Yesterday the High Court handed down a decision overturning the
findings of the Victorian Court of Appeal in a case involving
competing priorities between a secured creditor's charge and a
liquidator's equitable lien on a fund.
We last reported on this case in April this year, following the
hearing of the appeal by the High Court on 6 March. For the full
background to the case, please
The issue considered by the Court of Appeal and High Court was
the application of the principle formulated in Re Universal
Distributing Co Ltd (In Liq) (1933) 48 CLR 171 that a
liquidator who incurs expenses in a winding up that pertain to the
preservation or realisation of assets is entitled to a first
ranking charge for those expenses against any fund thereby created
in priority to any other claimant including a secured creditor.
The Victorian Court of Appeal held that the appropriate test for
applying the principle was whether it would be unconscientious for
the secured creditor to recover the asset realised by the
liquidator under its charge in priority to the liquidator and, on
the facts and circumstances of the case, found the 'competing
equities' to be in favour of the secured creditor.
The High Court rejected the test applied by the Court of Appeal
and held that there was "no basis for excepting this case from
the application of the principle in Universal
The principle in Universal Distributing and the primacy
of a liquidator's lien have been reaffirmed. Accordingly,
liquidators can take comfort from this decision in that the
priority of a liquidator's lien over a fund for the expenses
incurred in preserving or realising that fund has not been
disturbed or qualified.
High Court Decision on Mistaken Payments Claims
Australian Financial Services and Leasing v Hills Industries
In our October 2013 newsletter we reported that Australian
Financial Services and Leasing Pty Limited (AFSL)
had being granted special leave to appeal to the High Court from
the 2012 decision of the NSW Court of Appeal.
To view The High Court To Rule On Restitution For Payments
Made Under A Mistake Of Fact publication please
Yesterday the High Court dismissed the appeal by AFSL.
AFSL was seeking to recover money it had paid to Hills
Industries Limited (Hills Industries) by mistake.
AFSL made the payment believing it was purchasing equipment which
it proposed to lease to one of its customers, Mr Skarzynski, under
an equipment finance arrangement. In fact there was no order for
equipment and Mr Skarzynski had provided AFSL with forged invoices
from Hills Industries. AFSL made the payment but received no goods.
Hills Industries had no knowledge of the invoices and believed that
the payment from AFSL was to discharge an existing debt that Mr
Skarzynski had to it.
This decision provides a thorough review of the law of
restitution (sometimes inaccurately called unjust enrichment) and
the defences to it. In this case the defence raised by Hills
Industries was that it had received the payment in good faith and
changed its position after applying the payment to discharge Mr
The High Court found that it would be inequitable to require
Hills Industries to repay the money.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Kemp Strang has received acknowledgements for the quality of
our work in the most recent editions of Chambers & Partners,
Best Lawyers and IFLR1000.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).