Australia & New Zealand Banking Group Limited v Baker and Lamont

REASONS FOR JUDGMENT 1 On 15 December 1999, Australia and New Zealand Banking Group Limited ("the Bank") commenced separate proceedings against the Respondents individually by way of enforcement of instruments of guarantee and indemnity signed by each Respondent in favour of the Bank in respect of the indebtedness for the time being of Plaza Pty Limited and Jasore Pty Limited ("the Companies") to the Bank. Summary judgment was entered by the Supreme Court of New South Wales in favour of the Bank against each of the Respondents in the sum of $1,661,068.89. 2 Bankruptcy Notices were subsequently served on the Respondents, and in each case the same were not satisfied by payment. On 29 August 2000, the Bank filed Creditor's Petitions against each of the Respondents returnable on 11 October 2000. The Respondents filed Notices of Intention to Oppose on the preceding day, namely 10 October 2000. 3 The Notice of Intention to Oppose filed by each Respondent has raised identical grounds of opposition in support of the contention that each Bankruptcy Notice was invalid and of no effect, with the consequence that the Petitions would therefore be without foundation. The reasons advanced by the Applicant involve the novel propositions which I will summarise below. 4 The first proposition advanced by the Applicant concerns what may be described as the validity of the Bankruptcy Notices which were issued by the Official Receiver pursuant to Bankruptcy Regulation 4.01(2). The authority of the Official Receiver to issue Bankruptcy Notices is conferred by s 41(1) of the Bankruptcy Act 1966 (Cth) ("the Act") which provides as follows: "41(1)An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained a final judgment or order that: (a) is described in paragraph 40(1)(g); and (b) is for an amount of at least $2000." The office of Official Receiver is constituted by s 15(1) and (3) of the Act in the following terms: "15(1)There shall be for each District an Official Receiver and such officers to assist the Official Receiver in the performance of his or her functions under this Act as are necessary. … (3) Each Official Receiver has such powers and functions as are conferred or imposed on an Official Receiver by this Act." The Respondents contend that the effectiveness of the Official Receiver's issue of the Bankruptcy Notices is to be denied, seemingly because there has been no valid derivation by the Official Receiver of authority so to do from the Official Trustee in Bankruptcy, and in any event because such latter office has not been in turn validly established pursuant to s 18(1) of the Act, which reads as follows: "18(1)The corporation sole known as the Official Trustee in Bankruptcy, that existed immediately before this subsection commenced, continues in existence as a body corporate with the same name." 5 As to the first point, the Applicant contends that since the Bankruptcy Notices were issued by the Official Receiver otherwise than in the name and on behalf of the Official Trustee in Bankruptcy, the same are ineffective. The Applicant points to the circumstance that the mode of signature on the Bankruptcy Notices reveals that the Official Receiver has not acted in the name of the Official Trustee in Bankruptcy as supposedly required by ss 18(8) and 18(8AA) of the Act, which read as follows: "18(8)The Official Receiver for a District may exercise the powers, and perform the functions, of the Official Trustee that relate to a matter that is determined under section 5AA to have originated in that District. (8AA) In exercising powers or performing functions under sub-section (8), an Official Receiver must act in the name of, and on behalf of, the official Trustee." The relevant District here, in conformity with s 5AA of the Act, is New South Wales. 6 The submission fails at the outset, because of the plain terms of s 41(1) of the Act set out in [4] above. To issue bankruptcy notices is the statutory function of the Official Receiver pursuant to s 41(1), without the need for any conferral of power from the Official Trustee in Bankruptcy. 7 Allied to the contention addressed in [5-6] above was a constitutional contention of the Respondents to the effect that the Commonwealth has no power to legislate for the establishment, and therefore for the continuance in office, of the Official Trustee in Bankruptcy as a body corporate, for the reason expressed in the Applicant's submissions that "Pursuant to section 51(xx) of the Commonwealth of Australia Constitution Act 1900 the Commonwealth does not have power to provide for the incorporation of companies". This contention was advanced, on my understanding, on the basis (which I have already rejected) that in issuing bankruptcy notices, the Official Receiver in effect exercises statutory powers or functions of the Official Trustee in Bankruptcy and for that purpose depends upon the validity of the incorporation of the Official Trustee in Bankruptcy as a body corporate. There is no substance to this constitutional contention. S 51(xx) refers only to foreign corporations and to trading or financial corporations. The Official Trustee in Bankruptcy being constituted as a corporation sole by virtue of s 18(1) extracted in [4] above, the Official Trustee in Bankruptcy cannot be characterised as foreign corporation or a trading or financial corporation. For a brief discussion of the juridical nature of a corporation sole, I refer to Ford's Principles of Corporation Law (8th ed) Butterworths 1997 para 2030 page 31. In any event, the Commonwealth is empowered by s 51(xvii) of the Constitution to make laws with respect to bankruptcy and insolvency, and statutory provisions such as s 18(1) of the Act plainly reflect that description of power. If the Parliament is constitutionally authorised to exercise a particular power, it necessarily follows that the Parliament can also establish a corporation to carry that power into effect: see Australian National Airways Pty Ltd v The Commonwealth (1945) 71 CLR 29 at 58 and The State of Victoria v The Commonwealth (1957) 99 CLR 575 at 612. 8 The second proposition of the Respondents is framed in their submissions to the effect that "as… there is no head of power under the Constitution authorising the Commonwealth to administer the registration and incorporation of companies on behalf of the States… hence each of 300 Queen Street Plaza Pty Limited and Jasore Pty Limited had no legal status", and lacked for instance "legal status to do such things as borrow money", and to provide securities for that purpose. Consequently, so this submission runs, the loans made by the Bank to the Companies were made to non-existent entities and are irrecoverable, with the further consequence that the instruments of guarantee and indemnity are unenforceable. The Respondents assert that this issue is essentially the same as those which were ventilated on 23 June 2000 before Callinan J, sitting as a single Justice of the High Court of Australia, in a matter of GPS First Mortgage Securities Pty Limited and Northside Properties Pty Limited v Lynch. His Honour has referred the issue for hearing before the Full High Court. I have been provided with the transcript of the hearing before Callinan J, from which it appears that the constitutional issues arising in that litigation are first, whether relevant provisions of the Corporations Law of Queensland relating to the registration of companies, in combination with s 11(7) of the Australian Securities Act of the Commonwealth, empower the Australian Securities Commission to incorporate companies, and secondly, whether there is any inconsistency between such State and Commonwealth legislative provisions within s 109 of the Constitution. The precise text of the questions which have been framed by His Honour for consideration by the Full High Court is as follows: "(a) Did the Australian Securities Commission have power to register GPS Mortgage Securities under: (i) Division 1 of Part 2.2 of the Corporations Law of Queensland, in combination with section 11(7) of the Australian Securities Commission Act 1989 (Cth); or (ii) Either of the provisions referred to in para (a) above operating by themselves; or (iii) Any other law or law?" 9 Counsel for the Bank makes the preliminary submission that for its part, the Bank as a corporation is not itself vulnerable to the attack foreshadowed against the lenders in the GPS First Mortgage Securities litigation, since the Bank, in contrast to the lenders in the High Court litigation, was established in the United Kingdom under the Under Kingdom Companies Act 1948, and was subsequently incorporated in the State of Victoria by virtue of its own constituent statute, namely the Australia and New Zealand Banking Group Act 1977 (Vic) (No. 8977 of 1977). However the attack in the subject proceedings is not directed to the legal status of the Bank as a corporation, or at least that is my understanding of the Applicant's ultimate submission, but to the legal status of its corporate borrowers (ie the Companies). 10 Counsel for the Bank submits that the critical distinguishing feature inherent in the circumstances of the present proceedings is that the Respondents were not just guarantors of the Companies' borrowing obligations in favour of the Bank, but were also indemnifiers in respect of such obligations, so that the Respondents are directly and independently liable to the Bank, irrespective of their purported accessory liability as guarantors. That being so, the constitutional issues which have been referred by the Full High Court in GPS First Mortgage Securities do not necessarily arise in the present proceedings. That submission should be upheld, for the reasons appearing below. 11 In the case of each of the instruments bearing date 20 December 1995 signed separately by Baker and Lamont, the following provisions by way of indemnity are incorporated therein: "I agree to indemnify ANZ against any loss that it suffers because: (a) the guaranteed money is not paid when it should be; or (b) ANZ cannot recover the guaranteed money from the customer because: (i) the law prevents it; or (ii) of some legal disability or limitation that the customer is subject; or (iii) the customer does not have the legal power to pay it to ANZ; or (iv) the customer acted without power…. … (d) The customer is insolvent." Each of such 1955 instruments also provides as follows: (a) the indemnity is a continuing indemnity (cause 5(b)); (b) the Bank can enforce its rights under the indemnity against each of the Respondents as a principal debtor (clause 6); (c) the obligations under the guarantee are separate from the obligations under the indemnity (clause 7.1); (d) the obligations of guarantee and indemnity are independent of and additional to each other (clause 7.2); and (e) the obligations under the indemnity are binding on the Respondents even if the Bank cannot recover the moneys lent pursuant to the guarantee (clause 7.3). 12 In the case of the single instrument bearing date 12 September 1996 entered into by the Respondents jointly and severally, clause 14 thereof provides as follows: "14. As a separate and independent agreement and for the consideration aforesaid the Covenantor severally agrees with the Bank that in case the whole or any part of the said indebtedness and liability shall not be recoverable from the Covenantor as Covenantor under the covenant hereinbefore contained by reason of any legal limitation disability or incapacity (including infancy) on or of the Customer or by reason of any failure of liability of the Customer or of any other fact or circumstance and whether known to the Bank or not the Covenantor shall nevertheless hold the Bank fully indemnified at all times hereafter against all loss or damage which the Bank may suffer or incur by reason of such limitation disability incapacity failure fact or circumstance" (the underlining represents my emphasis). 13 The distinction between a guarantee and an indemnity is explained in The Modern Contact of Guarantee (3rd ed) LBC 1996 by O'Donovan and Phillips at pp 25-26 in the following terms: "6. Distinction Between Guarantee and Indemnity The performance of an obligation or the payment of a debt of another may be secured not by a guarantee, but by a contract of indemnity. The distinction between a contract of guarantee and a contract of indemnity is that in a contract of indemnity a primary liability is assumed whether or not a third party makes default, whilst, as has been seen, in a contract of guarantee the surety assumes a secondary liability to the creditor for the default of another who remains primarily liable to the creditor. The contract of indemnity, therefore, is 'a contract by one party to keep the other harmless against loss' and is not dependent on the continuing liability of the principal debtor. The obligation has no reference in law to the debt of another." 14 It follows that the Respondents have no answer in opposition to the Creditors' Petitions filed by the Bank against each of the Respondents individually, irrespective of the outcome of the constitutional issues raised in GPS First Mortgage Securities, since even if any forensic obstacle emerges in relation to the enforcement of the guarantees as a consequence of the outcome of the High Court litigation in GPS First Mortgage Securities, any such difficulty would be academic in the light of the independently operating indemnity provisions of such instruments [11-12]. The Respondents seek to avoid such a conclusion upon the submitted basis that "…the giving of the securities by the Respondents was preconditioned by the principal securities being offered by the companies were in fact lawful," being a precondition which would not be satisfied if the constitutional issues in GPS First Mortgage Securities are resolved in favour of the debtor in that litigation. It suffices to repeat that the contractual operation of the indemnities would remain in full force and effect, and thus deny any such unjust windfall and unintended contractual consequence. 15 All relevant formalities required by the Act and Regulations thereunder to justify orders for sequestration have been duly complied with. I record that no expression of intention to intervene had been received at the time of the final hearing of the subject proceedings from any Attorney General of the Commonwealth or of the States in relation to the s 78B Notices sent to each of them on 10 October 2000 by the Respondents in relation to the constitutional issue referred to in [7] above. The final hearing date before me took place on 28 November 2000. Having regard to the conclusion I have reached as set out in [14] above, I would not accept the justification for a stay of the present proceedings pending the Full High Court's resolution of the GPS First Mortgage Securities litigation. 16 The Bank seeks an order for costs against the solicitors for the Respondents, in addition to the Respondents as unsuccessful parties to the proceedings Caboolture Park Shopping Centre Pty Ltd (in Liq) v White Industries (Qld) Pty Limited (No. 1) (1993) 45 FCR 224; Deputy Commissioner of Taxation v Levick (1999) 168 ALR 383 and on appeal (2000) 44 ATR 315 (FC) at 321-5. I would not be prepared to infer that the solicitors have abused the processes of the Court, for instance by using the proceedings for an ulterior purpose, or have acted without any proper consideration of the prospects of success. Accordingly I decline to make any order for costs against the solicitors for the Respondents. I therefore order that: (1) A sequestration order be made against each of the estates of the Respondents Martin William Webb Baker and John Robert Lamont. (2) Scott Pascoe be appointed Trustee of such bankrupt estates. (3) The Applicant Creditor's costs be taxed and paid respectively out of the estate of the Respondent debtor to each proceeding. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.