Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd & Ors [2014] VSCA 326

Facility Agreements: Loan Agreement between the Lender and the Grantor executed on 5 September 2012.

Security: Company Security Deed dated 5 September 2012 between the Lender and the Borrower duly registered no. 201209120057689 on the Personal Property Securities Register on 12 September 2012.

Grantor: Dura (Australia) Constructions Pty Ltd (ACN 004 284 191) (In Liquidation).

Property: All of the Grantors present and after acquired property and all present and after acquired property in which the Grantor has rights.

Secured Money: The whole of the money secured under the Security being the principal outstanding and all interest and other amounts outstanding under the Security and the Facility Agreements.

1. During the latter part of 2013, the Court of Appeal gave directions for the filing of further submissions with respect to the disposition of the moneys in the joint account. When the matter came on for hearing, the liquidator played no part; the argument that Hue held an unperfected 'security interest' in respect of the funds was propounded on behalf of Dura by the receivers.

1. The PPSA is aimed at establishing a 'a single national law governing security interests in personal property'.[6] It came into effect on 30 January 2012. It is based, proximately, on Canadian provincial legislation and, remotely, on Article 9 of the United States Uniform Commercial Code.[7] It provides for the creation and registration of security interests in personal property and their enforcement against those that have granted them and against third parties.
2. Some general observations can be made about the PPSA:
   • 'Personal property' is any form of property other than land and certain licences.
   • The definition of 'security interest' is fundamental. It is a 'functional definition'. It means an interest 'in personal property that is provided for by a transaction that, in substance, secures payment or performance of an obligation'. ' Transaction' is not defined in the PPSA.
   • Although the PPSA lists a series of familiar security interests, such as a fixed charge or a floating charge, these are said to be only examples of the 'functional' concept.
   • The holder of a 'security interest' is referred to as the 'secured party'.
   • The PPSA distinguishes a 'debtor' from a 'grantor'; the former is the person who owes payment or performance of an obligation that is secured by a security interest in personal property; the latter is a person who has the interest in the personal property to which a security interest is attached. More often than not, the debtor and the grantor will be the same person.
   • Security interests are effective and enforceable against grantors where those interests have attached to the collateral that is the subject of the interest; they are enforceable against third parties where they have been perfected.
   • A security interest attaches to collateral when the grantor has rights in the collateral, or the power to transfer rights in the collateral, and value is given or the grantor does an act that creates the security interest.
   • A security interest in particular collateral is perfected when the interest has attached to the property and the secured party has either taken possession or control of the property or has registered it on the PPS Register established under s 147 of the PPSA.
   • The PPSA also sets up rules for the determination of priorities between security interests. In particular, a perfected security interest has priority over an unperfected security interest and the security interest that has been continually perfected for the longest time generally has the highest priority.
   • Finally, unperfected security interests held by a secured party vest in the grantor upon the bankruptcy or the winding up of the latter.
3. In the present application, the receivers are proceeding on the premises that Hue was 'the secured party', that the interest it held in the funds in the joint account was a 'security interest' of which Dura was 'the grantor' and that the security interest remained unperfected upon the resolution for the winding up of Dura.

1. The liquidator of Dura filed submissions in which he said that Hue's interest in the funds 'would, at its highest, be in the nature of an equitable charge over the Funds'. As such, it 'would constitute a security interest within the meaning of the [PPSA]' and, as it was unperfected, that interest would be subordinated to the higher-ranking perfected security interest of the secured creditors. Thereafter, the liquidator played no further part in the proceeding.

1. Hue said that, upon payment in, the funds 'ceased to be the legal and beneficial property of' Dura. Hue accepted that each of the parties acquired an interest in the funds 'but only in the sense that they were each entitled to insist that the monies be properly administered and applied for the purposes for which they were paid in. Neither was beneficially entitled to either the whole or any part of the Trust Funds or interest earned thereon'. Hue contended that, as Dura held neither a legal or beneficial interest in the funds, the PPSA would have no application. Alternatively, Hue contended that, if any of the parties held an interest in the funds, the PPSA did not apply by reason of ss 8(1)(b) and (c).

1. By October 2013, the receivers had taken over the conduct of the matter on behalf of Dura.
2. The receivers advanced alternative contentions. First, they said that, although the order of the Court of Appeal did not itself create a trust, upon the payment in, the funds became trust funds in the sense that the solicitors were not beneficially entitled to them.

At the time of payment, the Funds were legally and beneficially owned by Dura. Once paid in, legal title to the Funds remained the property of Dura, but it ceased to be absolutely beneficially entitled to them.

1. The solicitors 'as trustees held the funds on trust for Dura, but were bound to have regard to Hue's equitable right to resort to the funds to satisfy the judgment'. In making that argument, the receivers referred to Equuscorp Pty Ltd v Wilmoth, Field Warne (a firm).[8] Second, they contended that is was open to the Court 'to take the view that Dura retained property in the Funds subject to an interest by way of charge on the part of Hue'. In this respect, they referred to Dwight v Commissioner of Taxation[9] and Duncan (as Trustee for Bankrupt Estate of Garrett) v National Australia Bank Ltd.[10]
2. On either analysis, the receivers said, once the funds were paid in, Hue held an interest in them which was a 'security interest' under s 12(1) of the PPSA. Under the 'trust' analysis, Hue had 'acquired an interest in the moneys in the sense that [it was] entitled to insist that they be properly administered and applied for the purposes for which they were paid in'.[11] Under the equitable charge analysis, Hue held an equitable interest in the funds by way of charge. The interest was provided for 'by a transaction' comprising the payment to the solicitors into the joint account. That interest secured the payment or performance of an obligation: under the trust analysis, a 'trust arrangement can give rise to a security interest under the PPSA as long as it, in substance, secures payment or performance of an obligation'; under the charge analysis, an 'equitable charge amounts to a secured interest'. The receivers denied that either of the exceptions in ss 8(1)(b) or (c) applied. They concluded that, as Hue had not registered its interest, that interest remained unperfected. As it remained unperfected on the date that the resolution was passed for the winding up of Dura, Hue's security interest vested in Dura pursuant to s 267(2).

1. Hue filed submissions in reply to those of the receivers. Those reply submissions are in two parts. The first part seeks to impeach the entitlement of Dura Asia-Pacific, and, thus, of the receivers, to the funds in the joint account. Briefly stated, the funds were paid into the trust account on 24 August 2012; thus, they had ceased to be the property of Dura when, pursuant to the Security Deed, it charged its property in favour of Dura Asia-Pacific: nemo dat quod non habet. The second part of the reply submission related to the PPSA.
2. Hue rejected the contention, extracted above, that, upon payment in on 24 August 2012, 'legal title to the Trust Funds remained the property of Dura'. On the contrary, Hue said, upon the creation of the joint account, the legal title to that account was 'from its inception and remains in the ... solicitors acting jointly as trustees'. Neither Dura nor Hue had any 'beneficial interest in the chose in action (constituted by the joint account)' until further order of the Court of Appeal. Hue contended that:

... after the creation of and upon deposit into the NAB account the legal and beneficial interests of Dura were relinquished and replaced by a legal interest in the Trust Funds held by the trustees subject to the identical interests of the parties, namely the contingent right to ensure that the trustees acted in accordance with the obligations imposed by the Order and pursuant to which they held the chose in action. Neither party to the litigation had an immediate beneficial interest in the chose in action itself nor (a fortiori) in the Trust Funds.

1. As a result, the funds 'simply did not form part of the property of Dura at the time that Dura and [Dura Asia-Pacific] entered into the Security Deed'.[12]
2. It will be noticed that the definition of 'Property' in the Security Deed[13] also included property acquired by Dura after the creation of the Deed. In view of this, Hue also contended that the funds 'did not become part of the property of Dura after the alleged Security Deed was entered into'. Dura's interest in the joint account did not constitute 'Property' or, if it did, the interest was worthless after the Court of Appeal dismissed Dura's appeal.
3. In short: the secured creditor's alleged security interest could not have attached, and never had attached, to the trust funds and was unenforceable in relation to the trust funds.
4. The second part of the reply submission addressed the PPSA. Under s 19(1) of the PPSA, a security interest 'is enforceable against a grantor or third party in respect of particular collateral only if the security interest has attached to the collateral'. Under s 19(2), a security interest has attached to the collateral only where certain conditions are satisfied, including that the grantor has rights to the collateral or the power to transfer rights in it to the secured party. Hue said that, as Dura had relinquished its legal and beneficial rights on the creation of the account, it had, when it created the Security Deed, no rights in the relevant collateral and no power to transfer rights in it to any secured creditor.
5. According to the submission, any interest held by Hue in relation to the funds fell within either ss 8(1)(b) or (c) of the PPSA and, thus, was excluded from its operation: either Hue's interest was created or arose under a law of the State (the Supreme Court Act 1986) and Dura had not agreed to give Hue any interest in the funds paid in; or, its interest was created or arose by operation of the general law upon Dura's complying with the condition which the Court of Appeal had imposed as a condition of the stay of execution.
6. Alternatively, Hue said, any interest held by it in the funds was not a 'security interest' within s 12(1) of the PPSA. First, in so far as it was necessary for a security interest to be created by a 'transaction', that transaction had to be 'consensual'. In the present case neither Dura nor Hue had agreed with the other to do anything: the payment in of the funds was the unilateral act of Dura. Hue referred to iTrade Finance Inc v Bank of Montreal.[14] Second, the 'contingent beneficial interest' that it held in the funds did not confer any property interest on Hue and, further, if it did, that interest was not one which 'secure[d] payment or performance of an obligation.'[15] Finally, Hue had a 'security interest' in the fund, the 'grantor' was not Dura. Given the circumstances of its creation, the trustees were the only persons who could have created an interest in the funds in favour of Hue, and they had not done so.
7. In conclusion, Hue was sceptical about the Security Deed itself, although the basis of its scepticism was not spelt out. However, the Security Deed was not in evidence before the Court, and there was no evidence to indicate the basis of Hue's scepticism as to either its existence or its terms.[16]

1. In answer to Hue's submission that Dura Asia-Pacific had not acquired any interest in the funds that it was capable of charging in favour the secured creditor, the receivers said that the relevant issue in the present application was Hue's interest in the funds, not that of the secured creditor.[17] In response to Hue's contention that the funds did not form part of the property of Dura at the time it entered the Security Deed, the receivers said that Dura 'retained a beneficial interest in them, which was "personal property" which Dura could charge'. Hue had relied upon the judgment of Mullighan J in Pilmer v HIH Casualty & General Insurance Ltd (No 2).[18] The receivers pointed out that that decision had been doubted in Duncan.[19] Hue had contended that whatever interest Dura might have had in the funds in the joint account after its creation did not constitute (after acquired) property.
2. The receivers replied that s 267 of the PPSA had the effect of restoring 'Dura's absolute beneficial interest', even if legal title remained with the trustees. Hue had also contended that, since, as at the date of the creation of the Security Deed, Dura had already relinquished all its legal and equitable interests in the funds in the joint account, it had no rights in the relevant collateral and no power to transfer rights in it to the secured creditor. The receivers replied by contending that, after the creation of the joint account, Dura had retained the right to compel the proper administration of those funds. Even if these were not the rights of a legal owner and those of the holder of a full beneficial interest, it was a 'right in the collateral' that it was capable of transferring. To Hue's contention that '(a)lthough in general terms Hue would regard itself as better protected by the payment in and establishment of the Trust Funds, Hue could not obtain any security for what it was owed until further order from the Court of Appeal and then only subject to the terms of that further order', the receivers referred to Hue's original submission in which Hue had not only described the payment in as 'security', but had also referred to authorities to the effect that such payments were 'security for the outcome of the contested claim'. To Hue's contention that a 'transaction' under s 12(1) had to be 'consensual' in the sense that there had to be 'interaction' between grantor and grantee, the receivers replied that that proposition involved placing a gloss on the words of the PPSA: s 12(1) did not define 'transaction'; the idea that it had to involve 'interaction' was unsupported by authority. Finally, to the contention that the trustees were the only persons who could have created an interest in the funds in favour of Hue, and they had not done so, the receivers said that the solicitors in whose names the joint account had been created were trustees, not grantors.

CPT Custodian Pty Ltd v Commissioner of State Revenue

1. In CPT Custodian Pty Ltd v Commissioner of State Revenue,[20] one of the issues was whether the holder of units in a property trust was liable for the payment of land tax on the basis that it was the 'owner of any equitable estate or interest in land'. In approaching the resolution of that issue, the Court said that two steps were to be taken: 'The first step was to ascertain the terms of the trusts upon which the relevant lands were held. The second was to construe the statutory definition to ascertain whether the rights of the taxpayers under those trusts fell within that definition.'[21]
2. Similarly, in the present case, it is necessary to examine the rights and interests of Dura and Hue with respect to the funds in the joint account and, then, ascertain whether the rights and entitlements of Hue amounted to a 'security interest' within the PPSA. In the present case, the first step suggested in CPT Custodian[22] may itself be further differentiated into the two-step process identified by Lord Millett in Agnew v Commissioner of Inland Revenue,[23] which was summarised in Flightline Ltd v Edwards[24] as follows: 'the first stage is to ascertain from the language which the parties have used the nature of the rights and obligations which they intended to create: the second stage is to consider whether, as a matter of law, those rights and obligations give rise to a charge.'[25]

(a) whether, when it entered the Security Deed, Dura had any interest in the funds in the joint account that it was capable of charging;

(b) whether Hue held a 'security interest', as defined in s 12(1) of the PPSA, in respect of the funds in the joint account;

(c) whether, on the assumption that such a 'security interest' arose, Hue held that security interest for its own benefit or for the benefit of another person so that Hue was a 'secured party' as defined in s 10;

(d) whether Dura had an interest in the funds to which the 'security interest' was attached so that Dura was the 'grantor' as defined in s 10; and

(e) on the assumption that the security interest was not 'perfected', whether the security interest held by Hue vested in Dura, pursuant to s 267(2), at the commencement of its winding up.

1. The issues at present before the Court concern the rights of Dura and Hue in respect of the funds. Those issues do not concern the rights inter se of Dura, its liquidator and the receivers. In the event that the rights of Hue in the funds in the joint account are to vest in Dura, it will be for the liquidator and the receivers to resolve who is, then, to be entitled to them.

The rights of and the interests of the parties in moneys paid into court

1. The nature of the interest retained by the party that has made a payment either into court or into a joint account, and of the interest acquired by the party for whose benefit the payment was made, have been the subject of many decisions over the last 150 years.
2. Generally speaking, the circumstances in which a party pays funds either into court or into a joint account fall into the following categories:[26]

(a) a party may at any time pay money into court in satisfaction of a cause of action with or without an admission of liability;

(b) a party may be ordered to pay money into court or into a joint account as security for costs;

(c) a party may pay money into court where an application has been made for summary judgment and the payment is a condition of being allowed to defend;

(d) a party may pay money into court by way of interpleader (where the party itself claims no interest in the money but does not know which of several claimants is entitled to the money);

(e) a party may be ordered to pay money into court as an alternative to a freezing order being made in respect of that party's assets;

(f) a party may be ordered to pay money into court or into a joint account as a condition of a stay of execution of a judgment pending the hearing and determination of an appeal .

1. In Ex parte Bouchard; Re Moojen,[27] a debtor who disputed a debt applied to have the creditor's bankruptcy petition dismissed. An order was made adjourning the petition on terms that the debtor make a payment pursuant to s 9 of the Bankruptcy Act 1869 (UK) which provided that, when a debtor denied that he was indebted to a petitioner, the court could stay all proceedings upon the petition upon security being given which was to abide the result of the action brought by the petitioning creditor. Subsequently, the debtor was adjudicated bankrupt on the petition of another creditor. In deciding that the amount that had been paid in was not available to the trustee in bankruptcy, James LJ[28] said:

I am of opinion that the equitable title of the petitioning creditor to the money was complete when it was paid into Court to abide the event of the action.[29]

1. Similarly, in Bird v Barstow,[30] a defendant was given leave to defend a proceeding on condition that a payment was made into court. The payment in was made. The plaintiff was successful, but the trial judge refused to order the release of the money in court and ordered an inquiry as to the extent of the defendant's assets. The plaintiff appealed that part of the order. The Court of Appeal held that the 'meaning of such an order' giving leave to defend upon a payment in being made was 'to give security to the plaintiff that, if he succeed[ed] in the action, he shall obtain the fruits of success'.[31] Lord Esher MR said:

The question is really on what condition she obtained it. It appears to me that the condition is that, if the plaintiff succeeds in the action, the money brought into Court should be his, so far as it may go to satisfy the judgment which he has obtained, and that the defendant cannot be heard to deny his title to it. 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 the terms that, if he does, it shall be paid out to him, so far as it goes, to satisfy that judgment.[32]

1. In In re Gordon; Ex parte Navalchand,[33] a defendant obtained leave to defend a proceeding upon condition that a payment in was made. The plaintiff paid money into court together with a denial of liability. He was also required to make a further payment into court as security for the defendant's costs of the action. The defendant became bankrupt before the trial. The court had to resolve a contest between the plaintiff and the trustee in bankruptcy as to the funds in court. Vaughan Williams J said:

The money paid into court, even with a plea denying liability, has become subject to the plaintiff's claim by the act of the defendant, who thereby agrees that the sum paid in shall remain in court subject to the conditions of Order XXII, r 6. It is not a question of execution at all, but of the effect of a conventional charge. It is in effect a conditional payment to the plaintiff. The money is to be the money of the plaintiff if he succeeds in establishing his title to it.[34]

1. Similarly, in In re Ford; Ex parte The Trustee,[35] it was held that money paid into court to secure leave to defend must be treated as money paid to abide the event and as security to the plaintiff for the sum for which he may obtain judgment at trial. Where the defendant became bankrupt, the amount in court was not available to his general creditors.
2. The effect of these authorities was considered by the Full Court in Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Ltd.[36] In that case, the defendant company had been given leave, on an application for final judgment, to defend the proceeding upon condition that it made a payment into court. It satisfied that condition by making the payment in. However, some five months later, a petition for its winding up was presented and, a month later, a winding up order was made on that petition. The appellant (which was the plaintiff in the main proceeding) obtained leave to proceed, but an order was made providing that, if the claim was successful, execution should not issue on any judgment without leave of the court. Having succeeded in the action, the appellant issued a summons directed to the defendant company and its liquidator seeking an order that the moneys paid into court be paid to it.
3. The primary judge (Little J) refused to make the order and, in fact, ordered that the money paid into court in the action be paid out to the liquidator of the defendant company. In doing so, he had to consider the effect of s 293(1) of the Companies Act 1961[37] and s 122(1) of the Bankruptcy Act 1966 (Cth).[38] First, he held that, in making the payment into court, the defendant had created a charge in favour of the appellant. In so holding, he referred, amongst other cases, to In re Gordon; Ex parte Navalchand[39] and In re Ford; Ex parte The Trustee.[40] The charge, he held, was a charge on property within the meaning of s 122(1), made by the defendant company in favour of the creditor.
4. It was common ground that, when the payment in was made, the defendant was then unable to pay its debts as and when they fell due. The judge therefore concluded that the payment was, within the meaning of s 293(1) an 'act relating to property ... done by ... a company which, had it been ... done by ... an individual would in his bankruptcy be void or voidable'.[41] As a result, he held the defendant had created a charge which was void as against the liquidator to the extent that it secured the appellant in respect of an indebtedness to it of the defendant existing at the date of the payment into court.
5. On appeal, the appellant challenged the correctness of the authorities relied on below. It submitted that the payment into court did not satisfy the essential elements of a charge which, it was said, were 'the creation of new proprietary rights in the chargee and the retention of the general property in the thing charged, subject to the new rights, by the chargor. It was an incident of the first element that there were available to the chargee remedies in rem.'[42] It was further submitted: 'in the present case the [appellant] had no proprietary rights in respect of the money in court and that the defendant was in the same situation, so that it could not be said that the money was the property of the defendant over which the charge had been given to the [appellant].'[43]
6. In dismissing the appeal, Smith J (with whom Winneke CJ agreed) held that it was unnecessary to canvass the authorities relied upon by Little J. He said:

... it seems plain to me that the payment into court which the defendant company chose to make in order to obtain leave to defend was, within the meaning of s 122(1), a payment made by the defendant company in favour of its creditor, the appellant. The words "in favour of a creditor" cannot, in my opinion, be read as relating only to cases in which a disposition or payment is made to the creditor himself or to another person on his behalf, in the sense of a trustee for him or a person authorized by him to receive the property or money on his behalf. The expression "in favour of" is very wide and general. ... In s 122(1) the expression may be confined by the context to cases in which the disposition or payment confers advantages in the form of legal rights. But even when the meaning is so confined, the requirement imposed by the expression is, in my view, clearly satisfied in the present case. Before the payment into court was made the defendant was the sole legal and beneficial owner of the money. The making of payment put the appellant into the situation that if it established its case and recovered judgment it would be entitled ex debito justitiae as against the defendant (whatever might be the situation as against other creditors or claimants) to have the money, or so much of it as was necessary, paid out to the appellant to satisfy its judgment.[44]

Nevertheless, Smith J considered what Lord Esher MR had said in Bird v Barstow[45] to provide 'strong support for the proposition just stated'.[46] In relation to what had been said in Bird v Barstow, he added

Those statements, in my view, afford no ground for denying the right of a trustee in bankruptcy or a liquidator to have the payment into court held invalid as a preference and claim the money on behalf of the creditors of the defendant.[47]

1. Lush J agreed with Smith J that the appeal should be dismissed. Applying s 122 (1) he said that the payment into court was:

... a payment made by the debtor in favour of the creditor which had the effect of giving the creditor a preference or an advantage over other creditors. That it was a payment by the debtor or defendant is indisputable. [Counsel for the bank] contended that it was not a payment in favour of the plaintiff because when and after it was made the plaintiff had no right to, or interest in, the money or fund. The money was not paid to the plaintiff, he said, or to anyone on the plaintiff's behalf. The answer to this is, I think, that the payment provided a fund from which the plaintiff could obtain payment in whole or part if and when it obtained judgment in the action. As between the plaintiff and the defendant it in effect gave the plaintiff the right to receive the money in court or an appropriate part of it contingently on obtaining judgment. The necessary effect of the payment was to improve the plaintiff's position in its action to recover its debt from the defendant. It did so directly in the sense that no other person benefited from it. In my opinion, these results of the payment fully justify describing it as a payment in favour of the plaintiff ...[48]

1. Lush J did make some observations on whether the payment in had created a charge or a 'charge' within the meaning of s 122 (1). Referring to Bird v Barstow[49] and to Ex parte Bouchard; Re Moojen,[50] he said:

... it is not easy to analyse the respective property rights of the plaintiff, the defendant and the court or the Crown in a fund in court either before or after the decision in the case has been made. [Counsel for the appellant] contends that neither the plaintiff nor the defendant have any such rights. The alternative view is that each has a contingent interest dependent on the outcome of the case in the making of the order for payment out ...

As at present advised, I think that the payment in the present case did create a charge within the meaning of s 122 of the Bankruptcy Act 1966 (Com.). It 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 which at the time of the relevant act was the property of the debtor and which, if not given up by the plaintiff, would augment the property of the defendant in the liquidation.[51]

1. In W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd,[52] the plaintiffs had claimed a sum of money from the defendants said to be due under a sale of business assets agreement. The plaintiffs applied for summary judgment. The defendants counterclaimed and paid into court an amount said to be in satisfaction of the plaintiffs' claim after taking into account the counterclaim. The application for summary judgment did not proceed, but, before trial, the defendants went into liquidation. The primary judge acceded to an application by the defendants to take the money out of court.
2. In allowing an appeal by the plaintiffs, the Court of Appeal applied In re Gordon; Ex parte Navalchand[53] and In re Ford; Ex parte The Trustee[54] and held that the plaintiffs were 'secured creditors to the extent of that money in the defendants' liquidation',[55] whether the money had 'been paid in involuntarily, i.e. as a condition of defending the action, or voluntarily'.[56] Robert Goff LJ said:

It is plain that there is an established line of authority ... 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.[57]

1. Oliver LJ considered the basis upon which it was said that the plaintiffs were treated as a secured creditor:

Subject to the bankruptcy rules relating to fraudulent preferences, there has never been any restriction upon a debtor preferring a particular creditor if he wishes to do so, and I am not clear why it should be thought desirable that a creditor who has a valid claim but is kept out of his money by a defence which ultimately fails should be deprived of the advantage which he gains by a payment into court. In the ordinary way, his claim ought to have been dealt with and discharged when payment was demanded and if this had been done no question would arise. Why, because he has been made to wait for payment as a result of an unsuccessful defence until the defendant has gone into liquidation, his position in the meantime being secure to the extent of the money in court, should he be put in a worse position than the creditor of equal degree whose claim has been admitted and paid?[58]

1. In that case, consideration was also given to whether the person making the payment in retained any interest in the funds once paid in. Oliver LJ considered an argument that the money in court remains an asset of the party making the payment in which, on his bankruptcy, forms part of his property available for distribution. He said:

Speaking entirely for myself, I question this approach. 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., Ord. 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.[59]

1. In Halvanon Insurance Co Ltd v Central Reinsurance Corpn,[60] Hobhouse J described the nature of the security interest acquired as a result of a payment in. In that case, summary judgment had been awarded to the plaintiffs. The Court of Appeal granted the defendants leave to appeal conditional on the whole sum in dispute being paid into a joint account in the names of the parties' solicitors. The amount paid in was 'to abide the event of the action'. Later, the plaintiffs went into liquidation, and its liquidator instructed new solicitors. The plaintiffs' original solicitors resisted an application that the moneys be held jointly by the new solicitors and those of the defendant. In doing so, the plaintiffs' original solicitors contended that they had a lien in respect of the moneys in the joint account to secure payment of their fees.
2. In granting the application, Hobhouse J said:

The money in court has not ceased to be the property of the bankrupt but the plaintiff in the action has acquired the right to treat it as security for his claim. The right of the plaintiff is thus analogous to having an equitable charge on the money. The precise nature of the plaintiff's interest in the fund may depend upon the cause of action which he is asserting and the claim that he is making in the action. Where he is claiming in debt, or claiming an identified sum, there may be some basis for treating him as if he was in the position of asserting a title to the sum in court. Where the plaintiff's claim, as in the present action, is a claim for unliquidated damages no such proprietory interest could arise, and the plaintiff's interest can at best be of the nature of an equitable charge giving him a right after judgment to have recourse to that fund to satisfy his judgment.

...

Therefore if this money had been paid into court to the credit of the present actions the position in my judgment would be that the money remained the general property of the defendants but was charged with whatever may be found to be the liability of the defendants to the plaintiffs. When the money is in court it is not necessary or profitable to consider the relationship of the court or its officials to that fund. The fund can only be dealt with in accordance with orders or authorisations of the court.

In the present case the money has not been paid into court but into a joint account in the names of the parties' then solicitors "to abide the event of the action." I consider that the use of this phrase is intended to create a situation which is equivalent to that where the money has been paid into court to the credit of an action. The difference is simply a ministerial difference for the convenience and benefit of the parties. It reduces the formality and it enables the fund to be managed in a way that will enable the maximum amount of interest to be earned. But it does not in my judgment give the two firms of solicitors any interest or rights over the fund. They are officers of the court and are bare trustees. They are not entitled to deal in any way with the money save pursuant to an order of the court. They are not entitled to any of the interest earned on the account. (Contrast the position of a stakeholder: see Potters v Loppert ...) The purpose of the trust is defined by the phrase "to abide the event of the actions." The beneficiary of the trust is primarily the defendants but the trustees are also affected by and are bound to have regard to the equitable charge of the plaintiffs. But it probably is not appropriate to discuss the position in terms of beneficiaries since the trustees are, under this form of order, simply holding the account on behalf of the court.

This being the relationship of the solicitors to the account, it can be seen that it makes no difference whatsoever who are the individual trustees. Being one of the trustees of this account gives the trustee no rights over or in respect of the fund.[61]

1. The following propositions emerge from Halvanon Insurance:[62] (a) the fact that a defendant had paid its own money into court did not mean that the money paid in has ceased to be its property; (b) the fact that the money had been paid into a joint account in the names of the solicitors for the parties made no difference to that analysis: the use of a joint account was no more than a 'ministerial' convenience; (c) the plaintiff had an 'equitable charge' in respect of the funds in the joint account; and (d) the beneficiary of the trust is primarily the defendants but the solicitor trustees are also affected by, and are bound to have regard to, the equitable charge of the plaintiffs.
2. In argument and in the reasons, no reference seems to have been made to the remarks of Oliver LJ in W.A. Sherratt[63] that, upon a payment in, 'a defendant paying into court under R.S.C., Ord. 22, r. 1, parts outright with his money'.[64] Further, the remarks of Hobhouse J that, upon payment of moneys into court or into a joint account, 'the money remained the general property of the defendants'[65] were obiter: the issue for decision was whether the solicitors for the plaintiffs had an interest in the moneys so long as those moneys remained in court or in a joint account.

1. In Harmer v Federal Commissioner of Taxation (Cth)[66] a company, faced with competing claims to moneys in respect of which it laid no claim, paid the moneys into the Supreme Court of Western Australia. The Court made an order that the moneys be paid into an interest bearing account in the joint names of the solicitors acting for the claimants pending resolution of their claims. A question arose as to the liability to pay tax on the interest generated by the moneys in the account. The particular issue was whether any person was 'presently entitled', within s 97(1), or deemed to be 'presently entitled' pursuant to s 95A(2), of the Income Tax Assessment Act 1936 (Cth).
2. The High Court unanimously held that no person was presently entitled to the income, with the result that an assessment of that income under s 99A of the Income Tax Assessment Act 1936 (Cth) was upheld. In doing so, the Court discussed the different circumstances in which trust funds may be paid into court and contrasted cases in which a person had a beneficial interest in those funds before they were paid into court with cases in which the only interest a claimant may have is an interest 'to insist that they be properly administered and applied for the purposes for which they were paid in':[67]

There are many circumstances in which trust money can be paid into court by a trustee either pursuant to an order made on the application of a beneficiary or pursuant to an application made by the trustee himself or herself. In such a case, the funds paid into court remain subject to any pre-existing trust notwithstanding the payment in. If some person or persons were presently entitled to the corpus or income before payment in, the fact of payment in to await the orders of the court will not, of itself, displace that present entitlement. If entitlement is disputed, the function of the court will be to identify existing interests in the money paid into court rather than to create new ones. If the interest of a beneficiary in the moneys is vested and the beneficiary has a right to demand and receive payment of income, the fact that the interest and the right are disputed and await vindication by the order of the court will not make the interest contingent or negate the existence of the right. That being so, if a beneficiary is found by the court to have had a pre-existing interest in the income, the fact that the interest was not admitted or its extent was not ascertained at the time of payment in or until the making of the relevant order does not mean that the beneficiary was not presently entitled to it both at that time and during the period pending the court's determination

...

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 the interest earned thereon. 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.[68]

1. Thus, the High Court drew a distinction between those cases in which moneys paid into court remained subject to a pre-existing trust and those cases where the beneficial interest of the claimant was dependent upon an order being made by the court. There was no general rule that, upon payment into court, the payer necessarily lost all interest in the funds.[69]

1. Dwight v Commissioner of Taxation[70] concerned the taxation of the interest that was generated from the investment of funds in a joint account. In that case, a plaintiff company that was at all relevant times incorporated and resident in the United States and had no permanent presence in Australia was ordered to pay amounts by way of security for costs. Several payments were made into an account in the joint names of the solicitors for the parties. Purporting to confirm a discussion between himself and the solicitors for the respondents, the solicitor for the plaintiff wrote that the moneys 'belong in fact to our client until and unless an Order of the Court is made as to their payment to another party'.[71]
2. In discussing the effect of an order for security for costs, Hill J held that, regardless of the form in which security for costs is given, the property the subject of the security will continue to be the general property of the person who has given the security.[72] As for the person whose costs were being secured by the payment in, that person 'would have no proprietary interest in the property forming the security, but at best would have a right, in the nature of an equitable charge, giving him, after a cost order has been made and the costs taxed or agreed, recourse to the fund to satisfy the terms of the judgment'.[73]
3. Hill J said:

The form which such security will take is a matter for the court: see eg Pt 53, r 3 of the Supreme Court Rules 1970 (NSW). It might, as here, take the form of cash which could be ordered to be paid into court to abide the outcome of the proceedings, or be invested in the joint names of the solicitors for the parties. It might take the form of a guarantee, or it might take the form of a security over other property, real or personal. In whatever form it is ordered, the property, the subject of the security, will continue to be the general property of the party who has given the security, and once an order for costs be made in favour of, say, the defendant against the plaintiff, the defendant will become, in all respects, a secured creditor: cf WA Sherratt Ltd v John Bromley Ltd ... Pending the resolution of the dispute between the parties and the making of a cost order, the defendant would have no proprietary interest in the property forming the security, but at best would have a right, in the nature of an equitable charge, giving him, after a cost order has been made and the costs taxed or agreed, recourse to the fund to satisfy the terms of the judgment: cf Halvanon Insurance Co Ltd v Central Reinsurance Corporation.

...

Where the security takes the form of an order that moneys be deposited in the names of the solicitors of the parties, the moneys will be held, at least until the time a cost order is made (and perhaps until a bill of costs has been prepared and taxed, in default of agreement between the parties as to the quantum of costs), in trust for the plaintiff who has deposited them with the trustees. However, the trustees will be affected by, and bound to have regard to, the equitable rights of the defendant, which rights are co-extensive with his rights to have the fund held pending the determination of the proceedings and the making of a cost order, and if that order be in his favour, pending his having recourse to the fund to the extent of the costs taxed or agreed. In other words, the defendant has rights in the nature of a lien over the fund to secure reimbursement to himself, if an order of costs be made in his favour, out of the security fund.[74]

1. As can be seen, Hill J appears to have contrasted the rights of the party making the payment in to satisfy an order that security be given with the rights of a person who has made a payment in 'in satisfaction of the cause of action in respect of which the plaintiff claims' that was considered by Oliver LJ in W.A. Sherratt.[75] In the former case, 'the property, the subject of the security, will continue to be the general property of the party who has given the security'[76] whereas in the latter case, the party making the payment in parts outright with his property.
2. Further, in deciding that the moneys paid in by way of security for costs remained, 'at least until the time a cost order is made ... in trust for the plaintiff who has deposited them with the trustees', Hill J distinguished the circumstances before him from those facing the High Court in Harmer.[77] He noted two matters which, he said, 'were critical to the outcome in Harmer'.[78] First, by reason of the fact that, in Harmer, the person who paid the money into court was an interpleader, there could be no suggestion that the party paying the money into court was entitled to the income on the account or that the income formed part of the general property of that person. Second:

... the moneys in Harmer were held not as security for costs which a party may ultimately be entitled to, but to be dealt with in accordance with the order of the court consequent upon its determination of the conflicting claims to the moneys.[79]

1. In Re Lovering; Galladin Pty Limited v Jackson,[80] Galladin Pty Ltd sued various members of the Lovering family in respect of the ownership of the undertaking carried on at a farm on Kangaroo Island as well as for breaches of fiduciary duties owed to the company. Before trial, a Mareva injunction (known now as a 'freezing order') was granted on the application of Galladin Pty Ltd over certain assets under the control of the Loverings. The Loverings sold some bales of wool and placed the proceeds of that sale into their solicitor's trust account. The Mareva order was varied to require that the proceeds of the sale of any crop, produce or livestock was similarly placed in the solicitor's trust account.
2. After several changes of solicitors, an order was made that the funds in the trust account be paid into court 'subject to further order, with liberty to apply on short notice for payment out or to further vary or discharge the order'.[81] The litigation came to trial, and, after a hearing, was reserved for judgment. Before delivery of judgment, an order was made for the sale of livestock and for 'the proceeds of that sale to be paid into court for the further credit of the action and to abide the further order of the Court'.[82] At trial, both the company and the defendants were partially successful. It was held that the livestock belonged to the defendants, but that they were liable for breaches of fiduciary duty owed to the company. The judge ordered that the funds in court be paid out, by way of equitable execution, to Galladin Pty Ltd. However, before that order was effected, each of the defendants became bankrupt. Hill J was asked to determine, as a preliminary question, whether the moneys paid into court but ordered to be paid to Galladin Pty Ltd had vested in the trustee in bankruptcy by force of s 58 of the Bankruptcy Act 1966 (Cth).[83] In doing so, Hill J contrasted the interests of the parties in the funds in court before the order on the judgment was made with their interests after the order was made.
3. Having considered each of the decisions discussed above, Hill J said:

[W]hatever the basis of the jurisdiction to direct that the funds paid into court be paid out to Galladin, one of two consequences follows. Either, at that point of time, the beneficial interest of the Loverings was divested in favour of a beneficial interest arising in Galladin, or Galladin became a secured creditor in respect of the judgment in its favour of the fund in court.

On either view, the moneys paid into court did not vest absolutely in the trustee. Clearly if, once the order was made, the beneficial interest in the funds was in Galladin, the moneys in question were not property of the Loverings vesting in their respective trustees in bankruptcy under s 58 of the Act. If the order to pay out merely perfected the status of [the company] as a secured creditor, then the trustee would only have the money vested in it under s 58 subject to the equities of [the company] which affected it. Section 58 does not affect the right of a secured creditor to deal with his security which, in the present context, would mean having moneys paid to it.[84]

1. More recently, there have been a number of decisions in England that have considered the interest of the parties to funds that have been paid into court in compliance with a Mareva injunction or freezing order. In Flightline,[85] the plaintiff commenced an action for damages against the defendant. The plaintiff applied for, and was granted, on an interim basis, a freezing order in respect of the defendant's assets. In the event, consent orders were made to the effect that the freezing order should cease to have effect upon the payment by the defendant of a stipulated amount into a joint account in the names of the solicitors for the parties. The sum was paid.
2. Before trial, the defendant commenced to be wound up. The plaintiff sought leave to continue its proceeding against the insolvent defendant on the basis that it was a secured creditor in respect of the funds in the joint account. The Court of Appeal allowed an appeal from the primary judge who had acceded to the application. In giving the judgment of the Court, Jonathan Parker LJ referred to Palmer v Carey,[86] in which it had been decided that an agreement by a trader to pay part of the proceeds of sale of goods into an account in the name of its financier was, without more, insufficient to create a charge on those funds in favour of the financier. In the words of Lord Wrenbury who delivered the opinion of the Privy Council:

An agreement for valuable consideration that a fund shall be applied in a particular way may found an injunction to restrain its application in another way. But if there be nothing more, such a stipulation will not amount to an equitable assignment. It is necessary to find, further, that an obligation has been imposed in favour of the creditor to pay the debt out of the fund. This is but an instance of the familiar doctrine of equity that a contract for valuable consideration to transfer or charge a subject matter passes a beneficial interest by way of property in that subject matter if the contract is one of which a court of equity will decree specific performance.[87]

1. Jonathan Parker LJ said that the same analysis applied to payments in made pursuant to court orders. He said:

Lord Wrenbury's statement of principle applies directly to consent orders, ... which embody terms agreed between the parties; and also indirectly, by analogy, to other court orders. Thus, the reason why a freezing order does not create a security right over the assets from time to time subject to it is, in my judgment, that a freezing order - without more - does not impose an obligation on the part of the respondent to satisfy any judgment debt out of those assets. Rather, a freezing order provides what Lord Wrenbury described (in the passage quoted above) as 'a most efficient hold to prevent the misapplication [of those assets]'. As Lord Wrenbury makes clear, that is not enough to create a security right. On the other hand, cases in Professor Goode's category of 'procedural securities' are cases in which the clear purpose of the order is to afford a claimant an element of security in the satisfaction of his claim. Hence, by analogy with the principle stated by Lord Wrenbury, a security right is created.[88]

1. The reference to Professor Goode was to the second edition of his text Commercial Law.[89] In the fourth edition of that text, under the heading 'Procedural Securities', a distinction is drawn between court orders that attach the fund paid into court and freezing orders. Of the former category, it is said:

A party whose claim is purely personal may nevertheless be able to invoke court procedures by which moneys or other assets of his opponent are taken into the custody of the law, either to abide the outcome of the action or for the purpose of enforcing a judgment or order in favour of the claimant. The effect of the attachment is to make the assets in question a security for the claimant to which he can have recourse for satisfaction of his judgment even if the other party has meanwhile become bankrupt or gone into liquidation.

Among the acts giving rise to a procedural security are: the issue of an Admiralty writ in rem; the payment of money into court, whether in fulfilment of a condition of leave to defend or in satisfaction of the claimant's claim or in compliance with an order for security for costs; the payment into court of a fund, or surrender into legal custody of other property, the subject of the action pursuant to an interim order for detention, custody or preservation of the fund or property; the appointment of a receiver of property by the court at the behest of the claimant; and the attachment of an asset by way of execution.[90]

1. In Pilmer,[91] Mullighan J relied on Harmer[92] to decide that where moneys had been paid into court, the party making the payment in does not retain any legal interest in the money; that interest is vested in the registrar. Further, no competing claimant to the moneys had any equitable interest in the money until an order for payment out is made.
2. In that case, the plaintiffs were members of an accounting partnership that had been sued for professional negligence by Duke Group Ltd. The plaintiffs' insurance was arranged in layers. HIH denied that it had underwritten part of the second excess layer. The plaintiffs commenced proceedings against HIH. Those proceedings were resolved in the plaintiffs' favour. In the event, HIH was ordered to pay into Court $7.2 million which Mullighan J had found HIH was liable to pay to the plaintiffs as partial indemnification of a liability which, earlier, he had found HIH had to the plaintiffs. Subsequently, an order was made for the winding up of HIH.
3. A question then arose whether the moneys in court were 'property' of HIH so that the operation of ss 468(1) and (4) of the Corporations Act 2001 (Cth) would be attracted in relation to a payment out to the defendants in the action.[93] Mullighan J held that HIH had neither a legal nor a beneficial interest in the moneys which it had paid into court and, thus, no infringement of s 468 was involved in the payment of the moneys out of court to the plaintiffs. He held:

[Harmer] establishes that while 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.[94]

1. In Duncan,[95] the Full Court refused to follow Pilmer.[96] In Duncan, mortgagors had granted certain mortgages to a bank to secure advances, by way of a bill facility, to a company with which they were associated. The company defaulted and the bank moved to exercise its power of sale under the mortgages. The mortgagors brought proceedings in which they sought declarations as to their liabilities under the mortgages and interlocutory injunctions pending the hearing and determination of the proceeding.
2. A judge granted an interlocutory injunction upon the mortgagors paying into court interest outstanding under the relevant bill facility together with all further interest as it fell due. The mortgagors made several payments, but then failed to make a payment due at the end of June 2004. The judge discharged the injunction requiring the mortgagors give up possession of the property to the bank. One of the mortgagors filed a notice of bankruptcy; the other was ordered to be wound up. An application by the bank for the release to it of the moneys paid into court was opposed by the trustee in bankruptcy for one of the mortgagors.
3. The primary judge ordered that the moneys be released and, in doing so, relied upon several discretionary considerations. The Full Court dismissed an appeal from the primary judge, but, in doing so, relied not on the discretionary matters but, rather, upon its analysis of the interests that the mortgagors and the bank respectively held in the funds paid into court. White J (with whom Vanstone and Layton JJ agreed) considered the many different circumstances in which money is paid into court and said:

Given this variety of circumstances, it is to be expected that the decision by the court as to payment out in a particular case is to be determined by a consideration of the relevant statutory or rule regime governing the payment in, the rule regime concerning the holding of the moneys in court, the purpose for which the moneys have been paid in, any relevant decision of the court concerning the legal or beneficial ownership of the moneys or the entitlement to them, and any relevant event in the litigation in relation to which the moneys have been paid, rather than by reference to any rule of general application.[97]

1. White J considered the ruling by Mullighan J in Pilmer[98] that, until an order for payment out was made, no claimant had any equitable interest in the moneys in court. Harmer,[99] he said, did not stand for any such 'principle of general application'.[100] In that case, the payment in was made by an interpleader who, ex hypothesi, disclaimed any interest in the funds; and, until their respective claims had been adjudicated, the claimants had no beneficial interest in the money 'other than an entitlement "to insist that the moneys be properly administered and applied for the purposes for which they were paid in"'.[101] According to White J, 'whether or not the payer or another party has a beneficial interest in the moneys will depend upon all the circumstances to which I have already referred'.[102] Similarly, White J held that the effect of a payment in may be 'to establish an interest in the nature of a lien or equitable charge in that money in the other party'.[103]
2. In the present case, White J considered that, upon making the payment in, 'the mortgagors were divested of any interest in the moneys'.[104] He said:

what the mortgagors undertook to do was to pay into court the outstanding interest itself and the "interest falling due" under the bill facility as at the end of each month. In other words, the mortgagors undertook to pay into court the interest due under their contract with the respondent pending the hearing and determination of their claim that their obligations should be set aside or varied. The mortgagors appropriated themselves, or caused others on their behalf to appropriate, particular moneys to the respondent's contractual entitlement. Because, and only because, of the allegations which they made impugning the respondent's entitlement, those moneys were paid into court instead of to the respondent. [The mortgagors] submitted that what had been paid into court was an amount equivalent to the interest which was due rather than the interest itself. That submission cannot be sustained. The terms of the mortgagors' undertakings are clear: it was the outstanding interest pursuant to the terms of the bill facility and the interest which would fall due which the mortgagors undertook to pay into court. The first indication that the respondent had an equitable interest in the moneys is therefore that it was its very contractual entitlement which was paid into court.

Furthermore, the moneys were paid into court to secure the entitlement of the respondent.

...

The most obvious and natural purpose of the condition imposed by [the primary judge] was to secure to the respondent the interest to which it was otherwise entitled during the period in which it was restrained by the interlocutory injunction from exercising its power of sale under the mortgage. There is no reason to suppose that the moneys to be paid into court were to be available to the respondent only in the event that the security provided by the mortgage (Springwood Park) proved to be inadequate to cover all of the liabilities which the mortgage secured.[105]

1. Thus, in these circumstances, the mortgagors had 'parted outright' with the money they had paid into court.[106] The case was, he said, 'very similar to the cases in which the defendant has paid the amount claimed by the plaintiff into court as a condition of leave to defend'.[107] The bank, on the other hand, had an equitable lien over the moneys paid into court and, upon the discontinuance of the mortgagors' claims became entitled to enforce its security.[108]

1. The preceding analysis bears out the comment of Lush J in Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Ltd[109] that 'it is not easy to analyse the respective property rights of the plaintiff, the defendant and the court or the Crown in a fund in court either before or after the decision in the case has been made.'[110] In my respectful opinion, there is much to be said for what White J said, namely that the analysis depends upon the various circumstances adumbrated in Duncan.[111]
2. That said, the following propositions can be identified in the authorities:

(a) there is an unresolved difference in the authorities as to whether a defendant who makes a payment in as a condition of being given leave to defend the action parts outright with his property. In W.A. Sherratt,[112] Oliver LJ was of the view that the fact that a defendant had paid its own money into court meant that the money paid in had ceased to be the property of the defendant. In Halvanon Insurance,[113] Hobhouse J was of the view that the moneys remained the general property of the defendant;

(b) upon such a payment in having been made, the plaintiff acquires an equitable lien or charge over the moneys;[114]

(c) where money is paid into court, or into a joint account, where an application has been made for summary judgment and the payment is a condition of leave to defend, the money is regarded as having been paid on condition, the condition being that, if the plaintiff succeeded in the action, the money brought into court should be his so far as it may go to satisfy the judgment obtained and the defendant could not be heard to deny the plaintiff's title to it;[115]

(d) the interest acquired by the party other than the party making the payment in remains subject to the rules relating to void or voidable dispositions in insolvency; [116]

(e) it makes no difference whether the moneys are paid into court or into an account in the names of the parties' solicitors; [117]

(f) where money is paid into court or into a joint account by way of interpleader (where the party itself claims no interest in the money but does not know which of several claimants is entitled to the money) then, if those funds were already subject to a trust, they remain subject to the same trust. But, if there was no pre-existing claim to a beneficial interest to the funds, the interests of each claimant is no more than to insist that the funds be properly administered and applied for the purposes for which they were paid in;[118]

(g) where a freezing order is made in respect of a party's assets or money is paid into a joint account by way of an alternative to a freezing order, the applicant for the freezing order acquires no interest in those assets or the funds in the joint account.[119]

Did Hue acquire an interest in the moneys in the joint account?

1. In light of the above analysis, Hue acquired an equitable charge over the moneys in the joint account.

Did Dura retain any interest in the moneys that it was capable of charging in favour of Dura Asia-Pacific?

1. As indicated above, Hue contended that Dura retained no interest in the moneys it had paid into the joint account and, thus, those funds could not have formed part of the assets it charged in favour of Dura Asia-Pacific. Because of the conclusion that I describe below - that the interest acquired by Hue was not a 'security interest' under the PPSA - it is strictly unnecessary to decide whether the interest (if any) that Dura retained in the moneys paid into the joint account was capable of being charged by Dura in favour of Dura Asia-Pacific.[120] However, it may be necessary to say something about the interest of Dura to the extent that that interest is opposed to that claimed by Hue. In doing so, it is tempting to frame the issue to be decided as requiring a determination whether, upon making the payment in Dura, to use the words of Oliver LJ, 'part[ed ]outright' with the funds or whether, to use the words of Hobhouse J, 'the money remained [its] general property'. However, framing the issue as involving alternatives (one thing or the other) may obscure the existence of other possibilities.
2. Before the funds were paid into the joint account, there was no distinction between the legal and equitable or beneficial title to them: Dura held every interest in respect of them. Upon payment in, the solicitors held the funds in trust in the sense that they were not entitled to the beneficial ownership or interest in them.[121]
3. In CPT Custodian,[122] the Court[123] referred to the statement of Griffith CJ in Glenn v Federal Commissioner of Land Tax[124] as involving:

... a prescient rejection of a 'dogma' that, where ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else because it is an essential attribute of a trust that it confers upon individuals a complex of beneficial legal relations which may be called ownership.[125]

1. In Gartside v Inland Revenue Commissioners,[126] the issue was whether the property of a deceased person included his interest as one of the several beneficiaries under a discretionary trust. The relevant charging words under the revenue statute were: 'where an interest limited to cease on a death has been disposed of or has determined ... after becoming an interest in possession ...'.[127] Rejecting an argument that a wide meaning should be attributed to the word 'interest', wide enough to include the interest of a beneficiary under a discretionary trust, Lord Wilberforce said:

It can be accepted that 'interest' is capable of a very wide and

general meaning. But the wide spectrum that it covers make it all the more necessary, if precise conclusions are to be founded upon its use, to place it in a setting: Viscount Radcliffe, delivering the Board's judgment in Commissioner of Stamp Duties (Queensland) v Livingston ... shows how this word has to do duty in several quite different legal contexts to express rights of very different characters and that to transfer a meaning from one context to another may breed confusion.

No doubt in a certain sense a beneficiary under a discretionary trust has an 'interest': the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a Court of Equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion 'fairly' or 'reasonably' or 'properly' that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes_._ But that does not mean that he has an interest which is capable of being taxed by reference to its extent in the trust fund's income: it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a Court of Equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed.[128]

1. It cannot be said that any clear principle emerges from a review of the authorities. In the words of White J, each case will depend upon a consideration of 'the relevant statutory or rule regime governing the payment in, the rule regime concerning the holding of the moneys in court, the purpose for which the moneys have been paid in, any relevant decision of the court concerning the legal or beneficial ownership of the moneys or the entitlement to them, and any relevant event in the litigation in relation to which the moneys have been paid, rather than by reference to any rule of general application'.[129]
2. In the present case, close consideration must be given to the circumstances in which the payment was made into the joint account and the terms of the court order pursuant to which the payment in was made. The Court had delivered a judgment against Dura in favour of Hue in the sum of $6,173,155.80. Unless a stay was ordered, that sum was payable forthwith. On Dura's application a stay was ordered, but on terms. One of the terms was that Dura make a payment in. The character of the payment in was described in the order of the Court: it was to be paid in 'pending the hearing and determination of the appeal or further order and to abide the outcome of the appeal'. The clear intention of the rule contained in the order was that the fund was to 'abide the outcome of the appeal' and that, pending the hearing and determination of the appeal, the Court was to have complete control over the dispensation of the fund. Once Dura made the payment in, it was to be divested of any proprietary interest in the fund.
3. No doubt, in the event it had been successful in its appeal, Dura would have had standing to apply to the Court for the repayment of all or part of the funds. Dura would have also retained rights of due administration against the trustees of the fund.[130] Further, if the payment in had exceeded what was finally determined to be the entitlement of Hue, it may be that, subject to the order of the Court, Dura would have had an equity to redeem the balance of the funds in the hands of the trustees.[131] If the case had settled as a result of Dura's having paid the judgment sum to Hue, Dura would have had standing to apply to the Court for an order that the money in the joint account be repaid to it. Such a claim may have been irresistible. Maybe as much as can be said is that, upon the payment in, Dura parted outright with any legal interest in the money in the joint account and, at best, retained rights of due administration and an equity to redeem any amount held to be unnecessary to satisfy Hue's entitlements arising under the judgment.
4. Accordingly, the only basis upon which Dura can now make a claim to the fund is that Hue was 'the secured party', that the interest it held in the funds in the joint account was a 'security interest' within s 12 of the PPSA, of which Dura was 'the grantor', and that that security interest remained unperfected upon the resolution for the winding up of Dura and that it vested in Dura.

Was the interest of Hue in the fund a 'security interest' within s 12 of the PPSA?

1. So far as the PPSA was concerned, Dura argued that, if Hue had acquired any interest in the funds in the joint account, that interest was a security interest under the PPSA of which Dura was the grantor. Because Hue had not perfected that interest when Dura was placed into liquidation the interest vested in Dura immediately before the commencement of the liquidation.
2. Central to the operation of the PPSA is the term 'security interest'. It is defined in s 12. Section 12 must be read with s 8, which provides that certain interests are not covered by the PPSA. Section 12 provides that a 'security interest' means an interest 'provided for by a transaction'. In order to understand the meaning of that phrase, it is necessary to consider the interests that are not covered by the PPSA together with the concept of attachment in s 19. Section 19 refers to the term 'security agreement'. All of these provisions draw upon, either directly or indirectly, the terms defined in the dictionary contained in s 10.

1. Section 8(1) provides that the following interests are not covered by the PPSA:

(a) ...

(b) a lien, charge, or any other interest in personal property, that is created, arises or is provided for under a law of the Commonwealth (other than this Act), a State or a Territory, unless the person who owns the property in which the interest is granted agrees to the interest;

(c) a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law.[132]

...

1. Section 10 of the PPSA is the dictionary. It contains the following definitions :

attaches has the meaning given by section 19.

...

collateral:

(a) means personal property to which a security interest is attached; and

(b) in relation to a registration with respect to a security interest - includes personal property described by the registration (whether or not a security interest is attached to the property).

...

general law means the principles and rules of the common law and equity.

...

grantor means:

(a) a person who has the interest in the personal property to which a security interest is attached (whether or not the person owes payment or performance of an obligation secured by the security interest); or

(b) a person who receives goods under a commercial consignment; or

(c) a lessee under a PPS lease; or

(d) a transferor of an account or chattel paper; or

(e) a transferee of, or successor to, the interest of a person mentioned in paragraphs (a) to (d); or

(f) in relation to a registration with respect to a security interest:

(i) a person registered in the registration as a grantor; or

(ii) a person mentioned in paragraphs (a) to (e)

...

interest, in personal property, includes a right in the personal property.

...

personal property means property (including a licence) other than:

(a) land; or

(b) a right, entitlement or authority that is:

(i) granted by or under a law of the Commonwealth, a State or a Territory; and

(ii) declared by that law not to be personal property for the purposes of this Act.

...

security agreement means:

(a) an agreement or act by which a security interest is created, arises or is provided for; or

(b) writing evidencing such an agreement or act.

...

1. Section 12 defines a 'security interest' as follows:

(1) A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).

Note: For the application of this Act to interests, see section 8.

(2) For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation:

(a) a fixed charge;

(b) a floating charge;

(c) a chattel mortgage;

(d) a conditional sale agreement (including an agreement to sell subject to retention of title);

(e) a hire purchase agreement;

(f) a pledge;

(g) a trust receipt;

(h) a consignment (whether or not a commercial consignment);

(i) a lease of goods (whether or not a PPS lease);

(j) an assignment;

(k) a transfer of title;

(l) a flawed asset arrangement.

...

1. Chapter 2 of the PPSA is entitled 'General Rules Relating to Security Interests'. Section 16 is entitled 'Guide to this Chapter'. It provides:

...

Part 2.2 contains some general principles relating to these security interests, the agreements that govern them and their enforceability. The Part describes how a security interest is attached to personal property and perfected.

...

1. Section 17 is the Guide to Part 2 of Chapter 2. It provides:

...

A security interest is only effective if it has attached to collateral. A security interest attaches to collateral when the grantor has rights in the collateral, or can transfer it to the secured party, and value is given, or the security interest otherwise arises.[133]

...

1. Section 18 is entitled 'General rules about security agreements and security interests'. It provides:

(1) A security agreement is effective according to its terms.

(2) A security agreement may provide for security interests in after-acquired property.

...

1. Pursuant to s 19(1), a security interest must 'attach' to collateral before it is enforceable against a grantor. Section s 19 (2) defines 'attachment':

Attachment rule

(2) A security interest attaches to collateral when:

(a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and

(b) either:

(i) value is given for the security interest; or

(ii) the grantor does an act by which the security interest arises.

Time of attachment

(3) Subsection (2) does not apply if the parties to a security agreement have agreed that a security interest attaches at a later time, in which case the security interest attaches at the time specified in the agreement.

1. Section 20(1) provides that enforcement of a security interest against third parties requires, firstly, that attachment occur and that the secured party must either possess the collateral; or they must have 'perfected the security interest by control'; or there must be a written security agreement in a form prescribed by the PPSA.[134]
2. Section 267 of the PPSA is found in Part 8.2 which is entitled 'Vesting of Certain Unperfected Security Interests'. Section 267(1)(a) identifies the happening of certain events including '(i) an order is made, or a resolution is passed, for the winding up of a company or a body corporate'. Section 267(2) provides:

Security interest vested in grantor

(2) The security interest held by the secured party vests in the grantor immediately before the event mentioned in paragraph (1)(a) occurs.

Note: This subsection does not apply to certain security interests (see section 268).

1. Section 12(1) defines 'security interest'.[135] Professor Stumbles[136] has identified the four elements in s 12(1). Thus:

(a) there must be an outstanding existing monetary or non-monetary obligation;

(b) there must be an 'in substance security' to support the performance of that obligation;

(c) the security must amount to an 'interest' in personal property;

(d) the interest must arise out of a transaction.[137]

1. The PPSA does not define the phrase 'interest in personal property' in s 12(1), save that s 10 provides that 'interest, in personal property, includes a right in the personal property'. In the absence of some legislative stipulation to the contrary, the phrase, and the words that constitute it must be given their natural and ordinary meaning.[138]
2. It was not in contention that the funds in the joint account were 'personal property' for the purposes of the PPSA. It will be noticed that an equitable charge, such as that acquired by Hue over the moneys paid into the joint account, naturally falls under the description of 'a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law' found in s 8(1)(c) of the PPSA. Such interests are not covered by the PPSA.

1. Section 12 uses the word 'transaction'. The PPSA does not itself proffer a definition of this central concept. It does not qualify the use of the word 'transaction' in the phrase 'provided for by a transaction' with any epithet. The word itself is one of considerable generality; it covers a broad range of activities. The Shorter Oxford English Dictionary provides several meanings of transaction including '3. The action of transacting or fact of being transacted ... 4. That which is or has been transacted, esp. a piece of business; a deal. A physical operation, action, or process.'[139] The word is apt to describe conduct giving rise to rights, where the creation of those rights may be said to be consensual as between parties, as well as conduct as a result of which rights arise by operation of law, notwithstanding the absence of any consent inter partes. It is itself apt to describe a payment into a joint account such as occurred in the present case: the payment (like all payments) involved an action in which something passed from one person to another.
2. The word 'transaction' is an ordinary English word and should be given its 'natural and ordinary meaning'.[140] In their joint judgment in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory),[141] Hayne, Heydon, Crennan and Kiefel JJ said:

This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.[142]

1. In Alcan,[143] the majority rejected a proposed construction of a statutory provision on the basis that it was 'contrary both to the natural and ordinary meaning of the words and to considerations of grammar and syntax'.[144]
2. In Saeed v Minister for Immigration and Citizenship,[145] French CJ, Gummow, Hayne, Crennan and Kiefel JJ said that the meaning of a provision 'is to be answered by having regard, in the first place, to the text of [the provision] and the provisions with which it interacts'.[146]
3. Hue has said:

There was no consensual transaction in this case. Neither party agreed with the other to do anything. The payment by Dura was a unilateral acceptance by Dura of a court-imposed condition; Hue did not agree with it and nor was Hue required to do so. Nor did Dura consent in any relevant sense to the creation of the interest in favour of Hue.

115 The exclusion from the application of the Act, by operation of s 8, of interests in personal property which arise by operation of law, notwithstanding that they may be said to arise from transactions (using that term in its broadest possible sense), strongly suggests that the use of the term 'transaction' in s 12 is confined to consensual transactions inter partes.[147]

116 This seems to be the reasoning of various text writers who say that the word 'transaction' in s 12 refers to a 'consensual transaction'. For example, Professor O'Donovan has written: 'The interest in personal property must be provided for in a transaction. In other words, the security interest must arise as the result of a consensual transaction, rather than by operation of law'. In a footnote to this text, Professor O'Donovan refers simply to the PPSA s 8(1)(c).[148] Similarly, Duggan and Brown say:

PPSA s 12 limits the application of the statute to a security 'provided for by a transaction'. In other words, subject to (the) limited exceptions ... the PPSA only applies to consensual security interests. To reinforce this point, PPSA, paras 8(1)(b) and (c) provide that the statute does not apply to a security interest or other interest in personal property arising by operation of law.[149]

1. Other provisions in the PPSA also seem to be premised upon the relevant transaction being 'consensual'.[150] It will be noticed that s 16 describes Part 2.2 (which includes s 19 on attachment) as containing 'some general principles relating to the security interests, the agreements that govern them and their enforceability ...'. Similarly, s 18 reflects the basic principle of freedom of contract: security agreements are effective according to their terms. Similarly, various provisions in Chapter 4, which is entitled 'Enforcement of security interest', appear to be premised upon the security interest arising from a 'security agreement'.[151] The assumption appears to be that security interests arise within 'security agreements'.
2. According to Duggan and Brown,

PPSA s 19 sets out the requirements for attachment of a security interest. While 'attachment' may be a new and perhaps initially unfamiliar expression in Australian Law, the underlying concept is straightforward and its common law origins are easily identifiable. Broadly speaking, there are three requirements that must be met before a security interest can attach to collateral: (1) there must be a valid security agreement; (2) the secured party must give value for the security interest; and (3) the grantor must have rights in the collateral: subs-19(2).[152]

Subsection 19(2) does not expressly state that a valid security agreement is a requirement for attachment, but the requirement is implicit because s 12 limits the application of the statute to consensual security interests and a consensual security interest depends on agreement.[153]

1. Under the Canadian analogues, a security agreement is essential to the creation of a security interest:

It is clear that a security agreement is a necessary but not sufficient condition for the creation of a security interest. All of the statutory prerequisites for its creation must be met: an agreement through which it is recognized that the secured party has or is to have a 'security interest'; the giving of value by the secured party; and the holding or acquisition of (or power to transfer) rights in the collateral by the debtor. A security interest is created by a security agreement only in the sense that a security agreement is a sine qua non of the existence of a security interest. The making of a security agreement by the parties provides the legally relevant evidence of their intentions that one party is to have a security interest in property of the other. Once the existence of this evidence coincides with the existence of the other prerequisites, the security interest attaches.[154]

1. There are three elements fundamental to the concept of attachment contained in s 19. Two such elements are express; the third is presupposed. The express elements are:

(a) consideration passing from the creditor to the debtor (such as a loan); and

(b) the debtor has rights in collateral and the power to transfer those rights to the creditor.

The element presupposed by the two express elements is the existence of an agreement between the creditor and the grantor. The concepts in s 19 of 'grantor' and the 'transfer of rights in the collateral to the secured party' presuppose there being an agreement inter partes. Absent an agreement between the person who has the power to transfer rights in the collateral in return for value being provided by the transferee, the security interest cannot attach to the collateral.

1. Authority from other jurisdictions also supports the proposition that the 'transaction' giving rise to such an interest has to be 'consensual'. In iTrade Finance,[155] the Supreme Court of Canada considered the meaning of a 'security interest' under s 2 of the Personal Property Security Act 1990 Ontario. It held that the 'transaction' giving rise to such an interest had to be 'consensual'.
2. In that case, the appellant had been induced by fraud to advance funds to a corporation (Webworx) controlled by the fraudster. The fraudster used the funds to acquire securities which he then pledged to the respondent bank. The appellant obtained judgment against the fraudster in which it was held that the securities (being assets acquired with the stolen funds) were impressed with a constructive trust and subject to an equitable lien. The trial judge (Belobaba J) granted a tracing order which excluded assets in the hands of bona fide purchasers for value without notice. The Court made an order that the securities be sold and the net proceeds be held in trust pending further order by the Court.
3. Subsequently, a contest arose between the appellant and the respondent as to the entitlement to the funds. One aspect of the contest involved the question whether the rights acquired by the appellant were a 'security interest' under s 2 of the Personal Property Security Act 1990 Ontario.[156] Giving the judgment of the Supreme Court,[157] Deschamps J said:

[26] In Ontario, when a party claims a security interest in personal property to satisfy payment or performance of an obligation, the court must ask whether the PPSA applies: subject to limited exceptions, the application of that Act is pervasive. In Bank of Montreal v. Innovation Credit Union, 2010 SCC 47 (CanLII), 2010 SCC 47, [2010] 3 S.C.R. 3, this Court noted that the provisions of Saskatchewan's Personal Property Security Act, 1993, S.S. 1993, c. P-6.2, extend 'to almost anything which serves the function of a security interest' (para. 18). The same is true in Ontario. Section 2 of the PPSA reads in part as follows:

2. Subject to subsection 4(1), this Act applies to,

(a) every transaction without regard to its form and without regard to the person who has title to the collateral that in substance creates a security interest including, without limiting the foregoing,

(i) a chattel mortgage, conditional sale, equipment trust, debenture, floating charge, pledge, trust indenture or trust receipt . . .

[27] A 'security interest' is defined broadly as 'an interest in personal property that secures payment or performance of an obligation', and the definition of 'personal property' that applied at the relevant time included 'intangibles' and 'securities' (PPSA, s.1(1)). The PPSA employs 'a functional approach to determining what security interests are covered by its provisions' (Bank of Montreal, at para. 18). When it applies, it renders irrelevant the distinctions between the wide variety of instruments which existed at common law and in equity for taking a security interest in another person's property.

[28] With this in mind, I will now consider the nature of the interests of the parties to this appeal in the disputed funds.

A. Interest of i Trade in the Disputed Funds

[29] In i Trade's opinion, it has a prima facie right, as set out in B.M.P., Simms and other cases, to recover monies paid under a mistake of fact. This argument cannot succeed. The principles respecting the recovery of mistaken payments apply as between payor and payee. BMO is not a payee, so those principles are inapplicable here. Rather, the source of i Trade's claim to the disputed funds lies in Belobaba J.'s judgment, and more specifically in the order in which he authorized i Trade to follow and trace the assets acquired with funds it had advanced to Webworx. What i Trade now seeks to do is to recover the proceeds of sale of the shares credited to the investment account on the basis that they were impressed with a constructive trust or were subject to an equitable lien.

[30] Regardless of whether i Trade elects to take the constructive trust or the equitable lien route to assert its interest, the PPSA does not apply to those rights. This is because i Trade acquired them as a result of Belobaba J.'s judgment granting a constructive trust or an equitable lien. The rights thus resulted from a court order, not from a 'transaction . . . that in substance creates a security interest' (PPSA, s. 2). In addition, the creation of the rights was not consensual: R. H. McLaren, Secured Transactions in Personal Property in Canada (2nd ed. (loose-leaf)), at s1.02; F. Bennett, Bennett on the PPSA (Ontario) (3rd ed. 2006), at p. 15; R. C. C. Cuming, C. Walsh and R. J. Wood, Personal Property Security Law (2005), at pp. 85 and 96-97; J. S. Ziegel and D. L. Denomme, The Ontario Personal Property Security Act: Commentary and Analysis (2nd ed. 2000), at pp. 71-72.

1. iTrade Finance[158] was recently applied in Victoria in Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd.[159] In that case, the defendants had registered financing statements on the Personal Property Securities Register ('the PPS Register') claiming an interest in the property of the plaintiffs arising out of their participation in the development of a golf course at Carrum. With a view to having the financing statements removed, the plaintiffs made amendment demands pursuant to Part 5.6 of the PPSA. In the event, the Registrar sent a notice to the effect that a decision had been made pursuant to s 180(1) of the PPSA to register a financing change statement.
2. The effect of that decision was to terminate the defendants' claimed interests on the PPS Register. However, the defendants threatened to lodge new financing statements if the existing registrations were removed. The Court held that, whatever might be the nature of the defendants' interests in the development (if any), those interests did not arise out of a consensual transaction. In so far as the interests did not arise out of a consensual transaction, they could not be a 'security interest' as defined by s 12 of the PPSA. Accordingly, the Court ordered the defendants be restrained from lodging fresh financing statements in respect of those interests.
3. In my opinion, because the interest of Hue in the moneys paid into Court did not arise out of a consensual transaction between it and Dura, its interest in the funds was not a 'security interest' within s 12 of the PPSA. It follows that Dura was not the 'grantor' of a security interest, nor was Hue a 'secured party' under the PPSA.
4. Further, in so far as Hue acquired an equitable charge over the moneys paid into Court, the PPSA did not apply as that charge answered the description of 'a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law', within the meaning of s 8(1)(c) of the PPSA. Its interest arose as a result of Dura complying with the condition imposed by the Court of Appeal. There was no contractual or any other transaction or arrangement between the parties. Hue did not agree to the Order and did not agree to a stay of its judgment in exchange for the payment into the joint account.
5. For those reasons, any interest of Hue in the moneys was not capable of being 'perfected' under s 21 of the PPSA. Section 267 of the PPSA operates with respect to security interests granted by a body corporate that are unperfected at the time of its insolvency. As a result, s 267(2) of the PPSA has no operation. By reason of s 267(2), upon the commencement of the winding up of Dura there was no secured interest with respect to the moneys paid into the joint account that had been granted by Dura to Hue that vested in the liquidator of Dura.
6. For the reasons summarized in [86] above, when the moneys were paid into the joint account, Hue acquired an equitable charge with respect to them which was unaffected by s 267(2).

1. In the present application, there is no originating process or pleading. There is no judgment below; for that reason, there has been no notice of appeal. Accordingly, the issues are those identified in paragraph [38] above. In the light of the above reasons, the conclusions may be stated as follows:

(a) Hue acquired an equitable charge in the moneys in the joint account;

(b) when the moneys were paid into the joint account, at best, Dura retained rights of due administration and an equity to redeem any moneys found to be unnecessary to satisfy Hue's rights as a judgment creditor;

(c) because the interest acquired by Hue in the moneys in the joint account

(i) was a charge that arose by operation of the general law;

it was not a 'security interest' under s 12 of the PPSA;

(d) in so far as the interest acquired by Hue was not a 'security interest', s 267(2) of the PPSA did not operate to vest its interest in the liquidator of Dura.

1. These conclusions bring the Court back to the terms of its order made on 13 August 2012.[160] An order should now be made for the payment out of the funds in the joint account. It was not suggested in argument that the creation of the charge involved the making of any unfair preference in favour of Hue such as to involve consideration of the provisions of Division 2 of Part 5.7B of the Corporations Act 2001 (Cth). Unless there is something more, an order will be made that the funds, which will include all accrued interest, be paid to Hue.
2. The matter should be adjourned so that the parties can consider the above reasons and bring in draft orders.

[1] Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No. 3) [2012] VSC 99 ('Reasons').

[4] Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2013] VSCA 179 (Maxwell P, Ashley and Redlich JJA).

[6] Explanatory Memorandum, Personal Property Securities Bill 2009 (Cth), Outline, 10.

[7] According to the Explanatory Memorandum (at 10): [The PPSA] is modelled on the New Zealand, Canadian and US legislation. It also draws on work by the United Nations Commission on International Trade Law (UNCITRAL) and the International Institute for the Unification of Private Law (UNIDROIT). 'The PPSAs in the Canadian provinces are substantially uniform, with the exception of Ontario. The Australian lawmakers worked mainly from the Personal Property Security Act, SS 1993, c P-6.2 ('Saskatchewan PPSA') ...', Anthony Duggan, 'A PPSA Registration Primer' [2011] MelbULawRw 30; (2011) 35 Melbourne University Law Review 865, 866. See also John G H Stumbles 'Personal Property Security Law in Australia and Canada: A Comparison' (2011) 51 Canadian Business Law Journal 425, 425-446. Nevertheless, '[t]he policies which underpin PPSA 2009 are those which underpin corresponding legislative schemes in Canada, the US and New Zealand. [There is a footnote reference to Waller v New Zealand Bloodstock Ltd [2005] NZCA 254; [2006] 3 NZLR 629 at 633.] Hence, Australian courts should consult this jurisprudence in applying PPSA 2009 ...'; see James O'Donovan, Personal Property Securities Law in Australia (Thomson Reuters, 2009) [1.500]. Professor Duggan, however, has written that 'Australia's departure from the Canadian model comes at the cost of making the Canadian cases and secondary sources less reliable as a guide to the meaning and implications of the Australian PPSA ... Australian courts and lawyers will have to be selective in their reliance on Canadian sources'; Anthony Duggan, 'Some Canadian PPSA cases and their implications for Australia and New Zealand' (2010) 38 ABLR 161, 161.

[8] [2006] VSCA 123, [22] (Nettle JA).

[9] [1992] FCA 178; (1992) 37 FCR 178.

[10] [2006] SASC 239; (2006) 95 SASR 208 ('Duncan').

[11] The quotation was taken from Harmer v Federal Commissioner of Taxation (Cth) (1991) 173 CLR 264, 272-273.

[12] In its reply submission dated 1 November 2013, Hue referred to the '... alleged Security Deed' which was 'allegedly executed on 5 September 2012 (but not been produced) ...' that was said to give rise to Dura Asia-Pacific 'alleged "security interest"'.

[13] So far as its terms can be discerned from Recital A of and the definitions in the Deed of Appointment. See [14] above.

[14] [2011] 2 SCR 360 ('iTrade Finance').

[15] Hue also contended that if it had a 'security interest', it was not one which, on account of its contingent nature, was registrable. Hue referred to s 151 of the PPSA.

[16] See footnote 12 above for the various ways in which Hue referred to the Security Deed.

[17] The receivers said: 'If the Funds are found to be Dura's the issue of the secured creditors' will be dealt with by the liquidator.'

[18] [2004] SASC 389; (2004) 90 SASR 465 ('Pilmer').

[19] [2006] SASC 239; (2006) 95 SASR 208, 218 [39].

[20] [2005] HCA 53; (2005) 224 CLR 98 ('CPT Custodian').

[22] [2005] HCA 53; (2005) 224 CLR 98.

[23] [2001] UKPC 28; [2001] 2 AC 710, 725 [32].

[24] [2003] EWCA Civ 63; [2003] 1 WLR 1200 ('Flightline').

[26] These categories have been adapted from those identified in the judgment of Hill J in Re Lovering; Galladin Pty Limited v Jackson (1994) 50 FCR 587.

[27] (1879) 12 Ch D 26.

[28] With whom Baggallay and Thesinger LJJ agreed.

[29] (1879) 12 Ch D 26, 29.

[30] [1892] 1 QB 94.

[31] Ibid 96 (Lord Esher MR with who Fry and Lopes LJJ agreed).

[33] [1897] 2 QB 516.

[35] [1900] 2 QB 211.

[36] [1972] VicRp 80; [1972] VR 702.

[37] Section 293(1) provided as follows: Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which, had it been made or done by or against an individual, would in his bankruptcy be void or voidable shall in the event of the company being wound up be void or voidable in like manner.

[38] Section 122(1) provided: A conveyance or transfer of property, a charge on property, 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 six months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes bankrupt ... is void as against the trustee in the bankruptcy.

[39] [1897] 2 QB 516.

[40] [1900] 2 QB 211.

[41] [1972] VicRp 80; [1972] VR 702, 704.

[44] [1972] VicRp 80; [1972] VR 702, 704-705.

[45] [1892] 1 QB 94.

[46] [1972] VicRp 80; [1972] VR 702, 705.

[49] [1892] 1 QB 94.

[50] (1879) 12 Ch D 26.

[51] [1972] VicRp 80; [1972] VR 702, 706.

[52] [1985] 1 QB 1038 ('W.A. Sherratt').

[53] [1897] 2 QB 516.

[54] [1900] 2 QB 211.

[55] [1985] 1 QB 1038, 1057 (Oliver LJ).

[56] Ibid (Robert Goff LJ). Sir John Donaldson MR agreed with Oliver and Robert Goff LJJ.

[59] Ibid 1056-1057. Order 22 of the Rules of the Supreme Court 1965 (Eng) was entitled ' Payment into and out of Court'. Order 22, rule 1 provided 'In any action for a debt or damages any defendant may at any time after he has entered an appearance in the action pay into Court a sum of money in satisfaction of the cause of action in respect of which the plaintiff claims or, where two or more causes of action are joined in the action, a sum or sums of money in satisfaction of any or all of those causes of action.'

[60] [1988] 1 WLR 1122 ('Halvanon Insurance').

[61] Ibid 1127-1129. The plaintiffs' former solicitors did not leave the court, as it were, empty handed. Hobhouse J also held (at 1130) that, in the event that an order was made requiring the payment out of the joint account of any amount to the plaintiffs, their former solicitors could, at that point, apply to the court for an order that no payment be made to the plaintiffs until they had satisfied whatever was their outstanding liability to their former solicitors. He said (at 1131) 'the fund is under the control of the court and the court can by its own orders ensure that, at the time that any sum is paid out, the payment out takes proper account of whatever equitable rights the solicitor has'.

[62] [1988] 1 WLR 1122.

[63] [1985] 1 QB 1038.

[64] Ibid 1056-1057. Thus, Hobhouse J's statement in Halvanon Insurance Co Ltd v Central Reinsurance Corpn that 'the money remained the general property of the defendants' would appear to be inconsistent with the statement of Oliver LJ in W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd that the party making the payment in 'parts outright with his money.'

[65] Halvanon Insurance Co Ltd v Central Reinsurance Corpn [1988] 1 WLR 1122, 1128.

[66] (1991) 173 CLR 264 ('Harmer').

[68] Ibid at 272-273 (citation omitted).

[69] See Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415, 432 (Beaumont and Sackville JJ, with whom Jenkinson J agreed).

[70] [1992] FCA 178; (1992) 37 FCR 178.

[75] [1985] 1 QB 1038.

[76] Dwight v Commissioner of Taxation [1992] FCA 178; (1992) 37 FCR 178, 186.

[77] (1991) 173 CLR 264.

[78] [1992] FCA 178; (1992) 37 FCR 178, 188.

[80] (1994) 50 FCR 587.

[83] Section 58 provided: (1) Subject to this Act, where a debtor becomes a bankrupt - (a) the property of the bankrupt, not being after-acquired property, vests forthwith in The Official Receiver in Bankruptcy; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in The Official Receiver in Bankruptcy or, if a person other than an official receiver is trustee of the property of the bankrupt, in that trustee.

[84] (1994) 50 FCR 587, 597.

[85] [2003] EWCA Civ 63; [2003] 1 WLR 1200.

[86] [1926] UKPC 30; [1926] AC 703.

[88] Flightline Ltd v Edwards [2003] EWCA Civ 63; [2003] 1 WLR 1200, 1211-1212.

[89] Roy Goode, Commercial Law (Penguin Books London, 2nd ed, 1995).

[90] Ewan McKendrick (ed), Goode on Commercial Law (LexisNexis, 4th ed, 2009) 663-664 (footnotes omitted).

[91] [2004] SASC 389; (2004) 90 SASR 465.

[92] (1991) 173 CLR 264.

[93] Section 468 provided: (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 ... (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.

[94] [2004] SASC 389; (2004) 90 SASR 465, 479.

[95] [2006] SASC 239; (2006) 95 SASR 208.

[96] [2004] SASC 389; (2004) 90 SASR 465.

[97] [2006] SASC 239; (2006) 95 SASR 208, 215-216.

[98] [2004] SASC 389; (2004) 90 SASR 465.

[99] (1991) 173 CLR 264.

[100] [2006] SASC 239; (2006) 95 SASR 208, 217.

[101] Ibid 217, quoting Harmer v Federal Commissioner of Taxation (Cth) (1991) 173 CLR 264, 273.

[102] [2006] SASC 239; (2006) 95 SASR 208, 218.

[103] Ibid. White J referred to and analysed Ex parte Bouchard; Re Moojen (1879) 12 Ch D 26, 29; Bird v Barstow [1892] 1 QB 94, 96; In re Gordon; Ex parte Navalchand [1897] 2 QB 516, 520_; In re Ford; Ex parte The Trustee_ [1900] 2 QB 211, 213_;_ W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038.

[104] [2006] SASC 239; (2006) 95 SASR 208, 220.

[106] The description is taken from the reasons of Oliver LJ in W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038, 1056-1057.

[107] [2006] SASC 239; (2006) 95 SASR 208, 222.

[109] [1972] VicRp 80; [1972] VR 702.

[111] [2006] SASC 239; (2006) 95 SASR 208.

[112] [1985] 1 QB 1038, 1056-1057.

[113] [1988] 1 WLR 1122.

[114] W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038; Halvanon Insurance Co Ltd v Central Reinsurance Corpn [1988] 1 WLR 1122. In Hewett v Court [1983] HCA 7; (1983) 149 CLR 639 Deane J said (at 663):

An equitable lien is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness ... Though called a lien, it is, in truth, a form of equitable charge over the subject property ... in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout ... Equitable lien differs from traditional mortgage in that it does not transfer any title to the property and therefore cannot be enforced by foreclosure (citations omitted).

See also In In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214, 226 (per Lord Hoffman) and Associated Alloys Pty Limited v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588, 595-596 (Gaudron, McHugh, Gummow and Hayne JJ).

[115] W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038; Halvanon Insurance Co Ltd v Central Reinsurance Corpn [1988] 1 WLR 1122.

[116] Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Ltd [1972] VicRp 80; [1972] VR 702; W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038, 1056.

[117] Halvanon Insurance Co Ltd v Central Reinsurance Corpn [1988] 1 WLR 1122.

[118] Harmer v Federal Commissioner of Taxation (Cth) (1991) 173 CLR 264, 272.

[119] Flightline Ltd v Edwards [2003] EWCA Civ 63; [2003] 1 WLR 1200.

[120] It is also inappropriate to do so: the liquidator of Dura would need to be heard as the interests of the general creditors are opposed to that of the putative chargee.

[121] Harmer v Federal Commissioner of Taxation (Cth) (1991) 173 CLR 264, 272; Equuscorp Pty Ltd v Wilmoth, Field Warne (a firm) [2006] VSCA 123, [21]-[22] (Nettle JA). The terms 'trust' and 'trustee' are ambiguous. In the quoted phrase, the words 'in the sense that' are critical. Upon receipt of the payment, the solicitors did not become trustees 'in any strict sense' such that either Dura or Hue acquired equitable interests in trust property. See eg Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation [1970] HCA 33; (1970) 125 CLR 52, 70 (Menzies J).

[122] [2005] HCA 53; (2005) 224 CLR 98.

[123] Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ.

[124] [1915] HCA 57; (1915) 20 CLR 490.

[125] [2005] HCA 53; (2005) 224 CLR 98, 112 [25]. See Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12. In that case Lord Radcliffe spoke of the lack of the stable use of the terms 'property' and 'interest'. He said (at 22-23):

Criticisms of this kind arise from the fact that the terminology of our legal system has not produced a sufficient variety of words to represent the various meanings which can be conveyed by the words "interest" and "property". Thus propositions are advanced or rebutted by the employment of terms that have not in themselves a common basis of definition. For instance, there are two passages quoted by the learned Chief Justice in his dissenting judgment in this case which illustrate the confusion. There is the remark of Jordan C.J. in McCaughey's Case.. [(1945) [1945] NSWStRp 25; 46 SR NSW 192] "The idea that beneficiaries in an unadministered or partially administered estate have no beneficial interest in the items which go to make up the estate is repugnant to elementary and fundamental principles of equity" [(1945) [1945] NSWStRp 25; 46 SR NSW 192, 204]. If "by beneficial interest in the items" it is intended to suggest that such beneficiaries have any property right at all in any of those items, the proposition cannot be accepted as either elementary or fundamental. It is, as has been shown, contrary to the principles of equity. But, on the other hand, if the meaning is only that such beneficiaries are not without legal remedy during the course of administration to secure that the assets are properly dealt with and the rights that they hope will accrue to them in the future are safeguarded, the proposition is no doubt correct. They can be said therefore to have an interest in respect of the assets, or even a beneficial interest in the assets, so long as it is understood in what sense the word "interest" is used in such a context.

[126] [1967] UKHL 6; [1968] AC 553.

[129] [2006] SASC 239; (2006) 95 SASR 208, 215. See [81] above.

[130] Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12; Official Receiver in Bankruptcy v Schultz [1990] HCA 45; (1990) 170 CLR 306; Barns v Barns (2003) 214 CLR 169, 189 [50].

[131] See In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214, 226 (Lord Hoffman).

[132] These provisions are subject to s 73 of the PPSA which establishes priority rules for PPSA and non-PPSA interests not presently relevant.

[133] Louise Gullifer (ed), Goode on Legal Problems of Credit and Security (Sweet & Maxwell, 4th ed, 2008) describe the concept of attachment (at 63, 2-02) as follows: 'Attachment denotes the creation of the security interest as between debtor and creditor. The effect of attachment is that the security interest fastens on the asset so as to give the creditor rights in rem against the debtor himself, though not necessarily against third parties. Attachment of a security interest is thus to be distinguished from perfection of a security interest, the latter usually involving a further step (possession, registration, notice, or attornment) which constitutes notice of the security interest to third parties and must be taken if they are to be bound.'

[136] Professor of Finance Law, University of Sydney.

[137] John G H Stumbles, 'The PPSA: The Extended Reach of the Definition of the PPSA Security Interest' [2011] UNSWLawJl 21; (2011) 34(2) UNSW Law Journal 448, 450-451.

[138] Section 10 of PPSA contains a definition of 'personal property': see [99] above.

[139] Shorter Oxford English Dictionary (Oxford University Press, 6th ed, 2007) 3320.

[140] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; (2009) 239 CLR 27, 47 [48] (Hayne, Heydon, Crennan and Kiefel JJ) ('Alcan').

[142] Ibid 46-47 [47] (citations omitted).

[143] [2009] HCA 41; (2009) 239 CLR 27.

[145] [2010] HCA 23; (2010) 241 CLR 252.

[147] The suggestion appears to be reinforced by the proviso in s 8(1)(b): 'unless the person who owns the property in which the interest is granted agrees to the interest.'

[148] See James O'Donovan, Personal Property Securities Law in Australia (Thomson Reuters, 2009) [10.110].

[149] See Anthony Duggan and David Brown, Australian Personal Property Securities Law (LexisNexis Butterworths, 2012) 60 [3.42] (emphasis in original); cf Jamie Glister, 'The role of trusts in the PPSA' [2011] UNSWLawJl 27; (2011) 34(2) University of New South Wales Law Journal 628, 636-637.

[150] See eg s 8(1)(f) which lists 10 types of transaction, all of which would seem to be bilateral or consensual in nature.

[151] See s 108 (Guide to this Part), s 110 (Rights and remedies) and s 115 (Contracting out of enforcement provisions).

[152] See Anthony Duggan and David Brown, Australian Personal Property Securities Law (LexisNexis Butterworths, 2012) 77 [4.11].

[154] Ronald C.C.Cuming, Catherine Walsh and Roderick J Wood, Personal Property Security Law (Irwin Law Inc Toronto, 2nd ed, 2012) 116 n 2.

[155] [2011] 2 SCR 360.

(a) every transaction without regard to its form and without regard to the person who has title to the collateral that in substance creates a security interest including, without limiting the foregoing,

(i) a chattel mortgage, conditional sale, equipment trust, debenture, floating charge, pledge, trust indenture or trust receipt, and

(ii) an assignment, lease or consignment that secures payment or performance of an obligation;

(b) a transfer of an account or chattel paper even though the transfer may not secure payment or performance of an obligation; and

(c) a lease of goods under a lease for a term of more than one year even though the lease may not secure payment or performance of an obligation. R.S.O. 1990, c. P.10, s. 2; 2006, c. 34, Sched. E, s. 2.

[157] Binnie, LeBel, Deschamps, Fish, Charron, Rothstein and Cromwell JJ.

[158] [2011] 2 SCR 360.

[159] (2014) 285 FLR 267 (Robson J).