Stapleton v FTS O'Donnell Griffin & Co

It appears from the statement of claim that the plaintiff is the trustee in bankruptcy of Reginald Arthur James Hutcherson and Norman Clement Newton who, prior to the order of sequestration on 4th June 1959, carried on the business of building contractors under the firm name of "Hutcherson and Newton" (hereinafter referred to as the bankrupts). In the course of their business they had entered into a contract to perform certain building work for Mathers Pty. Ltd. upon land of which that company was the owner and, immediately prior to the sequestration order, a substantial sum of money was due by that company to the bankrupts. In turn, the bankrupts had engaged the defendant company to perform part of the work the subject of their contract. This work was, in fact, performed by the defendant some time before sequestration and the amount to which it became entitled in respect thereof was £375. This amount is still owing. It remains to be said that the work which the bankrupts undertook to perform was "work" within the meaning of the Queensland Acts and the bankrupts and the defendant were respectively "contractors" and a "sub-contractor" within the meaning assigned to those terms by the Acts. Mathers Pty. Ltd. was both an "owner" and "employer".

Section 4 of the Acts provides, inter alia, that a sub-contractor who does or procures to be done any work upon or in connexion with any land, or any building or other structure or permanent improvement upon land, is entitled to a lien upon the whole interest of the employer in that land or upon the moneys payable to the contractor, as the case may require, for the contract price of his work, subject to certain conditions and limitations which it is not necessary to set forth. Section 10 requires that a sub-contractor who intends to claim a charge upon money payable by the employer shall, before the completion of the work in respect of which it is claimed, or within seven days after the completion, give notice to the employer specifying the amount and particulars of his claim, and stating that he requires the employer to take the necessary steps to see that it is paid or secured to the claimant. He is also required by this section to give notice of having made such claim to the person who but for the claim would be entitled to receive from the person to whom the notice of claim is given the money in respect of which it is given. Such notices were duly given by the defendant. Section 11 prescribes the form of notice to be given and s. 12 provides that upon receipt of a notice of a claim of lien or charge, it shall be the duty of the person by whom it is received to retain in his hands, until the time prescribed by the Acts for taking proceedings for enforcing the lien or charge has expired, a sufficient part of the money payable by him under his contract to satisfy the claim of the claimant. In default of such retention he is, subject to the ensuing provisions of the Act, personally liable to pay to the claimant the amount of his claim not exceeding the amount he should have retained in the same manner and to the same extent as if the claimant had been employed by him personally. Pursuant to s. 14, when notice has been given of an intention to claim a lien or charge under the Acts, and the person to whom it is given does not pay or make satisfactory arrangements for paying to the claimant the amount claimed, the claimant may recover the amount of the lien or charge from the owner, if liable, of the land or the person by whom the money subject to the charge is payable. The time within which proceedings must be taken is prescribed by s. 19 which provides that proceedings in respect of a lien or charge shall be commenced by summons, which may be in any form prescribed by rules of Court or other practice of the Court. Such proceedings must be commenced within thirty days after the completion of the work in respect of which the lien or charge is claimed and if proceedings are not taken within that time, the lien or charge is extinguished. It should also be mentioned that s. 15 makes provision for the summary determination of disputes between persons claiming under the Act. That section provides that claims under the Acts may be enforced, and questions and disputes between persons claiming a lien or charge and any other person or persons liable or alleged to be liable to pay any amount claimed, or otherwise interested in any property or money which may be affected by a lien or charge or claim of lien or charge, and also between persons or classes of persons claiming a lien or charge, may be settled upon application in summary manner to any Court having jurisdiction in the matter as declared by the Acts.

It is common ground that the critical question in the case is whether, by virtue of the provisions of the Queensland Acts, and in the events which have happened, the defendant is a "secured creditor" within the meaning of s. 4 of the Bankruptcy Act. That is to say, whether he is "a person holding a mortgage, charge, or lien on the property of the debtor, or any part thereof as a security for a debt due to him from the debtor". If he is then the plaintiff concedes that the demurrer must be allowed; conversely, if he is not, the defendant concedes that it must be overruled.

It is beyond doubt that by virtue of s. 4 of the Queensland Acts the defendant became entitled to what the Acts call a "charge" on the moneys owing by the employer to the bankrupts. But according to the plaintiff's contention this is a matter of words only for, it is said, when the Acts are examined closely it is seen that, despite the use of that expression, the statutory provisions in no way invest a sub-contractor with any proprietary interest in the chose in action constituted by the contractor's outstanding debt, but confer upon him, merely, a right to proceed personally against the employer in the event of the debt being discharged by payment either to the contractor or to his trustee or assignee. The basis of this contention, as far as we can see, is that the statutory provisions, construed as a whole, merely provide a method of administration whereby a sub-contractor may obtain an order for payment for his work directly from an employer. It is not disputed that in the events contemplated by the Act the employer may be required to pay the sub-contractor out of his own moneys but it is clear that if he observes the provisions of s. 12 after the receipt of notice given pursuant to s. 9, any payment by him to the sub-contractor will, pro tanto, discharge him from his obligation to the contractor. In advancing this argument the plaintiff places great reliance upon the provision of s. 15 which, for the purposes of the argument seems to be characterized as the keystone of a "rival system of administration". Section 15 is, however, nothing of the kind; it is simply an ancillary provision designed to enable disputes between competing claimants under the Act to be settled in summary proceedings.

The situation for which the plaintiff contends is somewhat analogous to that which was found to exist in such cases as In re Dickinson; Ex parte Charrington & Co. [1] where the question which arose was whether a judgment creditor who had obtained an order appointing a receiver to receive the stock-in-trade and other property of a debtor was a secured creditor within the meaning of the Bankruptcy Act, 1883. It was held that he was not but for quite explicit reasons which reveal at once the distinction between that type of case and the present case. The vital question in that case, of course, was as to the effect of the order and it was held that it did not create any charge; pursuant to the order, the receiver held the property "as agent for the Court, not for the creditor". Accordingly the claim of the trustee in bankruptcy, who had been appointed before any further order of the Court, prevailed. The same view is implicit in In re Potts; Ex parte Taylor [2] where the Court was concerned with the effect of an ex parte order by which a receiver had been appointed. But in the course of his judgment Lord Esher made some observations which clearly point the distinction between cases of that character and a case such as the present: "A charge is a well-known thing. If one man owes a debt to another, a creditor of the latter can, by bringing in the debtor, charge the debt in his hands so as to prevent him from paying it to his own creditor, and oblige him to pay it to the creditor who obtains the charge. Why is that a charge? Because it charges the debt in the hand of the man who has to pay it" [3] .

1. (1888) 22 Q.B.D. 187. 2. [1893] 1 Q.B. 648. 3. [1893] 1 Q.B., at p. 658.

Thereupon his Lordship proceeded to examine the order and came to the conclusion that no such effect was produced by its provisions (cf. also Stevens v. Hutchinson [4] ). A different situation was thought to have arisen in In re Gershon and Levy; Ex parte Coote & Richards [5] where an order made in a suit for the dissolution of a partnership directed a receiver to pay taxed costs to the partners' solicitors out of the partnership assets in his hands. Horridge J. distinguished in In re Potts; Ex parte Taylor [1] but held that the claim of the solicitors to be treated as secured creditors in a bankruptcy administration was, in the particular circumstances of the case, defeated by the doctrine of relation back.

1. [1953] 1 Ch. 299. 2. [1915] 2 K.B. 527. 3. [1893] 1 Q.B. 648.

It is unnecessary, however, to discuss cases of this character at length for there is ample authority that legislative provisions such as are contained in the Queensland Acts operate to create effective liens and charges. We refer to In re Williams; Ex parte The Official Assignee [2] ; Godber v. Manning and Another and Chapman (Sub-Debtor) [3] ; Penketh v. Midwood [4] ; Pitt Ltd. v. The Corporation of the Town of Glenelg [5] ; Miller's Lime Ltd. v. Royal Agricultural and Horticultural Society of South Australia [6] ; Re Mason; Ex parte The Trustee; Walter & Morris Ltd. [7] ; and Re Kenneth and Isaac Buckley; Ex parte Arkell [8] . These cases have consistently treated legislation such as that now before us as creating "liens" and "charges" in the true sense of those terms and it would require cogent arguments to induce us to reject their authority. No such arguments, however, have been advanced. On the contrary every indication to be found in the Acts supports the conclusion for which the defendant contends. First of all, the provisions of the Acts purport to create "liens" and "charges" and it is not unreasonable to suppose that they were intended to create liens and charges in the true sense. Consistently with this notion it is clear that, at the latest, upon notice pursuant to either s. 9 or s. 10, or both, the property charged is bound in the hands of the owner or employer and, in the case of a debt, the latter section makes it clear that the contractor, as the creditor, becomes disentitled, pro tanto, to receive it. With respect to a lien upon the land of an owner it is provided that the lien shall not attach if the notice, as prescribed, is not given. The form of notice prescribed with respect to both liens on land and charges on moneys payable by an employer provide some further support for the defendant's argument. Both these forms and the statutory provisions as to notice fit appropriately into a plan for the creation of liens and charges. Liens on land may be registered under The Real Property Acts or, where the title to land is not held under those Acts, "a claim of lien may be registered in the same manner as any deed or instrument affecting such land may by law be registered" (s. 27 (2)). Clearly, the provisions of the Acts with respect to liens on land create proprietary interests and it would be anomalous if the like effect were denied to the "charges" which the parallel provisions of the Acts purport to create. Particularly would this be so in the face of the provisions of s. 15 which clearly contemplate that the liens and charges which the Act creates confer an interest in property or money. The persons who may proceed under this section are "persons claiming a lien or charge under this Act or otherwise interested in any property or money which may be effected by a lien or charge or claim of lien or charge". These among other indications are sufficient in our view to require us to hold, consistently with the cases referred to, that the defendant was a secured creditor within the meaning of the Bankruptcy Act and, accordingly, to order that there should be judgment for the defendant on the demurrer.

1. (1899) 17 N.Z.L.R. 712. 2. (1914) 33 N.Z.L.R. 603. 3. (1914) 33 N.Z.L.R. 1399. 4. [1927] S.A.S.R. 501. 5. [1936] S.A.S.R. 306. 6. (1953) 16 A.B.C. 132. 7. [1954] Q.W.N. 11.

Before parting with the case some reference should be made to Re Agostino Dossi; Ex parte The Official Assignee [1] . This, again, was a case where an official receiver claimed that a respondent, who had sued for a debt within the purview of the Contractors' Debts Act of 1897 N.S.W. and had thereafter given notice pursuant to s. 14 of that Act, was not a secured creditor for the amount of his debt. In the result Walker J. held that he was not a secured creditor but the explanation of the case is that the provisions of the Act then under consideration differed materially from the provisions of the Queensland Acts. In the opinion of the learned judge the service of the notice merely operated by way of attachment, but "in no sense a complete attachment"; its effect in his Honour's opinion, was much the same as might be produced by a stop-order or interlocutory injunction restraining the alienation of the specific assets of the debtor until judgment in the action. The decision was, to some extent, relied upon by the plaintiff, but in view of the fact that the legislation was quite different from that now under consideration the decision is not in point.

When the sequestration orders were made, Hutcherson and Newton, the bankrupts, owed money to sub-contractors who had entered into contracts with them to do parts of the work which Hutcherson and Newton had contracted to perform for Mathers Pty. Ltd. on its land. Mathers Pty. Ltd. had not then satisfied its indebtedness to the bankrupts under their contract to perform the work. This was because Mathers Pty. Ltd. had received from certain sub-contractors who had not been paid by Hutcherson and Newton, notices claiming liens and charges under ss. 9 and 10 respectively of The Contractors' and Workmen's Liens Acts, 1906 to 1921, a statute of Queensland. The defendant is one of these sub-contractors. Hutcherson and Newton owed the defendant £375. The trustee in the bankruptcy brought this action on the allegations in the statement of claim as to the steps taken by the defendant to enforce its claim for a charge amounting to £375 on the moneys payable by Mathers Pty. Ltd. to the bankrupts. The purpose of the action is to determine whether administration of their property under the Bankruptcy Act should supersede the enforcement of the claim of lien on such moneys by proceedings under the former statute. It is enacted by s. 4 of the Bankruptcy Act that "property" includes inter alia "things in action." Section 4 defines "secured creditor". It enacts that the term means "a person holding a mortgage, charge, or lien on the property of the debtor or part thereof, as a security for a debt due to him from the debtor". The words "the property of the debtor" apply in this case to the property of Hutcherson and Newton, the bankrupts. The relevant property is the debt or chose in action consisting of the moneys payable to them by Mathers Pty. Ltd. under the contract to do work for the company. The claim made by the defendant for a lien on the company's land under s. 9 of the statute is not material in the present case because the land is not "the property of the debtor". The question which arises for decision is whether the charge of which notice of claim was given under s. 10 of the statute amounts to a security. If it does the defendant is entitled under s. 60 (3) of the Bankruptcy Act to proceed under the abovementioned statute, that is The Contractors' and Workmen's Liens Acts in order to realize the charge.

The defendant is a "sub-contractor" within the meaning of this statute. The term is defined by s. 2. The purpose of the Act stated in its title is "to make better provision for securing the payment of money due to contractors and workmen and for other purposes". For effectuating this purpose s. 4 provides that a contractor or sub-contractor or workman "is entitled to a lien upon the whole interest of the employer in the land or upon the moneys payable to the contractor or sub-contractor, as the case may require, for the contract price of or wages for his work, subject to the conditions and limitations following ". The word "charge" is used in subsequent provisions of the Act to denote the lien to which s. 4 provides that the contractor, sub-contractor or workman is entitled upon moneys payable by the employer under the contract. Section 9 enacts that the lien does not attach to land, if notice is not given. A similar provision is made in s. 10 with respect to a notice claiming a charge. The defendant gave notice of claim of a charge on the moneys payable by Mathers Pty. Ltd. to Hutcherson and Newton. The charge to which s. 4 says that a sub-contractor is entitled consequently attached to those moneys when Mathers Pty. Ltd. received notice of it from the defendant.

The argument advanced for the trustee is that a charge to which a sub-contractor or other person is entitled by virtue of s. 4 does not constitute him a creditor holding security on the property of the bankrupt within the Bankruptcy Act. It was urged in support of this argument that a notice of claim of charge given pursuant to s. 10 is an uncompleted process to obtain payment of the money owing by the contractor to the sub-contractor or workman; that the operation of the notice is in effect to preserve the fund in the employer's hand until payment is obtained from him by proceedings under the Act. This argument appears to suggest that a statutory charge under the Act falls short of being a security for the same reasons as does an order appointing a receiver. In re Dickinson; Ex parte Charrington & Co. [1] ; In re Potts; Ex parte Taylor [2] ; In re Pearce; Ex parte The Official Receiver [3] ; and Stevens v. Hutchinson [4] . Swinfen Eady M.R. said in In re Pearce; Ex parte The Official Receiver [3] : "Counsel for the plaintiffs said that he had to satisfy this Court that the order, if it was to amount to a charge, must come within Lord Esher's expression in In re Potts [5] . "An order appointing a receiver can only amount to a charge if it charges the person in whose hands the money is not to deal with it except in one way." That must mean "except to pay it to, or hold it for, the execution creditor" [6] ." Continuing, Swinfen Eady M.R. said: "In this case it does not come to anything of the sort; it comes nowhere near it. The effect of the order is simply that the whole fund is to be held at the disposal of the Court; it is liable to have paid out of it such further payments as may thereafter be directed by the Court before there is any question of any balance being dealt with at all. I think it is quite manifest that the orders do not amount to any positive direction either ordering payment to the execution creditors or ordering the fund to be held for the execution creditors or restricting its being dealt with except by being paid to, or held for, the benefit of the execution creditors. Their effect is exactly the opposite. The Court has full discretion over the fund, and before any order has been made giving the execution creditors any right to any part of it bankruptcy has supervened" [7] .

1. (1888) 22 Q.B.D. 187. 2. [1893] 1 Q.B. 648. 3. [1919] 1 K.B. 354. 4. [1953] 1 Ch. 299. 5. [1919] 1 K.B. 354. 6. [1893] 1 Q.B. 648, at p. 659. 7. [1919] 1 K.B., at p. 363. 8. [1919] 1 K.B., at pp. 363, 364.

Section 9 provides that a notice of lien on land shall state that the "owner" is required to take the necessary steps to see that the amount in respect of which the notice is given or secured to the claimant. The "owner" in the present case is Mathers Pty. Ltd.; it is also an "employer" within the meaning of the Act (s. 2). Section 10 makes similar provision in the case of a notice of a claim for a charge upon moneys payable by the "employer". The result of securing the money claimed would be to release the lien or charge as the case may be to which the claimant is entitled by s. 4. Section 12 provides that upon receipt of a claim of lien or charge it shall be the duty of the person by whom it is received "to retain in his hands until the time prescribed by this Act for taking proceedings for enforcing the charge or lien has expired, a sufficient part of the money payable by him under his contract to satisfy the claim of the claimant". Section 14 provides that if notice of a lien or charge is not followed by payment proceedings may be taken to enforce the lien or charge as the case may be. Section 22 provides that if there is no dispute as to the amount of liability but only as to who are entitled to receive payment, the person who has received notice of claim of a lien or charge may by payment into Court "relieve himself and his property of all further liability in respect of such amount and of any cost of the proceedings". Section 23 provides that in cases where the fact or extent of the liability of the person who has received a notice of claim of lien or charge is disputed, he may by payment into Court of the amount claimed relieve the land or property upon which a lien is claimed from liability to the lien.

The action, as has been said, is concerned with the effect of the statutory charge which the Act creates in respect of the moneys payable by the employer to the contractor. I think that it is correct to say that the Act creates rights over such moneys in the hands of the employer as well as personal rights against him: and does more than preserve this property in medio until the rights of the claimant are determined. The Act requires the employer to retain sufficient of the moneys payable to the contractor to meet a claim by a sub-contractor or workman. In effect this is to enact that such part of the money be kept in a separate account. It is not the same thing as if this money were then in the pocket of the claimant, but the Act clearly gives him a statutory charge. The money required to be retained is not at the disposal of the employer: an order can be made against him to pay the claimant but until payment is made under the order a statutory charge attaches to the money by force of the Act. By reason of the statutory charge the money directed by the Act to be retained is not merely standing to the claimant's credit. The Act, in effect, gives the employer a positive direction either to pay the amount, the subject of the notice claiming a charge, in accordance with the Act or to hold it for the claimant until proceedings to realize the statutory charge are completed. The Act does not give any right to a claimant to say that money retained by the employer as required by s. 12 is the claimant's property but nevertheless by virtue of the Act he has a statutory charge of a special kind thereon. The claimant is entitled by the Act to a charge as distinguished from a right to obtain money by the proceedings authorized by the Act. He brings those proceedings to sustain the charge which he alleges attached when the notice claiming it was given. In my opinion the Act did in the circumstances alleged in the statement of claim make the defendant a "secured creditor" within the meaning of s. 4 of the Bankruptcy Act. It follows that the defendant should have judgment on its demurrer to the statement of claim.