the nature described in s 468(4), although I doubt that any such action could be so described.

    Conclusion

29. I answer question 1, expressed as an issue, in the negative.  Consequently answers to the other questions are not required.

30. I invite the parties to indicate precisely what orders by way of payment out of the money in court are sought.