MACKENZIE v REES
65 CLR 11941 - 0728A - HCA
(Judgment by: RICH ACJ)
Between: MACKENZIE
And: REES
Judges:
Rich ACJDixon J
McTiernan J
Williams J
Subject References:
Bankruptcy
Interest-bearing debt
Entry into deed of arrangement
Whether debt revived
Claim for interest
Legislative References:
Bankruptcy Act 1924 No 37 - s 60(2); s 81; s 84(5); s 89; s 112(1); s 116(2); s 118; s 121(2)
Bills of Exchange Act 1909 No 27 - s 62
Judiciary Act 1903 No 6 - s 23(2)
Judgment date: 28 July 1941
SYDNEY
Judgment by:
RICH ACJ
I have read the judgments of my brothers Dixon and Williams, and as the only point in controversy is whether the creditors who had interest-bearing debts, but agreed to take promissory notes on 11th May 1932, which were still current at the date of the execution of the deed of arrangement in question, are entitled to prove against the surplus for interest after that date I only wish to add a few words on that particular phase of the appeal.
In considering the operation of the deed of arrangement it is necessary that it should be kept in mind that clause 16, relating to the release and discharge of the debtor, and clause 6 (3), relating to the application of the proceeds of realization of his assets, are dealing with two entirely different matters. The former is concerned with the personal liability of the debtor for his debts. The latter is concerned with the application of his assets in satisfaction of his debts. Clause 16 merely releases the debtor from personal liability, but clause 6 (3) shows that, subject to the law of bankruptcy, his debts are left on foot for all purposes, so far as the availability of his assets for their satisfaction is concerned. Hence the fact that the debtor was released from personal liability in no way affects the applicability of general legal principles to the consequences which flow from the facts of the antecedent debt, the giving of the promissory notes and the execution of the deed of arrangement. The statement of Parke B. in Ford v Beech, [F1] at p. 698] that "it is a very old and well-established principle of law, that the right to bring a personal action, once existing and by act of the party suspended for ever so short a time, is extinguished and discharged, and can never revive," is not of general application, as appears by his own judgment in Baker v Walker, [F2] at p. 559] and by Slater v Jones, [F3] at p. 192, and, in my opinion, it is well established by the cases referred to by Williams J., including the judgment of the Judicial Committee of the Privy Council in Allen v Royal Bank of Canada, [F4] that if a promissory note be taken on account of a debt, then, in the absence of some arrangement to the contrary, the original debt still remains, but the remedy for it is suspended till maturity of the instrument in the hands of the creditor. Or, as it is put in Bullen and Leake, 3rd ed. (1868), p. 540, "the giving of a negotiable security on account of a simple contract debt operates as a conditional payment, i.e. a payment if the security is paid when due; and it suspends the right of action in the meantime and is a good defence." In other words, it is not a payment at all, unless the condition of fulfilling the obligations of the negotiable security is complied with. The date from which the payment operates if the note is honoured is not material in the present case, because the note was not honoured. The relevant authorities have been discussed in two cases decided by the Supreme Court of New South Wales: Ashby v Hayden [F5] and Havyatt v Gilder. [F6] In the case of In re Raatz; Ex parte Raatz [F7] the view appears to have been taken that if anything occurs which prevents the condition of the payment from ever being fulfilled, such as the commission of an act of bankruptcy from which bankruptcy in fact results, the suspension of the right of action on the original debt at once comes to an end, and the creditor is remitted to his rights thereunder. It is immaterial whether this be so or not: because in the present case the note was not met on its due date. The parties by clause 6 (3) of the deed of arrangement have evinced a clear intention that the law of bankruptcy is to be applied as to payment of dividends. Since, in the case of surplus of assets, the law of bankruptcy allows interest thereout on interest-bearing debts to creditors who held promissory notes in respect of their debts, it is in accordance with the expressed intention as to the applicability of the law of bankruptcy, as manifested in clause 6 (3), that interest should be allowed at the rate which, apart from the promissory notes, the debt in question bore.
In my opinion the appeal should be dismissed and I agree with the order proposed by Williams J.
The appeal comes from the Supreme Court of Queensland exercising Federal jurisdiction in bankruptcy. As this court is equally divided the appeal fails except that the order must be varied as stated in the judgments of Williams J. and myself, for we are all of opinion that its present form is wrong.