Dennehy v Reasonable Endeavours Pty Ltd, in the matter of Dennehy

REASONS FOR JUDGMENT FINKELSTEIN J: 2 An act of bankruptcy will occur if a creditor who has prosecuted his claim to judgment and execution of that judgment has not been stayed serves a bankruptcy notice with which the debtor does not comply. In that event, a sequestration order can properly be made. In this case, the judgment upon which the bankruptcy notice was based had been entered in the Supreme Court of Victoria on 28 November 1991. The judgment was in the sum of $339,719.26 with costs. Interest ran on the judgment debt from the time of its entry pursuant to s 101(1) of the Supreme Court Act 1986 (Vic). The judgment creditor did not take any step to enforce the judgment for over six years. Once it was the rule that when a year and a day had elapsed after judgment, without execution being levied, the judgment was deemed to have been satisfied. Following the enactment of the Statute of Westminster (13 Edw 1 c 45) a writ of scire facias (a warning) could be served requiring the defendant to show cause why execution should not issue against him notwithstanding the lapse of one year and one day: E Coke, The First Part of the Institutes of the Laws of England (A Commentary Upon Littleton) 291a; Underhill v Devereux (1669) 2 Saund 71 [85 ER 715]. This was changed by the Common Law Procedure Act 1852 (UK). Execution could then issue within six years from the recovery of the judgment without revival. After the expiration of six years, a judgment could be revived by leave or by writ of revival: Common Law Procedure Act,ss 128, 129, 130 and 131. In England, following the Judicature Acts, these sections were replaced by rules of court which were to the same effect. The rules were adopted by the superior courts in Australia, although in Victoria the writ of scire facias was preserved: Supreme Court Act 1958, s 163. In the Supreme Court of Victoria, the relevant rule now is O 68, r 2. According to this rule, if six years has elapsed since the recovery of a judgment, it is necessary to obtain leave before execution can issue. On 1 October 2001, the judgment creditor obtained from a Master leave to issue a writ of execution on the judgment. An appeal from the Master's decision, which was in substance a hearing de novo, was dismissed on 23 November 2001. No execution was levied, but a bankruptcy notice was served on the debtor on 15 January 2002. By that time, interest on the judgment, after credit was given for a payment of $100,000 made on 12 December 1997, totalled $387,355.37. The debtor says that the amount of interest was overstated because it was, in part, barred by a limitations statute which, according to the debtor "prohibits execution for the stale interest and, therefore, a bankruptcy notice cannot issue for any debt or any part of a debt in respect of which execution is not available." This is the ground upon which the debtor challenges the correctness of the sequestration order made by the judge from whose decision this appeal is brought. 3 The debtor's argument is based on ss 40(1) and 41 of the Bankruptcy Act 1966 (Cth). Relevantly those sections provide: "40(1)A debtor commits an act of bankruptcy in each of the following cases: … (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia …a bankruptcy notice under this Act and the debtor does not …comply with the requirements of the notice … 41(3) A bankruptcy notice shall not be issued in relation to a debtor: … (b) if, at the time of the application its issue, execution of the judgment or order to which it relates has been stayed… … (5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement." 4 The debtor's argument assumes that when these sections refer to a judgment the execution of which has been stayed, that includes a judgment the enforcement of which is barred by a limitations statute. It is true that ss 40(1)(g) and 41(3)(b), among others, are designed to ensure that only a creditor who is able to obtain the benefit of a judgment can pursue the bankruptcy of his debtor: Ex parte Blanchett; Re Keeling (1886) 17 QBD 303, 307; Pyramid Building Society (in liq) v Terry (1997) 189 CLR 176, 192. It does not follow, however, that a judgment the enforcement of which is statute-barred is a judgment which has been "stayed" within the meaning of ss 40(1)(g) and 41(3)(b). Indeed, I rather incline to the view that the reference to "stayed" in these provisions is to an order of a court exercising control over its own process by staying the execution of one of its judgments. I should point out, however, that even if this view be correct, the merits of the debtor's appeal will not be adversely affected. The true position in bankruptcy is that a creditor who has a statute-barred debt is not a creditor who is entitled to lodge a proof of debt: Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq) (1967) 116 CLR 177, 181; Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, 339, 344. Nor, I suppose, can he petition for a sequestration order. This is the basis upon which I will consider the debtor's appeal. 5 The limitations statute upon which the debtor relies is the Limitations of Actions Act 1958 (Vic). The following sections of this enactment are relevant: "5(1) The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued - … (a) actions on a simple contract (including contract implied in law) or … actions founded on tort including actions for damages for breach of statutory duty. … (4) An action shall not be brought upon any judgment after the expiration of fifteen years from the date on which the judgment became enforceable. … (7) Save as otherwise expressly provided an action shall not be brought to recover any arrears of interest in respect of any sum of money whether payable in respect of a specialty, judgment, legacy, mortgage or otherwise, or any damages in respect of such arrears, after the expiration of six years after they became due." In s 3, "action" is defined to include "any proceeding in a court of law". 6 The question that is raised for determination is whether, on its proper construction, s 5(4) (which bars an action on any judgment) or s 5(7) (which bars an action to recover arrears of interest due on money payable under a judgment) prevents execution on a judgment for the principal debt or interest, as the case may be. Surprisingly, the answer is not as clear as it might be. Indeed, the cases, such as they are, are conflicting and the area generally remains something of a mystery. 7 Obviously enough ss 5(4) and (7) of the 1958 Limitation Act will not apply to all judgments, but only to those which require enforcement. For example, a declaratory judgment as to rights will be effective when it is pronounced (or perhaps when it is perfected). Section 5 will not effect the operation of that type of judgment. However, many judgments require something to be done, such as the payment of money, the transfer of property or the doing of some other act. It is only those kinds of judgments upon which ss 5(4) and (7) can operate. Precisely how those sections will operate is the issue to which I will now turn. 8 Speaking generally, there are three categories of action on a judgment. One is an action to enforce a foreign judgment. For the purposes of a limitations statute it may be necessary to draw a distinction between an action on a foreign judgment commenced by writ and the enforcement of a foreign judgment after it has been registered under legislation such as the Foreign Judgments Act 1962 (Vic). It seems to be accepted that an action on a foreign judgment is not governed by s 5(4) but by s 5(1)(a). The reason for this is that such an action is treated as an action for a simple contract debt. In Williams v Jones (1845) 13 M&W 628, 634 [153 ER 262, 265] Alderson B said: "The true principle is, that where a court of competent jurisdiction adjudges a sum of money to be paid, an obligation to pay it is created thereby, and an action of debt may therefore be brought upon such judgment. This is the principle upon which actions on foreign judgments are supported" See also Grant v Easton (1883) 13 QBD 302. On the other hand, a judgment registered under legislation such as the Foreign Judgments Act is deemed to be a judgment obtained in a local court with the result that it will be covered by ss 5(4) and (7). 9 The second category is a new action which is based on a judgment debt. Such an action is probably obsolete. But it once had a purpose. For example, I have already mentioned that at common law a judgment could not be enforced after a year and one day. However, within that period a plaintiff could take proceedings by action in debt on the judgment: Chitty's Archibald's Practice 12th ed, vol 2, 1866, 1123; Shaw v Allen (1914) 30 TLR 631. If the plaintiff obtained a fresh judgment, time would start to run again. Presumably, the plaintiff could continuously renew a judgment in this fashion, at least until the court decided that he was acting in abuse of its processes. It is also of interest to note that a bankruptcy petition is an action on a judgment. In In re a Debtor (No 50A/SD1995) [1997] Ch 310 it was held that bankruptcy proceedings did constitute an action which was barred by the English equivalent of s 5. Judge Paul Baker QC, sitting as a Judge of the High Court, said (at 314): "It seems to me that bankruptcy proceedings are, first of all, a new proceeding so that it can be properly said that the proceedings are newly brought and are not in any way continuing some previous proceedings pursuant to the judgment or anything of that nature" See also Chohan v Times Newspapers Limited [2001] 1 WLR 184. 10 The final category are proceedings which may or may not amount to "actions", namely proceedings by way of enforcement, such as by writs of execution. The question here is whether ss 5(4) and (7) only apply to the commencement of a new proceedings on a judgment or whether they are concerned with enforcement as well. 11 I can now deal with the construction question. For more than sixty years the view had been taken that the Limitation Act 1939 (UK) applied only to an action on a judgment and not to the process of execution. The relevant section of the English statute, namely s 2(4), provided that: "an action shall not be brought upon any judgment after the expiration of twelve years from the date on which the judgment became enforceable." "Action" was defined in s 31 to include "any proceeding in a court of law, including an ecclesiastical court". The leading case which considered the meaning of s 2(4) was W T Lamb & Sons v Rider [1948] 2 KB 331. There the plaintiffs had obtained a default judgment against the defendant for goods sold and delivered. The judgment was not satisfied but no steps were taken by the plaintiffs to enforce it for eight years. When the plaintiffs asked for leave to proceed to execution under O 42 r 23 of the Rules of the Supreme Court, (a rule which is similar in its terms to O 68 r 2 of the Rules of the Victorian Supreme Court) the Master refused leave. Two years later, the plaintiffs made a further application for leave and this time they were successful. The defendant appealed. One of the arguments on appeal was that the plaintiffs did not really need leave to enforce the judgment because O 42 r 23 was ultra vires, being inconsistent with the statutory right to issue execution at any time up to twelve years. The judgment of the Court of Appeal was delivered by Scott LJ. After a brief survey of the history of both the limitations statute and O 42 r 23, Scott LJ reached the conclusion (at 337) that: "…the right to sue on a judgment has always been regarded as a matter quite distinct from the right to issue execution under it and …the two conceptions have been the subject of different treatment. Execution [he said] is essentially a matter of procedure - machinery which the court can, subject to the rules from time to time in force, operate for the purpose of enforcing its judgments or orders." According to Scott LJ (at 338) s 2(4) of the 1939 Limitation Act dealt with: "…the substantive right to sue for and obtain a judgment, and with that alone. The Common Law Procedure Act 1852 and Or. 42 of the Rules of the Supreme Court were concerned, and concerned alone, with procedural machinery for enforcing a judgment when obtained." 12 The correctness of Lamb's case was considered by the House of Lords in Lowsley v Forbes [1999] 1 AC 329. The case was concerned with s 24 of the Limitation Act 1980 (UK) which had superseded s 2(4) of the 1939 Act. Section 24 provides: "(1) An action shall not be brought upon any judgment after the expiration of six years from the date on which the judgment became enforceable. (2) No arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due." Two questions arose for determination. The first was whether s 24(1) barred execution of a judgment after six years or whether it only barred the bringing of a fresh action on the judgment. The second question was whether s 24(2) limited recovery of interest on a judgment to a period of six years before the date of execution. 13 Lord Lloyd, with whom the other Law Lords agreed, delivered the leading speech. In the first instance he considered the same legislative history as Scott LJ had considered in Lamb's case but came to a different view regarding the meaning of the 1939 Act. In particular he said (at 339) that he could not agree that s 2(4) of the 1939 Act had the narrow meaning attributed to it by Scott LJ. Lord Lloyd said that the phrase "action suit or other proceeding" (found in s 40 of the Limitation Act 1833 (UK) and s 8 of the Limitation Act 1874 (UK), and upon which s 2(4) of the 1939 Act was based) included proceedings by way of execution and enforcement and s 2(4) imported this meaning. There was, however, a difficulty in applying that meaning to s 24 of the 1980 Limitation Act. As Lord Lloyd pointed out, Lamb's case had been followed for many years. More importantly, the then current legislation was enacted by Parliament on the basis that Lamb's case represented the existing law. In the result, Lord Lloyd held that because Parliament had given its blessing to Lamb's case it was too late for the House of Lords to hold its reasoning to be erroneous. However, when he came to the second question he said (at 342) that: "There would seem to be no reason why the relevant words in section 24(2) 'no arrears of interest . . . shall be recovered' should not be given their ordinary meaning, so as to bar execution after six years in respect of all judgments. It is what the words say. 'Recovered' has a broad meaning. It is not confined to recovery by fresh action." 14 What then is the position in Australia? Should a court apply the true meaning of the words used in s 5 of the 1958 Limitations Act? Or, as in England, must the previously accepted, but erroneously held, construction be followed? 15 The 1958 Limitation Act repealed and replaced the Limitation of Actions Act 1955 (Vic). The 1955 Limitation Act was itself based on the Limitation of Actions Act 1939 (UK). Prior to the enactment of the 1955 Limitation Act, there were 42 provisions, contained in approximately 20 enactments, which dealt with limitation of actions. The 1955 Limitation Act "substantially followed the [1939] English Act" in seeking to revise and consolidate the relevant law (Victoria, Legislative Assembly, Debates, 17 September 1955, p 277). 16 I propose to act on the basis that when the Victorian parliament enacted the 1955 Limitations Act, based as it was on the English legislation, it did so in the belief that Lamb's case was correctly decided. In the first place, parliament is presumed to have a mastery of the law, both the common law and statute law. It is also presumed to know the cases which interpret statutes. Perhaps it may be taking the principle a little too far to suggest that parliament is also presumed to have knowledge of the law of other jurisdictions. But it is, in my view, proper to act on that presumption as regards the 1939 Limitations Act because it was specifically adopted by the Victorian parliament. That is to say, it is to be presumed that parliament does know the law relating to the precise statute which it is adopting from another common law jurisdiction. There is also the additional fact that lawyers in Victoria including, importantly, parliamentary counsel, would have assumed the correctness of Lamb's caseand would have acted on that basis. The two leading texts to which reference would have been made at the time state this to be the case. I have in mind the third edition of Halsbury's Law of England which was published in 1958. The relevant passages are found in vol 24 at paras 417-419. There is also the well-known, and then contemporary, English textbook, Preston and Newsom on Limitation of Actions, the third edition of which was published in 1953 and was commonly used in Australia. The text discussed Lamb's case noting (at 3, 61-62) that the 1939 Limitation Act did not restrict execution on a judgment, as opposed to suing on a judgment. 17 I am confirmed in this view when regard is had to the knowledge of the English limitations statute by the New South Wales parliament. As with the 1955 Victorian Limitation Act, the New South Wales Limitation Act 1969 consolidated provisions in other legislation in conformity with the model adopted in the United Kingdom. The 1969 Limitation Act was passed following a report by the New South Wales Law Reform Commission into Limitations of Actions which was published in October 1967. Paragraphs 115 and 116 of the Report state: "115. See the definition of 'judgment' in section 11 (1) of the Bill and the notes above (paragraphs 65, 66) on that definition. The present period of limitation for an action or other proceedings to enforce a judgment is twenty years: the period is fixed by section 40 of the Imperial Real Property Limitation Act, 1833. Although section 40 of the Act of 1833 seems to speak only of judgments 'charged upon or payable out of any land', the provision applies to judgments generally, whether or not charged on land. For the process by which this position was reached see Lightwood on The Time Limit on Actions (1909) at pp. 164, 165. The Bill follows section 2 (4) of the Imperial Act of 1939 in fixing a limitation period of twenty years. 116. The present limitation provisions here and in England concerning judgments apply, and section 17 of the Bill would apply, to an action on the judgment, but not to the processes of execution of a judgment: W. & T. Lamb & Sons v Rider ([1948] 2 K.B. 331). When exercising discretions concerning the execution of a judgment after a long period, however, a court has regard to the effect which the statutes of limitation would have if an action were brought on the judgment: Jay v Johnstone ([1893] 1 Q.B. 189)." 18 In the result, I see no basis upon which we should adopt an approach which is different from that taken by the House of Lords. It is clear that if parliament legislates upon an erroneous view of the law, that view will effect the construction of the legislation. In Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591, 648 Lord Simon said: "Once it is accepted that the purpose of ascertainment of the antecedent defect in the law is to interpret Parliament's intention, it must follow that it is Parliament's understanding of that law as evincing such a defect which is relevant, not what the law is subsequently declared to be." It follows, in my view, that s 5(4) only affects new actions upon a judgment and does not deal with steps taken in the enforcement of a judgment. The only "limitation" which applies to the enforcement of a judgment obtained in the Supreme Court of Victoria is that contained in the rules of the Supreme Court. 19 The same result must follow in relation to s 5(7). The language of that section is indistinguishable from s 5(4). That may be contrasted with the position in England where s 24(2) of the 1980 Limitation Act (the equivalent provision) is differently worded. There the prohibition is against the "recovery" of interest. It is not against the bringing of an action. So the construction placed upon s 24(2) by the House of Lords cannot assist the debtor in this case. 20 In my view the appeal should be dismissed with costs. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.