Wardle, A.T. v Australian & New Zealand Banking Group Ltd
[1990] FCA 124
•03 APRIL 1990
Re: ANTHONY JAMES WARDLE and WILLIAM JOHN WIDIN (as trustee of the Bankrupt
Estate of ANTHONY JAMES WARDLE;
And: AUSTRALIAN and NEW ZEALAND BANKING GROUP LIMITED
No. W1047 of 1983
FED No. 124
Bankruptcy
22 FCR 290
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Davies J.(1)
CATCHWORDS
Bankruptcy - What constitutes a preference - equitable mortgage - part performance - memorandum in writing.
Bankruptcy Act 1966 (Cth) s.122(1) and (2)
Conveyancing Act 1919 (NSW) s.23C, s.54A
HEARING
SYDNEY
#DATE 3:4:1990
Counsel for the applicant: Mr D. Libling
Solicitors for the applicant: Abbot Tout Russell and Kennedy
Counsel for the respondent: Mr H.K. Insall
Solicitors for the respondent: Minter Ellison
ORDER
1. That the mortgage over the property
Vol. 6114 Fol.35 in favour of the Australia and New Zealand Banking Group Limited is void as against the Trustee.
2. That the payment to the Australia & New
Zealand Banking Group Limited on 7 November 1983 of $698.08 was a preference which is void as against the Trustee.
The Court orders:- 3. That the Australia & New Zealand Banking
Group Limited repay the Trustee the sum of $698.08 within 28 days of this judgment.
4. That the respondent, the Australia & New
Zealand Banking Group Limited, pay the costs of this application.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
Mr W.J. Widin, the trustee of the estate of the bankrupt, Anthony James Wardle ("Wardle"), seeks a declaration that a mortgage in favour of the respondent, Australian & New Zealand Banking Group Limited ("ANZ Bank") over the property of Wardle, Vol. 6114 Fol. 35, is void as against the trustee as a preference. The trustee also seeks a declaration that the payment of a sum of $30,000 to the ANZ Bank on 7 November 1983, in satisfaction of a prior indebtedness by the bankrupt to the ANZ Bank, or alternatively sums of $47.84 paid on 9 November 1983 and $37.50 paid on 7 November 1983, were preferences void as against the trustee. The Trustee seeks an order that the ANZ Bank pay to the trustee the sum of $30,000 or alternatively, $747.84 and $37.50.
In each case, reliance is placed upon s.122(1) of the Bankruptcy Act 1966 (Cth) which provides inter alia:-
"A conveyance or transfer of property, a charge
on property, or a payment made, or an obligation incurred by a person who is unable to pay his debts as they become due from his own money (in this section referred to as 'the debtor'), in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred -
(a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; or
(b) on or after the day on which the petition on which, or by virtue of presentation of which, the debtor becomes a bankrupt is presented and before the day on which the debtor becomes a bankrupt, is void as against the trustee in the bankruptcy."
If necessary, reliance is placed by the ANZ Bank on s.122(2)(a) which exempts:-
"the rights of a purchaser, payee or
encumbrancer in good faith and for valuable consideration and in the ordinary course of business;"
Wardle became a bankrupt on 9 November 1983 on a petition presented on or about 24 August 1983.
In December 1982, Wardle, a chartered accountant, sought from the ANZ Bank a commercial bill facility to the limit of $30,000 to assist him to take over an accounting practice which he had previously carried on in partnership with another accountant. On 5 January 1983, on which day it was anticipated that the bill facility would be drawn upon, Wardle signed an indemnity in favour of the ANZ Bank with respect to the bill facility, blank forms of mortgage and counterpart and an authorisation to enter into the mortgage the description of land, the name of the mortgagor, prior encumbrances and other relevant details.
Evidence has been given by Mrs J.M. Andrew that, on 5 January 1983, the forms of mortgage were completed and executed by both Wardle and the Bank in all respects save for the insertion of a date. Nevertheless, for the reasons I shall mention hereafter, I am satisfied, as a matter of probability, that, apart from Wardle's signature on the form of mortgage, the document and its counterpart were then blank.
The manager's diary note of 5 January 1983 recorded that, as security for the advance, Wardle had offered security over a property situated at Bellevue Hill. No title particulars were given. The diary note stated:-
"However, all security documentation has been
completed in blank with permission from Mr Wardle to complete on obtaining of search and under these circumstances propose to make the facility available due to urgency of matter. Undue delay has occurred in obtaining of search."
A further diary note of 14 January 1983 contains the note "security sighned (sic) in blank. C-/T mislaid by State Super borad (sic)" The same diary note noted that security was "to be taken". On 9 May 1983, a diary note recorded:-
"We have received from Freehill, Hollingdale U
(sic) Page, discharge of mortgage from state superannuation board in relation to our security property. However, state superannuation board has mislaid title deed and a duplicate will now have to be produced, but this will take time due to the legal ramifications involved. For the time being, our security documentation will have to be retained as is until title deed is produced with all other documentation being held including discharge of mortgage for registration in due course." (emphasis is mine)
The significance of the words "as is" is difficult to determine but the words do lend credence to the view that the blank form of mortgage had not then been completed. On 3 June 1983, there was a diary note:-
"We are still awaiting production of title deed
to enable us proceed with registration of discharge of mortgage as mentioned in previous diary notes and also withdrawal of these caveats will receive attention at that time. ...
Should delays in registration of our security occur, we could always take a mortgage over this property (Bowral)."
The mortgage as completed was dated 20 September 1983 and was stamped on 10 November 1983. Mrs Andrew wrote the date, her signature as a witness to Wardell's signature, the name and address of the witness, the name of the bank manager, Mr J.M. McLachlan, who executed the mortgage on behalf of the Bank, her signature as a witness to Mr McLachlan's execution and her name and address as witness. All these matters appear to the eye to have been written with the same pen at the same time.
9 A copy of the original mortgage, as lodged, has Wardle's initials against his name and address as mortgagor to acknowledge the correction from "News South Wales" to "New South Wales". The counterpart did not need correction and Wardle's initials do not appear thereon. No conclusion can be drawn from this alteration as Wardle was in the Bank from time to time and could have placed his initials against the correction either in January 1983, in September 1983 or at any other relevant time during 1983. There is no evidence about the matter.
Despite the evidence of Mrs Andrew to the contrary, it is probable that the printed forms of mortgage and counterpart had not been completed in any way when signed by Wardle on 5 January 1983. The difficulties which the ANZ Bank encountered in obtaining all relevant documents for registration provide the explanation why the mortgage documents were not completed until a later date. The words "as is" in the diary note of 9 May 1983 suggest that the documentation was then in an incomplete form. Mrs Andrew's handwriting on the mortgage documents suggests that the mortgages were completed about 20 September 1983 and, therefore, that the typing as well as Mrs Andrew's handwriting and the execution by Mr McLaughlin were effected at that time. A caveat was not lodged until 21 October 1983. Moreover, having regard to the provisions of s.25 of the Stamp Duties Act 1920 (NSW), which imposed a fine on a dutiable instrument not stamped within 2 months after execution in New South Wales, it is unlikely that the ANZ Bank had a practice of retaining executed but undated instruments for many months or that the ANZ Bank did so in this case.
On the whole of the evidence, I consider it probable that the mortgage documents were completed about 20 September 1983.
I therefore adopt 20 September 1983 as the approximate date upon which the instrument of mortgage was brought into being. If this occurred a few days before 20 September 1983 or within 6 months of the presentation of the petition, the legal result would be the same, so far as this present application is concerned.
Counsel for the ANZ Bank submitted that no preference occurred because the oral agreement between Wardle and the ANZ Bank, reached on 5 January 1983, and the execution on that date of the mortgage forms in blank and of the authority to complete effected the grant by Wardle to the ANZ Bank of an equitable mortgage over his interest in the property at Bellevue Hill.
Counsel for the trustee submitted that no equitable mortgage was created on 5 January 1983 as the effect of the agreement of that date was that Wardle agreed with the ANZ Bank to give to the Bank a mortgage over the Bellevue Hill property should it ever wish to take one and conferred power upon the ANZ Bank to bring such a mortgage into being should it subsequently require one.
I agree with counsel for the ANZ Bank that what was done on 5 January 1983 had all the elements, save satisfaction with the provisions of ss.23C and 54A of the Conveyancing Act 1919 (NSW), with which I shall subsequently deal, of an equitable mortgage. The documents in evidence show that Wardle then agreed to grant a mortgage to the ANZ Bank over his interest in the Bellevue Hill property and conferred power upon the Bank to complete the mortgage. The mortgage was not completed on 5 January 1983 because there were impediments to the creation of a formal mortgage at that time, the title not having been searched, the duplicate certificate of title not being available and so on. However, subject to ss.23C and 54A of the Conveyancing Act, the arrangement was effective to create an equitable mortgage. There was an agreement for value of which, apart from ss.23C and 54A of the Conveyancing Act, equity would decree specific performance. Equity regards as done that which ought to be done. See Chan and Anor v. Cresdon Pty Limited (1989) 11 TLR 1; Laurinda Pty Limited v. Capalaba Park Shopping Centre Pty Limited (1989) 63 ALJR 372 and Equity Doctrines and Remedies by Meagher, Gummow and Lehane, 2nd Ed., para 339. An equitable mortgagee takes an interest in land entitling an order for foreclosure in the event of breach. See Charters v. Cosmopolitan Land Banking Co (1902) 28 VLR 251; Ryan v. O'Sullivan (1956) VLR 99; Sykes "The Law of Securities" 4th Ed. p 316.
I therefore turn to the Conveyancing Act which provides inter alia:-
"23C.(1) Subject to the provisions of this Act
with respect to the creation of interests in land by parol -
(a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by is agent thereunto lawfully authorised in writing, or by will, or by operation of law;"
"54A(1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or not thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised."
Counsel for the ANZ Bank submitted that the mortgage signed in blank was a mortgage in writing of the property in Vol. 6114, Fol. 35. Counsel submitted that the printed words "hereby mortgage ... all the Mortgagor's estate and interest as such registered proprietor as aforesaid in ALL those lands comprised in the schedule above" was a sufficient description of the mortgaged property notwithstanding that the schedule was blank. Thus, in Auerbach v. Nelson (1919) 2 Ch 383, a receipt which contained the words "Received of Mr Auerbach ... 10 pounds on account of House being sold for 500 pounds for Mr M. Nelson" was held to be a sufficient memorandum in writing of the verbal contract between vendor and purchaser to let in parol evidence identifying the only house answering that description. Counsel for the ANZ Bank also referred to Shardlow v. Cotterell 20 Ch D 90 and to Plant v. Bourne (1897) 2 Ch 281. See also Stokes v. Whicher (1920) 1 Ch 411 and Voumard's "The Sale of Land", 2nd Ed. p 77.
In the present case, however, Wardle signed, on 5 January 1983, a printed form of mortgage in blank which in no way identified the property to be mortgaged. At that point of time, the mortgage was not registerable, no security had been granted in writing and there was no sufficient memorandum or note in writing of an agreement to do so.
Counsel for the Bank submitted that the form of mortgage signed by Wardle and the authority to complete should be read together with the Bank manager's diary note of 5 January 1983 which identified the property to be secured as the Bellevue Hill property. However, the Bank manager's diary note cannot be read with the other two documents for it was private to the Bank and was not seen by or acknowledged by Wardle. See, e.g., Stokes v. Whicher, cited above, Burgess v. Cox (1951) 1 Ch 383; Harvey v. Edwards Dunlop and Co Limited (1927) 39 CLR 302, Howard Smith and Co. Ltd v. Varawa (1907) 5 CLR 68 and Voumard, pp 64-7.
Counsel for the ANZ Bank submitted that, in any event, that ss.23C and 54A of the Conveyancing Act did not invalidate the transaction as there had been part performance of the contract. He submitted that the Bank had made the bill facility available to Wardle and Wardle had drawn upon it.
A usual means of bringing into being an equitable mortgage through part performance is the lodgment of title deeds with a bank. However, the blank form of mortgage was not a muniment of title. No doubt the ANZ Bank would subsequently have obtained the duplicate certificate of title or control over it; but that act is not relied upon as a relevant act of part performance, presumably because it occurred at a much later date.
In Cooney v. Burns (1922) 30 CLR 216 it was held that the delivery to the plaintiff's solicitors of the lease of an hotel for the purpose of the preparation of an assignment thereof and the preparation of the assignment by the plaintiff's solicitors were not sufficient acts of part performance. Jones and Goodhart likewise note in "Specific Performance" at p 106 that:-
"... in the past the delivery of abstracts of
title, giving orders to draw up conveyances, giving instructions for a lease, viewing an estate, an employing surveyors or valuers have been held to be too equivocal to be sufficient acts of part performance."
Nevertheless, the authors, relying upon Steadman v. Steadman (1976) AC 536 and In re Windle (1975) 1 WLR 1628, suggest that today a court may take a different view. Steadman v. Steadman and In re Windle, however, considered issues affecting persons who were or had been husband and wife, which issues raised equities far removed from the present. Although I take note of the expositions of principle enunciated in those cases, particularly in Steadman v. Steadman, I do not regard them as controlling the present case.
The basis of the principle of part performance is that equity will not permit one party to an agreement to refuse to carry out his part of the agreement when the other party, on the faith of the existence of the contract, has wholly or partly carried out his obligations thereunder. Maddison v. Alderson (1883) 8 App Cas 467; McBride v. Sandland (1918) 25 CLR 69; Cooney v. Burns, cited above; J.C. Williamson Ltd v. Lukey and Mulholland (1931) 45 CLR 282; Meagher, Gummow and Lehane para 2035 and Jones & Goodhart pp 96-97. The act relied upon as part performance must plainly point to some such agreement as is alleged. See McBride v. Sandland (1918) 25 CLR 69, Cooney v. Burns, cited above; Francis v. Francis (1952) VLR 321; Meagher, Gummow & Lehane para 2038-2040, though a wider principle may be found in some judgments, e.g., Kingswood Estate Co. Ltd v. Anderson (1963) 2 QB 169 per Upjohn L.J. at p 189; Steadman v. Steadman per Lord Reid at pp 541-2, Lord Simon at p 562. In the present case, the act of part performance must therefore have been referrable in its nature to an agreement affecting an interest in land. See Cooney v. Burns at p 222.
The making available of a bill facility by the ANZ Bank and the drawing by Wardle on that bill facility was an ordinary commercial transaction which was not referrable to the granting of a security over land. The mere payment of money is not a sufficient act of part performance. See Maddison v. Alderson, at pp 478-9; Chaproniere v. Lambert (1917) 2 Ch 356; Jones v. Pepert (1948) VLR 331 at pp 336-7; Voumard p 93; Meagher Gummow & Lehane para 2041. The payment of money may together with other circumstances give rise to part performance. See Sugden on "The Law of Vendors and Purchasers of Estates" 13th Ed. pp 124-5; Steadman v. Steadman per Lord Reid at p 541, Lord Simon at p 565, Lord Salmon at p 570. However, the payment of moneys to Wardle pursuant to the bill facility was equivocal and did not constitute a sufficient act of part performance to bring into operation the equitable principle.
In the present case there was no fraud or dishonesty on the part of Wardle. The position was simply that what was done did not satisfy ss.23C and 54A of the Conveyancing Act.
In this event, the subsequent completion by the Bank of the mortgage documents constituted a preference, for it gave the Bank an advantage over other creditors. The mortgage was therefore void as against the trustee and the Court will so declare. Section 122(2) does not save the mortgage which was brought into being at a time when the ANZ Bank was aware of the petition for bankruptcy.
The next issue arises with respect to an unusual transaction which occurred in November 1983. The limit of the bill facility granted in January 1983 had been $30,000. This sum had been drawn upon. Later in the year, the bill facility had been rolled over or continued as an overdraft. In November 1983, at a time when Wardle was, to the Bank's knowledge, in financial difficulties and after the petition had been presented, the manager appears to have become concerned that Wardle's liability to the Bank did not meet the Bank's lending policy. The manager had before him an application from Wardle for a personal loan of $30,000. The application was dated 7 November 1983. A diary note of 9 November 1983 records a decision that "personal loan is granted to assist with purchase of proeprty (sic)(at Bowral) and also renovation being carried out within". Presumably, the grant of a personal loan for the purchase of a property at Bowral was authorised by the Bank's lending policies. On that footing, the manager authorised the grant of the loan to Wardle. The sum lent to Wardle was $44,803.14, made up of the $30,000 sought, interest of $14,428.14 and some charges. The sum lent was repayable by one monthly instalment of $747.84 and 59 monthly instalments of $746.70. On 7 November 1983, the $44,803.14 was debited to Wardle's personal loan account. Two sums of $8426.56 and $21500 were credited to two overdrawn accounts of Wardle. The total of $29,926.56 apparently represented the $30,000 less a loan establishment fee of $60 and State duty of $13.44.
Counsel for the trustee submitted that the transaction constituted a preference by the Bank in favour of itself in that, by paying the $30,000 approx. to itself on 7 November 1983, the Bank thereby gave itself a preference over other creditors.
However, the preference provisions of the Act avoid that which truly is a preference and do not concern themselves with a transaction which, as between the Bank and Wardle, made no appreciable difference to their respective financial positions and which, as between the Bank and other creditors, conferred no significant advantage to the Bank over other creditors. As Dixon, Williams and Fullagar JJ. said in Richardson v. The Commonwealth Banking Co. of Sydney Ltd (1952) 85 CLR 110 at p 132:-
"In considering whether the real effect of a
payment was to work a preference its actual business character must be seen and when it forms part of an entire transaction which if carried out to its intended conclusion will leave the creditor without any preference priority or advantage over other creditors the payment cannot be isolated and construed as a preference."
See also Queensland Bacon Pty Ltd v. Reis (1966) 115 CLR 266 at pp 283-4; Re Hicks and Anor ex parte Russell (1980) 39 FLR 375 at pp 383-6. In my view, what occurred did not effect a preference.
On 9 November 1983, Wardle's personal loan account was credited with the first monthly payment of $747.84. The payment was debited to one of Wardle's credit accounts, giving rise to an overdrawing of $49.76. This is the subject of one challenge made of the trustee.
The net $698.08 was a preference to the ANZ Bank for, being a payment from a credit account, its effect was to benefit the Bank, in preference to other creditors. No argument was put by counsel for the Bank as to the existence of a banker's right of set-off or lieu. Accordingly, the Court will declare that the payment of this sum was a preference. In the light of the Bank's knowledge of the petition, s.122(2) does not save the transaction.
Counsel for the trustee also challenged a debit of $37.50 made to that same account on 7 November 1983; but as there is no evidence as to the debit save the description on a bank statement of "PRO/LOD", I do not further consider the matter and reject the claim made that it was a preference.
The orders of the Court will be as follows:-
The Court declares:-
1. That the mortgage over the property Vol. 6114 Fol.35 in favour of the Australia and New Zealand Banking Group Limited is void as against the Trustee.
2. That the payment to the Australia & New Zealand Banking Group Limited on 7 November 1983 of $698.08 was a preference which is void as against the Trustee. The Court orders:-
3. That the Australia & New Zealand Banking Group Limited repay the Trustee the sum of $698.08 within 28 days of this judgment.
4. That the respondent, the Australia and New Zealand Banking Group Limited, pay the costs of this application.
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