Hall v Richards

High Court of Australia|1961-07-01|Before: Windeyer JJ, Kitto J

For the reasons which have been given, I am of the opinion that the appeal should be dismissed and, in the circumstances of the case, it should be dismissed with costs.

This appeal is primarily concerned with the question whether the appellants were secured creditors in the bankruptcy of Herbert Paul Franz Homann, whose estate was sequestrated upon his own petition on 15th August 1958. Burbury C.J. held they were unsecured creditors.

Before his bankruptcy and while Homann was the registered proprietor under the Real Property Act Tas. of certain land subject to a first and a second mortgage, caveats were lodged forbidding the registration of any memorandum of transfer or other instrument affecting this land by about thirty judgment creditors including the appellants. These caveats were lodged pursuant to s. 22 of the Real Property Act, 1886, which authorizes a judgment creditor to lodge a caveat in the manner provided by s. 82 of the Real Property Act, 1862 and provides that the practice, procedure and mode of dealing with such a caveat "shall in all respects be the same as if such judgment creditor claimed an estate or interest in such person's land within the meaning of that section". This, it appears, was a recognition that whereas a claim to an estate or interest in land is ordinarily necessary to enable a person to caveat, no such claim and no interest in land is required to enable a judgment creditor to caveat. After the sequestration order the second mortgagee, in collaboration, it seems, with the first mortgagee, exercised the statutory power of sale given to him by the Real Property Act, 1862 (s. 54). The Recorder did not give the caveators notice of the application to register the second mortgagee's transfer, which was in due course registered, as was a discharge of the first mortgage, and a new title was issued. The purchase price was applied by the second mortgagee in payment of the expenses of sale and of the money secured by the first and second mortgages, and the surplus £458 18s. 4d. was paid to the Official Receiver. The appellants' contention is that as unsatisfied judgment creditors who had lodged caveats, they had charges or liens upon the bankrupt's land, and when it was sold by the second mortgagee, by virtue of those liens or charges, they as the earliest caveators whose claims against the debtor remained unsatisfied became entitled to receive the whole of the surplus proceeds of the sale as secured creditors of the bankrupt.

It should be stated that as the appellants had not taken any steps to execute their judgments, the provisions of s. 94 of the Real Property Act relating to sales of land under writs of fieri facias and the registration of titles to effectuate such sales have no direct application here.

In the circumstances stated, the first question is whether a judgment creditor who has lodged a caveat has thereby acquired a lien or charge on the debtor's land as security for a debt due to him from the debtor. If so, he is a secured creditor for the purposes of the Bankruptcy Act (see the definition of "secured creditor" in s. 4). The questions would then arise whether such a secured creditor could "realize or otherwise deal with his security" (s. 60 (3)) or whether ss. 92 and 93 would not require that the benefit of any execution that did proceed should go to the debtor's trustee in bankruptcy. The learned Chief Justice did not go beyond deciding that the appellants were not secured creditors, and the affirmation of his decision would dispose of this appeal. This, therefore, is the first matter for consideration.

Although the actual course of legislation in or applicable to Tasmania is not easy to follow, there is no doubt that the result is that a judgment does not of itself give the judgment creditor security upon the lands of the judgment debtor. A judgment creditor is not ipso facto a secured creditor. This is clearly recognized by the Registration of Deeds Act, 1935 in relation to land under the old law, and by the Real Property Act, 1886 in relation to land under the Torrens System. If, therefore, the appellants became secured creditors, it must be because they went further and lodged caveats. As has already been indicated, s. 22 of the Act of 1886 does recognize that a judgment creditor may lodge a caveat notwithstanding that he has no estate or interest in the debtor's land, but the caveat does no more than forbid the registration of dealings with an estate or interest in land and does not itself create an estate or interest. In the ordinary case, as the learned Chief Justice points out, a caveat protects an existing estate or interest (Butler v. Fairclough [1] ; Abigail v. Lapin [2] ) and although this cannot be said of a judgment creditor's caveat, it remains true that such a caveat does not create an estate or interest. When a caveat is lodged or is removed or is withdrawn or lapses, the estates in the land remain as they were; the lodging of a caveat does no more than bring into play the statutory prohibition forbidding the Recorder to register any memorandum of transfer or other instrument affecting the land in question until the caveat is withdrawn or lapses. So long as the judgments against him stand, a debtor cannot have a judgment creditor's caveat removed by an application under sub-ss. (2) and (3) of s. 83 of the Real Property Act, 1862 because of the effect of sub-s. (3) of s. 22 of the Real Property Act, 1886, but notice from the Recorder to the caveator of an intended registration would set time running against the caveat which would lapse within fourteen days in the absence of an order to the contrary under s. 83 (4) of the Real Property Act, 1862. The caveat, so long as it is in operation, however, does no more than prevent the registration of dealings. It is not an "instrument" and the caveator is not a "proprietor".

(1917) 23 C.L.R. 78. 2. [1934] A.C. 491; (1934) 51 C.L.R. 58.

It was decided by Nicholls C.J. in Re Price; Ex parte Tinning [1] that a judgment creditor who entered a caveat under s. 22 of the Act of 1886 does thereby obtain a lien or charge on the land of the debtor that is affected by the caveat, and it is clear that in reaching this conclusion that learned Chief Justice was greatly influenced by two considerations. The first was that the caveator of a judgment creditor had a protected right to execute; the second that unless a caveat lodged under s. 22 did give the judgment creditor security, the lodging of a caveat would be entirely futile. The first consideration, however, takes no account of s. 92 of the Bankruptcy Act which does deny to a judgment creditor the right to continue with an incomplete execution; a fortiori there could be no execution commenced after bankruptcy. Furthermore there is no justification for regarding execution under a writ and the realization of his security by a creditor as synonymous. The second consideration assumes that a judgment creditor who has lodged a caveat and who receives notice of an intending registration cannot in any circumstances by proceeding under s. 94 of the Real Property Act, 1862 have the judgment debtor's interest in the land effectively sold under a writ of fieri facias. It has already been observed that where the judgment debtor has become bankrupt this cannot be done, but in other cases this is not to be assumed too readily. Section 94 is a difficult section that it is not necessary to examine exhaustively here. It negatives any execution lien; it provides for the effective sale of a judgment debtor's interest in land; and it gives to sales under writs served upon the Recorder some priority over competing dealings. It would seem that the purpose underlying s. 22 was to give a judgment creditor who caveats the opportunity, by obtaining and serving the Recorder with a writ of fieri facias pursuant to s. 94, to ensure that a transfer to effectuate a sale under the writ would as a rule take priority over a dealing lodged between the lodging of the judgment creditor's caveat and such a transfer. Whether it would do so in any particular case would depend upon the circumstances of the case, but Nicholls C.J. seems to me to have wrongly assumed that this could not happen. It is, of course, immaterial to the understanding of s. 22 that in this particular case no effective action under s. 94 could have been taken by the judgment creditors. It is not without significance, however, that the judgment creditors' caveats could in no circumstances have prevented the registration of the transfer that was here made by the second mortgagee, and once the caveats ceased to have any operation - as must have occurred - it would follow that any interest depending upon their existence would disappear with them, so that if the caveats did, contrary to the views here expressed, give the judgment creditors any interest in the debtor's land, those interests depending as they did upon the caveats. It would not survive the lapsing or exhaustion of such caveats. It would follow that when the purchase price was paid to the second mortgagee, the judgment creditors had no interest of any sort that could attach to the proceeds of the sale of the land, even if in other circumstances an interest in land deemed to arise from a caveat could upon sale of the land be treated as an interest in the proceeds of the sale.

The conclusion that Burbury C.J. was right in deciding that the appellants were not secured creditors does, as has already been said, dispose of this appeal and it is not necessary to consider the appellants' further difficulties had a contrary conclusion been reached. The appeal should be dismissed with costs.

I agree in the conclusion that follows from the judgments that have been delivered. In particular, I agree in the reasoning of Kitto J. I cannot usefully add anything to it.

High Court of Australia Dixon C.J. Kitto, Taylor, Menzies and Windeyer JJ. Hall v Richards [1961] HCA 34

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