1514 ee ae Reiaice,, HIGH COURT v 34 FCR 280 ye 1 Fo Fett

1514 ee ae Reiaice,, HIGH COURT v 34 FCR 280 ye 1 Fo Fett - [1907] HCA 78 - HCA 1907 case summary — Zoe

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limit. It is not seriously contended that the debtor was, or h any prospect of being, able to pay this debt when it became dt i.e. when the amount was definitely ascertained, from his moneys. But, even if Phillipson had not been a creditor in the s sense of the term, and if the obligation to him had not debt strictly so called, it would still, in my opinion, be imp to apply the tests prescribed by secs. 107, 108, and 109 wit taking it into consideration. The words "as they become du require, as already pointed out, that some consideration sha given to the immediate future ; and, if it appears that the debto will not be able to pay a debt which will certainly become due i say, a month (such as the wages payable by Robertson for th month of July) by reason of an obligation already existing, an which may before that day exhaust all his available resources, ho can it be said that he is able to pay his debts "as they becor due," out of his own moneys ?
It was suggested, but the argument was not pressed, that t debtor's affairs should be regarded from the point of view of balance sheet of assets and liabilities. This is not what the Statut says. It has always been interpreted in Queensland to mean it says, and the only English reported case on the point, Zn 1 Washington Diamond Mining Co, (1), is to the same effect. question is not whether the debtor would be able, if time y given him, to pay his debts out of his assets, but whether h presently able to do so with moneys actually available. Then favourable construction that can be put on the words "his 0 moneys" is that they include any moneys of which the debto can obtain immediate command by sale or pledge of his assets. Applying these principles to the present case, it is clear that 0 7th July Robertson was not able to pay his debts as they became due from his own moneys. Apart from his obligation to P! son, the payments which he had to make during July were of su an amount that he probably would have been unable to pay th July wages in August without borrowing on the security of hi assets, as indeed proved to be the case. When the time came that payment he had no money in hand, and applied to the ap

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considered that certain transfers of property were frauds the bankruptcy law, though there was no statutory en: upon the subject. Then came the Bankrwptey Act of 1869, in that Act it was for the first time explained what was m by fraudulent preference, and the Act uses very definite langu Now what is the method which has been pursued by j decisions since? I think it is very unfortunate. I do not: that it has led to any wrong decision, but I think that it has h a tendency to draw one's mind away from the true questio The first thing which the Courts did was to discuss the qu tion whether the Act had altered the old law and introdueed a entirely new law, and they came to the conclusion that it had n altered the old law. Then began what I may call the old m¢ physical exploration of the motives of people. The Courts fi adopted a supposed verbal equivalent for the words of the St and then pursued the old inquiries as to what were thi tions which followed from the adoption of this verbal equiva And so we have been drawn into questions of pressure a volition, and at length in the present case we have got ii discussion as to what is the motive of a motive, whatever may mean. I think it is a wiser policy to go back, as I do, in humble spirit to the words of the Statute, and, without dis motives of motives, inquire whether the transaction was e1 into with a view to give the one creditor a preference over t others." 'This opinion amounts to a clear statement of f principles on which sec. 92 of the English Act of 1869 equivalent of which is sec. 107 of the Queensland Act of 187; I- is to be construed; and those principles are to be applied equal to secs. 108 and 109. I think the Chief Justice has, if I may a so, justly applied them. I have only toadd that, with refere the judgment in the action relating to the sale of the Kings I should have thought it more than doubtful whether the of the jury contained in that document could have been rij admitted as evidence against the appellants if objection had taken before Real J. But the whole document was admitted consent and was treated as evidence of all that it contained, an

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of 1869 which protects "a payee in good faith and for val consideration." That was succeeded by Tomkins v. Saffery involving the construction of the same section, which upheld adopted the law as laid down in Butcher v. Stead. Oairns LO, in the course of his judgment in Tomkins v. Sagfery (3) said: - " But are they to be taken as payees 'in good faith, within the meaning of this section? Of course I do not speak of good faith in a moral point of view. They may have believed the statement and I am willing to take it that they did believe the statement ¢ the bankrupt as to his having no other creditors. But are they payees in good faith according to the test which is laid down in this section, a test derived from the operation of the bankruptey" law? I take it that in order to give any meaning to the word 'in good faith' at the end of the section, your Lordships must hold those words to apply to the matters which are ment in the earlier part of the section. If you find a person recei ing a payment in complete ignorance of, or without any of getting information with regard to, the matters mentio! in the earlier part of the section, he may be a payee in g faith." Again, Lord Blackburn says (4) : - " It comes round to this, that I think (I am stating it in my own words, but it is very nea what the Lord Chancellor has already said) that when they k that the man was insolvent and unable to pay his debts, w they knew that this money was given them to prefer a particu body of creditors to all the other creditors, if there were oth they were then fixed with the knowledge of an infringement of the Statute, and although they were told by the man who after- wards became a bankrupt that he had no other creditors, thi cannot get gut of it; they took their chance. If he had told them the truth, and there had been in fact no other creditors, this trans action would have stood and been perfectly good ; if he had any other creditors it would not stand. They knew all that it was"2 2 ih ) Sapp Cass 218, (8) SABE Cae 8 aps

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railage, in all about £1,100, on the security of the book debts, apparently no one then thought of the Kingswear asa present ble means of raising money, even to pay the wages. s appears by schedule C the vessel was in fact held by ipson as security until Robertson's liability of £700 to him s paid. The only fair conclusion from these facts is, that hatever its actual value might ultimately be, it was as an diate money-raising asset worth nothing to Robertson, and ht to be excluded from commercial considerations on 8th July the purpose of paying his debts. The main question on this branch of the case is whether the sums of £700 and £968 11s. 11d. in respect of the Kingswear ity should be included amongst Robertson's debts on 8th ily within the meaning of sec. 108. If not, his debts on that date ould jbe reduced to £2,984 5s. 6d., and would be amply met by he book debts and the amount procurable from the bank on his ree assets, which together would exceed £3,000. If either of them is to be taken into account as a debt, the liabilities would exceed the power of the debtor to meet them. is necessary therefore to consider whether these two sums, or ther of them, ought to be included as debts on 8th July. is contended for the appellant that the sums, and particu- the sum of £968 11s. 11d., became debts only when Phillip- on obtained judgment, namely, 10th August 1905. The trial of ve action began 24th July, and ended on 10th August, and the idgment rested upon a finding of fraud inducing the contract, ind upon that finding the plaintiff obtained judgment rescinding

contract and ordering the defendant to pay £700 which had paid to him in terms of the contract " now rescinded," and also he further sum of £968 11s. 11d. already mentioned, with costs. Undoubtedly the Act in some sections recognizes a clear dis- nm between "debts" and " liabilities." It is quite clear, too, on authority, that Phillipson's claims were not, until after the judgment, debts that would have supported a tition for insolvency: La parte Charles (1); Ex parte Broad- (2); Jones v. Thompson (3). And the appellants' case is

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H.C. or A. that, where the Act in secs. 107, 108, and 109 speaks of a deb eee inability to pay his debts as they become due, it refers to liq Bank or dated sums which have or will certainly become payable. eae At first sight this contention has much force. But in Haw. - Poland (1) the words " any creditor" were restricted to ere Isaacs J. under the bankruptcy, being construed as was said by LJ., "in accordance with the circumstances to which the Act w intended to apply." Upon the same principle have been deei the cases of In r@ Paine; Ex parte Read (2), and in In ve Bla pool Motor Car Co. Ltd.; Hamilton v. Blackpool Motor Car Lid. (3), which determined quite clearly that the word " credit in sec. 48 of the English Bankruptey Act 1883 means any who at the date when the charge or payment is made is en if bankruptcy supervenes, to prove in the bankruptey under: 37, and share in the distribution of the bankrupt's estate. It was argued in regard to these two cases that the interpre tion they give to the word "creditor" is not sound law, and al that, even if it be well founded in law, it does not affect the me ing of the word "debts" in the earlier part of the sections. to the correctness of the decisions, I agree with the lea Judges who determined them that the history of the fraudul preference section shows that the word "creditor" in that ¢ nection must receive the signification they attach to it. The doctrine of fraudulent preference was rested by L Mansfield in 1768 in the case of Alderson v. Temple (4), fraud upon the law, and he said inter alia (5) : - "It is defe the equality that is introduced by the Statutes of bankrupt The judgment of Cockburn C.J., in Bills v. Smith (6), in 18t traces the decisions down to that time and takes the same v He says (7): - 'For, it must be borne in mind that the true que in all these cases is whether the intention with which the p ment was made was to defeat the operation of the bankrupt la It is this intention to act in fraud of the law which stamps t preference of the particular creditor, however morally eae i the character of fraud."

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e authorities apply directly to sec. 107, and in secs. 108 H. C. or A. 109 the same words must have the same meaning, because all eae ose sections are framed for the same object and levelled at the Baxx or ie thing, though with possibly different effect according to the AUS™ar4s!* ng circumstances. Han. But assuming the correctness of this construction of the word - jsaacsa. reditor," it was maintained by Mr. Feez that debts in these ections were only such as were debts in the strict sense and uld in their nature support a petition for insolvency. donot think this contention can be upheld. It would lead to nfusion of terms in the sections themselves. The enactments e to regulate the duties between the person who is called mly the debtor, and the persons who are with equal iiformity called his creditors. The moneys which are payable y him to them are called debts. Whatever meaning is properly tributable to "creditor" must, as it seems to me, correlatively y to "debtor," and therefore of necessity to debts. Reverting to the history of the fraudulent preference sections, I think can be distinctly discerned in the cases that the equality intro- by the Statute of Bankruptey referred to by Lord Mans- and the cardinal question in eases of this kind as to whether the debtor intended to defeat the operation of the bankruptcy ws, determined not merely the quality of the act impeached e he nature of the obligation affected. The same reasoning s to interpret both "debtor" and "creditor," and the indebted- if the one to the other. The section operates, it is true, only i the case of an adjudication of insolvency within six months, but sumes that the debtor is already insolvent in fact. 'There n be no valid reason for differentiating the relations of debtor litor, or the meanings of debtor and debt. extensive meanings to be given to such words in order to ite the objects of the legislature in relation to bankruptey well gathered from the cases of Hardy v. Fothergill (1), Flint v. Barnard (2). urning to the Act itself we find indications that distribution id discharge are the main objects aimed at by Parliament. The itl is: - "To provide for the distribution of the Estates

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of Insolvent Debtors amongst their creditors, and their re from their debts, and for the punishment of fraudulent deb and for other purposes." Here, then, we have the three words debtors, debts, creditors all used in correlation at the threshold of the Statut In see. 47 it is expressly provided that the debt of a petitio creditor must be a liquidated sum due at law or in equity, - appellants' argument would render this qualification unnei In sec. 140 there is no doubt of the extensive nature of debt provable in insolvency : Jack v. Kipping (1), following Pe Jones & Co, (2), as well as Ex parte Adamson ; In re Collie (3 show that damages, even though unliquidated, arising from debtor's fraudulent misrepresentation inducing the creditors enter into a contract with the debtor, are provable. The actu cause of the damage is entering into the contract, though the rig to be relieved from the loss would not exist but for the fraud, wh in such case is a violation of the debtor's obligation of good in relation to the contract, and therefore provable. In see. 152an some following sections under the head " Dividends" the "creditors" is obviously employed to denote all persons w have proved in the insolvency in respect of provable debts. they who are to be entitled to dividends in the distribution the estate. Secs. 173 and 174 provide for the insolvent's relea from all debts provable in insolvency with certain specif exceptions. In view of these provisions it appears to me that secs. 107, 1 and 109 are merely for the purpose of effectuating the mai objects of the Act as already mentioned. They must be read a construed with reference to those objects and as iustrun aid the ultimate intention of the legislature. So reading it appears to me impossible to separate the terms creditor, debt and debt, as Mr. Feez has invited us to do. v It may not be out of place to observe that the significa the word "debt" in relation to fraudulent preference ap have gradually extended. In Lord Mansfield's time only strictly so called were provable, and so were the only one8 s to the doctrine he is said to have originated. By the year 18

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sacrifice, in the circumstances in which he is placed? I feel able to accept that definition. The object of the section be borne in mind. As already indicated, it was not enacte the debtor's protection, for he, like every other man of sound and full age, may be left to make his own bargains, nor to e him to run risks with property already insuflicient to meet | liabilities. It was designed for the protection of the body of his creditors once he is in fact insolvent. It was nized by the legislature that such a man ought not to alter condition of his assets so far as either to appreciably lessen th in value or to render them more difficult to satisfy his eredito claims. Reading the words " reasonable and sufficient" with object in view, I think they mean what an honest and pi man in the position of an insolvent debtor, anxious to retrieve h position if possible, and yet careful not to lessen his present m of discharging his obligations in any way, would think are able and sufficient consideration. In other words " suffici means of substantially equal value, and "reasonable" means stantially as available for realization. The form of his pro, may be changed, but he may not materially diminish its capacit to satisfy his creditors' just demands. The section was intended to absolutely prevent one ere obtaining more than his just and proportionate share of insolvent debtor's property, whether by design or accident result of the transaction, instead of the contemplation, inte or purpose of the debtor being the test. If, then, the result the transaction be substituted for the debtor's contemplation bankrutcy, the case of Linton v. Bartlett (1) is much in poi There a bankrupt had given a preference to a creditor, and tl question was whether it was an act of bankruptey. The said : - *The deed and the transaction may have been very fair as between the parties; but in all these cases the object to attended to is, guo animo the transaction is done. Now single question is, whether a man shall be allowed to com fraud wpon the whole system of the laws concerning ba Y by giving a preference to one creditor in prejudice to the re Clearly he shall not."

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