Carson v Humphreys [1931] HCA 6; (1931) 44 CLR 480 (1 April 1931)

In my opinion the appeal should be allowed. I agree with the reasons of my brother Dixon.

I concur with the reasons of my brother Dixon, and agree that the appeal should be allowed.

The question upon this appeal is whether a distress levied on the demised premises by a head-lessor upon the goods of a sub-lessee for rent owing by the lessee, may be proceeded with after the sub-lessee executes a deed of arrangement under Part XII. of the Bankruptcy Act 1924-1930. Because the sub-lessee is not in privity with the head-lessor, the rent distrained for does not constitute a debt of the sub-lessee provable against his estate.

Sec. 88 of the Bankruptcy Act is as follows:—"88. (1) After sequestration no distress for rent shall be levied or proceeded with as against the estate of the bankrupt. (2) In this section sequestration shall be deemed to include an order under this Act for the administration of the estate of a deceased person and a deed of assignment under Part XI. and a deed of arrangement under Part XII. respectively of this Act." This provision imposes a limitation upon the remedies of a landlord which deprives him of a valuable right. It is therefore to be expected that some compensatory provision will be contained in the Act giving a new right in substitution for the remedy taken away. Such a provision is found in sec. 84 (1) (i), which prescribes the order of priority in the application of the estate of the bankrupt. It gives the landlord of the bankrupt a right to seventh place in the order of preference in respect of so much rent for a period not exceeding three months as was due and payable at the date of the sequestration order in respect of which there were goods on the premises liable to distress. The prohibition contained in sec. 88 (1) is in general terms, and it is not expressly limited to distress for rent due to the landlord of the bankrupt. If nothing but its language were considered and the other provisions of the Act were neglected, its unqualified terms upon a literal construction would suffice to prohibit a distress upon goods of the bankrupt left upon demised premises to which the bankrupt was a stranger. The right of preferential proof given by sec. 84 (1) (i), on the other hand, is limited to rent due to the landlord of the bankrupt. General words of a statute should not receive a construction, unless the intention is clear, which involves a deprivation of private right without recompense. The landlord's power to distrain upon the goods found upon the demised premises, although they are the property of a stranger, enables him to exact the rent from sub-tenants who are not in privity with him, and provides him with a valuable remedy. Doubtless, legislation has tended to diminish the rights of landlords and to curtail their remedies. But in a Bankruptcy Act the purpose in hand is not the revision of the privileges of landlords, but the liquidation of existing rights against assets which are insufficient to meet them all. A wide or literal construction of sec. 88 (1) attributes to the Legislature an intention to take out of the possession of a landlord who is not in privity with a bankrupt, goods which otherwise would be available for the satisfaction of the rent owing to the landlord, and to give him no right in the bankruptcy in return; notwithstanding, moreover, that a landlord in privity with the bankrupt is given a qualified priority of proof. Similar considerations were relied upon in support of the conclusion which the Courts have adopted in England that the wide general terms of the provision which now stands as sec. 174 (1) of the Companies Act 1929 should be understood to refer only to distress for rent which constitutes a debt provable in the liquidation of the company. (See In re Lundy Granite Co.; Ex parte Heavan[1]; In re Traders' North Stafford-shire Carrying Co.; Ex parte North Staffordshire Railway Co.[2]; In re Regent United Service Stores[3], and In re New City Constitutional Club Co.; Ex parte Purssell[4].) Although it is true that in a winding-up under the Companies Act the rights of third parties are less often affected than in bankruptcy, these cases proceed, not upon any such consideration, but upon a principle of construction which is equally applicable in bankruptcy. In In re Traders' North Staffordshire Carrying Co.[5] Sir George Jessel M.R. said that the reason for the decision restraining the general words of the provision appeared to be of considerable cogency, and the reason was this, that the meaning of the Act was to ensure equality amongst the creditors, and the creditor whose proceeding was restrained was to come in and prove with the rest; but in a case where the landlord was not a creditor at all, instead of producing equality, it would have produced inequality by depriving him of his legal right to distress and giving him nothing at all. Again, in In re Lundy Granite Co.[6] Mellish L.J. said:—"The landlord is, by the law of this country, entitled to take as a security for his rent the goods upon his land, whomsoever they belong to. Then, was it intended to deprive the landlord of that right if the goods happened to belong to a company under liquidation? It would be very extraordinary if the Legislature had deprived the landlord of that right without clear and express words, and without giving him any compensation. The right to prove debts is confined to creditors of the company, and if this section makes this distress void, I do not see what power the Court would have to say that the landlord has any right to prove for his debt."

The Bankruptcy Act 1924-1930 contains provisions which strengthen the conclusion that sec. 88 (1) should be understood as referring only to rent owing by the bankrupt. These provisions are contained in sec. 159, which relates to compositions and assignments, and in sec. 192, which relates to deeds of arrangement. Sec. 159 enables the Court after a meeting of creditors has been summoned to make an order of a provisional character ordering a stay of proceedings in any distress for rent in respect of any debt or liability which would be provable in the bankruptcy. Sec. 192 (3) empowers the Court, after the execution of a deed of arrangement, to order a stay of proceedings in any distress for rent in respect of any debt or liability which would be provable in the bankruptcy if a sequestration order were made. These provisions are evidently ancillary to sub-sec. 1 of sec. 88 as interpreted by sub-sec. 2, and unless sec. 88 was intended to be confined to distress for rent owing by the bankrupt or debtor they would be less extensive in their application than the immunity they were designed to support. Further, it is by no means clear that sec. 206 would extend to empowering the Court to stay a distress, and it may be that sec. 192 (3) is an exhaustive statement of the Court's power to stay proceedings in a case of deed of arrangement. If this be so, it would, in itself, afford a reason, almost conclusive, for construing sec. 88 (1) as confined to distress for rent owing by the bankrupt, but it is unnecessary to decide in this case what are the limits of sec. 206, or of Part XII., because, without doing so, sufficient grounds appear for limiting the application of sec. 88 (1) to a distress for rent by the landlord of the bankrupt or debtor. For these reasons the distress upon the goods of the debtor did not become unlawful after the making of the deed of arrangement.

I have already read the judgment prepared by my brother Dixon. I agree with it and have nothing to add.

Sec. 88 (1) of the Bankruptcy Act 1924-1930 is in these terms: "After sequestration no distress for rent shall be levied or proceeded with as against the estate of the bankrupt." It is contended on behalf of the appellant that the word "rent" must be limited to "rent due by the bankrupt." It is contended, on the other hand, on behalf of the respondent that the words "no distress for rent" must be read literally, and should not be confined so as to exclude from the operation of the section any distress which may be levied against the estate of the bankrupt. The result of that construction in this case is that after "sequestration" as defined in sec. 88 (2), the landlord is deprived by the statute of his right to levy or proceed with a distress against the goods of the bankrupt on premises in respect of which rent is owing to the landlord by a tenant who is not the bankrupt. The learned Judge in Bankruptcy held that the section has this effect. If the Legislature has deprived the landlord of the right of distress in these circumstances, it has not given him anything by way of compensation for the loss of that right; e.g., it was not provided that the landlord can prove in any order of priority, or at all, in the sequestrated estate for the rent or any part of it due to him, which he could have recovered by levying or proceeding with the distress which, on that construction, has been prohibited. Speaking with reference to sec. 163 of the Companies Act 1862 (25 & 26 Vict. c. 89), which is sec. 211 of the Companies (Consolidation) Act 1908 (8 Edw. VII. c. 69), Sir George Mellish L.J. said:—"It is a question of general importance whether this section relates only to distress against the company, that is to say, where the company is the debtor, or extends, as has been contended, to all cases of distress. The landlord is, by the law of this country, entitled to take as a security for the rent the goods upon his land, whomsoever they belong to. Then, was it intended to deprive the landlord of that right if the goods happened to belong to a company under liquidation? It would be very extraordinary if the Legislature had deprived the landlord of that right without clear and express words, and without giving him any compensation. The right to prove debts is confined to creditors of the company, and if this section makes this distress void, I do not see what power the Court would have to say that the landlord has any right to prove for his debt. It would be very extraordinary if, during the whole time of a liquidation, the liquidator might make any agreement with any insolvent tenant, and keep the goods on the land without any risk. The difficulty is not met by saying that the landlord can get leave to proceed under sec. 87, for that section is confined to proceedings against the company" (In re Lundy Granite Co.; Ex parte Heavan[7]). His Lordship proceeded: "When we look at the place where sec. 163 comes in, it is seen clearly to deal with the rights of creditors under the winding-up." Sec. 163 is in these terms: "Where any company is being wound up by the Court or subject to the supervision of the Court, any attachment, sequestration, distress, or execution put in force against the estate or effects of the company after the commencement of the winding-up shall be void to all intents." (See, also, In re Regent United Service Stores[8]; In re Traders' North Staffordshire Carrying Co.; Ex parte North Staffordshire Railway Co.[9].)

Adopting the words of Sir George Mellish in In re Lundy Granite Co.; Ex parte Heavan[10], when we look at the place where sec. 88 comes in, it is seen clearly to deal with the rights of creditors under the sequestration. Sec. 81 (1) provides that "all debts and liabilities ... to which the bankrupt is subject at the date of the sequestration order ... shall be deemed to be debts provable in bankruptcy." This section obviously includes rent. Sec. 82 is a provision dealing with the case where there have been mutual dealings between a bankrupt and any person proving or claiming to prove a debt in the bankruptcy. Sec. 83 deals with the mode of proving debts in the bankruptcy. Sec. 84 prescribes that in applying the estate of the bankrupt in the payment of debts, the trustee shall pay the debts in the order of priority therein set forth. Seventhly in the order of priority is rent, that is to say, "so much rent, for a period not exceeding three months, as was due and payable at the date of the sequestration order, and in respect of which there were, at the date of the sequestration order, goods on the premises, in respect of which rent was payable, liable, but for sequestration, to distress for rent" (sec. 84 (1) (i)). The words "liable, but for sequestration, to distress for rent" clearly anticipate sec. 88. Secs. 85, 86 and 87 are in pari materia, relating as they do to debts or liabilities, due or deemed to be due from the bankrupt, and to the order in which such debts or liabilities should be satisfied out of the bankrupt's estate.

Notwithstanding that the rules which are applied in a winding-up are different in some important respects from those applied in a bankruptcy, in my opinion the statement I have quoted from the judgment of Sir George Mellish L.J. in In re Lundy Granite Co.; Ex parte Heavan[11], affords guidance in the interpretation of sec. 88. Referring to the decision in that case, Sir George Jessel M.R. said:—"The judgment of the Lords Justices, as I understand it, takes this distinction, that where the right of the landlord against his own tenant, not being the company, is not the right of a creditor of the company, but is simply the right to take the goods, whosesoever they happen to be, the 163rd section has no application. Of course there is considerable difficulty in the words, but the meaning that they put upon the section was this, that it must be a distress against the estate or effects of the company as estate or effects of the company—that is, a distress which could not have been validly made in any other character. I do not say that I can find the words in the section, but that is the decision, and a reason is given for it which appears to be of considerable cogency, if I may say so with great respect, and that is this, that the meaning of the Act was to ensure equality amongst the creditors, and the creditor whose proceeding was restrained was to come in and prove with the rest; but in the case before their Lordships the landlord was not a creditor at all, and therefore, instead of producing equality, it would have produced inequality, by depriving him of his legal right to a distress, and giving him nothing at all. ... I must say, it appears to me, although I do not find the words, that the reason, the spirit, and the meaning of the Act are entirely in accordance with the decision of the present Lords Justices in In re Lundy Granite Co.1(1871) 6 Ch. App. 462.. Of course, as I said before, if it were not so, you would destroy the right of the landlord, and you would give him nothing in return" (In re Traders' North Staffordshire Carrying Co.; Ex parte North Staffordshire Railway Co.[13]). The sections which I have mentioned and a consideration of the principles of the Bankruptcy Act lead to the conclusion that when the Legislature used the word "rent" in sec. 88 (1), it had in contemplation a debt which would be provable in bankruptcy. In my opinion, therefore, the words "no distress for rent" mean no distress for rent due by the bankrupt. I do not think that the Legislature intended that those words should mean, no distress for rent due by the bankrupt or any other person. To hold otherwise would be to deprive the appellant of a right which was not in the contemplation of the Legislature (Forbes v. Ecclesiastical Commissioners for England[14]).

The view which I have taken as to the construction of sec. 88 is strongly supported by the language of sec. 159 (1) and sec. 192 (3) of the Act.

Appeal allowed. Order of Judge Lukin discharged. In lieu thereof order that the application to the Court of Bankruptcy be dismissed and it be ordered that the money in the bank account in the joint names of the appellant and respondent be paid out to the appellant. Respondent to this appeal to pay the costs of the application including reserved costs and the costs of this appeal out of the estate so far as it extends and if not sufficient by the trustee personally.

[1] (1871) 6 Ch. App. 462.

[2] (1874) L.R. 19 Eq. 60.

[3] (1878) 8 Ch. D. 616.

[4] (1887) 34 Ch. D. 646.

[5] (1874) L.R. 19 Eq., at p. 66.

[6] (1871) 6 Ch. App., at pp. 467-468.

[7] (1871) 6 Ch. App., at pp. 467-468.

[8] (1878) 8 Ch. D. 616.

[9] (1874) L.R. 19 Eq. 60.

[10] (1871) 6 Ch. App., at p. 468.

[11] (1871) 6 Ch. App., at pp. 467-468.

[12] (1871) 6 Ch. App. 462.

[13] (1874) L.R. 19 Eq., at pp. 65-66.

[14] (1872) L.R. 15 Eq. 51, at p. 55.

High Court of Australia

Carson v Humphreys [1931] HCA 6; (1931) 44 CLR 480 (1 April 1931)

HIGH COURT OF AUSTRALIA