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[1966] HCA 72
High Court of Australia
1966-07-01
Windeyer JJ
Original judgment source is linked above.
High Court of Australia Barwick C.J. Kitto and Windeyer JJ. NA Kratzmann Pty Ltd v Tucker [1966] HCA 72
ORDER Appeals allowed with costs. Declaration of the Supreme Court of Queensland that the Bill of Mortgage executed in favour of the appellant N. A. Kratzmann Pty. Ltd. (in Liquidation) on 5th December 1962 which was assigned to the appellant Kratzmann Hardware Pty. Ltd. on 20th December 1962 was void against the liquidator of Torhaven Pty. Ltd. and the orders of that Court set aside. In lieu thereof order that the application of the said liquidator be dismissed with costs. Order that the costs of the respondent liquidator as between solicitor and client be part of the costs and expenses of the winding up of N. A. Kratzmann Pty. Ltd. Appeals dismissed with costs.
The liquidator of Reid Murray Developments (Qld.) Pty. Limited (the Developments Company) obtained from the Supreme Court of Queensland a declaration that a bill of mortgage dated 5th December 1962 given by the Developments Company to N. A. Kratzmann Pty. Ltd. (now in liquidation) (the Building Company) and by it transferred on 19th December 1962 to Kratzmann Hardware Pty. Ltd. (the Hardware Company) was void as against that liquidator as a preference within s. 293 of The Companies Act of 1961 Q. (the Act), and that the Hardware Company in taking the transfer of the bill of mortgage was not a purchaser in good faith within the meaning of s. 95 of the Bankruptcy Act Cth, the provisions of that section being imported by s. 293 of the Act.
The liquidator of the Developments Company also obtained a declaration by the Supreme Court that a deed executed by the Developments Company in favour of the Hardware Company on or about 14th January 1963 (bearing date 7th January 1963) was void as against him as such a preference.
By this deed the Developments Company being the beneficial owner of certain shares entitling the holder to possession of certain home units in a multi-unit building known as "Torbreck" situated at Highgate Hill, Brisbane, the shares being then registered in the name of its trustee, N. A. Kratzmann, directed the trustee to hold the shares in trust for the Hardware Company and to transfer them to the Hardware Company. As no shares had been transferred pursuant to the deed, the Supreme Court made no order in that behalf in consequence of the declaration that the deed was void.
The orders which the Supreme Court made included an order that both the Building Company and the Hardware Company deliver up to the liquidator of the Developments Company the bill of mortgage duly released together with any certificates of title held by them, or by either of them, to the lands the subject of the said bill of mortgage, subject to the qualification that the order should not apply to any certificate of title held by either appellant pending the completion of any transaction entered into by any third person with such appellant in good faith and for valuable consideration prior to the institution of the proceedings in which the declarations were made. The orders also included an order for the payment to the liquidator of the Developments Company of £36,000 standing to the credit of a bank account in the joint names of the solicitors on the record, such sum being part of the proceeds of the said mortgage.
The liquidator of Torhaven Pty. Ltd. (in Liquidation) (Torhaven), a wholly-owned subsidiary of the Developments Company, obtained from the said Court a declaration that a bill of mortgage executed by Torhaven in favour of the Building Company on 5th December 1962 and by it transferred to the Hardware Company was void as against the liquidator of Torhaven. This mortgage was given as collateral security to the bill of mortgage of the same date executed by the Developments Company in favour of the Building Company which the Supreme Court declared void in the proceedings to which I have just referred. It was because this mortgage was collateral to the void mortgage that the Supreme Court declared it void. The Supreme Court made like orders that the Building Company and the Hardware Company deliver up this mortgage duly discharged and the relevant certificate of title with the same qualification as the Court made in the proceedings brought by the liquidator of the Developments Company.
The Court declared that this mortgage was not void as against the liquidator of Torhaven as a settlement of property not made in favour of a purchaser or encumbrancer in good faith and for valuable consideration or as the grant of a charge out of the land the subject of the bill of mortgage made with the intention of delaying or defrauding the creditors of Torhaven.
The Court ordered the payment to the liquidator of Torhaven by the Hardware Company of £8,400 being an amount received by the latter from Torhaven under and pursuant to the bill of mortgage.
Each of these groups of declarations was made in a separate proceeding commenced respectively by the liquidator of the Developments Company and by the liquidator of Torhaven. The proceedings were heard together by the Supreme Court. This course seems to have involved not merely their consideration at the same time but the treatment of the evidence tendered in either of them as available in each of them to the extent that it was relevant and admissible in the particular proceedings.
We have now before us four appeals. The liquidator of the Building Company appeals against the declarations and orders made in the proceedings brought by the liquidator of the Developments Company, and in the proceedings brought by the liquidator of Torhaven. The Hardware Company appeals against the said declarations and orders in each proceeding in so far as they affect it. All four appeals have been heard together and can be dealt with in judgment at the same time.
The following facts must be taken to have been established to the satisfaction of the Supreme Court, my statement of them being largely taken from the recital of them by the learned Supreme Court judge in his reasons for judgment.
Reid Murray Holdings Ltd. (the Holding Company) was the parent company of the Reid Murray group of companies which comprised over two hundred subsidiaries in Australia, with share capital of over £12,000,000. By it or on its behalf, a very large amount of money, roughly £50,000,000, was borrowed from the public throughout Australia. The Holding Company first began to operate in Queensland in the early part of 1959. In May of that year the Developments Company became a wholly owned subsidiary of the Holding Company. It operated throughout its brief existence as a land development and building company.
In April 1960 the Holding Company purchased the whole of the share capital of the Building Company then owned by N. A. Kratzmann and members of his family. It had theretofore successfully carried on business as a building contractor, having N. A. Kratzmann as its managing director. The consideration for the purchase of the shares in the Building Company by the Holding Company was the payment of a large sum in cash to N. A. Kratzmann and the issue of a large parcel of fully paid up shares in the Holding Company to Kratzmann Holdings Pty. Ltd., of which presumably N. A. Kratzmann and his family were the sole shareholders. After the change in ownership of its shareholding, N. A. Kratzmann continued to be managing director of the Building Company under a service agreement made between him and the Holding Company. He held this office in the Building Company until 28th February 1963 when he retired therefrom.
On 19th March 1962 N. A. Kratzmann was appointed a director of the Developments Company, which office he continued to fill until 7th November 1962, when he resigned because the interests of the Developments Company conflicted with the interests of other companies of which he was a director.
Torhaven Pty. Ltd. was at all relevant times a wholly-owned subsidiary of the Developments Company and was involved in its building activities.
At the time of the purchase of the shares in the Building Company by the Holding Company, and throughout the whole period with which these appeals are concerned, N. A. Kratzmann and his family held all the shares in the Hardware Company of which throughout N. A. Kratzmann was the managing director. It would seem that, prior to the take-over of the Building Company, the Hardware Company, which carried on a general business in builders' hardware, supplied the Building Company with such goods. This supply of hardware by the Hardware Company to the Building Company continued throughout the succeeding period, and was the means of building up a very substantial debt due by the Building Company to the Hardware Company.
The Developments Company had a share capital of only £18,000. It carried on its activities in real estate and building by means of money borrowed from time to time from the Holding Company or one or more of its subsidiaries, or from independent sources of loan money, including the War Service Homes Commissioner. In the result, the Developments Company up to the time of its liquidation borrowed some £2,500,000 from the Holding Company. The lavish flow of moneys from the Holding Company to the Developments Company was not, however, maintained. A general restriction of bank credit began to operate in November 1960. Between September 1961 and 11th October 1962 the Developments Company borrowed £412,239 from the Finance Corporation of Australia. That Corporation then refused that Company further loans. In August 1962 the War Service Homes source had dried up. Obviously, the Developments Company's ability to function depended on regular and large borrowings, principally from the Holding Company's resources, such moneys being made available by the Holding Company merely at the will of the parent company which treated the Developments Company as one of the Reid Murray group of companies.
The Developments Company engaged in large building projects and contracted with the Building Company to erect buildings on its, the Developments Company's, land, and also on land vested in Torhaven. The Developments Company increasingly throughout the period of its operation used any moneys received by it to pay external debtors as, for example, vendors of land and the financial institutions outside the Reid Murray group, leaving its debt to the Building Company accumulating and unpaid. Thus the Building Company became increasingly unable to pay its creditors, including the Hardware Company.
In March 1963 an official manager was appointed for the Developments Company, and on 30th May 1963 he presented a petition for the winding up of the company. A winding-up order was made by the Supreme Court of Queensland on 11th July 1963, the official manager being appointed liquidator. The same person had also been appointed official manager of Torhaven and, in that capacity, presented a petition for its winding up on 31st May 1963. An order winding up Torhaven was made by the Supreme Court on 23rd July 1963, the official manager being appointed liquidator.
The learned judge of the Supreme Court examined the facts and figures surrounding the operations of the Developments Company, and he concluded that, as at 31st August 1962, the Developments Company was unable to pay its debts out of its own moneys as they became due within the meaning of s. 95 of the Bankruptcy Act 1924-1960 Cth. This finding is not challenged.
His Honour also examined the actions of N. A. Kratzmann and the evidence relating thereto over the relevant period, and found that at all relevant times N. A. Kratzmann knew that the Developments Company and the Building Company could not pay their respective debts out of their own moneys as they became due in terms of the Bankruptcy Act. For present purposes the relevant dates are the date at which the mortgages sought to be set aside by the liquidator were entered into and the date when they were transferred. This finding is not challenged.
On 26th August 1962 the Hardware Company was owed by the Building Company a sum in excess of £26,000. On 31st August 1962 the Building Company paid £26,000 to the Hardware Company. The Hardware Company then lent to the Building Company a sum of £25,000 payable on demand. This payment and contemporaneous lending were arranged between the directors of the Building Company and N. A. Kratzmann as managing director of the Hardware Company. By 8th October 1962 the Building Company's debt for goods supplied by the Hardware Company had increased by about another £25,750.
On 8th October 1962 the directors of the Building Company held a board meeting of that company in Melbourne. By this time the condition of the finances of the Building Company were critical. It is quite apparent from the terms of the minute of this meeting that the directors, including N. A. Kratzmann, realized that the company could not carry on even for a suggested period of six or eight weeks until the Holding Company could provide some relief out of arrangements it was hoping to make with some source of finance external to the Reid Murray group. N. A. Kratzmann was emphatic that £100,000 must be made available immediately if the company was to stave off the issue of writs by its creditors, and to stop the deterioration in its credit worthiness in the building industry which had already commenced to take place. The persons present at this meeting comprised persons who, besides being directors of the Building Company, were directors of the Developments Company (three) and directors of the Holding Company (two). It was "decided" that, according to the minutes of the meeting:
(ii) Term: Two years with a further one year's notice of intention to call up the loan. Any extension to be at the discretion of the lender.
(iii) Securities: To be on freehold properties of (the Developments Company) and situated at Wickham Terrace and Bartley Street, Brisbane and at Musgrave Road, Red Hill.
(ii) Term: Two years, with a further one year's notice of intention to call up loan. Any extension to be at the discretion of the lender.
(iii) Securities: Four units in Torbreck as selected by Mr. Kratzmann.
The payment of interest was to be subject to negotiation. Mr. Kratzmann considered that interest should be calculated on a monthly basis and payable monthly.
It is quite clear from the evidence that this loan of £25,000 was to be negotiated outside any of the companies concerned and was to provide actual cash for the support of the credit of the Building Company.
The balance of £100,000 of immediate finance which it had been emphasized was indispensable to survival even on a short term basis was to be found by the Holding Company. One of the directors of the Developments Company, present at the meeting in his capacity as director of the Building Company, informed the meeting that he would be in a better position on the following Thursday to advise a definite date of payment of the Holding Company's contribution. As his Honour says:
"It appears clear that on the date of that meeting" (meeting of 8th October 1962) "N. A. Kratzmann knew that the holding company could not find £100,000, and that Wilkinson, its assistant managing director)" (who was present at the meeting as a director of the Building Company) "wanted some days in which to find out when it could find £50,000. It is quite clear that the latter sum was not forthcoming by the following Thursday " From the contents of the minute of 8th October 1962 of the Building Company it appears that the company then owed £236,063 12s. 7d. of which £50,830 12s. 9d. was due to the Hardware Company, that is to say, £25,000 due as money lent, repayable on demand, and the balance for goods supplied. The balance of the £236,063 12s. 7d. was due to trade creditors, and building sub-contractors in almost equal amounts. It also appeared at that date that the Developments Company owed the Building Company in respect of five named building projects a total of £274,924 8s. 2d.
On 15th October 1962 the Building Company wrote to the Developments Company a letter in which, having referred to the amount of the Developments Company's indebtedness to it, it said:
In the normal course on accounts of any size, it is our practice to claim a lien under " The Contractors' and Workmen's Lien Act of 1906 " prior to the completion of the work, but in view of the association between us, we are prepared to forbear to claim the appropriate lien or liens if your company will forthwith execute a mortgage or mortgages over acceptable real estate by way of security for the payment of the amounts owing within a period of say - six calendar months from the date hereof. But this offer was never accepted. No securities were given for the full amount due by the Developments Company to the Building Company.
On 18th October 1962 the Developments Company sent to a firm of solicitors, not being the usual solicitors of that company, "on behalf of N. A. Kratzmann" a schedule of certificates of title in respect of freehold properties of the Developments Company and of Torhaven stating that, in relation to the title in the name of Torhaven, an existing mortgage was in the course of release.
On 19th October 1962 the solicitors returned to the Developments Company bills of mortgage in triplicate for signature under the seal of the company including a bill of mortgage by way of collateral security over the land in its name for execution by the Torhaven Company. These were each in favour of the Building Company and each to secure the payment of £100,000 on 30th April 1964 which was recited to be part of the indebtedness of the Developments Company to the Building Company. Each was expressed to be given in consideration of the forbearance of the Building Company to sue for the sum of £100,000 and in each case the sum of £100,000 was payable on 30th April 1964.
On 7th November 1962 the directors of the Building Company met as a board in Melbourne and, according to the minutes of the meeting, which again was attended by persons who were directors of the Holding Company and of the Developments Company and as well as of the Building Company, the meeting approved: -
(a) A Holding Company cheque for £25,000 be handed to N. A. Kratzmann for deposit to the company's Brisbane bank on his return to Brisbane, the advance to be debited to the advance account of the Developments Company.
(b) A further advance of £25,000 from the Holding Company on or before 30th November 1962 and that N. A. Kratzmann be authorized to approach several of the larger of the company's creditors to accept part payment of their debts by taking Torbreck units at a discount.
This reference to Torbreck units is a reference to shares the holding of which gave a right to the exclusive occupation of a stated home unit in the block of buildings known as Torbreck.
It would appear that at least the first of these sums of £25,000 was paid by the Holding Company.
On 16th November 1962 there was an inter-office memorandum signed by a director of the Developments Company and sent to the assistant manager of the Holding Company which stated that -
in line with proposals formulated at a meeting of directors of the Building Company on October 8 1962, that company has presented the Developments Company with a bill of mortgage in respect of £100,000 secured against the Bartley Street and Wickham Terrace properties. The details were contained in an attachment. The memorandum proceeded: It is the proposal of the Building Company to use this mortgage as security for an advance of £25,000 from the Hardware Company. The appropriate circulatory minute is attached and if in order would you please append your signature thereto, similarly the signature of Mr. R. L. Borg will likewise be required.
As Mr. Kratzmann is anxious to get this mortgage document effective it would be appreciated if authority to sign the mortgage document could be telegraphed to us.
On 5th December 1962 a letter was written by the Developments Company to the said firm of solicitors advising them:
the necessary minutes to cover this particular mortgage have now received approval from the Holding Company in Melbourne.
We therefore return herewith bills of mortgage, signed under seal in triplicate, in respect of
three properties owned by Developments Company and in respect of three properties owned by Torhaven, the latter being given as collateral to the former. These documents bear date 5th December 1962 which is in fact within the period of six months of the presentation of the petitions to wind up the companies: see s. 293 (2). They are the mortgages which the Supreme Court has declared void at the instance of the liquidator of the Developments Company and of the liquidator of Torhaven respectively.
The learned Supreme Court judge, after an examination of the evidence, held that the forbearance to sue which was said in those mortgages to be the consideration for their execution was not in the circumstances of the case a real consideration of even minimal value. He said:
there was no indication of any intention on the part of the Building Company to sue the Developments Company and to the knowledge of the business of the Building Company through at least the common factor N. A. Kratzmann suing would have been useless. The debt of course did not carry interest. His Honour further held that the bill of mortgage was brought into existence for the purpose of being used as security of an advance of £25,000 from the Hardware Company. He said in the circumstances he was: not prepared to hold that the agreement to pay seven per cent interest on £100,000 expressed in the mortgage constituted a fresh consideration brought contemporaneously into existence when the minute of approval was signed of a character sufficiently to support a valid equitable mortgage.
On 19th December 1962 a deed was executed between the Building Company and the Hardware Company reciting the existence on 31st August 1962 of a loan by the Hardware Company to the Building Company of £25,000 repayable on demand, the giving of a notice of intention to demand the repayment of that amount, and of a request by the borrower to the lender to defer the making of such a demand and to forbear to sue for the immediate recovery of the said sum. The deed provided that, in consideration of the sum of £25,000 then due and owing and in further consideration of the forbearance of the lender to sue for the immediate recovery of the same, and in further consideration of further or other advances, if any, the Building Company covenanted and agreed to pay to the lender on or before 30th April 1963 the sum of £25,000 and further advances, if any, together with interest at the rate of nine per cent per annum on that sum as from the date of the deed, and on further advances as from their respective dates. By cl. 2 of the deed the Building Company transferred to the Hardware Company all its right title and interest as mortgagee in and to the bills of mortgage which were described in the schedule to the deed, and which were in fact those which had been given on 5th December 1962 by the Developments Company to the Building Company and by the Torhaven Company to the Building Company to secure the sum of £100,000. It should be noticed that the properties over which the mortgages by the Developments Company were executed comprised the properties referred to in the minute of 8th October 1962 together with a further parcel of land not mentioned in that minute.
The Supreme Court found that, through N. A. Kratzmann, who was managing director of each, the Hardware Company knew at the time of the transfer of the mortgage that the Developments Company was insolvent at the time of the execution of the mortgages to the Building Company. Having observed that there was no application for a declaration that the transfer of mortgage was void, the learned trial judge said:
"The order" - i.e. against the Hardware Company - "is sought apparently on the basis that the mortgage, being declared void as against the liquidator, is void in whosoever it may be. If and so far as it may be necessary for me to decide that the assignment was not in good faith, I so decide it." He later said that: If s. 95 (2) (a) applies to a transfer of this sort - and I decide that it does - the Hardware Company would have to establish that the transfer was for good faith and for valuable consideration.
On this matter I am satisfied that Kratzmann was the directing mind of the Hardware Company: as he says his knowledge was the knowledge of the company. He had knowledge of the insolvent position of the Developments and Building companies at the relevant times. I hold that the transfer was not entered into in good faith.
This finding was clearly a decision that the Hardware Company, if it had to rely upon s. 95 (2) of the Bankruptcy Act, could not discharge the burden placed upon it by s. 95 (3) of that Act. In my opinion, this conclusion of the Supreme Court was not shown to be in error.
But at a later stage in his reasons the learned judge said:
on the evidence I would not find Kratzmann guilty of positive dishonesty at the time he instigated the scheme for getting security for the debts involved. Thus it was not found that in taking the transfer of mortgage the Hardware Company was guilty of fraud. This finding is not challenged in the present appeals.
Apparently the Building Company during 1963 was building for the Developments Company on its lands at Chermside a number of dwelling houses. On 21st March 1963 the Building Company gave to the official manager of the Developments Company notices of intention to claim liens under The Contractors' and Workmen's Lien Acts, 1906 to 1921 Q. (the Liens Act) in respect of sums then outstanding for building operations being carried on by the Building Company for the Developments Company, namely, the said dwelling houses at Chermside. There were in all six such notices, each in respect of a different parcel of land and for a different amount. The total amount involved in these notices was approximately £17,000.
On 26th April, 1963, that is to say, after the appointment of the official manager of the Developments Company had been made but before the order for winding up that Company, the Building Company filed in the Supreme Court statements of claim in which it sought declarations of liens upon the respective lands of the Developments Company for the balance then due in respect of building work done on such lands, for judgment for the amount of the liens and for orders for the payment of the respective sums. The total amount claimed was approximately the same as the total involved in the said notices of intention to claim the liens. In each of these statements of claim a statement was made by the Building Company as follows: "No credit was agreed to by the claimant."
The proceedings by the liquidator of the Developments Company for declarations that the mortgage given by that Company to the Building Company on 5th December 1962 was void as a preference within s. 293 of The Companies Act were heard by a judge of the Supreme Court on consecutive sitting days from 1st to 9th April 1964 on which last-mentioned day he reserved judgment. On 21st and 22nd April 1964 the statements of claim filed by the Building Company for the declaration of liens under the Liens Act came before another judge of the Supreme Court. In these proceedings, the liquidator of the Developments Company tendered the bills of mortgage executed by the Developments Company on 5th December 1962 and submitted that by reason of the execution of the said bill of mortgage and of evidence given which apparently identified portion of the sum of £100,000 thereby secured with the moneys claimed by the Building Company in the lien proceedings,
the statements of claim were fatally informal for not having disclosed the agreement to give credit and that no sum was due by the Developments Company in respect of the building work.
The Supreme Court judge who heard the applications under the Liens Act dismissed them for the reason expressed by him that the statements of claim did not comply with the form required by the Liens Act, s. 20.
"The Act required that if credit has been givennotices" (meaning statements of claim) "shall say so. Here in my view credit was given by the mortgage" - this being a reference to the mortgage given on 5th December 1962 - "and the notice" (meaning statement of claim) "did not say so."
I should deal first with the appeal by the liquidator of the Building Company. His submission is that the Supreme Court ought not to have permitted the liquidator of the Developments Company to persist in his application to set aside the bill of mortgage given by the Developments Company to the Building Company after the termination of the summary proceedings to enforce the liens either because by his conduct in those proceedings he was estopped from continuing to assert that that bill of mortgage was void or because it would be unconscionable for him to do so.
The Liens Act gives to a building contractor a lien for work done upon the land of the building owner: s. 4. That land becomes bound at the latest on the giving of a notice of intention to claim a lien: see s. 9 of the Act; Stapleton v. F. T. S. O'Donnell, Griffin & Co. (Q.) Pty. Ltd. [1] . Such a notice was given in this case. Sections 15, 16 and 17 of the Liens Act provide for a summary procedure to be taken in a court of competent jurisdiction to enforce the lien. Such summary procedure must be taken within thirty days of the completion of the work in respect of which the lien is claimed. There is no precise evidence before the Court that the proceedings commenced by the Building Company on 26th April 1963 were so commenced. But the notices of intention to claim a lien were given on 21st March and state that "no date is fixed for completion" of the work in respect of which it is proposed to claim the liens. Also, the amounts claimed in the summary proceedings differ from those named in some of the notices. These facts tend to indicate that the work was not complete when the notices were given. But, in any case, no record of any objection to the summary proceedings as being out of time has been placed before the Court and nothing said in the reasons for judgment suggests that the liens had been extinguished for failure to commence the summary proceedings in due time, although the judge who disposed of them said he had more than one reason for dismissing the claims. In these circumstances, in my opinion, it should be accepted for present purposes that the proceedings by the Building Company were commenced in time. Shortly after they were commenced liquidation of the Developments Company supervened. Upon the commencement of the liquidation, the Building Company would become a secured creditor for the amount of the lien: see Stapleton v. F. T. S. O'Donnell, Griffin & Co. (Q.) Pty. Ltd. [1] : and no further proceedings to enforce the liens could be taken without the leave of the Court: s. 263 (2) of the Act. It does not appear whether or not any leave to continue the summary proceedings was obtained. It may be that one should infer such leave from the fact that the Supreme Court heard the proceedings after liquidation. However, whether by leave or not, the proceedings came on for hearing after judgment had been reserved in the applications by the liquidators of the Developments Company and of Torhaven for declarations of invalidity of the mortgages respectively given by the Developments Company and by Torhaven. It might perhaps have been thought sufficient to deal with the claims founded upon the building work done by the Building Company by proof of debt and proceedings thereon in the liquidation: and, in any case, the precise consequence of the dismissal after liquidation of the statements of claim may remain a question. But those matters are outside the present appeals.
Section 20 of the Liens Act requires the claimant in his claim to state, amongst other things, the date of expiry of the period of credit, if any, which has been agreed to by the claimant for payment for his work. As I have said, the Building Company in its claim in this respect stated "no credit was agreed to by the claimant". It thus covered the statutory requirement.
Now it seems to me evident that, if that assertion in the claim should be disputed, it must rest upon the claimant to establish it. The Building Company had asserted in the proceedings in which judgment had been reserved that the mortgage by the Developments Company was valid. That mortgage was given in consideration of a promise by the Building Company to forbear for a period of time to sue for a sum of £100,000 being part of a larger debt of some £165,483. It was either proved in some manner, or conceded that the amounts claimed in the proceedings under the Liens Act formed part of this sum of £100,000. In those proceedings the bill of mortgage was tendered by the liquidator of the Developments Company who made the submission in substance that the bill of mortgage was inconsistent with the statement in the claim that "no credit has been given" for payment of the sum for which the lien was claimed. It was, in my opinion, quite clear to the parties who had been litigating the question of the relevant validity of that mortgage for many days before the Supreme Court, with the same counsel engaged in each proceeding, that the liquidator of the Developments Company was not actually asserting in the lien enforcement proceedings the validity of the mortgage as against himself as liquidator. The Building Company, which by this time was itself in liquidation, could not have been misled in that respect. But once the document was introduced into evidence it was clear that unless the Building Company established its invalidity, it could not make out its assertion in the statements of claim that no period of credit had been given. I do not understand what the liquidator for the Developments Company could have done but introduce the bill of mortgage into evidence. He had to contemplate the possibility of failure in his proceedings to invalidate it and, whilst the claimant would not concede its invalidity, its terms denied the statement of the Building Company in its statements of claim. Having pressed on with the summary proceedings rather than determine in the liquidation the question whether or not the Building Company was a secured creditor in respect of the sums to which the lien proceedings related and, if so, for what amount, the parties might well have adjourned the summary proceedings until the reserved judgment on the liquidator's application to avoid the mortgage had been delivered. However, it seems to me that by proceeding then with these proceedings the Building Company could not place the liquidator of the Developments Company in the position where he could not protect himself against possible failure in his proceedings to recover the title to the land the subject of the bill of mortgage. I do not think it can properly be said that by tendering the bill of mortgage and claiming that it denied the Building Company's claim not to have given credit the liquidator of the Developments Company asserted the validity of the mortgage as against himself after liquidation, or that he thereby abandoned the position he had adopted in the other proceedings, or elected to adopt the bill of mortgage as valid as against himself notwithstanding the liquidation. Nor can I think that in seeking to accept and act upon the reserved judgment in his favour in his proceedings after having tendered the bill of mortgage and having made his submission in the summary lien proceedings, the liquidator did anything unconscionable. Rather, as I have indicated, he took a course he could properly take in the interests of the creditors of the Developments Company.
So far as the submission is placed upon an election by the liquidator, it may be granted that, although the statute avoids the preferential transaction, the liquidator need not seek to take advantage of the avoidance. In this sense he has a choice. In this case, the proceedings to take the benefit of the avoidance had been carried to the point where judgment was reserved. In my opinion, this clearly showed that the liquidator had made his choice and, as I have already indicated, I do not see anything in the liquidator's conduct in the lien proceedings to which our attention has been called which is inconsistent with that choice or the maintenance of the attitude towards the validity of the bill of mortgage which that choice indicated.
The matter can, however, in my opinion, be placed upon a more direct and a narrower ground. Whilst the bill of mortgage upon liquidation became void ab initio, it was for a period valid. For example, had the mortgagor sued for the £100,000 within three months of the date of the mortgage, he could have been successfully met at that time by his promise to forbear contained in the bill of mortgage, no liquidation having taken place. The proceedings to enforce the liens had to be made within thirty days of the completion of the work to which they related. I think it can fairly be assumed from a comparison of the various dates that that period of thirty days would certainly have expired before the date of liquidation; and therefore during a period when the promise to forbear was in truth operative. Thus the tender of the bill of mortgage and the submission made in respect of it did not, in my opinion, involve an assertion that the bill of mortgage was not void upon liquidation or that it was not intended to seek recovery of the title to the property the subject of the mortgage in consequence of the avoidance of the mortgage by the statute as a preference. It was enough to prove the execution of the mortgage and its effectiveness for any period of time during which the amount in respect of which the lien was claimed was due and included in the sum of £100,000 to which the promise to forbear related. That sufficiently disproved the assertion in the statement of claim that no credit had been given at all in respect of the sums claimed to be covered by the lien. For all these reasons I am of opinion that this submission by the liquidator of the Building Company fails.
It is necessary now to consider the submissions of the Hardware Company in its appeal against the declarations and orders made with respect to the mortgage from the Developments Company to the Building Company. These submissions the liquidator of the Building Company adopted though all are not reflected in his notice of appeal. The Hardware Company also adopted the submission of the liquidator of the Building Company with which I have just dealt.
The Hardware Company's first submission is that the mortgage was given by the Developments Company for a then present consideration, namely, the promise to forbear to sue for the amount of the debt due by the Developments Company which was then presently due and which the mortgage secured. In my opinion, it is sufficient in this connexion for me to say that the learned judge of the Supreme Court found for the reasons he expressed that there was no such consideration and that I see no reason to think that his finding was erroneous. Accordingly, the bill of mortgage cannot, in my opinion, be supported by any contemporaneous fresh consideration.
The second submission of the Hardware Company is that the bill of mortgage was executed on 5th December 1962 either pursuant to an agreement made before the commencement of the period of six months prior to the presentation of the petition to wind up the Developments Company, or in substitution for an equitable charge on the same land, created before the commencement of such period.
The appellant's counsel seeks to make out an agreement to give a charge by putting together the following series of events. He begins with the meeting of the Building Company on 8th October 1962, of which the minute is in evidence, part of which I included in my recital of the facts. He claims that by reason of the presence at that board meeting of persons who were directors of the Holding Company and of the Developments Company as well as of the Building Company and the presence of N. A. Kratzmann who, though present as a director of the Building Company, was managing director of the Hardware Company and what was then decided, joined with the subsequent events, to which I will refer in a moment, a binding agreement was then made to which the Hardware Company, the Building Company, the Developments Company, and the Holding Company were parties. He claims that this was an agreement which included a promise by the Developments Company with the approval of the Holding Company to give to the Hardware Company a security over the property described in the minute for the sum of £25,000 and interest thereon or alternatively a promise to give a security over those properties to the Building Company for the sum of £100,000 with the intention that by the assignment thereof the Hardware Company should be secured for £25,000. The subsequent events which counsel calls in aid are:
(i) The supplying of particulars of title to the solicitors who in fact prepared the mortgages, such particulars including particulars of a property additional to those mentioned in the said minute.
(ii) A circulatory minute approving the execution of the mortgage for £100,000 to the Building Company in purported performance of what was decided at the meeting of 8th October 1962.
(iii) A statement by the secretary of the Developments Company, who was as well the secretary of Torhaven, that the "whole scheme had been arranged" as at 16th November 1962 and that all that then remained was formal authority to execute the documents.
(iv) The acts of the Hardware Company and of the Building Company and of the Holding Company in what he claims were performances of what was decided, if indeed not agreed at the meeting of 8th October 1962. In this connexion it is claimed that through N. A. Kratzmann the Hardware Company forbore to sue for the demand loan of £25,000 and treated it as a term loan. The resolutions of 7th November 1962 and the alleged payment of the two sums of £25,000 each by the Holding Company are included in these acts.
(v) The adoption of the circulatory minute which counsel claimed ought to be found to have taken place before the commencement of the said period of six months. In this connexion his Honour found that the circulatory minute, more probably than not, was signed before the mortgage was executed, but whether or not before the commencement of the period of six months prior to the presentation of the petition to wind up the company did not appear. I do not think his Honour was in error in this finding.
These matters and their inter-relationship were canvassed at length by counsel and they and the evidence relating to them have been fully considered by me. But, to my mind, there are several reasons why this material does not make out an agreement to give any security over, or the creation of an equitable charge on, identifiable land. What was "decided" on 8th October 1962 was that £100,000 worth of ready money should be obtained to permit the company to meet the more pressing of its creditors. This, in my opinion, was no more than a decision of the board of the Building Company. It is clear enough that £25,000 already due to the Hardware Company was not to be provided in cash but rather by the conversion of the existing demand loan due to the Hardware Company into a term loan should the Developments Company secure it upon properties in Wickham Terrace and at Musgrave Road.
Let it be assumed that these properties are sufficiently identified at that point and that the subsequent addition of another property in the particulars given to the solicitors and in the document ultimately executed does not detract from that identification or suggest agreement at some later time. I can yet find nothing in what happened on 8th October 1962 or in the subsequent actions of the parties to warrant the conclusion that the Developments Company at any time actually agreed to mortgage these lands to the Hardware Company to secure £25,000. No doubt from 8th October onwards it was contemplated by all those present at the meeting of 8th October that the Developments Company would in due course make an agreement conformable to what the Building Company decided on that date. But, in my opinion, the evidence does not show that at any stage it did so: or that it did so prior to 5th December 1962. Nor, notwithstanding Mr. Kratzmann's presence at the meeting of 8th October, do I think the Hardware Company agreed before 5th December, or indeed before 19th December 1962, to convert the demand loan into a term loan, or to forbear to sue for the amount due to it for money lent. When it did give the mortgage to the Building Company, the Developments Company probably contemplated that the Building Company would use it as security to the Hardware Company for the sum of £25,000 and that company, or at any rate some of its directors, and of the directors of the Holding Company probably regarded this course as carrying out the scheme contemplated on 8th October "by the persons attending the meeting on that date". But, even so, this does not establish a presently operating agreement to give a charge to the Hardware Company, either as at 8th October or at any other time.
It is alternatively suggested that the above-mentioned facts establish the making of an agreement by the Developments Company with the Building Company before the commencement of the said period of six months to give to the Building Company a mortgage to secure £100,000, part of the total debt due by the Developments Company to the Building Company. But the decisions of 8th October, even if they are not confined in effect to decisions of the Building Company alone, would not support such a view of the facts. What was then decided apart from the extension and securing of the loan by the Hardware Company was that an approach be made by N. A. Kratzmann to outside interests to provide £25,000 on the security of four units in Torbreck as selected by Mr. Kratzmann, and that the Building Company provide £50,000.
Subsequently, in January 1963, by means of certain book entries, an amount of £25,000 was credited to the Building Company in the books of the Hardware Company and a similar amount credited to the account of the Developments Company in the books of the Building Company. By journal entry in the books of the Developments Company, this resulted in a credit in favour of the Hardware Company. But clearly this was not carrying out what was decided on 8th October 1962. At some stage, after 8th October 1962 and before 5th December 1962, the idea was conceived that the Developments Company should give a mortgage for £100,000 to the Building Company grounded upon a promise to forbear to sue for that sum for a stated but relatively short time. This amount of £100,000 was part of a larger indebtedness due by the Developments Company to the Building Company and bore no relationship whatever to the sum of £100,000 mentioned in the minute of 8th October 1962. That sum was composed of £25,000 already owed by the Building Company to the Hardware Company, £25,000 to be raised outside the Reid Murray group and the Hardware Company and £50,000 to be provided by the Holding Company. But though the sums were unrelated, it is quite likely that when it was suggested that the Developments Company should give such a mortgage its assignment to the Hardware Company was in mind. However, whether this is so or not, it is clear, in my opinion, that the proposal, whenever it originated, to give the mortgage over the lands of the Developments Company to the Building Company to secure the sum of £100,000, part of the Developments Company's indebtedness to it, did not indicate the existence of any agreement of the kind suggested by counsel. Nothing more is known of the proposal than that the secretary of the Developments Company in his circulatory minute, to which I have referred, and perhaps in his oral evidence, thought that it was an implementation of the "decision" of the directions of the Building Company on 8th October 1962. Quite clearly it was not. No agreement to give the mortgage for £100,000 is shown to have been made by the Developments Company prior to the signature of the circulatory minute. The signature of that document before the commencement of the period of six months prior to the presentation of the petition to wind up was not made out. And, in my opinion, there are other reasons for concluding that no binding arrangement by the Developments Company to give security for £100,000 to the Building Company was made before the commencement of the said period of six months. However, what I have said is sufficient to dispose of this submission of the Hardware Company.
My reasons for thinking that there was no binding agreement or equitable charge sufficient to support the execution on 5th December 1962 of the mortgage given by the Developments Company to the Building Company include reasons which would apply also, it seems to me, to the execution of the deed by the Developments Company in favour of the Hardware Company relating to the Torbreck units.
So far as this deed is concerned, I am of opinion that the Supreme Court was right in finding that there was a relationship or debtor and creditor which by the date of the execution of the deed had been contrived between the Developments Company and the Hardware Company and that the deed had the effect of preferring the Hardware Company as a creditor of the Developments Company and was void as a preference within s. 293 of the Act.
I turn now to the appeals in the proceedings brought by the liquidator of Torhaven.
The liquidator of the Building Company and the Hardware Company each seek to set aside the declaration that the mortgage given by Torhaven to the Building Company was void and the consequential orders. He submits that this mortgage was given by way of guarantee and that it stands on its own feet quite independently of the fate of the mortgage given by the Developments Company to the Building Company. The liquidator of Torhaven did not attempt to attack this mortgage as a preference though by reason of certain book entries Torhaven had become a debtor of the Building Company. But, in any case, the sole creditor of Torhaven was the Developments Company, and the mortgage to the Building Company, as the Supreme Court found, was given by Torhaven with the knowledge and complicity of its only creditor.
The Supreme Court reached the conclusion, but with some misgiving, that this mortgage should be declared to be void as against the liquidator of Torhaven because the principal creditor, the Building Company, was no longer able to make available to the surety, Torhaven, the benefit of the mortgage which it, the Building Company, had taken from the Developments Company to secure the principal debt. This inability flowed from the avoidance of that security by s. 293 of the Act and not from any conduct of the Building Company.
But, with respect, I can find no ground upon which the security given by the surety should be declared void. Section 293 does not bear upon it. It could only be dealt with on the principles of the general law governing the relationship of creditor and surety, though the question arising between the liquidators of the two companies could be resolved by the Supreme Court in one or other of the liquidations.
In my opinion, the statement that "the surety is entitled, on payment to him of the guaranteed debt, to have all securities held by the creditor for the debt handed over to him by the latter in exactly the same plight and condition in which they were originally received", Halsbury's Laws of England, 3rd ed., vol. 18, p. 516, par. 947, does not mean that a surety is necessarily discharged where the creditor is unable to hand over such a security in such a state, not by reason of any act of his own, but solely by reason of some supervening operation of law. It is rather to the creditor's own acts in relation to the security that attention is generally to be directed, and to which consequence is relevantly to be attached. There may be in some cases special arrangements express or implied between surety and the creditor which would have to be taken into account. But there are no such circumstances in this case. Here, however, the bill of mortgage from the Developments Company to the Building Company from its inception carried within itself, as it were, the germs of its own destruction. The creditor never held it free from its liability to become void ab initio if liquidation occurred, a quality that was inherent in it because it was given by an insolvent debtor to its creditor.
In my opinion, the authorities to which the Supreme Court referred on this aspect of the case are inappropriate to its circumstances. The mortgage from Torhaven to the Building Company, in my opinion, ought not to have been declared void. So far as appears in this matter, the creditor was entitled to enforce it upon non payment of the principal debt. Consequently, the assignee from the creditor, the Hardware Company, could do so. Being of this opinion, there is no need for me in this appeal to consider the consequences of the registration of the bill of mortgage or of the registration of the transfer of that bill of mortgage under provisions of The Real Property Act.
There remains in these appeals the submissions of the liquidator of the Developments Company that the mortgage given by Torhaven to the Building Company was void as a settlement of property, not being a settlement made in favour of a purchaser or encumbrancer in good faith and for valuable consideration, or alternatively as the grant of a charge out of the lands created by an instrument entered into with intent to defeat or delay the creditors of Torhaven. The former submission was based on the terms of s. 94 of the Bankruptcy Act imported into the Act by s. 293 and the latter on the terms of 13 Eliz. c. 5 as enacted in Queensland by s. 46 of The Mercantile Act of 1867.
The Supreme Court rejected both submissions and, in my opinion, rightly. For one thing, consideration was not lacking for the giving of the mortgage as collateral security for the debt, or part of the debt due to the Building Company by the Developments Company. Torhaven was a wholly-owned subsidiary of the Developments Company and that company its only creditor. The suggestion that the mortgage was a gift by Torhaven to the Building Company lacks both substance and reality. It was clearly not a settlement, within the meaning of the terms of s. 94 of the Bankruptcy Act. The submission that the mortgage was a fraudulent preference within s. 47 of The Mercantile Act of 1867 Q. is answered by the learned judge's finding that there was no fraudulent intent - a finding which has not been shown to be in error - and that in any case the only creditor was the Developments Company which was party to the arrangement to give the mortgage.
Before concluding I should notice a submission made on behalf of the Hardware Company based upon s. 44, read with the definitions of property and land in s. 3, and ss. 35, 43 and 109 of The Real Property Act of 1861 Q.. The argument was founded upon the premiss that the liquidator was asserting an interest in the land which would fall within the description of an encumbrance lien estate or interest mentioned in s. 44. The submission was to the effect that by virtue of that section, the registration of the assignee of the mortgage, as its proprietor, without fraud on its part, precluded the existence in the official liquidator of any such estate or interest in the land. But clearly, s. 293 (1) of The Companies Act does not itself create or vest in the Official Receiver any estate or interest in the land over which the charge has been given. Upon avoidance of the mortgage vis-à-vis the liquidator, he may exercise the rights against the chargee or his assigns which the company may have exercised by virtue of its ownership of the land had it not made the transfer or given the charge. Section 293 of The Companies Act gives the liquidator no other rights, nor are any other relevant rights given by any other part of that Act. By the incorporation of s. 95 (2) of the Bankruptcy Act, The Companies Act does protect purchasers from the creditor for value without notice who must rely on the instrument which has been avoided as against the liquidator as an indispensable element in their title to the property purchased. But it does not give any specific rights to the liquidator against such purchaser. Whatever rights the liquidator has in this respect must be derived from the general law which becomes applicable upon the avoidance of the company's transaction. Of course, the liquidator may assert such rights in proceedings taken in the liquidation before the Supreme Court because of that Court's general jurisdiction but the rights which are being asserted are rights, other than a right to a declaration of the avoidance of the debtor's transaction, which must, as I have said, be found in the general law.
Whether or not the interest in the land in respect of which the purchaser has become the registered proprietor may be recovered by the Official Receiver does not depend, in my opinion, solely upon any operation of s. 44 but also and, in my opinion, principally upon s. 126, its proper construction and place in the Torrens System of title and its relation to The Companies Act. In this latter connexion consideration must need be given to the effect, if any, which the Bankruptcy Act as a federal law may have had upon The Real Property Act, to the question whether or not, by incorporating s. 95, s. 293 carries that effect into The Companies Act, and to the effect, if any, which other sections of The Companies Act which refer to The Real Property Act and the provisions of The Companies Act generally have upon the relationship in relevant respects of the two Acts.
But although we allowed a brief discussion of the precise submission put by the appellant, no such submission was made to the Supreme Court nor was it made the subject of a ground of appeal to this Court. No submission based on s. 126 of The Real Property Act or of any of the other relevant considerations to which I have referred was put to the Court. Further, the necessary issues which would arise if a defence based upon The Real Property Act had been pleaded before it were not determined in the Supreme Court. In particular, the finding as to the lack of dishonesty on the part of Mr. Kratzmann which the trial judge made was not made in relation to an issue arising under The Real Property Act nor was it necessarily decisive of any such issue. Consequently, in my opinion, this Court should not treat any submission based upon The Real Property Act as open to the appellant upon this appeal and should not express any concluded opinion upon such a submission. Therefore, whilst I have indicated my view as to the precise submission based on s. 44 of The Real Property Act and the other sections the appellant associated with it, I express no opinion whatever as to the effect, if any, of the registration of the purchaser as the proprietor of the mortgage given by the Developments Company to the Building Company upon the rights of the liquidator consequential upon the avoidance by s. 293 of The Companies Act of that mortgage.
I would therefore dismiss the first and third appeals and allow the second and fourth appeals.
The appeals before the Court are against four orders of the Supreme Court of Queensland (Stanley J.), two of the orders having been made in the winding up of a company called Reid Murray Developments (Qld.) Pty. Limited (for brevity referred to in the proceedings as Developments) and two having been made in the winding up of a company called Torhaven Pty. Limited (referred to as Torhaven).
The first order related to a bill of mortgage over certain land under the provisions of The Real Property Act of 1861 Q., given by Developments to the appellant in the first two appeals, a company which I shall call Kratzmann Building to distinguish it from the appellant in the second two appeals which I shall call Kratzmann Hardware. The bill of mortgage was given within six months before the commencement of the winding up, namely on 5th December 1962, in order to secure a sum of £100,000, part of a debt then owing by Developments to Kratzmann Building. The order declared this security to be void as against the liquidator of Developments on the ground that thereby Developments gave Kratzmann Building a preference within the meaning of s. 95 of the Bankruptcy Act 1924 Cth, a provision which s. 293 of The Companies Act of 1961 Q. makes applicable, with adaptations, to the winding up of a company in Queensland.
The ground of the appeal, according to the notice of appeal, is that since, in certain other proceedings in the Supreme Court between Kratzmann Building and Developments, the liquidator of Developments had defeated Kratzmann Building by relying upon the bill of mortgage as a valid instrument, he was not entitled to a declaration that it was invalid. The contention was put in several forms: as one of estoppel, of binding election, and of the discretion of the Court to refuse to permit unconscientious conduct on the part of its officer.
The evidence established that while the proceedings before Stanley J. were pending there came before another judge, Hart J., six applications by Kratzmann Building against Developments under the provisions of The Contractors' and Workmen's Lien Acts, 1906 to 1921 Q. (the Liens Act) to recover moneys alleged to be owing for the supply and erection by Kratzmann Building of certain buildings upon lands of Developments. In each proceeding Kratzmann Building claimed a lien under the Act upon a particular parcel of land for the moneys owing in respect of a building erected on that land. The order for winding up of Developments having been made, the liquidator resisted the proceedings, and his counsel put in evidence the bill of mortgage of 5th December 1962 in order to found certain submissions which he then made to Hart J. One submission was that the bill of mortgage had granted Developments a "period of credit" of which no mention was made in the statements of claim. (Indeed the statements of claim expressly stated that no credit was agreed to by the appellant; but that allegation is beside the point.) The force of the submission lay in the fact that s. 20 (d) of the Liens Act provides that a claim under the Act must state, inter alia, the date of the expiry of the "period of credit" agreed to by the claimant for payment for his work where credit has been given. The reason for this requirement seems to be that the date of expiry of any period of credit binding upon the claimant is relevant to the competence of the proceedings. They must be commenced within thirty days after the completion of the work in respect of which the lien is claimed (s. 19); but while the Act specifically authorizes the giving of a preliminary notice of intention to claim a lien although the time for payment has not arrived (s. 9), it does not authorize the initiation of proceedings for recovery of the moneys or for a lien before that time. Consequently, if the contract allows a period of credit which exceeds thirty days after completion of the work, no proceedings under the Act can be commenced, and the claimant must rely upon his common law remedies: see McGregor & Co. v. Quartz Reef Point Sluicing Co. [1] . Two things at least are clear. First, the requirement of s. 20 (d) is peremptory: "The claim must state" is the expression used in the section. And, secondly, the requirement applies only where credit has been agreed to for a specific period. It was common ground before Hart J., and it is common ground between the parties here, that the moneys that were claimed in the six proceedings under the Act, or at least some part of those moneys, were included in the total indebtedness of Developments to Kratzmann Building which, as to £100,000 thereof, was the subject of the bill of mortgage of 5th December 1962. It was on this footing that the liquidator of Developments tendered the instrument as evidence in the proceedings. He contended that it had the effect of granting Developments a period of credit within the meaning of the Act, namely a period to expire on 30th April 1964, and that the omission of the statements of claim to state that that date was the date of expiry of a period of credit given was fatal to the proceedings. (If the fact had been stated, that too would no doubt have been fatal.) Hart J. upheld the contention and dismissed all six proceedings.
Assuming that the bill of mortgage was in all respects valid, the contention put to Hart J. and accepted by him was plainly right. The instrument contained a recital that Developments had requested an extension of time for payment of the £100,000 and that Kratzmann Building had agreed to grant the extension and to forbear to sue for the immediate recovery of that sum, "upon the mortgagor entering into these presents"; and it contained a covenant by Developments to pay the £100,000 on or before 30th April 1964. A covenant by Kratzmann Building not to sue for the £100,000 before 30th April 1964 seems clearly to be implied. Thus a "period of credit" was agreed to. It may be conceded for present purposes that the validity of the instrument as a security was a fundamental assumption upon which the agreement for credit rested, and that accordingly there was a necessary implication in the instrument that the two things should stand or fall together. But to go so far with Kratzmann Building would be to say no more than that if the instrument had proved to be void for all purposes the implied covenant by Kratzmann Building not to sue before 30th April 1964 would not have been binding. The order under appeal, however, does not mean that the security which the instrument purports to give is void for all purposes. It means only that the security is to be treated as void so far as necessary for the purposes of the winding up: cf. In re Sims; Ex parte Sheffield v. Prince [1] ; In re Holden; Ex parte Official Receiver [2] . The basic assumption of the proceedings to have it declared void as against the liquidator was that except in so far as avoided by the Act it was valid and effectual. When the liquidator contended before Hart J., as in effect he did, that the condition of general validity upon which the agreement for credit depended was fulfilled, he was doing no more than stating what was in truth the starting point of his application before Stanley J. and was not taking up inconsistent positions at all. The case was not like Sanguinetti v. Stuckey's Banking Co. [1] where the trustee in bankruptcy, having set aside a settlement, took proceedings in which he sought to stand in the place of beneficiaries under it. This was a plain attempt to approbate and reprobate, and it failed. But here the liquidator seeks to have a security set aside for purposes of the liquidation, having done no more in the earlier proceedings than to set up that the security document operated as against the creditor to allow the period of credit.
This ground of appeal, in my opinion, fails. In further support of this appeal, however, certain arguments relied upon by Kratzmann Hardware in its appeal, which is the third of the appeals before us, were adopted by anticipation, and for that reason it is convenient to turn at once to the third appeal. Before the winding up of Developments began, Kratzmann Hardware became the transferee from Kratzmann Building of the bill of mortgage given by Developments on 5th December 1962, and in that capacity it appeals against the same order as was the subject of the first appeal.
The first ground submitted is that the bill of mortgage was given for a new valuable consideration moving from Kratzmann Building to Developments. So, in my opinion, it was, for, as I have already said, I regard the bill of mortgage as having given Developments a period of credit, that is to say that Kratzmann Building thereby bound itself to forbear to sue at any time before 30th April 1964. Stanley J. was of opinion that in the circumstances that existed at the time this was a valueless consideration. In a sense, and a very practical sense, one may agree; for even if the security had not been given, Kratzmann Building would not have been likely to sue Developments before the date which the document fixed, nor would it have been likely to be able to do any good for itself by suing before that date. But a binding promise to forbear to sue to enforce a genuine claim is, in law, valuable consideration; and accordingly if nothing but valuable consideration were required in order to save a preference from avoidance under s. 95 of the Bankruptcy Act this security would in my opinion be saved: see Wigan v. English and Scottish Law Life Assurance Association [2] ; Glegg v. Bromley [3] . But s. 95 (2) (b) of the Bankruptcy Act, upon which the claim to protection must rest, has no application in favour of any but a purchaser who took in good faith and in the ordinary course of business as well as for valuable consideration: Bankruptcy Act, 1924-1960, s. 95 (2) (b). No doubt each of the two companies, Kratzmann Building and Kratzmann Hardware, was a purchaser in the relevant sense, but on the findings of the trial judge, amply supported by evidence, it would be impossible to hold that either of them took in good faith and in the ordinary course of business: cf. Taylor v. White [1] . The argument must therefore be rejected.
Next it was contended that the bill of mortgage did not give a preference within six months before the commencement of the winding up, because all that it did was to confirm the position of Kratzmann Building as a creditor who had obtained a security before the six months' period began. It was said that more than six months before the commencement of the winding up a binding agreement was made between Developments and Kratzmann Building for the indebtedness of the former to the latter to be secured upon the subject property, that Kratzmann Building thus obtained an equitable charge for the indebtedness, and that the moneys thus secured were the same as those for which the bill of mortgage was given on 5th December 1962. The argument in support of this contention began with the fact that Kratzmann Building owed £25,000 to Kratzmann Hardware for money lent. It was badly in need of finance to carry on its building activities, and Developments and its parent company Reid Murray Holdings Ltd. decided to assist it, provided that Kratzmann Hardware, which was outside the Reid Murray group of companies, would convert its loan of £25,000 into a loan for a fixed period of two years upon certain terms including a term that Developments should give a mortgage for £100,000 (part of its indebtedness) to Kratzmann Building and the latter should assign that mortgage to Kratzmann Hardware as security for payment of the £25,000 at the end of two years. An elaborate endeavour was made to support the contention by reference to contemporaneous documents, including company minutes recording unilateral decisions which were not shown to have been communicated as offers or made the subject of unqualified acceptances. But it was not established, in my opinion, that at any point of time before the commencement of the winding up there emerged, from all the comings and goings which the evidence reflected, either, on the one hand, a concluded contract binding Kratzmann Hardware to leave its loan to Kratzmann Building outstanding for the two-year period and entitling it to such a security as was ultimately given by the transfer of the bill of mortgage of 5th December 1962, or, on the other hand, a concluded contract binding Developments to give Kratzmann Building security for the £100,000 that is referred to in the bill of mortgage over the property to which that instrument relates.
Finally it was submitted for Kratzmann Hardware that its title as registered transferee of the bill of mortgage under the provisions of The Real Property Act of 1861 Q. should have been held to be indefeasible by virtue of s. 44 of that Act. The section contains one of the key provisions of the Act, namely that notwithstanding the existence in any other person of any estate or interest which, but for the Act, might have been held to be paramount or to have priority, the registered proprietor of land or of any estate or interest in land under the provisions of the Act shall except in the case of fraud hold the same subject to such encumbrances, liens, estates or interests as may be notified on the folium of the register-book constituted by the land grant or certificate of title of such land, but absolutely free from all other encumbrances, liens, estates or interests whatsoever. Exemptions are provided for, but they have no application in the present case. The argument is that the interest of Kratzmann Building as registered mortgagee of the land comprised in the bill of mortgage was an interest in land of which that company was the registered proprietor immediately before the transfer to Kratzmann Hardware, that the title of the latter as registered transferee of the interest is, by force of the section, indefeasible unless fraud be proved, and that fraud was not proved. The difficulty in the way of this argument, in my opinion, is that it misconceives the nature of the statutory right of a liquidator to avoid a preference. Just as there was a need to remember, in dealing with the submission of Kratzmann Building concerning the use which the liquidator of Developments made of the bill of mortgage in the lien proceedings before Hart J., that when The Companies Act makes a preference void as against the liquidator it does no more than require that the preference be treated as void for the purposes of the liquidation, so there is need to remember it in the present connexion, when the question that arises is whether the liquidator's statutory right to avoid a preference consisting of a security over land is an "encumbrance, lien, estate or interest" over or in that security. In my opinion it is not. The assumption of the preference sections of The Companies Act and the Bankruptcy Act is that the preference has been validly given, and that save so far as may be necessary for due payment of the debts and the costs and expenses of the winding up or the bankruptcy it will continue to be valid as between the parties to it. No encumbrance or lien is placed upon it; no estate or interest is carved out of it. It remains intact, but is nevertheless to be treated as non-existent in the winding up or bankruptcy of the debtor who gave it. To apply this to the case where the preference has been given by means of a registered bill of mortgage and the mortgage has vested in a third person by means of a registered transfer is not to say that the indefeasibility of a Torrens title is impaired. It is only to say that the subject matter of the Torrens title, though an interest in land, is an interest of a particular kind, namely an interest created by way of security to a creditor, and therefore an interest of which one of the inherent and inescapable incidents is a liability to be treated as void in a winding up (commencing within six months from its creation) or bankruptcy (on a petition presented within six months from its creation) of the debtor by which or by whom it was given. The title to that interest, with that characteristic necessarily attaching to it, has the full degree of indefeasibility for which s. 44 provides. However, bearing in mind the further question mentioned by the Chief Justice in reference to s. 126 of The Real Property Act, I agree with his Honour that we ought not to treat this case as calling for a final decision as to the operation of s. 95 of the Bankruptcy Act, as adapted by s. 293 of The Companies Act to the winding up of a company, in relation to a registered transferee of a registered mortgage of land under The Real Property Act, where it is the giving of the mortgage that is attacked as a preference.
In the result I am unable to see any ground upon which either the first or the third appeal should succeed.
The second of the appeals is against an order declaring that a bill of mortgage of 5th December 1962, given in favour of Kratzmann Building by a company called Torhaven Pty. Ltd. (which I shall call Torhaven) is void as against the liquidator of Torhaven on the ground that it was collateral to or in aid of the bill of mortgage of the same date given by Developments which is the subject of the first appeal. What Stanley J. held was that (in relevant respects) Torhaven was in the position of a guarantor, that the statutory avoidance of the charge created by the bill of mortgage from Developments should have the same result in law as the giving up by a creditor of a security granted by a principal debtor, and that the rule referred to in Halsbury's Laws of England, 3rd ed., vol. 18, pp. 516, 517, pars. 947-949, which in such circumstances entitles a guarantor to be held discharged from his guarantee, applies in favour of Torhaven.
With respect, I am unable to agree. The loss of the security given by Developments was occasioned by the operation of The Companies Act upon the factual situation existing at the time it was given, not by any conduct on the part of the appellant; and it is only by reason of wilful interference by the creditor with the rights of a surety without the latter's consent that the surety may be held to be discharged under the rule referred to: cf. Hardwick v. Wright [1] ; Polak v. Everett [2] ; Carter v. White [3] .
The liquidator has suggested two other grounds upon which the order might be supported, namely that the bill of mortgage given by Torhaven was voidable as a settlement within s. 94 of the Bankruptcy Act (as applied to the liquidation of companies by s. 293 of The Companies Act of 1961), and that it was voidable as a fraudulent conveyance within 13 Eliz. c. 5 as in force in Queensland in the form of s. 46 of The Mercantile Act of 1867. These additional grounds were rejected by Stanley J. and in my opinion rightly. As to the first, little need be said. The consideration for the giving of the bill of mortgage by Torhaven was the granting to Developments of the extended time for payment which has already been mentioned. It is said that this was no consideration at all to Torhaven, and that the latter, by giving the security, really made the appellant a present having the legal nature of a settlement. This, in my opinion, is untenable. Torhaven and Development were both members of an interlocked group of companies, and Torhaven gave the security as part of the inducement to the appellant to grant the extension of time to Development. There was no intention of benefaction in favour of the appellant, and, what is more to the point, there was no intention of making an enduring provision in the form of property to be retained, in the sense that is explained in In re Player; Ex parte Harvey [4] and Williams v. Lloyd; In re Williams [5] . As to the contention based upon s. 46 of The Mercantile Act of 1867, this was, I think, rightly answered by Stanley J. by holding that the evidence did not establish an intent to delay, hinder or defraud any creditor or others of their just actions, i.e. against Torhaven.
The fourth appeal is by Kratzmann Hardware against the order of Stanley J. which was the subject of the second appeal, Kratzmann Hardware being an assignee from Kratzmann Building of the bill of mortgage given by Torhaven on 5th December 1962. It is a necessary consequence of the view I have expressed as to the second appeal that this appeal also should be allowed.
I agree that these appeals should be disposed of as the Chief Justice proposes. I do not wish to add anything to the reasons which he and my brother Kitto have given for that conclusion.
N. A. Kratzmann Pty. Ltd. (in Liquidation) v. Tucker (Liquidator of Reid Murray Developments (Qld.) Pty. Ltd.); Kratzmann Hardware Pty. Ltd. v. Tucker (Liquidator of Reid Murray Developments (Qld.) Pty. Ltd.):
N. A. Kratzmann Pty. Ltd. (in Liquidation) v. Tucker (Liquidator of Torhaven Pty. Ltd.); Kratzmann Hardware Pty. Ltd. v. Tucker (Liquidator of Torhaven Pty. Ltd.):
NA Kratzmann Pty Ltd
Tucker