Schnelle v Dent [1925] HCA 12; (1925) 35 CLR 494 (7 May 1925)

In her statement of claim, so far as the same is now relevant, the plaintiff alleged that the defendant claimed to be the holder of a bill of sale over certain furniture and effects of which the plaintiff was the owner; that such bill of sale was void on the grounds therein alleged; that the defendant had accepted a mortgage over land of which the plaintiff was the registered proprietor in lieu of the said bill of sale and certain other securities to which the defendant claimed to be entitled and had undertaken to discharge the said securities including the bill of sale when called upon to do so and to refrain for a specified time from taking any steps in connection with the amount secured by the mortgage. She alleged further that the defendant claiming under the bill of sale had seized and threatened to take away and sell the furniture and effects comprised therein, that she had offered to pay the balance due on the mortgage and had tendered to him a sum exceeding such balance, which the defendant had refused to accept. She claimed relief as follows: (1) An injunction to restrain defendant from dealing with the furniture, &c., and an order that he withdraw from possession thereof; (2) an order to produce certain documents; (3) a declaration that the said bill of sale was void as between the parties; (4) an account of the amount due to the defendant, and an order that on payment thereof defendant should discharge all the securities in the pleadings mentioned; (5) damages in respect of the wrongful acts in the pleadings mentioned. An interlocutory injunction was granted, but on terms with which the plaintiff was unable to comply; and the defendant sold the goods comprised in the bill of sale. The defence set up by the statement of defence consisted of a denial of substantially every allegation in the statement of claim, an allegation that there was owing to the defendant on the mortgage £916 and interest and on the bill of sale £631 and interest, and an offer to discharge those securities on payment of the amount due to him. On this defence issue was joined. It was not suggested either in the pleadings or at the trial that the case set up by the plaintiff was one in which, if proved, the Judge sitting in equity either could not or should not give relief.

During the hearing Harvey J. intimated that the only questions with which he proposed to deal at that stage were (1) whether the bill of sale was void and (2) whether there was an agreement to discharge the bill of sale when the mortgage was taken; all questions as to other relief being reserved until the accounts should have been taken by the Master. The learned Judge held that the plaintiff had failed to establish an agreement for the discharge of the bill of sale when the mortgage was taken, and made a decree (1) declaring that the bill of sale was void and that the defendant was not entitled to seize or sell the goods comprised therein, (2) directing an inquiry as to the amount of damages sustained by plaintiff and payable by defendant in respect of the seizure and sale of such goods, (3) directing an account to be taken of what was due by plaintiff to defendant on the security of the mortgage, (4) ordering defendant to pay into Court the amount received by him from the sale of the said goods, (5) restraining defendant from exercising his power of sale under the mortgage without seven days' notice to plaintiff and (6) reserving all questions of costs and further consideration of the suit.

From this decree the defendant appealed to this Court, all the grounds stated in the notice of appeal being directed to the question whether Harvey J. was right in declaring that the bill of sale was void, and no question being raised as to the propriety of the decree if his decision was right in that respect. The learned Judge was sitting under the provisions of the Equity Act 1901. The jurisdiction conferred by this statute was considered and explained by this Court in Maiden v. Maiden[1] and by the Supreme Court of New South Wales in a number of cases, beginning with Horsley v. Ramsay[2] and ending with Thomas v. Stevenson[3]. Applying the decisions in these cases, we have no doubt that Harvey J. had jurisdiction to entertain the suit and to give the relief which he in fact gave. He was in a better position to estimate the value of the oral testimony than we are, and we therefore accept his findings of fact. Having regard to these findings, we think that the conclusion he arrived at and the reasons which caused him to arrive at that conclusion are unimpeachable.

But a point was argued before us which was not raised before the Supreme Court or in the notice of appeal to this Court. It was suggested, on the authority of Lodge v. National Union Investment Co.[4], that we should vary the decree by imposing on the plaintiff a condition that she should make some payment to the defendant in respect of the moneys secured by the bill of sale which is declared to be void. An examination of the pleadings and of the decree itself will show that it is unnecessary for us to consider whether the decision in that case should be followed in appropriate circumstances. The statement of claim, so far as it is relevant to this discussion, enumerates various securities held by the defendant, and asks that one of them, a bill of sale, should be declared void and inoperative, and that all of them should be discharged on payment of the amount found to be due by the plaintiff to the defendant. The defence alleges the validity of the impugned bill of sale but does not ask that any conditions should be attached to the declaration of its invalidity, if made. The decree, so far as it is relevant in this discussion, declares the bill of sale to be invalid, and orders an account to be taken of the moneys due by the plaintiff to the defendant under a mortgage of real property, which is one of the securities already mentioned. Further consideration is reserved. The decree does not and could not properly make the invalidity of the bill of sale dependent on any condition to be performed by the plaintiff, because it is, and must be, either valid or invalid irrespective of the performance of any such condition. In Lodge's Case the Court was not asked to impose upon the plaintiff a condition attendant on a declaration of invalidity, or on any order giving effect to the legal consequences of invalidity, but was asked to impose, and did impose, on him a condition as part of a further order that the defendant should deliver to the plaintiff certain securities held by him under an agreement which was pronounced to be void. In other words, the Court refused to exercise a discretionary and purely equitable jurisdiction founded on the invalidity of the bill of sale unless and until the plaintiff did what it considered equitable in the circumstances. Had the plaintiff in that case been satisfied with a declaration of the invalidity of the bill of sale, the question of imposing conditions would not have arisen (see Chapman v. Michaelson[5]).

This is an appeal from a decree in equity made by Harvey J. It is of considerable public importance both from the civil and the criminal aspect. Personally I should regard the legal result as determinable upon a comparatively small field of consideration. However, the points raised and relied on in argument and the difference of opinion that exists require me, since I maintain the negative to very general terms, to make a somewhat close examination both of the facts and of the law. For various reasons that will become apparent, they also render necessary some specific mention of decisions and principles generally taken for granted. To give effect to the respondent's arguments would, in my opinion, not only run counter to the many authorities on the Money-lenders Act but would work a revolution in equity law and practice as they have heretofore existed in New South Wales.

The respondent, Constance Ella Dent, by her statement of claim sued in respect of a bill of sale over her furniture and effects and also in respect of a mortgage. Nothing now turns on the mortgage except—and the exception is a very important one, since it virtually does what is said to be omitted by the declaration as to the bill of sale—the direction regarding the accounts, which this decision may seriously alter. Otherwise this appeal is nominally confined to the bill of sale. The statement of claim charged that the bill of sale is void under the Money-lenders Act of 1905. That was the only ground set up to avoid the bill of sale and, as the learned Judge said in his judgment, the only question, apart from an alleged agreement to discharge the bill of sale when the mortgage was taken, with which he proposed to deal was "whether the bill of sale was void under the Money-lenders Act." Upon his conclusion as to that, he made his declaration and decreed relief. It is therefore not a case where, as in Chapman v. Michaelson[6], there is a mere declaration that the bill of sale is illegal and void. The 4th paragraph of the statement of claim says: "The plaintiff charges and the fact is that the said bill of sale is void under the Money-lenders and Infants Loans Act 1905 on the following amongst other grounds namely: (a) there was no consideration for the same; (b) the transaction was not completed at the registered office of the defendant; (c) the said bill of sale was signed by the plaintiff in blank and subsequently filled in by the defendant without any authority on the part of the plaintiff." The plaintiff's claim was: (1) injunction against interfering with the furniture; (2) production of documents; (3) declaration that the bill of sale is void and inoperative between the parties; (4) account and on payment by respondent a discharge of the securities; (5) damages and reference to the Master; (6) costs; (7) further and other relief. It is unnecessary to state the defence in detail. It is sufficient to say the alleged grounds were denied. The learned Judge on 6th June 1924 made a decree by which it was (1) declared that the bill of sale was void and that the appellant was not entitled to seize or sell the goods; (2) referred to the Master in Equity to inquire as to damages in respect of the seizure and sale; (3) referred to the Master in Equity to take an account of sums due by respondent to appellant on the mortgage; (4) directed that all questions as to the effect of the Money-lenders Act 1905 upon the right of the appellant to recover money lent should be open to the parties; (5) ordered that the appellant should pay into Court to the credit of the suit the amount received by him from the sale of the goods; (6) ordered that the appellant be restrained from selling under the mortgage without seven days' notice to the respondent. The decree, therefore, as it stands is as complete a provision of equitable relief as can well be imagined.

The grounds upon which the learned Judge arrived at this result will be gathered from a statement of the material facts. These I narrate, accepting all as stated by Harvey J. and adding some important facts as to which the evidence is indisputable and unchallenged. The case therefore depends purely on considerations of law and not of facts.

I should first mention that an interim injunction against the sale of the furniture was granted in terms that the respondent was not able to comply with. Since the motion for injunction the appellant realized on the goods comprised in the bill of sale. The sale, therefore, was not in violation of any order of the Court, and "the position has altered" (Heavener v. Loomes[7]). Consequently we have to deal with the position as it is, and not as it was before the sale.

The appellant (who for convenience will be called Snell—as Harvey J. has called him) at all material times was a money-lender within the meaning of the Money-lenders Act, but until 4th October 1921 carried on the business of money-lending, so far as the transactions relevant to this case are concerned, in a way—that is, by actually trading at an address some doors away from his registered address—that rendered those transactions void by reason of sec. 2 (1) (b) of the statute. Those transactions prior to that date were as follows:—Roy George Ironside Dent, the respondent's husband, was a solicitor who had got into financial difficulties and by authority of his wife borrowed from the appellant £550 for a week to be repaid with £10 interest, the security being the deposit of his wife's certificate of title to a piece of land. On 5th April 1921 Dent and his wife executed a bill of sale to secure £565 and interest at 20 per cent. This bill of sale recited that "the said mortgagors have applied to the said mortgagee to advance or lend them the sum of £565 and also to make further and future advances from time to time and the said mortgagee hath agreed to advance the said sum" &c. In September 1921 Dent was pressed by creditors, a judgment was obtained against him and under a fi. fa. the sheriff seized the furniture comprised in the bill of sale. For this Mrs. Dent presented an interpleader claim to the sheriff, which the sheriff refused to accept. Then Dent saw Snell, and at Dent's request the latter agreed to make an interpleader claim based on the appellant's property under the bill of sale. As Dent had been struck off the roll of solicitors and could not act as such, Mr. Schrader was instructed to act for Snell. Inspection of a document shortly before 4th October led Mr. Schrader to the conclusion that, owing as Harvey J. thinks—though that is not Mr. Schrader's evidence—to Snell's non-registration for the actual address where he carried on business, the bill of sale was valueless. Mr. Schrader thereupon advised registration, which was effected on 4th October 1921. Obviously this advice was in order that the very transaction now impeached might be valid and binding on all parties. In the meantime, in consequence of Mr. Schrader's advice, it was seen that the interpleader proceedings had to be abandoned. Dent proposed to Snell to discharge the bill of sale and take a charge over what is known as the Graham estate; this was to leave Mrs. Dent's title to the furniture free from all claim of Snell. A promise was given that after Mrs. Dent's interpleader proceedings she would give a fresh bill of sale to Snell.

These arrangements were made, and then the parties proceeded to carry them out. Harvey J. describes them in order of date as follows:—"On 4th October Snell registered himself as a money-lender; the charge over Mrs. Dent's interest in the Graham estate, Snell's release of the bill of sale, the discharge of Snell's interpleader order, and the lodging of Mrs Dent's interpleader claim by Mr. Schrader, are all dated 6th October. Snell gave the required security of £400 for Mrs. Dent's interpleader order on 7th October, and the fresh bill of sale from Mrs. Dent to Snell was given on 10th October." The learned Judge says the charge on the Graham estate was probably executed on or prior to 4th October and inspection of this document led Mr. Schrader to advise the registration under the Act. But the formal mortgage was executed on the 6th. The learned Judge finds, and I accept his finding, that the new bill of sale was executed by Mrs. Dent on 10th October, but no fresh negotiations of any sort took place. It was signed in pursuance of the arrangement come to before 4th October. It was for the same consideration as the charge over the Graham estate, that is, "it was a security for the same amount as was due under the original bill of sale." Harvey J. adds: "In my opinion it was without consideration, the only consideration being the discharge of a void security, and is therefore unenforceable by the bill of sale holder." The effect of this I shall presently discuss. In the meantime I may observe that Harvey J. in one passage says that "no proceedings subsequently" to 4th October "took place at his" (the appellant's) "registered office." I understand that observation to be confined, in view of the context, to the negotiations or arrangement for what was actually done as already described in the words of the learned Judge. If not, it could not stand because the unchallenged facts would establish the contrary.

Before dealing generally with the facts, I have to state some important added circumstances which are established beyond controversy by the evidence. The bill of sale of 10th October 1921 was prepared by the appellant's daughter in the appellant's registered office on 9th October by filling in everything except the date and the signatures. She then took it to Mr. Schrader's office and handed it to him for examination. Mr. Schrader looked through it and said it was in order. Miss Snell then took it back to her father at his office. On 10th October Dent at the appellant's registered office signed it as consenting to his wife's executing it. Dent there and then, still at the registered office, directed Kemp, who was his clerk, to take it to Strathfield to Mrs. Dent that she might execute it. Kemp did so; Mrs. Dent signed and sealed it at Strathfield, and Kemp brought it in to Snell at his registered office on 11th October. It was then sent to the Stamp Office and stamped.

It is evident that the whole of the transactions, beginning with the interpleader and ending with the new bill of sale, in the midst of which the effective registration took place, were for the mutual advantage of the husband, wife and money-lender. They were initiated by the Dents primarily for their benefit, because everyone then thought Snell was amply protected. He consented to a new arrangement at their request. That arrangement, unless a criminal conspiracy of all three, and eventually including Mr. Schrader, was, from a business point of view, substantially this: The April bill of sale was to be "discharged" and the Graham estate was to be taken as security for £580, which was obviously the amount of the bill of sale plus accrued interest, &c. The discharge of the bill of sale is dated 6th October. The discharge is in these terms:—"Received this sixth day of October 1921 from Constance Etta Dent and Roy George Ironside Dent the within-named mortgagors the sum of £565 in full satisfaction and discharge of the within security. C. F. Snell.—Witness, W. D. Schraeder, solicitor, 4 Castlereagh Street, Sydney." The Graham mortgage recites that it is in consideration of £580 advanced, &c., which was covenanted to be repaid with interest at 6 per cent per annum at times mentioned. I give full faith to the parties and to Mr. Schrader as honestly intending to treat the sum of £565 under the April bill of sale as paid or cancelled by the new indebtedness undertaken, and the sum of £580 as in substance advanced afresh for the purposes of the new mortgage. True, it was in one sense the same sum, that is, the same amount, but only in the sense that it would have been had the formality been gone through of handing notes backwards and forwards. This is borne out by the notice by Snell of 6th October withdrawing his interpleader claim, in which he says the bill of sale is now "discharged." The word "discharged" relates properly to the debt (sec. 13 of the Act No. 10 of 1898). Then the arrangement to give the new bill of sale of 10th October 1921 was carried out also as part of the same arrangement, the sum of £580 being the new debt conventionally created by the discharge of the sum of £565 under the April document claimed and believed to be due when the arrangement was made. The same observations as to honesty or criminality apply to the October bill of sale as apply to the Graham mortgage. And in the October bill of sale it is expressly recited: "Whereas the said mortgagor has applied to the said mortgagee to advance or lend her the sum of £580 ... Now this indenture witnesseth that in pursuance of the said agreement and in consideration of the premises and of the sum of £580 sterling paid by the said mortgagor (the receipt whereof________do hereby acknowledge)" &c. At the foot of the document is this statement: "Received at or before the execution of these presents and from the within-named mortgagee the sum of £580 being the full consideration money within expressed to have been paid by the said mortgagee to me Constance Etta Dent.—£580."

Taking the test stated in Credit Co. v. Pott[8], that in judging of the truth of the statement of consideration we are to have regard to the legal or mercantile effect of the statement, it appears to me that the consideration—reading both the mortgage and the bill of sale together—is that the £580 was as between the parties an advance after 4th October. It matters not for this purpose whether the money was or was not a debt under the April document. It was not illegal for Mrs. Dent to pay it if she chose; it was not illegal to enter into the arrangement by which it should be treated as paid, with a promise of a new mortgage and a new bill of sale arrangement in which the same amount should by a species of novation be regarded as a new and independent debt. Any honest business man would so regard it; any honest solicitor familiar with the circumstances as Mr. Schrader was would so regard it, and the undeniable fact that he supervised the arrangements and approved of the bill of sale before its execution is decisive that he did so regard it. Apart from any invalidity of the bill of sale of 10th October by reason of the Money-lenders Act, that document is binding and is for a valuable money consideration, if any such consideration were necessary. But apart from invalidation by the Money-lenders Act, not of the April but of the October document, it is, notwithstanding the absence of any money consideration, enforceable both at law and in equity because it is under seal. There is no allegation or suggestion of any equitable circumstance such as overreaching, fraud, mistake or other improper dealing, or of the document being in reality anything other than it appears to be. For instance, it is not as if it were absolute in form and in reality a mortgage. Nor is it the case that there was a promise of a new advance in cash which had not been carried out, causing a failure of consideration. The deed is exactly as intended, and at law it estops the respondent from saying the advance was not in fact made. If it be conceded that the parties were to regard the transaction as if it were a new advance, as no doubt it conventionally was treated, then the advance must be regarded as given in the way adopted, namely, by appropriating the past actual advance to the double purpose of being notionally handed back and forwards. If that be not conceded, then the deed stands simply as a voluntary deed. But it is none the less binding. By a long series of cases, including Williamson v. Codrington[9]; Watson v. Parker[10]; In re Lucan; Hardinge v. Cobden[11]; Re Cavendish Browne's Settlement Trusts; Horner v. Rawle[12] (a decision of Lord Blanesburgh (then Younger J.)), a voluntary deed may be enforced for a debt created by it or for damages for breach of covenant both in equity and at law.

I so far have—quite unnecessarily, I confess, but for the view presented as to the effect of absence of consideration—devoted some attention to an aspect which otherwise I should have thought almost elementary.

There remain, however, other points argued, namely:—(1) Is the bill of sale of 10th October 1921 invalid by reason of the Money-lenders Act? (2) If it is not so in itself, does the fact that the original advance was the subject of the bill of sale of April 1921 carry an invalidity to the October document? (3) Assuming the October bill of sale is void by reason of the Act, can the decree stand as made without conditions, as in Lodge v. National Union Investment Co.[13]? (4) Can the Equity Court, without giving relief, simply and unconditionally declare this bill of sale void; and, if so, what is the effect of such a declaration? The first of these four questions has a wide everyday importance both of a civil and a criminal character.

(1)

As to the first point, it is clear to me, upon a careful examination of the authorities, that the Act, construed reasonably, does not invalidate the instrument in the circumstances of this case. The bill of sale, as already emphasized, is challenged simply because it is said to be contrary to sec. 2, sub-sec. 1, par. (b), of the Act, namely, that "a money-lender, as defined by this Act, ... (b) shall carry on the money-lending business ... at his registered address or addresses and at no other address." So far as I know, there is not, among the many cases upon the Act within the last twenty-four years, any one the decision of which would support the judgment here under appeal, or would justify under the law of New South Wales a simple substitution of a declaration that the bill of sale is void. On the other hand, there are several of great authority opposed to both. Recalling the relevant facts, the negotiations and arrangements for the bill of sale were completed before the registration of the money-lender on 4th October. But the arrangement was carried out afterwards and the principal parts of the transaction took place at Snell's registered office. These I have narrated in what I have called "added circumstances." It ought really to be sufficient for this first question—which in itself should end the matter—to cite Kirkwood v. Gadd[14]. The effect of the Money-lenders Act of 1905 was fully argued, and I have not heard any valid reason why Kirkwood v. Gadd should not be followed. But, as the opinion from which I have the misfortune to differ seems to me to run counter to that decision and other decisions, I am compelled to examine generally the position for future guidance or future warning. It appears from the judgment of Lord Loreburn L.C. that "the agreement for the loan, the advance of the money, and the taking of the security were all transacted not at the money-lender's registered address but at the borrower's private residence"[15] Nevertheless the bill of sale was not invalidated because (still quoting from the judgment) "some letters making the appointment at the borrower's residence with a view to arranging the loan were written to and received from the registered address"[16]. Lord Loreburn says further on:—"This Act of Parliament cannot mean that every stage and every incident of every piece of the money-lending business is to be transacted at the registered office. That would be impossible, for such things as making inventories or taking possession of furniture under a bill of sale are part of the business and must be done where the goods are situated. Nor can it be intended to prohibit the employment of clerks and agents, or the transaction outside the registered address of every single thing that could by possibility be transacted within it. That would be needlessly oppressive and would strain the words. ... The mischief is that this dangerous business may be conducted by persons under false names or a variety of names without the security of an ascertained address, or at places where men may be taken unawares or off their guard. The words, which are in terms general, must be applied accordingly." Lord Loreburn added[17]: "It is always a question of fact, the answer to which depends on the circumstances of the case." Like all questions of fact it may be reasonably susceptible of only one conclusion; and that is what is, in my opinion, upon the authorities the position here. (See also per Lord James of Hereford[18], per Lord Atkinson[19] and similarly per Lord Mersey[20].) It will be observed that the case reverses the decision of the Court of Appeal. The reversal by the House of Lords of the decision appealed from establishes that the mere fact that all the preliminary arrangements were made elsewhere is not conclusive. It even goes further in that other important acts might be added and yet leave the business free from invalidity, and this, although the Court of Appeal thought that what was done elsewhere amounted, in the words of Fletcher Moulton L.J., to the whole of the money-lending transaction. The question of fact cannot be better stated than in Lord Loreburn's words, where he says[21]: "If a money-lender really deals with a borrower at his registered address, whether by interview or correspondence, he may, without infringing the Act, transact negotiations, or conclude the actual contract, elsewhere." The governing expression is "deals with." It really comes to an inquiry whether in relation to the challenged transaction there was such a substantial part of it carried on at the registered address as to satisfy reasonably the words of the legislation as interpreted by Lord Loreburn. Carrying on a business is in truth flexible enough to accomodate itself to all the possible variation of circumstances that occur in the class of business under consideration in the given case. The case of Whiteman v. Sadler[22] turns on another provision, namely, the "registered name," which does not apply to this case. There is, however, one passage in that case in the judgment of Lord Mersey which is of some importance. That learned Lord says[23]: "It is also, I think, to be remembered that this is a penal statute, and it seems to me that if each of two interpretations of it is reasonable, that one which protects the subject should be adopted rather than that one which may have the effect of sending him to prison." Cornelius v. Phillips[24] in no way detracts from Kirkwood v. Gadd[25]. It decided that an isolated transaction could come within the provision, and that where that isolated transaction was wholly carried on elsewhere it was invalidated. There were some observations explanatory of Kirkwood's Case. Lord Finlay said[26]: "All that was decided by the House of Lords in Kirkwood v. Gadd was that every stage and every incident of the money-lending business need not be transacted at the registered office." Lord Finlay said that it was enough if "the transaction had been substantially effected at the registered address of the money-lender." I am not prepared to place on those words a meaning that would reverse Kirkwood v. Gadd or that would invalidate a transaction formally carried out at the money-lender's office, from the preparation and execution of a security to the handing over of the money, merely because the lender and the borrower had previously met in the street and definitely arranged the terms. The "transaction" means the contract as finally constituted, and "effected," means everything that took place from the beginning of the negotiations to the final stroke of the pen. Lord Dunedin phrased it somewhat differently, saying[27]: "Kirkwood v. Gadd only decided that if a particular transaction is substantially arranged and started at the money-lender's registered place of business, the mere fact that certain incidental proceedings are carried through at another place does not make the money-lender carry on business at that other place."

Reading those passages with that in Lord Atkinson's and Lord Parmoor's judgments relevant to the same case, I am of opinion that all those learned Lords were merely pointing out that Kirkwood's Case[28] was not decided on the ground that it was an "isolated case" and therefore did not of itself amount to carrying on business, but that, regarding it as a carrying on of business, it was examined for itself to see whether substantially it complied with the address provision. Their Lordships had no notion, in my opinion, of watering down either the law or the facts of Kirkwood's Case. To indicate what I mean, let us look closely at the words quoted from Lord Dunedin's judgment. His Lordship must have recognized that the House in Kirkwood's Case[29] thought the facts showed that the "transaction was substantially arranged and started at the money-lender's registered place of business" and that the rest of the transaction was "incidental proceedings." Now, as stated above, all that took place there to start the business at the money-lender's office were letters written to and received from the registered address making an appointment at the borrower's residence. The agreement, the advance and the taking of the security were at the borrower's residence. Lord Dunedin does not say that these, if effected at the registered address, would have been insufficient.

I am supported in my view of Lord Dunedin's meaning by his own observations on Kirkwood's Case[30] and in Hadsley v. Dayer-Smith[31]. They are very apposite here. Lord Dunedin said:—"It is a trite saying, my Lords, that all dicta of noble Lords or of any other Judges must always be taken secundum subjectam materiam. The point in Kirkwood's Case was to find what was the mischief which the Legislature had prohibited when it said that a money-lender should only carry on his business at his registered address, and it was held that his doing certain acts incidental to his business at other places did not contravene that prohibition." The combined effect of Kirkwood v. Gadd and Cornelius v. Phillips[32] is that even in what were once known as "isolated cases" the question is whether in respect of the transaction impeached the business of the money-lender was substantially carried on at his registered address. That principle was not previously universally recognized as to "isolated cases," but was certainly recognized and acted on in a considerable number of cases by very eminent Judges, and these cases are very clear illustrations of the principle now enunciated by the House of Lords as applicable to all transactions with a money-lender.

There have been many cases on the point under consideration, and where there is any conflict the House of Lords decisions of course must prevail. But among the cases which in my opinion are in entire accord with the governing decisions are some which I shall quote in order of date. Staffordshire Financial Co. v. Hunt[33] and Re a Debtor; Ex parte Carden[34], are cases where no part whatever of the transaction took place at the money-lender's registered address. They are similar to Cornelius v. Phillips[35]. Blair v. Buckworth[36] is mentioned for one reason only, as at that time the "isolated transaction" doctrine had not been definitely settled. The reason is independent of that. Farwell L.J. said[37]: "The money-lending transaction apparently took place where the money was lent, and the documents signed, even if the negotiations might take place elsewhere." King v. Massey[38], where Lord Darling (then Darling J.) held valid a promissory note for a loan though the arrangements as to terms and the formal completion of the bargain both took place at the borrower's address. The transaction was held good because preliminary correspondence leading up to it was sent to and written from the registered address. That anticipated the House of Lords decision in Kirkwood v. Gadd[39]. In Levene v. Gardner[40] Lord Phillimore (then Phillimore J.) upheld the validity of promissory notes signed by a defendant elsewhere than at the registered address, though of course that was one of the essentials of the transaction. The learned Judge said—ironically[41]—that, notwithstanding all other parts of the transaction took place at the registered office, "he did not doubt that it was possible to find otherwise, and to say that to post a letter outside the registered office made the transaction voidable." He meant, of course, that it was always a question of common sense whether in relation to the given transaction the intended protection to the borrower was substantially given. In Jackson v. Price[42], decided in 1909, Darling J. upheld a transaction though the money was not handed over to the borrower at the registered address. This case is, of course, less difficult than some others; but it is valuable, not merely as an illustration, but also for the observation of the learned Judge that the punishment of imprisonment with or without hard labour imposed by the statute (sec. 2, sub-sec. 2, of the New South Wales Act) is of assistance to understand the evil against which it is directed. Without quoting, I direct attention to the succeeding passage in the judgment, and would apply it by asking whether, after the express endeavour to comply with the Act on 4th October 1921, the present appellant, in carrying out the transaction afterwards, did what the Act provides, as a second offence and, it might be, so incurred three months' imprisonment with hard labour. In Sadler v. Whiteman[43] Bray J. held valid a bill of sale though the verbal arrangement was only definitely arrived at at the borrower's house, and the bill of sale executed there and the money paid over there. There had been at the registered address prior correspondence and interviews and the negotiations had proceeded there up to an inconclusive point. Bray J. expressly followed Levene's Case[44] and Jackson's Case[45]. I may add that Sadler v. Whiteman[46] was ultimately upheld in the House of Lords (Whiteman v. Sadler[47]). In Blaiberg v. Calvert[48] Lord Sumner (then Hamilton J.) held the transaction valid because the "substantial negotiation" (by which I understand the greater part of the negotiations, which still remained incomplete) took place at the registered office. They appear to have been incomplete until the money-lender went to the borrower's house and there handed him the cheque and got the promissory note. Hamilton J. said[49]—and his interpretation of the cases is important: "There was a series of cases in which it was held that the money-lender had kept within the Act, if some part of the transaction was carried out at his registered address" (and he cites some of the above-mentioned cases). He was "bound" he said "to follow those authorities unless there was something in Gadd v. Provincial Union Bank7(1909) 2 K.B. 353. which prevented his doing so." He added: "A transaction which had its inception at that address could hardly be said to be such that the money-lender was carrying on business at an address other than his registered address." Substituting for the word "inception" the words "essential creation in legal form," Lord Sumner's observation applies exactly to the present case. It is also to be observed that Gadd's Case[51], as it stood then, was afterwards overruled as Kirkwood v. Gadd[52]. In In re Seed; Ex parte King[53], Lord Phillimore (as Phillimore J.) held valid a transaction carried on entirely by correspondence. The borrower was never, from first to last, present at the lender's registered address. But, as the lender sent his letters and enclosures from that address. it was a valid transaction. Phillimore J. endorsed the observations of Darling J. in the case previously mentioned as to the effect of the statutory penalty on the construction of the section. In Shaffer v. Sheffield[54] the whole transaction took place at the St. Pancras Hotel, London, except that by letter the borrower opened a correspondence with the lender, whose registered office was at Manchester and who replied agreeing to lend on condition that he procured the defendant as endorser of the bill of exchange. The borrower invited the lender to come to London and the transaction was there carried through; the defendant, who was the endorser, never having met or negotiated with the lender or, so far as appeared, having any knowledge that the lender was a Manchester money-lender. Channell J. held the transaction valid, obviously on the principle of Kirkwood v. Gadd[55]. In H. Bowen & Co. v. Samuels[56] the Court of Appeal (Pickford L.J. and Bankes L.J.) had this matter again under consideration several months after Cornelius v. Phillips[57]. It was a striking case. The money-lenders, having their registered address in Bond St., London, lent money to a man at Manchester. A third person wrote to the money-lenders at their registered address, stating that the borrower wished a loan. The money-lenders wrote to the borrower asking for an appointment at Manchester. A telegram agreed to that. Except that, every part of the transaction took place in Manchester—that is, negotiations, agreement, advance, and promissory note; later, a further advance at the registered address of £115, and a promissory note for £150; later, a third advance at the registered office, when the two former notes were cancelled and a new note taken for £430, which was sued on. Darling J. held[58] that the first transaction was valid, relying on Kirkwood v. Gadd[59]. The Court of Appeal[60] agreed with that. Pickford L.J., as to Cornelius v. Phillips[61], said "there were no dealings at all nor was there any correspondence with the money-lender at his registered office." I may interpolate Balkind v. Batchelor[62], which I have just found. It was a decision of Salmond J. which was based on Kirkwood v. Gadd. The only parts of the transaction effected at the registered address were the receipt of a letter from the borrower and the preparation of the documents—promissory note and bill of sale. The reply to the letter of inquiry, the negotiations, the presentation of the documents, their signature, and the handing over of the loan, all took place elsewhere and mostly at the borrower's shop. The judgment, I observe, refers to some of the cases I have cited, and apparently takes the same view as above stated.

For those reasons I hold the bill of sale of 10th October 1921 not to be itself directly invalid by reason of the provision relied on in the Money-lenders Act.

(2)

The next question is: Supposing that to be so, is it corrupted by reason of the invalidity of the April transaction? My answer is in the negative. The contract of April was a forbidden contract, it is true. It is also true that the law will not recognize any binding obligation in that contract or in anything—not collateral—that depends on it. But, although it was an offence for the money-lender, and therefore prohibited and unenforceable, it was made so for the protection of the borrower. Still, as Kennedy L.J. says in In re Campbell; Ex parte Seal[63]: "The money-lender has thereby committed an offence; but participation in the agreement on the part of the borrower does not constitute either a crime or an offence on his part." It would not be an offence for him voluntarily to repay the money he had received—perhaps quite honestly lent and honestly borrowed. There is nothing in the law, so far as I can see, forbidding a man in such case to be honest. It is not like money lent for the commission of a crime, which in no circumstances can be lawfully promised, paid or received. The subject was to some extent considered in Campbell's Case[64]. Cozens-Hardy M.R. expressly refrained from expressing an opinion. Farwell L.J. was clear that the invalidity was carried on into the new contract. Kennedy L.J. was as clear the other way. In H. Bowen & Co. v. Samuels[65], as already cited, Bankes L.J. was clearly of the same opinion as Kennedy L.J. in the former case. He said, speaking of the third agreement:—"That agreement formed no part of the original transaction which was said to be illegal. Therefore, even assuming that the appellant was right in saying that the first transaction was illegal, that did not affect the validity of the third transaction." Pickford L.J. said nothing as to that point. The reason given by Bankes L.J. appears to me on principle absolutely decisive, and I determine this point also in appellant's favour.

(3)

This question involves the decision of Lord Parker (then Parker J.) in Lodge v. National Union Investment Co.[66]. If that decision is sound, the answer to the third question must be that the decree must be amended by making it accord with that decision. Parker J. said[67]: "I do not think it is either æquum or bonum that the plaintiff, who has had the benefit of the £1075 and who is relying on the illegality of the contract and the exception enabling him to sue notwithstanding such illegality, should have relief without being put on terms by which both parties may be restored to the positions they occupied before the transaction commenced." The correctness of the decision was challenged before us. The authority of Lord Parker, on a question of equity, is itself no light matter. It is true that in the course of his judgment he considered that an action for money had and received was analogous to a claim for equitable relief, and it is also true that since Sinclair v. Brougham[68] that analogy cannot be maintained. But that only affects the judgment so far as it relates to the common law rights of the borrower, that is, as to the £150 there claimed. The rest of the action was expressly dealt with by the learned Judge as a purely equitable action[69]. There is nothing in the present action standing in the position of the £150 there, but it is, as claimed, all equitable. And, for reasons presently appearing, the power of the Equity Court in New South Wales is not coextensive with the power of a Court in England or elsewhere in Australia. The part of Lord Parker's judgment which has relevance for us is that which concerns the claim for equitable relief, that is, as he puts it[70], "an appeal to the equitable jurisdiction of the Court." On that basis I regard the decision as unquestionably sound. It is an inherent doctrine of equity jurisprudence that the active assistance of equity is given only where the plaintiff is prepared himself to act conscientiously as to the matters in respect of which the assistance is invoked. In addition to the cases cited on this point by Parker J., I would instance the clear enunciation of principle by Giffard L.J. in In re Cork and Youghal Railway Co.[71]: "Equitable terms can be imposed on a plaintiff seeking to set aside an illegal contract as the price of the relief he asks; but as to any claims sought to be actively enforced on the footing of an illegal contract, the defence of illegality is as available in a Court of equity as it is in a Court of law." The reason of the latter branch of the statement is stated by Lord Hatherley in the same case[72], that "if a thing be forbidden expressly" (and Lord Dunedin in Whiteman v. Sadler[73] adds "or impliedly") "by Act of Parliament, that Act can no more be contravened by this Court than by any other Court of judicature in the kingdom." Actively to enforce an illegal contract would be to contravene the statute. To refuse to set it aside, either wholly or except on terms, and then to leave parties otherwise to their legal rights, is no contravention, because there is no statutory right to have the contract immediately set aside by decree. On principle, as settled by prior authority, Lodge's Case[74] so far as it relates to relief in equity is unassailable. And as to that it has never been questioned in any way. On the contrary, Lord Phillimore (when Phillimore J.) expressly approved of it. I find in a note in the book on the Money-lenders Act 1900 (ed. of 1910) by Matthews and Spear, at pp. 178-179, that Phillimore J. in Furber v. Fieldings Ltd., reported in the Times Law Reports[75], added what is not there reported:—He said, referring to Lodge's Case[76], that "the point which Parker J. decided would be sufficient in this case, namely, that the man who seeks to recover that property, and who appealed to the equitable provisions of the Money-lenders Act, must do equity: he must therefore offer to replace the grantee of the property in the position in which he was before the illegal contract was entered into." It is not a question whether the instrument is inherently bad, for, if it is, there is no need for equity to say so; nor is it a question whether the defendant claims in his defence to be replaced in his former position: it is an essential part of the plaintiff's duty to offer to replace him; and it is an inescapable duty of the Court to make its decree conform to equity and good conscience. That is the essence of a decree.

(4)

The fourth question concerns a vital change in equity jurisdiction. It brings into prominence the radical difference between the present judicial systems of England and New South Wales. That difference makes the case of Chapman v. Michaelson[77] wholly inapplicable to this appeal; and yet, without it, a declaration simpliciter that the contract is void, clearly could not be made on the facts of this case. That decision rests on two considerations, namely, (a) the Judicature Act substituting one High Court for the former common law and chancery Courts and (b) Order XXV., rule 5, of the Judicature Rules. The first is wholly inapplicable in New South Wales; the second was inapplicable when the decree was made. The absence of either is fatal. It is, at all events, incontestable that the Chief Judge in Equity in New South Wales, exercising the jurisdiction of the Supreme Court, so far as that is conferred upon him by statute—Equity Act 1901—has an equitable jurisdiction only (see Merrick v. Ridge[78], Brindley v. Scott[79], Maiden v. Maiden[80] and Cobar Corporation Ltd. v. Attorney-General for New South Wales[81]). If, incidental to equitable relief, it is found necessary to decide legal rights, there is power by sec. 8 to do so. But the history of that section and of sec. 10 and the decisions upon them show that there is no jurisdiction in the Court of Equity to make a declaration of legal right simpliciter.

First as to the English decisions. In Birkenhead Docks Trustees v. Laird[82], under statutory provisions substantially identical in effect and, in part, also in words, Turner and Knight Bruce L.JJ. held that a decree was not warranted that contained "a declaration of a mere legal right, and does not give any equitable relief." It was added: "If we should think that an injunction ought to be granted, the difficulty might be removed." In that case the injunction, being "relief," would be governed by equitable considerations, because a Court of equity is not, in regulating the rights of the parties, "entitled indirectly to effect that which you could not do directly" (Lord Hatherley L.C. in Dolphin v. Aylward[83]). In Webb v. Byng[84] the law as in Birkenhead Docks Trustees v. Laird was confirmed; so too per Lord Cranworth L.C. in De Windt v. De Windt[85]. The same view is expressed in Seton (6th ed., p. 166) on the authority of Birkenhead Docks Case. See also Brooking v. Maudslay, Son & Field[86]. Until the Judicature Act was introduced in England that was adhered to, and for some time afterwards the full effect of the change was not perceived. There never was previously to the Judicature Act "jurisdiction to entertain a species of action of declarator" which would enable the Court to make declarations on legal as well as on equitable questions (per Kindersley V.C. in Jackson v. Turnley[87] and per Page Wood V.C. in Rooke v. Lord Kensington[88]). It even required the Act 15 & 16 Vict. c. 86 to enable a declaration to be made in a purely equitable matter without giving consequential relief[89] (see per Lord Davey in Barraclough v. Brown[90]). And that is the law applicable to this case (sec. 10 of the Equity Act 1901). But, as explained by the Court of Appeal in Chapman v. Michaelson[91], the joint operation of the Judicature Act and the new Order XXV., rule 5, vests in the "High Court and not" in "one division of the High Court to the exclusion of the other"[92] a novel practice. That novel practice is really what was formerly alluded to as "an action of declarator." It is statutory and general. It does not depend on equity practice, or on equity jurisdiction, or on equitable rights. The action in Chapman v. Michaelson[93], said the Master of the Rolls, "might perfectly well have been brought in the common law Courts." This view was really expressed by Lord Macnaghten in Colls v. Home and Colonial Stores Ltd.[94], and is distinctly recognized in the House of Lords in Russian Commercial and Industrial Bank v. British Bank for Foreign Trade[95]. It is, of course, always discretionary in the judicial sense, and therefore is not necessarily accompanied with conditions. That depends upon the circumstances. But it is not in itself equitable relief—it is not "equitable" jurisdiction at all—and, therefore, is not subject for that reason to the doctrine of Lodge v. National Union Investment Co.[96]. The New South Wales cases and course of legislation conclusively establish that no reliance can be placed on the final clause in sec. 8 for a jurisdiction wide enough to cover a simple declaration of nullity on purely legal grounds. Forcible reasons of mere construction lead to this conclusion. If that clause were to be read as wide enough to enable the Court of Equity to declare any contract good or bad, binding or dissolved, and in whole or in part, simply on common law grounds without a recognized equitable basis of right or remedy, then the following results would ensue:—First, the rest of sec. 8 would be surplusage. Next, it would in many cases mean the abolition of juries, and would be enabling one Judge sitting in the Equity Court to do without a jury what a Judge sitting on the common law side could not—apart from consent—do even with a jury, namely, give a judgment on the claim. It would be strange indeed if, with or without some alleged equitable ground which if alleged failed, a plaintiff could obtain a declaration, say, that a "bill of exchange" or a commercial contract of sale of goods or a promise of marriage was or was not valid or binding, leaving for a common law Court nothing but to assess damages or enter up appropriate judgment. Those closing words mean merely that, when exercising the new common law powers permitted by sec. 8, no objection shall prevail that the remedy in respect of the common law rights so dealt with is to be found elsewhere. But the matter has gone far beyond conjecture. The final clause in question appeared as part of sec. 4 of the Act of 1880. In 1891 the Chief Judge in Equity (Owen J.) held (Cameron v. Cameron[97]) that "The Primary Judge sits in this Court to exercise the jurisdiction of the Supreme Court in equity, and it is only for that purpose that he can sit here, but under sec. 4 his powers in any suit or proceeding in equity are extended so as to enable him to deal incidentally with matters arising in an equity suit, which but for that section must have been dealt with by the common law Courts." His Honor held, therefore, that he had no concurrent common law jurisdiction. That was followed in 1897, in terms which if possible are still more emphatic, in Merrick v. Ridge[98], by A. H. Simpson C.J. in Equity. The learned Judge says (inter alia): "The right to have purely legal questions decided is dependent upon the plaintiff having a good equitable right to start with." In 1901, with these distinct and definite decisions standing, unappealed from, and governing the daily practice of the Supreme Court, the Legislature re-enacted in sec. 8 of the new Act the identical provisions so interpreted. With such judicial and legislative authority before us, it seems to me impossible to maintain in New South Wales the doctrine of Chapman v. Michaelson[99]. It is therefore a cardinal error to argue that the Equity Court of New South Wales, merely by making a declaration of avoidance, can affect the common law rights of the parties, or may disregard the most deeply-rooted equitable doctrines for securing justice between them. If it can, then by Chapman v. Michaelson, avowedly based on a totally different jurisprudence, an unexpected and vital innovation has been introduced in this State.

The declaration, then, must be taken either as made without jurisdiction or as an ordinary exercise of equitable jurisdiction with the consequence of Lodge's Case[100]. And the fourth question should be answered, like the rest, adversely to the respondent.

In my opinion, on the whole case, the appeal should be allowed and judgment entered for the appellant, without prejudice to any proceeding that may be advised or desired, whether on the taking of the accounts or otherwise, to reopen the transaction on the ground of excessive interest or charges as provided by sec. 1 of the Money-lenders Act.

[1] [1909] HCA 16; (1908-09) 7 C.L.R. 727.

[2] (1888) 10 N.S.W.L.R. (Eq.) 41.

[3] (1914) 15 S.R. (N.S.W.) 78.

[4] (1907) 1 Ch. 300.

[5] (1908) 2 Ch. 612; (1909) 1 Ch. 238.

[6] (1909) 1 Ch. 238.

[7] [1924] HCA 10; (1924) 34 C.L.R. 306, at p. 312.

[8] (1880) 6 Q.B.D. 295.

[9] (1750) 1 Ves. 511.

[10] [1843] EngR 373; (1843) 6 Beav. 283.

[11] (1890) 45 Ch. D. 470.

[12] (1916) 61 Sol. J. 27.

[13] (1907) 1 Ch. 300.

[14] (1910) A.C. 422.

[15] (1910) A.C. 422.

[16] (1910) A.C., at p. 423.

[17] (1910) A.C., at p. 424.

[18] (1910) A.C., at p. 427.

[19] (1910) A.C., at pp. 432, 433 (particularly ll. 3-16).

[20] (1910) A.C., at p. 438 (ll. 1-10).

[21] (1910) A.C., at p. 424.

[22] (1910) A.C. 514.

[23] (1910) A.C., at p. 532.

[24] (1918) A.C. 199.

[25] (1910) A.C. 422.

[26] (1918) A.C., at p. 204.

[27] (1918) A.C., at pp. 211, 212.

[28] (1910) A.C. 422.

[29] (1910) A.C. 422.

[30] (1910) A.C. 422.

[31] (1914) A.C. 979, at p. 983.

[32] (1918) A.C. 199.

[33] (1907) W.N. 258.

[34] (1908) 52 Sol. J. 209.

[35] (1918) A.C. 199.

[36] (1908) 24 T.L.R. 474.

[37] (1908) 24 T.L.R., at p. 477.

[38] (1908) 24 T.L.R. 710.

[39] (1910) A.C. 422.

[40] (1909) 25 T.L.R. 711.

[41] (1910) 1 K.B., at p. 147.

[42] (1910) 1 K.B. 143.

[43] (1910) 26 T.L.R. 255.

[44] (1909) 25 T.L.R. 711.

[45] (1910) 1 K.B. 143.

[46] (1910) 26 T.L.R. 255.

[47] (1910) A.C. 514.

[48] (1910) 26 T.L.R. 328.

[49] (1910) 26 T.L.R., at p. 329.

[50] (1909) 2 K.B. 353.

[51] (1909) 2 K.B. 353.

[52] (1910) A.C. 422.

[53] (1910) 1 K.B. 661.

[54] (1914) 2 K.B. 1.

[55] (1910) A.C. 422.

[56] (1918) 34 T.L.R. 487.

[57] (1918) A.C. 199.

[58] (1918) 34 T.L.R. 228.

[59] (1910) A.C. 422.

[60] (1918) 34 T.L.R. 487.

[61] (1918) A.C. 199.

[62] (1923) N.Z.L.R. 1122.

[63] (1911) 2 K.B., at p. 1000.

[64] (1911) 2 K.B. 992.

[65] (1918) 34 T.L.R. 487.

[66] (1907) 1 Ch. 300.

[67] (1907) 1 Ch., at p. 312.

[68] (1914) A.C. 398.

[69] (1907) 1 Ch., at p. 311.

[70] (1907) 1 Ch., at p. 306.

[71] (1869) L.R. 4 Ch. 748, at p. 762.

[72] (1869) L.R. 4 Ch., at p. 758.

[73] (1910) A.C., at p. 525.

[74] (1907) 1 Ch. 300.

[75] (1907) 23 T.L.R. 362.

[76] (1907) 1 Ch. 300.

[77] (1909) 1 Ch. 238.

[78] (1897) 18 N.S.W.L.R. (Eq.) 29.

[79] (1902) 2 S.R. (N.S.W.) (Eq.) 49.

[80] (1908-09) 7 C.L.R., at pp. 742, 745.

[81] [1909] HCA 52; (1909) 9 C.L.R. 378, at pp. 402, 403.

[82] (1853) 4 DeG. M. & G. 732, at p. 738.

[83] (1870) L.R. 4 H.L. 486, at p. 502.

[84] (1856) 8 DeG. M. & G. 633, at pp. 638, 639.

[85] (1866) L.R. 1 H.L. 87, at p. 91 (last two lines).

[86] (1888) 38 Ch. D. 636, at pp. 643, 644.

[87] [1853] EngR 773; (1853) 1 Drew. 617, at pp. 626, 627.

[88] [1856] EngR 808; (1856) 2 Kay & J. 753, at pp. 760, 761.

[89] (1856) 2 Kay & J., at p. 761.

[90] (1897) A.C. 615, at p. 623.

[91] (1909) 1 Ch. 238.

[92] (1909) 1 Ch., at p. 243.

[93] (1909) 1 Ch. 238, at p. 242.

[94] [1904] UKHL 1; (1904) A.C. 179, at p. 188.

[95] (1921) 2 A.C. 438.

[96] (1907) 1 Ch. 300.

[97] (1890-91) 12 N.S.W.L.R. (Eq.) 135, at p. 141.

[98] (1897) 18 N.S.W.L.R. (Eq.), at p. 30.

[99] (1909) 1 Ch. 238.

[100] (1907) 1 Ch. 300.

High Court of Australia

Schnelle v Dent [1925] HCA 12; (1925) 35 CLR 494 (7 May 1925)

HIGH COURT OF AUSTRALIA