Savage v Union Bank of Australia Limited [1906] HCA 37

Savage v Union Bank of Australia Limited [1906] HCA 37 - HCA 1906 case summary — Zoe

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Ha Whitelaw by her appearance asa partner: Rules of Supreme Court 1884, Order XII, r. 15; Order XLIL., r. 10. The three executors Uston' Ban ™USt be deemed to be liable on the basis of a legal partnership exist- or ee ing between them, and to have made an agreement between them- = selves which in law amounts to a partnership. If persons agree to aeprmaeal carry on a merchants' business under a firm name, they are part- '* ners, and if persons carry on business for profit they are in law partners although there may be an agreement between them that they shall not be partners. If co-owners put their property to a common use and it is controlled as much by one as by another, they are partners: Lindley on Partnership, 7th ed., p. 10; see also Wightman v. Townroe (1); Williams on Executors, 10th ed., p. 1430. The use of the word "firm" and its registration under the Registration of Firms Act 1892 connote a partnership. Even if the appellants are not estopped from denying that there was a partnership, the facts are such that the learned Judge was justified in finding that there was a partnership. To hold now that there was no partnership would be virtually to set aside that judgment. Having obtained judgment against the partnership, the creditor can enforce it against the partners separately: In re Wenham, Ex parte Battams (2); Davis & Son v. Morris (3). So also a creditor who has a judgment against several joint debtors, may enforce it against them separately: In re Low, Ex parte Gibson (4). It has been considered law for the past one hundred years that a creditor may make individual partners insolvent on a judgment against a partnership: Lindley on Partnership, Tth ed., p. 703; Wace on Bankruptcy, p. 45. The same rule applies to joint debtors. The decision in In re Stevenson (5) that the security over the partnership property need not be valued is correct. For the purposes of insolvency the estate of a firm is regarded as entirely distinct from the estates of the partners: Re Plummer (6). To give up the security to the firm would be for the benefit of the creditors of the firm in priority to those of the partners. The security could not be given up to the trustee of

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ago, that a creditor of a firm might petition for the sequestration - of the estate of a single member of the firm. In see. 109 of the Insolvency Act 1897, it is provided that : - * Any ereditor whose debt is sufficient to entitle him to present an insolvency petition - against all the partners of a firm may present a petition against any one or more partners of the firm without including the others." In such a case, then, is it necessary for the creditor to value the security he holds over the assets of the firm? It is a settled rule that in the administration of joint and separate assets, that is, upon an adjudication of sequestration of a part- nership, the joint and separate estates are treated as different properties, and that creditors of the separate estate of a partner need not value the securities which they hold over the joint estate, and, conversely, that creditors of the joint estate need not value the securities which they hold over the separate estate. That is a rule of administration, and was laid down for the convenience of administration, and is, I think, a rule of fairness. At any rate, it is a rule of administration, but it has never, so far as I know, been applied in considering the amount of a petitioning creditor's debt. In my opinion, the conclusion to which the Full Court came in Jn re Stevenson (1) was erroneous for two reasons. First of all, the right of a creditor of a partnership to make one of the partners insolvent depends upon his claim against the firm, and it would be a very extra- ordinary thing if a petitioning creditor had a greater right against the individual members of the firm than he has against them in the aggregate, so that, although the debt of the partner- ship was not such that he could petition against the partnership, he could nevertheless petition against each of the members of the partnership and make them severally insolvent without valuing the security held over the assets of the partnership. The result would be that a creditor of a firm, though fully seeured, would be entitled to make every member of the firm insolvent if the debt amounted to £50. Such a result would be extraordinary and, I think, extremely unjust. Ido not think, upon the con- struction of sec. 37 of the Insolvency Act 1890 alone, that such a result can follow.

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Reliance is placed upon the rule introduced originally by Lord : Eldon, which was tinally developed by Lord Lyndhurst, and which : is stated clearly by Jessel M.R., in a case to which I will afterwards refer, but which has never been applied to the case of a petition- ing creditor. The conditions in sec. 37 are that the debt must _ not be a secured debt " unless the petitioner state in his petition that he will be ready to give up such security for the benefit of the creditors . . . or unless the petitioner is willing to give an estimate of the value of his security." Now, what is the debt in respect of which the respondent bank in this case was a creditor? On the assumption upon which we are proceeding, it is a joint debt of the firm. For that joint debt the respondents havea security which they must either value or offer to give up for the benefit of the creditors. Upon the mere words of the Act I think that is the inevitable conclusion, and it is supported by the words of sec. 41 and by the words of sec. 109 of the Insolvency Act 1897, which both assume that that is the case. But there is another objection which I think is equally fatal. I will refer briefly to the rule which is more fully stated in Bx parte West Riding Union Banking Co.; In ve Turner (1). In that case Chief Judge Bacon, a judge of very large experience in bankruptey matters, said (2): - «The settled rule is that a creditor cannot come and take a share of the bankrupt's property and also retain a part of it as appropriated. I never heard that called in question. What does it signify whether it is separate property of the bankrupt or joint property of the bankrupt and another person? . . . . The question is whether, claiming to prove their debt in the bankruptey of one of the two persons, they must realize the security which they hold on that man's property before they take a dividend from his estate with the other ereditors ? Can any instance be referred to in which a man has been allowed to retain his interest in the subject-matter of a mortgage, and yet to prove regardless of the mortgage? The rule is that if you have a security you must realize it, you must get as much out of itasyoucan. Ex parte English and American Bank (3) has no kind of application to the present case." On appeal to

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the Court of Appeal, Jessel M.R. said (1) : - * The principles of the bankruptcy law are plain enough. A man is not allowed to prove against a bankrupt's estate and to retain a security which, if given up, would go to augment the estate against which he proves. That is the principle of the whole thing. The only question is whether, if the security were given up, it would augment the estate? Of course, if the security was given by a stranger and you were to cancel it, you would not augment the bankrupt's estate to the extent of one farthing, and consequently such a security need not be given up. Then the question arose, in consequence of the very peculiar rules of bankruptcy in this country as regards the administration of partnership estates, by which a distinction is made between the partnership as a community and each individual partner as a separate entity, viz., whether the rules which applied to a security upon the assets of strangers would apply as between the separate estate of a partner and the joint estate as it is called, that is, the estate of the partnership firm. Now our bankruptey law (it is peculiar, but it is well established, treats the partnership estate as an entirely separate thing from the individual partner's estate, so that you have a separate estate of each individual part- ner, and a joint estate ora partnership estate of the firm. The one is distributed among what are called joint creditors, that is, the partnership creditors ; the other among the separate creditors of the partners. The case soon arose where a man who had a joint debt had a security on the separate estate of a partner, and the question was whether that was within the rule which enabled a man to prove for the full amount of his debt, without giving up his security, when the property pledged was that of a stranger. It was held that it was, and for this very simple reason, that his giving up his security would not augment the joint estate. The giving up his security not augmenting the estate against which he proved, it was held that he need not give up his security. The converse case afterwards came to be argued, and it was decided in the same way." He then referred to Jn re Plummer (2), in which the principle was stated by Lord Lyndhurst. He then continued: "« Now, that being the principle, has it ever been extended beyond the case of joint and separate estate? So far as I am aware never."

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interpleader issue, that he had a right to have these taken in execution. I do not, however, see how the wron seizure of the goods in execution can displace the equitable right, which Mather, as trustee, primd facie, had with x to the trust estate by way of indemnity against the perso liabilities incurred by him in fulfilling his trust." He then dealt with an incidental point taken at the hearing that there might have been a breach of trust which took away Mather's right to indemnity ; and he said that that should have been proved by the party alleging it, and that it had not been done. In the same case Mathew J. said (1): - "The position originally taken up by the | execution creditor left out of sight altogether the right of Mather as a trustee to indemnity out of the trust property, and to hold the goods seized as part of such property until his rights in respect _ of them are ascertained. That right appears to me clearly to_ exist, and to form a part of Mather's estate which passed to the claimant as his trustee in bankruptcy." That case is exactly in : point here. It follows that each of the executors was entitled to indemnity out of the trust estate for all liabilities properly - incurred by him in carrying on the business, and that that was a right which would pass to his trustee in insolvency, and any security held by the petitioning creditor, which would interfere with the enjoyment of that right, would clearly be a security the giving up of which would, in the words of Jessel M.R. "go to augment the estate" of the insolvent. That would be so even if the three trustees could be considered partners. But, in truth, the right of indemnity possessed by each of them was an individual right, so that each of these appellants was entitled to it, and it was assets which would pass to his or her trustee. That which would pass would be a lien over the estate of Thomas Whitelaw, that is, over the goods the subject of the security. The goods themselves did not pass because they are trust assets, but the right of indemnity was a right which would pass, and could only become available to the trustee in insolvency if the security were given up. Some confusion was caused by assuming that "to give up" means " to hand over in specie to the trustee in insolvency.". But it does not mean that. It means " to get the security out of the

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H.C. or A. can be no right of a creditor created in the course of the trading to 1906. treat as goods of the trustee goods which form part of the trust estate, still it is equally clear that the trustee has a right and in-- terest in the goods, because he has a right to an indemnity in the 4 nature of a lien over those goods. It necessarily follows, as it seems to me, that the trustee has a right to prevent any person from carrying away those goods, and to say to everybody, including the sos BAe cestwis que trust, 'Iam entitled to an indemnity out of those goods, Lro. _ and have, therefore, a pecuniary interest in them.' Of course, when the accounts come to be made up, if it should appear that nothing is due to the trustee on the trading, there is nothing in respect of which he needs to be indemnified, and his lien over the goods is gone; but until the accounts are made up, he is entitled to a lien over all the assets of the estate. A lien (putting aside the question of bankruptey, with which I will deal directly) has always been held to be sufficient title as against the world to hold the goods until that lien is satisfied, or is proved not to exist." Further on Kennedy J. cites the passage from the speech of Lord Maenaghten in Dowse v. Gorton (1), which the learned Chief Justice has already read, and which is of significance for the pur- pose of the present case. He further says (2): - "Assuming then, as I do, that the execution creditor had a perfectly good judgment against Mather, and that as against him he had no right to seize the goods of the trust estate in Mather's hands, what is the position of Mather's trustee in bankruptey - Gray? Gray simply represents Mather's estate, and holds his goods in trust for his creditors. Sec. 44 of the Bankruptcy Act 1883 is perfectly plain and explicit that Mather's trust property did not pass to his trustee in bankruptcy. It is not divisible among his creditors. That is clear. But, on the other hand, it is equally clear that Mather had a lien or right of indemnity over the assets of the trust estate which will be absolutely defeated if judgment is given in favour of the defendant, the execution creditor. Now, it seems to me settled law that if a person is in possession of goods of which in one sense he is merely a trustee, but over which he has a lien - eg., as a factor - his trustee in bankruptcy has never been obliged to part with those goods until it has been shown that that

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Judgment (181 paragraphs)

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